R.H. DONNELLEY CORPORATION/R.H. DONNELLEY INC.

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DROVBxiIxTjhhdEHQd8HcZO+OrCYFyq7eMJxdz6hwnyhlrr+XZsNApd9Jt2F5gBu U5bmQIsZKohX9cqc2wL1jw== 0000950123-02-008078.txt : 20020814 0000950123-02-008078.hdr.sgml : 20020814 20020814182140 ACCESSION NUMBER: 0000950123-02-008078 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNELLEY R H INC CENTRAL INDEX KEY: 0001065310 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] IRS NUMBER: 362467635 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-59287 FILM NUMBER: 02738384 BUSINESS ADDRESS: STREET 1: 1 MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9149336400 MAIL ADDRESS: STREET 1: 1 MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 FILER: COMPANY DATA: COMPANY CONFORMED NAME: R H DONNELLEY CORP CENTRAL INDEX KEY: 0000030419 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ADVERTISING [7310] IRS NUMBER: 132740040 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07155 FILM NUMBER: 02738385 BUSINESS ADDRESS: STREET 1: ONE MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 9149336800 MAIL ADDRESS: STREET 1: ONE MANHATTANVILLE ROAD CITY: PURCHASE STATE: NY ZIP: 10577 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET COMPANIES INC DATE OF NAME CHANGE: 19790429 FORMER COMPANY: FORMER CONFORMED NAME: DUN & BRADSTREET CORP DATE OF NAME CHANGE: 19920703 10-Q 1 y62626e10vq.htm R.H. DONNELLEY CORPORATION/R.H. DONNELLEY INC. R.H. DONNELLEY CORPORATION/R.H. DONNELLEY INC.

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark one)


		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002


		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________________ to_____________________________

Commission file number 001-07155

R.H. DONNELLEY CORPORATION

(Exact name of registrant as specified in its charter)


Delaware		13-2740040

(State of Incorporation)		(I.R.S. Employer Identification No.)









One Manhattanville Road, Purchase N.Y		10577

(Address of principal executive offices)		(Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes XBOX No BOX

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Title of Class	Shares Outstanding at August 1, 2002
Common Stock, par value $1 per share		29,708,558

Commission file number 333-59287

R.H. DONNELLEY INC. *

(Exact name of registrant as specified in its charter)


Delaware		36-2467635

(State of Incorporation)		(I.R.S. Employer Identification No.)









One Manhattanville Road, Purchase N.Y		10577

(Address of principal executive offices)		(Zip Code)


Registrants’ telephone number, including area code		(914) 933-6400

• R.H. Donnelley Inc. is a wholly owned subsidiary of R.H. Donnelley Corporation. R.H. Donnelley Inc. meets the conditions set forth in General Instructions H 1(a) and (b) of Form 10-Q and is therefore filing this report with respect to R.H. Donnelley Inc. with the reduced disclosure format. R.H. Donnelley Inc. became subject to the filing requirements of Section 15(d) on October 1, 1998 in connection with the public offer and sale of its 9 1/8% Senior Subordinated Notes. As of August 1, 2002, 100 shares of R.H. Donnelley Inc. common stock, no par value, were outstanding.

TABLE OF CONTENTS


Part I. Financial Information
	Item 1. Financial Statemtments
		Consolidated Statements of Operations (Unaudited)
		Consolidated Balance Sheets (Unaudited)
		Consolidated Statements of Cash Flows (Unaudited)
		Notes to Consolidated Financial Statements (Unaudited)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosure About Market Risk
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
LIMITED LIABILITY COMPANY AGREEMENT
SALES AGENCY AGREEMENT
AGREEMENT FOR PUBLISHING SERVICES
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT FOR STEVEN M. BLONDY
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

R.H. DONNELLEY CORPORATION

INDEX TO FORM 10-Q


		PAGE

PART I. FINANCIAL INFORMATION




Item 1. Financial Statements (Unaudited)









	Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001		3









	Consolidated Balance Sheets at June 30, 2002 and December 31, 2001		4









	Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001		5









	Notes to Consolidated Financial Statements		6









Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			12









Item 3. Quantitative and Qualitative Disclosure About Market Risk			22









PART II. OTHER INFORMATION









Item 1. Legal Proceedings			23









Item 4. Submission of Matters to a Vote of Security Holders			23









Item 6. Exhibits and Reports on Form 8-K			24









SIGNATURES			29

R.H. Donnelley Corporation and Subsidiaries
Consolidated Statements of Operations (Unaudited)


			Three months ended						Six months ended
			June 30,						June 30,

(amounts in thousands, except per share data)			2002			2001			2002			2001

Gross revenue			$	19,593		$	20,342		$	38,047		$	39,532




Less: sales allowances				(137	)		(308	)		(202	)		(659	)

		Net revenue		19,456			20,034			37,845			38,873




Expenses




	Operating expenses			13,650			14,269			24,879			25,437




	General and administrative expenses			4,502			5,013			9,547			9,160




	Depreciation and amortization			1,557			2,755			3,164			5,640




	Restructuring and special charge			218			—			218			—

		Total expenses		19,927			22,037			37,808			40,237




Partnership and joint venture income				40,864			41,211			68,012			68,235

		Operating income		40,393			39,208			68,049			66,871




Interest income				60			270			171			1,546




Interest expense				(5,977	)		(6,498	)		(12,024	)		(14,300	)

		Income before income taxes and extraordinary loss		34,476			32,980			56,196			54,117




Provision for income taxes				13,273			12,368			21,635			20,294

		Income before extraordinary loss		21,203			20,612			34,561			33,823




Extraordinary loss, net of tax				34			—			210			348

		Net income	$	21,169		$	20,612		$	34,351		$	33,475

Earnings per share before extraordinary loss




		Basic	$	0.71		$	0.68		$	1.17		$	1.10

		Diluted	$	0.70		$	0.66		$	1.14		$	1.07

Earnings per share after extraordinary loss




		Basic	$	0.71		$	0.68		$	1.16		$	1.09

		Diluted	$	0.70		$	0.66		$	1.14		$	1.06

Shares used in computing earnings per share




		Basic
		29,692			30,519			29,573			30,696





		Diluted		30,415			31,465			30,265			31,580

Comprehensive Income:




Net income			$	21,169		$	20,612		$	34,351		$	33,475




Unrealized gain (loss) on interest rate swaps, net of tax				101			152			(1,561	)		(2,291	)





Comprehensive income			$	21,270		$	20,764		$	32,790		$	31,184

The accompanying notes are an integral part of the consolidated financial statements.

R.H. Donnelley Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)


					June 30,			December 31,
					2002			2001
(in thousands, except share and per share data)
				Assets




Current Assets




	Cash and cash equivalents				$	2,427		$	14,721




	Accounts receivable Trade					34,258			29,240




		Other				3,310			4,121




		Allowance for doubtful accounts and sales allowances				(5,899	)		(4,189	)

			Net accounts receivable			31,669			29,172




	Other current assets					846			2,275

			Total current assets			34,942			46,168




	Fixed assets and computer software – net					12,651			14,514




	Partnership and joint venture investments					203,825			208,989




	Prepaid pension					21,756			20,956




	Other non-current assets					7,718			7,504

			Total Assets		$	280,892		$	298,131

				Liabilities and Shareholders’ Deficit




Current Liabilities




	Accounts payable and accrued liabilities				$	22,220		$	22,368




	Restructuring and other related liabilities					5,547			16,357




	Accrued interest payable					3,399			5,163




	Current portion of long-term debt					2,632			2,846

			Total current liabilities			33,798			46,734




	Long-term debt					241,618			283,904




	Long-term restructuring liability					2,821			4,934




	Deferred income taxes – net					52,944			52,632




	Postretirement and postemployment benefits					7,269			7,431




	Other non-current liabilities					12,996			13,809




Commitments and contingencies




Shareholders’ Deficit




	Preferred stock, par value $1 per share, authorized –10,000,000 shares; outstanding – none					—			—




	Common stock, par value $1 per share, authorized – 400,000,000 shares; issued – 51,621,894 shares for 2002 and 2001, respectively					51,622			51,622




	Additional paid-in capital					39,131			32,043




	Unamortized restricted stock					(448	)		(336	)




	Retained earnings (deficit)					5,481			(28,870	)




	Treasury stock, at cost, 21,935,124 shares for 2002 and 22,231,910 shares for 2001					(164,779	)		(163,442	)




	Accumulated other comprehensive loss					(1,561	)		(2,330	)




			Total shareholders’ deficit			(70,554	)		(111,313	)

			Total Liabilities and Shareholders’ Deficit		$	280,892		$	298,131

The accompanying notes are an integral part of the consolidated financial statements.

R.H. Donnelley Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)


				Six months ended
				June 30,

(amounts in thousands)				2002			2001

Cash Flows from Operating Activities




Net income				$	34,351		$	33,475




Reconciliation of net income to net cash provided by operating activities:




		Extraordinary loss, net of tax			210			348




		Depreciation and amortization			3,164			5,640




		Deferred income tax			312			(500	)




		Provision for doubtful accounts			1,467			1,599




		Other noncash charges			762			662




		Cash in excess of partnership and joint venture income			5,164			9,148




		Increase in accounts receivable			(3,964	)		(1,543	)




		(Increase) decrease in other assets			(413	)		1,599




		Decrease in accounts payable and accrued liabilities			(12,638	)		(17,204	)




		(Decrease) increase in other non-current liabilities			(207	)		1,472

			Net cash provided by operating activities		28,208			34,696




Cash Flows from Investing Activities




Additions to fixed assets and computer software					(1,300	)		(1,952	)




Investment in ChinaBig.com Limited					—			(1,550	)

			Cash used in investing activities		(1,300	)		(3,502	)




Cash Flows from Financing Activities




Repayment of debt					(42,500	)		(50,000	)




Purchase of treasury stock					—			(32,538	)




Proceeds from employee stock option exercises					3,298			3,562

			Net cash used in financing activities		(39,202	)		(78,976	)





Decrease in cash and cash equivalents					(12,294	)		(47,782	)




Cash and cash equivalents, beginning of year					14,721			55,437





Cash and cash equivalents, end of period				$	2,427		$	7,655

Supplemental Information:




Cash used to pay:




	Interest			$	12,647		$	12,292

	Income taxes			$	16,566		$	21,867

The accompanying notes are an integral part of the consolidated financial statements.

R.H. Donnelley Corporation and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
(amounts in thousands, except per share data)

1. Basis of Presentation

The interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2001. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. Certain prior year amounts have been reclassified to conform to the current year’s presentation.

2. Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its direct and indirect wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. The financial statements of the DonTech Partnership (“DonTech”), a 50/50 perpetual partnership with an operating unit of SBC Communications Inc. (“SBC”), are not consolidated with our financial statements. See “Partnership and Joint Venture Accounting” below.

Partnership and Joint Venture Accounting. DonTech is accounted for under the equity method whereby we recognize our 50% share of the net income of DonTech as partnership and joint venture income. Partnership and joint venture income also includes revenue participation income from SBC and the priority distribution on our membership interest in CenDon LLC (“CenDon”), a joint venture with Centel Directory Company (“Centel”), a subsidiary of Sprint Corporation (“Sprint”). Revenue participation income and the priority distribution are tied to advertising sales and recognized when a sales contract is executed with a customer. Partnership and joint venture investments on the consolidated balance sheets include our 50% share of the net assets of DonTech, the revenue participation receivable and the priority distribution receivable.

Trade Receivables. Trade receivables represent sales commissions earned from the sale of advertising on behalf of Sprint and fees earned for pre-press publishing services. An allowance for doubtful accounts is recognized based upon historical experience and subject to contractual limitations. Receivables for sales commissions are billed to the publisher upon directory publication and collected in accordance with contractual provisions, typically in the same month of publication, but no later than nine months after publication. Receivables for pre-press publishing services are billed and collected in accordance with the terms of the applicable agreement, generally a monthly pro rata amount based on the annual contract value. If actual volumes exceed contracted volumes, an additional amount is billed to the publisher at year-end.

Investment Impairment. We have an 18% interest in ChinaBig.com (“ChinaBig”), which publishes yellow pages directories and offers Internet directory services in the People’s Republic of China. We account for this investment under the cost method and the carrying value of this investment is reflected as other non-current assets on the consolidated balance sheets. We evaluate the carrying value of this investment for impairment whenever events or changes in circumstances indicate that the carrying value may be impaired. Such events or changes in circumstance may include (i) a change in the extent or manner in which management intends to use the asset; (ii) a decrease in the market value of the asset; (iii) an independent valuation of the asset or similar type asset or (iv) a history of operating cash flow losses. If the investment is determined to be impaired, and such impairment is determined to be permanent, the carrying value would be written down to its fair value. As a quoted market price does not exist for this investment, fair value would be determined based other factors, including, but not limited to, an independent valuation, discounted cash flow analysis or a transaction in the marketplace involving a similar type investment.

Concentration of Credit Risk. We maintain significant receivable balances with SBC and Sprint for revenue

participation, priority distribution and sales commissions. We do not currently foresee a material credit risk associated with these receivables, although there can be no assurance that full payment will be received on a timely basis.

Income Taxes. We recognize deferred tax assets for items that will give rise to future tax deductions. A valuation allowance is established where expected future taxable income does not support the full realization of deferred tax assets.

3. Partnership and Joint Venture Income

Partnership and joint venture income for the three and six months ended June 30, 2002 and 2001 consisted of the following:


		Three months ended				Six months ended
		June 30,				June 30,

		2002		2001		2002		2001

Revenue participation income		$	29,882	$	29,992	$	49,300	$	50,165




50% share of DonTech net income			6,745		7,093		9,232		8,919

	Total DonTech income		36,627		37,085		58,532		59,084




Priority distribution income			4,237		4,126		9,480		9,151

Partnership and joint venture income		$	40,864	$	41,211	$	68,012	$	68,235

Summarized combined financial information of DonTech is shown in the table below.


	Three months ended				Six months ended
	June 30,				June 30,

	2002		2001		2002		2001

Net revenue	$	31,645	$	31,673	$	52,284	$	52,778




Operating income		13,468		14,093		18,597		17,654




Net income		13,489		14,185		18,464		17,838

Total assets of DonTech were $127,740 and $133,566 at June 30, 2002 and 2001, respectively.

4. Long-term Debt

Long-term debt at June 30, 2002 consisted of $94,250 outstanding under the Senior Secured Term Facilities (“Term Facilities”) and $150,000 Senior Subordinated 91/8% Notes. We also have a Senior Revolving Credit Facility (the “Revolver”), which allows us to borrow up to $100,000. There are no outstanding borrowings under the Revolver as of June 30, 2002. During the six month period ended June 30, 2002, we prepaid $42,500 of Term Facilities. In connection with the prepayments, we recorded an after-tax extraordinary loss of $210 relating to the write-off of related deferred financing costs.

5. Restructuring and Special Charge

In 2001, we recorded a restructuring and special charge of $18,556 in connection with executive management transition arrangements and restructuring actions, including the relocation and consolidation of real estate facilities and the elimination of approximately 100 positions associated with the expiration of a pre-press publishing contract during 2002. Activity in the restructuring and other related liability account through June 30, 2002 is presented in the table below. There were no layoffs related to the restructuring plan through June 30, 2002.


	Executive									Asset
	Management			Other			Facilities			Write-offs
	Transition			Severance			Related			and Other			Total

Restructuring and special charge	$	9,937		$	3,252		$	4,380		$	987		$	18,556




Reclass of related liabilities		2,735												2,735

Balance at January 1, 2002		12,672			3,252			4,380			987			21,291




*2002 activity*




Payments		(12,961	)		(79	)		(12	)		(89	)		(13,141	)




Current period expense (income)⁽¹⁾		289									(71	)		218

Balance at June 30, 2002	$	—		$	3,173		$	4,368		$	827		$	8,368

Short-term	$	—		$	2,849		$	1,932		$	766		$	5,547




Long-term					324			2,436			61			2,821

Total	$	—		$	3,173		$	4,368		$	827		$	8,368

(1) Represents amounts paid in excess of (lower than) the amounts originally provided for in the 2001 restructuring and special charge.

6. Earnings Per Share

The computation of basic and diluted earnings per share before extraordinary loss and from net income for the quarter and six months ended June 30, 2002 and 2001 was as follows:


			Three months ended						Six months ended
			June 30,						June 30,

			2002			2001			2002			2001

Income before extraordinary loss			$	21,203		$	20,612		$	34,561		$	33,823




Extraordinary loss, net of taxes				34			—			210			348





Net income			$	21,169		$	20,612		$	34,351		$	33,475

Weighted average shares of common stock outstanding




		Basic shares		29,692			30,519			29,573			30,696




		Dilutive effect of stock options		723			946			692			884





		Diluted shares		30,415			31,465			30,265			31,580

Earnings per share




	Basic




		Income before extraordinary loss	$	0.71		$	0.68		$	1.17		$	1.10




		Extraordinary loss, net of taxes		(0.00	)		(0.00	)		(0.01	)		(0.01	)





		Net income	$	0.71		$	0.68		$	1.16		$	1.09

	Diluted




		Income before extraordinary loss	$	0.70		$	0.66		$	1.14		$	1.07




		Extraordinary loss, net of taxes		(0.00	)		(0.00	)		(0.00	)		(0.01	)





		Net income	$	0.70		$	0.66		$	1.14		$	1.06

7. Business Segments

Our reportable operating segments are DonTech and Directory Advertising Services (“DAS”). We evaluate the performance of DonTech and DAS primarily based on operating income contribution. The DonTech segment includes revenue participation income and our 50% interest in the net profits of DonTech (see Note 3), but does not include an allocation of certain expenses incurred to support this business. Our DAS segment includes revenue and income from our sales agency and joint venture relationships with affiliates of Sprint, our pre-press publishing services operation and our information technology function, as well as an allocation of certain shared expenses based on estimated

business usage. General & Corporate represents overhead and administrative costs not allocated to the DAS business units. Interest expense, interest income, income tax expense and other non-operating items are not allocated to the operating segments. Segment information for the quarter and six months ended June 30, 2002 and 2001 is as follows:


			Directory
	DonTech		Advertising		General &						Consolidated
	Partnership		Services		Corporate			Other⁽¹⁾			Totals

Three Months Ended June 30, 2002




Net revenue		—	$	19,456		—			—		$	19,456




Operating income (loss)	$	36,627		7,810	$	(3,826	)	$	(218	)		40,393




Depreciation and amortization		—		1,486		71			—			1,557




EBITDA⁽²⁾		36,627		9,296		(3,755	)		(218	)		41,950




Total assets		187,783		42,141		50,968			—			280,892




Three Months Ended June 30, 2001




Net revenue		—	$	20,034		—			—		$	20,034




Operating income (loss)	$	37,085		6,069	$	(3,946	)		—			39,208




Depreciation and amortization		—		2,592		163			—			2,755




EBITDA⁽²⁾		37,085		8,661		(3,783	)		—			41,963




Total assets		194,790		42,940		78,318			—			316,048




Six Months Ended June 30, 2002




Net revenue		—	$	37,845		—			—		$	37,845




Operating income (loss)	$	58,532		17,585	$	(7,850	)	$	(218	)		68,049




Depreciation and amortization		—		3,017		147			—			3,164




EBITDA⁽²⁾		58,532		20,602		(7,703	)		(218	)		71,213




Six Months Ended June 30, 2001




Net revenue		—	$	38,873		—			—		$	38,873




Operating income (loss)	$	59,084		15,536	$	(7,749	)		—			66,871




Depreciation and amortization		—		5,246		394			—			5,640




EBITDA⁽²⁾		59,084		20,782		(7,355	)		—			72,511

(1) Represents expenses incurred in connection with the 2001 restructuring and special charge. These expenses were not originally anticipated and are therefore treated as a current period expense (see also Note 5).

(2) EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income or net income prepared in conformity with generally accepted accounting principles. In addition, EBITDA may not be comparable to similarly titled measures of other companies.

We also evaluate DonTech and DAS based on advertising sales because, while these sales do not appear on our financial statements or the financial statements of DonTech, they are a critical measure of performance reviewed by management and play an important role in management’s decision in allocating financial resources. For a discussion of advertising sales, see “Management’s Discussion and Analysis – Results of Operations.”

8. Litigation

Rockland Yellow Pages. In 1999, Sandy Goldberg, Dellwood Publishing, Inc. and Rockland Yellow Pages (as “plaintiffs”) initiated a lawsuit against the Company and Bell Atlantic Corporation (as “defendants”) in the United States District Court for the Southern District of New York. The Rockland Yellow Pages is a proprietary directory that competes against a Bell Atlantic directory in the same region, for which we served as Bell Atlantic’s advertising sales agent through June 30, 2000. The complaint alleged that the defendants disseminated false information concerning the Rockland Yellow Pages, which resulted in damages to the Rockland Yellow Pages. In May 2001, the District Court dismissed substantially all of plaintiffs’ claims, and in August 2001, the remaining claims were either withdrawn by the plaintiffs or dismissed by the District Court. The plaintiffs then filed a complaint against the same defendants in New York State Supreme Court, in Rockland County, alleging virtually the same state law tort claim previously dismissed by the District Court and seeking unspecified damages. In October 2001, defendants filed a motion to dismiss this complaint. On May 5, 2002, the Court granted defendants’ motion to dismiss the complaint. Plaintiffs have filed an appeal of this dismissal. Nonetheless, we presently do not believe that the final outcome of this matter will have a material adverse effect on our results of operations or financial condition.

Information Resources. In 1996, Information Resources, Inc. (“IRI”) filed a complaint in the United States District Court for the Southern District of New York, naming The Dun & Bradstreet Corporation (“D&B”), ACNielsen Company and IMS International Inc., at the time of the filing, all wholly owned subsidiaries of D&B, as defendants

(the “IRI Action”). IRI alleges, among other things, various violations of the antitrust laws, including alleged violations of Sections 1 and 2 of the Sherman Act. The complaint also alleges a claim of tortuous interference with a contract and a claim of tortuous interference with a prospective business relationship. These claims relate to the acquisition by defendants of Survey Research Group Limited (“SRG”). IRI alleges SRG violated an alleged agreement with IRI when it agreed to be acquired by the defendants and that the defendants induced SRG to breach that agreement. IRI is seeking damages in excess of $350,000, which amount IRI seeks to treble under antitrust laws. IRI is also seeking punitive damages of an unspecified amount. Under the definitive agreement entered into in connection with our separation from D&B in 1998 (the “Distribution Agreement”), D&B assumed the defense and agreed to indemnify us against any payments that we may be required to make, including related legal fees. As required by the Distribution Agreement, Moody’s Corporation, which subsequently separated from D&B, agreed to be jointly and severally liable with D&B for the indemnity obligation to us. At this stage in the proceedings, we are unable to predict the outcome of this matter. While no assurances can be provided, we currently believe that D&B and Moody’s have sufficient financial resources and borrowing capacity to reimburse us for any payments we make and related costs we incur.

Tax Matters. Certain tax planning strategies entered into by D&B are currently subject to review by tax authorities. As a result of the form of our separation from D&B, we are the corporate successor of, and technically the taxpayer referred to below as D&B. However, under the terms of the Distribution Agreement and the Tax Allocation Agreement with D&B, D&B agreed to assume the defense and to indemnify us for any tax liability that may be assessed and any related costs and expenses we incur. Also, as required by the Distribution Agreement, Moody’s Corporation is jointly and severally liable with D&B for the indemnity obligation to us. Under the terms of a series of agreements between D&B, IMS Health Incorporated (“IMS”) and Nielsen Media Research, Inc. (“NMR”) (both former subsidiaries of D&B), D&B is required to pay the first $137,000 of any tax liability and accrued interest assessed by the tax authorities with respect to certain tax matters (including those discussed in detail below), as well as other tax liabilities. Any amount in excess of $137,000 will be paid 50% by IMS and NMR jointly and severally and 50% by D&B.

In 2000, D&B filed an amended tax return with respect to the utilization of capital losses in 1989 and 1990 in response to a formal IRS assessment. The amended tax return reflected an additional $561,600 of tax and interest due. In 2000, D&B paid the IRS $349,300 while IMS (on behalf of itself and NMR) paid approximately $212,300. We understand that this payment was made under dispute in order to stop additional interest from accruing and that D&B is contesting the IRS’s formal assessment and would also contest the assessment of amounts, if any, in excess of the amounts paid, and that D&B has filed a petition for a refund in the United States District Court.

In connection with that IRS assessment and amended tax return, IMS has filed an arbitration proceeding against NMR claiming that NMR subsequently underpaid to IMS its proper allocation of the above-referenced tax liability under the agreements between NMR and IMS, to which neither D&B nor we are party. IMS has included us as a respondent in the arbitration proceeding so that if NMR prevails in its interpretation of the allocation computation, then IMS could apply that same interpretation of the allocation computation against us under its agreement with us (as successor to D&B). The arbitration panel has ruled that we are a proper party to the arbitration. As required by the Distribution Agreement and Tax Allocation Agreement, D&B and Moody’s are defending us in this arbitration proceeding at their cost and expense. If NMR prevails in the arbitration against IMS and in turn IMS prevails against us, we believe that our additional liability under this alternative interpretation of the allocation computation would be approximately $15,000 (a $60,000 gross claim offset by approximately $45,000 of tax benefit). While we believe that the original interpretation of the allocation computation is correct and the claims of IMS are without merit, if NMR prevails against IMS and in turn IMS prevails against us in this arbitration proceeding, D&B and Moody’s would be jointly and severally obligated to indemnify us against any such liability.

We believe that the fact that D&B and IMS have already paid the IRS a substantial amount of additional taxes with respect to the contested tax planning strategies significantly mitigates our risk. While no assurances can be given, we currently believe that D&B and Moody’s have sufficient financial resources and borrowing capacity to reimburse us for any payments we make and related costs we incur.

During the second quarter of 2002, D&B received a Notice of Proposed Adjustment from the IRS with respect to a transaction entered into in 1993. In this Notice, the IRS proposed to disallow certain royalty expense deductions claimed by D&B on its 1994, 1995 and 1996 tax returns. The IRS previously concluded an audit of this transaction for

taxable years 1993 and 1994 and did not disallow any similarly claimed deductions. We understand that D&B disagrees with the position taken by the IRS in its Notice and has filed a responsive brief to this effect with the IRS. If the IRS were to issue a formal assessment consistent with the Notice, then a payment of the disputed amounts would be required, if D&B opted to challenge the assessment in U.S. District Court rather than in U.S. Tax Court. In the event of such challenge by D&B, the required payment by D&B to the IRS would be up to $42,000 ($48,000 offset by $6,000 tax benefit). Again, as required by the Distribution Agreement and Tax Allocation Agreement, D&B and Moody’s are required to joint and severally indemnify us against any such liability.

No material amounts have been accrued in the consolidated financial statements for any of these matters.

Other matters. We are also involved in other legal proceedings, claims and litigation arising in the ordinary conduct of our business. Although there can be no assurances, we currently believe that the outcome of such legal proceedings will not have a material adverse effect on our results of operations or financial condition.

9. New Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board (“FASB”) issued FAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” This statement, among other things, changes the way gains and losses from the extinguishment of debt are reported. Previously, all gains and losses from the extinguishment of debt were required to be reported as an extraordinary item, net of related tax effect. Under FAS 145, gains and losses from the extinguishment of debt should be reported as part of on-going operations, unless the extinguishment of debt is both an unusual and infrequent event for the entity. Previously reported extraordinary gains and losses from the extinguishment of debt that are not unusual or infrequent should be reclassified. This Statement is effective for 2003. Upon adoption of this Statement, we will reclassify amounts previously reported as extraordinary losses to interest expense and tax expense. The adoption of this Statement will not impact our previously reported net income. Had we decided to adopt this Statement during the second quarter of 2002, reported interest expense for the six months ended June 30, 2002 and 2001 would have been $0.3 million and $0.5 million higher, respectively. Additionally, reported provision for income taxes for the six months ended June 30, 2002 and 2001 would have been $0.1 million and $0.2 million lower, respectively.

In June 2002, the FASB issued FAS 146, “Accounting for Costs Associated with Exit or Disposal Activities.” FAS 146 addresses the accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” This Statement is effective for 2003 and is to be applied prospectively.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

Certain statements contained in this Form 10-Q regarding R.H. Donnelley’s future operating results, performance, business plans or prospects and any other statements not constituting historical fact are “forward-looking statements” subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Where possible, words such as “believe,” “expect,” “anticipate,” “should,” “will,” “would,” “planned,” “estimated,” “potential,” “goal,” “outlook,” “could,” and similar expressions, are used to identify such forward-looking statements. All forward-looking statements reflect only our current beliefs and assumptions with respect to our future results, business plans, and prospects, and are based solely on information currently available to us. Accordingly, these statements are subject to significant risks and uncertainties and our actual results, business plans and prospects could differ significantly from those expressed in, or implied by, these statements. We caution readers not to place undue reliance on, and we undertake no obligation to update any forward-looking statements. Such risks and uncertainties include, without limitation, the following:

(1) Dependence on a Limited Number of Relationships
Our business consists primarily of two relationships; a perpetual partnership with SBC Communications Inc. (“SBC”) called DonTech; and two sales agency arrangements with Sprint Corporation (“Sprint”), which expire in 2004 and 2010. Due to the limited number of relationships, our business portfolio is not highly diversified and a material decline in the results of one relationship, especially our relationship with SBC, would likely have a material adverse effect on our overall operating results. No assurance can be given that we will be able to renew our existing Sprint sales agency or various pre-press publishing agreements as they expire or that we will be able to secure additional business to replace these contracts as they expire. Any such failure to renew or replace these contracts would likely have a material adverse effect on our financial condition and results of operations.

(2) Dependence on our Business Partners
DonTech is the exclusive sales agent for SBC’s yellow pages directories in certain markets and we are the exclusive sales agent for Sprint’s yellow pages directories in certain markets. SBC and Sprint are the publishers of these directories. As the exclusive sales agent, DonTech and we are responsible for the management of our respective sales forces, including compensation, recruiting, training and other sales related matters. As the publisher, SBC and Sprint have responsibility for and control over all other matters, including without limitation, product development, pricing, scheduling, marketing, distribution, billing, collections, credit and customer service. While we believe that DonTech’s and our economic interests are generally aligned with those of SBC and Sprint with respect to their yellow pages directory operations, SBC or Sprint could implement policies or decisions (in which DonTech or we would likely have little or no participation or influence), and/or perform their obligations in a manner that could have a material adverse effect on our results of operations or financial condition and, potentially, on our relationship with our business partners. DonTech and we are afforded certain protections under the respective agreements, which we believe could mitigate to a significant degree the adverse effects of such policy changes or decisions on us. However, we cannot give any assurances that such policy changes or decisions would not have a material adverse effect on our results of operations, financial condition or our relationship with our business partners. Lastly, we maintain large receivable balances from SBC and Sprint, and any liquidity difficulties that they may experience could materially impact our results of operations, financial condition and liquidity.

(3) Uncertainty Regarding Changes in the Industry
Our ability to diversify our business portfolio by providing sales agency, pre-press publishing or other services to SBC or Sprint in other markets or to other publishers in the industry may be impacted by uncertainties caused by consolidation within the telecommunications and independent yellow pages publishing industries or other changes. Also, most yellow pages directory publishers provide all sales and publishing functions internally, which could impact our ability to renew or obtain additional outsourcing business from our current publishers or offer our services to other yellow pages directory publishers. Our inability to diversify our business portfolio or expand the services we provide could negatively impact our ability to grow revenues and income and/or have a material adverse effect on our financial condition and results of operations. In addition, the effects of the Telecommunications Act of 1996 are still developing and the ultimate impact of those changes is still uncertain. The introduction of new products or technologies (including electronic delivery of directory information) by other companies and/or pricing pressures from competitors or customers could also adversely affect our results of operations and financial condition.

Sprint has publicly announced that it is considering divesting its directory publishing operations. We do not believe that any sale or change in control of the Sprint directory operations would have a material adverse effect on our results of operations or financial condition because we believe all of our contractual rights related to serving as sales agent in the Central Florida and CenDon markets would survive any such sale or change in control. In addition, our CenDon agreements specifically obligate Sprint (and any successor) to indemnify us against any material damages we suffer as a result of any changes in policies, practices and procedures from those in existence at the time of the restructuring of the CenDon relationship (June 30, 2000).

(4) General Economic Factors
Our business results could be adversely affected by the reversal or slow down of the modest economic recovery presently being experienced in the United States, especially with respect to the markets in which we operate. In addition, any residual economic effects of, and uncertainties regarding (i) the terrorist attacks that occurred on September 11, 2001, (ii) the general possibility or express threat of similar terrorist or other related disruptive events, or (iii) the future occurrence of similar terrorist or other related disruptive events, especially with respect to the major markets in which we operate that depend heavily upon travel and tourism, could also adversely affect our business.

(5) Use of Cash Flow
Our free cash flow may be used for some or all of the following: repay debt, repurchase outstanding common stock and/or pursue growth initiatives within our line of business and core competencies, whether through acquisitions, joint ventures, outsourcing opportunities or otherwise. Any share repurchases would be subject to market conditions and compliance with legal restrictions, as well as restrictions under our debt covenants. Growth initiatives, if pursued, would be subject to implementation, integration and other related risks. Any significant growth initiative would likely require the issuance of additional indebtedness and could involve the public or private sale of our equity securities and no assurance can be given that any proposed transaction would be accretive to earnings. We did not repurchase any common stock in the first half of 2002. We currently intend to apply excess cash to repay debt, while we evaluate certain growth opportunities within our line of business.

The Company

R.H. Donnelley Corporation is a leading independent marketer of yellow pages advertising services tailored for small and medium-sized businesses. Our business is organized into two reportable operating segments as of January 1, 2002, the DonTech Partnership (“DonTech”) and Directory Advertising Services (“DAS”). Unless otherwise indicated, the terms “Company,” “we,” “us” and “our” refer to R.H. Donnelley Corporation and its direct and indirect wholly owned subsidiaries. All tabular amounts are presented in millions of dollars.

DonTech
DonTech is a 50/50 perpetual partnership in which the Company and an operating unit of SBC are the partners. DonTech acts as the exclusive sales agent for yellow pages directories published by SBC in Illinois and northwest Indiana. DonTech sells advertising in SBC directories on behalf of SBC and receives a commission from SBC. Our income associated with DonTech is comprised of two components, our 50% interest in the net income of DonTech and revenue participation income received directly from SBC, which is based on a percentage of DonTech advertising sales. Income from DonTech accounts for a significant portion of our operating income and a material decline in the advertising sales of DonTech would likely have a material adverse effect on our results of operations and financial condition. We also provide certain pre-press publishing and billing services for SBC directories, as well as provide sales related computer applications to DonTech. The fees received for these services are included in our Directory Advertising Services (“DAS”) segment.

Directory Advertising Services
Within our DAS segment, we sell yellow pages advertising in Sprint directories on behalf of affiliated entities of Sprint, perform pre-press publishing and related services for yellow pages directories and include all information technology costs. We are the exclusive sales agent in the greater Orlando, Florida market (“Central Florida”) for a subsidiary of Sprint and the exclusive sales agent in certain Nevada, Florida, Virginia and North Carolina markets for CenDon LLC (“CenDon”), a joint venture with Centel Directory Company (“Centel”), another subsidiary of Sprint. Other Sprint affiliates sell yellow pages advertising in other markets in these states. We receive sales commissions on all advertising we sell for Sprint and CenDon and a priority distribution on our membership interest in CenDon (“priority

distribution”), which is based on a percentage of CenDon advertising sales. A material decline in the advertising sales of our Sprint operation could have a material adverse effect on our results of operations and financial condition. Our Central Florida sales agency relationship extends through 2004 and our CenDon sales agency relationship extends through 2010.

In 2000, we extended our agreements with CenDon until 2010. They were originally set to expire in 2004. The priority distribution was designed to allow us to maintain the same level of profitability that we would have earned under the predecessor CenDon Partnership through its scheduled expiration date in 2004. Under the new agreements, total payments we receive from CenDon (sales commission plus priority distribution) are expected to average approximately 37% of CenDon advertising sales through 2004. Starting with sales into 2005 directories, we will not receive a priority distribution. However, as part of the restructured arrangement, we will receive a supplemental sales commission for sales into 2005 through 2007 directories. Total payments from CenDon (sales commission plus supplemental sales commission) in 2005 are expected to be approximately 35% of CenDon advertising sales and are expected to decline 4 percentage points per year through 2007. For sales into 2008 – 2010 publications, we will receive our base 23% commission on CenDon advertising sales.

We also provide pre-press publishing services under separately negotiated contracts for the yellow pages directories of Sprint (through 2003) and SBC (through 2008) for which we and DonTech sell advertising, as well as for an unaffiliated third party publisher (through 2002). At the end of 2002, the pre-press publishing agreement with this unaffiliated publisher will expire. As a result of the restructuring actions announced in 2001, the expiration of this contract will not have a material adverse effect on our results of operations or financial condition in the future. We intend to pursue negotiations with Sprint to extend the current pre-press publishing agreement set to expire in 2003, although no assurance can be given that we will be able to extend this contract.

Our ability to provide sales agency, pre-press publishing or other services to SBC or Sprint in other markets or to other publishers in the industry may be impacted by uncertainties caused by consolidation within the telecommunications and independent yellow pages publishing industries or other changes. Also, most yellow pages directory publishers provide all sales and publishing functions internally, which could impact our ability to renew or obtain additional outsourcing business from our current publishers or offer our services to other yellow pages directory publishers. Our inability to expand the services we provide could negatively impact our ability to grow revenues and income and/or have a material adverse effect on our financial condition and results of operations. In addition, the effects of the Telecommunications Act of 1996 are still developing and the ultimate impact of those changes is still uncertain. See also “ – Forward Looking Information – Dependence on a Limited Number of Relationships and – Uncertainty Regarding Changes in the Industry” above.

Critical Accounting Policies

Certain amounts in our financial statements require that management makes assumptions and estimates based on the best available information at that time. Actual results could vary from these estimates and assumptions. Those accounting policies that involve assumptions or estimates on our part that could have a material effect on our results of operations or financial condition if the actual results differ from our assumptions or estimates are as follows:

Revenue Recognition. We earn revenue in the form of commissions from the sale of advertising on behalf of Sprint and fees from our pre-press publishing services. As a sales agent for Sprint, we recognize sales commission revenue at the time an advertising contract is executed with a customer. Sales commission revenue is recorded net of potential sales allowances, which are estimated, based on historical experience. If an advertiser is not satisfied with its yellow page advertisement (i.e. misspelled business name, incorrect business address or number, etc.), the publisher may, at its discretion, adjust the contract value. Since we earn commissions based on the aggregate value of advertising contracts, our commissions would also be adjusted under those circumstances. Concurrent with the recognition of sales commission revenue, we also recognize a sales allowance of approximately 1% of sales commission revenue, based on historical experience. The amount of sales allowance recognized is subsequently adjusted based on actual results. Historically, the actual amount of sales allowances has been consistent with our estimates and significant adjustments have not been made. Revenue from pre-press publishing operations is recognized as services are performed. We recognize no allowances for pre-press publishing services.

experience and subject to contractual limitations. Our exposure to bad debt is capped under the sales agency agreement with CenDon. We record our bad debt allowance for CenDon sales based on the cap rate since the actual rate of bad debts has exceeded the capped rate for the last three years. An increase in the actual bad debt rate will not have any direct impact on our financial condition or results of operations. Under the Central Florida sales agency agreement, our exposure to bad debts is not capped and we estimate our bad debt allowance based on historical experience. This amount is subject to adjustment based on actual results. On an annualized basis, a 1% increase in actual bad debts with respect to Central Florida over the amount originally provided for would increase our consolidated expenses approximately $0.1 million. Historically, actual bad debts on these receivables have been consistent with our estimates and significant adjustments have not been made.

Receivables for sales commissions are billed to the publisher upon directory publication and collected in accordance with contractual provisions, typically in the same month of publication, but no later than nine months after publication. Receivables for pre-press publishing services are billed and collected in accordance with the terms of the applicable agreement, generally a monthly pro rata amount based on the annual contract value. If actual volumes exceed contracted volumes, an additional amount is billed to the publisher at year-end.

Concentration of Credit Risk. We maintain significant receivable balances with SBC and Sprint for revenue participation, priority distribution and sales commissions. We do not currently foresee a material credit risk associated with these receivables based on SBC and Sprint’s past payment history and strong cash flows from their respective directory operations. However, there can be no assurance that full payment will continue to be received on a timely basis.

See Note 2 to the Consolidated Financial Statements for additional information on our accounting policies.

New Accounting Pronouncements

respectively. Additionally, reported provision for income taxes for the six months ended June 30, 2002 and 2001 would have been $0.1 million and $0.2 million lower, respectively.

RESULTS OF OPERATIONS
Three and six months ended June 30, 2002 and 2001

Net Revenue

Revenue is derived entirely from our DAS segment. As a sales agent for Sprint, we earn commission revenue based on the annual billing value of advertisements sold for Sprint directories in the period (“Sprint calendar sales”). We record our sales commission revenue net of an estimated amount for our share of credits Sprint may give customers for errors. We also earn revenue from our pre-press publishing services.

The amount of commission revenue we earn is directly correlated to Sprint calendar sales recorded during the period. We manage our selling process on a directory by directory basis. We organize each directory into a sales campaign. A typical sales campaign begins approximately six to eight months before a directory is published and ends approximately two months before the directory is published. Therefore, changes in directory publication dates, the beginning and ending dates of a sales campaign and the actual sales recorded at any point during the campaign can vary from one period to the next. These variations can cause sales commissions earned in the period (net revenue) to be materially different from net revenue earned in a prior comparative period.

Net revenue detail for the quarter and six months ended June 30, 2002 and 2001 was as follows:


		2002			2001			$ Change			% Change

*Quarter ended June 30,*




Sales commissions		$	12.3		$	12.4		$	(0.1	)		(0.8	)%




Less: sales allowances			(0.1	)		(0.3	)		0.2			66.7	%

Net sales commissions			12.2			12.1			0.1			0.8	%




Pre-press publishing			7.3			7.9			(0.6	)		(7.6	)%

	Net revenue	$	19.5		$	20.0		$	(0.5	)		(2.5	)%

*Six months ended June 30,*




Sales commissions		$	22.1		$	22.7		$	(0.6	)		(2.6	)%




Less: sales allowances			(0.2	)		(0.6	)		0.4			66.7	%

Net sales commissions			21.9			22.1			(0.2	)		(0.9	)%




Pre-press publishing			15.9			16.8			(0.9	)		(5.4	)%

	Net revenue	$	37.8		$	38.9		$	(1.1	)		(2.8	)%

Net revenue was $19.5 million and $37.8 million for the quarter and six months ended June 30, 2002, respectively, compared to $20.0 million and $38.9 million for the quarter and six months ended June 30, 2001. Commission revenue was slightly lower for the quarter and year-to-date 2002 periods compared to the corresponding 2001 periods as Sprint calendar sales (on which we earn commission revenue) during these periods were also lower. The decrease in Sprint calendar sales was due to poor economic conditions during the first half of the year and the timing of sales campaigns relative to 2001. During 2002, certain earlier sales campaigns were extended in order to provide an opportunity for increased sales causing the start of other campaigns to be delayed. Additionally, the economic conditions during the first half of the year resulted in advertisers reducing the level of advertising spending, deciding not to advertise or not being allowed to continue to advertise under Sprint’s credit policy due to payment delinquency. Sales allowances for the quarter and six-month period were lower than the prior year as sales allowances provided for

certain sales in 2001 (and subsequently reversed in September 2001) are no longer required to be provided for.

Pre-press publishing revenue was lower for the quarter and six-month period due to anticipated declines in volume. As a result of the pending expiration of the third party pre-press publishing contract in December 2002, the level of services provided is winding down, as preparatory services are not being provided for 2003 publications.

The table below sets forth the sales that we sold on behalf of Sprint and the sales that DonTech sold on behalf of SBC during the periods noted. DonTech manages its selling process in a similar manner as we manage our selling process. Accordingly, DonTech calendar sales (sales recorded by DonTech on behalf of SBC during the period) can vary from one period to the next due to changes in directory publication dates, the beginning and ending dates of a sales campaign and the actual sales recorded at any point during the campaign. Our commission revenue and priority distribution income (reported as partnership and joint venture income) from Sprint are directly correlated to the amount of Sprint calendar sales recorded in the period and our revenue participation income from SBC (reported as partnership and joint venture income) is directly correlated to the amount of DonTech calendar sales recorded in the period. Therefore, a material change in DonTech calendar sales or Sprint calendar sales would have a material effect on our results of operations and financial condition.


		2002		2001		$ Change			% Change

*Quarter ended June 30,*




DonTech		$	125.2	$	125.2		—			—




DAS			53.0		53.3	$	(0.3	)		(0.6	)%

	Total	$	178.2	$	178.5	$	(0.3	)		(0.2	)%

*Six months ended June 30,*




DonTech		$	207.1	$	208.7	$	(1.6	)		(0.8	)%




DAS			95.6		98.2		(2.6	)		(2.6	)

	Total	$	302.7	$	306.9	$	(4.2	)		(1.4	)%

See above for an explanation for the changes in Sprint calendar sales during the applicable period and “– Partnership and Joint Venture Income” below for an explanation of the changes in DonTech calendar sales during the applicable period. We followed an aggressive sales campaign schedule during last year’s third quarter which we will not follow during this year’s third quarter. As a result, we expect DonTech and Sprint calendar sales for this year’s third quarter to be lower than last year’s third quarter and accordingly, also expect revenue and partnership and joint venture income to be lower than last year’s third quarter. However, we expect that fourth quarter 2002 results will show corresponding increases over the fourth quarter 2001 results.

Management also reviews and analyzes the value of advertising sales sold on behalf of SBC and Sprint in directories that published during the period (“publication sales”). A comparison of publication sales from one period to another gives an indication of underlying sales growth in the directories for which DonTech and we sell advertising. We review publication sales for the period against publication sales for the same directories published in the prior year period (a “same store sales” type metric). Management considers this metric a lagging indicator of our sales performance. This metric also removes all the timing issues associated with a sales campaign. However, publication sales do not have a direct correlation to our reported revenue or profitability in the indicated period as most, if not all, of these sales were consummated and reported in prior periods.

If the directories that published in the current period are not consistent with the directories published in the comparable prior year period, we adjust the prior year period to include those directories that published during the current year period. A DonTech directory originally scheduled to publish in February 2002 was published in December 2001. To conform to the 2002 publication schedule, publication sales for the six months ended June 30, 2001 were adjusted to remove the value of the February 2001 directory ($28.3 million). Publication sales for the three and six months ended June 30, 2002 and 2001 were as follows:


		2002		2001		$ Change			% Change

*Quarter ended June 30,*




DonTech		$	90.6	$	89.5	$	1.1			1.2	%




DAS			27.8		28.9		(1.1	)		(3.8	)

	Total	$	118.4	$	118.4		—			—

*Six months ended June 30,*




DonTech		$	184.7	$	194.8	$	(10.1	)		(5.2	)%




DAS			75.1		80.5		(5.4	)		(6.7	)

	Total	$	259.8	$	275.3	$	(15.5	)		(5.6	)%

The decline of $15.5 million, or 5.6% in the six months ended June 30, 2002 compared to the six months ended June 30, 2001 was primarily due to declines in SBC’s Chicago Consumer directory ($12.4 million) and Sprint’s January Las Vegas directory ($3.9 million). The advertisements in these directories were sold during the latter half of 2001 and were impacted by deteriorating economic conditions and increased uncertainty among advertisers.

Partnership and Joint Venture Income

We earn a significant amount of our operating income from our DonTech operation and our CenDon relationship and recognize the income from these sources as partnership and joint venture income. Partnership and joint venture income (“partnership income”) from DonTech includes our share of the net income of DonTech (accounted for under the equity method) and revenue participation income from SBC. As a sales agent for SBC, DonTech earns commission revenue based on the annual billing value of advertisements sold for SBC directories in the period (“DonTech calendar sales”). DonTech’s net income (of which we recognize 50%) is dependent on DonTech calendar sales. Additionally, our revenue participation income is directly correlated to the amount of DonTech calendar sales in the period. Partnership income from our CenDon relationship consists of the priority distribution on our membership interest in CenDon LLC. Partnership income for the quarter and six months ended June 30, 2002 and 2001 was as follows:


		2002		2001		$ Change			% Change

*Quarter ended June 30,*




DonTech




	Revenue participation	$	29.9	$	30.0	$	(0.1	)		(0.3	)%




	Equity income share		6.7		7.1		(0.4	)		(5.6	)

Total DonTech			36.6		37.1		(0.5	)		(1.3	)




CenDon priority distribution			4.3		4.1		0.2			4.9

	Total	$	40.9	$	41.2	$	(0.3	)		(0.7	)%

*Six months ended June 30,*




DonTech




	Revenue participation	$	49.3	$	50.2	$	(0.9	)		(1.8	)%




	Equity income share		9.2		8.9		0.3			3.4

Total DonTech			58.5		59.1		(0.6	)		(1.0	)




CenDon priority distribution			9.5		9.1		0.4			4.4

	Total	$	68.0	$	68.2	$	(0.2	)		(0.3	)%

Partnership income was $40.9 million and $68.0 million for the quarter and six months ended June 30, 2002, respectively, compared to $41.2 million and $68.2 million for the quarter and six months ended June 30, 2001. Our share of DonTech’s net profit for the quarter was slightly lower than last year primarily due to the timing of partnership expenses. For the six-month period, partnership income from DonTech was lower due to a decline in revenue participation income caused by lower DonTech calendar sales (see “Net Revenue” above for the amount of DonTech calendar sales) as advertisers remain cautious in the current economic environment and are buying smaller advertising programs than they have typically purchased in prior years. This decline in revenue participation income was partially offset by higher equity income as a result of partnership expense savings in 2002.

CenDon priority distribution income increased in the quarter and six-month period as a result of a contractual increase in the priority distribution rate for 2002 more than offsetting the negative effect of lower calendar sales (see “Net Revenue” above for a discussion of Sprint calendar sales).

Expenses

Expenses were as follows:


		2002		2001		$ Change			% Change

*Quarter ended June 30,*




Operating expenses		$	13.6	$	14.3	$	(0.7	)		(4.9	)%




G&A expense			4.5		5.0		(0.5	)		(10.0	)




D&A expense			1.6		2.7		(1.1	)		(40.7	)




Restructuring and special charge			0.2		—		0.2			n/m

	Total	$	19.9	$	22.0	$	(2.1	)		(9.5	)%

*Six months ended June 30,*




Operating expenses		$	24.9	$	25.4	$	(0.5	)		(2.0	)%




G&A expense			9.5		9.2		0.3			3.3




D&A expense			3.2		5.6		(2.4	)		(42.9	)




Restructuring and special charge			0.2		—		0.2			n/m

	Total	$	37.8	$	40.2	$	(2.4	)		(6.0	)%

Operating expenses were $13.6 million and $24.9 million for the quarter and six months ended June 30, 2002, respectively, compared to $14.3 million and $25.4 million for the quarter and six months ended June 30, 2001. The decrease in the quarter and six-month period was primarily due to one-time costs incurred in 2001 of $0.7 million for our share of potential losses related to prior CenDon Partnership receivable write-offs in excess of amounts provided for by the Partnership.

General and administrative expenses were $4.5 million and $9.5 million for the quarter and six months ended June 30, 2002, respectively, compared to $5.0 million and $9.2 million for the quarter and six months ended June 30, 2001. The decrease in general and administrative expenses in the quarter was principally due to lower consulting costs. The increase in general and administrative expenses for the year-to-date period was primarily due to relocation costs in connection with the executive management transition ($0.4 million) and higher payroll taxes and employee benefit costs ($0.4 million) partially offset by lower consulting costs ($0.5 million).

Depreciation and amortization expense was $1.6 million and $3.2 million for the quarter and six months ended June 30, 2002, respectively, compared to $2.7 million and $5.6 million for the quarter and six months ended June 30, 2001. The decrease in the quarter and year-to-date periods was primarily due to the original investment in the Raleigh Information Center being fully depreciated by the end of 2001.

In the second quarter 2002, additional expenses of $0.2 million were incurred in connection with our executive management transition and restructuring plan announced at the end of 2001. Certain amounts included in the 2001 restructuring and special charge were estimates made by management based on the best information available at the time. Actual amounts paid can differ from these estimates and these differences are recognized as current period expense or income. The $0.2 million of expense represents the net of $0.3 million of retirement benefits paid in connection with the executive management transition over the amount originally reserved for offset by the reversal of $0.1 million for professional fees, as the actual amount of fees paid was less than the amount originally reserved.

Operating Income

Operating income for DonTech includes our 50% interest in the net income of DonTech and revenue participation income, but does not include an allocation of certain general and administrative expenses incurred to support this business. Operating income for DAS includes the operating results of each of the included business units, less an allocation of certain shared expenses based on estimated business usage. General & Corporate represents overhead and administrative costs not allocated to the DAS business units. Operating income by segment was as follows:


		2002			2001			$ Change			% Change

*Quarter ended June 30,*




DonTech		$	36.6		$	37.1		$	(0.5	)		(1.3	)%




DAS			7.8			6.0			1.8			30.0




General & Corporate			(3.8	)		(3.9	)		0.1			2.6

	Segment Operating Income		40.6			39.2			1.4			3.6




Restructuring and special charge			(0.2	)		—			(0.2	)		n/m

	Total	$	40.4		$	39.2		$	1.2			3.1	%

*Six months ended June 30,*




DonTech		$	58.5		$	59.1		$	(0.6	)		(1.0	)%




DAS			17.6			15.5			2.1			13.5




General & Corporate			(7.8	)		(7.7	)		(0.1	)		(1.3	)

	Segment Operating Income		68.3			66.9			1.6			2.4




Restructuring and special charge			(0.2	)		—			(0.2	)		n/m

	Total	$	68.1		$	66.9		$	1.4			2.1	%

Operating income was $40.4 million and $68.1 million for the quarter and six months ended June 30, 2002, respectively, compared to $39.2 million and $66.9 million for the quarter and six months ended June 30, 2001. The increase in operating income for the quarter and six-month periods was primarily driven by higher DAS operating income partially offset by lower operating income from DonTech. See “Partnership and Joint Venture Income” above for an explanation of the decrease in DonTech operating income. For the quarter, DAS operating income increased $1.8 million primarily due to lower depreciation and amortization expense of $1.1 million as the investment in the Raleigh Information Center was fully depreciated by the end of 2001 and the one-time costs of $0.7 million in 2001 for our share of potential losses related to prior CenDon Partnership receivable write-offs in excess of amounts provided for by the Partnership. DAS operating income for the six-month period increased $2.1 million due to lower depreciation and amortization expense of $2.2 million and the one-time costs associated with prior CenDon Partnership matters, partially offset by the $0.9 million decline in publishing revenue resulting from lower volumes.

Interest and Taxes

Net interest expense was $5.9 million and $11.9 million for the quarter and six months ended June 30, 2002, respectively, compared to $6.2 million and $12.8 million for the quarter and six months ended June 30, 2001. The quarter and year-to-date decrease in 2002 was primarily due to lower average outstanding debt levels as we continue to use excess cash to prepay our debt.

The effective tax rate for the quarter and six months ended June 30, 2002 was 38.5% compared to 37.5% for the quarter and six months ended June 30, 2001. The increase in the effective tax rate was due to changes in state apportionment factors.

Extraordinary Loss

In the second quarter of 2002, we prepaid $7.5 million of debt and through the first six months of 2002, we prepaid $42.5 million of debt. The extraordinary loss recognized in the quarter and six-month period related to the write-off of related deferred financing costs. The extraordinary loss had no impact on diluted earnings per share for the quarter or year-to-date periods in 2002.

Net Income and Earnings Per Share

Net income for the second quarter 2002 was $21.2 million, or $0.70 per diluted share compared to net income of $20.6 million, or $0.66 per diluted share for the second quarter 2001. For the six month period ended June 30, 2002, net income was $34.4 million, or $1.14 per diluted share compared to net income of $33.5 million, or $1.06 per diluted share for the six months ended June 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

Our primary source of liquidity is cash flows from operations. Additionally, at June 30, 2002, we had available $100 million under our $100 million Senior Revolving Credit Facility (the “Revolver”). We believe that cash flows generated from operations and the available borrowing capacity under the Revolver will be sufficient to fund our operations and meet our obligations to our employees, vendors and creditors for at least the next 12 to 24 months. Our sources of cash flow are primarily from revenue participation, priority distribution and sales commission payments

received from SBC and Sprint. These payments are all directly dependent on the value of advertising sold and can be impacted by, among other factors, competition in our markets, general economic conditions and the level of demand for yellow pages advertising. Management believes that if advertising sales were to decline by 10%, cash flow from operations, together with the available borrowing capacity under the Revolver, would still be sufficient to fund our operations and meet our obligations to our employees, vendors and creditors for at least the next 12 to 24 months. See “Forward-Looking Information – Use of Cash Flow.”

In addition, as the publisher of the respective directories, Sprint and SBC are responsible for and consequently control many of the critical functions and decisions that can impact our results and the results of DonTech. While it has not historically been the case, their respective policies, decisions and performance of their respective obligations in these areas, in which we have little or no participation or influence, could have a material adverse effect on our results of operations or financial condition. See “Forward-Looking Information – Dependence on our Business Partners.”

During the first six months of 2002, we generated $28.2 million of cash flow from operations compared to $34.7 million during the first six months of 2001. The decrease of $6.5 million was primarily due to the net effect of payments of $13.1 million related to the restructuring and special charge recorded in 2001 (see Note 5 in Item 1 “Financial Statements”) and $4.0 million less in cash received from partnerships and joint ventures. Cash received from partnerships and joint ventures in 2001 included $6.3 million from the CenDon Partnership as the partnership continued to collect its receivables and distribute cash to the partners. There were no cash distributions from the CenDon Partnership received in 2002. These decreases were partially offset by lower tax payments of $5.3 million due to timing and payments of $5.2 million in 2001 for severance and other costs related to the disposition of the Bell Atlantic, Cincinnati and Get Digital Smart businesses in 2000. We expect cash outflows related to our 2001 restructuring and special charge to be approximately $1.0 million to $1.5 million for the remainder of the year, mainly relating to the idle leased space in the Raleigh facility and severance. The majority of the announced layoffs related to the expiration of the pre-press publishing contract will occur in the fourth quarter. There are no payments remaining for the executive management transition.

Cash used in investing activities for the first half of 2002 was $1.3 million, which consisted of fixed assets and computer software purchases. Cash used in investing activities for the prior year period was $3.5 million, which included a $1.6 million investment in ChinaBig in accordance with our contractual obligations. This payment represented our final required investment in ChinaBig. We currently have no material commitments for investment spending or capital expenditures.

Net cash used in financing activities was $39.2 million for the first half of 2002 compared to $79.0 million in the first half of 2001. The decrease in cash used for financing activities is primarily due to the repurchase of $32.5 million of our common stock during the first half of 2001 compared to no repurchases of our common stock during the first half of 2002. As previously reported, certain telecommunications companies have publicly announced their intent to consider or explore divesting their respective directory publishing operations. We intend to carefully evaluate these potential growth opportunities within our line of business. During our evaluation of these opportunities, we have suspended our share repurchase programs and currently intend to apply excess cash flow to repay debt. See “Forward Looking Information — Use of Cash Flow.”

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Risk Management

We borrow funds under our Senior Secured Term Facilities (“Term Facilities”) and Revolver at prevailing short-term rates. To mitigate our exposure to fluctuating short-term interest rates, we have an outstanding interest rate swap with a notional value of $75 million whereby we pay a fixed rate and receive a variable rate based on 3-month LIBOR. In June 2002, an interest rate swap with a notional value of $50 million expired and due to the reduced level of indebtedness, we did not, nor do we presently intend to replace the interest rate swap.

The outstanding interest rate swap exposes us to credit risk in the event that we are in a net gain position and the counterparty to the agreement does not, or can not meet their obligation. The notional amount is used to measure interest to be paid or received and does not represent the amount of exposure to credit loss. The loss would be limited to the amount that would have been received, if any, over the remaining life of the swap agreement. At June 30, 2002, we were in a net loss position (see “Market Risk Sensitive Instruments” below), and therefore, were not exposed to credit risk. The counterparty to the swap is a major financial institution and, had we been in a net gain position, we would expect this counterparty to be able to perform its obligations under the swap. We use derivative financial instruments for hedging purposes only and not for trading or speculative purposes.

Market Risk Sensitive Instruments

The interest rate swap has been designated as a cash flow hedge. In accordance with FAS 133, the fair value of the swap is recognized in other comprehensive income, a component of shareholders’ equity. The fair value of the swap was based on quoted market prices. At June 30, 2002, the unrealized fair value, which is the difference between what we would have to pay to terminate the swap, and the book value of the swap, was a loss of $2.5 million ($1.6 million, after tax). This loss was recognized in the consolidated balance sheet as other non-current liabilities and accumulated other comprehensive loss, a component of shareholders’ deficit.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to the discussion of legal proceedings under Item 3 of Part I in our Annual Report on Form 10-K for the year ended December 31, 2001 (“10-K”). As of June 30, 2002, there have been no material changes in the information with respect to legal proceedings from that set forth in the 10-K. See also Note 8 of the Notes to the Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

We are also involved in certain legal proceedings incidental to the normal conduct of our business. Although there can be no assurances, we presently believe that the outcome of such legal proceedings will not have a material adverse effect on our results of operations or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders

Our Annual Meeting of Stockholders (“Meeting”) was held in White Plains, N.Y. on May 1, 2002. At the Meeting, the Company’s stockholders elected the two Class III Directors nominated for election by the Board of Directors to serve three-year terms as follows:


			Votes
Name	Votes For		Withheld

Peter J. McDonald		26,435,287		296,095




Frank R. Noonan		26,556,024		175,358

William G. Jacobi did not stand for re-election and therefore the Board of Directors now comprises seven members. The other members of our Board of Directors (Kenneth G. Campbell, Robert Kamerschen, Carol J. Parry, David C. Swanson and Barry Lawson Williams) were not subject to re-election by stockholders this year and continue in office.

At the Meeting, the Company’s stockholders also ratified the appointment of PricewaterhouseCoopers LLP (“PwC”) to serve as our independent accountants for 2002 as follows:


	Votes For		Votes Against		Abstentions

Ratification of the appointment of PwC		26,053,915		660,394		17,073

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:


Exhibit No.		Document
3.1		Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155)




3.2		By-laws of the Company (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155)




3.3		Certificate of Incorporation of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287)




3.4		By-laws of R.H. Donnelley Inc. (incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287)




4.1		Indenture dated as of June 5, 1998 between R.H. Donnelley Inc., as Issuer, the Company, as Guarantor, and the Bank of New York, as Trustee, with respect to the 91/8% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287)




4.2		Form of the 91/8% Senior Subordinated Notes due 2008 (included in Exhibit 4.1)




4.3		Company Guarantee (included in Exhibit 4.1)




4.4		Rights Agreement, dated as of October 27, 1998 between R.H. Donnelley Corporation and First Chicago Trust Company (incorporated by reference to Exhibit 4 to the Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on November 5, 1998, Registration No. 001-07155)




4.5		Amendment No. 1 to Rights Agreement dated as of February 26, 2001 by and among R.H. Donnelley Corporation, First Chicago Trust Company of New York (as initial Rights Agent) and The Bank of New York (as successor Rights Agent) (incorporated by reference to Exhibit 4.5 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)




10.1		Form of Distribution Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.2 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155)




10.2		Form of Tax Allocation Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.3 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155)


Exhibit No.		Document




10.3		Form of Employee Benefits Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.4 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155)




10.4		Form of Intellectual Property Agreement between the Company (f/k/a The Dun & Bradstreet Corporation) and The New Dun & Bradstreet Corporation (incorporated by reference to Exhibit 99.5 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155)




10.5		Form of Amended and Restated Transition Services Agreement between the Company (f/k/a The Dun & Bradstreet Corporation), The New Dun & Bradstreet Corporation, Cognizant Corporation, IMS Health Incorporated, ACNielsen Corporation and Gartner Group, Inc. (incorporated by reference to Exhibit 99.9 to the Form 8-K of the Company (f/k/a The Dun & Bradstreet Corporation), filed on June 30, 1998, Commission File No. 001-07155)




10.6		Credit Agreement among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent and the Lenders party thereto (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on July 17, 1998, Registration No. 333-59287)




10.7		First Amendment to Credit Agreement, dated as of March 4, 1999, among the Company, R.H. Donnelley Inc., The Chase Manhattan Bank, as Administrative Agent, and the Lenders party thereto (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the three months ended March 31, 1999, Commission File No. 001-07155)




10.8		DonTech II Partnership Agreement, effective August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois, Inc. (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287)




10.9		Revenue Participation Agreement, dated as of August 19, 1997, by and between APIL Partners Partnership and R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287)




10.10		Master Agreement, executed August 19, 1997, by and among R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation), the Company (f/k/a The Dun & Bradstreet Corporation), The Am-Don Partnership a/k/a DonTech, DonTech II, Ameritech Publishing, Inc., Ameritech Publishing of Illinois, Inc., Ameritech Corporation, DonTech I Publishing Company LLC and the APIL Partners Partnership (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287)




10.11		Exclusive Sales Agency Agreement, effective August 19, 1997, between APIL Partners Partnership and DonTech II (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287)


Exhibit No.		Document




10.12		Second Amended and Restated Partnership Agreement, effective as of August 19, 1997, by and between R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation) and Ameritech Publishing of Illinois (incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on August 7, 1998, Registration No. 333-59287)




10.13		Agreement for Publishing Services, dated as of January 1, 2002 between Ameritech Publishing Inc. and R.H. Donnelley Inc. (incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2002, Commission File No. 001-07155) (certain portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to an Application for an Order Granting Confidential Treatment)




10.14*		Limited Liability Company Agreement of CenDon, L.L.C. dated April 27, 2000 between R.H. Donnelley Inc. and Centel Directory Company (certain portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to an Application for an Order Granting Confidential Treatment)




10.15*		Sales Agency Agreement dated April 27, 2000 among R.H. Donnelley Inc., Centel Directory Company and CenDon, L.L.C.




10.16*		Agreement for Publishing Services dated April 27, 2000 between R.H. Donnelley and CenDon, L.L.C. (certain portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to an Application for an Order Granting Confidential Treatment)




10.17^		Key Employees’ Performance Unit Plan, as amended and restated (incorporated by reference to Exhibit 10.15 to Amendment No. 3 to the Registration Statement on Form S-4, filed with the Securities and Exchange Commission on September 28, 1998, Registration No. 333-59287)




10.18^		1991 Key Employees’ Stock Option Plan, as amended and restated through April 25, 2000 (incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2000, Commission File No. 001-07155)




10.19^		Amended and Restated 1998 Directors’ Stock Plan (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 001-07155)




10.20^		Pension Benefit Equalization Plan (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 001-07155)




10.21^		2001 Stock Award and Incentive Plan (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 001-07155)




10.22^		2001 Partner Share Plan (incorporated by reference to Exhibit 99.1 to Registration Statement on Form S-8, filed with the Securities and Exchange Commission on April 30, 2001, Registration No. 333-59790)


Exhibit No.		Document




10.23^		Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 99.02 to Registration Statement on Form S-8, filed with the Securities and Exchange Commission on July, 25, 2001, Registration No. 333-65822)




10.24^		Form of Annual Incentive Program Award (incorporated by reference to Exhibit 99.03 to Registration Statement on Form S-8, filed with the Securities and Exchange Commission on July, 25, 2001, Registration No. 333-65822)




10.25^		Form of Performance Unit Program Award (incorporated by reference to Exhibit 99.04 to Registration Statement on Form S-8, filed with the Securities and Exchange Commission on July, 25, 2001, Registration No. 333-65822)




10.26^		Deferred Compensation Plan (incorporated by reference to Exhibit 4.01 to the Company’s Registration Statement on Form S-8, filed with the Securities and Exchange Commission on November 24, 1999, Registration No. 333-91613)




10.27^		Amended and Restated Employment Agreement dated as of December 27, 2001 between the Company and Frank R. Noonan (incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 001-07155)




10.28^		Amended and Restated Employment Agreement dated as of December 27, 2001 between the Company and Philip C. Danford (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 001-07155)




10.29^*		Employment Agreement effective as of May 1, 2002 between the Company and David C. Swanson




10.30^*		Employment Agreement effective March 1, 2002 between the Company and Steven M. Blondy




10.31^		Employment Agreement dated as of September 28, 1998 between the Company and Frank M. Colarusso (incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)




10.32^		Amendment No. 1 to Employment Agreement dated as of July 27, 2000 between the Company and Frank M. Colarusso (incorporated by reference to Exhibit 10.33 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)




10.33^		Amendment No. 2 to Employment Agreement dated as of February 27, 2001 between the Company and Frank M. Colarusso (incorporated by reference to Exhibit 10.34 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)




10.34^		Employment Agreement dated as of September 26, 2000 between the Company and William C. Drexler (incorporated by reference to Exhibit 10.35 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)


Exhibit No.		Document




10.35^		Amendment No. 1 to Employment Agreement dated as of February 27, 2001 between the Company and William C. Drexler (incorporated by reference to Exhibit 10.36 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)




10.36^		Employment Agreement dated as of January 1, 2001 between the Company and Robert J. Bush (incorporated by reference to Exhibit 10.37 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)




10.37^		Amendment No. 1 to Employment Agreement dated as of February 27, 2001 between the Company and Robert J. Bush (incorporated by reference to Exhibit 10.38 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)




10.38^		Separation Agreement and Release dated as of March 15, 2001 between the Company and Judith A. Norton (incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)




21		Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the Annual Report on Form 10-K for the year ended December 31, 2000, Commission File No. 001-07155)




99.1*		Certification of Quarterly Report on Form 10-Q for the period ended June 30, 2002 by David C. Swanson, Chief Executive Officer




99.2*		Certification of Quarterly Report on Form 10-Q for the period ended June 30, 2002 by Steven M. Blondy, Senior Vice President and Chief Financial Officer

*		Filed herewith




^		Management contract or compensatory plan

(b) Reports on Form 8-K:

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: August 14, 2002	By:	R.H. DONNELLEY CORPORATION









		/s/ Steven M. Blondy

		Steven M. Blondy Senior Vice President and Chief Financial Officer









Date: August 14, 2002	By:	/s/ William C. Drexler

		William C. Drexler Vice President and Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date: August 14, 2002	By:	R.H. DONNELLEY INC.









		/s/ Steven M. Blondy

		Steven M. Blondy Senior Vice President and Chief Financial Officer









Date: August 14, 2002	By:	/s/ William C. Drexler

		William C. Drexler Vice President and Controller

29 EX-10.14 3 y62626exv10w14.txt LIMITED LIABILITY COMPANY AGREEMENT Exhibit 10.14 LIMITED LIABILITY COMPANY AGREEMENT OF CENDON, L.L.C. THE INTERESTS REFERRED TO IN THIS LIMITED LIABILITY COMPANY AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY OTHER SECURITIES LAWS, AND SUCH INTERESTS MAY NOT BE TRANSFERRED WITHOUT APPROPRIATE REGISTRATION OR THE AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. - --------------------------- Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. Table of Contents
Page ---- ARTICLE I - DEFINITIONS ................................................... 1 1.1 Terms Defined Herein ............................................... 1 1.2 Other Definitional Provisions ...................................... 5 ARTICLE II - BUSINESS PURPOSES AND OFFICES ................................ 6 2.1 Name; Business Purpose ............................................. 6 2.2 Powers ............................................................. 6 2.3 Principal Office ................................................... 8 2.4 Registered Office and Registered Agent ............................. 8 2.5 Amendment of the Certificate ....................................... 8 2.6 Effective Date ..................................................... 8 2.7 Liability of Members and Manager ................................... 8 2.8 Interest Not Acquired for Resale ................................... 8 ARTICLE III - CAPITAL CONTRIBUTIONS AND LOANS ............................. 9 3.1 Initial Capital Contributions ...................................... 9 3.2 Additional Capital Contributions ................................... 9 3.3 Capital Accounts ................................................... 9 3.4 Capital Withdrawal Rights, Interest and Priority ................... 10 3.5 Loans .............................................................. 11 ARTICLE IV - ALLOCATIONS AND DISTRIBUTIONS ................................ 11 4.1 Non-Liquidation Cash Distributions ................................. 11 4.2 Liquidation Distributions .......................................... 11 4.3 Income, Losses and Distributive Shares of Tax Items ................ 12 4.4 Allocation of Income, Loss and Credits ............................. 12 4.5 Special Rules Regarding Allocation of Tax Items .................... 12 4.6 Withholding of Distributions ....................................... 13 4.7 No Priority ........................................................ 13 4.8 Tax Withholding .................................................... 13 4.9 Reserves ........................................................... 14 ARTICLE V - MANAGEMENT .................................................... 14 5.1 Management ......................................................... 14 5.2 Election of the Management Committee ............................... 14 5.3 Meetings of the Management Committee; Place of Meetings ............ 15 5.4 Quorum; Voting Requirement ......................................... 15 5.5 Notice of Meeting .................................................. 15 5.6 Waiver of Notice ................................................... 15 5.7 Action Without a Meeting ........................................... 15 5.8 Compensation of Managers ........................................... 15 5.9 Restrictions on Authority of Management Committee .................. 15
i Table of Contents (continued)
Page ---- 5.10 Execution of Documents Filed with Secretary of State of Delaware and Waiver of Receipt of Copy of Filed Documents ................. 16 5.11 Voting by Certain Holders ......................................... 16 5.12 Limitation of Liability; Indemnification .......................... 16 5.13 Contracts with Members, Managers, or Their Affiliates ............. 20 5.14 Other Business Ventures ........................................... 20 ARTICLE VI - ACCOUNTING AND BANK ACCOUNTS ................................. 20 6.1 Fiscal Year ........................................................ 20 6.2 Books and Records .................................................. 20 6.3 Financial Reports .................................................. 21 6.4 Tax Returns and Elections; Tax Matters Member ...................... 21 6.5 Section 754 Election ............................................... 22 6.6 Bank Accounts ...................................................... 22 ARTICLE VII - TRANSFERS OF INTERESTS AND EVENTS OF WITHDRAWAL ............. 22 7.1 General Restrictions ............................................... 22 7.2 Permitted Transfers ................................................ 22 7.3 Substitute Members ................................................. 22 7.4 Effect of Admission as a Substitute Member ......................... 23 7.5 Redemption of Interests ............................................ 23 7.6 Events of Withdrawal ............................................... 23 ARTICLE VIII - DISSOLUTION AND TERMINATION ................................ 23 8.1 Events Causing Dissolution ......................................... 23 8.2 Effect of Dissolution .............................................. 24 8.3 Distribution and License of Company Assets upon Liquidation ........ 24 ARTICLE IX - MISCELLANEOUS ................................................ 25 9.1 Title to the Property .............................................. 25 9.2 Nature of Interest in the Company .................................. 25 9.3 Organizational Expenses ............................................ 25 9.4 Notices ............................................................ 25 9.5 Waiver of Default .................................................. 26 9.6 No Third Party Rights .............................................. 26 9.7 Entire Agreement ................................................... 26 9.8 Amendments to this Agreement ....................................... 26 9.9 Severability ....................................................... 27 9.10 Binding Agreement ................................................. 27 9.11 Headings .......................................................... 27 9.12 Counterparts ...................................................... 27 9.13 Force Majeure ..................................................... 28 9.14 Dispute Resolution ................................................ 28 9.15 Legal Representation .............................................. 29
ii LIMITED LIABILITY COMPANY AGREEMENT OF CENDON, L.L.C. THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement"), made and entered into this 27th day of April, 2000, by and between Centel Directory Company, a Delaware corporation ("Centel"), and R.H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation), a Delaware corporation ("Donnelley"). RECITALS: A. Centel and Donnelley have caused CenDon, L.L.C. (the "Company") to be formed as a limited liability company under the Delaware Limited Liability Company Act and, as required thereunder, the parties hereto do hereby adopt this Agreement as the limited liability company agreement of the Company. B. Donnelley and Centel are parties to The CenDon Partnership Agreement dated May 5, 1988, as amended to date (the "Partnership Agreement"), which established The CenDon Partnership, a general partnership in which the parties are partners (the "Partnership"). C. The Partnership has entered into directory agreements and amendments thereto with the telephone operating company affiliates of Centel identified in Exhibit A (the "Centel Operating Companies"), which generally provide for the publication of telephone directories distributed within defined geographic areas (the "Directory Agreements"). Copies of the Directory Agreements and all amendments thereto are attached to this Agreement as Exhibit B. D. The parties desire to convert the Partnership into the Company by transferring to the Company all of their right, title and interest in the Partnership, thereby causing the Partnership to cease to exist and all of its assets and liabilities to be transferred to the Company. E. The Company desires to appoint Donnelley as exclusive sales agent and to specify the sales agency services that Donnelley shall perform with respect to the Directories (as defined in the Sales Agency Agreement) published following the Effective Date (as defined below), in accordance with the terms of this Agreement and the Sales Agency Agreement ("Sales Agency Agreement") ("Sales Agency Agreement") attached to this Agreement as Exhibit C. AGREEMENT: In consideration of the premises and the mutual agreements contained herein, the parties hereto agree as follows: ARTICLE I - DEFINITIONS 1.1 TERMS DEFINED HEREIN. As used herein, the following terms shall have the following meanings, unless the context otherwise specifies: "ACT" means the Delaware Limited Liability Company Act, as amended from time to time. "AFFILIATE" means any other person or entity which, directly or indirectly, controls, is controlled by, or is under common control with, such party. "AGREEMENT" means the Limited Liability Company Agreement of the Company, as amended from time to time. "AVAILABLE CASH" means the aggregate amount of cash on hand or in bank, money market or similar accounts of the Company as of the end of each month derived from any source (other than Capital Contributions and Liquidation Proceeds) that the Management Committee determines is available for distribution to the Members. "BANKRUPTCY", with respect to any Person, means the entry of an order for relief with respect to such Person under the Federal Bankruptcy Code or the insolvency of such Person under any state insolvency act. "CAPITAL ACCOUNT" means the separate account established and maintained by the Company for each Member and each Transferee pursuant to Section 3.3. "CAPITAL CONTRIBUTION" means with respect to a Member the total amount of cash and the agreed upon net Fair Value of property contributed by such Member (or such Member's predecessor in interest) to the capital of the Company for such Member's Interest. "CERTIFICATE" means the Certificate of Formation of the Company filed with the Delaware Secretary of State on April __, 2000, as amended from time to time. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, or the corresponding provisions of future laws. "COMPANY" means CenDon, L.L.C., a Delaware limited liability company. "CREDITS" means all tax credits allowed by the Code with respect to activities of the Company or the Property. "DISTRIBUTIONS" means any distributions by the Company to the Members of Available Cash or Liquidation Proceeds or other amounts. "EFFECTIVE DATE" means July 1, 2000. "FAIR VALUE" of an asset means its fair market value. "GROSS LOCAL ADVERTISING CASH FLOW" shall mean the cash flow generated from Gross Local Advertising Revenue. "GROSS LOCAL ADVERTISING PERCENTAGE INTEREST" shall mean the respective following percentages, for Donnelley and Centel, for Directories published during the periods indicated below; provided, however, in the event that Centel does not assume certain sales support functions at the times provided for in Section 2.2(b) of the Sales Agency Agreement, then these percentages shall be adjusted accordingly: 2
PERIOD DONNELLEY CENTEL - ------ --------- ------ July 1, 2000 through *** *** December 31, 2000 January 1, 2001 through *** *** December 31, 2001 January 1, 2002 through *** *** December 31, 2002 January 1, 2003 through *** *** December 31, 2003 January 1, 2004 through *** *** December 31, 2004
"GROSS LOCAL ADVERTISING REVENUE" means the revenue recognized by the Company from advertising contracts sold by the Company related to the following activities of the Company derived from Directories published on or after the Effective Date: (a) all local and foreign print advertising for inclusion in the Directories, as defined in this Agreement, other than National Yellow Pages Service or equivalent national advertising that may be sold by other national yellow pages selling companies or their equivalent ("NYPS advertising"); (b) all local and foreign electronic advertising, other than NYPS advertising, for inclusion in an electronic yellow pages directory offered by Centel to its advertising customers as a product or service ancillary to print advertising sold for inclusion in the Directories; and (c) all local and foreign advertising associated with the Hotel/Motel Program as such Program was constituted and operated by the Partnership immediately prior to the Effective Date as reflected in the "CenDon Operating Practices" issued November 30, 1999 (attached as Schedule 2.1 (c) to the Sales Agency Agreement), which Program shall continue to be managed substantially as a local advertising program. Notwithstanding the foregoing, Gross Local Advertising Revenue shall not include revenue derived from foreign advertising customers located within the primary distribution area of any classified telephone directory (other than the Directories) published by Centel or its affiliates for general distribution to telephone subscribers; provided that it shall include foreign advertising sold to existing customers of Donnelley regardless of their location within the primary distribution area of any classified telephone directories (other than the Directories) published by Centel or its affiliates. As used herein, "existing customers of Donnelley" means directory advertising customers to which Donnelley has sold advertising into the Directories during the last publication cycle preceding the Effective Date. "INCOME" and "LOSS" mean, respectively, for each fiscal year or other period, an amount equal to the Company's taxable income or loss for such year or period, determined in accordance with Code Section 703(a), except that for this purpose (i) all items of income, gain, deduction or loss required to be separately stated by Code Section 703(a)(1) shall be included in taxable income or loss; 3 - --------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. (ii) tax exempt income shall be added to taxable income or loss; (iii) any expenditures described in Code Section 705(a)(2)(B) (or treated as Code Section 705(a)(2)(B) expenditures pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing taxable income or loss shall be subtracted; and (iv) taxable income or loss shall be adjusted to reflect any item of income or loss specifically allocated in Article IV. "INTEREST" refers to all of a Member's rights and interests in the Company in such Member's capacity as a Member, all as provided in the Certificate, this Agreement and the Act, including, without limitation, the Member's interest in the capital, income, gain, deductions, losses, and credits of the Company. "LIQUIDATION PROCEEDS" means all Property at the time of liquidation of the Company and all proceeds thereof. "MANAGEMENT COMMITTEE" means the group of Managers elected by Centel pursuant to Article V to manage the business and affairs of the Company. "MANAGER" means each of the natural persons elected by Centel pursuant to Article V to serve on the Management Committee. "MEMBER" means each Person executing this Agreement and each Person who is subsequently admitted to the Company as a Member pursuant to Section 7.3 of this Agreement. "PERSON" means any individual, partnership, limited liability company, corporation, cooperative, trust or other entity. "PRE-EFFECTIVE DATE INCOME OR LOSS" shall mean the Income or Loss realized by the Company attributable to Directories published prior to the Effective Date; provided, however, that this shall not include any deduction attributable to the Company's Deferred Installments described in Section 3.2(b). "PRE-EFFECTIVE DATE CASH FLOW" shall mean the cash flow generated from the Pre-Effective Date Income or Loss. "PRESIDING MANAGER" shall have the meaning set forth in Section 5.1. "PRIME RATE" means the annual rate of interest reported from time to time in The Wall Street Journal as the base rate on corporate loans at large money center commercial banks. "PROPERTY" means all properties and assets that the Company may own or otherwise have an interest in from time to time. "RESERVES" means amounts set aside from time to time by the Management Committee pursuant to Section 4.9 of this Agreement. "REVALUATION" shall mean the occurrence of any event described in clause (x) or (y) of Section 3.3 of this Agreement in which the book basis of Property is adjusted to its Fair Value. 4 "SUBSTITUTE MEMBER" shall have the meaning set forth in Section 7.3. "TAX MATTERS MEMBER" means the Person designated pursuant to Section 6.4 to represent the Company in matters before the Internal Revenue Service and other tax authorities. "TRANSFER" means (i) when used as a verb, to give, sell, exchange, assign, transfer, pledge, hypothecate, bequeath, devise or otherwise dispose of or encumber, and (ii) when used as a noun, the nouns corresponding to such verbs, in either case voluntarily or involuntarily, by operation of law or otherwise. "TRANSFEREE" shall have the meaning set forth in Section 7.2 of this Agreement. "TRANSFEROR" shall have the meaning set forth in Section 7.2 of this Agreement. "TREASURY REGULATIONS" means the regulations promulgated by the Treasury Department with respect to the Code, as such regulations are amended from time to time, or the corresponding provisions of future regulations. "WORK PRODUCT" means and includes all: (i) compilations of information, (ii) collective works (including without limitation the Directories), (iii) advertising copy, (iv) display advertising, (v) classified headings, (vi) reports, (vii) surveys, (viii) studies (ix) service order data, (x) local, national and publishing databases, (xi) lists of sales leads, sales contracts forms and executed sales contracts, (xii) advertising orders, advertiser acknowledgement letter files, and other advertising correspondence files, (xiii) quality check, statistical sampling and process control technique data, (xiv) electronic ads, including in-column, traditional display, high impact, process color, and similar types of advertisements, (xv) digital storage and ad graphics databases, (xvi) directory pages, on-line batch pages and digital files of the same, (xvii) billing information for local, national and foreign ads and vendors, electronic files of such billing information and financial and statistical reports concerning such billing information, (xviii) copies of and procedural information concerning book covers, mastheads, tabs, maps, fillers, telephone company information pages, local community information pages and government information pages, including electronic materials, (xix) white pages listings from local telephone companies in camera-ready and electronic format, page proofs and customer book pages, (xx) information provided by the Company to Donnelley that is owned exclusively by the Company, (xxi) any and all such work product developed or owned by the Partnership prior to the date hereof and any derivative works thereof, and (xxii) modifications made by the Company or Donnelley to any of the foregoing and all other materials developed by Donnelley on behalf of the Company, as work performed directly for or required in connection with the performance of its obligations under this Agreement. Work Product shall not include that portion of materials prepared by Donnelley solely in connection with its internal reporting on the management of its affairs or that relates solely to other Donnelley businesses or customers but in no event shall it refer to any software or related technology owned or licensed from any third party by Donnelley used directly or indirectly by Donnelley in the performance of its obligations under this Agreement. 5 1.2 OTHER DEFINITIONAL PROVISIONS. (a) As used in this Agreement, accounting terms not defined in this Agreement, and accounting terms partly defined to the extent not defined, shall have the respective meanings given to them under generally accepted accounting principles. (b) The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. (c) Words of the masculine gender shall be deemed to include the feminine or neuter genders, and vice versa, where applicable. Words of the singular number shall be deemed to include the plural number, and vice versa, where applicable. ARTICLE II - BUSINESS PURPOSES AND OFFICES 2.1 NAME; BUSINESS PURPOSE. The name of the Company shall be as stated in the Certificate. The sole business purpose of the Company is to own, hold and perform the executory contracts set forth on Schedule 2.1 of this Agreement as contemplated by this Agreement and the Sales Agency Agreement. The Company shall not have the power to extend the term of any of the Directory Agreements beyond December 31, 2004. The Members agree that they shall only be able to amend the purpose and scope of this Agreement by written consent of each of the Members. The Company shall have the power to do any act to accomplish, and to enter into any contract incidental to attain, the purpose of the Company specified above. The Company is formed only for such business purpose and shall not be deemed to create any agreement among the Members with respect to any other activities whatsoever other than the activities within such business purpose. Neither Member shall have any obligation under this Agreement to bring any existing or future business opportunity to the Company or the other Member, it being acknowledged and agreed that the scope and purpose of the Company does not anticipate business opportunities that are additional to the business contemplated by the Directory Agreements. With respect to the continuing obligations of the Members, the Members agree that all of the terms, covenants and agreements of the Partnership Agreement are hereby terminated and shall have no further force and effect; provided, however that with respect to obligations and liabilities of the Partnership that accrued as of the Effective Date and that have been transferred to the Company, notwithstanding its Membership Interest, each member shall continue to be responsible and liable to the same extent for obligations and liabilities as they were under the Partnership Agreement, except as otherwise provided with respect to the Deferred Installments set forth in Section 3.2(b). 2.2 POWERS. In addition to the powers and privileges conferred upon the Company by law and those incidental thereto, the Company shall have the same powers as a natural person to do all things necessary or convenient to carry out its business purpose and affairs, including, without limitation, the power to do the following: (a) Sue and be sued, complain and defend, and participate in administrative or other proceedings, in its name; 6 (b) Issue, by sale or otherwise, or acquire, by purchase, redemption or otherwise, any Interest; (c) Purchase, take, receive, lease as lessee, take by gift, legacy, or otherwise acquire, own, hold, improve, use, and otherwise deal in and with any real or personal property, or any interest therein, wherever situated; (d) Sell, convey, mortgage, pledge, lease as lessor, exchange, transfer, and otherwise dispose of all, any part of, or any interest in, its property and assets; (e) Lend money to and otherwise assist its Members and employees, except as otherwise provided in this Agreement or the Certificate; (f) Purchase, take, receive, subscribe for or otherwise acquire, own, hold, vote, use, employ, sell, mortgage, loan, pledge, or otherwise dispose of, and otherwise use and deal in and with, shares or other interests in, or obligations of, other domestic or foreign limited liability companies, corporations, associations, general or limited partnerships, or individuals, or direct or indirect obligations of the United States or of any other government, state, territory, governmental district or municipality or of any instrumentality thereof; (g) Incur liabilities, borrow money for its proper purposes at any rate of interest that the Company may determine without regard to the restrictions of any usury law of the State of Delaware, issue notes, bonds, and other obligations, secure any of its obligations by mortgage or pledge or deed of trust of all or any part of its property, franchises, and income, and make contracts, including contracts of guaranty and suretyship; (h) Invest its surplus funds from time to time, lend money for its proper purposes, and take and hold real and personal property as security for payment of funds so loaned or invested; (i) Conduct its business, carry on its operations, have offices within and without the State of Delaware, and exercise in any other state, territory, district, or possession of the United States or in any foreign country the powers granted by the Act, the Certificate or this Agreement; (j) Appoint agents and hire employees of the Company, define their duties, and fix their compensation and to indemnify them to the extent and in the manner permitted by law; (k) Make and alter this Agreement, in any manner not inconsistent with the Certificate or with the laws of the State of Delaware, for the administration and regulation of the affairs of the Company; (l) Make donations for the public welfare or for charitable, scientific, religious, or educational purposes, lend money to the government, and transact any lawful business in aid of the United States; 7 (m) Establish deferred compensation plans, pension plans, profit-sharing plans, bonus plans, option plans, and other incentive plans for its employees and make the payments provided for therein; (n) Become a promoter, partner, member, associate, or manager of any general partnership, limited partnership, joint venture or similar association, any other limited liability company, or other enterprise; and (o) Cease the activities of the Company and surrender the franchise of the Company. 2.3 PRINCIPAL OFFICE. The principal office of the Company shall be located at 7015 College Boulevard, Suite 400, Overland Park, Kansas 66211, or at such other place(s) as the Management Committee may determine from time to time. 2.4 REGISTERED OFFICE AND REGISTERED AGENT. The location of the registered office and the name of the registered agent of the Company in the State of Delaware shall be as stated in the Certificate. The registered office and registered agent of the Company in the State of Delaware may be changed, from time to time, by the Management Committee. 2.5 AMENDMENT OF THE CERTIFICATE. The Company shall amend the Certificate at such time or times and in such manner as may be required by the Act and this Agreement. 2.6 EFFECTIVE DATE. This Agreement shall be effective on the Effective Date. 2.7 LIABILITY OF MEMBERS AND MANAGER. No Member or Manager, solely by reason of being a Member or Manager, or both, shall be liable, under a judgment, decree or order of a court, or in any other manner, for a debt, obligation or liability of the Company, whether arising in contract, tort or otherwise, or for the acts or omissions of any other Member, Manager, agent, or employee of the Company. The failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this Agreement or the Act shall not be grounds for imposing liability on the Members or Managers for the debts, obligations, or liabilities of the Company. The Members acknowledge and agree that the relationship they share in connection with the Company, this Agreement, the Sales Agency Agreement and any other agreements related thereto is now and hereafter essentially contractual in nature and the Members agree that, to the full extent permitted by applicable law, neither shall have any fiduciary duty to the other or to the Company. 2.8 INTEREST NOT ACQUIRED FOR RESALE. Each Member hereby represents and warrants to the Company and to each other Member that: (a) in the case of a Member who is not a natural person, that the Member is duly organized, validly existing, and in good standing under the law of its state of organization and that it has the requisite power and authority to execute this Agreement and to perform its obligations hereunder; (b) the Member is acquiring an Interest for such Member's own account as an investment and without an intent to distribute such Interest; and (c) the Member acknowledges that the Interests have not been registered under the Securities Act of 1933 or any state securities laws, and such Member's Interest may not be resold or transferred by the Member without appropriate registration or the availability of an exemption from such requirements. 8 ARTICLE III - CAPITAL CONTRIBUTIONS AND LOANS 3.1 INITIAL CAPITAL CONTRIBUTIONS. On the Effective Date, each Member shall contribute all of its respective interests in the Partnership to the Company in exchange for their respective Interests in the Company. The Members' initial Capital Accounts in the Company shall equal the respective capital account of each such person in the Partnership as of the Effective Date. 3.2 ADDITIONAL CAPITAL CONTRIBUTIONS. (a) Except as set forth in this Section 3.2(a) and Section 3.2(b), below, no Member shall be obligated to make any additional capital contributions to the Company by reason of ownership of Interests. The Company may require capital from time to time, in addition to that contributed pursuant to Section 3.1 above, in order to accomplish the purpose and business for which it is formed. Upon the determination, from time to time, by the Management Committee that additional capital contributions are necessary for the Company, the Management Committee shall, by written notice, call for any such additional contributions ("Additional Contributions") to be made by Centel to the capital of the Company. The Management Committee shall call for an Additional Contribution from Centel in the event the Company does not have sufficient Available Cash to make a distribution under Section 4.1(b) (including, without limitation, if such shortfall of Available Cash is the result of the Company's payment or obligation to pay Deferred Installments after taking into account any contribution required under Section 3.2(b)), which Additional Contribution shall at least be in an amount necessary to enable the Company to have sufficient Available Cash for such distribution. Within thirty (30) days following notice of a call for an Additional Contribution, Centel shall contribute, in cash, to the capital of the Company the Additional Contribution required by the Management Committee. Centel's obligation to make the contribution required under this Section 3.2(a) shall be absolute (with no right of offset) and independent of all other covenants contained in this Agreement. (b) The parties acknowledge that, pursuant to the Directory Agreements, the Company is obligated to make certain installment payments relating to calendar year 1990 to each of the Centel Operating Companies on March 31, June 30, September 30, and December 31 of 2005 (the "Deferred Installments"). Donnelley agrees that, upon written request of the Management Committee, it shall contribute to the capital of the Company the amounts specified in Schedule 3.2(b) hereto at the times specified therein. Donnelley's obligation to make the contribution required under this Section 3.2(b) shall be absolute (with no right of offset) and independent of all other covenants contained in this Agreement, and shall survive any termination of the Directory Agreements, whether because of a breach or otherwise. 3.3 CAPITAL ACCOUNTS. A separate Capital Account shall be maintained for each Member and each Transferee (to the extent such Transferee does not become a Substitute Member. Each Member's Capital Account shall be (a) increased by (i) the amount of money contributed by such Member, (ii) the Fair Value of property contributed by such Member (net of liabilities secured by such contributed property that the Company is considered to assume or take 9 subject to under Code Section 752), (iii) allocations to such Member, pursuant to Article IV, of Company income and gain (or items thereof), and (iv) to the extent not already netted out under clause (b)(ii) below, the amount of any Company liabilities assumed by the Member or which are secured by any property distributed to such Member; and (b) decreased by (i) the amount of money distributed to such Member, (ii) the Fair Value of property distributed to such Member (net of liabilities secured by such distributed property that such Member is considered to assume or take subject to under Code Section 752), (iii) allocations to such Member, pursuant to Article IV, of Company loss and deductions (or items thereof), and (iv) to the extent not already netted out under clause (a)(ii) above, the amount of any liabilities of the Member assumed by the Company or which are secured by any property contributed by such Member to the Company. In the event any Interest is transferred in accordance with the terms of this Agreement, the Transferee shall succeed to the Capital Account of the Transferor to the extent it relates to the transferred interest and the Capital Account of each Transferee shall be increased and decreased in the manner set forth above. In the event of (x) the distribution by the Company to a Member of more than a de minimis amount of property as consideration for an Interest or (y) the liquidation of the Company within the meaning of Treasury Regulation Section 1.704-1(b)(2)(ii)(g), the book basis of the Property shall be adjusted to Fair Value and the Capital Accounts of all the Members shall be adjusted simultaneously to reflect the aggregate net adjustment to book basis as if the Company recognized gain or loss equal to the amount of such aggregate net adjustment; provided, however, that the adjustments resulting from clause (x) above shall be made only if the Members determine that such adjustments are necessary or appropriate to reflect the relative economic interests of the Members. In the event that Property is subject to Code Section 704(c) or is revalued on the books of the Company in accordance with the preceding paragraph pursuant to Section 1.704-1(b)(2)(iv)(f) of the Treasury Regulations, the Members' Capital Accounts shall be adjusted in accordance with Section 1.704-1(b)(2)(iv)(g) of the Treasury Regulations for allocations to the Members of depreciation, amortization and gain or loss, as computed for book purposes (and not tax purposes) with respect to such Property. The foregoing provisions of this Section 3.3 and the other provisions of this Agreement relating to the maintenance of capital accounts are intended to comply with Treasury Regulation Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner consistent with such Treasury Regulations. In the event it is jointly determined by the Members that it is prudent or advisable to modify the manner in which the Capital Accounts, or any increases or decreases thereto, are computed in order to comply with such Treasury Regulations, the Management Committee may cause such modification to be made provided that it is not likely to have a material effect on the amounts distributable to any Member upon the dissolution of the Company, and the Management Committee, upon any such joint determination by the Members, is empowered to amend or modify this Agreement, notwithstanding any other provision of this Agreement. 3.4 CAPITAL WITHDRAWAL RIGHTS, INTEREST AND PRIORITY. Except as expressly provided in this Agreement, no Member shall be entitled to withdraw or reduce such Member's 10 Capital Account or to receive any Distributions. No Member shall be entitled to demand or receive any Distribution in any form other than in cash. No Member shall be entitled to receive or be credited with any interest on the balance in such Member's Capital Account at any time. Except as may be otherwise expressly provided herein, no Member shall have any priority over any other Member as to the return of the balance in such Member's Capital Account. 3.5 LOANS. Any Member may make a loan to the Company in such amounts, at such times and on such terms and conditions as may be approved by all Members. Loans by any Member to the Company shall not be considered as contributions to the capital of the Company. ARTICLE IV - ALLOCATIONS AND DISTRIBUTIONS 4.1 NON-LIQUIDATION CASH DISTRIBUTIONS. The amount, if any, of Available Cash shall be determined by the Management Committee monthly and shall be distributed to the Members within 15 days following the end of each month in accordance with the following order of priority: (a) With respect to Pre-Effective Date Cash Flow, the Available Cash shall be distributed equally between Donnelley and Centel. (b) With respect to Gross Local Advertising Cash Flow, Available Cash shall be distributed to Donnelley in an amount equal to the product of the Gross Local Advertising Revenue times Donnelley's Gross Local Advertising Percentage Interest with respect to such period in which the Gross Local Advertising Revenue is recognized by the Company (the "Priority Distribution"). The Priority Distribution shall be paid to Donnelley in equal monthly installments determined with respect to each Directory published by the Company on or after the Effective Date, with the first payment beginning with the month of publication of such Directory, and monthly installments thereafter through the month before the next issue of the same Directory. The Company shall provide Donnelley each month with a detailed computation of the determination of such Priority Distribution. Gross Local Advertising shall be determined in the same manner as described in Section 7.1 of, and Schedule 7.1 to the Sales Agency Agreement. (c) The remainder, if any, to Centel. 4.2 LIQUIDATION DISTRIBUTIONS. Liquidation Proceeds shall be distributed in the following order of priority: (a) To the payment of debts and liabilities of the Company (including to Members to the extent otherwise permitted by law) and the expenses of liquidation. (b) Next, to the payment of any earned but unpaid Priority Distribution. (c) Next, to the setting up of such reserves as the Person required or authorized by law to wind up the Company's affairs may reasonably deem necessary or appropriate for any disputed, contingent or unforeseen liabilities or obligations of the Company, provided that any such reserves shall be paid over by such Person to an 11 independent escrow agent, to be held by such agent or its successor for such period as such Person shall deem advisable for the purpose of applying such reserves to the payment of such liabilities or obligations and, at the expiration of such period, the balance of such reserves, if any, shall be distributed as hereinafter provided. (d) The remainder to the Members in accordance with and to the extent of their respective Capital Account balances after taking into account the allocation of all Income or Loss pursuant to this Agreement for the fiscal year(s) in which the Company is liquidated. (e) Anything in this Agreement to the contrary notwithstanding, any Member who has a negative Capital Account balance following the liquidation (including any deemed liquidation for tax purposes) of the Company (or the liquidation of such Member's interest in the Company) and the application of the allocations set forth in Sections 4.2 and 4.4 hereof shall be obligated to contribute to the Company (in accordance with Treasury Regulation Section 1.704-1(b)(2) (ii)(b)(2) and (3) or any successor regulation thereto), for subsequent use and distribution pursuant to Section 4.2, an amount in cash equal to such negative balance. 4.3 INCOME, LOSSES AND DISTRIBUTIVE SHARES OF TAX ITEMS. The Company's Income or Loss, as the case may be, for each fiscal year of the Company, as determined in accordance with such method of accounting as has been used by the Partnership prior to the date hereof, shall be allocated to the Members for both financial accounting and income tax purposes as set forth in this Article IV, except as otherwise provided for herein or unless all Members agree otherwise. 4.4 ALLOCATION OF INCOME, LOSS AND CREDITS. Income, Loss and items of income or loss shall be allocated as follows: (a) Pre-Effective Date Income or Loss shall be allocated equally between Donnelley and Centel. (b) Gross Local Advertising Revenue shall be allocated between Donnelley and Centel in accordance with their respective Gross Local Advertising Percentage Interests. (c) All deductions (other than those allocated pursuant to Sections 4.4(a) and (e)) shall be allocated to Centel. (d) Credits shall be allocated in accordance with the respective allocation of item of income or deduction to which the credit is attributable. (e) Any and all deductions attributable to the payments described in Section 3.2(b) made by Donnelley shall be allocated to Donnelley. 4.5 SPECIAL RULES REGARDING ALLOCATION OF TAX ITEMS. Notwithstanding the foregoing provisions of Article IV, the following special rules shall apply in allocating tax items of the Company: 12 (a) SECTION 704(c) AND REVALUATION ALLOCATIONS. In accordance with Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its Fair Value at the time of contribution. In the event of a Revaluation, subsequent allocations of income, gain, loss and deduction with respect to such property shall take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its Fair Value immediately after the adjustment in the same manner as under Code Section 704(c) and the Treasury Regulations thereunder. Any elections or other decisions relating to such allocations shall be made by the Management Committee in a manner that reasonably reflects the purpose and intention of this Agreement. Allocations pursuant to this Section 4.5(a) are solely for income tax purposes and shall not affect, or in any way be taken into account in computing, for book purposes, any Member's Capital Account or share of Income or Loss, pursuant to any provision of this Agreement. (b) COMPLIANCE WITH TREASURY REGULATIONS. The foregoing provisions of this Section 4.5 are intended to comply with Treasury Regulation Sections 1.704-1(b), 1.704-2 and 1.752-1 through 1.752-5, and shall be interpreted and applied in a manner consistent with such Treasury Regulations. In the event it is jointly determined by the Members that it is prudent or advisable to amend this Agreement in order comply with such Treasury Regulations, the Management Committee, upon being so directed by the Members, is empowered to amend or modify this Agreement, notwithstanding any other provision of this Agreement. (c) GENERAL ALLOCATION PROVISIONS. Except as otherwise provided in this Agreement, all items that are components of Income or Loss shall be divided among the Members in the same proportions as they share such Income or Loss, as the case may be, for the year. For purposes of determining the Income, Loss or any other items for any period, Income, Loss or any such other items shall be determined on a daily, monthly or other basis, as determined by the Management Committee using any permissible method under Code Section 706 and the Treasury Regulations thereunder. 4.6 WITHHOLDING OF DISTRIBUTIONS. Notwithstanding any other provision of this Agreement, except with respect to Distributions described in Section 4.1(a), the Management Committee (or any Person required or authorized by law to wind up the Company's affairs) may suspend, reduce or otherwise restrict Distributions of Available Cash and Liquidation Proceeds when, in its sole opinion, such action is in the best interests of the Company. 4.7 NO PRIORITY. Except as may be otherwise expressly provided herein, no Member shall have priority over any other Member as to Company capital, income, gain, deductions, loss, credits or distributions. 4.8 TAX WITHHOLDING. Notwithstanding any other provision of this Agreement, the Management Committee is authorized to take any action that it determines to be necessary or appropriate to cause the Company to comply with any withholding requirements established 13 under any federal, state or local tax law, including, without limitation, withholding on any Distribution to any Member. For all purposes of this Article IV, any amount withheld on any Distribution and paid over to the appropriate governmental body shall be treated as if such amount had in fact been distributed to the Member. 4.9 RESERVES. The Management Committee shall have the right to establish, maintain and expend Reserves to provide for working capital, for future maintenance, repair or replacement of the Property, for debt service, for future investments and for such other purposes as the Management Committee may deem necessary or advisable. ARTICLE V - MANAGEMENT 5.1 MANAGEMENT. (a) The business and affairs of the Company shall be managed by two (2) natural persons who shall be referred to as "Managers" and who, acting as a board, shall constitute the "Management Committee." Each Manager shall hold office until such Manager's successor is duly elected or until such Manager's earlier death or resignation. Managers need not be Members of the Company. Except as expressly limited by law, the Certificate or this Agreement, the Property and the business of the Company shall be controlled and managed by the Management Committee. The Management Committee shall have and is vested with all powers and authorities, except as expressly limited by law, the Certificate, or this Agreement, to do or cause to be done any and all lawful things for and in behalf of the Company, to exercise or cause to be exercised any or all of its powers, privileges and franchises, and to seek the effectuation of its objects and purposes. From time to time, the Management Committee may, but shall not be required to, elect one of the Managers to serve as the "Presiding Manager." The Presiding Manager shall manage the day-to-day operations of the Company and shall carry out the decisions of the Management Committee. (b) Notwithstanding the foregoing or anything else contained herein to the contrary, the Members and not the Management Committee shall manage all matters and affairs related to (i) all Directories published prior to the Effective Date; (ii) Pre-Effective Date Income and Loss, and (iii) Pre-Effective Date Cash Flow. Without limiting the generality of the foregoing, the Members agree to cause the Company to use commercially reasonable efforts to recover funds with respect to receivables, including previously written-off receivables of the Partnership attributable to Directories published prior to the Effective Date, and any such recoveries shall be distributed among the Members as Pre-Effective Date Cash Flow in accordance with the provisions of 4.1(a). 5.2 ELECTION OF THE MANAGEMENT COMMITTEE. Robert J. Walsh and John L. Mieske are hereby elected by Centel to serve on the Management Committee until their successors have been duly elected or until their earlier death or resignation. Elections of Managers shall not be required to be held at any regular frequency, but, instead, shall be held upon the call of Centel. In electing Managers, Donnelley shall not be entitled to vote. Vacancies on the Management Committee may be filled by an election held by Centel. 14 5.3 MEETINGS OF THE MANAGEMENT COMMITTEE; PLACE OF MEETINGS. Meetings of the Management Committee shall not be required to be held at any regular frequency, but, instead, shall be held upon the call of any one (1) of the Managers. All meetings of the Management Committee shall be held at the principal office of the Company or at such other place, either within or without the State of Delaware, as shall be designated by the Managers calling the meeting and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Managers may participate in a meeting of the Management Committee by means of conference telephone equipment or similar communications equipment whereby all Managers participating in the meeting can hear each other and participation in a meeting in this manner shall constitute presence in person at the meeting. 5.4 QUORUM; VOTING REQUIREMENT. At all meetings of the Management Committee, a majority of the number of Managers then serving shall constitute a quorum for the transaction of business. The act of a majority in number of the Managers present at any meeting of the Management Committee at which a quorum is present shall be the act of the Management Committee. 5.5 NOTICE OF MEETING. Notice of each meeting of the Management Committee, stating the place, day and hour of the meeting shall be given to each Manager at least three days before the day on which the meeting is to be held. The notice may be given by any Manager having authority to call the meeting. "Notice" and "call" with respect to such meetings shall be deemed to be synonymous. 5.6 WAIVER OF NOTICE. Whenever any notice is required to be given to any Manager under the provisions of this Agreement, a waiver thereof in writing signed by such Manager, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance of a Manager at any meeting shall constitute a waiver of notice of such meeting except where a Manager attends a meeting for the express purposes of objecting to the transaction of any business because the meeting is not lawfully called or convened. 5.7 ACTION WITHOUT A MEETING. Any action that is required to be or may be taken at a meeting of the Management Committee may be taken without a meeting if consents in writing, setting forth the action so taken, are signed by all of the Managers. The consents shall have the same force and effect as a unanimous vote at a meeting duly held. 5.8 COMPENSATION OF MANAGERS. Managers shall not receive any compensation for their services as such, unless approved by Centel. Nothing herein contained shall be construed to preclude any Manager from serving the Company in any other capacity and receiving compensation therefor. 5.9 RESTRICTIONS ON AUTHORITY OF MANAGEMENT COMMITTEE. The Management Committee shall not be authorized to act in connection with the following: (a) The merger or consolidation of the Company with another Person or the reorganization or recapitalization of the Company; 15 (b) Change of the status of the Company from one in which management is vested in the Management Committee to one in which management is vested in the Members; (c) The sale, lease, exchange, or other disposition, of all, or substantially all, the Property, with or without the goodwill of the Company; (d) Liquidation and dissolution of the Company or any filing by the Company (or consent to another's filing) for relief from creditors or assignment by the Company for the benefit of creditors; (e) Amendment or restatement of the Certificate; (f) Issuance of additional Interests or redemption or purchase of existing Interests; (g) Possess Property, assign rights in Property or incur obligations, in each case for other than the business purposes of the Company as described in Section 2.1 of this Agreement; and (h) Any matter expressly reserved to the Members (whether or not in that capacity or another capacity) elsewhere in this Agreement. The approval of each Member shall be required for the foregoing matters and transactions. 5.10 EXECUTION OF DOCUMENTS FILED WITH SECRETARY OF STATE OF DELAWARE AND WAIVER OF RECEIPT OF COPY OF FILED DOCUMENTS. Any Member or Manager shall be authorized to execute and file with the Secretary of State of Delaware any document permitted or required by the Act. Except for tax filings, franchise tax reports and other filings conducted in the ordinary course of business of the Company, such documents shall be executed and filed only after all of the Members have approved or consented to such action in the manner provided herein. 5.11 VOTING BY CERTAIN HOLDERS. In the case of a Member that is a corporation, its Interest may be voted by such officer, agent or proxy as the by-laws of such corporation may prescribe, or, in the absence of such provision, as the board of directors of such corporation may determine. In the case of a Member that is a general or limited partnership, its Interest may be voted, in person or by proxy, by such Person as is designated by such Member. In the case of a Member that is another limited liability company, its Interest may be voted, in person or by proxy, by such Person as is designated by the operating agreement of such other limited liability company, or, in the absence of such designation, by such Person as is designated by the limited liability company. 5.12 LIMITATION OF LIABILITY; INDEMNIFICATION. (a) LIMITATION. No Person shall be liable to the Company or its Members for any loss, damage, liability or expense suffered by the Company or its Members on account of any action taken or omitted to be taken by such Person as a Manager of the 16 Company or by such Person while serving at the request of the Company as a director, officer or in any other comparable position of any Other Enterprise, if such Person discharges such Person's duties in good faith, exercising the same degree of care and skill that a prudent person would have exercised under the circumstances in the conduct of such prudent person's own affairs, and in a manner such Person reasonably believes to be in the best interest of the Company. A Manager's liability hereunder shall be limited only for those actions taken or omitted to be taken by such Manager in the discharge of such Manager's obligations for the management of the business and affairs of the Company. (b) RIGHT TO INDEMNIFICATION. The Company shall indemnify each Person who has been or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or appellate (regardless of whether such action, suit or proceeding is by or in the right of the Company or by third parties) by reason of the fact that such Person is or was a Member or Manager of the Company, or is or was serving at the request of the Company as a director, officer or in any other comparable position of any Other Enterprise against all liabilities and expenses, including, without limitation, judgments, amounts paid in settlement, attorneys' fees, excise taxes or penalties, fines and other expenses, actually and reasonably incurred by such Person in connection with such action, suit or proceeding (including, without limitation, the investigation, defense, settlement or appeal of such action, suit or proceeding); provided, however, that the Company shall not be required to indemnify or advance expenses to any Person from or on account of such Person's conduct that was finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct; provided, further, that the Company shall not be required to indemnify or advance expenses to any Person in connection with an action, suit or proceeding initiated by such Person unless the initiation of such action, suit or proceeding was authorized in advance by the Management Committee; provided, further, that a Manager shall be indemnified hereunder only for those actions taken or omitted to be taken by such Manager in the discharge of such Manager's obligations for the management of the business and affairs of the Company and that the provisions of this Section 5.12 are not intended to extend indemnification to any Manager for any obligations of such Manager undertaken in this Agreement in such Manager's capacity as a Member. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or under a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that such Person's conduct was finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful misconduct. (c) ENFORCEMENT OF INDEMNIFICATION. In the event the Company refuses to indemnify any Person who may be entitled to be indemnified or to have expenses advanced under this Section 5.12, such Person shall have the right to maintain an action in any court of competent jurisdiction against the Company to determine whether or not such Person is entitled to such indemnification or advancement of expenses hereunder. If such court action is successful and the Person is determined to be entitled to such indemnification or advancement of expenses, such Person shall be reimbursed by the Company for all fees and expenses (including attorneys' fees) actually and reasonably 17 incurred in connection with any such action (including, without limitation, the investigation, defense, settlement or appeal of such action). (d) ADVANCEMENT OF EXPENSES. Expenses (including attorneys' fees) reasonably incurred in defending an action, suit or proceeding, whether civil, criminal, administrative, investigative or appellate, shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Person to repay such amount if it shall ultimately be determined that such Person is not entitled to indemnification by the Company. In no event shall any advance be made in instances where the Management Committee or independent legal counsel reasonably determines that such Person would not be entitled to indemnification hereunder. (e) NON-EXCLUSIVITY. The indemnification and the advancement of expenses provided by this Section 5.12 shall not be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, or any agreement, vote of Members, policy of insurance or otherwise, both as to action in their official capacity and as to action in another capacity while holding their respective offices, and shall not limit in any way any right that the Company may have to make additional indemnifications with respect to the same or different Persons or classes of Persons. The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 5.12 shall continue as to a Person who has ceased to be a Member or Manager of the Company, and as to a Person who has ceased serving at the request of the Company as a director, officer or in any other comparable position of any Other Enterprise and shall inure to the benefit of the heirs, executors and administrators of such Person. (f) INSURANCE. Upon the approval of the Management Committee, the Company may purchase and maintain insurance on behalf of any Person who is or was a Member, Manager, agent or employee of the Company, or is or was serving at the request of the Company as a director, officer or in any other comparable position of any Other Enterprise, against any liability asserted against such Person and incurred by such Person in any such capacity, or arising out of such Person's status as such, whether or not the Company would have the power, or the obligation, to indemnify such Person against such liability under the provisions of this Section 5.12. (g) AMENDMENT AND VESTING OF RIGHTS. Notwithstanding any other provision of this Agreement, the terms and provisions of this Section 5.12 shall not be amended or repealed and the rights to indemnification and advancement of expenses created hereunder shall not be changed, altered or terminated except by the written approval of all Members. The rights granted or created hereby shall be vested in each Person entitled to indemnification hereunder as a bargained-for, contractual condition of such Person's being or serving or having served as a Member or Manager of the Company or serving at the request of the Company as a director, officer or in any other comparable position of any Other Enterprise and, while this Section 5.12 may be amended or repealed, no such amendment or repeal shall release, terminate or adversely affect the rights of such Person under this Section 5.12 with respect to any act taken or 18 the failure to take any act by such Person prior to such amendment or repeal or with respect to any action, suit or proceeding with respect to such act or failure to act filed after such amendment or repeal. (h) DEFINITIONS. For purposes of this Section 5.12, references to: (i) The "Company" shall include, in addition to the resulting or surviving limited liability company, any constituent limited liability company (or other entity) (including any constituent of a constituent) absorbed in a consolidation or merger so that any Person who is or was a member or manager of such constituent limited liability company (or other entity), or is or was serving at the request of such constituent limited liability company (or other entity) as a director, officer or in any other comparable position of any Other Enterprise shall stand in the same position under the provisions of this Section 5.18 with respect to the resulting or surviving limited liability company (or other entity) as such Person would if such Person had served the resulting or surviving limited liability company (or other entity) in the same capacity; (ii) "Other Enterprises" or "Other Enterprise" shall include, without limitation, any other limited liability company, corporation, partnership, joint venture, trust or employee benefit plan; (iii) "fines" shall include any excise taxes assessed against a person with respect to an employee benefit plan; (iv) "defense" shall include investigations of any threatened, pending or completed action, suit or proceeding as well as appeals thereof and shall also include any defensive assertion of a cross-claim or counterclaim; and (v) "serving at the request of the Company" shall include any service as a director, officer or in any other comparable position that imposes duties on, or involves services by, a Person with respect to an employee benefit plan, its participants, or beneficiaries; and a Person who acted in good faith and in a manner such Person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted "in the best interest of the Company" as referred to in this Section 5.12. (i) SEVERABILITY. If any provision of this Section 5.12 or the application of any such provision to any Person or circumstance is held invalid, illegal or unenforceable for any reason whatsoever, the remaining provisions of this Section 5.12 and the application of such provision to other Persons or circumstances shall not be affected thereby and, to the fullest extent possible, the court finding such provision invalid, illegal or unenforceable shall modify and construe the provision so as to render it valid and enforceable as against all Persons and to give the maximum possible protection to Persons subject to indemnification hereby within the bounds of validity, legality and enforceability. Without limiting the generality of the foregoing, if any Member or Manager of the Company or any Person who is or was serving at the request of the 19 Company as a director, officer or in any other comparable position of any Other Enterprise, is entitled under any provision of this Section 5.12 to indemnification by the Company for some or a portion of the judgments, amounts paid in settlement, attorneys' fees, ERISA excise taxes or penalties, fines or other expenses actually and reasonably incurred by any such Person in connection with any threatened, pending or completed action, suit or proceeding (including, without limitation, the investigation, defense, settlement or appeal of such action, suit or proceeding), whether civil, criminal, administrative, investigative or appellate, but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify such Person for the portion thereof to which such Person is entitled. 5.13 CONTRACTS WITH MEMBERS, MANAGERS, OR THEIR AFFILIATES. No contract or transaction between the Company and one of its Members or Managers or between the Company and any Person in which one of its Members or Managers is a director or officer, or has a financial interest, shall be void or voidable solely for this reason, or solely because such Member or Manager is present at or participates in any meeting of the Members at which the contract or transaction is authorized, or solely because such Member's vote is counted for such purpose, if, in connection with any such meeting of the Members, the material facts as to such Member's or Manager's relationship are known to the Members, and all of the Members who are disinterested with respect to such contract or transaction authorize such contract or transaction, even though the disinterested Members be less than a quorum. Interested Members may be counted in determining the presence of a quorum at a meeting of the Members at which the contract or transaction is authorized. 5.14 OTHER BUSINESS VENTURES. Nothing in this Agreement shall in any way restrict or prohibit any Member or Manager from engaging in, or possessing an interest in, other business ventures of every nature and description, independently or with others, whether or not similar to or in competition with the business of the Company, and neither the Company nor the Members shall have any right by virtue of this Agreement in or to such other business ventures or to the income or profits derived therefrom. Except as may otherwise be expressly agreed by the Members, neither the Members nor the Managers shall be required to devote all of their time or business efforts to the affairs of the Company, but shall devote so much of their time and attention to the Company as is reasonably necessary and advisable to manage the affairs of the Company to the best advantage of the Company. Neither Member shall have any obligation under this Agreement to bring any existing or future business opportunity to the Company or the other Member, it being acknowledged and agreed that the scope and purpose of the Company does not anticipate business opportunities in addition to the Directory Agreements. Notwithstanding the foregoing, the Members hereby acknowledge that they have each agreed to certain non-compete provisions under the Sales Agency Agreement. ARTICLE VI - ACCOUNTING AND BANK ACCOUNTS 6.1 FISCAL YEAR. The fiscal year and taxable year of the Company shall end on December 31 of each year, unless a different year is required by the Code. 6.2 BOOKS AND RECORDS. At all times during the existence of the Company, the Company shall cause to be maintained full and accurate books of account, which shall reflect all 20 Company transactions and be appropriate and adequate for the Company's business. The books and records of the Company shall be maintained at the principal office of the Company. Each Member (or such Member's designated representative) shall have the right during ordinary business hours and upon reasonable notice to inspect and copy (at such Member's own expense) all books and records relating to the Company; provided that if information that qualifies as books and records is imbedded within other documents of Centel and its Affiliates ("Source Documents"), Centel shall make reasonable efforts to isolate such imbedded information and to provide such information on behalf of the Company. No access shall be given to the Source Documents if such Source Documents are reasonably deemed confidential. 6.3 FINANCIAL REPORTS. (a) Within thirty (30) days after the end of each fiscal quarter, there shall be prepared and delivered to each Member: (i) a balance sheet as of the end of such quarter and related financial statements for the quarter and year-to-date period then ended; and (ii) other pertinent information regarding the Company as may be reasonably requested by the Members. (b) Within one hundred twenty (120) days after the end of each fiscal year, there shall be prepared and delivered to each Member all information with respect to the Company necessary for the preparation of the Members' Federal and state income tax returns. 6.4 TAX RETURNS AND ELECTIONS; TAX MATTERS MEMBER. The Tax Matters Member shall cause to be prepared and timely filed all Federal, state and local income tax returns or other returns or statements required by applicable law. The Company shall claim all deductions and make such elections for federal or state income tax purposes that the Management Committee reasonably believe will produce the most favorable tax results for all of the Members. Centel is hereby designated as the Company's Tax Matters Member, to serve with respect to the Company in the same capacity as a "tax matters partner" as defined in the Code, and in such capacity is hereby authorized and empowered to act for and represent the Company and each of the Members before the Internal Revenue Service and any other tax authority in any audit or examination of any Company tax return and before any court selected by the Members for judicial review of any adjustment assessed by the Internal Revenue Service and any other tax authority. Centel does hereby accept such designation. In the event of an audit or examination of any Company tax return, Centel shall provide Donnelley with prompt notice thereof together with a description of the basis and scope of such audit or examination. Donnelley may participate, at its own expense, in such audit or examination. The Members specifically acknowledge, without limiting the general applicability of this Section, that the Tax Matters Member shall not be liable, responsible or accountable in damages or otherwise to the Company or any Member with respect to any action taken by it in its capacity as a Tax Matters Member. All out-of-pocket expenses incurred by the Tax Matters Member in the capacity of Tax Matters Member shall be considered expenses of the Company for which the Tax Matters Member shall be entitled to full reimbursement. Donnelley agrees to provide reasonable cooperation with 21 respect to any audit or examination of any Company tax return, including without limitation, providing the Company with any available tax information of the Partnership that the Company may request. 6.5 SECTION 754 ELECTION. In the event a distribution of Company assets occurs that satisfies the provisions of Section 734 of the Code or in the event a transfer of an Interest occurs that satisfies the provisions of Section 743 of the Code, upon the determination of the Management Committee that such election is beneficial, the Company shall elect, pursuant to Section 754 of the Code, to adjust the basis of the Property to the extent allowed by such Section 734 or 743 and shall cause such adjustments to be made and maintained. 6.6 BANK ACCOUNTS. Funds of the Company may be deposited in such bank, money market or similar account(s) as may be approved, from time to time, by the Management Committee. Withdrawals therefrom shall be made only by persons authorized to do so by the Management Committee. ARTICLE VII - TRANSFERS OF INTERESTS AND EVENTS OF WITHDRAWAL 7.1 GENERAL RESTRICTIONS. Except as expressly provided in this Agreement, no Member may Transfer all or any part of such Member's Interest. Any purported Transfer of an Interest in violation of the terms of this Agreement shall be null and void and of no effect. A permitted Transfer shall be effective as of the date specified in the instruments relating thereto. Any Transferee desiring to make a further Transfer shall become subject to all of the provisions of this Article VII to the same extent and in the same manner as any Member desiring to make any Transfer. 7.2 PERMITTED TRANSFERS. Any Transferee of an Interest as allowed by this Section 7.2 who does not become a Substitute Member as provided in Section 7.3 (a "Transferee") shall not be a Member and shall not have any right to vote as a Member or to participate in the management of the business and affairs of the Company, such right to vote such Interest and to participate in the management of the business and affairs of the Company continuing with the Member that is the transferor (the "Transferor"). The Transferee shall, however, be entitled to distributions and allocations of the Company, as provided in Article IV of this Agreement, attributable to the Interest that is the subject of the Transfer to such Transferee. Neither Member may Transfer its Interest or any of its rights hereunder nor delegate any of its obligations (collectively, "assignment") unless the Transferee is also the assignee of all of the Transferor's rights under the Sales Agency Agreement in compliance with Section 13.1 thereof. A condition to the effectiveness of any such Transfer shall be the prior delivery by the Transferor to the other Member of a written confirmation by the Transferee of its assumption of the transferor's obligations under the Agreement. Notwithstanding the foregoing, either Member may Transfer its Member Interest or any of its rights and/or obligations under this Agreement to an Affiliate of that Member. 7.3 SUBSTITUTE MEMBERS. No Transferee of all or part of a Member's Interest shall become a Member in place of the Transferor (a "Substitute Member") unless and until: 22 (a) The Transferee has executed an instrument accepting and adopting the terms and provisions of this Agreement; (b) The Transferor or Transferee has paid all reasonable expenses of the Company in connection with the admission of the Transferee as a Substitute Member; and (c) Consent of all of the other Members. Upon satisfaction of all of the foregoing conditions with respect to a Transferee, the Management Committee shall cause this Agreement to be duly amended to reflect the admission of the Transferee as a Substitute Member. 7.4 EFFECT OF ADMISSION AS A SUBSTITUTE MEMBER. Unless and until admitted as a Substitute Member pursuant to Section 7.3, a Transferee shall not be entitled to exercise any rights of a Member in the Company, including the right to vote, grant approvals or give consents with respect to such Interest, the right to require any information or accounting of the Company's business or the right to inspect the Company's books and records, but a Transferee shall only be entitled to receive, to the extent of the Interest transferred to such Transferee, the Distributions to which the Transferor would be entitled. A Transferee who has become a Substitute Member has, to the extent of the Interest transferred to such Transferee, all the rights and powers of the Member for whom such Transferee is substituted and is subject to the restrictions and liabilities of a Member under this Agreement and the Act. Upon admission of a Transferee as a Substitute Member, the Transferor shall cease to be a Member of the Company to the extent of such Interest. A Person shall not cease to be a Member upon assignment of all of such Member's Interest unless and until the Transferee becomes a Substitute Member. 7.5 REDEMPTION OF INTERESTS. Any Interest may be redeemed by the Company, by purchase or otherwise, upon the consent of the holder of such Interest and the other Member. Whenever any Interest is redeemed by the Company in accordance with this Section 7.5, the Interest of each Member outstanding immediately following such redemption shall be increased proportionately, as appropriate. The Management Committee shall cause this Agreement to be amended to reflect any such redemption. 7.6 EVENTS OF WITHDRAWAL. Neither Member shall have a right to withdraw or otherwise cease to be a Member of the Company. ARTICLE VIII - DISSOLUTION AND TERMINATION 8.1 EVENTS CAUSING DISSOLUTION. The Company shall be dissolved upon the first to occur of the following events: (a) The unanimous written agreement of the Members to dissolve. (b) Upon the entry of a decree of judicial dissolution under Section 18-802 of the Act. 23 (c) When the Company is not the surviving entity in a merger or consolidation under the Act. (d) Upon the close of business on December 31, 2004. 8.2 EFFECT OF DISSOLUTION. Except with respect to the occurrence of an event referred to in Section 8.1(c), and except as otherwise provided in this Agreement, upon the dissolution of the Company, the Management Committee shall take such actions as may be required pursuant to the Act and shall proceed to wind up, liquidate and terminate the business and affairs of the Company. In connection with such winding up, the Management Committee shall have the authority to continue to receive payments from customers and advertisers, continue to make distributions in accordance with Section 4.1 (recognizing that Gross Local Advertising Cash Flow will continue to be received for Directories published on or before December 31, 2004 for at least 12 months (beginning with the month of publication) and Donnelley's Priority Distribution must continue to be paid during such period) and to otherwise distribute the assets of the Company in accordance with Section 8.3 of this Agreement, and to do any and all acts and things authorized by, and in accordance with, the Act and other applicable laws for the purpose of winding up and liquidation. 8.3 DISTRIBUTION AND LICENSE OF COMPANY ASSETS UPON LIQUIDATION. Upon dissolution of the Company, the Members hereby agree that the following assets shall be licensed or distributed as follows: (a) Accounts receivable and other rights to receive payment shall not be distributed by the Company upon dissolution, but rather shall be collected by the Company in the ordinary course of business and distributed in accordance with Section 4.1. (b) All of the Company's rights, title and interest in and to executory customer agreements relating to the Company's business, including without limitation unfulfilled directory advertising orders, shall be irrevocably transferred to, and the obligations and liabilities thereunder irrevocably assumed by, Centel to the extent such agreements, and the rights, obligations, and liabilities arising thereunder, relate to Directories to be published on or after the date of dissolution. (c) All executory agreements to which the Company, is a party or has an interest, such as unexpired production or supply contracts, to the extent such agreements and the rights, obligations, and liabilities arising thereunder, relate to those Directories published on or after the date of dissolution, shall be irrevocably transferred to and irrevocably assumed by Centel. (d) All of the Company's right, title, and interest in and to any and all Work Product, whether developed by the Company, or its employees, vendors, subcontractors or independent contractors, including any copyrights therein and the right to sue and recover for any infringement thereof, shall be transferred and assigned to Centel. (e) Unless otherwise agreed upon in writing by the Members, a Member assuming any order or agreement pursuant to this Section 8.3 shall not thereby assume 24 any obligations or liabilities accruing prior to the date of dissolution of the Company, rather such obligations and liabilities shall remain those of the Company. (f) With respect to the assignment of and irrevocable assumption of executory agreements (or portions thereof) provided for in this Section 8.3, the Members agree to cooperate with each other and to use their reasonable best efforts to effectuate such assignments and/or assumptions on or prior to the date of dissolution of the Company, including, without limitation, obtaining any consents or waivers from third parties required under the terms of such agreements. In the event that the parties (i) are not able to obtain any required consents or waivers or (ii) are otherwise unable to effectuate any such assignment and/or assumption, in each case, prior to the date of dissolution of the Company, the Members agree to give practical effect to such assignment and/or assumption by permitting the Member specified in this Section 8.3 as being entitled to assume that agreement to the extent it relates to the Directories published on or after the Effective Date as if such assuming party was the contractual party in interest to that agreement, and such assuming party agrees to indemnify and hold harmless the Company from all losses, damages, costs and claims accruing after the date of dissolution of the Company with respect to that agreement to the same extent as though the agreement had been assumed by the assuming party. (g) To the extent that Centel's capital account is insufficient to support the distributions of the agreements and assets set forth in paragraphs (a), (b), (c) and (d), above (the "Section 8.3 Assets"), Centel shall be entitled, but not obligated, to make an additional capital contribution to the extent of any shortfall or refuse to make such contribution and accept its distribution as set forth in Section 4.2 above. Notwithstanding Section 4.4 hereof, any and all gain or loss realized on the sale, exchange or distribution of the Section 8.3 Assets (other than cash) shall be allocated to Centel. ARTICLE IX - MISCELLANEOUS 9.1 TITLE TO THE PROPERTY. Title to the Property shall be held in the name of the Company. No Member shall individually have any ownership interest or rights in the Property, except indirectly by virtue of such Member's ownership of an Interest. No Member shall have any right to seek or obtain a partition of the Property, nor shall any Member have the right to any specific assets of the Company upon the liquidation of or any distribution from the Company. 9.2 NATURE OF INTEREST IN THE COMPANY. An Interest shall be personal property for all purposes. 9.3 ORGANIZATIONAL EXPENSES. Each Member shall pay such Member's own expenses incurred in connection with the creation and formation of the Company and review and negotiation of this Agreement. 9.4 NOTICES. All notices, demands or requests required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed to have been given when delivered personally or upon receipt if delivered by certified mail, return receipt requested, addressed as follows: 25 (a) If to Centel, to: Centel Directory Company 7015 College Boulevard Suite 400 Overland Park, Kansas 66211-1535 ATTENTION: President cc: General Counsel or at such other address as Centel may furnish to Donnelley in accordance with the provisions of this Section 9.4. (b) If to Donnelley: R. H. Donnelley Inc. One Manhattanville Road Purchase, New York 10577 ATTENTION: President cc: General Counsel or such other address as Donnelley may furnish to Centel in accordance with the provisions of this Section 9.4. 9.5 WAIVER OF DEFAULT. No consent or waiver, express or implied, by the Company or a Member with respect to any breach or default by another Member hereunder shall be deemed or construed to be a consent or waiver with respect to any other breach or default by such Member of the same provision or any other provision of this Agreement. Failure on the part of the Company or a Member to complain of any act or failure to act of another Member or to declare such other Member in default shall not be deemed or constitute a waiver by the Company or the Member of any rights hereunder. 9.6 NO THIRD PARTY RIGHTS. None of the provisions contained in this Agreement shall be for the benefit of or enforceable by any third parties, including, but not limited to, creditors of the Company; provided, however, the Company may enforce any rights granted to the Company under the Act, the Certificate, or this Agreement. 9.7 ENTIRE AGREEMENT. This Agreement, together with the Certificate, constitutes the entire agreement between the Members, in such capacity, relative to the formation, operation and continuation of the Company. 9.8 AMENDMENTS TO THIS AGREEMENT. (a) Except as otherwise provided herein, this Agreement shall not be modified or amended in any manner other than by the written agreement each of the Members at the time of such modification or amendment. 26 (b) This Agreement may be amended by the Management Committee, without any execution of such amendment by the Members, in order to reflect the occurrence of any of the following events provided that all of the conditions, if any, contained in the relevant sections of this Agreement with respect to such event have been satisfied: (i) the redemption of an Interest (Section 7.5 hereof); (ii) the modification of this Agreement to comply with the relevant tax laws pursuant to Sections 3.3 or 4.5(j) hereof; and (iii) the admission of a Substitute Member (Section 7.3 hereof). (c) Anything in this Section 9.8 or elsewhere in this Agreement to the contrary notwithstanding, without the written consent of all Members, no amendment to this Agreement may: (i) add to, detract from or otherwise modify the purposes of the Company as set forth in Section 2.1; (ii) enlarge the obligations or diminish the rights of any Member under this Agreement; (iii) amend any provisions of Article IV other than an amendment to comply with the relevant tax laws as provided in Section 4.5(j); or (iv) amend Section 5.9 or this Section 9.8 or any provision of this Agreement requiring the consent of all of the Members. 9.9 SEVERABILITY. In the event any provision of this Agreement is held to be illegal, invalid or unenforceable to any extent, the legality, validity and enforceability of the remainder of this Agreement shall not be affected thereby and shall remain in full force and effect and shall be enforced to the greatest extent permitted by law. 9.10 BINDING AGREEMENT. Subject to the restrictions on the disposition of Interests herein contained, the provisions of this Agreement shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, personal representatives, successors and permitted assigns. 9.11 HEADINGS. The headings of the Certificate and Sections of this Agreement are for convenience only and shall not be considered in construing or interpreting any of the terms or provisions hereof. 9.12 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which shall constitute one agreement that is binding upon all of the parties hereto, notwithstanding that all parties are not signatories to the same counterpart. 27 9.13 FORCE MAJEURE. Any delays in performance under this Agreement due to acts of God or other substantial casualty beyond the control of the non-performing Member shall not be deemed a breach of this Agreement. In the event of such delays, the non-performing Member shall use its best efforts to perform its obligations as soon as is practicable and both Members shall cooperate to ensure that performance occurs. During the pendency of any force majeure event, both parties shall be relieved of their performance obligations, including payment obligations. 9.14 DISPUTE RESOLUTION. (a) EXPEDITED ARBITRATION. Any dispute arising under or related to this Agreement that the parties, in each of their sole and absolute discretion, elect to submit to arbitration, shall be governed by the Commercial Arbitration Rules of the American Arbitration Association attached to this Agreement as Schedule 9.14(a) (the "Arbitration Rules"). Any such arbitration shall be conducted in accordance with the expedited procedures set forth in Paragraphs E-1 through E-10 of the Arbitration Rules. The decision of, and any award made by, the arbitrator shall be final and binding on the parties and may be entered as a judgment in any court having competent jurisdiction over the parties. (b) LITIGATION. For all other disputes arising under or related to this Agreement, each party shall have the right to bring an action in any court having competent jurisdiction over the parties and the subject matter in dispute, subject to the dispute resolution covenants set forth in this Section 9.14(b). If one or more disputes subject to arbitration under Section 9.14(a) require the resolution of issues of fact or law common with, or related to, issues raised in a dispute governed by this Section 9.14(b), then all such disputes shall be resolved in accordance with this Section 9.14(b), and the arbitration provisions of Section 9.14(a) shall not apply to them. The following dispute resolution covenants shall govern all actions subject to this Section 9.14(b): (i) GOVERNING LAW. This agreement and the rights and obligations of the Members is governed by the laws of the State of Delaware, without regard to its conflict of laws principles. (ii) WAIVER OF JURY TRIAL. Each Member of the Company waives its right to a jury trial in any court action among the parties arising under or related to this Agreement, whether made by claim, counter-claim, third party claim, or otherwise. If for any reason this jury waiver is held to be unenforceable, the parties agree to binding arbitration for any dispute arising under or related to this Agreement, pursuant to the Arbitration Rules, except that the expedited procedures referred to in Section 9.14(a) shall not apply. The agreement to arbitrate any dispute under this provision shall extend to any claim by or against any third party that could have been brought in a court action between the parties, whether as a claim, counterclaim, or third-party claim, subject to the agreement of such third parties. The agreement of each Member and the Company to waive its right to a jury trial will be binding on its successors and assigns and will survive the termination of this Agreement. 28 (iii) ATTORNEY'S FEES. The prevailing party in any dispute adjudicated by lawsuit or arbitration will be entitled to reasonable attorney's fees and costs, including reasonable expert fees and costs. This provision will not apply if the prevailing party rejected a written settlement offer that exceeds the prevailing party's recovery. 9.15 LEGAL REPRESENTATION. The Members hereby acknowledge that this Agreement was prepared by the law firm of Stinson, Mag & Fizzell, P.C. on behalf of Centel. Each Member hereby acknowledges that: (a) A conflict of interest may exist between such Member's interests and those of the Company and the other Members; (b) Such Member has had the opportunity to seek the advice of independent legal counsel; (c) This Agreement has tax consequences; and (d) Such Member has had the opportunity to seek the advice of independent tax counsel. 9.16 GOOD FAITH. Each Party shall perform each and every covenant applicable to it under this Agreement in good faith. Any specific reference herein to the obligation to perform any covenant in good faith shall not be interpreted as imposing any greater or lesser duty than imposed by this Section 9.16. 9.17 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. R. H. DONNELLEY INC. ("Donnelley") By: /s/ David C. Swanson Title: President CENTEL DIRECTORY COMPANY ("Centel") By: /s/ Robert J. Walsh Title: President 29 EX-10.15 4 y62626exv10w15.txt SALES AGENCY AGREEMENT Exhibit 10.15 SALES AGENCY AGREEMENT THIS AGREEMENT, entered into as of the 27th day of April, 2000, is by and among R. H. Donnelley Inc. (f/k/a The Reuben H. Donnelley Corporation), a Delaware corporation ("Donnelley"), Centel Directory Company, a Delaware corporation ("Centel"), and CenDon, L.L.C., a Delaware limited liability company ("CenDon"). Donnelley, Centel and CenDon are referred to in this Agreement collectively as the "parties" or individually as a "party", as the context requires. "Publisher" shall mean CenDon on and before December 31, 2004, and Centel thereafter. RECITALS: A. Centel and Donnelley have caused CenDon, L.L.C. (the "Company") to be formed as a limited liability company under the Delaware Limited Liability Company Act and, as required thereunder, Centel and Donnelley entered into a Limited Liability Company Agreement, of even date herewith (the "LLC Agreement"). B. Donnelley and Centel are parties to The CenDon Partnership Agreement dated May 5, 1988, as amended to date (the "Partnership Agreement"), which established The CenDon Partnership, a general partnership in which the parties are partners (the "Partnership"). C. The Partnership has entered into directory agreements and amendments thereto with the telephone operating company Affiliates of Centel identified in Exhibit A to the LLC Agreement (the "Centel Operating Companies"), which generally provide for the publication of telephone directories distributed within defined geographic areas (the "Directory Agreements"). Copies of the Directory Agreements and all amendments thereto are attached to the LLC Agreement as Exhibit B. D. The parties desire to convert the Partnership into the Company by transferring to the Company all of their right, title and interest in the Partnership, thereby causing the Partnership to cease to exist and all of its assets and liabilities to be transferred to the Company. E. The parties desire to appoint Donnelley as exclusive sales agent and to specify the sales agency services that Donnelley shall perform with respect to the Directories (as defined below) published following the Effective Date (as defined below), in accordance with the terms of the LLC Agreement and this Sales Agency Agreement. IN CONSIDERATION of the covenants set forth in this Agreement, the sufficiency and adequacy of which are acknowledged by each party, Donnelley, Centel and CenDon agree as follows: 1. FORMATION OF CENDON. Effective as of the Effective Date, Donnelley and Centel shall transfer to CenDon all of their right, title and interest in the Partnership, and CenDon shall continue the business of the Partnership, hold all Partnership assets and assume all Partnership liabilities. The business of the Partnership after the Effective Date shall cease. 2. SALES AGENCY, SERVICES, AND FUNCTIONS. 2.1 GRANT OF EXCLUSIVE SALES AGENCY. During the term of this Agreement, and subject to the terms hereof, Donnelley shall have the exclusive right and obligation to solicit and sell: (a) all local and foreign print advertising for inclusion in the Directories, as defined in this Agreement, other than National Yellow Pages Service or equivalent national advertising that may be sold by other national yellow pages selling companies, or their equivalent ("NYPS advertising"); (b) all local and foreign electronic advertising, other than NYPS advertising, for inclusion in an electronic yellow pages directory offered by Publisher to its advertising customers as a product or service ancillary to print advertising sold for inclusion in the Directories; and (c) all local and foreign advertising associated with the Hotel/Motel Program as such Program is presently constituted and operated by the Partnership as reflected in the "CenDon Operating Practices" issued November 30, 1999 (attached hereto as Schedule 2.1 (c)), which Program shall continue to be managed substantially as a local advertising program. (d) Notwithstanding the foregoing, Donnelley's exclusive right and obligation to solicit and sell foreign advertising into the Directories shall not apply to foreign advertising customers located within the primary distribution area of any classified telephone directory, other than the Directories, published by Publisher or an Affiliate (as such term is defined in Section 12(d)) of Publisher for general distribution to telephone subscribers; provided, however, that Donnelley shall maintain an exclusive right to solicit and sell foreign advertising to existing customers of Donnelley regardless of their location within the primary distribution area of any classified telephone directories (other than the Directories) published by Publisher or one of its Affiliates. As used herein, "existing customers of Donnelley" means directory advertising customers to which Donnelley has sold advertising into the Directories during the last publication cycle preceding the Effective Date. 2.2 SALES AND PUBLISHING SERVICES. Pursuant to the schedules incorporated into this Agreement, and subject to the terms of this Agreement, Donnelley shall provide certain services to Publisher as follows: (a) ADVERTISING SALES AND SUPPORT SERVICES. As more specifically identified in the Advertising Sales and Customer Support Services Schedule attached hereto as Schedule 2.2(a), Donnelley agrees to provide telephone directory advertising sales and customer support services to Publisher on a fully-dedicated basis. As used herein, "a fully-dedicated basis" shall mean that employees of Donnelley assigned to work on the Directories shall not have assignments or responsibilities for publications other than the Directories, except that Donnelley employees who are assigned to work on the Directories may be utilized to work on publications other than the Directories, provided 2 that (i) such utilization has either been provided for in the applicable Annual Performance Plan (as defined herein) or, if such deployment is not contemplated in the Annual Performance Plan, has been reviewed and approved in writing by Publisher, and (ii) such deployment or utilization is not reasonably projected to have an adverse effect on the operations, sales, or revenues of the Directories. Donnelley may also request other arrangements on a case-by-case basis, subject to the written approval of Publisher, which shall not be unreasonably withheld. Publisher shall consent to arrangements requested by Donnelley hereunder so long as Donnelley can reasonably demonstrate no dilution of efforts towards Publisher's sales revenue objectives and commitment of resources in accordance with the Annual Performance Plan (as defined herein). (b) PUBLISHER ASSUMPTION OF SALES SUPPORT FUNCTIONS. Publisher shall have the right to assume responsibility for certain sales and customer support functions, as identified, and in accordance with the time period specified, in Schedule 2.2(b). The Parties will cooperate and take all reasonable measures to ensure an orderly transition of the assumed sales support and related services and functions to Publisher. Publisher shall reimburse Donnelley for those expenses of the type identified on Schedule 2.2(b) that are reasonably incurred by Donnelley in connection with its cooperation in the orderly transition of these services and functions. 2.3 PUBLISHER FUNCTIONS. Subject to the terms of this Agreement, Publisher shall be responsible for the publisher functions identified in the Publisher Functions Schedule attached hereto as Schedule 2.3. 2.4 PROPOSAL AND BID RIGHTS. If any Affiliate of Publisher proposes to sell telephone directory advertising for an electronic Classified Telephone Directory as may be permitted by Section 12 of this Agreement, Publisher shall use reasonable efforts to cause such Affiliate to present Donnelley with the opportunity to submit a proposal or bid to sell local advertising into such product offering. Such Affiliate may determine whether to utilize Donnelley for such services in its sole discretion, and Donnelley's rights hereunder are merely the right to present the proposal or bid. If such Affiliate determines to use Donnelley for such services, such services will be provided under a sales services agreement having terms, conditions and covenants mutually acceptable to such Affiliate and Donnelley. Nothing in this Section 2.4 shall be construed to give Donnelley any preference over any third party or other Affiliates of Publisher with respect to such services or any right of first refusal or right of first offer with respect thereto. 3. SCOPE OF RELATIONSHIP. 3.1 THE DIRECTORIES. The telephone directories (the "Directories") subject to this Agreement are those telephone directories published by the Partnership immediately prior to the Effective Date pursuant to the Directory Agreements, which are identified in Schedule 3.1. The Directories also shall mean and include any other printed or electronic directory or related product made subject to this Agreement by the mutual agreement of the parties, which shall be made by written instrument signed by both parties. With respect to the Directories, the parties agree as follows: 3 (a) In the event Publisher elects during the term of this Agreement to exercise its right to re-scope, over-scope, under-scope, reconfigure, substitute, or otherwise alter the Directories in existence as of the date of this Agreement, then this Agreement shall be applicable to such succeeding, re-scoped, over-scoped, under-scoped, reconfigured, substituted or otherwise altered directories. (b) If the Publisher re-scopes, over-scopes, under-scopes, reconfigures, substitutes, or otherwise alters the Directories, to include the addition of exchange areas outside the current geographic scope of the Directories as depicted in Schedule 3.1 (b) hereto (the "Current Area"), Donnelley shall have the exclusive right and obligation to provide directory services under this Agreement for all re-scopings, re-configurations and substitutions of the Directories that include exchanges within the Current Area . (c) It shall not be considered to be a re-scoping, over-scoping, under-scoping, reconfiguration, substitution, or alteration of the Directories for the Publisher to publish one or more directories of general distribution that have ten percent (10%) or less of each of their primary distribution scheduled for delivery in the Current Area ("Other Directories"), provided that all of the Current Area continues to be covered by the Directories and that such Other Directories are not intended to be, or have the practical effect of being, a substitute in whole or in part for any of the Directories. Except as provided for in the following sentence, Publisher in its sole discretion shall determine from whom it will request directory services for the Other Directories. With respect to the solicitation and sale of advertising for publication in such Other Directories, Donnelley shall have the exclusive right and obligation to solicit telephone subscribers within the Current Area for the sale of advertising to be published by Publisher in such Other Directories (d) Notwithstanding the exclusive sales agency granted Donnelley under this Agreement, Publisher shall have the right, but not an obligation, to engage in reciprocal selling arrangements with third parties encompassing the Directories and other telephone directories that are distributed primarily in geographic areas outside the primary distribution area of the Directories, provided that (a) Donnelley shall be allowed to retain its exclusive selling rights and related commissions for any foreign advertising accounts included in the Directories at the time the reciprocal selling arrangement is established, and (b) Publisher shall not be permitted to accept from other than Donnelley advertising sold to a telephone subscriber that is billed to a telephone number located within the Current Area. In the event Publisher elects to engage in such arrangements and unless otherwise agreed upon in writing by the Parties, Donnelley will be compensated and shall provide to Publisher sales agency services with respect to advertising sold into such other telephone directories consistent with the following terms: for any advertising sold by a third party sales agent into the Directories during the term hereof, Donnelley shall receive no compensation; and for advertising sold by Donnelley into directories (other than the Directories) that are published by or on behalf of Publisher's Affiliates, Donnelley shall be compensated at the applicable commission rate under this Agreement. In the event Publisher elects to engage in one or more reciprocal selling arrangements, Publisher shall promptly notify Donnelley in writing of such fact, which notice shall disclose the nature of the arrangement. Within sixty (60) days after notification, the Parties shall 4 consummate the specific terms governing Donnelley's provision of sales agency services with respect to the disclosed reciprocal selling arrangement, consistent with the requirements of this paragraph. The terms governing the arrangement shall be reduced to a writing signed by the Parties. 3.2 PUBLISHING RIGHTS. The parties acknowledge that the Centel Operating Companies are regulated local exchange telecommunications carriers ("LECs"), and that LECs may from time-to-time acquire, sell, trade, or otherwise dispose of local exchange areas, and that contractual relationships of LECs may be subject to direction by regulatory authorities. Accordingly, the parties agree as follows: (a) MAINTAINING PUBLISHING RIGHTS. Publisher shall use its reasonable best efforts to maintain its right to publish the Directories for each of the Centel Operating Companies throughout the term of this Agreement ("publishing rights"). Donnelley agrees to cooperate with Publisher in any reasonable effort undertaken by Publisher to maintain its publishing rights. In supporting Publisher's efforts to maintain its publishing rights, Donnelley shall bear its own internal costs of providing such support. In the event Donnelley incurs costs for external legal services or external consultative services, Publisher shall reimburse Donnelley for such external costs that are reasonably incurred and authorized in advance by Publisher. As part of its publishing rights, Publisher shall use its reasonable best efforts to acquire (on a non-exclusive, but timely basis) from the Centel Operating Companies all listing information and service orders needed to publish the Directories, subject to any regulatory and other restrictions the Centel Operating Companies place on the release of such information. (b) AFFILIATES. In the event Publisher loses its right to publish the Directories for any of the Centel Operating Companies' exchange areas covered thereby and an Affiliate of Publisher acquires the right to publish telephone directories for the Centel Operating Companies covering those exchange areas, Publisher shall cause such Affiliate to enter into a sales agency agreement substantially on the same terms and conditions as contained in this Agreement with respect to such exchange areas (the "Affiliate Agreement"), it being the intent of the parties in such case to preserve Donnelley's benefit of the bargain under this Agreement. Donnelley shall be obligated to promptly negotiate and enter into the Affiliate Agreement in accordance with the terms of this Section 3.2 (b). Upon the execution of the Affiliate Agreement, the exchange areas covered thereby shall be deleted from this Agreement. (c) REGULATORY ACTION. If, during the term of this Agreement, Publisher loses its right to publish the Directories for any of the Centel Operating Companies' exchange areas covered thereby because of regulatory action, such exchange areas shall be deleted from this Agreement, subject to the terms of this Section 3.2(c). Notwithstanding the foregoing or anything else to the contrary contained herein, in the event of any regulatory action which results, directly or indirectly, in the sale, exchange or transfer (with or without consideration) of exchange areas covered by this Agreement from any of the Centel Operating Companies to any (i) Affiliate of Publisher, then such transfer shall be covered by Section 3.2(b) above, or (ii) third party that is not an Affiliate of Publisher, then such transfer shall be covered by Section 3.2(d) below. Publisher shall promptly 5 notify Donnelley of all areas covered by this Agreement for which rights are to be lost as soon as practicable following such fact being known to Publisher. 1. Upon receipt by Donnelley of notice from Publisher of such deletion of any exchange area covered by this Agreement, Donnelley shall have the right to: give written notice to Publisher (a "Termination Notice") to terminate this Agreement in its entirety within (90) days of Publisher's notice of exchanges to be deleted due to lost publishing rights (the Termination Notice to be effective for Directories with canvasses with start dates six (6) months from the date of such notice). In the event Donnelley does not give Publisher a Termination Notice in accordance with the foregoing, this Agreement shall continue in full force and effect with respect to the exchange areas then remaining over which Publisher continues to maintain a right to publish Directories on behalf of the Centel Operating Companies. 2. With respect to the non-compete provisions of Section 12 hereof (the "Noncompete Provision"), the Parties agree as follows in the event of a loss of Publisher's right to publish the Directories: If Donnelley elects to terminate this Agreement in its entirety by giving a Termination Notice to Publisher as hereinabove provided, the Noncompete Provision shall not survive such termination. If Donnelley does not so terminate this Agreement, then the Noncompete Provision shall remain in effect, except that such provision thereafter shall not apply with respect to any exchanges that are deleted from this Agreement. 3. For purposes of this Agreement, Publisher shall not be deemed to have lost its right to publish the Directories for any Centel Operating Company exchange area covered thereby if Publisher's right has been formally and officially suspended or terminated by regulatory action, provided (i) Publisher diligently pursues, or requests that the applicable Centel Operating Company pursue, the retention or restoration of such right pursuant to the process prescribed by the appropriate regulatory agency, and such other legal, equitable or injunctive legal action which may be available to Publisher or the applicable Centel Operating Company and which Publisher or the applicable Centel Operating Company reasonably deems advisable to pursue, and (ii) Publisher continues to receive Directory advertising revenues from such exchange areas without material reduction resulting from such regulatory action, other than reductions of Directory advertising revenues attributable to such regulatory action that continue for less than an aggregate of three (3) months at any time during the term of this Agreement. 4. In the event such right is retained or restored during the term of this Agreement, the exchange areas subject to such right will continue to be subject to this Agreement. In the event Publisher or the applicable Centel Operating Company fails to retain or restore such right pursuant to the prescribed regulatory process and such other legal, equitable or injunctive legal action which may be available to Publisher or the applicable Centel Operating Company and 6 which Publisher or the applicable Centel Operating Company reasonably deems advisable to pursue, such right shall be deemed lost. Donnelley agrees to cooperate with Publisher or the applicable Centel Operating Company in any reasonable effort made by Publisher to so retain or restore such rights. In supporting Publisher's efforts to maintain its publishing rights, Donnelley shall bear its own internal costs of providing such support. In the event Donnelley incurs costs for external legal services or external consultative services, Publishing shall reimburse Donnelley for such external costs that are reasonably incurred and authorized in advance by Publisher. (d) SALES TO THIRD PARTIES. In the event all or any portion of any Centel Operating Company's exchange areas covered by the Directories are sold, exchanged, or otherwise transferred to another person or entity (the "acquiror"), Publisher shall cause the Centel Operating Company(s) engaged in such transaction to assign its rights to, and require an assumption of, the applicable Directory Agreement(s) by the acquiror, to the extent the Directory Agreement(s) relates to the sold, exchanged, or transferred exchange area. 1. Alternatively, the acquiror shall be permitted to negotiate and enter into a separate directory publishing agreement with Publisher, on terms comparable to the Directory Agreement(s) with respect to the acquired exchange areas, for which Donnelley shall provide services and receive compensation in accordance and consistent with this Agreement. If such an alternative directory publishing agreement is consummated, then the Centel Operating Company exchange areas covered thereby may be sold, exchanged, or transferred free and clear of any obligations under the Directory Agreement(s) or this Agreement. 2. In lieu of the foregoing provisions of this Section 3.2(d), if the Centel Operating Company(s) offers to subject to the Directory Agreement(s) exchange areas comparable to the sold, exchanged, or transferred exchange areas in terms of economic value and geographic location, it will have the right (subject to Donnelley's prior written consent, not to be unreasonably withheld) to substitute those exchange areas under the Directory Agreement(s) and the sold, exchanged, or transferred exchanges thereafter will not be subject to, or encumbered by, the Directory Agreement(s) or this Agreement. Donnelley may not reasonably withhold consent to the substitution of exchange areas as contemplated herein, unless (i) the substituted exchange areas reasonably are projected not to produce sales revenues comparable to the sales revenues expected to be produced by the sold, exchanged, or transferred exchange areas, or (ii) Donnelley reasonably demonstrates that its costs of providing services required by this Agreement for the substituted exchange areas would be materially increased over the costs of providing those services to the sold exchange areas, and Publisher elects not to absorb such increased costs, or (iii) Donnelley is contractually precluded (by contract or applicable law) from serving as Publisher's sales agent in any of the substituted exchange areas. 7 (e) DIRECTORY AGREEMENTS. The parties acknowledge that the terms of the Directory Agreements end on December 31, 2004 and that Centel will replace the Directory Agreements so that Centel's right to publish the Directories is coterminous with this Agreement. Centel shall cause the Centel Operating Companies to enter into replacement agreements, that extend Centel's right to publish the Directories at least through the term of this Agreement. Donnelley agrees to assist, at Centel's sole cost and expense, Centel's effort to renegotiate or replace the Directory Agreements to the extent reasonably requested by Centel. Publisher shall have the right, at any time during the term of this Agreement, to make any modifications to the terms of the Directory Agreements that it deems necessary or advisable, provided (a) Publisher preserves its right to publish the Directories in accordance with the terms of this Section 3.2, and (b) those modifications do not have a material, adverse impact on Donnelley's compensation or the cost of providing services under this Agreement. In the event that Centel fails to so replace each of the Directory Agreements as provided above by January 1, 2004, then, at any time prior to April 30, 2004, Donnelley, in its sole and absolute discretion, may require Centel to purchase no earlier than September 30, 2004 and no later than December 31, 2004 (the date of purchase hereafter referred to as the "Buy-out Date") for cash Donnelley's rights under this Agreement (the "Put Option") at Fair Market Value (as defined below). If such purchase is consummated in accordance with the foregoing sentence, this Agreement thereafter shall terminate. For purposes of this Section 3.2(e), "Fair Market Value" shall mean (a) the present value (calculated using a discount rate equal to the effective yield for "on the run" (if available) U.S. Treasury securities with lives equal to the remaining Term (giving effect to the Extended Term) of this Agreement (rounded up to the nearest whole year) of the operating income to be earned by Donnelley under this Agreement and the LLC Agreement (reduced for any operating income received or to be received by Donnelley for Directory Agreements for which replacements are received and for which Donnelley has agreed to continue to provide the services contemplated by this Agreement) from the Buy-out Date through December 31, 2010, using the preceding 12-month period's operating income of Donnelley under this Agreement plus Donnelley's aggregate Priority Distributions under the LLC Agreement during such 12-month period, if any (collectively, "Operating Income"), as the base annual Operating Income, which base annual Operating Income will have applied to it a compound annual growth rate equal to the average growth rate in Operating Income for Donnelley over the three (3) years prior to the calculation, plus (b) a terminal value equal to (i) one times the then-current year's budgeted compensation (salary, commission and bonus) for the sales and sales support personnel dedicated to the performance of Donnelley's obligations under this Agreement, (ii) the net book value of the fixed assets deployed within all sales offices that support the Directories and (iii) all costs associated with the termination or transfer of any contractual obligations of Donnelley to the extent related to this Agreement (i.e. leases). The terminal value under clause (b) above shall not be subject to any discount rate. Donnelley shall be required to give to Centel a non-compete covenant in connection with exercise of the Put Option, the terms of which shall be substantially the same as the non-compete provision (as applied to Donnelley) set forth in Section 12 of this Agreement. The non-compete provision shall apply to Donnelley from the Buy-out Date through December 31, 2010. 8 4. PUBLISHER DISCRETION. 4.1 PUBLISHING POLICIES AND PROCEDURES. In addition to those rights generally afforded publishers, unless otherwise specifically restricted elsewhere in this Agreement, Publisher shall have the authority and the obligation to establish and maintain all publishing policies and procedures, including without limitation those publishing policies relating to product specifications, compilation, composition, printing, advertising sales, customer service, publication and distribution of all Directories. Publisher's requirements for advertising sales, customer service, compilation and composition services to be provided by Donnelley pursuant to this Agreement are as specified herein. 4.2 CHANGES IN PUBLISHING POLICIES OR PROCEDURES. As part of the annual planning process provided for in Section 6 of this Agreement, Publisher agrees to notify Donnelley of any changes to be made in Publisher's policies or procedures from those in existence as of the date of this Agreement that reasonably could have a material impact on the performance of this Agreement or on the revenues derived from, or costs incurred by Donnelley for, advertising sales in the Directories, so that such changes and their impact can be taken into consideration as part of the next annual planning cycle. If the contemplated changes, in the aggregate, are reasonably projected to result in an increase in Donnelley's cost of performing services under this Agreement or a reduction in sales revenues derived from advertising sales in the Directories, Donnelley shall promptly notify Publisher of the projected increase in performance costs and/or reduction in sales revenues, in which case Publisher may elect to implement the change and reimburse Donnelley for, or otherwise bear, the actual cost increase or revenue reduction caused by the change, or may elect to modify or forego the change. 4.3 ENUMERATION OF PUBLISHER'S RIGHTS. Subject to Section 4.2, Publisher's rights reserved hereunder shall include, but are not limited to, the right to: (a) Establish advertising rates (including without limitation discount programs and promotions), items, item codes, formats, forms and specifications; provided, however, if Publisher establishes discount programs for bundled services or cross-promotional programs that involve services or products offered by any Affiliates of Publisher and Donnelley provides no sales agency services with respect to such services or products, Donnelley shall receive compensation under this Agreement equivalent to what it would have received absent the bundled services or cross-promotional program discount. (b) Establish directory publication dates, distribution dates, publishing copy flow schedules and alphabetical and classified close dates. (c) Establish directory content such as maps, consumer guides or other enhancements to be included in the Directories, size of the Directories and location of particular content or directory features within the Directories, including re-scopings of the distribution area of the Directories, the exchanges to be included in each of the Directories, and the alphabetical listings (white pages) to be associated with each of the Directories. 9 (d) Establish publishing guidelines, policies and procedures relating to the Directories, including without limitation restrictions on types of advertising and classified headings. (e) Reject or not accept for publication any submitted advertising which fails to meet Publisher's specifications or is otherwise objectionable. (f) Design all forms relative to Publisher's rights, including advertising order forms and copy sheets. To the extent that the design of the forms affect Donnelley or its ability to carry out its obligations under this Agreement, Publisher and Donnelley shall mutually agree on such design. Publisher shall have the right at its sole discretion to prescribe the terms and conditions upon which it sells directory advertising. (g) Require, not require and waive special charges and fees to be borne by the advertiser such as the one-time graphics fee for display ads. Publisher shall receive all revenues from such charges. (h) Establish credit and advance payment policies. (i) Establish national yellow pages publishing policies, provided that such policies are in general conformance with those established within the national yellow pages industry and intended to preserve the distinction between advertising that is national in character and geographic scope and advertising that is of a local nature. Notwithstanding the foregoing, all advertising associated with the Hotel/Motel Program, as presently constituted and operated by the Partnership (as set forth in Schedule 2.1(c) hereto), will continue to be managed substantially as a local advertising program. (j) Contact customers directly for the purpose of product promotion, good will, customer appreciation, customer feedback, surveys and research provided that such customer contact is coordinated with Donnelley in order to minimize possible advertiser confusion and potential disruption of sales activities of Donnelley. (k) Establish, at Publisher's cost, Publisher-sponsored sales incentive and recognition programs to be coordinated with Donnelley. (l) Add new publications to this Agreement, such as neighborhood or community directories, to be primarily distributed substantially within the current geographic scope of the Directories. 4.4 MAINTAINING SUPPORT. Publisher shall maintain advertising and marketing support for the sale of advertising into the Directories at a level that is qualitatively comparable to the practice of the Partnership immediately prior to the Effective Date. This covenant shall not preclude Publisher from achieving cost savings through process improvements and economies of scale so long as the quality of support is maintained. 10 5. WORK PRODUCT. 5.1 DEFINITION OF WORK PRODUCT. As used herein, the term "Work Product" shall mean and include all: (i) compilations of information, (ii) collective works (including without limitation the directories), (iii) advertising copy, (iv) display advertising, (v) classified headings, (vi) reports, (vii) surveys, (viii) studies (ix) service order data, (x) local, national and publishing databases, (xi) lists of sales leads, sales contracts forms and executed sales contracts, (xii) advertising orders, advertiser acknowledgement letter files, and other advertising correspondence files, (xiii) quality check, statistical sampling and process control technique data, (xiv) electronic ads, including in-column, traditional display, high impact, process color, and similar types of advertisements, (xv) digital storage and ad graphics databases, (xvi) directory pages, on-line batch pages and digital files of the same, (xvii) billing information for local, national and foreign ads and vendors, electronic files of such billing information and financial and statistical reports concerning such billing information, (xviii) copies of and procedural information concerning book covers, mastheads, tabs, maps, fillers, telephone company information pages, local community information pages and government information pages, including electronic materials, (xix) white pages listings from local telephone companies in camera-ready and electronic format, page proofs and customer book pages, (xx) information provided by Publisher to Donnelley that is owned exclusively by Publisher, (xxi) any and all such work product developed or owned by the Partnership prior to the date hereof and any derivative works thereof, and (xxii) modifications made by Publisher or Donnelley to any of the foregoing and all other materials developed by Donnelley on behalf of Publisher, as work performed directly for or required in connection with the performance of its obligations under this Agreement. Work Product shall not include that portion of materials prepared by Donnelley solely in connection with its internal reporting on the management of its affairs or that relates solely to other Donnelley businesses or customers but in no event shall it refer to any software or related technology owned or licensed from any third party by Donnelley used directly or indirectly by Donnelley in the performance of its obligations under this Agreement. 5.2 ASSIGNMENT OF WORK PRODUCT. Donnelley acknowledges and agrees that all of the Work Product is developed and provided under this Agreement to Publisher on a works made for hire basis and Donnelley agrees to cause each of its employees, vendors, subcontractors or independent contractors that will be developing Work Product to agree that all Work Product is developed or provided to Donnelley or Publisher on a works made for hire basis. Donnelley hereby assigns to Publisher all of its rights, title, and interest in and to the Work Product, whether developed by Donnelley or its employees, vendors, subcontractors or independent contractors, including any copyrights therein and the right to sue and recover for any infringement thereof. It is understood that Donnelley makes no representation or warranty of any kind that the Work Product provided to Publisher is subject to copyright. Some or all of the Work Product may be subject to copyright and to the extent that such copyright exists and belongs to Donnelley then this provision shall be applicable. Donnelley further agrees to take such actions and to execute such instruments as may be reasonably requested by Publisher from time to time to ensure that the ownership of the Work Product, including without limitation the ownership of any copyrights that may exist therein, vests in Publisher. 6. PERFORMANCE. In conjunction with the periodic planning for the Directories as contemplated in the Advertising Sales and Customer Services Schedule, Donnelley and Publisher 11 will identify and agree in writing upon (a) performance indicators in the areas of sales, customer service and production, and (b) productivity and efficiency initiatives that Donnelley will undertake to achieve within the context of its overall responsibilities. 6.1 ANNUAL PERFORMANCE PLAN. For each annual business cycle during the term of this Agreement, the parties shall jointly develop a written business plan ("Annual Performance Plan") covering the Directories to be published during the annual business cycle. Each Annual Performance Plan shall be developed prior to the commencement of the annual business cycle to which it applies. The first annual business cycle will begin on July 1, 2000 and end on December 31, 2000, and, with respect to the first Annual Performance Plan, the parties will utilize the business plan in place for the Partnership immediately prior to the Effective Date. Each subsequent annual business cycle will begin on January 1 and end on December 31 of the applicable calendar year. The Annual Performance Plan shall establish comprehensive and fully defined performance objectives and indicators relating to the provision of the services to be provided by Donnelley under this Agreement and shall be consistent with, and in fulfillment of, the terms of the Advertising Sales and Customer Service Schedule. The Annual Performance Plan shall also establish expected levels of performance by Donnelley, their measurement, and the resources to be committed toward achieving them. The Annual Performance Plan and the performance objectives contained within the Annual Performance Plan shall address, but shall not necessarily be limited to (i) those items and areas of performance outlined in the Key Performance Indicators Schedule attached hereto as Schedule 6.1, and (ii) productivity, efficiency and quality initiatives for sales, sales support, and customer service. The Annual Performance Plan shall provide for periodic reports, the frequency and content of which shall be sufficient to meet the reasonable needs of Publisher, on Donnelley's implementation of the Annual Performance Plan and achievement of the objectives contained in the Annual Performance Plan. The Annual Performance Plan shall contain detailed sections which include, but are not limited to: - Marketing (pricing/product changes, enhancements, advertising, promotion, policy changes) - Sales Plans (deployment, staffing, objectives, campaign schedules, key dates) - Production (specifications, product changes and key dates) - Distribution (policies and schedules) - Customer Service (policy and/or procedural changes) - Credit and Collections (policy and/or procedural changes) - Billing The Marketing section of the Annual Performance Plan shall be submitted by Publisher to Donnelley at least 60 days prior to the deadline for development of all other sections of the Annual Performance Plan. In the event that the Marketing section is delayed, then the deadline dates for the other sections of the Annual Performance Plan shall be automatically adjusted to account for such delay. The parties have jointly developed Schedule 6.1 to specify in detail all of the required contents and timing aspects of the Annual Performance Plan. 6.2 PERFORMANCE REVIEWS. Upon the conclusion of each annual business cycle, but in no event later than March 31 of each year during the term of this Agreement, the Parties shall 12 conduct a comprehensive review of Donnelley's performance under the Annual Performance Plan during the preceding annual business cycle. In conjunction with each annual review, Publisher shall notify Donnelley of any failure by Donnelley to meet the performance objectives contained in the Annual Performance Plan, where such failure is due in whole or in part to Donnelley's failure to adequately apply the resources committed in the Annual Performance Plan toward achieving those objectives. In the event Publisher notifies Donnelley of a failure to achieve performance objectives in accordance with the foregoing paragraph, as part of the next Annual Performance Plan, Donnelley shall commit to specific plans to rectify the performance deficiency. Such specific plans shall be included in the Annual Performance Plan jointly established by the Parties for the next annual business cycle. 6.3 EXTENSION OF AGREEMENT TERM. The Extension Term, as defined in this Agreement, shall take effect automatically, unless Donnelley has failed to meet the minimum number of the Extension KPIs (as defined herein) specified in Schedule 6.3 and Publisher has notified Donnelley of such failure in accordance with this Section 6.3. The parties have agreed upon certain performance indicators, which are set forth in the Extension Key Performance Indicators Schedule attached hereto as Schedule 6.3 (the "Extension KPIs"). The following provisions shall govern the Publisher's evaluation of Donnelley's performance of the Extension KPIs and the impact of that performance upon the Extension Term: (a) At the conclusion of the 2006 annual business cycle under this Agreement, but in no event later than March 31, 2007, the parties shall conduct a review of Donnelley's performance of the Extension KPIs during each of the 2003, 2004, 2005, and 2006 annual business cycles (the "Extension KPI Review"). The purpose of the Extension KPI Review shall be to determine if Donnelley has met or exceeded the minimum number of Extension KPIs specified in Schedule 6.3. In conducting the Extension KPI Review, the parties shall promptly devote adequate resources and provide all information needed to conduct a full and comprehensive review of Donnelley's performance. (b) If, as a consequence of the Extension KPI Review, Publisher demonstrates that Donnelley has failed to meet or exceed the minimum number of Extension KPIs specified in Schedule 6.3 during the time periods indicated therein, then the Extension Term shall not become effective, and this Agreement shall terminate at the conclusion of the Initial Term, as defined herein, subject to the following procedures: 1. Within thirty (30) days of the completion of the Extension KPI Review, Publisher shall deliver to Donnelley a written termination notice ("Publisher's Termination Notice"). Publisher's Termination Notice shall specify: which Extension KPIs Donnelley has failed to meet; describe the nature and particulars of, and the basis upon which Publisher asserts, the failure; and advise Donnelley that this Agreement will terminate at the end of the Initial Term. 2. This Agreement shall thereafter terminate at the end of the Initial Term, unless, within thirty (30) days of Donnelley's receipt of Publisher's Termination Notice, Donnelley notifies Publisher in writing that Donnelley is 13 disputing Publisher's Termination Notice. Donnelley's notice shall state in detail the basis for Donnelley's dispute of Publisher's Termination Notice. 3. If Donnelley disputes Publisher's Termination Notice, the parties immediately thereafter shall submit the dispute to arbitration in accordance with the expedited arbitration procedures provided for in Section 16.3 (a) of this Agreement. The sole issue for determination by arbitration shall be whether or not the conditions precedent to Publisher's right to terminate this Agreement at the end of the Initial Term pursuant to this Section 6.3 have been fulfilled, based upon the performance deficiencies alleged in Publisher's Termination Notice. If the arbitration panel determines that such conditions have not been fulfilled, then Publisher's Termination Notice shall have no effect and the Extension Term shall be effective. If the arbitration panel determines that such conditions have been fulfilled, then Publisher's Termination Notice shall be effective and this Agreement shall terminate upon the expiration of the Initial Term. 6.4 REVIEW OBLIGATIONS. The obligation to reach a mutual agreement on specific performance plans, criteria and indicators shall be a reasonable best efforts obligation of each party to this Agreement. In fulfilling this obligation, each party agrees to address in good faith the items and areas outlined in the Schedules incorporated in this Agreement, and acknowledges the paramount purposes of achieving improvements in sales performance, customer service, and production efficiencies. Each party agrees to promptly provide such information within its possession or under its control to the other party as reasonably needed to develop the Plans. Donnelley agrees to promptly provide Publisher with access to such information within Donnelley's possession or under its control as reasonably needed to evaluate Donnelley's performance under this Agreement. 7. COMPENSATION. 7.1 COMPENSATION TO DONNELLEY. In consideration for the services performed by Donnelley pursuant to this Agreement, Publisher shall pay to Donnelley, in the amounts and at the times set forth therein, the Sales Commissions specified in the Compensation and Fee Schedule attached hereto as Schedule 7.1 7.2 EXCLUSION FOR AFFILIATE ADVERTISING. The parties acknowledge that, from time-to-time, Publisher provides to its Affiliates space in the Directories for public service messages and advertising free of charge. Provided Publisher receives no revenue from its Affiliates for, and Donnelley provides no sales agency services with respect to, such space, no compensation shall be paid to Donnelley in connection with the provision of such space. 7.3 THIRD PARTY LICENSING FEES AND ROYALTIES. The compensation payable to Donnelley does not cover the costs of any license or royalty fees associated with any process, proprietary right or intellectual property right of third parties that may be incurred in connection with the publication of the Directories. All such fees shall be the responsibility of Publisher, provided that Publisher has approved in writing in advance any such process or use of proprietary or intellectual property right and such fees related thereto. Notwithstanding the foregoing, Publisher shall not be responsible for any liability, whether in the form of license fees, 14 royalties, or otherwise, arising from any claim that any process or method utilized by Donnelley in the performance of its obligations under this Agreement infringes on any third-party right, including without limitation, any patent, copyright or trade secret. 8. INFORMATION ACCESS AND AUDIT RIGHTS. 8.1 ACCESS TO INFORMATION. Subject to the confidentiality and nondisclosure provisions contained within this Agreement, each party hereby agrees to provide to the other party such information within its possession or under its control related to the performance of this Agreement and the Publishing Services Agreement. Without limiting the generality of the foregoing, such information shall include: advertising revenue data; data relating to costs or expenses passed through to Publisher; customer information and records (to the extent permitted by law); data underlying plans, initiatives and reports provided hereunder; reports and records relating to Donnelley sales and sales management personnel assigned to the performance of this Agreement; marketing plans, surveys and reports; agreements with third parties relative to the performance of this Agreement; and information underlying any item contained within budgets or financial projections relating to this Agreement. Such information shall be provided promptly upon request in the format as is reasonably requested. Notwithstanding the foregoing, Donnelley shall not be required to provide Publisher with access to (i) Donnelley's employment files, (ii) Donnelley's data on its internal production costs, or (iii) Donnelley's internal budgets and financial projections. 8.2 AUDIT PROVISIONS. The following audit provisions shall apply with respect to the performance of this Agreement: (a) AUDIT OF FUNCTIONS. Each party (the "auditing party") shall have the right, upon written notice, to audit all records and data, including measurements and calculations, within possession or under the control of the other party, related to the other party's performance and attainment of the performance objectives contained in each Annual Performance Plan (as defined in Section 6.1) and all objectives relating to the Extension KPIs, as defined in Section 6.3. Any such audit shall be conducted during normal business hours, subject to the other party's reasonable security measures, and at the auditing party's expense. The auditing party may, at its expense, engage independent auditors to audit and certify, such records and data, and the other party's attainment of, or failure to attain, the relevant performance objectives or Extension KPI objectives, provided such independent auditor shall be what is commonly known as a "Big Five Accounting Firm" or its equivalent. Each party agrees to pay the other party any amount determined by the audit to be owed to the other party within forty-five (45) days following notification of the auditor's determination, unless one or both parties elect to dispute the independent auditor's determination, in which case the dispute shall be submitted to arbitration for resolution in accordance with the expedited arbitration procedures outlined in Section 16.3(a) of this Agreement. (b) UNCOLLECTIBLES. For each Directory publication and in connection with the true up of actual uncollectibles versus estimated uncollectibles, Publisher will provide Donnelley with a written report of uncollectibles experienced for such publication. Donnelley may, at its expense, engage independent auditors to audit and certify 15 uncollectibles, as of the true-up date, provided such independent auditor shall be what is commonly known as a "Big Five Accounting Firm" or its equivalent. Any such audit shall be conducted during normal business hours and subject to Publisher's reasonable security measures. Each party agrees to be bound by these certified audits and to pay the other party any amount determined by the audit to be owed to the other party within forty-five (45) days following notification of the auditor's determination, unless one or both parties elect to dispute the independent auditor's determination, in which case the dispute shall be submitted to arbitration for resolution in accordance with the expedited arbitration procedures outlined in Section 16.3(a) of this Agreement. 9. USE AND PROTECTION OF PROPRIETARY INFORMATION AND MARKS. 9.1 PUBLISHER'S PROPRIETARY INFORMATION. "Publisher's Proprietary Information" is defined as follows: Information relating to Publisher's operations or business provided by or on behalf of Publisher or created, gathered or compiled by or on behalf of Donnelley in connection with its performance of this Agreement. This information shall include, but shall not be limited to, all directory advertising orders, printing orders, customer proofs, galleys, veloxes, artwork, customer records (including listing data, advertising items, billing information and account history), re-scopings, sales visuals and delivery records for the Directories. To the extent that statistical reports, management reports, revenue, cost and sales cost and sales data and analysis, marketing research, marketing plans and business plans are prepared in connection with Donnelley's performance of this Agreement, then such materials shall be considered to be Publisher Proprietary Information. However, other than desegregated data proprietary to Publisher, any of Donnelley's internal statistical reports, management reports, revenue, cost and sales data and analysis, marketing research, marketing plans and business plans created or prepared by Donnelley for its internal management or to comply with legal reporting requirements shall be held confidential but shall not be deemed to be Publisher Proprietary Information. Publisher Proprietary Information shall also include information relating to Publisher's affiliated telephone companies to which Donnelley is given access in the course of its performance of this Agreement. Specifically excluded from Publisher's Proprietary Information are reports and records with respect to Donnelley's personnel and their performance; provided, however, any sales or revenue data contained in such reports or records shall be treated as Publisher's Proprietary Information. 9.2 DONNELLEY'S PROPRIETARY INFORMATION. "Donnelley's Proprietary Information" is defined as follows: Any information provided by or on behalf of Donnelley to Publisher relative to the operations or business of Donnelley (but excluding costs and other information that relate specifically to the provision of services under this Agreement); compensation and benefits paid to Donnelley's employees; and information specifically relating to Donnelley's other customers or other third parties with whom Donnelley does business that does not relate specifically to the provision of services hereunder. 9.3 NON-PROPRIETARY INFORMATION. The following information shall not be deemed either Publisher's or Donnelley's Proprietary Information ("Proprietary Information"): (a) information that can be shown to have been in the public domain at the time of the disclosure, or (b) information in the recipient's possession at the time of disclosure to the recipient (as shown in the recipient's files and records prior to the time of disclosure), or (c) information independently 16 developed by the recipient's employees or agents that had no access to the Proprietary Information received hereunder, or (d) information which, though originally confidential information, subsequently becomes part of the public knowledge or literature (though not as a result of any inappropriate action or inaction on the part of the recipient, its employees or agents), or (e) information which is specifically approved for release by written authorization of an officer of the party having a proprietary interest in the information, or (f) information disclosed pursuant to an order of a court having competent jurisdiction (however, recipient will use reasonable efforts to assist the other party in obtaining a protective order or other appropriate relief or remedy to prevent or restrict such disclosure). 9.4 USE AND NON-DISCLOSURE OBLIGATIONS. During the term of this Agreement, and for a period of three (3) years thereafter, with respect to the other party's Proprietary Information, each party agrees: (a) Not to make any use of the Proprietary Information other than in performance of this Agreement, unless provided for in a separate written agreement between the parties. (b) Not to disclose the Proprietary Information to any third party, except to those employees or agents who need to know the Proprietary Information in connection with the performance of this Agreement. Each party agrees to advise each employee or agent given access to the other party's Proprietary Information as to the confidential and proprietary nature thereof and as to the existence of this Agreement and its obligations. (c) To take reasonable security measures and to use reasonable care to prevent the unauthorized disclosure or use of the Proprietary Information. Each party agrees to promptly notify a party in writing in the event the receiving party becomes aware of any unauthorized disclosure or use of such other party's Proprietary Information. (d) To return to the furnishing party, or at the furnishing party's direction, destroy, the other party's Proprietary Information, and all copies thereof, in its possession or under its control upon termination of this Agreement or at such earlier time as the party furnishing the Proprietary Information may request, provided however that such Proprietary Information is no longer needed for the fulfillment of contractual or legal obligations, in which case the Proprietary Information shall be held solely and exclusively for such purposes (which shall be communicated in writing to the party that furnished the Proprietary Information) and then relinquished or destroyed as soon as such identified purposes cease; provided, further, that if such Proprietary Information is embedded within the information, systems, material or documents of a party, such party shall not be required to return to the furnishing party such Proprietary Information, but shall remove such Proprietary Information therefrom and destroy it. In the event the destruction of Proprietary Information is made, the party responsible for the destruction will furnish to the furnishing party an affidavit that the Proprietary Information has been destroyed. 9.5 MARKS AND TRADE NAMES. The parties contemplate that it may be necessary or advisable for Donnelley to utilize Publisher's or its Affiliate's trade names, marks and/or 17 copyrighted materials (the "Sprint Intellectual Property") in connection with certain customer communications or on business cards and similar materials. Any use of the Sprint Intellectual Property must be approved in writing by Publisher and will be permitted only to the extent such use furthers the performance of this Agreement. In connection with such approval, Publisher may require Donnelley to enter into an appropriate trademark license agreement (royalty free) with Publisher and/or Publisher's Affiliates consistent with this Section 9.5. In connection with such use, Donnelley shall abide by Publisher's and its Affiliate's corporate identification guidelines governing the use of the Sprint Intellectual Property and any other specific guidelines regarding their use as prescribed by Publisher. Upon termination, by cancellation, expiration or otherwise, of this Agreement, any permitted use of the Sprint Intellectual Property shall automatically terminate. 10. TERM AND CANCELLATION OF AGREEMENT. 10.1 TERM. The initial term of this Agreement shall commence with all Directories scheduled to be published on or after July 1, 2000 and shall expire with respect to any Directories scheduled to be published on or after January 1, 2009, unless earlier terminated as provided below (the "Initial Term"). The commencement date of this Agreement shall be deemed July 1, 2000 (the "Effective Date"). Subject to Section 6.3, the term of this Agreement shall be extended for a two-year term commencing with all Directories scheduled to be published on or after January 1, 2009 and expiring with respect to any Directories scheduled to be published on or after January 1, 2011, unless earlier terminated as provided below (the "Extension Term" and together with the Initial Term, the "Term"). Schedule 3.1 attached hereto sets forth the title and anticipated publication date of all Directories that shall be governed by this Agreement during the Initial Term and all Directories that shall be governed by this Agreement during the Extension Term. The parties acknowledge and agree that Schedule 3.1 shall be amended and supplemented from time to time so as to accurately reflect the title and anticipated publication date of all Directories that are intended by the parties to be so covered by this Agreement. Notwithstanding the foregoing or anything else to the contrary contained herein or in any Schedule hereto, with respect to the July 2008 (during the Initial Term) and July 2010 (during the Extension Term, if applicable) Las Vegas Directories, any and all advertising sold by Donnelley into those directories but which also is scheduled to appear in the January 2009 and January 2011 Las Vegas Directories, respectively, shall be covered by and compensated in accordance with the terms and conditions of this Agreement. 10.2 CANCELLATION. Any party may cancel this Agreement for cause amounting to a material breach of the terms and conditions hereof following written notice of breach setting forth with specificity the acts or omissions that are asserted to constituted a material breach of this Agreement. (a) The recipient of such notice of breach shall within thirty (30) days of this receipt of the notice of breach either (i) acknowledge that there has been a material breach and notify the complaining party in writing of the recipient's intent to commence corrective action within a reasonable time (in no event to exceed thirty (30) days) after receipt of such notice (with such corrective action resulting in a substantial cure of such breach within ninety (90) days after receipt of such notice); (ii) respond in writing to the complaining party that the recipient of the notice of breach disputes that there either has 18 been a breach or that if there has been a violation of this Agreement that the violation does not constitute a material breach and provide the basis for such assertion of non-breach or non-material breach; or (iii) tender in writing to the complaining party a proposed resolution of claimed breach without taking a position with respect to whether the claimed breach is or is not a breach (or whether the breach is material) of this Agreement. (b) Upon receipt of a reply from the recipient of a notice of breach, the complaining party may elect to (i) withdraw its notice of breach in writing; (ii) provide notice of its desire to negotiate and set forth the issues to be negotiated; or (iii) provide notice to the recipient of the notice of breach that the complaining party considers the differences between the parties to be unresolveable, the basis for such assertion, and the intent, if any, to commence litigation pursuant to Section 16.3(b) hereof, or to seek an agreement from the other party to arbitrate the dispute in accordance with Section 16.3(a) of this Agreement. (c) In the event there has been a material breach of this Agreement that cannot be cured or otherwise resolved then upon such determination either by acknowledgement of the parties or by arbitration, the complaining party shall have the right to issue a written notice of final cancellation to the breaching party. Cancellation shall be effective on a date specified by the non-breaching party, not less than six months nor more than twelve months after a written notice of final cancellation is sent by certified mail to the party-in-breach. Each party shall fulfill all of its obligations under this Agreement until the effective date of cancellation. (d) In the event any party commits a material breach of this Agreement which is not cured as hereinabove provided, then, in addition to the right of cancellation provided for in this Section 10 hereof, a non-breaching party shall have available to it all other remedies against the breaching party provided by law or in equity. 10.3 RESPONSIBILITIES RELATING TO TERMINATION. Upon termination of this Agreement, by expiration, cancellation or otherwise, the parties agree as follows: (a) To comply with the confidentiality provisions set forth in Section 9 hereof. (b) Donnelley shall complete services provided hereunder related to any directory sales canvass underway prior to the effective date of termination, and Publisher shall compensate Donnelley for such services in accordance with the terms of this Agreement. (c) Each party will use their reasonable best efforts to insure a smooth and orderly transition, including all reasonable efforts to maximize directory revenues. Without limiting the generality of the foregoing, Publisher shall continue to bill and collect for advertising and to remit to Donnelley such compensation as Donnelley may be entitled for the balance of the life of the issues of the Directories for which Donnelley has provided services hereunder. On and after the date on which this Agreement is canceled, Publisher shall continue to take reasonable steps to (a) collect advertising charges, (b) 19 handle claims, and (c) handle settlements, judgements and legal matters relating to such Directories in a manner consistent with the terms of this Agreement. Donnelley shall provide its reasonable cooperation and support in connection with Publishers post-cancellation efforts in a manner consistent with the terms of this Agreement. (d) If requested in writing, Donnelley will notify subscribers, prior to the termination or expiration hereof, that it will no longer represent Publisher with respect to subsequent directories, such notification to be subject to Publisher's prior review and approval. (e) The parties agree that for a period of two (2) years following termination they will take reasonable measures to avoid subscriber confusion with respect to the identity of competing directory Publishers including, without limitation, clearly identifying the company and product represented. No party shall make use of another party's trade names, trademarks or trade-dress. 11. REPRESENTATIONS AND WARRANTIES. 11.1 CENTEL'S REPRESENTATIONS AND WARRANTIES. Centel represents and warrants to Donnelley and CenDon as follows: (a) Centel is a corporation duly organized and validly existing under the laws of the State of Delaware. Centel is duly qualified to do business and is in good standing in the states of Nevada, Florida, Virginia, and North Carolina, and in every other jurisdiction in which the failure to qualify would have a material adverse effect on the conduct of its business or the performance of its obligations hereunder. Centel has all requisite corporate power and authority to execute, deliver and perform this Agreement and the other documents contemplated herein. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate actions of Centel. This Agreement constitutes the valid and binding obligation of Centel, enforceable in accordance with its terms, except as the same may be limited by general principles of equity or bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally. (b) Centel warrants that as of the date of the execution of this Agreement there are no known impediments to the enforcement of this Agreement and its terms including any limitations that may be imposed by general principles of equity or bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally. (c) Neither the execution, performance, and delivery of this Agreement nor the consummation of the transactions contemplated hereby, (i) violates any provision of Centel's certificate of incorporation or bylaws, (ii) subject to Section 3.2 hereof, violates any material statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which Centel is subject, which in each case would have a material adverse effect on the conduct of its business or the performance of its obligations hereunder, or (iii) results in a breach 20 of, or constitutes a default under, any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, security interest, lien, or other arrangement to which Centel is a party or by which it is bound, in each case, which would have a material adverse effect on the conduct of its business or the performance of its obligations hereunder. (d) As used in subpart (c) above, a "material statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which Centel is subject" is one which Centel is not able to cause itself to be in compliance with within ninety (90) days from its being made aware of its applicability to Centel. (e) As used in subpart (c) above, a "material adverse effect" shall be any effect arising from the things described in subpart (c) which would place any material limitation or material delay on the implementation, performance or operation of this Agreement. (f) Centel is not, and to the best knowledge of Centel, Donnelley is not, in breach or default under the Partnership Agreement or any other agreement, written or otherwise, in which Centel and Donnelley are parties. To the best knowledge of Centel, Centel does not have any claim, other than claims for payment in the ordinary course of business, against Donnelley or its Affiliates relating to or arising out of the Partnership or the Partnership Agreement. 11.2 DONNELLEY'S REPRESENTATIONS AND WARRANTIES. Donnelley represents and warrants to Centel and CenDon as follows: (a) Donnelley is a corporation duly organized and validly existing under the laws of the State of Delaware. Donnelley is duly qualified to do business and is in good standing in the states of Nevada, Florida, Virginia, and North Carolina, and in every other jurisdiction in which the failure to qualify would have a material adverse effect on the conduct of its business or the performance of its obligations hereunder. Donnelley has all requisite corporate power and authority to execute, deliver and perform this Agreement and the other documents contemplated herein. The execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate actions of Donnelley. This Agreement constitutes the valid and binding obligation of Donnelley, enforceable in accordance with its terms, except as the same may be limited by general principles of equity or bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally. (b) Donnelley warrants that as of the date of the execution of this Agreement there are no known impediments to the enforcement of this Agreement and its terms including any limitations that may be imposed by general principles of equity or bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally. 21 (c) Neither the execution, performance, and delivery of this Agreement nor the consummation of the transactions contemplated hereby, (i) violates any provision of Donnelley's articles of incorporation or bylaws, (ii) violates any material statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which Donnelley is subject, which in each case would have a material adverse effect on the conduct of its business or the performance of its obligations hereunder, or (iii) results in a breach or, or constitutes a default under, any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, security interest, lien, or other arrangement to which it is a party or by which it is bound, in each case, which would have a material adverse effect on the conduct of its business or the performance of its obligations hereunder. (d) As used in subpart (c) above, a "material statute, regulation rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which Donnelley is subject is one which Donnelley is not able to cause itself to be in compliance with within ninety (90) days from its being made aware of its applicability to Donnelley. (e) As used in subpart (c) above, a "material adverse effect" shall be any effect arising from the things described in subpart (c) which would place any material limitation or material delay on the implementation, performance or operation of this Agreement. (f) Donnelley is not, and to the best knowledge of Donnelley, Centel is not, in breach or default under the Partnership Agreement or any other agreement, written or otherwise, in which Centel and Donnelley are parties. To the best knowledge of Donnelley, Donnelley does not have any claim, other than claims for payment in the ordinary course of business, against Centel or its Affiliates relating to or arising out of the Partnership or the Partnership Agreement. 11.3 WARRANTY OF QUALITY. Each party warrants that the services to be provided hereunder by it will be provided in a timely, accurate and professional manner and that such services will be performed substantially in accordance with the requirements of this Agreement. 12. NON-COMPETE PROVISION. (a) COVENANT. Subject to the limitations set forth below and except as otherwise provided in this Agreement, no party or any of its Affiliates shall, during the Term of this Agreement, (i) directly or indirectly publish, or sell, market or solicit advertising for publication, in any printed Classified Telephone Directory (other than the Directories) ten percent (10%) or more of whose primary distribution is within the Service Area, or (ii) sell, market, or solicit advertising for inclusion in any electronic Classified Telephone Directory (other than electronic advertising sold as an ancillary to print advertising sold into the Directories for which Donnelley serves as Agent hereunder or sold by Donnelley pursuant to Section 2.4 hereof) from any advertiser within the Service Area, without the prior written consent of the other party, which may be given or 22 withheld in such other party's sole and absolute discretion (collectively, the "Competitive Activity"). (b) LIMITATIONS. Without recognizing that such would otherwise be the case, neither the non-compete covenant set forth in Section 12(a) above nor any other provision of this Agreement shall apply to, restrict or proscribe: 1. The sale, publication, compilation or distribution by or on behalf of any party or its Affiliates of (i) national yellow pages advertising in any print or electronic Classified Telephone Directory (other than the Directories) through the national yellow pages sales channel (NYPS) or its equivalent, (ii) advertising incidentally distributed within the Service Area through the sale or distribution of any Classified Telephone Directory other than the Directories, or (iii) advertising in any print or electronic Classified Telephone Directory within any Centel Operating Company exchange area deleted from this Agreement pursuant to Section 3.2 hereof; 2. The sale or delivery of telephone subscriber or similar information, or any other information which, in each case, is required by law to be provided to any business, person or entity that engages in the publication, compilation, distribution or sale of any Classified Telephone Directory (whether in printed or electronic form) within the Service Area, regardless of the compensation arrangements related thereto; or 3. The Bundling of any electronic Classified Telephone Directory service or product (the "bundled product") with any telephony service or product, including without limitation any fixed or mobile wireless telecommunications service (the "telephony service") so long as the bundled product is not offered or distributed primarily within the Service Area. A bundled product shall not be deemed distributed primarily within the Service Area, unless more than ten percent (10%) of the revenues derived from the telephony service to which the bundled product is bundled is derived from the Service Area when compared to total revenues derived from such telephony service throughout the United States of America. (c) ACQUISITIONS. The above non-compete covenant shall not apply to, restrict or proscribe (i) the direct or indirect acquisition by any party or its Affiliates of any business, person or entity that engages in the Competitive Activity (an "acquired entity") or the subsequent ownership, control or operation of an acquired entity, or (ii) the direct or indirect acquisition of any party or its Affiliates by any business, person or entity that engages in the Competitive Activity (an "acquiring entity"), in either case, if the revenues of an acquired entity or an acquiring entity (determined at the applicable acquisition close) attributable to the Competitive Activity comprise less than ten percent (10%) of such acquired or acquiring entity's total revenues derived from all of its businesses and operations. In determining an acquired or acquiring entity's total revenues, the revenues of all businesses, persons and entities affiliated with the acquired or acquiring entity that are acquired in the same transaction or series of related transactions shall be included. 23 (d) DEFINITIONS. As used in this Section 12, the following terms shall have the meanings set forth in this Section 12(d): 1. "AFFILIATE" means any other person or entity which, directly or indirectly, controls, is controlled by, or is under common control with, such party. 2. "CLASSIFIED TELEPHONE DIRECTORY" means a telephone directory containing yellow pages advertising that is published for general distribution to substantially all local telephone subscribers within the geographic markets served by that telephone directory. 3. "BUNDLING" means offering or providing a product or service as an ancillary to other products or services. By way of example, the provisioning of access to an electronic yellow pages through a wireless telephone service, such as Sprint PCS wireless telephone service, is a "Bundling" of the electronic yellow pages service with a telephony service. 4. "SERVICE AREA" means the primary distribution area of the Directories as of the time of any determination concerning activity that may be subject to the non-compete provisions of this Section 12. 13. ASSIGNMENTS, TRANSFERS, AND CHANGES OF CONTROL. 13.1 ASSIGNMENTS. No party may assign this Agreement or any of its rights hereunder nor delegate any of its obligations (collectively, "assignment") without the prior written consent of the other parties, which consent shall not unreasonably be withheld or delayed. A condition to the effectiveness of any such assignment shall be the prior delivery by the assignor to the other parties of a written confirmation by the assignee of its assumption of the assignor's obligations under the Agreement. Notwithstanding the foregoing, any party may assign any or all of its rights or obligations under this Agreement to an Affiliate (as defined below) of that party. (a) Centel and CenDon agree that they shall not withhold or delay their consent to any proposed assignment by Donnelley of any of its rights or obligations under this Agreement if (a) the assignee is not a Competitor (as defined below), (b) in the event that the assignee provides print or electronic directory advertising or related services to a Competitor, that the assignee agrees to (i) maintain the acquired Donnelley business as a separate unit or line of business, or (ii) implement such other screening techniques (such as "Chinese" walls) reasonably acceptable to Centel and CenDon to ensure that all competitively sensitive information concerning them is kept confidential and not shared with others in the assignee's organization who have responsibility for such Competitor's business, (c) Donnelley provides Centel and CenDon with a written undertaking to continue to be subject to and bound by Section 12 of this Agreement for the remaining term of this Agreement (without giving effect to the Extended Term), and (d) in the event that Publisher has reasonable grounds to question the assignee's ability to perform its obligations under this Agreement and its financial obligations under the LLC Agreement (including without limitation Section 3.2(b) and thereof), then Centel and CenDon may require, as a condition to its consent to the assignment that the assignee or R.H. 24 Donnelley Corporation (or the then-existing ultimate parent company of Donnelley) provide Publisher with reasonable security or assurance with respect to such assignee's performance obligations under this Agreement and its financial obligations under the LLC Agreement (including without limitation Section 3.2(b) thereof). (b) In the event of a proposed assignment by Centel or CenDon of any of its respective rights or obligations under this Agreement, then Donnelley may require, as a condition to its consent to such assignment, that Sprint (or the then existing ultimate parent company of Centel) provide Donnelley with a written undertaking, on behalf of itself and its Affiliates, to refrain from engaging in the publication of print classified directories in the Service Area utilizing the then current branding of Sprint or any successor of Sprint, during the shorter of (a) the one year period commencing on the date of such assignment, or (b) the remaining term of this Agreement (without giving effect to the Extended Term). In addition, in the event that Donnelley has reasonable grounds to question the assignee's ability to perform its obligations under this Agreement and to perform its financial obligations under the LLC Agreement (including without limitation Section 3.2(a) thereof), then Donnelley may require, as a further condition to its consent to such assignment that the assignee or Sprint Corporation (or the then-existing ultimate parent company of Publisher) provide Donnelley with reasonable security or assurance with respect to such assignee's performance obligations under this Agreement and ability to perform its financial obligations under the LLC Agreement (including without limitation Section 3.2(a) thereof). 13.2 CHANGES OF CONTROL. In the event of a Change of Control (as defined below) of any party, the following provisions shall govern: (a) Prior to the effectiveness of any Change of Control of Centel or CenDon, in the event that Donnelley has reasonable grounds to question the Acquiror's or Centel's or CenDon's, as the case may be, ability to perform its obligations under this Agreement and its financial obligations under the LLC Agreement (including without limitation Section 3.2(a) thereof) after the Change of Control, then Donnelley may require, as a condition to the continued performance of its obligations under this Agreement, that the Acquiror provide Donnelley with reasonable security or assurance with respect to Acquiror's or Centel's or CenDon's ability to perform its obligations under this Agreement and its financial obligations under the LLC Agreement (including without limitation Section 3.2(a) thereof). In addition, and notwithstanding the generality of the foregoing, Donnelley may require, as a further condition to its continued performance under this Agreement, that Sprint (or the ultimate parent company of Centel immediately prior to such Change of Control) provide Donnelley with a written undertaking, on behalf of itself and its Affiliates, to refrain from engaging in the publication of print classified directories in the Service Area utilizing the then current branding of Sprint or any successor of Sprint, during the shorter of (a) the one year period commencing on the date of such Change of Control, or (b) the remaining term of this Agreement (without giving effect to the Extended Term). (b) Prior to the effectiveness of any Change of Control of Donnelley, in the event that Publisher has reasonable grounds to question the Acquiror's or Donnelley's, as 25 the case may be, ability to perform its obligations under this Agreement and its financial obligations under the LLC Agreement (including without limitation Section 3.2(b) thereof) after the Change of Control, then Publisher may require, as a condition to the continued performance of its obligations under the Agreement, that the Acquiror provide Publisher with reasonable security or assurance with respect to the Acquiror's or Donnelley's ability to perform its obligations under this Agreement and its financial obligations under the LLC Agreement (including without limitation Section 3.2(b) thereof). Notwithstanding the foregoing, in the event that the Control Person (as defined below) is: 1. Not a Competitor, then Publisher may require, as a condition to the continued performance of its obligations under this Agreement, (A) that the Acquiror or Donnelley, as the case may be, agrees to (i) maintain the acquired Donnelley business as a separate unit or line of business, or (ii) implement such other screening techniques (such as "Chinese" walls) reasonably acceptable to Publisher, in either case to ensure that all competitively sensitive information concerning Publisher is kept confidential and not shared with others in the Control Person's organization who have responsibility for any Competitor's business, and (B) Donnelley shall provide Publisher with a written undertaking to refrain from engaging in any Competitive Activity for the remaining term of the Agreement (without giving effect to the Extended Terms); or 2. Is a Competitor, then Publisher may require, as a condition to the continued performance of its obligations under this Agreement that at the election of Publisher either: (A) Donnelley grants Centel or CenDon a right to purchase the Acquiror's rights under this Agreement at Fair Market Value (as defined below) which would include a covenant from Donnelley not to engage in any Competitive Activity for a period of two years from the date of such sale, or (B) (i) the Acquiror or Donnelley, as the case may be, agrees to (y) maintain the acquired Donnelley business as a separate unit or line of business, or (z) implement such other screening techniques (such as "Chinese" walls) reasonably acceptable to Publisher, in either case to ensure that all competitively sensitive information concerning them is kept confidential and not shared with others in the Control Person's organization who have responsibility for any Competitor's business, and (ii) Donnelley provides Publisher with a written undertaking to refrain from engaging in any Competitive Activity for the remaining Term of the Agreement (giving effect to the Extended Term). (c) As used in this Section 13, the following capitalized terms shall have the following meanings: 1. "Acquiror" means an entity that, as a result of a Change of Control, (a) acquires 50% or more of the assets of a party to the Agreement, or (b) acquires 50% or more of the voting power of the securities of a party to the Agreement, or (c) merges or consolidates or undergoes any similar transaction with a party to the Agreement and is the surviving entity in such merger or consolidation or other transaction. 26 2. "Affiliate" means, in the case of (a) Publisher, any legal entity in which Sprint Corporation, or its successor, or a direct or indirect wholly-owned subsidiary thereof, owns more than 50% of the outstanding voting power of the entity; and (b) Donnelley, any legal entity in which R.H. Donnelley Corporation, or its successor, or any direct or indirect wholly-owned subsidiary thereof, owns more than 50% of the outstanding voting power of the entity. 3. "Change of Control" means, with respect to a party hereto, (a) a merger or consolidation of such party with or into another corporation (or other entity) or corporations (or other entities) in which the persons and entities who are the stockholders of such party immediately prior to the effectiveness of such merger or consolidation, do not own immediately after the effectiveness of such merger or consolidation, at least 50% of the then outstanding voting power of the surviving entity or resulting entity of such merger or consolidation; (b) the sale of 50% or more of the assets of such party; (c) any transaction or series of related transactions in which capital stock (or other equity) of such party representing in excess of 50% of the voting power of all then outstanding capital stock of such party is transferred to a single corporation, entity, person or "group" (as defined in Section 13(d) of the Securities Exchange Act of 1934 and the rules thereunder), or (d) any transaction or series of related transactions if, within two (2) years after the completion thereof, the individuals who at the beginning of such period constituted the Board of Directors of the party cease for any reason to constitute 50% or more of the directors of such party. Notwithstanding the foregoing, neither an acquisition of the stock of Publisher's ultimate corporate parent, nor the merger or consolidation of such parent with another entity, shall be a Change of Control under this Section 13.2. Without limiting the generality of the foregoing, the proposed merger of Sprint Corporation with and into MCI WORLDCOM, Inc. shall not be deemed a Change of Control. 4. "Competitor" means any entity, other than Donnelley or its Affiliates, substantially engaged in the publication of either print yellow pages or other related directory services that directly and substantially competes with Publisher. 5. "Control Person" means, collectively, the ultimate parent company of a party hereto after taking into effect a Change of Control of such party and all Affiliates of such ultimate parent company, including the Acquiror, if any. 6. "Fair Market Value" means (a) the present value (calculated using a discount rate equal to the effective yield for "on the run" (if available) U.S. Treasury securities with lives equal to the remaining Term (giving effect to the Extension Term) of this Agreement (rounded to the nearest whole year) as of the date of the Change of Control) of the Operating Income to be earned by Donnelley under this Agreement and the LLC Agreement from the date of the Change of Control through December 31, 2010, using the preceding 12-month period's Operating Income as the base annual Operating Income, which base annual Operating Income will have applied to it a compound annual growth rate 27 consistent with the average annual growth rate in Operating Income for Donnelley over the three (3) years prior to the calculation, plus (b) a terminal value equal to (i) one times the then-current year's budgeted compensation (salary, commission and bonus) for the sales and sales support personnel dedicated to the performance of Donnelley's obligations under this Agreement, (ii) the net book value of the fixed assets deployed within all sales offices that support the Directories and (iii) all costs associated with the termination or transfer of any obligations of Donnelley related to this Agreement (i.e. leases). The terminal value under clause (b) above shall not be subject to any discount rate. 14. INDEMNIFICATION AND CLAIMS PROCEDURE. 14.1 MUTUAL INDEMNIFICATION. Each party agrees to indemnify and hold harmless the other party and the other party's officers, agents, employees and Affiliates from and against any and all Eligible Claims (as defined herein) and reasonable attorney's fees incurred in the defense of Eligible Claims. Without limiting the generality of the foregoing, each party agrees to indemnify and hold harmless the other party and the other party's officers, agents, employees and Affiliates from and against all Eligible Claims, arising from injury to their respective agents and employees incurred while working on the premises of the other party, provided such injury is not the result of the other party's negligence or deliberate acts. Each party shall promptly notify the other of any claims made upon it for which the other may be liable under this Section 14.1, and both parties shall cooperate in the handling of any and all such Eligible Claims. As used herein, "Eligible Claims" means any claims and causes of action of third parties (a) arising from the other party's negligence, failure to perform in accordance with the terms of this Agreement or any breach of any representation, warranty or covenant made hereunder, that, when considered together with all other claims and causes of action of third parties arising from, or relating to, the same acts, facts, or circumstances, exceed $50,000 in claimed or incurred losses, damages and costs, provided, however, that with respect to claims, actions, losses, damages and costs that are required to be covered by insurance pursuant to Section 16.1 hereof, the $50,000 limitation set forth above shall not apply, or (b) that in whole or in part are predicated upon the gross negligence or willful misconduct of a party, regardless of the amount of claimed or incurred losses, damages, or costs. 14.2 CLAIMS PROCESSING BY DONNELLEY. Donnelley shall process all claims from local and foreign subscribers or other third parties or as additionally authorized by Publisher with respect to directory errors, omissions, misrepresentations or infringements. Pursuant to Publisher's guidelines or authorization, Donnelley shall make applicable settlements or adjustments. If however, Donnelley should desire to settle a customer complaint or lawsuit outside of Publisher's guidelines and without prior approval from Publisher, Donnelley may do so but Publisher shall not be obligated to reimburse the costs and expenses of such resolution. 14.3 CLAIMS HANDLING BY PUBLISHER. Publisher shall be responsible for the handling of claims which cannot be settled or adjusted by Donnelley in accordance with Publisher's guidelines or pursuant to Publisher's authorization. Publisher and Donnelley shall fully cooperate with each other in handling any such claims. Where Donnelley has acted in conformance with the Publisher's guidelines and authorization, Publisher shall hold Donnelley harmless from and against any and all claims, suits, losses, damages, costs and reasonable 28 attorney's fees to the extent arising from the implementation of such guidelines and authorization, provided however such hold harmless obligation shall not apply to any claims, suits, losses, damages, costs or attorney's fees arising from Donnelley's negligence or performance deficiencies hereunder. 14.4 QUALITY STANDARDS. Donnelley shall use its reasonable best efforts to maintain superior standards for avoidance of errors and omissions. Donnelley and Publisher will jointly develop standards for acceptable quality and accuracy as part of the performance objectives and indicators developed by the parties pursuant to Section 6 hereof. Should Donnelley's error rate become excessive, the parties agree to meet and adopt those procedures and policies and take such actions as are necessary to regain acceptable levels of accuracy and quality. 15. RELATIONSHIP OF PARTIES; EMPLOYEE MATTERS. 15.1 RELATIONSHIP OF PARTIES. It is agreed and understood that Donnelley, with respect to the provision of sales support services pursuant to this Agreement, is an independent contractor and that it and its agents, consultants, subcontractors and employees are neither agents, consultants, subcontractors nor employees of Publisher. As such, neither Donnelley, its agents, consultants, subcontractors or its employees shall have the authority to act for or on behalf of Publisher or to obligate Publisher in any manner not specifically authorized herein or in a writing signed by Publisher. It also is agreed that, with respect to the provision of sales agency services hereunder, Donnelley shall be considered an agent for Publisher, the scope and authority of which shall be limited by the terms of this Agreement. 15.2 EMPLOYEE MATTERS. Publisher shall reimburse Donnelley for severance payments ("Severance Payments") made to those employees of Donnelley who are terminated from employment by Donnelley solely because the sales support services and functions (as identified in Schedule 2.2(b) hereto) supported by the terminated employee have been assumed by Publisher pursuant to Section 2.2(b) of this Agreement (collectively, "Eligible Employees"). After the payment of any such Severance Payment amounts by Donnelley, it shall submit a written invoice to Publisher that reflects such payment amounts and details the calculation thereof. Within 60 days of Publisher's receipt of such invoice, it shall reimburse Donnelley for the invoiced amounts, provided the invoice properly reflects such amounts calculated in accordance with this Section 15.2. The parties agree that the Severance Payments to which Publisher's reimbursement obligation applies only to (i) any salary continuation and annual bonus severance payment made in lieu of normal compensation based on length of service with Donnelley, (ii) employee benefits continuation, (iii) outplacement services and (iv) all tax obligations Donnelley incurs solely because of the Severance Payments made to Eligible Employees in accordance with clauses (i) through (iii) above. All such Severance Payments shall be made by Donnelley only in accordance with Donnelley's existing severance policy and practices. Publisher shall not be responsible for costs incurred by Donnelley as a result of a claim made by an Eligible Employee against Donnelley on the basis of employment termination, including without limitation, claims arising from the administration of Donnelley's benefit plans and claims based on allegations of employment discrimination. In no event will Publisher's aggregate obligations to reimburse Severance Payments, with respect to each group of Eligible Employees, as identified in Schedule 15.2, exceed the amounts specified in Schedule 15.2 for each such group. 29 15.3 RETENTION BONUSES. In that it is in the interest of both parties that the sales support services or functions identified in Section 2.2(b) be transitioned from Donnelley to Publisher in a smooth and orderly fashion, the parties agree that it may be necessary and appropriate to pay retention bonuses to certain key employees of Donnelley that are among the Eligible Employees prior to their scheduled termination date. Accordingly, Publisher shall reimburse Donnelley for retention bonus payments made to any Eligible Employee set forth on Schedule 15.3. The parties will jointly agree (in writing as part of Schedule 15.3) which, if any, Eligible Employees are to be provided with a retention bonus as a means of retaining each such Eligible Employee's expertise and services during the interim period of time during which sales support services and functions identified in Section 2.2(b) are transitioned from Donnelley to Publisher. The parties will agree (in writing as part of Schedule 15.3) upon the amount of retention bonus payable to each such Eligible Employee. In no event will Publisher's aggregate obligation to reimburse Donnelley for retention bonus payments exceed $705,000. 15.4 NO THIRD PARTY BENEFICIARIES. The parties acknowledge and agree that nothing contained in this Agreement is intended for the benefit of, or to create any rights in favor of, any other party, including without limitation Eligible Employees. The parties hereby expressly disclaim any intent to create third-party beneficiary rights under this Agreement. 16. MISCELLANEOUS PROVISIONS. 16.1 INSURANCE: (a) INSURANCE ON WORK-IN-PROCESS. The parties acknowledge that, in providing services under this Agreement, each party will have in its possession and control materials and data critical to the publication of the Directories. Each party agrees to take reasonable measures to protect such materials and data from loss or destruction due to theft, casualty or otherwise, including without limitation the maintenance of back-up copies thereof as much as practicable. In the event such materials or data are lost or destroyed, each party shall be obligated at its expense to replace or reconstruct such materials and data on an expedited basis, it being understood that time is of the essence in publishing and distributing the Directories. Each party shall maintain adequate business interruption insurance coverage (subject to such deductibles as it shall in its sole discretion deem appropriate) to cover any loss for which it is responsible hereunder. (b) GENERAL LIABILITY INSURANCE. Donnelley and Publisher each shall be obligated to carry general liability insurance coverage and automotive liability insurance coverage with coverage limits of not less than three million dollars ($3,000,000) per occurrence, containing appropriate contractual liability endorsements, which may be subject to such deductibles as each Party shall in its sole discretion deem appropriate. (c) WORKERS COMPENSATION INSURANCE. Donnelley, as an independent contractor to Publisher, agrees to maintain and pay for workers compensation insurance coverage applicable to Donnelley's employees in accordance with the requirements of applicable law. 30 16.2 FORCE MAJEURE. (a) Except as provided below, if any party is prevented from performing any of its obligations (other than payment obligations) under this Agreement because of any act of God, lockout, strike or other labor dispute, riot or civil commotion, act of public enemy, law, order or act of government, whether federal, state or local, or other similar event beyond the Party's control (a "Force Majeure Event"), then that party will be excused from performing any of its obligations which are so prevented. However, the party so excused is responsible for performing those obligations of which it had been relieved due to the Force Majeure Event as soon as the Force Majeure Event has ceased to prevent the party's performance. During the pendency of the Force Majeure Event, the other parties shall also be excused from performing its obligations hereunder, including any payment obligations that relate to the work not performed because of the Force Majeure Event. (b) If a Force Majeure Event excuses Donnelley from performing its duties under this Agreement, Publisher may procure substitute performance for the duration of the Force Majeure Event; however, as soon as commercially practicable upon Donnelley's providing notice that the Force Majeure Event has ceased to prevent its performance both parties shall be entitled and obligated to resume performance of their respective obligations under this Agreement. 16.3 DISPUTE RESOLUTION. (a) EXPEDITED ARBITRATION. Any dispute arising under or related to this Agreement that(i) by the terms hereof, must be resolved by arbitration, or (ii) the parties, in each of their sole and absolute discretion, elect to submit to arbitration, shall be governed by the Commercial Arbitration Rules of the American Arbitration Association attached to this Agreement as Schedule 16.3 (a) (the "Arbitration Rules"). Any such arbitration shall be conducted in accordance with the expedited procedures set forth in Paragraphs E-1 through E-10 of the Arbitration Rules. The decision of, and any award made by, the arbitrator shall be final and binding on the parties and may be entered as a judgment in any court having competent jurisdiction over the parties. (b) LITIGATION. For all other disputes arising under or related to this Agreement, each party shall have the right to bring an action in any court having competent jurisdiction over the parties and the subject matter in dispute, subject to the dispute resolution covenants set forth in this Section 16.3 (b). If one or more disputes subject to arbitration under Section 16.3 (a) require the resolution of issues of fact or law common with, or related to, issues raised in a dispute governed by this Section 16.3 (b), then all such disputes shall be resolved in accordance with this Section 16.3 (b), and the arbitration requirements of Section 16.3 (a) shall not apply to them. The following dispute resolution covenants shall govern all actions subject to this Section 16.3 (b): 1. GOVERNING LAW. This agreement and the rights and obligations of the parties is governed by the laws of the State of Kansas, without regard to its conflict of laws principles. 31 2. WAIVER OF JURY TRIAL. Each party waives its right to a jury trial in any court action among the parties arising under or related to this Agreement, whether made by claim, counter-claim, third party claim, or otherwise. If for any reason this jury waiver is held to be unenforceable, the parties agree to binding arbitration for any dispute arising under or related to this Agreement, pursuant to the Arbitration Rules, except that the expedited procedures referred to in Section 16.3 (a) shall not apply. The parties agreement to arbitrate any dispute under this provision shall extend to any claim by or against any third party that could have been brought in a court action between the parties, whether as a claim, counterclaim, or third-party claim, subject to the agreement of such third parties. The agreement of each party to waive its right to a jury trial will be binding on its successors and assigns and will survive the termination of this Agreement. 3. ATTORNEY'S FEES. The prevailing party in any dispute adjudicated by lawsuit or arbitration will be entitled to reasonable attorney's fees and costs, including reasonable expert fees and costs. This provision will not apply if the prevailing party rejected a written settlement offer that exceeds the prevailing party's recovery. 16.4 NOTICES. All notices, demands or requests required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed to have been given when delivered personally or upon receipt if delivered by certified mail, return receipt requested, addressed as follows: (a) If to Centel, to: Centel Directory Company 7015 College Boulevard Suite 400 Overland Park, Kansas 66211-1535 ATTENTION: President cc: General Counsel Or at such other address as Centel may furnish to Donnelley in accordance with the provisions of this Section 16.4. (b) If to CenDon, to: CenDon, L.L.C. c/o Centel Directory Company 7015 College Boulevard Suite 400 Overland Park, Kansas 66211-1535 ATTENTION: President cc: General Counsel 32 Or at such other address as CenDon may furnish to Donnelley in accordance with the provisions of this Section 16.4. (c) If to Donnelley: R. H. Donnelley Inc. One Manhattanville Road Purchase, New York 10577 ATTENTION: President cc: General Counsel Or such other address as Donnelley may furnish to Publisher in accordance with the provisions of this Section 16.4. 16.5 ENTIRE AGREEMENT MODIFICATIONS. This Agreement, together with the Exhibits, Schedules and other documents referred to herein, constitutes the entire agreement between the Parties hereto with respect to the subject matter hereof and there are no other understandings, representations or warranties, oral or written, relating to the subject matter of this Agreement which shall be deemed to exist or bind either of the parties hereto, their respective successor or assigns. This Agreement may not be modified or amended except by written instrument executed by both parties. 16.6 HEADINGS. The headings of Sections in this Agreement are for convenience only and are not a part of this Agreement. 16.7 CONSENTS. Any consents granted by a party hereto pursuant to the terms of this Agreement shall not be binding or enforceable unless provided by a written instrument signed by an officer of the consenting party. 16.8 SEVERABILITY. If any term of this Agreement is invalid or unenforceable under any statute, regulation, ordinance, executive order, or other rule of law, such term will be deemed reformed or deleted, but only to the extent necessary to comply with such statute, regulation, ordinance, order, or rule, and the remaining provisions of this Agreement will remain in full force and effect. 16.9 NON-WAIVER. The failure of any party at any time to require strict performance by another party of any provision of this Agreement will in no way affect the right to require such strict performance at any time thereafter, nor will the waiver by any party of a breach of any provision constitute a waiver of any succeeding breach of the same or any other provision. 16.10 GOOD FAITH. Each Party shall perform each and every covenant applicable to it under this Agreement in good faith. Any specific reference herein to the obligation to perform any covenant in good faith shall not be interpreted as imposing any greater or lesser duty than imposed by this Section 16.10. 33 IN WITNESS WHEREOF, the parties hereto have executed this Agreement by signature of their duly authorized officers as of the day and year first above written. R. H. DONNELLEY INC. ("Donnelley") By: /s/ David C. Swanson Title: President CENTEL DIRECTORY COMPANY ("Centel") By: /s/ Robert J. Walsh Title: President CENDON, L.L.C. ("CenDon") By: /s/ John L. Mieske Title: Vice President 34 EX-10.16 5 y62626exv10w16.txt AGREEMENT FOR PUBLISHING SERVICES Exhibit 10.16 AGREEMENT FOR PUBLISHING SERVICES This Agreement for Publishing Services ("Agreement") is entered into as of April 27, 2000 by and between CENDON, LLC ("Publisher"), a Kansas limited liability company, and R.H. DONNELLEY INC. ("RHD" and, together with Publisher, collectively, the "Parties" and individually, a "Party"), a Delaware corporation with principal offices at One Manhattanville Road, Purchase, New York 10577. WHEREAS, the Parties desire to enter into this Agreement pursuant to which RHD will provide certain publishing services to Publisher from and after July 1, 2000 until December 31, 2003; NOW, THEREFORE, in consideration for the mutual covenants and premises contained herein, the Parties agree as follows: 1. TERM This Agreement shall become effective with respect to all directories identified on Schedule 1 that publish on or after July 1, 2000 and shall remain in full force and effect with respect to such directories that publish on or before December 31, 2003 ("Termination Date"), subject to earlier termination in accordance with Section 20 below. 2. SCOPE OF WORK The Parties agree that this Agreement applies to all print directories (whether classified or white pages or co-bound) published during the term of this Agreement that are identified on Schedule 1 and any other print directories published during the term of this Agreement by Publisher in the locations specified in Schedule 1 (the "Territory") that are identified by mutual agreement of the parties by updates to Schedule 1. Attachment 1 shall be updated quarterly to reflect additional directories and locations covered by this Agreement and directories that will no longer be published. Sections 4 through 13 below describe the publishing services to be provided by RHD with respect to classified directories (or such portions of co-bound directories) and Section 14 describes the publishing services to be provided by RHD with respect to white pages directories (or such portions of co-bound directories). RHD shall provide services hereunder in accordance with the performance standards established annually as part of the KPI (key performance indicators) process. The Parties further agree that the basis for this Agreement is the scope, specifications and characteristics of the directories as they were published during 1999. If Publisher desires to change the number of directories, their scope or features and characteristics, such change will be communicated in accordance with the Work Request Process described in, and the responsibility for the payment of any additional costs associated with such change will be governed by, Section 18 of this Agreement. - --------------------------- Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. 3. RELATIONSHIP OF PARTIES The Parties acknowledge that, as of the date of this Agreement, Publisher does not provide its own sales, certain sales support, customer service or related functions in the Territory, but rather has delegated such functions to RHD as Sales agent under a separate agreement. At some point during the term hereof, Publisher may perform certain of these functions itself or through an affiliate or appoint another Sales agent. Accordingly, any rights or obligations allocated to Publisher hereunder shall represent only Publisher's rights and obligations (as may be delegated by Publisher in accordance with Section 23 hereof) and, notwithstanding RHD's role as Sales agent under such separate agreement with Publisher, in no way shall any responsibility for any such rights or obligations be attributable or allocable to RHD under this Agreement. Consequently, when appropriate in the context in which it is used herein, "Publisher" shall refer to Publisher's Sales agent or its own Sales function, as the case may be, all in accordance with existing processes and procedures. 4. SERVICE ORDER PROCESSING a. Provision of Service Orders by Publisher. i. Publisher will provide to RHD service order data containing business customers' listing information daily via electronic transmission for application to the publishing database according to a mutually agreed upon schedule and format. ii. Should service order data provided by Publisher require modifications to the service order interface, and, as a result, RHD is required to handle service orders outside of the existing process, Publisher shall reimburse RHD's additional costs, in accordance with the Work Request Process. b. Service Order Data Processing to be Performed by RHD. RHD will perform the following activities with respect to service orders: i. Update the publishing database and provide Publisher with electronic memos whenever advertising is affected. ii. Where necessary, contact the issuing telephone company to identify and resolve discrepancies. iii. Provide Publisher with sales leads based upon service order processing information. iv. Perform quality checks on completed service orders using appropriate statistical sampling and process control techniques. 5. ASSIGNMENT SUPPORT RHD will provide assistance and support to the appropriate Sales offices of Publisher in connection with assignment matters so that contracts may be properly produced and printed. RHD will maintain an adequate supply of sales contract forms. 6. CONTRACT PROCESSING a. Local Advertising Contracts. RHD will perform the following services with respect to contract processing for local advertising contracts: i. Review contracts to ensure that appropriate information is present for processing. ii. Query the Publisher and Publisher's sales agent to identify and resolve discrepancies. iii. Update publishing database. iv. Generate advertiser acknowledgment letter file and provide to Publisher. v. Perform quality checks on completed contracts using appropriate statistical sampling and process control techniques. vi. Provide Publisher with reasonable access to all local account information in a manner and within time frames mutually agreed by the Parties. b. National Advertising Contracts. RHD will perform the following services with respect to contract processing for national advertising contracts: i. Receive national advertising orders and correspondence for Publisher directories through the Yellow Pages Publishers Association's ("YPPA") Value Added Network ("VAN"). ii. Query the Certified Marketing Representatives ("CMRs") to identify and resolve discrepancies. iii. Check copy for compliance with directory standards. iv. Update national and publishing databases. v. Generate YPPA VAN based return receipts. vi. Provide Publisher with reasonable access to all national account information in a manner and within time frames mutually agreed by the Parties. vii. Perform quality checks on completed national contracts using appropriate statistical sampling and process control techniques. c. Reciprocal Advertiser Contracts. In the event that Publisher enters into reciprocal agreements, the Parties will mutually agree upon and enter into appropriate service and pricing agreements to support such additional reciprocal agreements, in accordance with the Work Request Process. 7. COPY PROCESSING, COMPOSITION AND PROOFS a. Copy Supplied by Publisher. Publisher shall forward advertising copy for all in-column and display ads to RHD. RHD shall perform technical specification reviews on such copy according to Publisher's standards. b. RHD's Copy Processing Obligations. Upon receipt of advertising copy from Publisher, RHD will (i) review copy sheets for compliance with ad specifications, (ii) contact Publisher (or CMRs in the case of national advertising) to identify and resolve discrepancies, and (iii) prioritize and distribute copy sheets to ad composers. c. RHD's Composition and Proof Obligations. Upon receipt of advertising copy from Publisher and following its performance of its copy processing obligations, RHD will compose ads electronically and review and perform quality checks to ensure accuracy. RHD will compose the following types of advertisements: (i) In-column; (ii) traditional display (with artwork provided by advertiser); (iii) high impact; (iv) process color; and (v) similar types of advertisements. Finished ads will be stored digitally (i.e., postscript) in the ad graphic database. For all display ads and up to *** of in-column ads manufactured from copy received prior to the mutually agreed upon show proof close date, two (2) proofs will be produced by RHD and mailed to Publisher and the advertiser. RHD will also process proof revisions received from Publisher and advertisers on or before the Publisher's scheduled deadline for such revisions. Publisher will establish show-proof and revision deadlines consistent with industry custom and practice. d. Reciprocal Sales. In the event that Publisher enters into reciprocal agreements, the Parties will mutually agree upon and enter into appropriate service and pricing agreements to support such additional reciprocal agreements, in accordance with the Work Request Process. - ------------------------- *** Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. 8. PAGE PRODUCTION RHD will review and edit all advertising and free listings in book form subsequent to the close of a directory's sales campaign, in close coordination with Publisher. RHD will sequence all display ads and validate ads against the publishing database. RHD will produce the directory's pages in conformance with specifications provided by Publisher. Upon request of the Publisher, RHD will provide Publisher on-line batch pages prior to extract and will provide Publisher's printer with digital files (or other appropriate medium) for printing. Any changes to these pages will be limited to error corrections. 9. MAINTENANCE OF ELECTRONIC PAGE FILES RHD will maintain electronic page files for two years from the date of publication of such directory and, upon written request, provide Publisher with access to such electronic files. 10. REVENUE ACCOUNTING AND CUSTOMER BILLING a. Local and Foreign Billing Extracts. RHD will extract billing information for local and foreign ads from its database and transmit such information to the Publisher or its designated billing vendor via an electronic file transfer. Directory billing files that are not successfully accepted/loaded by the Publisher or its vendor will be investigated by RHD and resubmitted for billing within thirty (30) calendar days. b. National Billing and Customer Service. RHD will provide national billing services to Publisher in accordance with Publisher specifications. National invoices will be bulk shipped to Publisher who, in turn, will forward the invoices to CMRs. RHD will also provide billing allowance processing (e.g., for customer service and claims) for Publisher's national accounts. c. Revenue Accounting/Financial Reports. RHD will provide financial and statistical reports to Publisher which will identify total amounts and records sent for billing and all increases/decreases to billing amounts, including, but not limited to claims, billing adjustments and accelerated billing due to disconnects and/or delinquent accounts. Financial reports will be provided monthly to Publisher in accordance with mutually acceptable schedules. RHD shall forward to Publisher at reasonable intervals all claims, allowance, advance payment, transfers to CLEC or residential accounts and other miscellaneous billing changes. d. Changes. Any changes or additions contemplated by Publisher to the services provided in accordance with this Section and any additional costs incurred by RHD will be handled in accordance with the Work Request Process. 11. DATA MAINTENANCE RHD will coordinate with the appropriate customer service department (Publisher or agent) and perform routine database corrections resulting from error reports generated in the closing and billing processes. 12. FRONT OF BOOK MANAGEMENT For directories with respect to which the bulk of publishing activities occur during 2000 ending with the 2001 Yanceyville, NC directory, RHD will prepare and coordinate the following portion of each book using existing procedures or such other procedures as may be mutually agreed under the Work Request Process: a. Covers b. Masthead (revisions and updates to be provided by Publisher) c. Tabs d. Maps e. Filler (load into database; filler provided by Publisher) f. Telephone company information pages g. Local community information pages h. Government information pages i. Coupons For directories beginning with the production of the 2001 Hickory, NC directory, RHD will prepare and coordinate the following portion of each book using existing procedures or such other procedures as may be mutually agreed under the Work Request Process: a. Masthead (revisions and updates to be provided by Publisher) b. Filler (load into database: filler provided by Publisher) Other portions of each book may be prepared and coordinated by RHD based upon mutual agreement. 13. [RESERVED] 14. WHITE PAGES RHD will perform the following services for Publisher with respect to White Pages directories (or such portions of co-bound directories): a. Masthead. Publisher shall provide RHD with any revisions or updates to the White Pages masthead by the service order close date. b. Listings. RHD will obtain White Pages listings from local telephone companies in camera-ready or electronic format. In addition, RHD will request listings from Publisher's listing database, which shall include listings for local CLECs, if applicable. RHD will provide all such listings (in either format) to RHD's White Pages vendor for processing. c. Page Proofs. RHD's White Pages vendor will provide page proofs to Publisher, the CLECs and RHD as close as possible to the service order close date. Publisher and the CLECs shall provide any revisions or updates to the page proofs to RHD per an agreed upon schedule prior to delivery to the printer. RHD will forward all changes to its White Pages vendor and proof all such changes to ensure the changes are made accurately. RHD will update the publishing database for any such changes to ensure accurate listings. d. Advertising. RHD will provide its White pages vendor with all White Pages advertising and create an extract report against the White Pages listings database to identify discrepancies between the listings and any advertising. RHD will investigate and resolve all such identified discrepancies and provide its White Pages vendor with any required revisions or updates. e. Customer Book Pages. As close as possible to the printing date, RHD's White Pages vendor creates a final set of page proofs, the Customer Book Pages, and forwards it to Publisher and RHD. Modifications will be made only in extreme circumstances at this stage due to the likelihood of delaying the printing schedule. RHD will review the Customer Book Pages and approve the pages to be sent to the printer of the directory. f. Work Request Process. In the event that Publisher would like to change any of the foregoing services or procedures in any way, such change shall be managed in accordance with the Work Request Process described in Section 18. 15. LATE ACTIVITY The schedules negotiated between the Parties will include optimum selling time, whereby the time period between the end of the sales process and the publication of the directory is minimized. As a result, the ability of RHD to accept late activity is significantly constrained. If late activity is requested by Publisher, then Publisher shall reimburse RHD its additional costs reasonably incurred because of late activity, in accordance with the Work Request Process. 16. SCHEDULING AND FORECASTING a. Initial Scheduling. Prior to June 1 of each year beginning in 2000 with respect to 2001, Publisher and RHD will meet and agree upon any changes to dates in the directory schedule for publications published commencing January 1 of the following year. Thereafter, the Parties shall meet to review and discuss any further changes suggested in the publishing schedules as needed. Publisher shall reimburse RHD its reasonable costs incurred as a result of scheduling changes, in accordance with the Work Request Process. b. Changes in Products and Scheduling. Publisher shall promptly inform RHD of changes in sales canvass dates (especially extensions), directories published, their scope, units of advertising offered, specifications, and other such changes in products and scheduling. Publisher shall reimburse RHD for its reasonable costs incurred in connection with such changes in products and scheduling, in accordance with the Work Request Process. c. Publisher Requirements Forecast. Each Party agrees to provide the other Party with all information in its possession or under its control reasonably requested or required for publishing directories in a timely manner. Further, Publisher will provide RHD with estimates of total copy and contract volumes on a weekly basis for the coming year by June 1 of the each preceding year (December 31, 1999 for 2000) for the following year's directories, or by another mutually agreed upon date. 17. PRICING a. Annual Fee. The fee paid by Publisher to RHD each year during the first three years of this Agreement shall consist of a lump sum base price ("Base Price"), which for July through December of 2000 ("Second Half Base Price") shall be *** (*** for classified directory publishing services plus *** for White Pages directory publishing services), which Base Price in each year shall be adjusted for (i) budgeted volumes ("Budgeted Volumes") expected to be processed during the year versus base line volumes included in the Base Price and (ii) the CPI Factor described in paragraph b. below (as so adjusted, the "Annual Fee"). For each such year (or portion of the year for 2000), following the end of the year, there shall be computed the aggregate price of the actual volumes experienced for each metric (contracts, copysheets, etc.), plus the appropriate variable price adjustment per metric determined using the price band methodology as set forth on Schedule 17(a), times 1 plus the CPI Factor described in paragraph b. below (collectively, the "Actual Price"). Any difference between the Actual Price and the Annual Fee shall be added to, or subtracted from (as the case may be), the Annual Fee for that year and billed or credited to Publisher as part of the annual "true up" as set forth in Section 19. Base line volumes, Base Price, Budgeted Volumes and variable price bands per metric for 2000, as well as definitions of price list metrics and examples of these computations, are detailed in Schedule 17(a). Based upon Publisher's estimates provided pursuant to Section 16 of this Agreement, by January 1 of each subsequent year during the term of this Agreement, RHD will provide to Publisher an updated Schedule 17(a) which will set forth updated Base Price and Budgeted Volumes and a projection of an estimated Annual Fee for the ensuing year (the estimated Annual Fee for 2000 is set forth in Schedule 17(a)). - --------------------------- ***Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. The Base Price for 2001 shall be *** plus the CPI Factor described in paragraph b. below. The Base Price for 2002 shall be computed as (i) the Base Price for 2001 times (ii) 1 plus the CPI Factor described in paragraph b. below. The Base Price for 2003 shall be computed as (i) the Base Price for 2002 times (ii) 1 plus the CPI factor described in paragraph b. below. b. CPI Factor. The Base Price and the Annual Fee shall be adjusted as provided in paragraph a. above using the following CPI Factors for each year during the first three years of this Agreement:
Base Price Total Annual Fee - ---------- ---------------- 2000: as specified above 2000: *** 2001: *** 2001: *** 2002: *** 2002: *** 2003: *** 2003: ***
The CPI is the Consumer Price Index for All Urban Consumers in the United States as published by the United States Bureau of Labor Statistics ("BLS"), but for purposes of the above calculation the CPI shall not exceed *** in any year (such that the CPI adjustment factor for 2000 under Section 17 shall be ***). If the CPI shall be discontinued to be published, the Parties agree to use a comparable index. c. Changes. The Annual Fee set forth in this Section 17 and on Schedule 17(a) does not include any additional costs in connection with changes implemented in connection with the Work Request Process in accordance with Section 18. Such additional costs shall be invoiced separately as described in Section 19. d. Claims Adjustments. As part of the year-end "true up" process, the Actual Price payable under this Section 17 by Publisher with respect to all directories reflected from time to time on Schedule 1 will be reduced by *** of the aggregate annual publishing claims for local advertising attributable to RHD Production Errors (as defined below) with respect to such directories; subject to the following limitations and qualifications: - Excludes publishing claims related to 10-digit dialing information - Publishing claims resulting from new products or material product changes would need to be discussed and mutually agreed upon before being included in this adjustment process - Adjustment process will be renegotiated if Customer Service responsibilities are transferred away from RHD as Sales agent - Maximum adjustment is *** reduction of Actual Price, excluding portion of Actual Price attributable to White Pages - ------------------------- *** Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. As used herein, RHD Production Errors means all errors committed by RHD which originated in the publishing process, from order entry (only if performed by RHD at the publishing facility) through final pagination. Graphics errors committed by RHD which originated at the publishing facility shall also be treated as RHD Production Errors. These errors would include: - Order entry, keying errors from the contract or service order (but excluding sales errors reflected on the order or contract so long as keyed correctly by RHD) - Graphics errors (see above) in color, art, copy, etc. - Pagination errors - Text or copy errors that originate as part of the publishing process - Listings out of alphabetical order Publisher, as part of its customer service responsibilities, shall make the initial determination with respect to classifying errors between sales errors and RHD Production Errors. RHD shall have the right to dispute any classification of an error as an RHD Production Error by written notice to Publisher. Upon any such dispute, the Parties shall endeavor to resolve such dispute. If the dispute cannot be resolved within thirty (30) days, then either Party shall be free to submit such dispute to expedited arbitration under Section 25(a). 18. WORK REQUEST PROCESS Publisher may request to modify the scope, timing or other characteristic of any obligation of RHD hereunder, to add obligations of RHD hereunder or to modify any system, process or procedure used by RHD in performing its obligations hereunder by submitting a written Work Request Form (in a format reasonably acceptable to RHD) to RHD detailing the modification sought by Publisher. RHD shall have *** days to respond in writing to Publisher ("Response") in the case of ordinary course Work Request Forms and such longer period as reasonably necessary to respond to more complex Work Request Forms. If RHD fails to respond as required by the foregoing sentence, the requested modification will be made without any increase in production time or costs to Publisher. In any response submitted by RHD, it shall inform Publisher of the additional time, costs, and other factors that reasonably are expected to result from the requested modification. In determining such additional time, costs, and other factors, RHD shall consider and include any offsetting efficiencies and cost savings that reasonably are expected to result from all modifications contemporaneously requested by Publisher. After Publisher receives the Response, Publisher shall then have *** days (or such longer time specified in any Response) to advise RHD in writing whether Publisher wishes RHD to implement such modification and that Publisher agrees to incur (and reimburse as the case may be) the additional time, costs and other factors identified by RHD in the Response. If Publisher fails to so inform RHD within such time period, then RHD shall not be required to implement the requested modification. The Parties may modify this Work Request Process from time to time as the Parties mutually deem appropriate. - ------------------------- *** Confidential treatment has been requested for the redacted portions of this Exhibit, and such portions have been omitted and filed separately with the Securities and Exchange Commission. 19. INVOICES AND PAYMENT Based upon Publisher's estimates provided pursuant to Section 16 of this Agreement, by January 1 of each year during the term of this Agreement, RHD will provide to Publisher an updated Schedule 17(a) which will set forth updated Base Price and Budgeted Volumes (which shall be tied to the units of measure specified in Schedule 17(a)) and a projection of an estimated Annual Fee payable hereunder for the ensuing year (the estimated Annual Fee for July through December 2000 is set forth in Schedule 17(a)). On the fifteenth of each month during July through December of 2000, Publisher will pay to RHD one-sixth (1/6th) of the estimated Annual Fee with respect to that period. On the fifteenth of each month during 2001, 2002 and 2003, Publisher will pay to RHD one-twelfth (1/12th) of the estimated Annual Fee with respect to that year. If such amount is not paid by the fifteenth of the month, then Publisher shall pay RHD interest on the overdue amount at a rate equal to 1.0% per month for the period such payment remains overdue. By March 1 of the following year, RHD will issue a "true-up" report identifying the Actual Price incurred for that year (or portion thereof in the case of 2000) computed in accordance with Section 17 and submit a final invoice for reimbursement by (or credit to) Publisher which will reflect any differences between the Actual Price and the estimated Annual Fee identified by the "true up" report and any other items payable by (or subject to credit to) Publisher. Invoices for costs that are not included in the estimated Annual Fee to which RHD is entitled to reimbursement or for which Publisher shall pay the vendor directly (for example, invoices for printing costs, paper acquisition costs, Spanish translations, new movers guides, additional costs under the Work Request Process, etc.) shall be submitted to Publisher by either mail, facsimile, or electronic transfer, as shall be mutually agreed by the Parties. Publisher shall have the right to audit the "true-up" reports submitted to RHD to determine the accuracy of the actual volumes (as compared to Budgeted Volumes), any expenses not included in the Base Price for that particular calendar year, and RHD's true-up calculations. RHD shall make available to Publisher or its designated auditor all of RHD's books and records (e.g., customer contracts and management reports generated by RHD's systems) that substantiate such volumes, expenses, and calculations. Publisher shall complete its audit of RHD's "true-up" calculations within thirty (30) days of receipt of those calculations, unless RHD fails to make available to Publisher reasonably requested information. If, after conducting the audit, Publisher disagrees with any portion of the true-up invoice, Publisher immediately shall notify RHD of the disputed portion and the parties shall endeavor to resolve the dispute. Publisher shall be required to pay, or RHD shall be required to refund, the undisputed portion of the true-up invoice. If the dispute cannot be resolved within fifteen (15) days of Publisher's notification to RHD of the dispute, then each party shall be free to submit the dispute for resolution by expedited arbitration in accordance with the provisions of Section 25(a) of this Agreement. This "true-up" process under this Section 19 shall survive termination of this Agreement. 20. TERMINATION a. Extension. If Publisher wishes to extend the term of this Agreement, it shall notify RHD of the proposed extension on or before June 30, 2003. The parties thereafter shall use commercially reasonable efforts to reach agreement on the terms of the proposed extension. If Publisher does not provide RHD with such notice or the parties are unable to reach agreement on the proposed extension by July 31, 2003, the parties shall negotiate diligently and to agree upon a reasonable transition plan and schedule consistent with the terms governing the "Transition Plan" under subsection 20.c. below and providing for an orderly transition of the services performed under this Agreement to Publisher or its designated vendors. b. Material Breach. Either Party may terminate this Agreement before the Termination Date in the event of a material breach by the other Party. In order to terminate for material breach, the non-breaching Party must give the breaching Party written notice specifying in reasonable detail the breach and requesting that the breach be cured (the "Cure Notice"). If the breaching Party fails to cure the specified breach within sixty (60) (thirty (30) days in the case of a payment default) days of receipt of the Cure Notice, the other Party shall have the right to terminate this Agreement, effective upon thirty (30) days prior written notice to the breaching Party (the "Terminating Notice"); provided, however that if such breach (other than a payment default) cannot reasonably be cured within sixty (60) days of receipt of the Cure Notice, the same shall not constitute a failure to cure hereunder if the breaching Party commences to cure the breach, uses its best efforts to effect a cure, and effects such cure within ninety (90) days of receipt of the Cure Notice. Notwithstanding the above, the Party against whom termination is sought shall have the right to invoke expedited arbitration pursuant to Section 25 and to require that the arbitrator determine that a material breach has, in fact, occurred and that the Party against whom termination is sought has been unable to effect or has failed to use its best efforts to effect an adequate cure. c. For Convenience. RHD may terminate this Agreement, without cause, upon written notice to Publisher, such termination to become effective as provided below. Upon delivery of such termination notice, the parties hereby agree to negotiate diligently and to agree upon a reasonable transition plan and schedule ("Transition") to ensure the completion of all publishing and billing services provided by RHD hereunder associated with directories covered by this Agreement at the time of the delivery of the termination notice. The parties hereby agree that the effective date of termination of this Agreement shall be upon completion of this Transition; provided, however, that RHD shall not be required to perform any obligations hereunder after the expiration of 14 months following the date of the termination notice. During the Transition, this Agreement shall remain in full force and effect with respect to those directories for which RHD has not yet completed the services covered by the Transition. d. Turn Over. Upon termination of this Agreement, RHD will turn over to Publisher all Work Product (as defined herein) and any other printed or electronic material reasonably requested by Publisher as required to transition publishing services to another provider. This turn over will be in a manner mutually satisfactory to the Parties and will occur according to the transition plan agreed to by the Parties. In connection with such turn-over, RHD will assign any copyright or other rights in the turned over materials to Publisher as appropriate and as agreed in the transition plan and in accordance with Section 31. Unless RHD shall terminate this Agreement under paragraph (c) above, RHD's reasonable expenses in turnover as determined by mutual agreement of RHD and Publisher will be born by Publisher, according to the transition plan agreed to by the Parties. 21. WARRANTY RHD warrants that (a) its services will conform to the specifications, drawings, instructions, and standards mutually agreed to by the parties in accordance with the key performance indicators established jointly by the Parties from time-to-time, the present KPIs being identified in Schedule 21 attached hereto, and (b) that RHD will perform the services required hereby in a workmanlike manner consistent with industry standards. RHD DISCLAIMS ANY OTHER WARRANTIES, INCLUDING ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 22. NEW DEVELOPMENTS RHD agrees to use reasonable efforts to keep abreast of major developments in the compilation, composition, graphic arts, and data processing industries (e.g., new methods, processes, equipment, etc.) and to advise Publisher of any which might affect the production of end products. RHD agrees to examine reasonable Publisher ideas to increase efficiency and improve processes in accordance with the Work Request Process. 23. ASSIGNMENT a. Neither Party may assign this Agreement or any of its rights hereunder nor delegate any of its obligations hereunder (collectively, "assignment") without the prior written consent of the other Party, which consent shall not unreasonably be withheld or delayed. A condition to the effectiveness of any such assignment shall be the prior delivery by the assignor to the other Party of a written confirmation by the assignee of its assumption of the assignor's obligations under the Agreement. Notwithstanding the foregoing, either Party may assign any or all of its rights and/or obligations under this Agreement to an Affiliate (as defined below) of that Party without the consent of the other Party. In addition, as described in Section 3, Publisher's exercise of certain of its rights and performance of certain its obligations hereunder through a Sales or other agent in accordance with existing processes and procedures shall not be deemed an "assignment" under this Section 23(a) and shall not require the prior consent of RHD; provided, however, that any change from the existing processes and procedures would require RHD's consent in accordance with the Work Request Process. b. Publisher agrees that it shall not withhold or delay its consent to any proposed assignment by RHD of this Agreement if (a) the assignee is not a Competitor (as defined below) of Publisher, (b) in the event that the assignee provides print directory publishing or related services to a Competitor of Publisher, that the assignee agrees to (i) maintain the acquired RHD business as a separate unit or line of business or (ii) implement such other screening techniques (such as "Chinese" walls) reasonably acceptable to Publisher to ensure that all competitively sensitive information concerning Publisher is kept confidential and not shared with others in the assignee's organization who have responsibility for such Competitor's business , and (c) in the event that Publisher has reasonable grounds to question the assignee's ability to perform its obligations under this Agreement, then Publisher may require, as a condition to its consent to the proposed assignment, that the assignee or R.H. Donnelley Corporation (or the then-existing parent Company of RHD) provide Publisher with reasonable security or assurance with respect to such assignee's performance obligations under the Agreement. In the event of a proposed assignment by RHD to a Competitor, Publisher may withhold its consent to such assignment and RHD may either (i) choose not to proceed with such assignment or (ii) give Publisher a "Sale Notice" (as defined below) and treat such proposed assignment under the provisions of paragraph (d) below. c. In the event of a proposed assignment by Publisher, if RHD has reasonable grounds to question the assignee's ability to perform its obligations under this Agreement, then RHD may require, as a condition to its consent to the proposed assignment, that the assignee or Sprint Corporation (or the then-existing ultimate parent Company of Publisher) provide RHD with reasonable security or assurance with respect to such assignee's performance obligations under this Agreement. d. Notwithstanding the foregoing, any proposed assignment of this Agreement by RHD in connection with the sale to a non-affiliate of its entire (or substantially all assets comprising its) print directory publishing business ("Sale") will not require the prior written consent of Publisher. RHD shall give written notice ("Sale Notice") to Publisher of such Sale as soon as practicable, but in no event later than promptly following consummation of such Sale. Within 30 days following the date of the Sale Notice (but in no event prior to consummation of the Sale), either RHD (on its own account or on behalf of the purchaser) or Publisher may give written notice of termination ("Sale Termination Notice") of this Agreement to become effective as set forth below. Upon delivery of a Sale Termination Notice, the parties hereby agree to negotiate diligently and to agree upon a reasonable transition plan and schedule ("Sale Transition") to ensure the completion of all publishing and billing services provided by RHD hereunder associated with directories covered by this Agreement at the time of the delivery of the Sale Notice. The parties hereby agree that the effective date of termination of this Agreement shall be upon completion of this Sale Transition; provided, however, that RHD shall not be required to perform any obligations hereunder after the expiration of 14 months following the date of the Sale Termination Notice. During the Transition, this Agreement shall remain in full force and effect with respect to those directories for which RHD has not yet completed the services covered by the Sale Transition. In the event of delivery of a Sale Termination Notice, notwithstanding the consummation of a Sale, this Agreement shall not be assigned by RHD to the purchaser and RHD shall remain responsible to Publisher for the performance of its obligations during the Sale Transition; provided, however, that Publisher hereby consents to the delegation by RHD to the purchaser of any and all duties and obligations of RHD hereunder and to the assignment by RHD to purchaser of any and all rights to payment from Publisher hereunder. e. As used in this Section 23, the following terms have the following meanings: (i) "Affiliate" means, in the case of (a) Publisher, any legal entity in which Sprint Corporation, or its successor, or a wholly-owned subsidiary thereof, owns more than 50% of the common or voting stock of the entity; and (b) RHD, any legal entity in which R.H. Donnelley Corporation, or its successor, or any wholly-owned subsidiary thereof, owns more than 50% of the common or voting stock of the entity. (ii) "Competitor" means any entity, other than RHD or its Affiliates, substantially engaged in the publication of either print yellow pages or other related directory services that directly and substantially competes with Publisher. Without limiting the generality of the foregoing, any person or entity that directly or indirectly publishes a classified telephone directory that is distributed within 10% or more of the primary distribution area of any of the directories for which RHD provides services hereunder shall be deemed a Competitor. 24. [RESERVED] 25. DISPUTE RESOLUTION a. Expedited Arbitration. Any dispute arising under or related to this Agreement that, (i) by the terms hereof, must be resolved by arbitration, or (ii) the Parties, in each of their sole and absolute discretion, elect to submit to arbitration, shall be governed by the Commercial Arbitration Rules of the American Arbitration Association (the "Arbitration Rules"). Any such arbitration shall be conducted in accordance with the expedited procedures set forth in Paragraphs E-1 through E-10 of the Arbitration Rules. The decision of, and any award made by, the arbitrator shall be final and binding on the Parties and may be entered as a judgment in any court having competent jurisdiction over the Parties. b. Litigation. For all other disputes arising under or related to this Agreement, each Party shall have the right to bring an action in any court having competent jurisdiction over the Parties and the subject matter in dispute, subject to the dispute resolution covenants set forth in this Section 25(b). If one or more disputes subject to arbitration under Section 25(a) require the resolution of issues of fact or law common with, or related to, issues raised in a dispute governed by this Section 25(b), then all such disputes shall be resolved in accordance with this Section 25(b), and the arbitration requirements of Section 25(a) shall not apply to them. The following dispute resolution covenants shall govern all actions subject to this Section 25(b): 1. Governing Law. This agreement and the rights and obligations of the Parties hereunder shall be governed by the laws of the State of Kansas, without regard to its conflict of laws principles. 2. Waiver of Jury Trial. Each Party waives its right to a jury trial in any court action among the Parties arising under or related to this Agreement, whether made by claim, counter-claim, third party claim, or otherwise. If for any reason this jury waiver is held to be unenforceable, the Parties agree to binding arbitration for any dispute arising under or related to this Agreement, pursuant to the Arbitration Rules, except that the expedited procedures referred to in Section 25(a) shall not apply. The Parties' agreement to arbitrate any dispute under this provision shall extend to any claim by or against any third party that could have been brought in a court action between the Parties, whether as a claim, counterclaim, or third-party claim, subject to the agreement of such third Parties. The agreement of each Party to waive its right to a jury trial will be binding on its successors and assigns and will survive the termination of this Agreement. 3. Attorney's Fees. The prevailing Party in any dispute adjudicated by lawsuit or arbitration will be entitled to reasonable attorney's fees and costs, including reasonable expert fees and costs. This provision will not apply if the prevailing Party rejected a written settlement offer that exceeds the prevailing Party's recovery. 26. INFORMATION ACCESS AND AUDIT RIGHTS a. Access to Information. Subject to the confidentiality and nondisclosure provisions contained in this Agreement, each Party hereby agrees to provide to the other Party such information within its possession or under its control related to the performance of this Agreement. Without limiting the generality of the foregoing, such information shall include all information relating to Work Product and any derivatives thereto. Such information shall be provided promptly upon request in the format as is reasonably requested. Notwithstanding the foregoing, RHD shall not be required to provide Publisher with access to (i) RHD's employment files, (ii) RHD's data on its internal production costs, or (iii) RHD's internal budgets and financial projections. b. Audit Provisions. Each party (the "auditing party") shall have the right, upon written notice, to audit all records and data within the possession or under the control of the other party related to the other party's performance under this Agreement. Any such audit shall be conducted during normal business hours, subject to the other party's reasonable security measures, and at the auditing party's expense. The auditing party may, at its expense, engage independent auditors to audit and certify, such records and data, provided such independent auditor shall be what is commonly known as a "Big Five Accounting Firm" or its equivalent. Each party agrees to pay the other party any amount determined by the audit to be owed to the other party within forty-five (45) days following notification of the auditor's determination, unless one or both parties elect to dispute the independent's auditor's determination, in which case the dispute shall be submitted to arbitration for resolution in accordance with the expedited arbitration procedures outlined in Section 25(a) of this Agreement. 27. FORCE MAJEURE a. Except as provided below, if any Party is prevented from performing any of its obligations (other than payment obligations) under this Agreement because of any act of God, lockout, strike or other labor dispute, riot or civil commotion, act of public enemy, law, order or act of government, whether federal, state or local, or other similar event beyond the Party's control (a "Force Majeure Event"), then that Party will be excused from performing any of its obligations which are so prevented. However, the Party so excused is responsible for performing those obligations of which it had been relieved due to the Force Majeure Event as soon as the Force Majeure Event has ceased to prevent the Party's performance. During the pendency of the Force Majeure Event, the other party shall also be excused from performing its obligations hereunder, including any payment obligations that relate to the work not performed because of the Force Majeure Event. b. If a Force Majeure Event excuses RHD from performing its duties under this Agreement, Publisher may procure substitute performance for the duration of the Force Majeure Event; however, as soon as commercially practicable upon RHD's providing notice that the Force Majeure Event has ceased to prevent its performance both parties shall be entitled and obligated to resume performance of their respective obligations under this Agreement. 28. INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS RHD agrees to defend, at RHD's expense, and hold Publisher (and its Indemnified Persons (as defined below)) harmless from and against all suits against Publisher for infringement of any patent, trademark, copyright, trade secret, or any other proprietary right, by any third party relating to services provided by RHD under this Agreement, except to the extent any claim of infringement arises from RHD's adherence to copy, contracts, specifications, drawings or similar materials submitted or approved by Publisher (or Publisher's agents), provided RHD has properly performed technical specification reviews of such materials according to Publisher's standards as set forth in Section 7 above. Publisher agrees to defend, at Publisher's expense, and hold RHD (and its Indemnified Persons) harmless from and against all suits against RHD for infringement of any patent, trademark, copyright, trade secret, or any other proprietary right, by any third party arising from Publisher's acts or omissions and/or from RHD's adherence to copy, contracts, specifications, drawings or other materials submitted or approved by Publisher (or its agents). Each Party agrees to give the other prompt written notice of claims of infringement for which the other may be responsible under this Agreement and full opportunity and authority to assume the sole defense including appeals, and, upon such other's request, and at its expense, to furnish reasonable information and assistance available to it for such defense. 29. MUTUAL INDEMNIFICATION. Each party agrees to indemnify and hold harmless the other party and the other party's officers, agents, employees and Affiliates from and against any and all Eligible Claims (as defined herein) and reasonable attorney's fees incurred in the defense of Eligible Claims. Without limiting the generality of the foregoing, each party agrees to indemnify and hold harmless the other party and the other party's officers, agents, employees and Affiliates from and against all Eligible Claims, arising from injury to their respective agents and employees incurred while working on the premises of the other party, provided such injury is not the result of the other party's negligence or deliberate acts. Each party shall promptly notify the other of any claims made upon it for which the other may be liable under this Section 29, and both parties shall cooperate in the handling of any and all such Eligible Claims. As used herein, "Eligible Claims" means any claims and causes of action of third parties (a) arising from the other party's negligence, failure to perform in accordance with the terms of this Agreement or any breach of any representation, warranty or covenant made hereunder, that, when considered together with all other claims and causes of action of third parties arising from, or relating to, the same acts, facts, or circumstances, exceed $50,000 in claimed or incurred losses, damages and costs, provided, however, that with respect to claims, actions, losses, damages and costs that are required to be covered by insurance pursuant to Section 36 hereof, the $50,000 limitation set forth above shall not apply, or (b) that in whole or in part are predicated upon the gross negligence or willful misconduct of a party, regardless of the amount of claimed or incurred losses, damages, or costs. 30. LICENSES Subject to Section 31 below, no licenses, express or implied, under any patents, trademarks or copyright, are granted by either Party hereunder. 31. OWNERSHIP AND USE OF INFORMATION RHD acknowledges and agrees that all of the Work Product (as defined below) is provided under this Agreement to Publisher on a works made for hire basis. RHD hereby assigns to Publisher all of its rights, title, and interest in and to the Work Product, including any copyrights therein and the right to sue and recover for any infringement thereof. It is understood that RHD makes no representation or warranty of any kind that the Work Product provided to Publisher is subject to copyright. Some or all of the Work Product may be subject to copyright and to the extent that such copyright exists and belongs to RHD then this provision shall be applicable. RHD further agrees to take such actions and to execute such instruments as may be reasonably requested by Publisher from time-to-time to ensure that the ownership of the Work Product, including without limitation the ownership of any copyrights that may exist therein, vests in Publisher. As used herein, the term "Work Product" shall mean and include all: (i) compilations of information, (ii) collective works (including without limitation the directories), (iii) advertising copy, (iv) display advertising, (v) classified headings, (vi) reports, (vii) surveys, (viii) studies (ix) service order data, (x) local, national and publishing databases, (xi) lists of sales leads, sales contracts forms and executed sales contracts, (xii) advertising orders, advertiser acknowledgement letter files, and other advertising correspondence files, (xiii) quality check, statistical sampling and process control technique data, (xiv) electronic ads, including in-column, traditional display, high impact, process color, and similar types of advertisements, (xv) digital storage and ad graphics databases, (xvi) directory pages, on-line batch pages and digital files of the same, (xvii) billing information for local, national and foreign ads and vendors, electronic files of such billing information and financial and statistical reports concerning such billing information, (xviii) copies of and procedural information concerning book covers, mastheads, tabs, maps, fillers, telephone company information pages, local community information pages and government information pages, including electronic materials, (xix) white pages listings from local telephone companies in camera-ready and electronic format, page proofs and customer book pages, (xx) information provided by Publisher to RHD that is owned exclusively by Publisher, (xxi) any and all such work product developed or owned by the Partnership prior to the date hereof and any derivative works thereof, and (xxii) modifications made by Publisher or RHD to any of the foregoing and all other materials developed by RHD on behalf of Publisher, as work performed directly for or required in connection with the performance of its obligations under this Agreement. Work Product shall not include that portion of materials prepared by RHD solely in connection with its internal reporting on the management of its affairs or that relates solely to other RHD businesses or customers but in no event shall it refer to any software or related technology owned or licensed from any third party by RHD used directly or indirectly by RHD in the performance of its obligations under this Agreement. To the extent that such materials are confidential and have been identified in writing as such by Publisher, RHD shall keep such materials confidential in accordance with Section 32. All RHD specifications, drawings, sketches, models, samples, listings, master information, and products or data, written, oral or otherwise, including any software and software documentation furnished by RHD to Publisher hereunder, or in contemplation hereof, shall be considered by Publisher to be confidential and proprietary information of RHD, and Publisher agrees to protect such information in accordance with Section 32. 32. CONFIDENTIALITY The Parties agree to keep and cause their employees to keep the existence of this Agreement and the nature of the Parties' obligations hereunder strictly confidential and not to disclose any information with respect hereto to any third party or entity, except as may be necessary and required in conducting the business of either of the Parties or as required by law. In connection with the work performed under this Agreement, each Party may provide the other with certain confidential or proprietary information ("Confidential Information"), the disclosure of which would seriously and irreparably harm the providing Party. Accordingly, each Party agrees: a. To use Confidential Information only for the purpose of this Agreement; b. To treat Confidential Information with the same degree of care as it gives its own confidential information; c. To limit access to Confidential Information only to those employees having a need to know under this Agreement; and d. To return the other Party, or at the furnishing Party's direction, destroy, the other Party's Confidential Information, and all copies thereof, in its possession or under its control upon termination of this Agreement or at such earlier time as the Party furnishing the Confidential Information may request, provided however that such Confidential Information is no longer needed for the fulfillment of contractual or legal obligations, in which case the Confidential Information shall be held solely and exclusively for such purposes (which shall be communicated in writing to the Party that furnished the Confidential Information) and then relinquished or destroyed as soon as such identified purposes cease. In the event the destruction of Confidential Information is made, the Party responsible for the destruction will furnish to the other Party an affidavit that the Confidential Information has been destroyed. Each Party agrees that, in addition to its remedies available at law, the party providing Confidential Information shall be entitled to seek injunctive relief against the other party to prevent an actual or threatened disclosure of Confidential Information in breach of its obligations under this Section 32. The Parties hereby agree and acknowledge that all information provided by the other Party or obtained with respect to the other Party in connection with its performance of this Agreement shall be deemed Confidential Information, except that the following information shall not be deemed either Publisher's or RHD's Confidential Information: (a) information that can be shown to have been in the public domain at the time of the disclosure, or (b) information in the recipient's possession at the time of disclosure to the recipient (as shown in the recipient's files and records prior to the time of disclosure), or (c) information independently developed by the recipient's employees or agents that had no access to the Confidential Information received hereunder, or (d) information which, though originally confidential information, subsequently becomes part of the public knowledge or literature (though not as a result of any inappropriate action or inaction on the part of the recipient, its employees or agents), or (e) information which is specifically approved for release by written authorization of an officer of the Party having a proprietary interest in the information, or (f) information readily known or ascertainable by anyone engaged in the print classified directory industry, or (g) information disclosed pursuant to an order of a court having competent jurisdiction; however, recipient will use reasonable efforts to assist the other Party in obtaining a protective order or other appropriate relief or remedy. 33. TAX Federal Manufacturer's and Retailer's Excise, State or Municipal Sales and Use Taxes, when applicable, shall be billed to Publisher as separate items. 34. EMPLOYMENT STATUS RHD and Publisher are independent contracting parties and nothing in this Agreement will make either Party the partner, joint venturer, agent or legal representative of other for any purpose whatsoever, nor does it grant either Party any authority to assume or to create any obligation on behalf of or in the name of the other. In addition, Publisher will not withhold employment taxes or similar assessments from the compensation owed RHD under this Agreement. 35. NO THIRD PARTY BENEFICIARIES. The Parties acknowledge and agree that nothing contained in this Agreement is intended for the benefit of, or to create any rights in favor of, any other party. The Parties hereby expressly disclaim any intent to create third-party beneficiary rights under this Agreement. 36. INSURANCE. a. Insurance on Work-in-Process. The Parties acknowledge that, in providing services under this Agreement each Party will have in its possession and control materials and data critical to the publication of the directories. Each Party agrees to take reasonable measures to protect such materials and data from loss or destruction due to theft, casualty or otherwise, including without limitation the maintenance of back-up copies thereof as much as practicable. In the event such materials or data are lost or destroyed, each Party shall be obligated at its expense to replace or reconstruct such materials and data on an expedited basis, it being understood that time is of the essence in publishing and distributing the directories. Each Party shall maintain adequate business interruption insurance coverage (subject to such deductibles as it shall in its sole discretion deem appropriate) to cover any loss for which it is responsible hereunder. b. General Liability Insurance. RHD and Publisher each shall be obligated to carry general liability insurance coverage with coverage limits of not less than three million dollars ($3,000,000.00) per occurrence, containing appropriate contractual liability endorsements, which may be subject to such deductibles as each Party shall in its sole discretion deem appropriate. c. Workers Compensation Insurance. RHD, as an independent contractor to Publisher, agrees to maintain and pay for workers compensation insurance coverage applicable to RHD's employees in accordance with the requirements of applicable law. 37. NON-WAIVER The failure of either Party at any time to require strict performance by the other Party of any provision of this Agreement will in no way affect the right to require such strict performance at any time thereafter nor will the waiver by either Party of a breach of any provision constitute a waiver of any succeeding breach of the same or any other provision. 38. NOTICES Unless otherwise specified in this Agreement, any notice required or permitted under this Agreement shall be in writing given by certified or registered mail (return receipt requested), facsimile or reputable overnight courier service to the Parties as follows: RHD: 6001 Hospitality Court Morrisville, NC 27560 Attention: Vice President, Publishing Fax No.: (919) 461-9256 cc: One Manhattanville Road Purchase, New York 10577 Attention: Senior Vice President and General Counsel Fax No.: (914) 933-6844 Publisher: CenDon, LLC c/o Sprint Publishing and Advertising, Inc. 7015 College Boulevard - Suite 400 Overland Park, KS 66211 Att: Fax No.: 39. HEADINGS AND CAPTIONS The headings and captions herein are provided for reference and convenience only and shall not be considered part of this Agreement and shall not be employed in the construction of this Agreement. 40. ENTIRE AGREEMENT; SEVERABILITY Except where expressly set forth herein, this Agreement, together with the Attachments, sets forth the entire agreement between the Parties and supersedes all prior agreements (whether oral or written) between the Parties relating to the subject matter contained herein and merges all prior discussions between them. This Agreement may be modified only by a writing signed by both Parties. If any term of this Agreement is invalid or unenforceable under any statute, regulation, ordinance, executive order or other rule of law, such term will be deemed reformed or deleted, but only to the extent necessary to comply with such statute, regulation, ordinance, order or rule, and the remaining provisions of this Agreement will remain in full force and effect. 41. COUNTERPARTS This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and each of which taken together shall constitute one and the same Agreement. 42. GOOD FAITH Each Party shall perform each and every covenant applicable to it under this Agreement in good faith. Any specific reference herein to the obligation to perform any covenant in good faith shall not be interpreted as imposing any greater or lesser duty than imposed by this Section 42. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first indicated above. CENDON, LLC By: /s/ J.L. Mieske -------------------------------- Name: J.L. Mieske Title: Vice President R.H. DONNELLEY INC. By: /s/ David C. Swanson -------------------------------- Name: David C. Swanson Title: President EX-10.29 6 y62626exv10w29.txt EMPLOYMENT AGREEMENT Exhibit 10.29 EMPLOYMENT AGREEMENT effective as of May 1, 2002 (the "Effective Date") by and between R.H. Donnelley Corporation, a Delaware corporation (the "COMPANY"), and David C. Swanson (the "EXECUTIVE"). WHEREAS, Executive is presently serving as President and Chief Operating Officer of the Company pursuant to an Employment Agreement dated September 28, 1998 ("Prior Agreement"); WHEREAS, the Board of Directors of the Company has appointed Executive as Chief Executive Officer effective immediately following the 2002 Annual Meeting of Stockholders; WHEREAS, Executive desires to continue his employment with the Company upon the terms and conditions hereinafter set forth in this agreement (this "AGREEMENT"); NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the validity and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company for a period (the "EMPLOYMENT TERM") commencing on the date hereof (the "COMMENCEMENT DATE") and ending on April 30, 2003. On May 1, 2003 and each succeeding anniversary thereof, the Employment Term shall automatically be extended for one additional year unless, not later than ninety days prior to such anniversary, the Company or the Executive shall have given notice of its or his intention not to extend the Employment Term. Any such non-renewal of this Agreement by the Company shall be treated as a termination of Executive's employment without Cause, as hereinafter defined. This Agreement shall replace and supercede the Prior Agreement, which shall be of no further force or effect after the date hereof. 2. Position. (a) Executive shall serve as Chief Executive Officer of the Company. In such position, Executive shall have such duties and authority commensurate with such position and, to the extent not inconsistent with the foregoing, as shall be determined from time to time by the Board of Directors of the Company (the "BOARD"). Executive shall be employed as the senior most officer of the Company and shall report directly to the Board. (b) During the Employment Term, Executive will devote substantially all of his business time and best efforts to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that nothing herein shall be deemed to preclude Executive from serving on business, civic or charitable boards or committees, as long as such activities do not materially interfere with the performance of Executive's duties hereunder. 3. Base Salary. Company shall pay Executive an annual base salary (the "BASE SALARY") at the initial annual rate of $475,000 payable in equal bi-monthly installments or otherwise in accordance with the payroll and personnel practices of the Company in effect from time to time. Base Salary shall be reviewed annually by the Board or a committee thereof to which the Board may from time to time have delegated such authority (the "COMMITTEE") for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. 4. Bonus. With respect to each fiscal year all or part of which is contained in the Employment Term, Executive shall be eligible to participate in the Company's Annual Incentive Program under the 2001 Stock Award and Incentive Plan or any successor program or plan thereto or thereunder, with a target bonus opportunity of 70% of Base Salary and a maximum bonus opportunity not less than that for which he is eligible on the Effective Date (the "BONUS"). 5. Additional Compensation. As further compensation, Executive will be eligible for participation in all other bonuses, long-term incentive compensation and stock options and other equity participation arrangements made available generally to senior executives of the Company, on terms and conditions no less favorable than those offered to other senior executives of the Company, and at no less attractive a level in the aggregate as that for which he is eligible on the Effective Date. 6. Employee Benefits. During the Employment Term, Executive shall be eligible for employee benefits (including perquisites, fringe benefits, vacation, pension and profit sharing plan participation and life, health, accident and disability insurance) made available generally to senior executives of the Company, on terms and conditions no less favorable than those offered to other senior executives of the Company, and at no less attractive a level in the aggregate as that for which he is eligible on the Effective Date. 7. Business Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies in effect from time to time. 8. Termination of Employment. Each of Executive and the Company may terminate the employment of Executive hereunder at any time in accordance with this Section 8. Executive's entitlements hereunder in the event of any such termination shall be as set forth in this Section 8. The provisions of this Section 8 (and any related provision of Section 10) shall survive any non-renewal of this Agreement by the Company pursuant to Section 1. With respect to any termination of employment (voluntary or otherwise), any and all (i) accrued but unused vacation and (ii) earned but unpaid bonus (with respect to any full performance period) will be paid at the same time as other payments provided for herein. 2 (a) For Cause by the Company. If Executive's employment is terminated by the Company for Cause, he shall be entitled to receive his Base Salary through the Date of Termination, as hereinafter defined. All other benefits due Executive following Executive's termination of employment pursuant to this Section 8(a) shall be determined in accordance with the then-existing plans, policies and practices of the Company. (b) Death or Disability. Executive's employment hereunder shall terminate upon his death and may be terminated by the Company upon his Disability during the Employment Term. Upon termination of Executive's employment hereunder upon the Executive's Disability or death, Executive or his estate (as the case may be) shall be entitled to receive Base Salary through the Date of Termination, plus a pro-rata portion of target Bonus, based on the number of whole or partial months from the beginning of the bonus period to the Date of Termination. In addition, if Executive's employment is terminated as a result of Disability, Executive shall continue to be eligible to participate in all health, medical and dental benefit plans of the Company, until age 65 in accordance with the terms, conditions and elections, if any, applicable to or in effect with respect to Executive at the Date of Termination. (c) Termination Not Following a Change in Control. If, during the Employment Term and prior to a Change in Control or more than two years after a Change in Control, Executive's employment is terminated by the Company without Cause, or by Executive under subclauses (i), (ii) or (iii) of the definition of Good Reason, Executive shall be entitled to the following: (i) Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination, as defined in Section 8(g) herein, is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus a pro rata (number of days employed during calendar year divided by 360) portion of target Bonus, plus all other amounts to which Executive is entitled under any then-existing compensation or benefit plan of the Company. (ii) In lieu of any further salary payments to Executive for periods subsequent to the Date of Termination, the Company shall pay as severance pay, not later than the fifth business day following the Date of Termination, a severance payment (the "SEVERANCE PAYMENT") equal to two times the sum of (A) Base Salary at the rate in effect on the date Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus (B) target Bonus at the rate in effect on the date of the Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment without Cause, paid in lump sum without reduction for time value of money. (iii) Continued eligibility to participate in all health, medical and dental benefit plans of the Company for which Executive was eligible immediately prior to the time of the Notice of Termination, or comparable coverage, for two years, or, if sooner, until comparable health insurance coverage is available to Executive in connection with subsequent employment or self-employment. The coverage for which Executive shall continue to be eligible under this Section shall be made available at no greater cost or tax 3 cost to Executive than that applicable to Executive at the time of termination of employment. (iv) Term life insurance equivalent in coverage, and at no greater cost or tax cost to Executive, to that elected by Executive at the time of the Notice of Termination, until the last day of the second calendar year beginning after termination of employment, or, if sooner, until comparable life insurance coverage is available to Executive in connection with subsequent employment or self-employment. (d) Termination Within Two Years Following a Change in Control. If, during the Employment Term and within two years following a Change in Control, Executive's employment is terminated by the Company without Cause, or by the Executive for Good Reason, as hereinafter defined, Executive shall be entitled to the payments and benefits set forth in Section 8(c), except that for purposes of this Section 8(d), references in such Section to "two times" or " two years" shall be changed to "three times" and "three years." In addition, Executive shall be entitled to receive, for the three years following termination of employment or, if sooner, until subsequently employed or self-employed, (i) all perquisites and similar benefits he was receiving immediately prior to the time of Notice of Termination, (ii) reimbursement of expenses relating to financial planning services, up to a maximum amount per year equal to the average of such amounts paid to Executive for the two calendar years preceding the Date of Termination and (iii) reimbursement of expenses relating to outplacement services, subject to a maximum reimbursement under this clause (iii) of $25,000. For purposes of this Agreement, termination of employment after the commencement of negotiations with a potential acquiror or business combination partner but prior to an actual Change of Control shall be deemed to be a termination of employment within two years following a Change in Control if such negotiations subsequently result in a transaction with such acquiror or business combination partner which constitutes a Change in Control. (e) Retirement. If during the Employment Term, Executive retires at normal retirement age under the Company's qualified pension plan or any successor plan, Executive shall be entitled to the payments and benefits specified in Section 8(b) as if his employment had terminated as a result of Disability. (f) Voluntary Termination of Employment. If during the Employment Term, Executive terminates his employment under circumstances other than those specified elsewhere in this Section 8, Executive shall be entitled to the payments and benefits specified in Section 8(a). (g) Notice and Date of Termination. (i) Any purported termination of employment by the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 17(i) hereof. For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a notice which shall indicate (by reference to specific Section and sub-section numbers and letters, for example, Section 8(d)) the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. If the event or circumstance on which the proposed termination of employment is 4 based is susceptible of cure, the Notice of Termination shall not be deemed effective until Executive or the Company, as the case may be, has had at least 30 days to effect such cure, and unless such event or circumstance persists at the end of such cure period. (ii) "DATE OF TERMINATION" shall mean (A) if employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period), (B) if employment is terminated by reason of death, the date of death, and (C) if employment is terminated for any other reason, subject to the effectiveness of notice and "cure" provisions of clause (i) above, the date specified in the Notice of Termination (which, in the case of a termination of employment by the Company for Cause shall not be less than ten (10) days after the date such Notice of Termination is given); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence; and provided, further that in the event Executive gives Notice of Termination for Good Reason based upon any matter referred to in clause (ii) of the definition of Good Reason, and it is thereafter determined that said grounds do not constitute Good Reason, then so long as Executive reasonably believed in good faith that he had grounds for termination of employment for Good Reason, the Company may not terminate Executive's employment for Cause based upon such matters. (h) Any provision of this Agreement to the contrary notwithstanding, Executive shall be obligated to execute a general release of claims in favor of the Company, substantially in the form attached hereto as Exhibit A, as a condition to receiving benefits and payments under Sections 8(c) or (d) of this Agreement. (i) Notwithstanding anything to the contrary set forth herein, the following provisions of this Agreement shall survive any termination of Executive's employment hereunder and/or termination of this Agreement: Sections 8, 10, 11, 12, 13, 14, 15, 16 and 17(f) and (g). 9. Definitions. (a) "CAUSE" shall mean (i) Executive's willful and continued failure substantially to perform the duties of his position (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by Executive for Good Reason, as hereinafter defined), (ii) any willful act or omission by the Executive constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably (and, in the case of other malfeasance, materially) injurious to the financial condition or business reputation of the Company or any of its affiliates, or (iii) the Executive's conviction of a felony under the laws of 5 the United States or any state thereof or any other jurisdiction in which the Company or any of its subsidiaries conducts business which materially impairs the value of Executive's services to the Company or any of its subsidiaries. For purposes of this definition, no act or failure to act shall be deemed "willful" unless effected by Executive not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company. (b) "CHANGE IN CONTROL" shall mean the occurrence of any of the following events: (i) Any "person," as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) During any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company to effect a transaction described in subsections (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) The shareholders of the Company have approved a merger or consolidation of the Company with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company have approved a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, and all other required governmental approvals of such transaction have been obtained. 6 (c) "DISABILITY" shall mean the Executive's inability, as a result of physical or mental incapacity, to perform the duties of his position for a period of six (6) consecutive months or for an aggregate of six (6) months in any twelve (12) consecutive month period. Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. (d) "GOOD REASON" means: (i) Removal from, or failure to be reappointed or reelected to, Executive's position as specified in Section 2 (other than as a result of a promotion); or (ii) Material diminution in Executive's title, position, duties or responsibilities, re-assignment of Executive's reporting relationship to anyone other than the Board of Directors, or the assignment to Executive of duties that are inconsistent, in a material respect, with the scope of duties and responsibilities associated with Executive's position as specified in Section 2; or (iii) Reduction in Base Salary or target or maximum Bonus opportunity, reduction in level of participation in long term incentive, stock option and other equity award, benefit and other plans for executive officers; or (iv) Relocation of the executive's principal workplace without his consent to a location outside the New York metropolitan area; or (v) Other material breach of this Agreement by the Company. 10. Certain Payments. (a) If any of the payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment, whether or not pursuant to this Agreement (such payments or benefits, excluding the Gross-Up Payment, as hereinafter defined, shall hereinafter be referred to as the "TOTAL PAYMENTS") will be subject to an excise tax as provided for in Section 4999 of the Internal Revenue Code (the "CODE") (the "EXCISE TAX"), the Company shall pay to Executive an additional amount no later than the due date for Executive's tax return with respect to such Excise Tax (the "GROSS-UP PAYMENT") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments; provided, however, that if the Total Payments are less than 360% of the Executive's Base Amount, as defined in 7 Section 280G(b)(3) of the Code, the Executive shall not be entitled to the Gross-Up Payment, and the Total Payments shall be reduced as provided for in Section 10(d) below. (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("TAX COUNSEL") reasonably acceptable to Executive and selected by the accounting firm acting as the "Auditor", as defined below, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, (ii) all "Excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence or, if higher, in the state and locality of Executive's principal place of employment, on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 10), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (including that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction). In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (d) If the Total Payments would constitute an excess parachute payment, but are less than 360% of the Base Amount, such payments shall be reduced to the largest amount that may be paid to the Executive without the imposition of the Excise Tax or the disallowance as 8 deductions to the Company under Section 280G of the Code of any such payments. Unless Executive shall have given prior written notice to the Company specifying a different order, the Company shall reduce or eliminate the payments or benefits by first reducing or eliminating the portion of the payments or benefits that are not payable in cash and then by reducing or eliminating cash payments, in each case, in reverse chronological order, starting with payments or benefits that are to be paid farthest in time from the applicable determination of the Auditor (as defined below). Any written notice given by Executive pursuant to the preceding sentence shall take precedence over the provisions of any plan, agreement or arrangement governing Executive's entitlement and rights to such payments or benefits. (e) All determinations under this Section 10 shall be made by a nationally recognized accounting firm selected by the Executive (the "AUDITOR"), and the Company shall pay all costs and expenses of the Auditor. The Company shall cooperate in good faith in making such determinations and in providing the necessary information for this purpose. 11. Indemnification. The Company will indemnify Executive (and his legal representative or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) by applicable law, as in effect at the time of the subject act or omission, or by the Certificate of Incorporation and By-Laws of the Company, as in effect at such time or on the Commencement Date, or by the terms of any indemnification agreement between the Company and Executive, whichever affords or afforded greatest protection to Executive, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers (and to the extent the Company maintains such an insurance policy or policies, Executive shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage available for any Company officer or director), against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives (including but not limited to any judgment entered by a court of law) at the time such costs, charges and expenses are incurred or sustained, in connection with any action, suit or proceeding to which Executive (or his legal representatives or other successors) may be made a party by reason of his having accepted employment with the Company or by reason of his being or having been a director, officer or employee of the Company, or any subsidiary of the Company, or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. Executive's rights under this Section 11 shall continue without time limit for so long as he may be subject to any such liability, whether or not the Employment Term may have ended. 12. Non-Competition. Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees that (a) during the Employment Term: (i) Executive will not directly or indirectly engage in any business which is in competition with any line of business then conducted by the Company or its affiliates (including without limitation by performing or soliciting the performance of services for 9 any person who is a customer or client of the Company or any of its affiliates) whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates then conducts any such competing line of business; and (ii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months; and (iii) Executive will not directly or indirectly solicit customers or suppliers of the Company or its affiliates or induce any such person to materially reduce or terminate its relationship with the Company. (b) for one year following the Employment Term: (i) Executive will not directly or indirectly engage in any local directional advertising or marketing (whether in print, electronic, wireless or other format) business or provide pre-press publishing or utilize digital and intranet technologies to repurpose print directory information for electronic, wireless or related distribution, in each case which is in competition with the business then conducted by the Company or its affiliates, whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 5% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates then conducts any such competing line of business; and (ii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months; and (iii) Executive will not directly or indirectly solicit customers or suppliers of the Company or its affiliates or induce any such person to materially reduce or terminate its relationship with the Company. 10 For purposes of this Agreement, "directional advertising or marketing" shall mean advertising or marketing primarily (1) designed for purposes of directing consumers who are seeking a product or service to providers of that product or service in order to satisfy such consumer's previously recognized need or desire for such product or service and (2) generally delivered by non-intrusive means; and shall be distinguished from "creative advertising or marketing," which is primarily (1) designed to stimulate (as opposed to direct) demand for products or services in consumers who did not previously recognize such need or desire for such products or services and (2) generally delivered by intrusive means. It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 12 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 13. Confidentiality; Nondisparagement. (a) Executive will not at any time (whether during or after his employment with the Company) disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, employees, organizational structure or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive's breach of this covenant. Executive agrees that upon termination of his employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, except that he may retain personal notes, notebooks, rolodexes and diaries. Executive further agrees that he will not retain or use for his account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company or its affiliates. (b) Executive will not knowingly disparage the reputation of the Company in a manner that causes or is reasonably likely to cause material harm to its business; provided, however, that Executive may (i) express his own opinions about the Company to other senior executives of the Company or to the Board and (ii) comply with applicable legal process without being deemed to have violated this provision. 11 14. Material Inducement; Specific Performance. Executive acknowledges and agrees that the covenants entered into by Executive in Sections 12 and 13(a) are essential elements of the parties' agreement as expressed herein, are a material inducement for the Company to enter into this Agreement and the breach thereof would be a material breach of this Agreement. Executive further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Sections 12 or Section 13(a) would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 15. Litigation Support. Executive agrees that he will assist and cooperate with the Company, at the Company's sole cost and expense and, in the case of post-termination, in a manner so as to not unreasonably interfere with any other employment obligations of Executive, in connection with the defense or prosecution of any claim that may be made against or by the Company or its affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by Executive, pertinent knowledge possessed by Executive, or any act or omission by Executive. Executive further agrees to perform all acts and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Section, at the Company's sole cost and expense and, in the case of post-termination, in a manner so as to not unreasonably interfere with any other employment obligations of Executive. If Executive determines in good faith that separate counsel is necessary in connection with its compliance with this Section 15, then the Company shall pay all reasonable fees and expenses of such counsel retained by Executive in connection herewith. Following Executive's termination of employment, this covenant shall expire and be of no further force or effect upon the later to occur of (a) one year following such termination of employment and (b) in the event of termination of employment under Sections 8(c) or (d), the maximum number of years following such termination specified in the applicable sub-section during which Executive is eligible to continue to participate in the Company's benefit plans. 16. Legal Fees. The Company will pay or reimburse Executive, as incurred, all legal fees and costs incurred by Executive in enforcing his rights under the Agreement, if Executive's position substantially prevails. Following a Change in Control, the Company will pay or reimburse Executive, as incurred, for all such fees and costs unless Executive's claim was frivolous or was brought or pursued by Executive in bad faith. 17. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) Entire Agreement/Amendments. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company. There are no 12 restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and in the incentive compensation and other employee benefit plans and arrangements of the Company referenced herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (c) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (d) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. (e) Assignment. This Agreement shall not be assignable by Executive and shall be assignable by the Company only with the consent of Executive except as set forth in Section 17(h); provided that no such assignment by the Company shall relieve the Company of any liability hereunder, whether accrued before or after such assignment. (f) No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such employment, if obtained, or compensation or benefits payable in connection therewith, shall reduce any amounts or benefits to which Executive is entitled hereunder except as provided for in Sections 8(c) and (d). (g) Arbitration. Any dispute between the parties to this Agreement arising from or relating to the terms of this Agreement (other than as specified under Section 14 with respect to Sections 12 and 13(a) hereof) or the employment of Executive by the Company shall be submitted to arbitration in New York, New York under the auspices of the American Arbitration Association. 13 (h) Successors; Binding Agreement (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Such assumption and agreement shall be obtained prior to the effectiveness of any such succession. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term "Company" shall also mean any affiliate of the Company to which Executive may be transferred and the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term "Company" shall not mean any affiliate of the Company to which Executive may be transferred unless Executive shall have previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. (ii) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the devisee, legatee or other designee of Executive or, if there is no such designee, to the estate of Executive. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at the address appearing from time to time in the personnel records of the Company and to the Company at the address of its corporate headquarters, directed to the attention of the Board with a copy to the Secretary of the Company, or in either case to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (j) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (k) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 14 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. David C. Swanson /s/ David C. Swanson ----------------------------------- R.H. DONNELLEY CORPORATION By: /s/ Robert J. Bush ------------------------------- Name: Robert J. Bush Title: V.P & General Counsel 15 EX-10.30 7 y62626exv10w30.txt EMPLOYMENT AGREEMENT FOR STEVEN M. BLONDY Exhibit 10.30 EMPLOYMENT AGREEMENT effective as of March 1, 2002 by and between R.H. Donnelley Corporation, a Delaware corporation (the "COMPANY"), and Steven M. Blondy (the "EXECUTIVE"). WHEREAS, the Compensation and Benefits Committee of the Board of Directors has determined it to be in the Company's best interest to offer Executive an employment agreement on substantially the same terms as other senior executives of the Company; and WHEREAS, Executive desires to commence employment with the Company upon the terms and conditions hereinafter set forth in this agreement (this "AGREEMENT"); NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the validity and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Term of Employment. Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company for a period (the "EMPLOYMENT TERM") commencing on the date hereof (the "COMMENCEMENT DATE") and ending on February 28, 2003. On March 1, 2003 and each succeeding anniversary thereof, the Employment Term shall automatically be extended for one additional year unless, not later than ninety days prior to such anniversary, the Company or the Executive shall have given notice of its or his intention not to extend the Employment Term. Any such non-renewal of this Agreement by the Company shall be treated as a termination of Executive's employment without Cause, as hereinafter defined. 2. Position. (a) Executive shall serve as Senior Vice President and Chief Financial Officer of the Company. In such position, Executive shall have such duties and authority commensurate with such position and, to the extent not inconsistent with the foregoing, as shall be determined from time to time by the Chief Executive Officer of the Company and/or the Board of Directors of the Company (the "BOARD"). Executive shall be employed as the senior most financial officer of the Company and shall report directly to the Chief Executive Officer, provided that prior to May 1, 2002, he shall report directly to the President and Chief Operating Officer. (b) During the Employment Term, except as otherwise agreed in writing between the parties, Executive will devote substantially all of his business time and best efforts to the performance of his duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict with the rendition of such services either directly or indirectly, without the prior written consent of the Board; provided that nothing herein shall be deemed to preclude Executive from serving on business, civic or charitable boards or committees, as long as such activities do not materially interfere with the performance of Executive's duties hereunder. 3. Base Salary. Company shall pay Executive an annual base salary (the "BASE SALARY") at the initial annual rate of $300,000, payable in equal bi-monthly installments or otherwise in accordance with the payroll and personnel practices of the Company in effect from time to time. Base Salary shall be reviewed annually by the Board or a committee thereof to which the Board may from time to time have delegated such authority (the "COMMITTEE") for possible increase (but not decrease) in the sole discretion of the Board or the Committee, as the case may be. 4. Bonus. With respect to each fiscal year all or part of which is contained in the Employment Term, Executive shall be eligible to participate in the Company's Annual Incentive Program under the 2001 Stock Award and Incentive Plan or any successor program or plan thereto or thereunder, with a target bonus opportunity of 60% of Base Salary (the "BONUS"). 5. Additional Compensation. As further compensation, Executive will be eligible for participation in all other bonuses, long-term incentive compensation and stock options and other equity participation arrangements made available generally to senior executives of the Company, on terms and conditions substantially similar to those offered to other senior executives of the Company, and with respect to those programs addressed therein, at no less attractive a level in the aggregate as set forth in the letter to you from Dave Swanson dated February 28, 2002 (the "OFFER LETTER"). In the event of any conflict or inconsistency between the provisions of the Offer Letter and of this Agreement, the terms and conditions of this Agreement shall control. 6. Employee Benefits. During the Employment Term, Executive shall be eligible for employee benefits (including perquisites, fringe benefits, vacation, pension and profit sharing plan participation and life, health, accident and disability insurance) made available generally to senior executives of the Company, on terms and conditions substantially similar to those offered to other senior executives of the Company, and with respect to those programs addressed in the Offer Letter, at no less attractive a level in the aggregate as set forth in the Offer Letter. 7. Business Expenses. Reasonable travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder shall be reimbursed by the Company in accordance with Company policies in effect from time to time. 8. Termination of Employment. Each of Executive and the Company may terminate the employment of Executive hereunder at any time in accordance with this Section 8. Executive's entitlements hereunder in the event of any such termination shall be as set forth in this Section 8. The provisions of this Section 8 (and any related provision of Section 10) shall survive any non-renewal of this Agreement by the Company pursuant to Section 1. With respect to any termination of employment (voluntary or otherwise), any and all (i) accrued but unused vacation and (ii) earned but unpaid bonus (with respect to any full performance period) will be paid at the same time as other payments provided for herein. (a) For Cause by the Company. If Executive's employment is terminated by the Company for Cause, he shall be entitled to receive his Base Salary through the Date of 2 Termination, as hereinafter defined. All other benefits due Executive following Executive's termination of employment pursuant to this Section 8(a) shall be determined in accordance with the then-existing plans, policies and practices of the Company. (b) Death or Disability. Executive's employment hereunder shall terminate upon his death and may be terminated by the Company upon his Disability during the Employment Term. Upon termination of Executive's employment hereunder upon the Executive's Disability or death, Executive or his estate (as the case may be) shall be entitled to receive Base Salary through the Date of Termination, plus a pro-rata portion of target Bonus, based on the number of whole or partial months from the beginning of the bonus period to the Date of Termination. In addition, if Executive's employment is terminated as a result of Disability, Executive shall continue to be eligible to participate in all health, medical and dental benefit plans of the Company, until age 65 in accordance with the terms, conditions and elections, if any, applicable to or in effect with respect to Executive at the Date of Termination. (c) Termination Not Following a Change in Control. If, during the Employment Term and prior to a Change in Control or more than two years after a Change in Control, Executive's employment is terminated by the Company without Cause, or by Executive under subclauses (i), (ii) or (iii) of the definition of Good Reason, Executive shall be entitled to the following: (i) Base Salary through the Date of Termination at the rate in effect at the time of Notice of Termination, as defined in Section 8(g) herein, is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus a pro rata (number of days employed during calendar year divided by 360) portion of the target Bonus, plus all other amounts to which Executive is entitled under any then-existing compensation or benefit plan of the Company. (ii) In lieu of any further salary payments to Executive for periods subsequent to the Date of Termination, the Company shall pay as severance pay, not later than the fifth business day following the Date of Termination, a severance payment (the "SEVERANCE PAYMENT") equal to two times the sum of (A) Base Salary at the rate in effect on the date Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment, plus (B) target Bonus at the rate in effect on the date of the Notice of Termination is given, or if higher, at the rate in effect immediately prior to the event or circumstance leading to the termination of employment without Cause, paid in lump sum without reduction for time value of money. (iii) Continued eligibility to participate in all health, medical and dental benefit plans of the Company for which Executive was eligible immediately prior to the time of the Notice of Termination, or comparable coverage, for two years, or, if sooner, until comparable health insurance coverage is available to Executive in connection with subsequent employment or self-employment. The coverage for which Executive shall continue to be eligible under this Section shall be made available at no greater cost or tax cost to Executive than that applicable to Executive at the time of termination of employment. 3 (iv) Term life insurance equivalent in coverage, and at no greater cost or tax cost to Executive, to that elected by Executive at the time of the Notice of Termination, until the last day of the second calendar year beginning after termination of employment, or, if sooner, until comparable life insurance coverage is available to Executive in connection with subsequent employment or self-employment. (d) Termination Within Two Years Following a Change in Control. If, during the Employment Term and within two years following a Change in Control, Executive's employment is terminated by the Company without Cause, or by the Executive for Good Reason, as hereinafter defined, Executive shall be entitled to the payments and benefits set forth in Section 8(c), except that for purposes of this Section 8(d), references in such Section to "two times" or "two years" shall be changed to "three times" and "three years." In addition, Executive shall be entitled to receive, for the three years following termination of employment or, if sooner, until subsequently employed or self-employed, (i) all perquisites and similar benefits he was receiving immediately prior to the time of Notice of Termination, (ii) reimbursement of expenses relating to financial planning services, up to a maximum amount per year equal to the average of such amounts paid to Executive for the two calendar years preceding the Date of Termination and (iii) reimbursement of expenses relating to outplacement services, subject to a maximum reimbursement under this clause (iii) of $25,000. For purposes of this Agreement, termination of employment after the commencement of negotiations with a potential acquiror or business combination partner but prior to an actual Change of Control shall be deemed to be a termination of employment within two years following a Change in Control if such negotiations subsequently result in a transaction with such acquiror or business combination partner which constitutes a Change in Control. (e) Retirement. If during the Employment Term, Executive retires at normal retirement age under the Company's qualified pension plan or any successor plan, Executive shall be entitled to the payments and benefits specified in Section 8(b) as if his employment had terminated as a result of Disability. (f) Voluntary Termination of Employment. If during the Employment Term, Executive terminates his employment under circumstances other than those specified elsewhere in this Section 8, Executive shall be entitled to the payments and benefits specified in Section 8(a). (g) Notice and Date of Termination. (i) Any purported termination of employment by the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 17(i) hereof. For purposes of this Agreement, a "NOTICE OF TERMINATION" shall mean a notice which shall indicate (by reference to specific Section and sub-section numbers and letters, for example, Section 8(d)) the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated. If the event or circumstance on which the proposed termination of employment is based is susceptible of cure, the Notice of Termination shall not be deemed effective until 4 Executive or the Company, as the case may be, has had at least 30 days to effect such cure, and unless such event or circumstance persists at the end of such cure period. (ii) "DATE OF TERMINATION" shall mean (A) if employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period), (B) if employment is terminated by reason of death, the date of death, and (C) if employment is terminated for any other reason, subject to the effectiveness of notice and "cure" provisions of clause (i) above, the date specified in the Notice of Termination (which, in the case of a termination of employment by the Company for Cause shall not be less than ten (10) days after the date such Notice of Termination is given); provided that if within thirty (30) days after any Notice of Termination is given the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or the time for appeal therefrom having expired and no appeal having been perfected); provided further that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence; and provided, further that in the event Executive gives Notice of Termination for Good Reason based upon any matter referred to in clause (ii) of the definition of Good Reason, and it is thereafter determined that said grounds do not constitute Good Reason, then so long as Executive reasonably believed in good faith that he had grounds for termination of employment for Good Reason, the Company may not terminate Executive's employment for Cause based upon such matters. (h) Any provision of this Agreement to the contrary notwithstanding, Executive shall be obligated to execute a general release of claims in favor of the Company, substantially in the form attached hereto as Exhibit A, as a condition to receiving benefits and payments under Sections 8(c) or 8(d) of this Agreement. (i) Notwithstanding anything to the contrary set forth herein, the following provisions of this Agreement shall survive any termination of Executive's employment hereunder and/or termination of this Agreement: Sections 8, 10, 11, 12, 13, 14, 15, 16 and 17(f) and (g). 9. Definitions. (a) "CAUSE" shall mean (i) Executive's willful and continued failure substantially to perform the duties of his position (other than as a result of total or partial incapacity due to physical or mental illness or as a result of a termination by Executive for Good Reason, as hereinafter defined), (ii) any willful act or omission by the Executive constituting dishonesty, fraud or other malfeasance, which in any such case is demonstrably (and, in the case of other malfeasance, materially) injurious to the financial condition or business reputation of the Company or any of its affiliates, or (iii) the Executive's conviction of a felony under the laws of the United States or any state thereof or any other jurisdiction in which the Company or any of its subsidiaries conducts business which materially impairs the value of Executive's services to the 5 Company or any of its subsidiaries. For purposes of this definition, no act or failure to act shall be deemed "willful" unless effected by Executive not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to the best interests of the Company. (b) "CHANGE IN CONTROL" shall mean the occurrence of any of the following events: (i) Any "person," as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (ii) During any period of two consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person (as defined above) who has entered into an agreement with the Company to effect a transaction described in subsections (i), (iii) or (iv) of this definition) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) The shareholders of the Company have approved a merger or consolidation of the Company with any other company and all other required governmental approvals of such merger or consolidation have been obtained, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 60% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person (as defined above) becomes the beneficial owner (as defined above) of more than 20% of the combined voting power of the Company's then outstanding securities; or (iv) The shareholders of the Company have approved a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, and all other required governmental approvals of such transaction have been obtained. 6 (c) "DISABILITY" shall mean the Executive's inability, as a result of physical or mental incapacity, to perform the duties of his position for a period of six (6) consecutive months or for an aggregate of six (6) months in any twelve (12) consecutive month period. Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company. If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a physician and those two physicians shall select a third who shall make such determination in writing. The determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes of the Agreement. (d) "GOOD REASON" means: (i) Removal from, or failure to be reappointed or reelected to, Executive's position as specified in Section 2 (other than as a result of a promotion); or (ii) Material diminution in Executive's title, position, duties or responsibilities, re-assignment of Executive's reporting relationship to anyone other than the Chief Executive Officer, or the assignment to Executive of duties that are inconsistent, in a material respect, with the scope of duties and responsibilities associated with Executive's position as specified in Section 2; or (iii) Reduction in Base Salary or target or maximum Bonus opportunity, reduction in level of participation in long term incentive, stock option and other equity award, benefit and other plans for executive officers; or (iv) Relocation of the executive's principal workplace without his consent to a location outside the New York metropolitan area; or (v) Other material breach of this Agreement by the Company. 10. Certain Payments. (a) If any of the payments or benefits received or to be received by Executive in connection with a Change in Control or Executive's termination of employment, whether or not pursuant to this Agreement (such payments or benefits, excluding the Gross-Up Payment, as hereinafter defined, shall hereinafter be referred to as the "TOTAL PAYMENTS") will be subject to an excise tax as provided for in Section 4999 of the Internal Revenue Code (the "CODE") (the "EXCISE TAX"), the Company shall pay to Executive an additional amount no later than the due date for Executive's tax return with respect to such Excise Tax (the "GROSS-UP PAYMENT") such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, shall be equal to the Total Payments; provided, however, that if the Total Payments are less than 360% of the Executive's Base Amount, as defined in Section 280G(b)(3) of the Code, the Executive shall not be entitled to the Gross-Up Payment, and the Total Payments shall be reduced as provided for in Section 10(d) below. 7 (b) For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) all of the Total Payments shall be treated as "parachute payments" (within the meaning of Section 280G(b)(2) of the Code) unless, in the opinion of tax counsel ("TAX COUNSEL") reasonably acceptable to Executive and selected by the accounting firm acting as the "Auditor", as defined below, such payments or benefits (in whole or in part) do not constitute parachute payments, including by reason of Section 280G(b)(4)(A) of the Code, (ii) all "Excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the Base Amount allocable to such reasonable compensation, or are otherwise not subject to the Excise Tax, and (iii) the value of any noncash benefits or any deferred payment or benefit shall be determined by the Auditor in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Executive shall be deemed to pay federal income tax at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence or, if higher, in the state and locality of Executive's principal place of employment, on the date of termination (or if there is no date of termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 10), net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (c) In the event that the Excise Tax is finally determined to be less than the amount taken into account hereunder in calculating the Gross-Up Payment, Executive shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (including that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income and employment taxes imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in Excise Tax and/or a federal, state or local income or employment tax deduction). In the event that the Excise Tax is determined to exceed the amount taken into account hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) at the time that the amount of such excess is finally determined. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments. (d) If the Total Payments would constitute an excess parachute payment, but are less than 360% of the Base Amount, such payments shall be reduced to the largest amount that may be paid to the Executive without the imposition of the Excise Tax or the disallowance as deductions to the Company under Section 280G of the Code of any such payments. Unless Executive shall have given prior written notice to the Company specifying a different order, the Company shall reduce or eliminate the payments or benefits by first reducing or eliminating the 8 portion of the payments or benefits that are not payable in cash and then by reducing or eliminating cash payments, in each case, in reverse chronological order, starting with payments or benefits that are to be paid farthest in time from the applicable determination of the Auditor (as defined below). Any written notice given by Executive pursuant to the preceding sentence shall take precedence over the provisions of any plan, agreement or arrangement governing Executive's entitlement and rights to such payments or benefits. (e) All determinations under this Section 10 shall be made by a nationally recognized accounting firm selected by the Executive (the "AUDITOR"), and the Company shall pay all costs and expenses of the Auditor. The Company shall cooperate in good faith in making such determinations and in providing the necessary information for this purpose. 11. Indemnification. The Company will indemnify Executive (and his legal representative or other successors) to the fullest extent permitted (including a payment of expenses in advance of final disposition of a proceeding) by applicable law, as in effect at the time of the subject act or omission, or by the Certificate of Incorporation and By-Laws of the Company, as in effect at such time or on the Commencement Date, or by the terms of any indemnification agreement between the Company and Executive, whichever affords or afforded greatest protection to Executive, and Executive shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its directors and officers (and to the extent the Company maintains such an insurance policy or policies, Executive shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage available for any Company officer or director), against all costs, charges and expenses whatsoever incurred or sustained by him or his legal representatives (including but not limited to any judgment entered by a court of law) at the time such costs, charges and expenses are incurred or sustained, in connection with any action, suit or proceeding to which Executive (or his legal representatives or other successors) may be made a party by reason of his having accepted employment with the Company or by reason of his being or having been a director, officer or employee of the Company, or any subsidiary of the Company, or his serving or having served any other enterprise as a director, officer or employee at the request of the Company. Executive's rights under this Section 11 shall continue without time limit for so long as he may be subject to any such liability, whether or not the Employment Term may have ended. 12. Non-Competition. Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its affiliates and accordingly agrees that (a) during the Employment Term: (i) Executive will not directly or indirectly engage in any business which is in competition with any line of business then conducted by the Company or its affiliates (including without limitation by performing or soliciting the performance of services for any person who is a customer or client of the Company or any of its affiliates) whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 1% of the outstanding capital stock of a publicly traded 9 corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates then conducts any such competing line of business; and (ii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months; and (ii) Executive will not directly or indirectly solicit customers or suppliers of the Company or its affiliates or induce any such person to materially reduce or terminate its relationship with the Company. (b) for one year following the Employment Term: (i) Executive will not directly or indirectly engage in any local directional advertising or marketing (whether in print, electronic, wireless or other format) business or provide pre-press publishing or utilize digital and intranet technologies to repurpose print directory information for electronic, wireless or related distribution, in each case which is in competition with the business then conducted by the Company or its affiliates, whether such engagement is as an officer, director, proprietor, employee, partner, investor (other than as a holder of less than 5% of the outstanding capital stock of a publicly traded corporation), consultant, advisor, agent, sales representative or other participant, in any location in which the Company or any of its affiliates then conducts any such competing line of business; and (ii) Executive will not directly or indirectly induce any employee of the Company or any of its affiliates to engage in any activity in which Executive is prohibited to engage by this Section, or to terminate his or her employment with the Company or any of its affiliates, and will not directly or indirectly employ or offer employment to any person who was employed by the Company or any of its affiliates unless such person shall have ceased to be employed by the Company or any of its affiliates for a period of at least 12 months; and (iii) Executive will not directly or indirectly solicit customers or suppliers of the Company or its affiliates or induce any such person to materially reduce or terminate its relationship with the Company. For purposes of this Agreement, "directional advertising or marketing" shall mean advertising or marketing primarily (1) designed for purposes of directing consumers who are seeking a product or service to providers of that product or service in order to satisfy such consumer's previously recognized need or desire for such product or service and (2) generally delivered by non-intrusive 10 means; and shall be distinguished from "creative advertising or marketing," which is primarily (1) designed to stimulate (as opposed to direct) demand for products or services in consumers who did not previously recognize such need or desire for such products or services and (2) generally delivered by intrusive means. It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 12 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein. 13. Confidentiality; Nondisparagement. (a) Executive will not at any time (whether during or after his employment with the Company) disclose or use for his own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, employees, organizational structure or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company, provided that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive's breach of this covenant. Executive agrees that upon termination of his employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way relating to the business of the Company and its affiliates, except that he may retain personal notes, notebooks and diaries. Executive further agrees that he will not retain or use for his account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company or its affiliates. (b) Executive will not knowingly disparage the reputation of the Company in a manner that causes or is reasonably likely to cause material harm to its business; provided, however, that Executive may (i) express his own opinions about the Company to other senior executives of the Company or to the Board and (ii) comply with applicable legal process, in each case without being deemed to have violated this provision. 14. Material Inducement; Specific Performance. Executive acknowledges and agrees that the covenants entered into by Executive in Sections 12 and 13(a) are essential elements of the parties' agreement as expressed herein, are a material inducement for the Company to enter into this Agreement and the breach thereof would be a material breach of this Agreement. 11 Executive further acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 12 or Section 13(a) would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available. 15. Litigation Support. Executive agrees that he will assist and cooperate with the Company, at the Company's sole cost and expense and, in the case of post-termination, in a manner so as to not unreasonably interfere with any other employment obligations of Executive, in connection with the defense or prosecution of any claim that may be made against or by the Company or its affiliates, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Company or its affiliates, including any proceeding before any arbitral, administrative, judicial, legislative, or other body or agency, including testifying in any proceeding, to the extent such claims, investigations or proceedings relate to services performed or required to be performed by Executive, pertinent knowledge possessed by Executive, or any act or omission by Executive. Executive further agrees to perform all acts and to execute and deliver any documents that may be reasonably necessary to carry out the provisions of this Section, at the Company's sole cost and expense and, in the case of post-termination, in a manner so as to not unreasonably interfere with any other employment obligations of Executive. If Executive determines in good faith that separate counsel is necessary in connection with its compliance with this Section 15, then the Company shall pay all reasonable fees and expenses of such counsel retained by Executive in connection herewith. Following Executive's termination of employment, this covenant shall expire and be of no further force or effect upon the later to occur of (a) one year following such termination of employment and (b) in the event of termination of employment under Sections 8(c) or (d), the maximum number of years following such termination specified in the applicable sub-section during which Executive is eligible to continue to participate in the Company's benefit plans. 16. Legal Fees. The Company will pay or reimburse Executive, as incurred, all legal fees and costs incurred by Executive in enforcing his rights under the Agreement, if Executive's position substantially prevails. Following a Change in Control, the Company will pay or reimburse Executive, as incurred, for all such fees and costs unless Executive's claim was frivolous or was brought or pursued by Executive in bad faith. 17. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (b) Entire Agreement/Amendments. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and in the incentive compensation and other employee benefit plans and arrangements of the Company 12 referenced herein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (c) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (d) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby. (e) Assignment. This Agreement shall not be assignable by Executive and shall be assignable by the Company only with the consent of Executive except as set forth in Section 17(h); provided that no such assignment by the Company shall relieve the Company of any liability hereunder, whether accrued before or after such assignment. (f) No Mitigation. Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, and no such employment, if obtained, or compensation or benefits payable in connection therewith, shall reduce any amounts or benefits to which Executive is entitled hereunder except as provided for in Sections 8(c) and (d). (g) Arbitration. Any dispute between the parties to this Agreement arising from or relating to the terms of this Agreement (other than as specified under Section 14 with respect to Sections 12 and 13(a) hereof) or the employment of Executive by the Company shall be submitted to arbitration in New York, New York under the auspices of the American Arbitration Association. (h) Successors; Binding Agreement (i) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Such assumption and agreement shall be obtained prior to the effectiveness of any such succession. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. Prior to a Change in Control, the term "Company" shall also mean any affiliate of the Company to which Executive may be transferred and the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. Following a Change in Control the term "Company" shall not mean any affiliate of the Company to which Executive may be transferred unless Executive shall have 13 previously approved of such transfer in writing, in which case the Company shall cause such successor employer to be considered the "Company" bound by the terms of this Agreement and this Agreement shall be amended to so provide. (ii) This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should die while any amount would still be payable to Executive hereunder if Executive had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the devisee, legatee or other designee of Executive or, if there is no such designee, to the estate of Executive. (i) Notice. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at the address appearing from time to time in the personnel records of the Company and to the Company at the address of its corporate headquarters, directed to the attention of the Board with a copy to the Secretary of the Company, or in either case to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. (j) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (k) Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the latest date indicated below. Steven M. Blondy Date: /s/ Steven M. Blondy ------------------------------ R.H. DONNELLEY CORPORATION Date: By: /s/ Robert J. Bush --------------------------- Name: Robert J. Bush Title: VP & General Counsel 14 EX-99.1 8 y62626exv99w1.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of R.H. Donnelley Corporation (the "Company") for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. /s/ David C. Swanson David C. Swanson Chief Executive Officer August 14, 2002 EX-99.2 9 y62626exv99w2.txt CERTIFICATION OF THE CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of R.H. Donnelley Corporation (the "Company") for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. /s/ Steven M. Blondy Steven M. 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(1)		Represents amounts paid in excess of (lower than) the amounts originally provided for in the 2001 restructuring and special charge.

6.		Earnings Per Share

(1)		Represents expenses incurred in connection with the 2001 restructuring and special charge. These expenses were not originally anticipated and are therefore treated as a current period expense (see also Note 5).

(2)		EBITDA represents earnings before interest, taxes and depreciation and amortization. EBITDA is not a measurement of operating performance computed in accordance with generally accepted accounting principles and should not be considered as a substitute for operating income or net income prepared in conformity with generally accepted accounting principles. In addition, EBITDA may not be comparable to similarly titled measures of other companies.