<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1998
REGISTRATION NO. 1-14037
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10/A-2
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
THE NEW DUN & BRADSTREET CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 13-3998945
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
ONE DIAMOND HILL ROAD
MURRAY HILL, NEW JERSEY 07974
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
------------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(908) 665-5000
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
--------------------------------------- ------------------------------
<S> <C>
Common Stock, par value $0.01 per share New York Stock Exchange
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
================================================================================
<PAGE> 2
ITEM 1. BUSINESS.
The information required by this item is contained under the sections "The
New Dun & Bradstreet Corporation Business", "The New Dun & Bradstreet
Corporation (Accounting Successor to D&B) Management's Discussion and Analysis
of Financial Condition and Results of Operations", "Risk Factors -- Risks
Relating to The New Dun & Bradstreet Corporation and R.H. Donnelley Corporation"
and "-- Risks Relating to The New Dun & Bradstreet Corporation", and
"Forward-Looking Statements" of, and in The Dun & Bradstreet Corporation
Financial Statements in, the Information Statement dated June 18, 1998 included
herewith as Exhibit 99.1 (the "Information Statement") and such sections are
incorporated herein by reference.
ITEM 2. FINANCIAL INFORMATION.
The information required by this item is contained under the sections "The
New Dun & Bradstreet Corporation (Accounting Successor to D&B) Selected
Financial Data", "The New Dun & Bradstreet Corporation (Accounting Successor to
D&B) Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Risk Factors -- Risks Relating to The New Dun & Bradstreet
Corporation and R.H. Donnelley Corporation" and "-- Risks Relating to The New
Dun & Bradstreet Corporation", and "Forward-Looking Statements" of the
Information Statement and such sections are incorporated herein by reference.
ITEM 3. PROPERTIES.
The information required by this item is contained under the section "The
New Dun & Bradstreet Corporation Business -- Properties" of the Information
Statement and such section is incorporated herein by reference.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is contained under the section "The
New Dun & Bradstreet Corporation Security Ownership by Certain Beneficial Owners
and Management" of the Information Statement and such section is incorporated
herein by reference.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The information required by this item is contained under the sections "The
New Dun & Bradstreet Corporation Management and Executive Compensation -- The
New Dun & Bradstreet Corporation Board of Directors" and "-- The New Dun &
Bradstreet Corporation Executive Officers" of the Information Statement and such
sections are incorporated herein by reference.
ITEM 6. EXECUTIVE COMPENSATION.
The information required by this item is contained under the section "The
New Dun & Bradstreet Corporation Management and Executive Compensation" of the
Information Statement and such section is incorporated herein by reference.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is contained under the section
"Relationship Between The New Dun & Bradstreet Corporation and R.H. Donnelley
Corporation After the Distribution" of the Information Statement and such
section is incorporated herein by reference.
ITEM 8. LEGAL PROCEEDINGS.
The information required by this item is contained under the sections "The
New Dun & Bradstreet Corporation Business -- Legal Proceedings", "Risk
Factors -- Risks Relating to The New Dun & Bradstreet Corporation" and
"Forward-Looking Statements" of the Information Statement and such sections are
incorporated herein by reference.
2
<PAGE> 3
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The information required by this item is contained under the sections "The
Distribution -- Listing and Trading of New D&B Common Stock and R.H. Donnelley
Common Stock", "Relationship Between The New Dun & Bradstreet Corporation and
R.H. Donnelley Corporation After the Distribution -- Employee Benefits
Agreement", "Dividend Policies", "The New Dun & Bradstreet Corporation
Management and Executive Compensation" and "Description of The New Dun &
Bradstreet Corporation Capital Stock" of the Information Statement and such
sections are incorporated herein by reference.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
On April 14, 1998, as part of its original incorporation, the Registrant
issued 1,000 shares of its common stock, for a total consideration of $10.00, to
The Dun & Bradstreet Corporation, which is and will be the Registrant's sole
stockholder until the Distribution Date as defined and described in the section
"The Distribution" of the Information Statement, and such section is
incorporated herein by reference. Subsequent to the Distribution, The Dun &
Bradstreet Corporation (which will change its name to R.H. Donnelley
Corporation) will hold no capital stock of the Registrant.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The information required by this item is contained under the section
"Description of The New Dun & Bradstreet Corporation Capital Stock" of the
Information Statement and such section is incorporated herein by reference,
except for the information under the caption "The New Dun & Bradstreet
Corporation Rights Plan", which is not incorporated by reference herein as the
preferred share purchase rights and shares of Series A Junior Participating
Preferred Stock of The New Dun & Bradstreet Corporation described under such
caption will be registered separately on a Registration Statement on Form 8-A.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The information required by this item is contained under the section
"Description of The New Dun & Bradstreet Corporation Capital
Stock -- Indemnification and Limitation of Liability for Directors and Officers"
of the Information Statement and such section is incorporated herein by
reference.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is identified in the section "Index
to Financial Statements -- The Dun & Bradstreet Corporation" and is contained in
the section "Financial Statements -- The Dun & Bradstreet Corporation" of the
Information Statement and such sections are incorporated herein by reference.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL MATTERS.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The information required by this item is contained in the "Index to
Financial Statements" on page F-1 of the Information Statement and such
information is incorporated herein by reference.
(b) Exhibits
3
<PAGE> 4
The following documents are filed as exhibits hereto:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of The New Dun &
Bradstreet Corporation
3.2 Amended and Restated By-laws of The New Dun & Bradstreet
Corporation
4.1 Specimen Common Stock certificate
10.1 Form of Distribution Agreement between The Dun & Bradstreet
Corporation and The New Dun & Bradstreet Corporation
10.2 Form of Tax Allocation Agreement between The Dun &
Bradstreet Corporation and The New Dun & Bradstreet
Corporation
10.3 Form of Employee Benefits Agreement between The Dun &
Bradstreet Corporation and The New Dun & Bradstreet
Corporation
10.4 Form of Intellectual Property Agreement between The Dun &
Bradstreet Corporation and The New Dun & Bradstreet
Corporation
10.5 Form of Shared Transaction Services Agreement between The
Dun & Bradstreet Corporation and The New Dun & Bradstreet
Corporation
10.6 Form of Data Services Agreement between The Dun & Bradstreet
Corporation and The New Dun & Bradstreet Corporation
10.7 Form of Transition Services Agreement between The Dun &
Bradstreet Corporation and The New Dun & Bradstreet
Corporation
10.8 Form of Amended and Restated Transition Services Agreement
between The Dun & Bradstreet Corporation, The New Dun &
Bradstreet Corporation, Cognizant Corporation, IMS Health
Incorporated, ACNielsen Corporation and GartnerGroup, Inc.
10.9 Undertaking of The New Dun & Bradstreet Corporation
21 List of Subsidiaries of The New Dun & Bradstreet Corporation
27 Financial Data Schedule of The New Dun & Bradstreet
Corporation
99.1 Information Statement dated as of June 18, 1998
99.2 Chairman's Letter to Stockholders of The Dun & Bradstreet
Corporation
99.3 Form of Rights Agreement between The New Dun & Bradstreet
Corporation and First Chicago Trust Company of New York, as
Rights Agent
</TABLE>
4
<PAGE> 5
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE NEW DUN & BRADSTREET CORPORATION
By: /s/ NANCY L. HENRY
------------------------------------
Name: Nancy L. Henry
Title: Senior Vice President and
Chief Legal Counsel
Date: June 18, 1998
5
<PAGE> 1
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
THE NEW DUN & BRADSTREET CORPORATION
The name of the corporation is The New Dun & Bradstreet Corporation,
and the original Certificate of Incorporation of the corporation was filed with
the Secretary of State of the State of Delaware on April 8, 1998. The original
Certificate of Incorporation of the corporation is hereby amended and restated
to read in its entirety as follows:
"FIRST: The name of the corporation is The New Dun & Bradstreet
Corporation.
SECOND: The registered office of the corporation in the State of
Delaware is located at No. 1209 Orange Street, in the City of Wilmington,
County of New Castle; and the name of its registered agent at such address
is The Corporation Trust Company.
THIRD: The purposes of the corporation are to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: (1) The total number of shares of all classes of stock which
the corporation shall have authority to issue is 420,000,000, consisting
of (1) 10,000,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock"), (2) 400,000,000 shares of Common Stock, par value
$.01 per share ("Common Stock"), and (3) 10,000,000 shares of Series
Common Stock, par value $.01 per share ("Series Common Stock"). The number
of authorized shares of any of the Preferred Stock, the Common Stock or
the Series Common Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority in voting power of the stock of the corporation
entitled to vote thereon irrespective of the provisions of Section
242(b)(2) of the General Corporation Law of the State of Delaware (or any
successor provision thereto), and no vote of the holders of any of the
Preferred Stock, the Common Stock or the Series Common Stock voting
separately as a class shall be required therefor.
(2) The Board of Directors is hereby expressly authorized, by resolution
or resolutions, to provide, out of the unissued shares of Preferred Stock, for
series of Preferred Stock and, with respect to each such series, to fix the
number of shares constituting such series and the designation of such series,
the voting powers (if any) of the shares of such series, and the preferences and
relative, participating, optional or other special rights, if any, and any
qualifications, limitations or restrictions thereof, of the shares of such
series. The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding.
<PAGE> 2
2
(3) The Board of Directors is hereby expressly authorized, by resolution
or resolutions, to provide, out of the unissued shares of Series Common Stock,
for series of Series Common Stock and, with respect to each such series, to fix
the number of shares constituting such series and the designation of such
series, the voting powers (if any) of the shares of such series, and the
preferences and relative, participating, optional or other special rights, if
any, and any qualifications, limitations or restrictions thereof, of the shares
of such series. The powers, preferences and relative, participating, optional
and other special rights of each series of Series Common Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
(4) (a) Each holder of Common Stock, as such, shall be entitled to one
vote for each share of Common Stock held of record by such holder on all matters
on which stockholders generally are entitled to vote; provided, however, that,
except as otherwise required by law, holders of Common Stock, as such, shall not
be entitled to vote on any amendment to this Restated Certificate of
Incorporation (including any certificate of designations relating to any series
of Preferred Stock or Series Common Stock) that relates solely to the terms of
one or more outstanding series of Preferred Stock or Series Common Stock if the
holders of such affected series are entitled, either separately or together with
the holders of one or more other such series, to vote thereon pursuant to this
Restated Certificate of Incorporation (including any certificate of designations
relating to any series of Preferred Stock or Series Common Stock) or pursuant to
the General Corporation Law of the State of Delaware.
(b) Except as otherwise required by law, holders of a series of Preferred
Stock or Series Common Stock, as such, shall be entitled only to such voting
rights, if any, as shall expressly be granted thereto by this Restated
Certificate of Incorporation (including any certificate of designations relating
to such series).
(c) Subject to applicable law and the rights, if any, of the holders of
any outstanding series of Preferred Stock or Series Common Stock or any class or
series of stock having a preference over or the right to participate with the
Common Stock with respect to the payment of dividends, dividends may be declared
and paid on the Common Stock at such times and in such amounts as the Board of
Directors in its discretion shall determine.
(d) Upon the dissolution, liquidation or winding up of the corporation,
subject to the rights, if any, of the holders of any outstanding series of
Preferred Stock or Series Common Stock or any class or series of stock having a
preference over or the right to participate with the Common Stock with respect
to the distribution of assets of the corporation upon such dissolution,
liquidation or winding up of the corporation, the holders of the Common Stock,
as such, shall be entitled to receive the assets of the corporation available
for distribution to its stockholders ratably in proportion to the number of
shares held by them.
<PAGE> 3
3
FIFTH: The Board of Directors shall be authorized to make, amend, alter,
change, add to or repeal the By-Laws of the corporation in any manner not
inconsistent with the laws of the State of Delaware, subject to the power of the
stockholders to amend, alter, change, add to or repeal the By-Laws made by the
Board of Directors. Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80 percent in voting power of all the shares of the
corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required in order for the stockholders to
alter, amend or repeal any provision of the By-laws which is to the same effect
as Article Fifth, Article Seventh, and Article Eighth of this Restated
Certificate of Incorporation or to adopt any provision inconsistent therewith.
SIXTH: (1) To the fullest extent permitted by the laws of the State of
Delaware:
(a) The corporation shall indemnify any person (and such person's heirs,
executors or administrators) who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(brought in the right of the corporation or otherwise), whether civil, criminal,
administrative or investigative, and whether formal or informal, including
appeals, by reason of the fact that such person is or was a director or officer
of the corporation or, while a director or officer of the corporation, is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint venture,
trust, limited liability company or other enterprise, for and against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person or such heirs,
executors or administrators in connection with such action, suit or proceeding,
including appeals. Notwithstanding the preceding sentence, the corporation shall
be required to indemnify a person described in such sentence in connection with
any action, suit or proceeding (or part thereof) commenced by such person only
if the commencement of such action, suit or proceeding (or part thereof) by such
person was authorized by the Board of Directors of the corporation. The
corporation may indemnify any person (and such person's heirs, executors or
administrators) who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (brought in the
right of the corporation or otherwise), whether civil, criminal, administrative
or investigative, and whether formal or informal, including appeals, by reason
of the fact that such person is or was an employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust, limited liability company or other enterprise, for and against
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person or such heirs,
executors or administrators in connection with such action, suit or proceeding,
including appeals.
(b) The corporation shall promptly pay expenses incurred by any person
described in the first sentence of subsection (a) of this Article Sixth, Section
(1) in defending any action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding, including appeals, upon
presentation of appropriate documentation.
<PAGE> 4
4
(c) The corporation may purchase and maintain insurance on behalf of any
person described in subsection (a) of this Article Sixth, Section (1) against
any liability asserted against such person, whether or not the corporation would
have the power to indemnify such person against such liability under the
provisions of this Article Sixth, Section (1) or otherwise.
(d) The provisions of this Article Sixth, Section (1) shall be applicable
to all actions, claims, suits or proceedings made or commenced after the
adoption hereof, whether arising from acts or omissions to act occurring before
or after its adoption. The provisions of this Article Sixth, Section (1) shall
be deemed to be a contract between the corporation and each director or officer
who serves in such capacity at any time while this Article Sixth, Section (1)
and the relevant provisions of the laws of the State of Delaware and other
applicable law, if any, are in effect, and any repeal or modification hereof
shall not affect any rights or obligations then existing with respect to any
state of facts or any action, suit or proceeding then or theretofore existing,
or any action, suit or proceeding thereafter brought or threatened based in
whole or in part on any such state of facts. If any provision of this Article
Sixth, Section (1) shall be found to be invalid or limited in application by
reason of any law or regulation, it shall not affect the validity of the
remaining provisions hereof. The rights of indemnification provided in this
Article Sixth, Section (1) shall neither be exclusive of, nor be deemed in
limitation of, any rights to which an officer, director, employee or agent may
otherwise be entitled or permitted by contract, this Restated Certificate of
Incorporation, vote of stockholders or directors or otherwise, or as a matter of
law, both as to actions in such person's official capacity and actions in any
other capacity while holding such office, it being the policy of the corporation
that indemnification of any person whom the corporation is obligated to
indemnify pursuant to the first sentence of subsection (a) of this Article
Sixth, Section (1) shall be made to the fullest extent permitted by law.
(e) For purposes of this Article Sixth, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries.
(2) A director of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect any
right or protection of a director of the corporation hereunder in respect of any
act or omission occurring prior to the time of such amendment, modification or
repeal.
<PAGE> 5
5
SEVENTH: (1) The business and affairs of the corporation shall be managed
by or under the direction of a Board of Directors consisting of not less than
three directors, the exact number of directors to be determined from time to
time by resolution adopted by affirmative vote of a majority of the Board of
Directors. The directors shall be divided into three classes designated Class I,
Class II and Class III. Each class shall consist, as nearly as possible, of
one-third of the total number of directors constituting the entire Board of
Directors. Class I directors shall be originally elected for a term expiring at
the succeeding annual meeting of stockholders, Class II directors shall be
originally elected for a term expiring at the second succeeding annual meeting
of stockholders, and Class III directors shall be originally elected for a term
expiring at the third succeeding annual meeting of stockholders. At each
succeeding annual meeting of stockholders following 1998, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a term expiring at the third succeeding annual meeting. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to fill a newly
created directorship resulting from an increase in such class shall hold office
for a term that shall coincide with the remaining term of that class, but in no
case shall a decrease in the number of directors remove or shorten the term of
any incumbent director. A director shall hold office until the annual meeting
for the year in which his term expires and until his successor shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Any newly created directorship on the
Board of Directors that results from an increase in the number of directors and
any vacancy occurring in the Board of Directors shall be filled only by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director. If any applicable provision of the General Corporation
Law of the State of Delaware expressly confers power on stockholders to fill
such a directorship at a special meeting of stockholders, such a directorship
may be filled at such meeting only by the affirmative vote of at least 80
percent of the voting power of all shares of the corporation entitled to vote
generally in the election of directors voting as a single class. Any director
elected to fill a vacancy not resulting from an increase in the number of
directors shall have the same remaining term as that of his predecessor.
Directors may be removed only for cause, and only by the affirmative vote of at
least 80 percent in voting power of all shares of the corporation entitled to
vote generally in the election of directors, voting as a single class.
(2) Notwithstanding the foregoing, whenever the holders of any one or more
series of Preferred Stock or Series Common Stock issued by the corporation shall
have the right, voting separately as a series or separately as a class with one
or more such other series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, removal, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Restated Certificate of Incorporation (including any certificate of designations
relating to any series of Preferred Stock or Series Common Stock) applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Article Seventh unless expressly provided by such terms.
<PAGE> 6
6
EIGHTH: Any action required or permitted to be taken by the holders of the
Common Stock of the corporation must be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders. Except as otherwise required by law and subject to the
rights of the holders of any series of Preferred Stock or Series Common Stock,
special meetings of stockholders of the corporation may be called only by the
Chief Executive Officer of the corporation or by the Board of Directors pursuant
to a resolution approved by the Board of Directors.
NINTH: Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80 percent in voting power of all the shares of the corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to alter, amend or repeal Article Fifth, Article Seventh, Article
Eighth or this Article Ninth or to adopt any provision inconsistent therewith."
The New Dun & Bradstreet Corporation does hereby further certify
that this Restated Certificate of Incorporation was duly adopted by the Board of
Directors and by unanimous written consent of the stockholders in accordance
with the provisions of Sections 228, 242 and 245 of the General Corporation Law
of the State of Delaware.
<PAGE> 7
7
IN WITNESS WHEREOF, THE NEW DUN & BRADSTREET CORPORATION has caused
its corporate seal to be hereunto affixed and this certificate to be signed by
Nancy L. Henry, its Senior Vice President and Chief Legal Counsel, this 15th day
of June, 1998.
THE NEW DUN & BRADSTREET CORPORATION
By: /s/ Nancy L. Henry
---------------------------------
Name: Nancy L. Henry
Title: Senior Vice President and
Chief Legal Counsel
<PAGE> 1
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
THE NEW DUN & BRADSTREET CORPORATION
------------
ARTICLE I.
STOCKHOLDERS
Section 1. The annual meeting of the stockholders of the corporation
for the purpose of electing directors and for the transaction of such other
business as may properly be brought before the meeting shall be held on such
date, and at such time and place within or without the State of Delaware as may
be designated from time to time by the Board of Directors.
Section 2. Special meetings of the stockholders shall be called at
any time by the Secretary or any other officer, whenever directed by the Board
of Directors or by the Chief Executive Officer. The purpose or purposes of the
proposed meeting shall be included in the notice setting forth such call.
Section 3. Except as otherwise provided by law, notice of the time,
place and, in the case of a special meeting, the purpose or purposes of the
meeting of stockholders shall be delivered personally or mailed not earlier than
sixty, nor less than ten days previous thereto, to each stockholder of record
entitled to vote at the meeting at such address as appears on the records of the
corporation.
Section 4. The holders of a majority in voting power of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, except as otherwise provided by
statute or by the Restated Certificate of Incorporation; but if at any regularly
called meeting of stockholders there be less than a quorum present, the
stockholders present may adjourn the meeting from time to time without further
notice other than announcement at the meeting until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the original meeting. If the adjournment is for more than 30 days, or if, after
the adjournment, a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 5. The Chairman of the Board, or in the Chairman's absence
or at the Chairman's direction, the President, or in the President's absence or
at the President's direction, any officer of the corporation shall call all
meetings of the stockholders to order and shall act as Chairman of such meeting.
The Secretary of the corporation or, in such officer's absence, an
<PAGE> 2
2
Assistant Secretary shall act as secretary of the meeting. If neither the
Secretary nor an Assistant Secretary is present, the Chairman of the meeting
shall appoint a secretary of the meeting. Unless otherwise determined by the
Board of Directors prior to the meeting, the Chairman of the meeting shall
determine the order of business and shall have the authority in his or her
discretion to regulate the conduct of any such meeting, including, without
limitation, by imposing restrictions on the persons (other than stockholders of
the corporation or their duly appointed proxies) who may attend any such
meeting, whether any stockholder or stockholders' proxy may be excluded from any
meeting of stockholders based upon any determination by the Chairman, in his or
her sole discretion, that any such person has unduly disrupted or is likely to
disrupt the proceedings thereat, and the circumstances in which any person may
make a statement or ask questions at any meeting of stockholders. The Chairman
of the meeting shall have authority to adjourn any meeting of stockholders.
Section 6. At all meetings of stockholders, any stockholder entitled
to vote thereat shall be entitled to vote in person or by proxy, but no proxy
shall be voted after three years from its date, unless such proxy provides for a
longer period. Without limiting the manner in which a stockholder may authorize
another person or persons to act for the stockholder as proxy pursuant to the
General Corporation Law of the State of Delaware, the following shall constitute
a valid means by which a stockholder may grant such authority: (1) a stockholder
may execute a writing authorizing another person or persons to act for the
stockholder as proxy, and execution of the writing may be accomplished by the
stockholder or the stockholder's authorized officer, director, employee or agent
signing such writing or causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature; or (2) a stockholder may authorize another person or persons to act
for the stockholder as proxy by transmitting or authorizing the transmission of
a telegram, cablegram, or other means of electronic transmission to the person
who will be the holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the person who
will be the holder of the proxy to receive such transmission, provided that any
such telegram, cablegram or other means of electronic transmission must either
set forth or be submitted with information from which it can be determined that
the telegram, cablegram or other electronic transmission was authorized by the
stockholder. If it is determined that such telegrams, cablegrams or other
electronic transmissions are valid, the judge or judges of stockholder votes or,
if there are no such judges, such other persons making that determination shall
specify the information upon which they relied.
Any copy, facsimile telecommunication or other reliable reproduction
of the writing or transmission created pursuant to the preceding paragraph of
this Section 6 may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile telecommunication
or other reproduction shall be a complete reproduction of the entire original
writing or transmission.
Proxies shall be filed with the Secretary of the meeting prior to or
at the commencement of the meeting to which they relate.
<PAGE> 3
3
Section 7. When a quorum is present at any meeting, the vote of the
holders of a majority in voting power of the stock present in person or
represented by proxy and entitled to vote on the matter shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of statute or of the Restated Certificate of Incorporation or
these By-Laws, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
Section 8. In order that the corporation may determine the
stockholders (a) entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or (b) entitled to consent to corporate action in
writing without a meeting, or (c) entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date (i) in the case of
clause (a) above, shall not be more than sixty nor less than ten days before the
date of such meeting, (ii) in the case of clause (b) above, shall not be more
than ten days after the date upon which the resolution fixing the record date is
adopted by the board of directors, and (iii) in the case of clause (c) above,
shall not be more than sixty days prior to such action. If for any reason the
Board of Directors shall not have fixed a record date for any such purpose, the
record date for such purpose shall be determined as provided by law. Only those
stockholders of record on the date so fixed or determined shall be entitled to
any of the foregoing rights, notwithstanding the transfer of any such stock on
the books of the corporation after any such record date so fixed or determined.
Section 9. The officer who has charge of the stock ledger of the
corporation shall prepare and make at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not so specified, at the place where the meeting is to be held. The list
shall also be produced at the time and kept at the place of the meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
Section 10. The Board of Directors, in advance of all meetings of
the stockholders, shall appoint one or more judges of stockholder votes, who may
be stockholders or their proxies, but not directors of the corporation or
candidates for office. In the event that the Board of Directors fails to so
appoint judges of stockholder votes or, in the event that one or more judges of
stockholder votes previously designated by the Board of Directors fails to
appear or act at the meeting of stockholders, the Chairman of the meeting may
appoint one or more judges of stockholder votes to fill such vacancy or
vacancies. Judges of stockholder votes appointed to act at any meeting of the
stockholders, before entering upon the discharge of their duties, shall be sworn
faithfully to execute the duties of judge of stockholder votes with strict
impartiality and according to the best of their ability and the oath so taken
shall be subscribed by them. Judges of stockholder votes shall, subject to the
power of the Chairman of the meeting
<PAGE> 4
4
to open and close the polls, take charge of the polls, and, after the voting,
shall make a certificate of the result of the vote taken.
Section 11. (A) Annual Meetings of Stockholders. (1) Nominations of
persons for election to the Board of Directors of the corporation and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the corporation's notice of
meeting delivered pursuant to Article 1, Section 3 of these By-Laws, (b) by or
at the direction of the Chairman of the Board or (c) by any stockholder of the
corporation who is entitled to vote at the meeting, who complied with the notice
procedures set forth in subparagraphs (2) and (3) of this paragraph (A) of this
By-Law and who was a stockholder of record at the time such notice is delivered
to the Secretary of the corporation.
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-Law, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation, and, in the case of business other than
nominations, such other business must be a proper matter for stockholder action.
To be timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not less than seventy days nor
more than ninety days prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that the date of the annual
meeting is advanced by more than twenty days, or delayed by more than seventy
days, from such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the ninetieth day prior to such annual meeting and
not later than the close of business on the later of the seventieth day prior to
such annual meeting or the tenth day following the day on which public
announcement of the date of such meeting is first made. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected; (b) as to
any other business that the stockholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this By-Law to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least eighty days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice required by this By-Law shall also be
considered timely, but only
<PAGE> 5
5
with respect to nominees for any new positions created by such increase, if it
shall be delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the tenth day following the
day on which such public announcement is first made by the corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting pursuant to Article
I, Section 2 of these By-Laws. Nominations of persons for election to the Board
of Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this By-Law and who is a stockholder of record at the
time such notice is delivered to the Secretary of the corporation. Nominations
by stockholders of persons for election to the Board of Directors may be
made at such a special meeting of stockholders if the stockholder's notice as
required by paragraph (A)(2) of this By-Law shall be delivered to the Secretary
at the principal executive offices of the corporation not earlier than the
ninetieth day prior to such special meeting and not later than the close of
business on the later of the seventieth day prior to such special meeting or the
tenth day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
(C) General. (1) Only persons who are nominated in accordance with
the procedures set forth in this By-Law shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this By-Law. Except as otherwise provided by law, the Restated Certificate of
Incorporation or these By-Laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made in accordance with the procedures set forth
in this By-Law and, if any proposed nomination or business is not in compliance
with this By-Law, to declare that such defective nomination shall be disregarded
or that such proposed business shall not be transacted.
(2) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) For purposes of this By-Law, no adjournment nor notice of
adjournment of any meeting shall be deemed to constitute a new notice of such
meeting for purposes of this Section 11, and in order for any notification
required to be delivered by a stockholder pursuant to this Section 11 to be
timely, such notification must be delivered within the periods set forth above
with respect to the originally scheduled meeting.
(4) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations
<PAGE> 6
thereunder with respect to the matters set forth in this By-Law. Nothing in this
By-Law shall be deemed to affect any rights of stockholders to request inclusion
of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under
the Exchange Act.
ARTICLE II.
BOARD OF DIRECTORS
Section 1. The Board of Directors of the corporation shall consist
of such number of directors, not less than three, as shall from time to time be
fixed exclusively by resolution of the Board of Directors. The directors shall
be divided into three classes in the manner set forth in the Restated
Certificate of Incorporation of the corporation, each class to be elected for
the term set forth therein. Directors shall (except as hereinafter provided for
the filling of vacancies and newly created directorships) be elected by the
holders of a plurality of the voting power present in person or represented by
proxy and entitled to vote. A majority of the total number of directors then in
office (but not less than one-third of the number of directors constituting the
entire Board of Directors) shall constitute a quorum for the transaction of
business and, except as otherwise provided by law or by the corporation's
Restated Certificate of Incorporation, the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors. Directors need not be stockholders.
Section 2. Newly created directorships in the Board of Directors
that result from an increase in the number of directors and any vacancy
occurring in the Board of Directors shall be filled only by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director; and the directors so chosen shall hold office for a term as set forth
in the Restated Certificate of Incorporation of the corporation. If any
applicable provision of the General Corporation Law of the State of Delaware
expressly confers power on stockholders to fill such a directorship at a special
meeting of stockholders, such a directorship may be filled at such meeting only
by the affirmative vote of at least 80 percent in voting power of all shares of
the corporation entitled to vote generally in the election of directors, voting
as a single class.
Section 3. Meetings of the Board of Directors shall be held at such
place within or without the State of Delaware as may from time to time be fixed
by resolution of the Board or as may be specified in the notice of any meeting.
Regular meetings of the Board of Directors shall be held at such times as may
from time to time be fixed by resolution of the Board and special meetings may
be held at any time upon the call of the Chairman of the Board or the President,
by oral, or written notice including, telegraph, telex or transmission of a
telecopy, e-mail or other means of transmission, duly served on or sent or
mailed to each director to such director's address or telecopy number as shown
on the books of the corporation not less than one day before the meeting. The
notice of any meeting need not specify the purposes thereof. A meeting of the
Board may be held without notice immediately after the annual meeting of
stockholders at the same place at which such meeting is held. Notice need not be
given of regular meetings of the Board held at times fixed by resolution of the
Board. Notice of any meeting need not be given to any director who shall attend
such meeting in person (except when the director attends a meeting for the
express purpose of objecting at the beginning of the
<PAGE> 7
7
meeting, to the transaction of any business because the meeting is not lawfully
called or convened), or who shall waive notice thereof, before or after such
meeting, in writing.
Section 4. Notwithstanding the foregoing, whenever the holders of
any one or more series of Preferred Stock or Series Common Stock issued by the
corporation shall have the right, voting separately by series, to elect
directors at an annual or special meeting of stockholders, the election, term of
office, removal, filling of vacancies and other features of such directorships
shall be governed by the terms of the Restated Certificate of Incorporation
applicable thereto, and such directors so elected shall not be divided into
classes pursuant to Article SEVENTH of the Restated Certificate of Incorporation
unless expressly provided by such terms. The number of directors that may be
elected by the holders of any such series of Preferred Stock or Series Common
Stock shall be in addition to the number fixed by or pursuant to the By-Laws.
Except as otherwise expressly provided in the terms of such series, the number
of directors that may be so elected by the holders of any such series of stock
shall be elected for terms expiring at the next annual meeting of stockholders
and without regard to the classification of the members of the Board of
Directors as set forth in Section 1 hereof, and vacancies among directors so
elected by the separate vote of the holders of any such series of Preferred
Stock or Series Common Stock shall be filled by the affirmative vote of a
majority of the remaining directors elected by such series, or, if there are no
such remaining directors, by the holders of such series in the same manner in
which such series initially elected a director.
Section 5. If at any meeting for the election of directors, the
corporation has outstanding more than one class of stock, and one or more such
classes or series thereof are entitled to vote separately as a class, and there
shall be a quorum of only one such class or series of stock, that class or
series of stock shall be entitled to elect its quota of directors
notwithstanding absence of a quorum of the other class or series of stock.
Section 6. The Board of Directors may designate three or more
directors to constitute an executive committee, one of whom shall be designated
Chairman of such committee. The members of such committee shall hold such office
until their successors are elected and qualify. Any vacancy occurring in the
committee shall be filled by the Board of Directors. Regular meetings of the
committee shall be held at such times and on such notice and at such places as
it may from time to time determine. The committee shall act, advise with and aid
the officers of the corporation in all matters concerning its interest and the
management of its business, and shall generally perform such duties and exercise
such powers as may from time to time be delegated to it by the Board of
Directors, and shall have authority to exercise all the powers of the Board of
Directors, so far as may be permitted by law, in the management of the business
and the affairs of the corporation whenever the Board of Directors is not in
session or whenever a quorum of the Board of Directors fails to attend any
regular or special meeting of such Board. The committee shall have power to
authorize the seal of the corporation to be affixed to all papers which are
required by the Delaware General Corporation Law to have the seal affixed
thereto. The fact that the executive committee has acted shall be conclusive
evidence that the Board of Directors was not in session at such time or that a
quorum of the Board had failed to attend the regular or special meeting thereof.
<PAGE> 8
The executive committee shall keep regular minutes of its
transactions and shall cause them to be recorded in a book kept in the office of
the corporation designated for that purpose, and shall report the same to the
Board of Directors at their regular meeting. The committee shall make and adopt
its own rules for the government thereof and shall elect its own officers.
Section 7. The Board of Directors may from time to time establish
such other committees to serve at the pleasure of the Board which shall be
comprised of such members of the Board and have such duties as the Board shall
from time to time establish. Any director may belong to any number of committees
of the Board. The Board may also establish such other committees with such
members (whether or not directors) and such duties as the Board may from time to
time determine.
Section 8. Unless otherwise restricted by the Restated Certificate
of Incorporation or these By-Laws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board of Directors.
Section 9. The members of the Board of Directors or any committee
thereof may participate in a meeting of such Board or committee, as the case may
be, by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this subsection shall constitute presence
in person at such a meeting.
Section 10. The Board of Directors may establish policies for the
compensation of directors and for the reimbursement of the expenses of
directors, in each case, in connection with services provided by directors to
the corporation.
ARTICLE III.
OFFICERS
Section 1. The Board of Directors, as soon as may be after each
annual meeting of the stockholders, shall elect officers of the corporation,
including a Chairman of the Board or President and a Secretary. The Board of
Directors may also from time to time elect such other officers (including one or
more Vice Presidents, a Treasurer, one or more Assistant Vice Presidents, one or
more Assistant Secretaries and one or more Assistant Treasurers) as it may deem
proper or may delegate to any elected officer of the corporation the power to
appoint and remove any such other officers and to prescribe their respective
terms of office, authorities and duties. Any Vice President may be designated
Executive, Senior or Corporate, or may be given such other designation or
combination of designations as the Board of Directors may determine.
Any two or more offices may be held by the same person.
<PAGE> 9
Section 2. All officers of the corporation elected by the Board of
Directors shall hold office for such term as may be determined by the Board of
Directors or until their respective successors are chosen and qualified. Any
officer may be removed from office at any time either with or without cause by
the affirmative vote of a majority of the members of the Board then in office,
or, in the case of appointed officers, by any elected officer upon whom such
power of removal shall have been conferred by the Board of Directors.
Section 3. Each of the officers of the corporation elected by the
Board of Directors or appointed by an officer in accordance with these By-laws
shall have the powers and duties prescribed by law, by the By-Laws or by the
Board of Directors and, in the case of appointed officers, the powers and duties
prescribed by the appointing officer, and, unless otherwise prescribed by the
By-Laws or by the Board of Directors or such appointing officer, shall have such
further powers and duties as ordinarily pertain to that office. The Chairman of
the Board or the President, as determined by the Board of Directors, shall be
the Chief Executive Officer and shall have the general direction of the affairs
of the corporation.
Section 4. Unless otherwise provided in these By-Laws, in the
absence or disability of any officer of the corporation, the Board of Directors
may, during such period, delegate such officer's powers and duties to any other
officer or to any director and the person to whom such powers and duties are
delegated shall, for the time being, hold such office.
ARTICLE IV.
CERTIFICATES OF STOCK
Section 1. The shares of stock of the corporation shall be
represented by certificates, provided that the Board of Directors may provide by
resolution or resolutions that some or all of any or all classes or series of
the corporation's stock shall be uncertificated shares. Any such resolution
shall not apply to shares represented by a certificate until such certificate is
surrendered to the corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by, or in the name of the corporation by
the Chairman of the Board of Directors, or the President or a Vice President,
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary of the corporation, or as otherwise permitted by law, representing the
number of shares registered in certificate form. Any or all the signatures on
the certificate may be a facsimile.
Section 2. Transfers of stock shall be made on the books of the
corporation by the holder of the shares in person or by such holder's attorney
upon surrender and cancellation of certificates for a like number of shares, or
as otherwise provided by law with respect to uncertificated shares.
Section 3. No certificate for shares of stock in the corporation
shall be issued in place of any certificate alleged to have been lost, stolen or
destroyed, except upon production of such evidence of such loss, theft or
destruction and upon delivery to the corporation of a bond
<PAGE> 10
10
of indemnity in such amount, upon such terms and secured by such surety, as the
Board of Directors in its discretion may require.
ARTICLE V.
CORPORATE BOOKS
The books of the corporation may be kept outside of the State of
Delaware at such place or places as the Board of Directors may from time to time
determine.
ARTICLE VI.
CHECKS, NOTES, PROXIES, ETC.
All checks and drafts on the corporation's bank accounts and all
bills of exchange and promissory notes, and all acceptances, obligations and
other instruments for the payment of money, shall be signed by such officer or
officers or agent or agents as shall be hereunto authorized from time to time by
the Board of Directors. Proxies to vote and consents with respect to securities
of other corporations owned by or standing in the name of the corporation may be
executed and delivered from time to time on behalf of the corporation by the
Chairman of the Board, the President, or by such officers as the Board of
Directors may from time to time determine.
ARTICLE VII.
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of
January in each year and shall end on the thirty-first day of December
following.
ARTICLE VIII.
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
corporation. In lieu of the corporate seal, when so authorized by the Board of
Directors or a duly empowered committee thereof, a facsimile thereof may be
impressed or affixed or reproduced.
<PAGE> 11
11
ARTICLE IX.
AMENDMENTS
These By-Laws may be amended, added to, rescinded or repealed at any
meeting of the Board of Directors or of the stockholders, provided notice of the
proposed change was given in the notice of the meeting of the stockholders or,
in the case of a meeting of the Board of Directors, in a notice given not less
than two days prior to the meeting; provided, however, that, notwithstanding any
other provisions of these By-Laws or any provision of law which might otherwise
permit a lesser vote of the stockholders, the affirmative vote of the holders of
at least 80 percent in voting power of all shares of the corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required in order for the stockholders to alter, amend or repeal
Section 2 and Section 11 of Article I, Sections 1 and 2 of Article II or this
proviso to this Article IX of these By-Laws or to adopt any provision
inconsistent with any of such Sections or with this proviso.
<PAGE> 1
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK
CUSIP 26483B 10 6
See reverse for certain definitions
[DB LOGO]
THE DUN & BRADSTREET CORPORATION
Shares
This Certifies that
is the Owner of Number
[DB LOGO]
FULL-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK
of The Dun & Bradstreet Corporation (hereinafter called the "Corporation"),
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney, upon surrender of this Certificate, properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be held subject to all the provisions of the Certificate of Incorporation
and By-laws of the Corporation, as amended, (copies of which are on file with
the Transfer Agent), to all of which the holder, by acceptance hereof, assents.
This Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
Witness the signatures of the Corporation's duly authorized officers.
Dated: Countersigned and registered
FIRST CHICAGO TRUST COMPANY OF NEW YORK
Transfer Agent and Registrar
By
/s/ Volney Taylor /s/ R.E. Parker /s/ Signature Illegible
- --------------------- ----------------------- -----------------------
Chairman of the Board Treasurer Authorized Officer
[GRAPHIC]
<PAGE> 2
This certificate also evidences and entitles the holder hereof to certain Rights
as set forth in a Rights Agreement between The Dun & Bradstreet Corporation and
First Chicago Trust Company of New York; Suite 4860; 525 Washington Boulevard;
Jersey City, New Jersey 07310, dated as of , 1998 as the same may be
amended from time to time (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file at the
principal executive offices of The Dun & Bradstreet Corporation. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. The Dun & Bradstreet Corporation will mail to the holder of this
certificate a copy of the Rights Agreement without charge after receipt of a
written request therefor. Under certain circumstances, as set forth in the
Rights Agreement, Rights owned by or transferred to any Person who becomes an
Acquiring Person (as defined in the Rights Agreement) and certain transferees
thereof will become null and void and will no longer be transferable.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _________ Custodian __________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as Act _______________
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received _________________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _____________________
-----------------------------------------------------------
NOTICE: THE SIGNATURE TO THE ASSIGNMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ----------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17AG-15.
<PAGE> 1
Exhibit 10.1
DISTRIBUTION AGREEMENT
between
THE DUN & BRADSTREET CORPORATION
and
THE NEW DUN & BRADSTREET CORPORATION
Dated as of June __, 1998
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS................................................... 2
SECTION 1.1. General.................................................. 2
SECTION 1.2. References; Interpretation............................... 13
ARTICLE II. DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN
COVENANTS..................................................... 13
SECTION 2.1. The Distribution and Other Transactions.................. 13
SECTION 2.2. Intercompany Accounts.................................... 17
SECTION 2.3. Cash balances............................................ 17
SECTION 2.4. Assumption and Satisfaction of Liabilities............... 17
SECTION 2.5. Resignations............................................. 18
SECTION 2.6. Further Assurances....................................... 18
SECTION 2.7. Limited Representations or Warranties.................... 18
SECTION 2.8. Guarantees............................................... 18
SECTION 2.9. Witness Services......................................... 19
SECTION 2.10. Certain Post-Distribution Transactions.................. 19
SECTION 2.11. Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Distribution Date............... 20
SECTION 2.12. Conveyancing and Assumption Instruments................. 21
SECTION 2.13. Ancillary Agreements.................................... 21
SECTION 2.14. Corporate Names......................................... 21
ARTICLE III. INDEMNIFICATION.............................................. 23
SECTION 3.1. Indemnification by the Corporation....................... 23
SECTION 3.2. Indemnification by New D&B............................... 24
SECTION 3.3. Procedures for Indemnification........................... 24
SECTION 3.4. Indemnification Payments................................. 26
ARTICLE IV. ACCESS TO INFORMATION......................................... 26
SECTION 4.1. Provision of Corporate Records........................... 26
SECTION 4.2. Access to Information.................................... 26
SECTION 4.3. Reimbursement; Other Matters............................. 26
SECTION 4.4. Confidentiality.......................................... 27
SECTION 4.5. Privileged Matters....................................... 27
SECTION 4.6. Ownership of Information................................. 29
SECTION 4.7. Limitation of Liability.................................. 29
SECTION 4.8. Other Agreements Providing for Exchange of Information... 29
ARTICLE V. ADMINISTRATIVE SERVICES........................................ 29
SECTION 5.1. Performance of Services.................................. 29
SECTION 5.2. Independence............................................. 30
SECTION 5.3. Non-exclusivity.......................................... 30
i
<PAGE> 3
Page
----
ARTICLE VI. DISPUTE RESOLUTION............................................ 30
SECTION 6.1. Negotiation.............................................. 30
SECTION 6.2. Arbitration.............................................. 30
SECTION 6.3. Continuity of Service and Performance.................... 31
ARTICLE VII. INSURANCE.................................................... 31
SECTION 7.1. Policies and Rights Included Within Assets;
Assignment of Policies............................................... 31
SECTION 7.2. Post-Distribution Date Claims............................ 32
SECTION 7.3. Administration; Other Matters............................ 32
SECTION 7.4. Agreement for Waiver of Conflict and Shared Defense...... 34
SECTION 7.5. Cooperation.............................................. 34
ARTICLE VIII. MISCELLANEOUS............................................... 34
SECTION 8.1. Complete Agreement; Construction......................... 34
SECTION 8.2. Ancillary Agreements..................................... 34
SECTION 8.3. Counterparts............................................. 34
SECTION 8.4. Survival of Agreements................................... 34
SECTION 8.5. Expenses................................................. 34
SECTION 8.6. Notices.................................................. 35
SECTION 8.7. Waivers.................................................. 35
SECTION 8.8. Amendments............................................... 35
SECTION 8.9. Assignment............................................... 36
SECTION 8.10. Successors and Assigns.................................. 36
SECTION 8.11. Termination............................................. 36
SECTION 8.12. Subsidiaries............................................ 36
SECTION 8.13. Third Party Beneficiaries............................... 36
SECTION 8.14. Title and Headings...................................... 36
SECTION 8.15. Schedules and Exhibits.................................. 37
SECTION 8.16. GOVERNING LAW........................................... 37
SECTION 8.17. Consent to Jurisdiction................................. 37
SECTION 8.18. Severability............................................ 37
Exhibits
--------
Exhibit 2.1(m) Undertaking of The New Dun & Bradstreet Corporation
ii
<PAGE> 4
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, dated as of June __, 1998, between THE DUN &
BRADSTREET CORPORATION, a Delaware corporation (the "Corporation") and THE NEW
DUN & BRADSTREET CORPORATION, a Delaware corporation ("New D&B").
WHEREAS, the Corporation acting through its direct and indirect
subsidiaries, currently conducts a number of businesses, including, without
limitation, (i) providing sales, marketing and publishing services for yellow
pages and other directory products (the "R.H. Donnelley Business"), (ii)
supplying business, commercial-credit and business-marketing information
services and receivables management services (the "D&B Opco Inc. Business") and
(iii) providing credit ratings on fixed-income securities and other credit
obligations (the "Moody's Business").
WHEREAS, the Board of Directors of the Corporation has determined
that it is appropriate, desirable and in the best interests of the holders of
shares of common stock, par value $1.00 per share, of the Corporation (the "D&B
Common Stock"), as well as of the Corporation and its businesses, to reorganize
the Corporation to separate from the Corporation all businesses currently
conducted by the Corporation other than the R.H. Donnelley Business and to cause
such businesses to be owned and conducted, directly or indirectly, by New D&B;
WHEREAS, in order to effect such separation, the Board of Directors
of the Corporation has determined that it is appropriate, desirable and in the
best interests of the holders of D&B Common Stock, as well as of the Corporation
and its businesses, for the Corporation (i) to take certain steps to reorganize
the Corporation's Subsidiaries (as defined herein) and businesses, including
prior to the Distribution (as defined herein) (A) to cause Dun & Bradstreet,
Inc. ("D&B Opco Inc.") to merge with and into New D&B, with New D&B as the
surviving corporation, (B) upon the completion of the transaction described in
(A), to cause the Corporation to contribute all of the non-stock assets held
directly by the Corporation (other than assets specified herein to remain with
the Corporation after the Distribution) to New D&B, (C) upon the completion of
the transaction described in (B), to contribute the capital stock held by the
Corporation in Moody's Investors Service, Inc. ("Moody's"), Dun & Bradstreet
International, Ltd. ("D&B International") and all of the other first-tier
subsidiaries of the Corporation other than New D&B and R.H. Donnelley Inc.
("RHD") to New D&B, (D) upon the completion of the transactions described in
(C), to cause New D&B to contribute all of its non-stock assets, other than its
interest in the corporate headquarters of New D&B to New Dun & Bradstreet, Inc.,
a newly formed Delaware corporation and wholly-owned subsidiary of New D&B ("New
D&B Opco Inc.") and (E) upon the completion of the transactions described in (D)
to cause New D&B to contribute the capital stock of all of its first-tier
subsidiaries other than Moody's and Duns Investing VI Corporation to New D&B
Opco Inc. and (ii) upon the completion of such reorganization to distribute to
the holders of the D&B Common Stock all the outstanding shares of common stock
of New D&B (the "New D&B Common Shares"), together with the associated Rights
(as defined herein), as set forth herein;
<PAGE> 5
2
WHEREAS, each of the Corporation and New D&B has determined that it
is necessary and desirable, on or prior to the Distribution Date (as defined
herein), to allocate and transfer those assets and to allocate and assign
responsibility for those liabilities in respect of the activities of the
businesses of such entities and those assets and liabilities in respect of other
businesses and activities of the Corporation and its current and former
Subsidiaries and other matters; and
WHEREAS, each of the Corporation and New D&B has determined that it
is necessary and desirable to set forth the principal corporate transactions
required to effect such Distribution and to set forth other agreements that will
govern certain other matters following the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the parties hereby agree
as follows:
ARTICLE I. DEFINITIONS
SECTION 1.1. General. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency, body or commission or any arbitration
tribunal.
(b) "Affiliate" shall mean, when used with respect to a specified
person, another person that controls, is controlled by, or is under common
control with the person specified. As used herein, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities or other interests, by contract or otherwise.
(c) "Agent" shall have the meaning set forth in Section 2.1(b).
(d) "Agreement Disputes" shall have the meaning set forth in Section
6.1.
(e) "Ancillary Agreements" shall mean all of the written agreements,
instruments, assignments or other arrangements (other than this Agreement)
entered into in connection with the transactions contemplated hereby, including,
without limitation, the Conveyancing and Assumption Instruments, the Data
Services Agreement, the Employee Benefits Agreement, the Intellectual Property
Agreement, the Shared Transaction Services Agreement, the Tax Allocation
Agreement and the Transition Services Agreement.
(f) "Assets" shall mean assets, properties and rights (including
goodwill), wherever located (including in the possession of vendors or other
third parties or elsewhere), whether real, personal or mixed, tangible,
intangible or contingent, in each case whether or not
<PAGE> 6
3
recorded or reflected or required to be recorded or reflected on the books and
records or financial statements of any person, including, without limitation,
the following:
(i) all accounting and other books, records and files whether in
paper, microfilm, microfiche, computer tape or disc, magnetic
tape or any other form;
(ii) all apparatus, computers and other electronic data processing
equipment, fixtures, machinery, equipment, furniture, office
equipment, automobiles, trucks, aircraft and other
transportation equipment, special and general tools, test
devices, prototypes and models and other tangible personal
property;
(iii) all inventories of materials, parts, raw materials, supplies,
work-in-process and finished goods and products;
(iv) all interests in real property of whatever nature, including
easements, whether as owner, mortgagee or holder of a Security
Interest in real property, lessor, sublessor, lessee,
sublessee or otherwise;
(v) all interests in any capital stock or other equity interests
of any Subsidiary or any other person, all bonds, notes,
debentures or other securities issued by any Subsidiary or any
other person, all loans, advances or other extensions of
credit or capital contributions to any Subsidiary or any other
person and all other investments in securities of any person;
(vi) all license agreements, leases of personal property, open
purchase orders for raw materials, supplies, parts or
services, unfilled orders for the manufacture and sale of
products and other contracts, agreements or commitments;
(vii) all deposits, letters of credit and performance and surety
bonds;
(viii) all written technical information, data, specifications,
research and development information, engineering drawings,
operating and maintenance manuals, and materials and analyses
prepared by consultants and other third parties;
(ix) all domestic and foreign patents, copyrights, trade names,
trademarks, service marks and registrations and applications
for any of the foregoing, mask works, trade secrets,
inventions, data bases, other proprietary information and
licenses from third persons granting the right to use any of
the foregoing;
<PAGE> 7
4
(x) all computer applications, programs and other software,
including operating software, network software, firmware,
middleware, design software, design tools, systems
documentation and instructions;
(xi) all cost information, sales and pricing data, customer
prospect lists, supplier records, customer and supplier lists,
customer and vendor data, correspondence and lists, product
literature, artwork, design, development and manufacturing
files, vendor and customer drawings, formulations and
specifications, quality records and reports and other books,
records, studies, surveys, reports, plans and documents;
(xii) all prepaid expenses, trade accounts and other accounts and
notes receivables;
(xiii) all rights under contracts or agreements, all claims or
rights against any person arising from the ownership of any
asset, all rights in connection with any bids or offers and
all claims, chooses in action or similar rights, whether
accrued or contingent;
(xiv) all rights under insurance policies and all rights in the
nature of insurance, indemnification or contribution;
(xv) all licenses, permits, approvals and authorizations which have
been issued by any Governmental Authority;
(xvi) cash or cash equivalents, bank accounts, lock boxes and other
deposit arrangements; and
(xvii) interest rate, currency, commodity or other swap, collar, cap
or other hedging or similar agreements or arrangements.
(g) "Assignee" shall have the meaning set forth in Section 2.1(f).
(h) "Business Entity" shall mean any corporation, partnership,
limited liability company or other entity which may legally hold title to
Assets.
(i) "Claims Administration" shall mean the processing of claims made
under the Shared Policies, including, without limitation, the reporting of
claims to the insurance carriers and the management of the defense of claims.
(j) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the Treasury regulations promulgated thereunder, including any successor
legislation.
(k) "Commission" shall mean the U.S. Securities and Exchange
Commission.
<PAGE> 8
5
(l) "Conveyancing and Assumption Instruments" shall mean,
collectively, the various agreements, instruments and other documents heretofore
entered into and to be entered into to effect the transfer of Assets and the
assumption of Liabilities in the manner contemplated by this Agreement, or
otherwise arising out of or relating to the transactions contemplated by this
Agreement, which shall be in substantially the forms attached hereto as Schedule
1.1(l) for transfers to be effected pursuant to New York law or the laws of one
of the other states of the United States, or, if not appropriate for a given
transfer, and for transfers to be effected pursuant to non-U.S. laws, shall be
in such other form or forms as the parties agree and as may be required by the
laws of such non-U.S. jurisdictions.
(m) the "Corporation" or "D&B" shall mean The Dun & Bradstreet
Corporation, a Delaware corporation, which will change its name at the time of
the Distribution to "R. H. Donnelley Corporation".
(n) "Corporation Debt" shall have the meaning set forth in Section
2.1(n).
(o) "D&B Opco Inc. Business" shall have the meaning set forth in the
recitals.
(p) "Data Services Agreement" shall mean the Data Services Agreement
between the Corporation and New D&B (or Subsidiaries thereof).
(q) "Distribution" shall mean the distribution on the Distribution
Date to holders of record of shares of D&B Common Stock as of the Distribution
Record Date of the New D&B Common Shares owned by the Corporation on the basis
of one New D&B Common Share for each outstanding share of D&B Common Stock.
(r) "Distribution Date" shall mean June 30, 1998.
(s) "Distribution Record Date" shall mean as of the close of
business of such date as may be determined by the Corporation's Board of
Directors as the record date for the Distribution.
(t) "Effective Time" shall mean immediately prior to the
midnight, New York time, ending the 24-hour period comprising June 30, 1998.
(u) "Employee Benefits Agreement" shall mean the Employee Benefits
Agreement between the Corporation and New D&B.
(v) "Governmental Authority" shall mean any federal, state, local,
foreign or international court, government, department, commission, board,
bureau, agency, official or other regulatory, administrative or governmental
authority.
(w) "Indemnifiable Losses" shall mean any and all losses,
liabilities, claims, damages, demands, costs or expenses (including, without
limitation, reasonable attorneys' fees and any and all out-of-pocket expenses)
reasonably incurred in investigating, preparing for or
<PAGE> 9
6
defending against any Actions or potential Actions or in settling any Action or
potential Action or in satisfying any judgment, fine or penalty rendered in or
resulting from any Action.
(x) "Indemnifying Party" shall have the meaning set forth in Section
3.3.
(y) "Indemnitee" shall have the meaning set forth in Section 3.3.
(z) "Information Statement" shall mean the Information Statement
sent to the holders of shares of D&B Common Stock in connection with the
Distribution, including any amendment or supplement thereto.
(aa) "Insurance Administration" shall mean, with respect to each
Shared Policy, the accounting for premiums, retrospectively-rated premiums,
defense costs, indemnity payments, deductibles and retentions, as appropriate,
under the terms and conditions of each of the Shared Policies; and the reporting
to excess insurance carriers of any losses or claims which may cause the
per-occurrence, per claim or aggregate limits of any Shared Policy to be
exceeded, and the distribution of Insurance Proceeds as contemplated by this
Agreement.
(ab) "Insurance Proceeds" shall mean those monies (i) received by an
insured from an insurance carrier or (ii) paid by an insurance carrier on behalf
of an insured, in either case net of any applicable premium adjustment,
retrospectively-rated premium, deductible, retention, or cost of reserve paid or
held by or for the benefit of such insured.
(ac) "Insured Claims" shall mean those Liabilities that,
individually or in the aggregate, are covered within the terms and conditions of
any of the Shared Policies, whether or not subject to deductibles, co-insurance,
uncollectibility or retrospectively-rated premium adjustments.
(ad) "Intellectual Property Agreement" shall mean the Intellectual
Property Agreement between the Corporation and New D&B.
(ae) "Liabilities" shall mean any and all losses, claims, charges,
debts, demands, actions, causes of action, suits, damages, obligations,
payments, costs and expenses, sums of money, accounts, reckonings, bonds,
specialties, indemnities and similar obligations, exonerations, covenants,
contracts, controversies, agreements, promises, doings, omissions, variances,
guarantees, make whole agreements and similar obligations, and other
liabilities, including all contractual obligations, whether absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and including those arising under
any law, rule, regulation, Action, threatened or contemplated Action (including
the costs and expenses of demands, assessments, judgments, settlements and
compromises relating thereto and attorneys' fees and any and all costs and
expenses, whatsoever reasonably incurred in investigating, preparing or
defending against any such Actions or threatened or contemplated Actions), order
or consent decree of any governmental or other regulatory or administrative
agency, body or commission or any award of any arbitrator or mediator of any
kind, and those arising under any contract, commitment or undertaking, including
those arising under this Agreement or any Ancillary Agreement, in each case,
whether or not recorded or reflected or
<PAGE> 10
7
required to be recorded or reflected on the books and records or financial
statements of any person.
(af) "Moody's" shall have the meaning set forth in the recitals.
(ag) "Moody's Business" shall have the meaning set forth in the
recitals.
(ah) "New D&B Assets" shall mean, collectively, all the rights and
Assets owned or held by the Corporation or any Subsidiary of the Corporation
immediately prior to the Effective Time, except the RHD Assets.
(ai) "New D&B Business" shall mean each and every business conducted
at any time by the Corporation or any Subsidiary of the Corporation prior to the
Effective Time, except an RHD Business.
(aj) "New D&B Common Shares" shall have the meaning set forth in the
recitals hereto.
(ak) "New D&B Contracts" shall mean all the contracts and agreements
to which the Corporation or any of its Affiliates is a party or by which it or
any of its Affiliates is bound immediately prior to the Effective Time, except
the RHD Contracts.
(al) "New D&B Group" shall mean New D&B and each person (other than
any member of the RHD Group) that is a Subsidiary of the Corporation immediately
prior to the Effective Time.
(am) "New D&B Indemnitees" shall mean New D&B, each member of the
New D&B Group, each of their respective present and former directors, officers,
employees and agents and each of the heirs, executors, successors and assigns of
any of the foregoing, except the RHD Indemnitees.
(an) "New D&B Liabilities" shall mean collectively, all obligations
and Liabilities of the Corporation or any Subsidiary of the Corporation
immediately prior to the Effective Time, except the RHD Liabilities.
(ao) "New D&B Opco Inc." shall mean a newly formed Delaware
corporation and wholly owned subsidiary of D&B Opco Inc. created to hold the
assets and liabilities related to, and to operate, the D&B Opco Inc. Business
after the Distribution.
(ap) "New D&B Policies" shall mean all Policies, current or past,
which are owned or maintained by or on behalf of the Corporation or any
Subsidiary of the Corporation immediately prior to the Effective Time which do
not relate to the RHD Business and which Policies are either maintained by New
D&B or a member of the New D&B Group or are assignable to New D&B or a member of
the New D&B Group.
<PAGE> 11
8
(aq) "1996 Distribution" shall mean the Distribution described in
the 1996 Distribution Agreement.
(ar) "1996 Distribution Agreement" shall mean the Distribution
Agreement among the Corporation, Cognizant Corporation and ACNielsen Corporation
dated as of October 28, 1996.
(as) "person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership, other entity or
government, or any agency or political subdivision thereof.
(at) "Policies" shall mean insurance policies and insurance
contracts of any kind (other than life and benefits policies or contracts),
including, without limitation, primary, excess and umbrella policies,
comprehensive general liability policies, director and officer liability,
fiduciary liability, automobile, aircraft, property and casualty, workers'
compensation and employee dishonesty insurance policies, bonds and
self-insurance and captive insurance company arrangements, together with the
rights, benefits and privileges thereunder.
(au) "Provider" shall have the meaning set forth in Section 5.1.
(av) "Recipient" shall have the meaning set forth in Section 5.1.
(aw) "Records" shall have the meaning set forth in Section 4.1.
(ax) "RHD" shall mean R. H. Donnelley Inc., a Delaware
corporation and a wholly-owned subsidiary of the Corporation.
(ay) "RHD Assets" shall mean:
(i) the ownership interests in those Business Entities
listed on Schedule 1.1(ay)(i);
(ii) any and all Assets that are expressly contemplated by
this Agreement, including those on the list of
pre-Distribution reorganization transactions attached as
Schedule 1.1(ay)(ii) hereto, or any Ancillary Agreement
(or included on any Schedule hereto or thereto) as
Assets which have been or are to be transferred to the
Corporation, RHD or any other member of the RHD Group
prior to the Effective Time or are to remain with the
Corporation, RHD or any other member of the RHD Group
subsequent to the Effective Time;
(iii) any Assets reflected on the RHD Balance Sheet or the
accounting records supporting such balance sheet and any
Assets acquired by or for RHD or any member of the RHD
Group subsequent to the date of such balance sheet
which, had they been so acquired on or before such date
and owned as of such date, would have been reflected on
such balance sheet if
<PAGE> 12
9
prepared on a consistent basis, subject to any
dispositions of any of such Assets subsequent to the
date of such balance sheet;
(iv) subject to Article VII, any rights of any member of the
RHD Group under any of the Policies, including any
rights thereunder arising from and after the Effective
Time in respect of any Policies that are occurrence
policies;
(v) any RHD Contracts, any rights or claims arising
thereunder, and any other rights or claims or contingent
rights or claims primarily relating to or arising from
any RHD Asset or the RHD Business; and
(vi) any and all Assets of the Corporation from and after the
Effective Time.
Notwithstanding the foregoing, the RHD Assets
shall not in any event include:
(w) any rights of the Corporation under the 1996
Distribution Agreement or the Tax Allocation
Agreement, Employee Benefits Agreement or the
Ancillary Agreements referred to in the 1996
Distribution Agreement; or
(x) the Assets listed or described on Schedule
1.1(ay)(x); or
(y) any Assets primarily relating to or used in any
terminated or divested Business Entity, business
or operation formerly owned or managed by or
associated with the Corporation, RHD or any RHD
Business, except for those Assets primarily
relating to or used in those Business Entities,
businesses or operations listed on Schedule
1.1(ay)(y); or
(z) any and all Assets that are expressly contemplated
by this Agreement or any Ancillary Agreement (or
the Schedules hereto or thereto) as Assets to be
transferred or conveyed to any member of the New
D&B Group.
In the event of any inconsistency or conflict which may
arise in the application or interpretation of any of the
foregoing provisions, for the purpose of determining
what is and is not an RHD Asset, any item explicitly
included on a Schedule referred to in this Section
1.1(ay) shall take priority over any provision of the
text hereof, and clause (ii) shall take priority over
clause (iii) hereof of this paragraph (ay).
(az) "RHD Balance Sheet" shall mean the combined balance sheet of
the RHD Group, including the notes thereto, as of March 31, 1998, set forth as
Schedule 1.1(az) hereto.
<PAGE> 13
10
(ba) "RHD Business" shall mean (i) the R.H. Donnelley Business,
(ii) the businesses of the members of the RHD Group, (iii) any other business
conducted by the Corporation or any Subsidiary of the Corporation primarily
through the use of the RHD Assets, (iv) the businesses of Business Entities
acquired or established by or for RHD or any of its Subsidiaries after the date
of this Agreement and (v) the business of the Corporation from and after the
Effective Time.
(bb) "RHD Contracts" shall mean the following contracts and
agreements to which the Corporation or any of its Affiliates is a party or by
which it or any of its Affiliates or any of their respective Assets is bound,
whether or not in writing, except for any such contract or agreement that is
expressly not contemplated to be transferred or assigned to the Corporation or
any member of the RHD Group prior to the Effective Time or to remain with the
Corporation or any member of the RHD Group subsequent to the Effective Time,
pursuant to any provision of this Agreement or any Ancillary Agreement:
(i) any contracts or agreements listed or described on
Schedule 1.1(bb)(i);
(ii) any contract or agreement entered into in the name of,
or expressly on behalf of, any division, business unit
or member of the RHD Group;
(iii) any contract or agreement that relates primarily to the
RHD Business;
(iv) federal, state and local government and other contracts
and agreements that are listed or described on Schedule
1.1(bb)(iv) and any other government contracts or
agreements entered into after the date hereof and prior
to the Effective Time that relate primarily to the RHD
Business;
(v) any contract or agreement representing capital or
operating equipment lease obligations reflected on the
RHD Balance Sheet, including obligations as lessee under
those contracts or agreements listed on Schedule
1.1(bb)(v);
(vi) any contract or agreement that is otherwise expressly
contemplated pursuant to this Agreement or any of the
Ancillary Agreements to be transferred or assigned to
the Corporation or any member of the RHD Group prior to
the Effective Time or to remain with the Corporation or
any member of the RHD Group subsequent to the Effective
Time; and
(vii) any guarantee, indemnity, representation or warranty of
any member of the RHD Group.
(bc) "RHD Group" shall mean RHD, each Business Entity which is
contemplated to become a Subsidiary of the Corporation or RHD hereunder prior to
the Effective Time or to remain a Subsidiary of the Corporation or RHD hereunder
subsequent to the Effective Time, which shall include those identified as such
on Schedule 1.1(ay)(i) hereto, which Schedule
<PAGE> 14
11
shall also indicate the amount of the Corporation's or RHD's direct or indirect
ownership interest therein, and the Corporation from and after the Effective
Time.
(bd) "RHD Indemnitees" shall mean RHD, each member of the RHD
Group, each of their respective present and former directors,
officers, employees and agents and each of the heirs,
executors, successors and assigns of any of the foregoing.
(be) "RHD Liabilities" shall mean:
(i) any and all Liabilities that are expressly contemplated
by this Agreement or any Ancillary Agreement (or the
Schedules hereto or thereto, including Schedule
1.1(be)(i) hereto) as Liabilities to be assumed by the
Corporation or any member of the RHD Group prior to the
Effective Time or to remain with the RHD Group
subsequent to the Effective Time, and all agreements,
obligations and Liabilities of the Corporation or any
member of the RHD Group under this Agreement or any of
the Ancillary Agreements;
(ii) all Liabilities (other than Taxes and any
employee-related Liabilities subject to the provisions
of the Tax Allocation Agreement and the Employee
Benefits Agreement, respectively), primarily relating
to, arising out of or resulting from:
(A) the operation of the RHD Business, as
conducted at any time prior to, on or after the
Effective Time (including any Liability relating to,
arising out of or resulting from any act or failure to
act by any director, officer, employee, agent or
representative (whether or not such act or failure to
act is or was within such person's authority));
(B) the operation of any business conducted by the
Corporation or any Subsidiary of the Corporation at any
time from and after the Effective Time (including any
Liability relating to, arising out of or resulting from
any act or failure to act by any director, officer,
employee, agent or representative (whether or not such
act or failure to act is or was within such person's
authority)); or
(C) any RHD Assets;
whether arising before, on or after the Effective Time;
(iii) all Liabilities reflected as liabilities or obligations on the
RHD Balance Sheet or the accounting records supporting such
balance sheet, and all Liabilities arising or assumed after
the date of such balance sheet which, had they arisen or been
assumed on or before such date and been retained as of such
date, would have been reflected on such balance sheet, subject
to any discharge of such Liabilities subsequent to the date of
the RHD Balance Sheet; and
<PAGE> 15
12
(iv) the Corporation Debt and all Liabilities related thereto
(including, without limitation, all Liabilities related to any
offering or other materials used in connection therewith).
Notwithstanding the foregoing, the RHD Liabilities shall not
include:
(x) any Liabilities that are expressly contemplated by this
Agreement or any Ancillary Agreement (or the Schedules hereto
or thereto) as Liabilities to be assumed by New D&B or any
member of the New D&B Group, including any Liabilities set
forth in Schedule 1.1(be)(x);
(y) any Liabilities primarily relating to, arising out of or
resulting from any terminated or divested Business Entity,
business or operation formerly owned or managed by or
associated with the Corporation or any RHD Business except for
Liabilities primarily relating to, arising out of or resulting
from those Business Entities, businesses or operations listed
in Schedule 1.1(be)(y); or
(z) all agreements and obligations of any member of the New D&B
Group under this Agreement or any of the Ancillary Agreements.
(bf) "RHD Policies" shall mean all Policies, current or past, which
are owned or maintained by or on behalf of the Corporation or any Subsidiary of
the Corporation immediately prior to the Effective Time, which do not relate to
the New D&B Business.
(bg) "Rights" shall have the meaning set forth in Section 2.1(c).
(bh) "Rules" shall have the meaning set forth in Section 6.2.
(bi) "Security Interest" shall mean any mortgage, security interest,
pledge, lien, charge, claim, option, right to acquire, voting or other
restriction, right-of-way, covenant, condition, easement, encroachment,
restriction on transfer, or other encumbrance of any nature whatsoever.
(bj) "Shared Policies" shall mean all Policies, current or past,
which are owned or maintained by or on behalf of the Corporation or any
Subsidiary of the Corporation immediately prior to the Effective Time which
relate to the New D&B Business and the RHD Business.
(bk) "Shared Transaction Services Agreement" shall mean the Shared
Transaction Services Agreement between the Corporation and New D&B (or
Subsidiaries thereof).
(bl) "Subsidiary" shall mean any corporation, partnership or other
entity of which another entity (i) owns, directly or indirectly, ownership
interests sufficient to elect a majority of the Board of Directors (or persons
performing similar functions) (irrespective of whether at the time any other
class or classes of ownership interests of such corporation,
<PAGE> 16
13
partnership or other entity shall or might have such voting power upon the
occurrence of any contingency) or (ii) is a general partner or an entity
performing similar functions (e.g., a trustee).
(bm) "Tax" shall have the meaning set forth in the Tax Allocation
Agreement.
(bn) "Tax Allocation Agreement" shall mean the Tax Allocation
Agreement between the Corporation and New D&B.
(bo) "Third Party Claim" shall have the meaning set forth in Section
3.3.
(bp) "Transition Services Agreement" shall mean the Transition
Services Agreement between the Corporation and New D&B.
SECTION 1.2. References; Interpretation. References in this
Agreement to any gender include references to all genders, and references to the
singular include references to the plural and vice versa. The words "include",
"includes" and "including" when used in this Agreement shall be deemed to be
followed by the phrase "without limitation". Unless the context otherwise
requires, references in this Agreement to Articles, Sections, Schedules and
Exhibits shall be deemed references to Articles and Sections of, and Schedules
and Exhibits to, such Agreement. Unless the context otherwise requires, the
words "hereof", "hereby" and "herein" and words of similar meaning when used in
this Agreement refer to this Agreement in its entirety and not to any particular
Article, Section or provision of this Agreement.
ARTICLE II. DISTRIBUTION AND OTHER TRANSACTIONS; CERTAIN
COVENANTS
SECTION 2.1. The Distribution and Other Transactions.
(a) Certain Transactions. On or prior to the Distribution Date:
(i) the Corporation shall, on behalf of itself and its
Subsidiaries, transfer or cause to be transferred to New D&B or another
member of the New D&B Group, effective prior to or as of the Effective
Time, all of the Corporation's and its Subsidiaries' right, title and
interest in the New D&B Assets.
(ii) New D&B shall to the extent not already held by the
Corporation or a member of the RHD Group, on behalf of itself and its
Subsidiaries, transfer or cause to be transferred to the Corporation or a
member of the RHD Group, effective prior to or as of the Effective Time,
all of New D&B's and its Subsidiaries' right, title and interest in the
RHD Assets.
(iii) To the extent not indicated by Schedule 1.1(ay)(i) or (ii) or
otherwise agreed by the parties hereto, the Corporation or New D&B, as
applicable, shall be entitled to designate the Business Entity within the
RHD Group or the New D&B Group, as applicable, to which any Assets are to
be transferred pursuant to this Section 2.1(a).
<PAGE> 17
14
(b) Stock Dividend to the Corporation. On or prior to the
Distribution Date, New D&B shall issue to the Corporation as a stock dividend
such number of New D&B Common Shares as will be required to effect the
Distribution, as certified by the Corporation's stock transfer agent (the
"Agent"). In connection with such issuance, the Corporation shall deliver to New
D&B for cancellation the share certificate held by it representing New D&B
Common Shares and shall receive a new certificate representing the total number
of New D&B Common Shares to be owned by the Corporation after giving effect to
such stock dividend.
(c) Charters; By-laws; Rights Plans. On or prior to the Distribution
Date, all necessary actions shall have been taken to provide for the adoption of
the form of Certificate of Incorporation and By-laws and the execution and
delivery of the form of Rights Agreement, relating to the preferred share
purchase rights relating to the New D&B Common Shares (the "Rights"), filed by
New D&B with the Commission as exhibits to New D&B's Registration Statement on
Form 10.
(d) Directors. On or prior to the Distribution Date, the Corporation
as the sole stockholder of New D&B, shall have taken all necessary action on or
prior to the Distribution Date to cause the Board of Directors of New D&B to
consist of the individuals identified in the Information Statement as directors
of New D&B.
(e) Certain Licenses and Permits. Without limiting the generality of
the obligations set forth in Section 2.1(a), on or prior to the Distribution
Date or as soon as reasonably practicable thereafter:
(i) all transferable licenses, permits and authorizations issued
by any Governmental Authority which do not relate primarily to the RHD
Business but which are held in the name of the Corporation or any member
of the RHD Group, or in the name of any employee, officer, director,
stockholder or agent of the Corporation or any such member, or otherwise,
on behalf of a member of the New D&B Group shall be duly and validly
transferred or caused to be transferred by the Corporation to the
appropriate member of the New D&B Group; and
(ii) all transferable licenses, permits and authorizations issued
by Governmental Authorities which relate primarily to the RHD Business but
which are held in the name of any member of the New D&B Group, or in the
name of any employee, officer, director, stockholder, or agent of any such
member, or otherwise, on behalf of a member of the RHD Group shall be duly
and validly transferred or caused to be transferred by New D&B to the
Corporation or the appropriate member of the RHD Group.
(f) Transfer of Agreements. Without limiting the generality of the
obligations set forth in Section 2.1(a):
(i) the Corporation hereby agrees that on or prior to the
Distribution Date or as soon as reasonably practicable thereafter, subject
to the limitations set forth in this Section 2.1(f), it will, and it will
cause each member of the RHD Group to, assign,
<PAGE> 18
15
transfer and convey to the appropriate member of the New D&B Group all of
the Corporation's or such member of the RHD Group's respective right,
title and interest in and to any and all New D&B Contracts;
(ii) New D&B hereby agrees that on or prior to the Distribution
Date or as soon as reasonably practicable thereafter, subject to the
limitations set forth in this Section 2.1(f), it will, and it will cause
each member of the New D&B Group to, assign, transfer and convey to the
Corporation or the appropriate member of the RHD Group all of New D&B's or
such member of the New D&B Group's respective right, title and interest in
and to any and all RHD Contracts;
(iii) subject to the provisions of this Section 2.1(f), any
agreement to which any of the parties hereto or any of their Subsidiaries
is a party that inures to the benefit of both the RHD Business and the New
D&B Business shall be assigned in part so that each party shall be
entitled to the rights and benefits inuring to its business under such
agreement;
(iv) the assignee of any agreement assigned, in whole or in part,
hereunder (an "Assignee") shall assume and agree to pay, perform, and
fully discharge all obligations of the assignor under such agreement or,
in the case of a partial assignment under paragraph (f)(iii), such
Assignee's related portion of such obligations as determined in accordance
with the terms of the relevant agreement, where determinable on the face
thereof, and otherwise as determined in accordance with the practice of
the parties prior to the Distribution; and
(v) notwithstanding anything in this Agreement to the contrary,
this Agreement shall not constitute an agreement to assign any agreement,
in whole or in part, or any rights thereunder if the agreement to assign
or attempt to assign, without the consent of a third party, would
constitute a breach thereof or in any way adversely affect the rights of
the assignor or Assignee thereof. Until such consent is obtained, or if an
attempted assignment thereof would be ineffective or would adversely
affect the rights of any party hereto so that the intended Assignee would
not, in fact, receive all such rights, the parties will cooperate with
each other in any arrangement designed to provide for the intended
Assignee the benefits of, and to permit the intended Assignee to assume
liabilities under, any such agreement.
(g) Consents. The parties hereto shall use their commercially
reasonable efforts to obtain required consents to transfer and/or assignment of
licenses, permits and authorizations of Governmental Authorities and of
agreements hereunder.
(h) Delivery of Shares to Agent. The Corporation shall deliver to
the Agent the share certificates representing the New D&B Common Shares issued
to the Corporation by New D&B pursuant to Section 2.1(b) and shall instruct the
Agent to distribute, on or as soon as practicable following the Distribution
Date, certificates representing such Common Shares to holders of record of
shares of D&B Common Stock on the Distribution Record Date as further
<PAGE> 19
16
contemplated by the Information Statement and herein. New D&B shall provide all
share certificates that the Agent shall require in order to effect the
Distribution.
(i) Certain Liabilities. For purposes of this Agreement, including
Article III hereof, New D&B agrees with the Corporation that:
(i) any and all Liabilities arising from or based upon
"controlling person" liability relating to the Form 10 filed by New D&B
shall be deemed to be New D&B Liabilities and not RHD Liabilities; and
(ii) notwithstanding Section 2.1(m) below, any and all
Liabilities arising from or related to the spin-off of Cognizant
Corporation and ACNielsen Corporation from the Corporation pursuant to the
1996 Distribution Agreement, other than those set forth on Schedule
2.1(i), shall be deemed to be New D&B Liabilities and not RHD Liabilities.
(j) Certain Contingencies. Notwithstanding anything to the contrary
herein or in the Tax Allocation Agreement, on or prior to the Distribution Date,
each of the Corporation and New D&B agree to take all actions necessary to cause
the Corporation's interests in certain prior business transactions set forth in
Schedule 2.1(j) to be transferred to New D&B or a member of the New D&B Group,
and each of the Corporation and New D&B agree that any rights with respect
thereto shall be held by New D&B or a member of the New D&B Group and not by RHD
or any member of the RHD Group and any Liabilities arising in connection with
such interests and any transactions relating thereto (including, without
limitation, any Liabilities for Taxes of any member of the Pre-Distribution D&B
Group (as defined in the Tax Allocation Agreement) imposed by reason of audit
adjustment or otherwise) shall be New D&B Liabilities and not RHD Liabilities.
(k) [Reserved]
(l) 1996 Distribution. The Corporation agrees that it will not take
any action it is required or permitted to take pursuant to the terms of (i) the
1996 Distribution Agreement or (ii) the Indemnity and Joint Defense Agreement,
the Tax Allocation Agreement, the Employee Benefits Agreement or any Ancillary
Agreement referred to in the 1996 Distribution Agreement, in each such case
without the prior written consent of New D&B.
(m) Undertaking of New D&B. On or prior to the Distribution Date,
New D&B will undertake to each of Cognizant Corporation and ACNielsen
Corporation to be jointly and severally liable for all "D&B Liabilities" (as
defined in the 1996 Distribution Agreement) under the 1996 Distribution
Agreement pursuant to an undertaking substantially in the form of Exhibit 2.1(m)
hereto.
(n) Corporation Debt. In connection with the Distribution, the
Corporation shall borrow up to an aggregate of $500 million (the "Corporation
Debt"), a portion of the proceeds of which shall be used by the Corporation to
repay existing indebtedness to third parties, another portion of the proceeds of
which shall be contributed to New D&B to pay the remaining costs and expenses
related to the Distribution as described in Section 8.5 and the rest of which
shall be used to repay existing
<PAGE> 20
17
intercompany indebtedness of the Corporation or members of the RHD Group to
members of the New D&B Group. This indebtedness shall be an obligation of the
Corporation after the Distribution.
(o) D&B Restricted Stock. At the time of the Distribution, the
Corporation shall contribute to New D&B any New D&B Common Shares received by
the Corporation as a result of the forfeiture of restricted D&B Common Stock by
D&B employees or directors who will become New D&B employees or directors in
connection with the Distribution.
(p) Other Transactions. On or prior to the Distribution Date, each
of the Corporation and New D&B shall consummate those other transactions in
connection with the Distribution that are contemplated by the ruling request
submissions by the Corporation to the Internal Revenue Service in respect of the
ruling granted on April 9, 1998, and not specifically referred to in
subparagraphs (a)-(o) above. After the Distribution Date, each of the
Corporation and New D&B will exercise good faith commercially reasonable efforts
to consummate as promptly as practicable all other transactions which must be
consummated in order fully to complete the Distribution and any of the
transactions contemplated hereby or by any of the Ancillary Agreements.
SECTION 2.2. Intercompany Accounts. All intercompany receivables,
payables and loans (other than receivables, payables and loans otherwise
specifically provided for hereunder or under any Ancillary Agreement, including
payables created or required hereby or by any Ancillary Agreement), including,
without limitation, in respect of any cash balances, any cash balances
representing deposited checks or drafts for which only a provisional credit has
been allowed or any cash held in any centralized cash management system between
any member of the New D&B Group, on the one hand, and the Corporation or any
member of the RHD Group, on the other hand, which exist and are reflected in the
accounting records of the relevant parties as of _______ __, 1998 or which arise
on or after ______ __, 1998 shall be paid or settled in the ordinary course of
business in a manner consistent with the payment or settlement of similar
accounts arising from transactions with third parties.
SECTION 2.3. Cash balances. In addition to any other obligations
hereunder or under any Ancillary Agreement or otherwise, on the Distribution
Date, the Corporation shall contribute to New D&B all cash in the
Corporation's accounts other than cash necessary for the Corporation's net debt
to be $500 million as of the Distribution Date.
SECTION 2.4. Assumption and Satisfaction of Liabilities. Except as
otherwise specifically set forth in any Ancillary Agreement, and subject to
Section 2.3 hereof, from and after the Effective Time, (i) the Corporation
shall, and shall cause each member of the RHD Group to, assume, pay, perform and
discharge all RHD Liabilities and (ii) New D&B shall, and shall cause each
member of the New D&B Group to, assume, pay, perform and discharge all New D&B
Liabilities. To the extent reasonably requested to do so by another party
hereto, each party hereto agrees to sign such documents, in a form reasonably
satisfactory to such party, as may be reasonably necessary to evidence the
assumption of any Liabilities hereunder.
<PAGE> 21
18
SECTION 2.5. Resignations. (a) Subject to Section 2.5(b), the
Corporation and RHD shall cause all their employees to resign, effective as of
the Distribution Date, from all positions as officers or directors of any member
of the New D&B Group in which they serve, and New D&B shall cause all its
employees to resign, effective as of the Effective Time, from all positions as
officers or directors of the Corporation or any members of the RHD Group in
which they serve.
(b) No person shall be required by any party hereto to resign from
any position or office with another party hereto if such person is disclosed in
the Information Statement as the person who is to hold such position or office
following the Distribution.
SECTION 2.6. Further Assurances. In case at any time after the
Effective Time any further action is reasonably necessary or desirable to carry
out the purposes of this Agreement and the Ancillary Agreements, the proper
officers of each party to this Agreement shall take all such necessary action.
Without limiting the foregoing, the Corporation and New D&B shall use their
commercially reasonable efforts promptly to obtain all consents and approvals,
to enter into all amendatory agreements and to make all filings and applications
that may be required for the consummation of the transactions contemplated by
this Agreement and the Ancillary Agreements, including, without limitation, all
applicable governmental and regulatory filings.
SECTION 2.7. Limited Representations or Warranties. Each of the
parties hereto agrees that no party hereto is, in this Agreement or in any other
agreement or document contemplated by this Agreement or otherwise, making any
representation or warranty whatsoever, as to title or value of Assets being
transferred. It is also agreed that, notwithstanding anything to the contrary
otherwise expressly provided in the relevant Conveyancing and Assumption
Instrument, all Assets either transferred to or retained by the parties, as the
case may be, shall be "as is, where is" and that (subject to Section 2.6) the
party to which such Assets are to be transferred hereunder shall bear the
economic and legal risk that such party's or any of the Subsidiaries' title to
any such Assets shall be other than good and marketable and free from
encumbrances. Similarly, each party hereto agrees that, except as otherwise
expressly provided in the relevant Conveyancing and Assumption Instrument, no
party hereto is representing or warranting in any way that the obtaining of any
consents or approvals, the execution and delivery of any amendatory agreements
and the making of any filings or applications contemplated by this Agreement
will satisfy the provisions of any or all applicable agreements or the
requirements of any or all applicable laws or judgments, it being agreed that
the party to which any Assets are transferred shall bear the economic and legal
risk that any necessary consents or approvals are not obtained or that any
requirements of laws or judgments are not complied with.
SECTION 2.8. Guarantees. (a) Except as otherwise specified in any
Ancillary Agreement, the Corporation and New D&B shall use their commercially
reasonable efforts to have, on or prior to the Distribution Date, or as soon as
practicable thereafter, the Corporation and any member of the RHD Group removed
as guarantor of or obligor for any New D&B Liability, including, without
limitation, in respect of those guarantees set forth on Schedule 2.8(a) to the
extent that they relate to New D&B Liabilities.
<PAGE> 22
19
(b) Except as otherwise specified in any Ancillary Agreement, the
Corporation and New D&B shall use their commercially reasonable efforts to have,
on or prior to the Distribution Date, or as soon as practicable thereafter, any
member of the New D&B Group removed as guarantor of or obligor for any RHD
Liability, including, without limitation, in respect of those guarantees set
forth on Schedule 2.8(b) to the extent that they relate to RHD Liabilities.
(c) If the Corporation or New D&B is unable to obtain, or to cause
to be obtained, any such required removal as set forth in clauses (a) or (b) of
this Section 2.8, the applicable guarantor or obligor shall continue to be bound
as such and, unless not permitted by law or the terms thereof, the relevant
beneficiary shall or shall cause one of its Subsidiaries, as agent or
subcontractor for such guarantor or obligor to pay, perform and discharge fully
all the obligations or other liabilities of such guarantor or obligor thereunder
from and after the date hereof.
SECTION 2.9. Witness Services. At all times from and after the
Distribution Date, each of the Corporation and New D&B shall use their
commercially reasonable efforts to make available to the other, upon reasonable
written request, its and its Subsidiaries' officers, directors, employees and
agents as witnesses to the extent that (i) such persons may reasonably be
required in connection with the prosecution or defense of any Action in which
the requesting party may from time to time be involved and (ii) there is no
conflict in the Action between the requesting party and the Corporation or New
D&B as applicable. A party providing witness services to the other party under
this Section shall be entitled to receive from the recipient of such services,
upon the presentation of invoices therefor, payments for such amounts, relating
to disbursements and other out-of-pocket expenses (which shall be deemed to
exclude the costs of salaries and benefits of employees who are witnesses), as
may be reasonably incurred in providing such witness services.
SECTION 2.10. Certain Post-Distribution Transactions. (a) (i) The
Corporation shall comply and shall cause its Subsidiaries to comply with and
otherwise not take action inconsistent with each representation and statement
made to the Internal Revenue Service in connection with the request by the
Corporation for a ruling letter in respect of the Distribution as to certain tax
aspects of the Distribution and (ii) until two years after the Distribution
Date, the Corporation will cause RHD to maintain its status as a company engaged
in the active conduct of a trade or business, as defined in Section 355(b) of
the Code, will continue to own stock of RHD constituting control (within the
meaning of Section 368(c) of the Code) of RHD and will maintain at least ninety
percent of the fair market value of the Corporation's assets in stock and
securities of RHD and such other assets which, based on an opinion of a law firm
reasonably acceptable to New D&B, or a supplemental ruling from the Internal
Revenue Service, will not cause the Corporation or RHD to be in violation of the
active business requirement under the holding company test.
(b)(i) New D&B shall comply and shall cause its Subsidiaries to
comply with and otherwise not take action inconsistent with each representation
and statement made to the Internal Revenue Service in connection with the
request by the Corporation for a ruling letter in respect of the Distribution as
to certain tax aspects of the Distribution and (ii) until two years after the
<PAGE> 23
20
Distribution Date, New D&B will cause each of Moody's and New D&B Opco Inc. to
maintain its status as a company engaged in the active conduct of a trade or
business, as defined in Section 355(b) of the Code, will continue to own stock
in each of Moody's and New D&B Opco Inc. constituting control (within the
meaning of Section 368(c) of the Code) of Moody's and New D&B Opco Inc. and will
maintain at least ninety percent of the fair market value of New D&B's assets in
stock and securities of Moody's and New D&B Opco Inc. and such other assets
which, based on an opinion of a law firm reasonably acceptable to the
Corporation, or a supplemental ruling from the Internal Revenue Service, will
not cause New D&B, Moody's or New D&B Opco Inc. to be in violation of the active
business requirement under the holding company test.
(c) The Corporation agrees that until two years after the
Distribution Date, it will not (i) merge or consolidate with or into any other
corporation, (ii) liquidate or partially liquidate, (iii) sell or transfer all
or substantially all of its assets (within the meaning of Rev. Proc. 77-37, 1977
- - 2 C.B. 568) in a single transaction or series of related transactions, (iv)
redeem or otherwise repurchase any D&B Common Stock (other than as described in
Section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696), or (v) take any other
action or actions which in the aggregate would have the effect of causing or
permitting one or more persons to acquire directly or indirectly stock
representing a 50 percent or greater interest (within the meaning of Section
355(e) of the Code) in the Corporation, unless prior to taking such action the
Corporation has obtained (and provided to New D&B) a written opinion of a law
firm reasonably acceptable to New D&B, or a supplemental ruling from the
Internal Revenue Service, that such action or actions will not result in (i) the
Distribution failing to qualify under Section 355(a) of the Code or (ii) the New
D&B Common Shares failing to qualify as qualified property for purposes of
Section 355(c)(2) of the Code by reason of Section 355(e) of the Code.
(d) Notwithstanding anything to the contrary herein or in the Tax
Allocation Agreement, if the Corporation or New D&B (or any of their respective
Subsidiaries) fails to comply with any of its obligations under Sections
2.10(a), 2.10(b) and 2.10(c) above or takes or fails to take any action on or
after the Distribution Date, and such failure to comply, action or omission
contributes to a determination that (i) the Distribution fails to qualify under
Section 355(a) of the Code or (ii) the New D&B Common Shares fail to qualify as
qualified property for purposes of Section 355(c)(2) of the Code by reason of
Section 355(e) of the Code, the party shall indemnify and hold harmless the
other party and each member of the consolidated group of which the other party
is a member from and against any and all federal, state and local taxes,
including any interest, penalties or additions to tax, imposed upon or incurred
by such other party, any member of its group or any stockholder of either party
as a result of the failure of the Distribution to qualify under Section 355(a)
of the Code or the application of Section 355(e). The obligation of the
Corporation to indemnify New D&B pursuant to the preceding sentence shall not be
affected by the delivery of any legal opinion or supplemental ruling under
Section 2.10(c).
SECTION 2.11. Transfers Not Effected Prior to the Distribution;
Transfers Deemed Effective as of the Distribution Date. To the extent that any
transfers contemplated by this Article II shall not have been consummated on or
prior to the Distribution Date, the parties shall cooperate to effect such
transfers as promptly following the Distribution Date as shall be practicable.
Nothing herein shall be deemed to require the transfer of any Assets or the
<PAGE> 24
21
assumption of any Liabilities which by their terms or operation of law cannot be
transferred; provided, however, that the parties hereto and their respective
Subsidiaries shall cooperate to seek to obtain any necessary consents or
approvals for the transfer of all Assets and Liabilities contemplated to be
transferred pursuant to this Article II. In the event that any such transfer of
Assets or Liabilities has not been consummated, from and after the Distribution
Date the party retaining such Asset or Liability shall hold such Asset in trust
for the use and benefit of the party entitled thereto (at the expense of the
party entitled thereto) or retain such Liability for the account of the party by
whom such Liability is to be assumed pursuant hereto, as the case may be, and
take such other action as may be reasonably requested by the party to whom such
Asset is to be transferred, or by whom such Liability is to be assumed, as the
case may be, in order to place such party, insofar as is reasonably possible, in
the same position as would have existed had such Asset or Liability been
transferred as contemplated hereby. As and when any such Asset or Liability
becomes transferable, such transfer shall be effected forthwith. The parties
agree that, as of the Distribution Date, each party hereto shall be deemed to
have acquired complete and sole beneficial ownership over all of the Assets,
together with all rights, powers and privileges incident thereto, and shall be
deemed to have assumed in accordance with the terms of this Agreement all of the
Liabilities, and all duties, obligations and responsibilities incident thereto,
which such party is entitled to acquire or required to assume pursuant to the
terms of this Agreement.
SECTION 2.12. Conveyancing and Assumption Instruments. In connection
with the transfers of Assets and the assumptions of Liabilities contemplated by
this Agreement, the parties shall execute or cause to be executed by the
appropriate entities the Conveyancing and Assumption Instruments in
substantially the form contemplated hereby for transfers to be effected pursuant
to New York law or the laws of one of the other states of the United States or,
if not appropriate for a given transfer, and for transfers to be effected
pursuant to non-U.S. laws, in such other form as the parties shall reasonably
agree, including the transfer of real property with deeds as may be appropriate.
The transfer of capital stock shall be effected by means of delivery of stock
certificates and executed stock powers and notation on the stock record books of
the corporation or other legal entities involved, or by such other means as may
be required in any non-U.S. jurisdiction to transfer title to stock and, to the
extent required by applicable law, by notation on public registries.
SECTION 2.13. Ancillary Agreements. Prior to the Distribution Date,
each of the Corporation and New D&B shall enter into, and/or (where applicable)
shall cause members of the RHD Group or the New D&B Group, as applicable, to
enter into, the Ancillary Agreements and any other agreements in respect of the
Distribution reasonably necessary or appropriate in connection with the
transactions contemplated hereby and thereby.
SECTION 2.14. Corporate Names. (a) Except as otherwise specifically
provided in any Ancillary Agreement:
(i) on or prior to the Distribution Date, the Corporation shall
change its name to remove any reference to "Dun & Bradstreet" therein;
<PAGE> 25
22
(ii) as soon as reasonably practicable after the Distribution
Date but in any event within six months thereafter, the Corporation will,
at its own expense, remove (or, if necessary, on an interim basis, cover
up) any and all exterior signs and other identifiers located on any of its
property or premises or on the property or premises used by it or its
Subsidiaries (except property or premises to be shared with New D&B or its
Subsidiaries after the Distribution) which refer or pertain to D&B or
which include the Dun & Bradstreet name, logo or other trademark or other
intellectual property utilizing D&B;
(iii) as soon as reasonably practicable after the Distribution
Date but in any event within six months thereafter, the Corporation will,
and will cause its Subsidiaries to, remove from all letterhead, envelopes,
invoices and other communications media of any kind, all references to
D&B, including the "Dun & Bradstreet" name, logo and any other trademark
or other intellectual property utilizing D&B (except that the Corporation
shall not be required to take any such action with respect to materials in
the possession of customers), and neither the Corporation nor its
Subsidiaries shall use or display the "Dun & Bradstreet" name, logo or
other trademarks or intellectual property utilizing D&B without the prior
written consent of New D&B;
(iv) as soon as reasonably practicable after the Distribution
Date, but in any event within six months thereafter, the Corporation will
cause its Subsidiaries to change their corporate names to the extent
necessary to remove and eliminate any reference to D&B, including the "Dun
& Bradstreet" name; provided, however, that notwithstanding the foregoing
requirements of this Section 2.14(a), if the Corporation has exercised
good faith efforts to comply with this clause (iv) but is unable, due to
regulatory or other circumstance beyond its control, to effect a corporate
name change in compliance with applicable law, then the Corporation or its
Subsidiary will not be deemed to be in breach hereof if it continues to
exercise good faith efforts to effectuate such name change and does
effectuate such name change within nine months after the Distribution
Date, and, in such circumstances, such party may continue to include in
exterior signs and other identifiers and in letterhead, envelopes,
invoices and other communications references to the name which includes
references to D&B, but only to the extent necessary to identify such party
and only until such party's corporate name can be changed to remove and
eliminate such references; and
(v) notwithstanding the foregoing clauses (i) through (iv),
nothing herein or in any Ancillary Agreement shall require the Corporation
to take any action to remove any reference to D&B, including the "Dun &
Bradstreet" name, from any stock certificate relating to shares of D&B
Common Stock outstanding on or prior to the Record Date; provided that
from and after the Record Date, any newly issued stock certificates
representing D&B Common Stock (which at the Effective Time will become RHD
Common Stock) shall not have any reference to D&B, including the "Dun &
Bradstreet" name.
(b) Except as otherwise specifically provided in any Ancillary
Agreement:
<PAGE> 26
23
(i) as soon as reasonably practicable after the Distribution
Date but in any event within six months thereafter, New D&B will, at its
own expense, remove (or, if necessary, on an interim basis, cover up) any
and all exterior signs and other identifiers located on any of their
respective property or premises owned or used by them or their respective
Subsidiaries (except property or premises to be shared with the
Corporation or its Subsidiaries after the Distribution) which refer or
pertain to RHD or which include the "Reuben H. Donnelley," "R.H.
Donnelley" or "Donnelley" name, logo or other trademark or other RHD
intellectual property;
(ii) as soon as reasonably practicable after the Distribution
Date but in any event within six months thereafter, New D&B will, and will
cause its respective Subsidiaries to, remove from all letterhead,
envelopes, invoices and other communications media of any kind, all
references to RHD, including the "Reuben H. Donnelley," "R.H. Donnelley"
or "Donnelley" name, logo and any other trademark or other RHD
intellectual property (except that New D&B shall not be required to take
any such action with respect to materials in the possession of customers),
and neither New D&B nor any of its Subsidiaries shall use or display the
"Reuben H. Donnelley," "R.H. Donnelley" or "Donnelley" name, logo or other
trademarks or RHD intellectual property without the prior written consent
of the Corporation; and
(iii) as soon as reasonably practicable after the Distribution
Date but in any event within six months thereafter, New D&B will, and will
cause its Subsidiaries to, change their corporate names to the extent
necessary to remove and eliminate any reference to RHD, including the
"Reuben H. Donnelley," "R.H. Donnelley" or "Donnelley" name; provided,
however, that notwithstanding the foregoing requirements of this Section
2.14(b), if New D&B has exercised good faith efforts to comply with this
clause (iii) but is unable, due to regulatory or other circumstance beyond
its control, to effect a corporate name change in compliance with
applicable law, then New D&B or its Subsidiary will not be deemed to be in
breach hereof if it continues to exercise good faith efforts to effectuate
such name change and does effectuate such name change within nine months
after the Distribution Date, and, in such circumstances, such party may
continue to include in exterior signs and other identifiers and in
letterhead, envelopes, invoices and other communications references to the
name which includes references to RHD but only to the extent necessary to
identify such party and only until such party's corporate name can be
changed to remove and eliminate such references.
ARTICLE III. INDEMNIFICATION
SECTION 3.1. Indemnification by the Corporation. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, the Corporation shall indemnify, defend and hold harmless the New D&B
Indemnitees from and against any and all Indemnifiable Losses of the New D&B
Indemnitees arising out of, by reason of or otherwise in connection with the RHD
Liabilities or alleged RHD Liabilities, including any breach by the Corporation
of any provision of this Agreement or any Ancillary Agreement.
<PAGE> 27
24
SECTION 3.2. Indemnification by New D&B. Except as otherwise
specifically set forth in any provision of this Agreement or of any Ancillary
Agreement, New D&B shall indemnify, defend and hold harmless the RHD Indemnitees
from and against any and all Indemnifiable Losses of the RHD Indemnitees arising
out of, by reason of or otherwise in connection with the New D&B Liabilities or
alleged New D&B Liabilities, including any breach by New D&B of any provision of
this Agreement or any Ancillary Agreement.
SECTION 3.3. Procedures for Indemnification.
(a) Third Party Claims. If a claim or demand is made against an RHD
Indemnitee or a New D&B Indemnitee (each, an "Indemnitee") by any person who is
not a party to this Agreement (a "Third Party Claim") as to which such
Indemnitee is entitled to indemnification pursuant to this Agreement, such
Indemnitee shall notify the party which is or may be required pursuant to
Section 3.1 or Section 3.2 hereof to make such indemnification (the
"Indemnifying Party") in writing, and in reasonable detail, of the Third Party
Claim promptly (and in any event within 15 business days) after receipt by such
Indemnitee of written notice of the Third Party Claim; provided, however, that
failure to give such notification shall not affect the indemnification provided
hereunder except to the extent the Indemnifying Party shall have been actually
prejudiced as a result of such failure (except that the Indemnifying Party shall
not be liable for any expenses incurred during the period in which the
Indemnitee failed to give such notice). Thereafter, the Indemnitee shall deliver
to the Indemnifying Party, promptly (and in any event within five business days)
after the Indemnitee's receipt thereof, copies of all notices and documents
(including court papers) received by the Indemnitee relating to the Third Party
Claim.
If a Third Party Claim is made against an Indemnitee, the
Indemnifying Party shall be entitled to participate in the defense thereof and,
if it so chooses and acknowledges in writing its obligation to indemnify the
Indemnitee therefor, to assume the defense thereof with counsel selected by the
Indemnifying Party; provided that such counsel is not reasonably objected to by
the Indemnitee. Should the Indemnifying Party so elect to assume the defense of
a Third Party Claim, the Indemnifying Party shall, within 30 days (or sooner if
the nature of the Third Party Claim so requires), notify the Indemnitee of its
intent to do so, and the Indemnifying Party shall thereafter not be liable to
the Indemnitee for legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense thereof; provided, that such
Indemnitee shall have the right to employ counsel to represent such Indemnitee
if, in such Indemnitee's reasonable judgment, a conflict of interest between
such Indemnitee and such Indemnifying Party exists in respect of such claim
which would make representation of both such parties by one counsel
inappropriate, and in such event the fees and expenses of such separate counsel
shall be paid by such Indemnifying Party. If the Indemnifying Party assumes such
defense, the Indemnitee shall have the right to participate in the defense
thereof and to employ counsel, subject to the proviso of the preceding sentence,
at its own expense, separate from the counsel employed by the Indemnifying
Party, it being understood that the Indemnifying Party shall control such
defense. The Indemnifying Party shall be liable for the fees and expenses of
counsel employed by the Indemnitee for any period during which the Indemnifying
Party has failed to assume the defense thereof (other than during the period
prior to the time the Indemnitee shall have given notice of the Third Party
Claim as provided above). If the Indemnifying Party so elects to assume the
defense of any Third Party Claim, all of the Indemnitees shall cooperate with
the Indemnifying
<PAGE> 28
25
Party in the defense or prosecution thereof, including by providing or causing
to be provided, Records and witnesses as soon as reasonably practicable after
receiving any request therefor from or on behalf of the Indemnifying Party.
If the Indemnifying Party acknowledges in writing responsibility for
a Third Party Claim, then in no event will the Indemnitee admit any liability
with respect to, or settle, compromise or discharge, any Third Party Claim
without the Indemnifying Party's prior written consent; provided, however, that
the Indemnitee shall have the right to settle, compromise or discharge such
Third Party Claim without the consent of the Indemnifying Party if the
Indemnitee releases the Indemnifying Party from its indemnification obligation
hereunder with respect to such Third Party Claim and such settlement, compromise
or discharge would not otherwise adversely affect the Indemnifying Party. If the
Indemnifying Party acknowledges in writing liability for a Third Party Claim,
the Indemnitee will agree to any settlement, compromise or discharge of a Third
Party Claim that the Indemnifying Party may recommend and that by its terms
obligates the Indemnifying Party to pay the full amount of the liability in
connection with such Third Party Claim and releases the Indemnitee completely in
connection with such Third Party Claim and that would not otherwise adversely
affect the Indemnitee; provided, however, that the Indemnitee may refuse to
agree to any such settlement, compromise or discharge if the Indemnitee agrees
that the Indemnifying Party's indemnification obligation with respect to such
Third Party Claim shall not exceed the amount that would be required to be paid
by or on behalf of the Indemnifying Party in connection with such settlement,
compromise or discharge. If an Indemnifying Party elects not to assume the
defense of a Third Party Claim, or fails to notify an Indemnitee of its election
to do so as provided herein, such Indemnitee may compromise, settle or defend
such Third Party Claim.
Notwithstanding the foregoing, the Indemnifying Party shall not be
entitled to assume the defense of any Third Party Claim (and shall be liable for
the fees and expenses of counsel incurred by the Indemnitee in defending such
Third Party Claim) if the Third Party Claim seeks an order, injunction or other
equitable relief or relief for other than money damages against the Indemnitee
which the Indemnitee reasonably determines, after conferring with its counsel,
cannot be separated from any related claim for money damages. If such equitable
relief or other relief portion of the Third Party Claim can be so separated from
that for money damages, the Indemnifying Party shall be entitled to assume the
defense of the portion relating to money damages.
(b) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
(c) The remedies provided in this Article III shall be cumulative
and shall not preclude assertion by any Indemnitee of any other rights or the
seeking of any and all other remedies against any Indemnifying Party.
<PAGE> 29
26
SECTION 3.4. Indemnification Payments. Indemnification required by
this Article III shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills are received or
loss, liability, claim, damage or expense is incurred.
ARTICLE IV. ACCESS TO INFORMATION
SECTION 4.1. Provision of Corporate Records.
(a) Other than in circumstances in which indemnification is sought
pursuant to Article III (in which event the provisions of such Article will
govern), after the Distribution Date, upon the prior written request by New D&B
for specific and identified agreements, documents, books, records or files
(collectively, "Records") which relate to (x) New D&B or the conduct of the New
D&B Business up to the Effective Time, or (y) any Ancillary Agreement to which
the Corporation and New D&B are parties, as applicable, the Corporation shall
arrange, as soon as reasonably practicable following the receipt of such
request, for the provision of appropriate copies of such Records (or the
originals thereof if the party making the request has a reasonable need for such
originals) in the possession or control of the Corporation or any of its
Subsidiaries, but only to the extent such items are not already in the
possession or control of the requesting party.
(b) Other than in circumstances in which indemnification is sought
pursuant to Article III (in which event the provisions of such Article will
govern), after the Distribution Date, upon the prior written request by the
Corporation for specific and identified Records which relate to (x) the
Corporation, RHD or the conduct of the RHD Business up to the Effective Time, or
(y) any Ancillary Agreement to which New D&B and the Corporation are parties, as
applicable, New D&B shall arrange, as soon as reasonably practicable following
the receipt of such request, for the provision of appropriate copies of such
Records (or the originals thereof if the party making the request has a
reasonable need for such originals) in the possession or control of New D&B or
any of its Subsidiaries, but only to the extent such items are not already in
the possession or control of the requesting party.
SECTION 4.2. Access to Information. Other than in circumstances in
which indemnification is sought pursuant to Article III (in which event the
provisions of such Article will govern), from and after the Distribution Date,
each of the Corporation and New D&B shall afford to the other and its authorized
accountants, counsel and other designated representatives reasonable access
during normal business hours, subject to appropriate restrictions for
classified, privileged or confidential information, to the personnel,
properties, books and records of such party and its Subsidiaries insofar as such
access is reasonably required by the other party and relates to (x) such other
party or the conduct of its business prior to the Effective Time or (y) any
Ancillary Agreement to which each of the party requesting such access and the
party requested to grant such access are parties.
SECTION 4.3. Reimbursement; Other Matters. Except to the extent
otherwise contemplated by any Ancillary Agreement, a party providing Records or
access to information
<PAGE> 30
27
to the other party under this Article IV shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments for such
amounts, relating to supplies, disbursements and other out-of-pocket expenses,
as may be reasonably incurred in providing such Records or access to
information, as well as reimbursements on a per diem basis for the reasonable
costs of any personnel reasonably utilized by the party providing Records or
access to information under this Article IV to respond to the relevant request.
SECTION 4.4. Confidentiality. Each of (i) the Corporation and its
Subsidiaries and (ii) New D&B and its Subsidiaries shall not use or permit the
use of (without the prior written consent of the other) and shall keep, and
shall cause its consultants and advisors to keep, confidential all information
concerning the other parties in its possession, its custody or under its control
(except to the extent that (A) such information has been in the public domain
through no fault of such party or (B) such information has been later lawfully
acquired from other sources by such party or (C) this Agreement or any other
Ancillary Agreement or any other agreement entered into pursuant hereto permits
the use or disclosure of such information) to the extent such information (w)
relates to or was acquired during the period up to the Effective Time, (x)
relates to any Ancillary Agreement, (y) is obtained in the course of performing
services for the other party pursuant to any Ancillary Agreement, or (z) is
based upon or is derived from information described in the preceding clauses
(w), (x) or (y), and each party shall not (without the prior written consent of
the other) otherwise release or disclose such information to any other person,
except such party's auditors and attorneys, unless compelled to disclose such
information by judicial or administrative process or unless such disclosure is
required by law and such party has used commercially reasonable efforts to
consult with the other affected party or parties prior to such disclosure.
SECTION 4.5. Privileged Matters. The parties hereto recognize that
legal and other professional services that have been and will be provided prior
to the Distribution Date have been and will be rendered for the benefit of each
of the Corporation, the members of the RHD Group and the members of the New D&B
Group, and that each of the Corporation, the members of the RHD Group and the
members of the New D&B Group should be deemed to be the client for the purposes
of asserting all privileges which may be asserted under applicable law. To
allocate the interests of each party in the information as to which any party is
entitled to assert a privilege, the parties agree as follows:
(a) The Corporation shall be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged information
which relates solely to the RHD Business, whether or not the privileged
information is in the possession of or under the control of the Corporation or
New D&B. The Corporation shall also be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged information
that relates solely to the subject matter of any claims constituting RHD
Liabilities, now pending or which may be asserted in the future, in any lawsuits
or other proceedings initiated against or by the Corporation, whether or not the
privileged information is in the possession of or under the control of the
Corporation or New D&B.
(b) New D&B shall be entitled, in perpetuity, to control the
assertion or waiver of all privileges in connection with privileged information
which relates solely to the New D&B
<PAGE> 31
28
Business, whether or not the privileged information is in the possession of or
under the control of the Corporation or New D&B. New D&B shall also be entitled,
in perpetuity, to control the assertion or waiver of all privileges in
connection with privileged information which relates solely to the subject
matter of any claims constituting New D&B Liabilities, now pending or which may
be asserted in the future, in any lawsuits or other proceedings initiated
against or by New D&B whether or not the privileged information is in the
possession of or under the control of the Corporation or New D&B.
(c) The parties hereto agree that they shall have a shared
privilege, with equal right to assert or waive, subject to the restrictions in
this Section 4.5, with respect to all privileges not allocated pursuant to the
terms of Sections 4.5(a) and (b). All privileges relating to any claims,
proceedings, litigation, disputes, or other matters which involve both the
Corporation and New D&B in respect of which both parties retain any
responsibility or liability under this Agreement, shall be subject to a shared
privilege among them.
(d) No party hereto may waive any privilege which could be asserted
under any applicable law, and in which any other party hereto has a shared
privilege, without the consent of the other party, except to the extent
reasonably required in connection with any litigation with third-parties or as
provided in subsection (e) below. Consent shall be in writing, or shall be
deemed to be granted unless written objection is made within twenty (20) days
after notice upon the other party requesting such consent.
(e) In the event of any litigation or dispute between or among any
of the parties hereto, any party and a Subsidiary of another party hereto, or a
Subsidiary of one party hereto and a Subsidiary of another party hereto, either
such party may waive a privilege in which the other party has a shared
privilege, without obtaining the consent of the other party, provided that such
waiver of a shared privilege shall be effective only as to the use of
information with respect to the litigation or dispute between the parties and/or
their Subsidiaries, and shall not operate as a waiver of the shared privilege
with respect to third parties.
(f) If a dispute arises between or among the parties hereto or their
respective Subsidiaries regarding whether a privilege should be waived to
protect or advance the interest of any party, each party agrees that it shall
negotiate in good faith, shall endeavor to minimize any prejudice to the rights
of the other parties, and shall not unreasonably withhold consent to any request
for waiver by another party. Each party hereto specifically agrees that it will
not withhold consent to waiver for any purpose except to protect its own
legitimate interests.
(g) Upon receipt by any party hereto or by any Subsidiary thereof of
any subpoena, discovery or other request which arguably calls for the production
or disclosure of information subject to a shared privilege or as to which
another party has the sole right hereunder to assert a privilege, or if any
party obtains knowledge that any of its or any of its Subsidiaries' current or
former directors, officers, agents or employees have received any subpoena,
discovery or other requests which arguably calls for the production or
disclosure of such privileged information, such party shall promptly notify the
other party or parties of the existence of the request and shall provide the
other party or parties a reasonable opportunity to review the
<PAGE> 32
29
information and to assert any rights it or they may have under this Section 4.5
or otherwise to prevent the production or disclosure of such privileged
information.
(h) The transfer of all Records and other information pursuant to
this Agreement is made in reliance on the agreement of the Corporation and New
D&B, as set forth in Sections 4.4 and 4.5, to maintain the confidentiality of
privileged information and to assert and maintain all applicable privileges. The
access to information being granted pursuant to Sections 4.1 and 4.2 hereof, the
agreement to provide witnesses and individuals pursuant to Sections 2.9 and 3.3
hereof, the furnishing of notices and documents and other cooperative efforts
contemplated by Section 3.3 hereof, and the transfer of privileged information
between and among the parties and their respective Subsidiaries pursuant to this
Agreement shall not be deemed a waiver of any privilege that has been or may be
asserted under this Agreement or otherwise.
SECTION 4.6. Ownership of Information. Any information owned by one
party or any of its Subsidiaries that is provided to a requesting party pursuant
to Article III or this Article IV shall be deemed to remain the property of the
providing party. Unless specifically set forth herein, nothing contained in this
Agreement shall be construed as granting or conferring rights of license or
otherwise in any such information.
SECTION 4.7. Limitation of Liability. (a) No party shall have any
liability to any other party in the event that any information exchanged or
provided pursuant to this Agreement which is an estimate or forecast, or which
is based on an estimate or forecast, is found to be inaccurate.
(b) No party or any Subsidiary thereof shall have any liability or
claim against any other party or any Subsidiary of any other party based upon,
arising out of or resulting from any agreement, arrangement, course of dealing
or understanding existing on or prior to the Distribution Date (other than this
Agreement or any Ancillary Agreement or any agreement entered into in connection
herewith or in order to consummate the transactions contemplated hereby or
thereby), unless such agreement, arrangement, course of dealing or understanding
is listed on Schedule 4.7(b) hereto, and any such liability or claim, whether or
not in writing, which is not reflected on such Schedule, is hereby irrevocably
cancelled, released and waived.
SECTION 4.8. Other Agreements Providing for Exchange of Information.
The rights and obligations granted under this Article IV are subject to any
specific limitations, qualifications or additional provisions on the sharing,
exchange or confidential treatment of information set forth in any Ancillary
Agreement.
ARTICLE V. ADMINISTRATIVE SERVICES
SECTION 5.1. Performance of Services. Beginning on the Distribution
Date, each party will provide, or cause one or more of its Subsidiaries to
provide, to the other party and its Subsidiaries such services on such terms as
may be set forth in the Transition Services Agreement. Except as otherwise set
forth in the Transition Services Agreement or any Schedule thereto, the party
that is to provide the services (the "Provider") will use (and will cause its
<PAGE> 33
30
Subsidiaries to use) commercially reasonable efforts to provide such services to
the other party (the "Recipient") and its Subsidiaries in a satisfactory and
timely manner and as further specified in such Transition Services Agreement.
SECTION 5.2. Independence. Unless otherwise agreed in writing, all
employees and representatives of the Provider providing the scheduled services
to the Recipient will be deemed for purposes of all compensation and employee
benefits matters to be employees or representatives of the Provider and not
employees or representatives of the Recipient. In performing such services, such
employees and representatives will be under the direction, control and
supervision of the Provider (and not the Recipient) and the Provider will have
the sole right to exercise all authority with respect to the employment
(including, without limitation, termination of employment), assignment and
compensation of such employees and representatives.
SECTION 5.3. Non-exclusivity. Nothing in this Agreement precludes
any party from obtaining, in whole or in part, services of any nature that may
be obtainable from the other party from its own employees or from providers
other than the other party.
ARTICLE VI. DISPUTE RESOLUTION
SECTION 6.1. Negotiation. In the event of a controversy, dispute or
claim arising out of, in connection with, or in relation to the interpretation,
performance, nonperformance, validity or breach of this Agreement or otherwise
arising out of, or in any way related to this Agreement or the transactions
contemplated hereby, including, without limitation, any claim based on contract,
tort, statute or constitution (but excluding any controversy, dispute or claim
arising out of any agreement relating to the use or lease of real property if
any third party is a party to such controversy, dispute or claim) (collectively,
"Agreement Disputes"), the general counsels of the parties shall negotiate in
good faith for a reasonable period of time to settle such Agreement Dispute,
provided such reasonable period shall not, unless otherwise agreed by the
parties in writing, exceed 30 days from the time the parties began such
negotiations; provided further that in the event of any arbitration in
accordance with Section 6.2 hereof, the parties shall not assert the defenses of
statute of limitations and laches arising for the period beginning after the
date the parties began negotiations hereunder, and any contractual time period
or deadline under this Agreement or any Ancillary Agreement to which such
Agreement Dispute relates shall not be deemed to have passed until such
Agreement Dispute has been resolved.
SECTION 6.2. Arbitration. If after such reasonable period such
general counsels are unable to settle such Agreement Dispute (and in any event,
unless otherwise agreed in writing by the parties, after 60 days have elapsed
from the time the parties began such negotiations), such Agreement Dispute shall
be determined, at the request of any party, by arbitration conducted in New York
City, before and in accordance with the then-existing International Arbitration
Rules of the American Arbitration Association (the "Rules"). In any dispute
between the parties hereto, the number of arbitrators shall be three. Any
judgment or award rendered by the arbitrators shall be final, binding and
nonappealable (except upon grounds specified in 9 U.S.C. ss.10(a) as in
<PAGE> 34
31
effect on the date hereof). If the parties are unable to agree on the
arbitrators, the arbitrators shall be selected in accordance with the Rules;
provided that each arbitrator shall be a U.S. national. Any controversy
concerning whether an Agreement Dispute is an arbitrable Agreement Dispute,
whether arbitration has been waived, whether an assignee of this Agreement is
bound to arbitrate, or as to the interpretation of enforceability of this
Article VI shall be determined by the arbitrators. In resolving any dispute, the
parties intend that the arbitrators apply the substantive laws of the State of
New York, without regard to the choice of law principles thereof. The parties
intend that the provisions to arbitrate set forth herein be valid, enforceable
and irrevocable. The parties agree to comply with any award made in any such
arbitration proceeding that has become final in accordance with the Rules and
agree to enforcement of or entry of judgment upon such award, by any court of
competent jurisdiction, including (a) the Supreme Court of the State of New
York, New York County, or (b) the United States District Court for the Southern
District of New York, in accordance with Section 8.17 hereof. The arbitrators
shall be entitled, if appropriate, to award any remedy in such proceedings,
including, without limitation, monetary damages, specific performance and all
other forms of legal and equitable relief; provided, however, the arbitrators
shall not be entitled to award punitive damages. Without limiting the provisions
of the Rules, unless otherwise agreed in writing by or among the parties or
permitted by this Agreement, the parties shall keep confidential all matters
relating to the arbitration or the award, provided such matters may be disclosed
(i) to the extent reasonably necessary in any proceeding brought to enforce the
award or for entry of a judgment upon the award and (ii) to the extent otherwise
required by law. Notwithstanding Article 32 of the Rules, the party other than
the prevailing party in the arbitration shall be responsible for all of the
costs of the arbitration, including legal fees and other costs specified by such
Article 32. Nothing contained herein is intended to or shall be construed to
prevent any party, in accordance with Article 22(3) of the Rules or otherwise,
from applying to any court of competent jurisdiction for interim measures or
other provisional relief in connection with the subject matter of any Agreement
Disputes.
SECTION 6.3. Continuity of Service and Performance. Unless otherwise
agreed in writing, the parties will continue to provide service and honor all
other commitments under this Agreement and each Ancillary Agreement during the
course of dispute resolution pursuant to the provisions of this Article VI with
respect to all matters not subject to such dispute, controversy or claim.
ARTICLE VII. INSURANCE
SECTION 7.1. Policies and Rights Included Within Assets; Assignment
of Policies. (a) Policy Rights. The New D&B Assets shall include (i) any and all
rights of an insured party under each of the Shared Policies, subject to the
terms of such Shared Policies and any limitations or obligations of New D&B
contemplated by this Article VII, specifically including rights of indemnity and
the right to be defended by or at the expense of the insurer, with respect to
all claims, suits, actions, proceedings, injuries, losses, liabilities, damages
and expenses incurred or claimed to have been incurred prior to the Distribution
Date by any party in or in connection with the conduct of the New D&B Business
or, to the extent any claim is made against New D&B or any of its Subsidiaries,
the conduct of the RHD Business, and which
<PAGE> 35
32
claims, suits, actions, proceedings, injuries, losses, liabilities, damages and
expenses may arise out of an insured or insurable occurrence under one or more
of such Shared Policies.
(b) Assignment of Shared Policies. Subject to the terms and
conditions hereof, the Corporation hereby assigns, transfers and conveys to New
D&B all of the Corporation's right, title and interest in and to any and all of
the Shared Policies, including, without limitation, the right of indemnity, the
right to be defended by or at the expense of the insurer and the right to any
applicable Insurance Proceeds thereunder; and the Corporation and New D&B shall
use their commercially reasonable efforts to obtain any required consents of
insurers to the assignment contemplated by this paragraph.
SECTION 7.2. Post-Distribution Date Claims. If, subsequent to the
Distribution Date, any person shall assert a claim against New D&B or any of its
Subsidiaries (including, without limitation, where New D&B or its Subsidiaries
are joint defendants with other persons) with respect to any claim, suit,
action, proceeding, injury, loss, liability, damage or expense incurred or
claimed to have been incurred prior to the Distribution Date in or in connection
with the conduct of the New D&B Business or, to the extent any claim is made
against New D&B or any of its Subsidiaries (including, without limitation, where
New D&B or its Subsidiaries are joint defendants with other persons), in
connection with the conduct of the RHD Business, and which claim, suit, action,
proceeding, injury, loss, liability, damage or expense may arise out of an
insured or insurable occurrence under one or more of the Shared Policies, the
Corporation shall, at the time such claim is asserted, to the extent any such
Policy may require that Insurance Proceeds thereunder be collected directly by
the named insured or anyone other than the party against whom the Insured Claim
is asserted, be deemed to designate, without need of further documentation, New
D&B as the agent and attorney-in-fact to assert and to collect any related
Insurance Proceeds under such Shared Policy.
SECTION 7.3. Administration; Other Matters. (a) Administration. From
and after the Distribution Date, New D&B shall be responsible for (i) Insurance
Administration of the Shared Policies and (ii) Claims Administration under such
Shared Policies with respect to RHD Liabilities and New D&B Liabilities;
provided that the assumption of such responsibilities by New D&B is in no way
intended to limit, inhibit or preclude any right to insurance coverage for any
Insured Claim of a named insured under such Policies as contemplated by the
terms of this Agreement; provided further that New D&B's assumption of the
administrative responsibilities for the Shared Policies shall not relieve the
party submitting any Insured Claim of the primary responsibility for reporting
such Insured Claim accurately, completely and in a timely manner or of such
party's authority to settle any such Insured Claim within any period permitted
or required by the relevant Policy; and provided further that all direct or
indirect communications with insurers relating to the Shared Policies shall be
conducted by New D&B. New D&B may discharge its administrative responsibilities
under this Section 7.3 by contracting for the provision of services by
independent parties. Each of the parties hereto shall administer and pay any
costs relating to defending its respective Insured Claims under Shared Policies
to the extent such defense costs are not covered under such Policies and shall
be responsible for obtaining or reviewing the appropriateness of releases upon
settlement of its respective Insured Claims under Shared Policies. The
disbursements, out-of-pocket expenses and direct and indirect costs of employees
or agents of New D&B relating to Claims Administration and Insurance
<PAGE> 36
33
Administration contemplated by this Section 7.3(a) shall be treated in
accordance with the terms of the Transition Services Agreement, if still in
effect with respect to insurance and risk management, or, if the Transition
Services Agreement shall no longer be in effect with respect to insurance and
risk management, then each of the Corporation and New D&B shall be responsible
for its own Claims Administration and Insurance Administration.
(b) Exceeding Policy Limits. Except as set forth in this Section
7.3(b), the Corporation and New D&B shall not be liable to one another for
claims not reimbursed by insurers for any reason not within the control of the
Corporation or New D&B, as the case may be, including, without limitation,
coinsurance provisions, deductibles, quota share deductibles, self-insured
retentions, bankruptcy or insolvency of an insurance carrier, Shared Policy
limitations or restrictions, any coverage disputes, any failure to timely claim
by the Corporation or New D&B or any defect in such claim or its processing,
provided that New D&B shall be responsible for the amount of the difference, if
any, between the deductible set forth in any Shared Policy and the deductible
allocable to the Corporation as set forth in Schedule 7.3(b) hereto.
(c) Allocation of Insurance Proceeds. Insurance Proceeds received
with respect to claims, costs and expenses under the Shared Policies shall be
paid to New D&B, which shall thereafter administer the Shared Policies by paying
the Insurance Proceeds, as appropriate, to the Corporation with respect to RHD
Liabilities and to New D&B with respect to New D&B Liabilities. Payment of the
allocable portions of indemnity costs of Insurance Proceeds resulting from such
Policies will be made by New D&B to the appropriate party upon receipt from the
insurance carrier. In the event that the aggregate limits on any Shared Policies
are exceeded by the aggregate of outstanding Insured Claims by both of the
parties hereto, the parties agree to allocate the Insurance Proceeds received
thereunder based upon their respective percentage of the total of their bona
fide claims which were covered under such Shared Policy (their "allocable
portion of Insurance Proceeds"), and any party who has received Insurance
Proceeds in excess of such party's allocable portion of Insurance Proceeds shall
pay to the other party the appropriate amount so that each party will have
received its allocable portion of Insurance Proceeds pursuant hereto. Each of
the parties agrees to use commercially reasonable efforts to maximize available
coverage under those Shared Policies applicable to it, and to take all
commercially reasonable steps to recover from all other responsible parties in
respect of an Insured Claim to the extent coverage limits under a Shared Policy
have been exceeded or would be exceeded as a result of such Insured Claim.
(d) Allocation of Deductibles. In the event that both parties have
bona fide claims under any Shared Policy for which a deductible is payable, the
parties agree that the aggregate amount of the deductible paid shall be borne by
the parties in the same proportion which the Insurance Proceeds received by each
such party bears to the total Insurance Proceeds received under the applicable
Shared Policy (their "allocable share of the deductible"), and any party who has
paid more than such share of the deductible shall be entitled to receive from
the other party an appropriate amount so that each party has borne its allocable
share of the deductible pursuant hereto. For purposes of this paragraph 7.3(d),
the amount of the relevant deductible under any Shared Policy shall be that set
forth in Schedule 7.3(b) hereto.
<PAGE> 37
34
(e) Effective as of the Distribution Date, each of New D&B and the
Corporation shall be responsible for its applicable deductible for workers'
compensation, general liability and automobile liability claims as set forth in
Schedule 7.3(e).
SECTION 7.4. Agreement for Waiver of Conflict and Shared Defense. In
the event that Insured Claims of both of the parties hereto exist relating to
the same occurrence, the parties shall jointly defend and waive any conflict of
interest necessary to the conduct of the joint defense. Nothing in this Article
VII shall be construed to limit or otherwise alter in any way the obligations of
the parties to this Agreement, including those created by this Agreement, by
operation of law or otherwise.
SECTION 7.5. Cooperation. The parties agree to use their
commercially reasonable efforts to cooperate with respect to the various
insurance matters contemplated by this Agreement.
ARTICLE VIII. MISCELLANEOUS
SECTION 8.1. Complete Agreement; Construction. This Agreement,
including the Schedules and Exhibits, and the Ancillary Agreements shall
constitute the entire agreement between the parties with respect to the subject
matter hereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter. In the event of any inconsistency
between this Agreement and any Schedule hereto, the Schedule shall prevail.
Other than Section 2.1(j), Section 2.7, Section 4.5 and Article VI, which shall
prevail over any inconsistent or conflicting provisions in any Ancillary
Agreement, notwithstanding any other provisions in this Agreement to the
contrary, in the event and to the extent that there shall be a conflict between
the provisions of this Agreement and the provisions of any Ancillary Agreement,
such Ancillary Agreement shall control.
SECTION 8.2. Ancillary Agreements. Subject to the last sentence of
Section 8.1, this Agreement is not intended to address, and should not be
interpreted to address, the matters specifically and expressly covered by the
Ancillary Agreements.
SECTION 8.3. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed
by each of the parties and delivered to the other parties.
SECTION 8.4. Survival of Agreements. Except as otherwise
contemplated by this Agreement, all covenants and agreements of the parties
contained in this Agreement shall survive the Distribution Date.
SECTION 8.5. Expenses. Except as set forth on Schedule 8.5 or as
otherwise set forth in this Agreement or any Ancillary Agreement, all costs and
expenses incurred and for which invoices have been submitted on or prior to the
Distribution Date in connection with the preparation, execution, delivery
and required implementation of this Agreement and any
<PAGE> 38
35
Ancillary Agreement, the Information Statement (including any registration
statement on Form 10 of which such Information Statement may be a part) and the
Distribution and the consummation of the transactions contemplated thereby shall
be charged to and paid by the Corporation. Except as set forth on Schedule 8.5
or as otherwise set forth in this Agreement or any Ancillary Agreement, all
costs and expenses incurred or for which invoices are submitted after the
Distribution Date in connection with the required implementation of this
Agreement and any Ancillary Agreement, the Distribution or the consummation of
the transactions contemplated by this Agreement or any Ancillary Agreement shall
be charged to and paid by New D&B. Except as otherwise set forth in this
Agreement or any Ancillary Agreement, each party shall bear its own costs and
expenses incurred after the Distribution Date. Any amount or expense to be paid
or reimbursed by any party hereto to any other party hereto shall be so paid or
reimbursed promptly after the existence and amount of such obligation is
determined and demand therefor is made.
SECTION 8.6. Notices. All notices and other communications hereunder
shall be in writing and hand delivered or mailed by registered or certified mail
(return receipt requested) or sent by any means of electronic message
transmission with delivery confirmed (by voice or otherwise) to the parties at
the following addresses (or at such other addresses for a party as shall be
specified by like notice) and will be deemed given on the date on which such
notice is received:
To the Corporation:
R.H. Donnelley Corporation
One Manhattanville Road
Purchase, NY 10577
Telecopy: (914) 933-6899
Attn: General Counsel
To New D&B:
The Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, NJ 07974
Telecopy: (908) 665-5803
Attn: General Counsel
SECTION 8.7. Waivers. The failure of any party to require strict
performance by any other party of any provision in this Agreement will not waive
or diminish that party's right to demand strict performance thereafter of that
or any other provision hereof.
SECTION 8.8. Amendments. Subject to the terms of Section 8.11
hereof, this Agreement may not be modified or amended except by an agreement in
writing signed by each of the parties hereto.
<PAGE> 39
36
SECTION 8.9. Assignment. (a) This Agreement shall not be assignable,
in whole or in part, directly or indirectly, by any party hereto without the
prior written consent of the other parties hereto, and any attempt to assign any
rights or obligations arising under this Agreement without such consent shall be
void.
(b) The Corporation will not distribute to its stockholders any
interest in any RHD Business Entity, by way of a spin-off distribution,
split-off or other exchange of interests in a RHD Business Entity for any
interest in the Corporation held by RHD stockholders, or any similar transaction
or transactions, unless the distributed RHD Business Entity undertakes to New
D&B to be jointly and severally liable for all RHD Liabilities hereunder.
(c) New D&B will not distribute to its stockholders any interest in
any New D&B Business Entity, by way of a spin-off distribution, split-off or
other exchange of interests in a New D&B Business Entity for any interest in New
D&B held by New D&B stockholders, or any similar transaction or transactions,
unless the distributed New D&B Business Entity undertakes to the Corporation to
be jointly and severally liable for all New D&B Liabilities hereunder.
SECTION 8.10. Successors and Assigns. The provisions to this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
SECTION 8.11. Termination. This Agreement (including, without
limitation, Article III hereof) may be terminated and the Distribution may be
amended, modified or abandoned at any time prior to the Distribution by and in
the sole discretion of the Corporation without the approval of New D&B or the
shareholders of the Corporation. In the event of such termination, no party
shall have any liability of any kind to any other party or any other person.
After the Distribution, this Agreement may not be terminated except by an
agreement in writing signed by the parties; provided, however, that Article III
shall not be terminated or amended after the Distribution in respect of the
third party beneficiaries thereto without the consent of such persons.
SECTION 8.12. Subsidiaries. Each of the parties hereto shall cause
to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Subsidiary of
such party or by any entity that is contemplated to be a Subsidiary of such
party on and after the Distribution Date.
SECTION 8.13. Third Party Beneficiaries. Except as provided in
Article III relating to Indemnitees, this Agreement is solely for the benefit of
the parties hereto and their respective Subsidiaries and Affiliates and should
not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 8.14. Title and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
<PAGE> 40
37
SECTION 8.15. Schedules and Exhibits. The Schedules and Exhibits
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein.
SECTION 8.16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
SECTION 8.17. Consent to Jurisdiction. Without limiting the
provisions of Article VI hereof, each of the parties irrevocably submits to the
exclusive jurisdiction of (a) the Supreme Court of the State of New York, New
York County, and (b) the United States District Court for the Southern District
of New York, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby. Subject to Article
VI hereof, each of the parties agrees to commence any action, suit or proceeding
relating hereto either in the United States District Court for the Southern
District of New York or if such suit, action or other proceeding may not be
brought in such court for jurisdictional reasons, in the Supreme Court of the
State of New York, New York County. Each of the parties further agrees that
service of any process, summons, notice or document by U.S. registered mail to
such party's respective address set forth above shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction in this Section 8.17. Each of
the parties irrevocably and unconditionally waives any objection to the laying
of venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Supreme Court of the State of New
York, New York County, or (ii) the United States District Court for the Southern
District of New York, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
SECTION 8.18. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
<PAGE> 41
38
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the day and year first above written.
THE DUN & BRADSTREET CORPORATION
By: __________________________
Name:
Title:
THE NEW DUN & BRADSTREET
CORPORATION
By:
__________________________
Name:
Title:
<PAGE> 42
Page
Exhibit 2.1(m)
The New Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, New Jersey 07974
June ___, 1998
Kenneth Siegel, Esq.
Cognizant Corporation
200 Nyala Farms
Westport, CT 06880
Earl Doppelt, Esq.
ACNielsen Corporation
177 Broad Street
Stamford, CT 06901
Dear Sirs:
Reference is made to the Distribution Agreement (the "1996 Distribution
Agreement"), dated as of October 28, 1996, among The Dun & Bradstreet
Corporation ("D&B"), Cognizant Corporation ("Cognizant") and ACNielsen
Corporation ("ACNielsen"). D&B has announced its intention to separate into two
separate companies through a distribution (the "New D&B Distribution") to its
stockholders of all of the shares of common stock of its subsidiary The New Dun
& Bradstreet Corporation ("New D&B"). In Section 8.9(b) of the 1996 Distribution
Agreement, D&B agreed not to make a distribution such as the New D&B
Distribution unless it caused the distributed entity to undertake to both
Cognizant and ACNielsen to be jointly and severally liable for all D&B
Liabilities (as defined in the 1996 Distribution Agreement). Therefore, in
accordance with Section 8.9(b) of the 1996 Distribution Agreement and intending
to be legally bound hereby, from and after the effective time of the New D&B
Distribution, New D&B undertakes to each of Cognizant and ACNielsen to be
jointly and severally liable with D&B for all D&B Liabilities under the 1996
Distribution Agreement.
Very truly yours,
THE NEW DUN & BRADSTREET CORPORATION
By: ______________________________
Name:
Title:
<PAGE> 1
Exhibit 10.2
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT is dated as of June [ ], 1998, between
THE DUN & BRADSTREET CORPORATION, a Delaware corporation (the "Corporation") and
THE NEW DUN & BRADSTREET CORPORATION, a Delaware corporation ("New D&B")
(collectively, the "Parties").
WHEREAS, as of the date hereof, the Corporation is the common parent
of an affiliated group of domestic corporations within the meaning of Section
1504(a) of the Code, including Dun & Bradstreet, Inc. ("D&B Opco Inc."), Dun &
Bradstreet International, Ltd. ("D&B International"), Moody's Investors Service,
Inc. ("Moody's"), The Reuben H. Donnelley Corporation ("RHD"), and others, and
the members of the affiliated group have heretofore joined in filing
consolidated federal income tax returns;
WHEREAS, the Board of Directors of the Corporation has determined
that it is appropriate, desirable and in the best interests of the holders of
shares of common stock, par value $1.00 per share, of the Corporation (the "D&B
Common Stock") to take certain steps to reorganize the Corporation's
Subsidiaries (as defined herein) and businesses and to distribute to the holders
of D&B Common Stock all the outstanding shares of common stock of New D&B (the
"New D&B Common Shares"), together with associated Rights;
WHEREAS, as a result of the Reorganization (as defined herein) and
Distribution (as defined herein), New D&B, D&B Opco Inc., D&B International,
Moody's, and others, will not be included in the consolidated federal income tax
return of the Corporation for the portion of the year following the Distribution
or in future years;
WHEREAS, the Parties desire to allocate the tax burdens and benefits
of transactions which occurred on or prior to the Distribution Date and to
provide for certain other tax matters, including the assignment of
responsibility for the preparation and filing of tax returns, the payment of
taxes, and the prosecution and defense of any tax controversies;
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the Parties hereby agree
as follows:
ARTICLE I. DEFINITIONS
SECTION 1.1. General. Capitalized terms used in this Agreement and
not defined herein shall have the meanings that such terms have in the
Distribution Agreement. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Agreement" shall mean this Tax Allocation Agreement.
<PAGE> 2
2
(b) "Ancillary Agreements" shall mean all of the written agreements,
instruments, assignments or other arrangements (other than this Agreement)
entered into in connection with the transactions contemplated hereby, including,
without limitation, the Distribution Agreement, the Conveyancing and Assumption
Instruments, the Employee Benefits Agreement, the Shared Transaction Services
Agreement, the Transition Services Agreement, the Data Services Agreement and
the Intellectual Property Agreement.
(c) "Code" shall mean the Internal Revenue Code of 1986, as amended,
and the Treasury regulations promulgated thereunder, including any successor
legislation.
(d) "Consolidated Return" shall mean the consolidated federal income
tax return of the Corporation for the period commencing on January 1, 1998, and
including the members of the New D&B Group through the Distribution Date.
(e) "Controlled Entity" shall mean any corporation, partnership or
other entity of which another entity (i) owns, directly or indirectly, ownership
interests sufficient to elect a majority of the Board of Directors (or persons
performing similar functions) (irrespective of whether at the time any other
class or classes of ownership interests of such corporation, partnership or
other entity shall or might have such voting power upon the occurrence of any
contingency) or (ii) is a general partner or an entity performing similar
functions (e.g., a trustee).
(f) "Deferred Compensation Deduction" shall mean a deduction with
respect to deferred compensation payments and/or the exercise of stock options
in the Corporation by any former employee of the Pre-Distribution D&B Group if
such deduction is disallowed for a member of the New D&B Group and may be
claimed by any member of the RHD Group.
(g) "Distribution" shall mean the distribution on the Distribution
Date to holders of record of shares of D&B Common Stock as of the Distribution
Record Date of the New D&B Common Shares owned by the Corporation on the basis
of one New D&B Common Share for each outstanding share of D&B Common Stock.
(h) "Distribution Agreement" shall mean the agreement between the
Corporation and New D&B, dated as of June [ ], 1998, to, among other things,
allocate certain assets and allocate and assign responsibility for certain
liabilities of the Corporation and its current and former Subsidiaries.
(i) "Distribution Date" shall mean June 30, 1998.
(j) "Distribution Record Date" shall mean such date as may be
determined by the Corporation's Board of Directors as the record date for the
Distribution.
<PAGE> 3
3
(k) "Final Determination" shall mean the final resolution of
liability for any Tax for any taxable period, including any related interest or
penalties, by or as a result of: (i) a final and unappealable decision,
judgment, decree or other order by any court of competent jurisdiction; (ii) a
closing agreement or accepted offer in compromise under Section 7121 or 7122 of
the Code, or comparable agreement under the laws of other jurisdictions which
resolves the entire Tax liability for any taxable period; (iii) any allowance of
a refund or credit in respect of an overpayment of Tax, but only after the
expiration of all periods during which such refund may be recovered by the
jurisdiction imposing the Tax; or (iv) any other final disposition, including by
reason of the expiration of the applicable statute of limitations.
(l) "Governmental Authority" shall mean any federal, state, local,
foreign or international court, government, department, commission, board,
bureau, agency, official or other regulatory, administrative or governmental
authority.
(m) "Income Tax Return" shall mean any Tax Return relating to Income
Taxes.
(n) "Income Taxes" shall mean any federal, state or local Taxes
determined by reference to income, net worth, gross receipts or capital or any
federal, state or local Taxes imposed in lieu of income Taxes.
(o) "Indemnifying Party" shall have the meaning as defined in
Section 3.5.
(p) "Indemnitee" shall have the meaning as defined in Section 3.5.
(q) "IRS" shall mean the Internal Revenue Service.
(r) "New D&B Group" shall mean New D&B, New D&B Opco Inc., D&B
International, Moody's and each corporation, partnership, limited liability
company, or other entity (other than any member of the RHD Group) that is a
Subsidiary of the Corporation immediately prior to the Distribution.
(s) "New D&B Opco Inc." shall mean a newly formed Delaware
corporation and wholly owned subsidiary of New D&B created to hold the assets
and liabilities related to, and to operate, the business of supplying business,
commercial-credit and business-marketing information services and receivables
management services.
(t) "Nonperforming Party" shall have the meaning as defined in
Section 5.2.
(u) "Other Taxes" shall mean any federal, state or local Taxes other
than Income Taxes.
<PAGE> 4
4
(v) "Person" shall mean any natural person, corporation, business
trust, joint venture, association, company, partnership or government, or any
agency or political subdivision thereof.
(w) "Pre-Distribution D&B Group" shall mean the Corporation and all
of its Subsidiaries (direct and indirect, domestic and foreign) at any time
prior to the Distribution.
(x) "Reorganization" shall mean the series of contributions and
distributions of Controlled Entities and assets, transfers and assumptions of
liabilities, and other transactions whereby the New D&B Group and the RHD Group
are formed and all Controlled Entities of the Corporation prior to the
Distribution (other than New D&B and the other members of the RHD Group) are
placed under the control of New D&B in preparation for the Distribution.
(y) "Reorganization Tax Payment" shall mean the payment of any Tax
for which New D&B is liable pursuant to Section 3.3 of this Agreement and the
imposition and/or payment of which will permit the other Party or any of its
Subsidiaries to increase deductions, losses or Tax credits or decrease income,
gains or recapture of Tax credits for any taxable period or periods beginning
after or including but not ending on the Distribution Date.
(z) "RHD Group" shall mean the Corporation, RHD and each
corporation, partnership, limited liability company or other entity contemplated
to remain or become a Subsidiary of the Corporation after the Distribution.
(aa) "Separate Company State or Local Income Tax Return" shall mean
any state or local Income Tax Return initially filed on a separate basis
(whether or not it is subsequently determined that such Income Tax Return should
have been filed on a combined basis).
(ab) "Subsidiary" shall mean any entity of which another entity's
ownership satisfies the 80-percent voting and value test defined in Section
1504(a)(2) of the Code, whether directly or indirectly.
(ac) "Tax" or "Taxes" whether used in the form of a noun or
adjective, shall mean taxes on or measured by income, capital, net worth,
franchise, gross receipts, sales, use, excise, payroll, personal property, real
property, ad-valorem, value-added, leasing, leasing use or other taxes, levies,
imposts, duties, charges or withholdings of any nature. Whenever the term "Tax"
or "Taxes" is used (including, without limitation, regarding any duty to
reimburse another Party for indemnified taxes or refunds or credits of taxes) it
shall include penalties, fines, additions to tax and interest thereon.
<PAGE> 5
5
(ad) "Tax Benefit" shall mean the sum of the amount by which the Tax
liability (after giving effect to any alternative minimum or similar Tax) of a
corporation or group of affiliated corporations to an applicable taxing
authority is reduced (including, without limitation, by deduction, entitlement
to refund, credit or otherwise, whether available in the current taxable year,
as an adjustment to taxable income in any other taxable year or as a
carryforward or carryback, as applicable) plus any interest from such government
or jurisdiction relating to such Tax liability.
(ae) "Tax Detriment" shall mean the sum of the amount by which the
Tax liability (after giving effect to any alternative minimum or similar Tax) of
a corporation or group of affiliated corporations to an applicable taxing
authority is increased plus any interest or penalties due to such government or
jurisdiction relating to such Tax liability.
(af) "Tax Item" shall mean any item of income, capital gain, net
operating loss, capital loss, deduction, credit or other Tax attribute relevant
to the calculation of a Tax liability.
(ag) "Tax Returns" shall mean all reports or returns (including
information returns) required to be filed or that may be filed for any period
with any taxing authority (whether domestic or foreign) in connection with any
Tax or Taxes (whether domestic or foreign).
(ah) "Timing Adjustment" shall mean any adjustment which (x)
decreases deductions, losses or credits or increases income (including any
increases in income where no income was previously reported), gains or recapture
of Tax credits for the period in question, and for which either Party is
liable pursuant to this Agreement, and (y) will permit an increase in
deductions, losses or Tax credits or a decrease in income, gains or recapture of
Tax credits for another taxable period, and with respect to which the other
Party benefits.
SECTION 1.2. References; Interpretation. References in this
Agreement to any gender include references to all genders, and references to the
singular include references to the plural and vice versa. The words "include",
"includes" and "including" when used in this Agreement shall be deemed to be
followed by the phrase "without limitation". Unless the context otherwise
requires, references in this Agreement to Articles, Sections, Exhibits and
Schedules shall be deemed references to Articles and Sections of, and Exhibits
and Schedules to, such Agreement. Unless the context otherwise requires, the
words "hereof", "hereby" and "herein" and words of similar meaning when used in
this Agreement refer to this Agreement in its entirety and not to any particular
Article, Section or provision of this Agreement.
<PAGE> 6
6
ARTICLE II. PREPARATION AND FILING OF TAX RETURNS
SECTION 2.1. Predistribution Tax Returns.
(a) All federal Income Tax Returns of the Pre-Distribution D&B Group
that are required to be filed for periods beginning before the Distribution Date
shall be prepared by New D&B and filed by the Corporation.
(b) All combined state and local Income Tax Returns of the
Pre-Distribution D&B Group that may be or are required to be filed for periods
beginning before the Distribution Date shall be prepared by New D&B and filed by
the Corporation.
(c) In the case of Tax Returns for foreign, non-combined state and
local Income Taxes and Other Taxes of any member of the Pre-Distribution D&B
Group that may be or are required to be filed for any period beginning before
the Distribution Date, New D&B shall prepare and file such Tax Returns (or shall
cause such Tax Returns to be prepared and filed) if they relate to a member of
the New D&B Group and the Corporation shall prepare and file such Tax Returns
(or shall cause such Tax Returns to be prepared and filed) if they relate to a
member of the RHD Group.
(d) In the case of any partnership in which a member of the
Pre-Distribution D&B Group is the designated tax matters partner, the
Corporation or New D&B, as the case may be, shall cause such entity to prepare
and file such partnership's Tax Returns for all periods beginning prior to the
Distribution Date.
SECTION 2.2. Post-Distribution Tax Returns.
(a) The filing of all Tax Returns for periods beginning on or after
the Distribution Date shall be the responsibility of the Corporation if they
relate to any member of the RHD Group and shall be the responsibility of New D&B
if they relate to any member of the New D&B Group.
(b) In the case of any partnership in which a member of the
Pre-Distribution D&B Group is the designated tax matters partner, the
Corporation or New D&B, as the case may be, shall cause such entity to continue
to prepare and file such partnership's Tax Returns.
SECTION 2.3. Manner of Preparation.
(a) Unless otherwise required by the IRS, any Governmental Authority
or a court, the Parties hereby agree to file all Tax Returns, and to take all
other actions, in a manner consistent with the position that the last day on
which any member of the New D&B Group was included in the Pre-Distribution D&B
Group is the Distribution Date. For any period that includes but does not end on
the Distribution Date, to the extent
<PAGE> 7
7
permitted by law or administrative practice, the taxable year of each member of
the Pre-Distribution D&B Group and any group of such members shall be treated as
ending on the Distribution Date.
(b) In the case of federal Income Tax Returns and combined state
and local Income Tax Returns, the Corporation shall prepare, in a manner
consistent with prior practice, a tax package for each member of the RHD Group
included in the relevant Tax Return and shall provide such tax package to New
D&B at least 90 days prior to the due date (including extensions) of the Tax
Return. New D&B shall submit any part of the Tax Return that relates to a member
of the RHD Group to the Corporation at least 30 days prior to the date on which
such Tax Return is due (including extensions). The Corporation shall submit its
comments to New D&B within 10 days of receipt of the relevant portions of such
Tax Return. New D&B shall not be required to alter the Tax Return to reflect
such comments unless the Corporation receives an opinion of tax counsel, which
counsel shall be reasonably acceptable to New D&B, to the effect that failure to
make such alteration would create a significant risk of the imposition of a
penalty on the Corporation or any other member of the RHD Group.
(c) With regard to Tax Returns to be prepared and filed by the
Corporation or any other member of the RHD Group with respect to which New D&B
has liability under section 3.1 hereof, the Corporation shall submit such
Tax Return to New D&B at least 30 days prior to the date on which such Tax
Return is due (including extensions). New D&B shall submit its comments to the
Corporation within 10 days of receipt of such Tax Return. The Corporation
shall alter the Tax Return to reflect the comments of New D&B unless the
Corporation receives an opinion of tax counsel, which counsel shall be
reasonably acceptable to New D&B, to the effect that such alteration would
create a significant risk of the imposition of a penalty on the Corporation or
any other member of the RHD Group.
(d) All Tax Returns filed on or after the Distribution Date shall be
prepared on a basis that is consistent with the rulings obtained from the IRS or
any other Governmental Authority in connection with the Reorganizations or
Distribution (in the absence of a controlling change in law or circumstances)
and shall be filed on a timely basis (including pursuant to extensions) by the
Party responsible for such filing under this Agreement. In the absence of a
controlling change in law or circumstances and unless deviation from past
practice would have no adverse effect on either Party, all Tax Returns filed
after the date of this Agreement shall be prepared on a basis consistent with
the elections, accounting methods, conventions, assumptions and principles of
taxation used for the most recent taxable periods for which Tax Returns
involving similar Tax Items have been filed. In the event of a deviation from
such past practices by the Corporation, the Corporation shall not be in breach
of this agreement, but, notwithstanding Article III, New
<PAGE> 8
8
D&B shall have no liability for any Taxes resulting from such deviation and the
Corporation shall hold New D&B harmless from any such increased tax liability;
provided, however, either Party filing any Tax Return that does not conform
to such past practices shall not be liable for any additional Tax liability
imposed (subject to Section 3.1), in whole or in part, as a result of such
deviation from past practice if: (i) for Tax Returns filed within three years of
the Distribution Date, 30 days prior to the filing of such Tax Return, the Party
filing such Tax Return notifies the other Party; and (ii) the Party filing such
Tax Return establishes that conformity with past practice involves a significant
risk of the imposition of a penalty.
ARTICLE III. PAYMENT OF TAXES
SECTION 3.1. Predistribution Taxes.
(a) New D&B shall be liable for and shall pay all federal, state,
local and foreign Income Taxes (or receive all refunds) for all members of the
Pre-Distribution D&B Group for all periods ending on or prior to the
Distribution Date, including Taxes arising as a result of an audit adjustment;
provided, however, that in the case of any Separate Company State or Local
Income Tax Return, the RHD Group and the New D&B Group shall be liable for and
shall pay their own liabilities (or receive their own refunds) arising from any
audit adjustment (including any state or local audit adjustment resulting from a
federal audit adjustment).
(b) The RHD Group and the New D&B Group shall be responsible for
their own Other Taxes for all periods.
(c) Straddle Periods
(i) In the case of any tax period including but ending after
the Distribution Date, New D&B shall be liable for and shall pay all Income
Taxes (or receive all refunds) of all members of the Pre-Distribution D&B Group
attributable to the period up to the Distribution Date (any such Income Taxes,
"Pre-Distribution Income Taxes"). The RHD Group and the New D&B Group shall be
responsible for their own Tax liabilities (or be entitled to their own refunds)
attributable to the portion of the tax period after the Distribution Date. Such
apportionment will be done on a closing of the books basis, except that Tax
Items that are calculated on an annual basis shall be apportioned on a time
basis.
(ii) The amount of Pre-Distribution Income Taxes payable by
New D&B pursuant to Section 3.1(c)(i) above shall be reduced by the amount of
any estimated Income Taxes paid by the Pre-Distribution D&B Group (or any member
thereof) prior to the Distribution Date. If the amount of any such estimated
<PAGE> 9
9
Income Tax payments exceeds the amount of Pre-Distribution Income Taxes, RHD
shall pay New D&B the amount of such excess.
SECTION 3.2. Post-Distribution Taxes. Unless otherwise provided in
this Agreement:
(a) New D&B shall pay all Taxes and shall be entitled to receive and
retain all refunds of Taxes with respect to tax periods beginning on or after
the Distribution Date that are attributable to the New D&B Group or any member
thereof; and
(b) The Corporation shall pay all Taxes and shall be entitled to
receive and retain all refunds of Taxes with respect to tax periods beginning on
or after the Distribution Date that are attributable to the RHD Group or any
member thereof.
SECTION 3.3. Restructuring Taxes. Notwithstanding any statement to
the contrary in this Agreement and except as otherwise provided in the
Distribution Agreement, to the extent that any Taxes are found to arise out of
the Reorganization, then any such Tax liability incurred by the Parties (or
any of their Subsidiaries) shall be the responsibility of New D&B; provided,
however, that to the extent specific cash allocations for such Taxes are made in
connection with the Distribution, New D&B shall be relieved of its liability for
such Taxes.
SECTION 3.4. Gain Recognition Agreements. New D&B shall prepare all
documentation required to be filed with any Tax Returns, including required
annual certifications, relating to gain recognition agreements under Section
367(a) of the Code entered into with respect to transactions between members of
the Pre-Distribution D&B Group occurring before the Distribution Date and shall
deliver such documentation to the Corporation. The Corporation shall be
obligated to file such documentation with the appropriate Tax Returns.
SECTION 3.5. Indemnification.
(a) Indemnification by New D&B. New D&B shall indemnify, defend and
hold harmless the Corporation and RHD (and their respective affiliates) from and
against any and all Tax liabilities allocated to New D&B by this Agreement.
(b) Indemnification by the Corporation. The Corporation shall
indemnify, defend and hold harmless New D&B, New D&B, Inc. and Moody's (and
their respective affiliates) from and against any and all Tax liabilities
allocated to the Corporation by this Agreement.
(c) Indemnity Payments.
(i) To the extent that one Party (the "Indemnifying Party") owes
money to another Party (the "Indemnitee") pursuant to this Section 3.5, the
Indemnitee shall provide the Indemnifying Party with its calculations of the
amount required to be paid pursuant to this Section 3.5, showing such
calculations in sufficient detail so as to permit the Indemnifying Party to
understand the calculations. The Indemnifying Party shall pay the Indemnitee, no
later than the later of 30 business days prior to the due date (including
extensions) of the relevant Tax Returns and 14 business days after the
Indemnifying Party receives the Indemnitee's calculations, the amount that the
Indemnifying Party is required to pay or indemnify the Indemnitee under this
Section 3.5 unless
<PAGE> 10
10
the Indemnifying Party disagrees with the Indemnitee's calculations (in which
case any dispute regarding such calculations shall be resolved in accordance
with Section 5.4 of this Agreement).
(ii) All indemnity payments shall be calculated on an after-Tax
basis and shall be treated as contributions to capital and/or dividends
immediately prior to the Distribution.
ARTICLE IV. TAX ATTRIBUTES, TIMING ADJUSTMENTS AND REORGANIZATION TAX PAYMENTS
SECTION 4.1. Carrybacks. In the event any net operating loss,
capital loss or credit of the Corporation for any taxable period ending on or
after the Distribution Date is eligible to be carried back to a taxable period
beginning prior to the Distribution Date (any such amount, an "Eligible
Amount"), the Corporation may, to the extent permitted under applicable Tax
law, elect not to carry back such Eligible Amount. To the extent any Eligible
Amount is carried back and used by the Corporation for a taxable period
beginning prior to the Distribution Date, the Corporation shall be obligated to
pay any refund that it receives to New D&B; provided, that in the case of any
taxable period including but ending after the Distribution Date, the
Corporation shall not be obligated to pay any such refund to New D&B to the
extent the refund is attributable to the portion of the taxable period after
the Distribution Date (determined in accordance with the principles of Section
3.1(c)). [Upon request by New D&B, the Corporation shall, within 90 days of
such request, deliver an officer's certificate to New D&B stating whether
or not the Corporation has any Eligible Amount.]
SECTION 4.2. Timing Adjustments, Reorganization Tax Payments, and
Deferred Compensation Deductions.
(a) If an audit or other examination of any federal, state or local
Tax Return (other than a Separate Company State or Local Income Tax Return with
respect to which the RHD Group is liable for audit adjustments pursuant to
Section 3.1(a)) (x) for any period beginning prior to the Distribution Date
shall result (by settlement or otherwise) in a Timing Adjustment in favor of
the RHD Group or any member thereof, or (y) for any taxable period shall result
(by settlement or otherwise) in a Deferred Compensation Deduction in favor of
the RHD Group or any member thereof, or if any Reorganization Tax Payment in
favor of the RHD Group or any member thereof is made by New D&B, then:
(i) The Corporation shall pay New D&B the amount of any Tax
Benefit that results from such Timing Adjustment, Reorganization Tax Payment, or
Deferred Compensation Deduction within 30 business days of the date such Tax
Benefits are realized; and
<PAGE> 11
11
(ii) Notwithstanding the foregoing, the Corporation shall only
be required to take steps to obtain such Tax Benefit or to pay New D&B if, in
the opinion of the Corporation's tax counsel, which counsel shall be reasonably
acceptable to New D&B, the reporting of such Tax Benefit shall not expose the
Corporation to the imposition of a penalty.
(b) If an audit or other examination of any federal, state or local
Tax Return for any period beginning prior to the Distribution Date shall result
(by settlement or otherwise) in a Timing Adjustment to the Tax Detriment of the
RHD Group or any member thereof after the Distribution Date, then New D&B shall
pay the Corporation the lesser of (i) the amount of any such Tax Detriment and
(ii) the actual Tax Benefit to New D&B that results from such Timing Adjustment.
(c) Realization of Tax Benefits.
(i) For purposes of this Section 4.3, a Tax Benefit shall be deemed
to have been realized at the time any refund of Taxes is received or applied
against other Taxes due, or at the time of filing of a Tax Return (including any
Tax Return relating to estimated Taxes) on which a loss, deduction or credit is
applied in reduction of Taxes which would otherwise be payable. Where a Party
has other losses, deductions, credits or similar items available to it, such
deductions, credits or similar items of such Party may only be applied after the
use of any Timing Adjustment, Reorganization Tax Payment, or Deferred
Compensation Deduction.
(ii) The Corporation may, at its election, pay the amount of any Tax
Benefit to New D&B rather than filing amended returns or otherwise reflecting
adjustments or taking positions on its Tax Returns. If such an election is made,
the Corporation will be treated as having realized a Tax Benefit at the time it
would have realized a Tax Benefit had it chosen to file amended returns or
otherwise to reflect adjustments or to take positions on its Tax Returns.
(d) Tax Benefits Subsequently Denied. If any Tax Benefit realized
pursuant to Section 4.3(c)(i) is subsequently denied, then the Corporation or
New D&B, as the case may be, shall refund the amount of any payment for such Tax
Benefit within 30 business days of its notification that a Final Determination
has been reached denying the claimed Tax Benefit.
ARTICLE V. TAX AUDITS, TRANSACTIONS AND OTHER MATTERS
SECTION 5.1. Tax Audits and Controversies.
(a) In the case of any audit, examination or other proceeding
("Proceeding") brought against the Corporation (or a Subsidiary) with respect to
Taxes for which New D&B is or may be
<PAGE> 12
12
liable pursuant to this Agreement, the Corporation shall promptly inform New D&B
and shall execute or cause to be executed any powers of attorney or other
documents necessary to enable New D&B to take all actions desired with respect
to such Proceeding. Each Party shall have the right to control, at its own
expense, the portion of any such Proceeding that relates to Taxes for which such
Party is or may be liable pursuant to this Agreement; provided, however, that
New D&B shall have the right to control, at its own expense, all Proceedings in
respect of the Consolidated Return and 1998 combined state and local Income Tax
Returns.
(b) The Party in control of a Proceeding or any part thereof
pursuant to Section 5.1(a) above shall consult with the other Party with respect
to any issue that may affect such other Party (or Subsidiary). The Party in
control of such Proceeding or any part thereof shall not enter into any final
settlement or closing agreement that may adversely affect the other Party (or
Subsidiary) without the consent of such other Party, which consent may not
unreasonably be withheld. Where consent to any final settlement or closing
agreement is withheld, the Party withholding consent shall continue or initiate
further proceedings, at its own expense, and the liability of the Party in
control of such Proceeding shall not exceed the liability that would have
resulted from the proposed closing agreement or final settlement (including
interest, additions to Tax and penalties which have accrued at that time).
SECTION 5.2. Cooperation. The Corporation and New D&B shall
cooperate with each other in the filing of any Tax Returns and the conduct of
any audit or other proceeding and each shall execute and deliver such powers of
attorney and other documents and make available such information and documents
as are necessary to carry out the intent of this Agreement. To the extent such
cooperation involves the services of officers, directors, employees, or agents
of either Party, such services shall be made available in accordance with
Section 2.9 of the Distribution Agreement. Each Party agrees to notify the other
Party of any audit adjustment that does not result in Tax liability but can
reasonably be expected to affect Tax Returns of the other Party or any of its
Subsidiaries. Notwithstanding any other provision of this Agreement, if a Party
(the "Nonperforming Party") fails to give its full cooperation and use its best
efforts in the conduct of an audit or other proceeding as provided by this
Section 5.2, and such failure results in the imposition of additional Taxes for
the period or periods involved in the audit or other proceeding, the
Nonperforming Party shall be liable in full for such additional Taxes.
SECTION 5.3. Retention of Records; Access.
(a) The Corporation and New D&B shall, and shall cause each of their
Controlled Entities to, retain adequate records, documents, accounting data and
other information (including
<PAGE> 13
13
computer data) necessary for the preparation and filing of all Tax Returns
required to be filed by any member of the Pre-Distribution D&B Group or any
combination of such members and for any audits and litigation relating to such
Tax Returns or to any Taxes payable by any member of the Pre-Distribution D&B
Group or any combination of such members.
(b) The Corporation and New D&B shall, and shall cause each of their
Controlled Entities to, give to the other Party reasonable access to (i) all
records, documents, accounting data and other information (including computer
data) necessary for the preparation and filing of all Tax Returns required to be
filed by any member of the Pre-Distribution D&B Group or any combination of such
members and for any audits and litigation relating to such Tax Returns or to any
Taxes payable by any member of the Pre-Distribution D&B Group or any combination
of such members and (ii) its personnel and premises, for the purpose of the
review or audit of such reports or returns to the extent relevant to an
obligation or liability of a Party under this Agreement and in accordance with
the procedures provided in Article IV of the Distribution Agreement.
(c) The obligations set forth above in Sections 5.3(a) and 5.3(b)
shall continue until the final conclusion of any litigation to which the records
and information relate or until expiration of all applicable statutes of
limitations, whichever is longer. For purposes of the preceding sentence, each
Party shall assume that no applicable statute of limitations has expired unless
such Party has received notification or otherwise has knowledge that such
statute of limitations has expired.
(d) Notwithstanding any other provision of this Agreement, if a
Party fails to comply with any of its obligations set forth in this Section 5.3
and such failure results in the imposition of additional Taxes, such
nonperforming Party shall be liable in full for such additional Taxes.
SECTION 5.4. Dispute Resolution. Any dispute or claim arising out
of, in connection with, or in relation to the interpretation, performance,
nonperformance, validity or breach of this Agreement or otherwise arising out
of, or in any way related to this Agreement, shall be resolved in the manner set
forth in Article VI of the Distribution Agreement.
SECTION 5.5. Confidentiality; Ownership of Information; Privileged
Information. The provisions of Article IV of the Distribution Agreement relating
to confidentiality of information, ownership of information, privileged
information and related matters shall apply with equal force to any records and
information prepared and/or shared by and among the Parties in carrying out the
intent of this Agreement.
<PAGE> 14
14
ARTICLE VI. MISCELLANEOUS
SECTION 6.1. Complete Agreement; Construction. This Agreement,
including the Exhibits and Schedules, and the Ancillary Agreements shall
constitute the entire agreement between the Parties with respect to the subject
matter hereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter. In the event of any inconsistency
between this Agreement and any Schedule hereto, the Schedule shall prevail.
SECTION 6.2. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed
by both Parties.
SECTION 6.3. Survival of Agreements. Except as otherwise
contemplated by this Agreement, all covenants and agreements of the Parties
contained in this Agreement shall survive the Distribution Date.
SECTION 6.4. Expenses. Except as otherwise set forth in this
Agreement, all costs and expenses incurred on or prior to the Distribution Date
(whether or not paid on or prior to the Distribution Date) in connection with
the preparation, execution, delivery and implementation of this Agreement shall
be charged to and paid by New D&B. Except as otherwise set forth in this
Agreement, each Party shall bear its own costs and expenses incurred after the
Distribution Date.
SECTION 6.5. Notices. All notices and other communications hereunder
shall be in writing and hand delivered or mailed by registered or certified mail
(return receipt requested) or sent by any means of electronic message
transmission with delivery confirmed (by voice or otherwise) to the Parties at
the following addresses (or at such other addresses for a Party as shall be
specified by like notice) and will be deemed given on the date on which such
notice is received:
To the Corporation:
The Reuben H. Donnelley Corporation
One Manhattanville Road
Purchase, N.Y. 10577
Attn: General Counsel
<PAGE> 15
15
To New D&B:
The Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, NJ 07974
Attn: General Counsel
SECTION 6.6. Waivers. The failure of any Party to require strict
performance by the other Party of any provision in this Agreement will not waive
or diminish that Party's right to demand strict performance thereafter of that
or any other provision hereof.
SECTION 6.7. Amendments. This Agreement may not be modified or
amended except by an agreement in writing signed by the Parties hereto.
SECTION 6.8. Assignment. This Agreement shall not be assignable, in
whole or in part, directly or indirectly, by any Party hereto without the prior
written consent of the other Party hereto, and any attempt to assign any rights
or obligations arising under this Agreement without such consent shall be void.
SECTION 6.9. Successors and Assigns. The provisions to this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the Parties and their respective successors and permitted assigns.
SECTION 6.10. Termination. This Agreement may be terminated,
amended, modified or abandoned at any time prior to the Distribution by and in
the sole discretion of the Corporation without the approval of New D&B or the
stockholders of the Corporation. In the event of such termination, no Party
shall have any liability of any kind to any other Party or any other person.
After the Distribution, this Agreement may not be terminated except by an
agreement in writing signed by the Parties.
SECTION 6.11. Controlled Entities. Each of the Parties hereto shall
cause to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Controlled
Entity of such Party or by any entity that is contemplated to be a Controlled
Entity of such Party on and after the Distribution Date.
SECTION 6.12. Third Party Beneficiaries. This Agreement is solely
for the benefit of the Parties hereto and their respective Subsidiaries and
should not be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
<PAGE> 16
SECTION 6.13. Title and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
SECTION 6.14. Exhibits and Schedules. The Exhibits and Schedules
shall be construed with and as an integral part of this Agreement to the same
extent as if the same had been set forth verbatim herein.
SECTION 6.15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
SECTION 6.16. Consent to Jurisdiction. Without limiting the
provisions of Section 5.4 hereof, each of the Parties irrevocably submits to the
exclusive jurisdiction of (a) the Supreme Court of the State of New York, New
York County, and (b) the United States District Court for the Southern District
of New York, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby. Each of the
Parties agrees to commence any action, suit or proceeding relating hereto either
in the United States District Court for the Southern District of New York or if
such suit, action or other proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York, New York
County. Each of the Parties further agrees that service of any process, summons,
notice or document by U.S. registered mail to such Party's respective address
set forth above shall be effective service of process for any action, suit or
proceeding in New York with respect to any matters to which it has submitted to
jurisdiction in this Section 6.16. Each of the Parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County, or
(ii) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
SECTION 6.17. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The Parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
<PAGE> 17
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
duly executed as of the day and year first above written.
THE DUN & BRADSTREET CORPORATION
By:
----------------------
Name:
Title:
THE NEW DUN & BRADSTREET
CORPORATION
By:
----------------------
Name:
Title:
<PAGE> 1
Exhibit 10.3
EMPLOYEE BENEFITS AGREEMENT
This EMPLOYEE BENEFITS AGREEMENT is dated as of June __, 1998 (the
"Agreement"), between THE DUN & BRADSTREET CORPORATION, a Delaware corporation
(the "Corporation") and THE NEW DUN & BRADSTREET CORPORATION, a Delaware
corporation ("New D&B").
WHEREAS, the Board of Directors of Corporation has determined that
it is appropriate, desirable and in the best interests of the holders of shares
of common stock, par value $1.00 per share, of Corporation (the "Corporation
Common Stock") to take certain steps to reorganize Corporation's Subsidiaries
(as defined herein) and businesses and then to distribute to the holders of the
Corporation Common Stock all the outstanding shares of common stock of New D&B
(the "New D&B Common Shares"); and
WHEREAS, Corporation and New D&B have determined that it is
necessary and desirable to allocate and assign responsibility for certain
employee benefit matters in respect of such entities on and after the Effective
Time (as defined herein).
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, Corporation and New D&B agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. Capitalized terms used in this Agreement
shall have the following meanings:
"ACNielsen" shall mean the ACNielsen Corporation, a Delaware
corporation.
"Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency, body or commission or any arbitration
tribunal.
"Adjusted Corporation Founders' Awards" shall have the meaning set
forth in Section 6.3 of this Agreement.
"Affiliate" shall mean, when used with respect to a specified
person, another person that controls, is controlled by, or is under common
control with the person specified. As used herein, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of voting securities or other interests, by contract or otherwise.
<PAGE> 2
2
"Ameritech Common Stock" shall mean the common stock of Ameritech
Corporation, a Delaware corporation.
"Ancillary Agreements" shall mean all of the written agreements,
instruments, assignments or other written arrangements (other than this
Agreement and the Distribution Agreement) entered into in connection with the
transactions contemplated by this Agreement and the Distribution Agreement,
including, without limitation, the Conveyancing and Assumption Instruments, the
Data Services Agreements, the Intellectual Property Agreement, the Shared
Transaction Services Agreements, the Tax Allocation Agreement and the Transition
Services Agreement.
"Assets" shall have the meaning set forth in Section 1.1(f) of the
Distribution Agreement.
"Board of Directors" shall mean, when used with respect to a
specified corporation, the board of directors of the corporation so specified.
"Business Entity" shall mean any corporation, partnership, limited
liability company or other entity which may legally hold title to Assets.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, and the regulations promulgated thereunder, including
any successor legislation.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder, including any successor legislation.
"Cognizant" shall mean Cognizant Corporation, a Delaware
corporation.
"Conveyancing and Assumption Instruments" shall mean, collectively,
the various agreements, instruments and other documents heretofore entered into
and to be entered into to effect the transfer of Assets and the assumption of
Liabilities in the manner contemplated by the Distribution Agreement, or
otherwise arising out of or relating to the transactions contemplated in the
Distribution Agreement.
"Corporation" shall mean The Dun & Bradstreet Corporation, a
Delaware corporation.
"Corporation Common Stock" shall have the meaning set forth in the
recitals hereto.
"Corporation Employees" shall mean persons who, at any time prior to
the Effective Time, were employed by Corporation or its Subsidiaries.
<PAGE> 3
3
"Corporation Founders' Award" shall have the meaning set forth in
Section 6.3 of this Agreement.
"Corporation Group" shall mean The Dun & Bradstreet Corporation and
each Business Entity that is a Subsidiary of Corporation.
"Corporation Long-Term Disability Plan" shall mean The Dun &
Bradstreet Long Term Disability Plan or any other long-term disability plan
sponsored by Corporation or any Subsidiary of Corporation prior to the Effective
Time.
"Corporation SARs" shall have the meaning set forth in Section 6.2
of this Agreement.
"Corporation Master Trust" shall mean the trust established in
connection with the Corporation Retirement Plan and the DonTech Retirement Plan,
as in effect from time to time.
"Corporation Master Trust Agreement" shall mean the agreement
entered into in connection with the Corporation Master Trust.
"Corporation Master Welfare Trust" shall mean the trust established
in connection with the Corporation Long-Term Disability Plan, as in effect from
time to time.
"Corporation Master Welfare Plan Trust Agreement" shall mean the
agreement entered into in connection with the Corporation Master Welfare Trust.
"Corporation Nonqualified Plans" shall have the meaning as set forth
in Section 4.1 of this Agreement.
"Corporation Pension BEP" shall mean the Pension Benefit
Equalization Plan of The Dun & Bradstreet Corporation, as in effect from time to
time.
"Corporation Pension BEP Trust" shall mean the trust established in
connection with the Corporation Pension BEP, as in effect from time to time.
"Corporation Performance Shares" shall have the meaning set forth in
Section 6.5 of this Agreement.
"Corporation Restricted Stock" shall mean restricted stock awarded
under the Corporation Restricted Stock Plan.
"Corporation Restricted Stock Plan" shall mean the 1989 Key
Employees Restricted Stock Plan for The Dun & Bradstreet Corporation and
Subsidiaries.
"Corporation Retirees" shall mean persons who (i) were Corporation
Employees, (ii) terminated employment from the
<PAGE> 4
4
Corporation Group prior to the Effective Time and (iii) are not New D&B
Employees or RHD Employees after the Effective Time.
"Corporation Retirement Plan" shall mean the Retirement Account Plan
of The Dun & Bradstreet Corporation, as in effect from time to time.
"Corporation Savings BEP" shall mean the Profit Participation
Benefit Equalization Plan of The Corporation, as in effect from time to time.
"Corporation Savings Plan" shall mean the Profit Participation Plan
of The Dun & Bradstreet Corporation, as in effect from time to time.
"Corporation Stock Option" shall have the meaning set forth in
Section 6.1 of this Agreement.
"Corporation Stock Option Plan" shall mean the 1991 Key Employees
Stock Option Plan for The Dun & Bradstreet Corporation and Subsidiaries.
"Corporation Supplemental EBP" shall mean the Supplemental Executive
Benefit Plan of The Dun & Bradstreet Corporation, as in effect from time to
time.
"Corporation Supplemental EBP Trust" shall mean the trust
established in connection with the Corporation Supplemental EBP as in effect
from time to time.
"D&B" shall mean The Dun & Bradstreet Corporation, a Delaware
corporation, prior to the distribution dated November 1, 1996.
"Daily Average Trading Price" of a given stock on a given day shall
mean the average of the high and low trading prices for such stock on such date
on the principal exchange on which the stock trades.
"Data Services Agreements" shall mean the Data Services Agreements
to be entered into by Corporation and New D&B.
"Distribution" shall mean the distribution on the Distribution Date
to holders of record of shares of Corporation Common Stock as of the
Distribution Record Date of the New D&B Common Shares owned by Corporation on
the basis of one New D&B Common Share for each outstanding share of Corporation
Common Stock.
"Distribution Agreement" shall mean the Distribution Agreement
between Corporation and New D&B, dated as of June __, 1998.
<PAGE> 5
5
"Distribution Date" shall mean June 30, 1998.
"Distribution Record Date" shall mean such date as may be determined
by Corporation's Board of Directors as the record date for the Distribution.
"Dividended Restricted Stock" shall have the meaning set forth in
Section 6.4 of this Agreement.
"DonTech" shall mean the DonTech Partnership.
"DonTech Employees" shall mean persons who, immediately after the
Effective Time, are employed by DonTech (including persons who are absent from
work by reason of layoff or leave of absence and inactive employees treated as
such by agreement therewith).
"DonTech Former Employees" shall mean persons who (i) were employees
of DonTech, (ii) terminated employment from DonTech prior to the Effective Time
and (iii) are not DonTech Retirees.
"DonTech Retirees" shall mean persons who (i) were employees of
DonTech and (ii) retired from DonTech prior to the Effective Time and are, as of
the Effective Time, eligible to receive benefits under the Corporation
Retirement Plan or (iii) terminated employment from DonTech prior to the
Effective Time and are receiving benefits from the Corporation Retirement Plan
as of the Effective Time.
"DonTech Retirement Plan" shall mean the Retirement Plan of the
DonTech Corporation, as in effect from time to time.
"Effective Time" shall mean prior to the midnight, New York time,
ending the 24-hour period comprising the Distribution Date.
"Employee Benefit Dispute" shall include any controversy, dispute or
claim arising out of, in connection with, or in relation to the interpretation,
performance, nonperformance, validity or breach of this Agreement or otherwise
arising out of, or in any way related to this Agreement, including, without
limitation, any claim based on contract, tort, statute or constitution.
"Employee Benefit Litigation Liability" shall mean, with respect to
a Business Entity, a Liability relating to a controversy, dispute or claim
arising out of, in connection with or in relation to the interpretation,
performance, nonperformance, validity or breach of an Employee Benefit Plan of
such Business Entity or otherwise arising out of, or in any way related to such
Employee Benefit Plan, including, without
<PAGE> 6
6
limitation, any claim based on contract, tort, statute or constitution.
"Employee Benefit Plans" shall mean, with respect to a Business
Entity, all "employee benefit plans" (within the meaning of Section 3(3) of
ERISA), "multiemployer plans" (within the meaning of Section 3(37) of ERISA),
retirement, pension, savings, profit-sharing, welfare, stock purchase, stock
option, equity-based, severance, employment, change-in-control, fringe benefit,
collective bargaining, bonus, incentive, deferred compensation and all other
employee benefit plans, agreements, programs, policies or other arrangements
(including any funding mechanisms therefor), whether or not subject to ERISA,
whether formal or informal, oral or written, legally binding or not, under which
(i) any past, present or future employee of the Business Entity or its
Subsidiaries has a right to benefits and (ii) the Business Entity or its
Subsidiaries has any Liability.
"Employee Benefit Records" shall mean all agreements, documents,
books, records or files relating to the Employee Benefit Plans of Corporation
and New D&B.
"Employee Benefit Welfare Plans" shall mean, with respect to a
Business Entity, all Employee Benefit Plans that are "welfare plans" within the
meaning of Section 3(1) of ERISA.
"Employer Stock" shall mean, after the Distribution Date, New D&B
Common Shares credited to the account of a New D&B Employee and RHD Common Stock
credited to the account of a RHD Employee in an employer stock fund of the
respective savings plan in which such employee participates, pursuant to Section
3.5.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder, including any
successor legislation.
"ESOP" shall mean an "employee stock ownership plan" within the
meaning of Section 4975(e)(7) of the Code.
"Founders' Stock" shall have the meaning set forth in Section 6.3 of
this Agreement.
"Information Statement" shall mean the Information Statement sent to
the holders of shares of Corporation Common Stock in connection with the
Distribution, including any amendment or supplement thereto.
"Intellectual Property Agreement" shall mean the intellectual
property and licensing agreement between Corporation and New D&B.
"Liabilities" shall mean any and all losses, claims, charges, debts,
demands, actions, causes of action, suits,
<PAGE> 7
7
damages, obligations, payments, costs and expenses, sums of money, accounts,
reckonings, bonds, specialties, indemnities and similar obligations,
exonerations, covenants, contracts, controversies, agreements, promises, doings,
omissions, variances, guarantees, make whole agreements and similar obligations,
and other liabilities, including all contractual obligations, whether absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and including those arising under
any law, rule, regulation, Action, threatened or contemplated Action (including
the costs and expenses of demands, assessments, judgments, settlements and
compromises relating thereto and attorneys' fees and any and all costs and
expenses (including allocated costs of in-house counsel and other personnel),
whatsoever reasonably incurred in investigating, preparing or defending against
any such Actions or threatened or contemplated Actions), order or consent decree
of any governmental or other regulatory or administrative agency, body or
commission or any award of any arbitrator or mediator of any kind, and those
arising under any contract, commitment or undertaking, including those arising
under this Agreement, the Distribution Agreement or any Ancillary Agreement, in
each case, whether or not recorded or reflected or required to be recorded or
reflected on the books and records or financial statements of any person.
"New D&B" shall mean The New Dun & Bradstreet Corporation, a
Delaware corporation.
"New D&B Common Shares" shall have the meaning set forth in the
recitals hereto.
"New D&B Disabled Employees" shall mean all employees of the New D&B
Group who are receiving benefits under the Dun & Bradstreet Long-Term Disability
Plan as of the Effective Time.
"New D&B Employees" shall mean persons who, immediately after the
Effective Time, are employed by the New D&B Group (including persons who are
absent from work by reason of layoff or leave of absence and inactive employees
treated as such by agreement therewith).
"New D&B Employee Stock Purchase Plan" shall mean the Employee Stock
Purchase Plan to be adopted by New D&B pursuant to Section 6.7.
"New D&B Group" shall mean New D&B and each Business Entity which is
contemplated to remain or become a Subsidiary of New D&B pursuant to the
Distribution Agreement.
"New D&B Performance Shares" shall have the meaning set forth in
Section 6.5 of this Agreement.
<PAGE> 8
8
"New D&B Ratio" shall have the meaning set forth in Section 6.1 of
this Agreement.
"New D&B Replacement Plans" shall mean the replacement plans to be
adopted by New D&B pursuant to Section 6.1(b) of this Agreement.
"New D&B Restricted Stock" shall have the meaning set forth in
Section 6.4 of this Agreement.
"Nonemployer Stock" shall mean, after the Distribution Date, New D&B
Common Shares credited to the account of a RHD Employee and RHD Common Stock
credited to an account of a New D&B Employee in a nonemployer stock fund in the
respective savings plan in which such employee participates, pursuant to Section
3.5.
"Participant Election Period" shall mean the period during which the
elections described in Section 3.2 are permitted.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor entity thereto.
"PBGC Assumptions" shall mean the actuarial assumptions set forth in
29 C.F.R. Part 2619, et seq.
"Person" shall mean any natural person, corporation, business trust,
joint venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Present Value" shall mean the single sum value of a series of
future payments, determined utilizing PBGC Assumptions in effect as of the
measurement date.
"RHD" shall mean R.H. Donnelley, Inc., a Delaware Corporation.
"RHD Bifurcated Savings Plan Employees" shall have the meaning set
forth in Section 3.2(a) of this Agreement.
"RHD Common Stock" shall mean shares of common stock of RHD.
"RHD Disabled Employees" shall mean all employees of the RHD Group
who are receiving or are eligible to receive benefits under the Dun & Bradstreet
Long-Term Disability Plan as of the Effective Time.
"RHD Employees" shall mean persons who, immediately after the
Effective Time, are employed by the RHD Group (including persons who are absent
from work by reason of layoff or leave of absence and inactive employees treated
as such by agreement therewith).
<PAGE> 9
9
"RHD Group" shall mean RHD and each Business Entity which is
contemplated to remain or become a Subsidiary of RHD pursuant to the
Distribution Agreement.
"RHD Long-Term Disability Plan" shall mean the long-term disability
plan to be adopted by RHD pursuant to Section 5.5 of this Agreement.
"RHD Nonqualified Plan Participants" shall have the meaning as set
forth in Section 4.2 of this Agreement.
"RHD Ratio" shall have the meaning set forth in Section 6.1 of this
Agreement.
"RHD Retirement Plan Segregation Ratio" shall equal a fraction, the
numerator of which is the Present Value of the accrued vested and nonvested
benefits (as defined in ERISA Section 4044(a)(1)-(6)) of the RHD Transferred
Retirement Plan Employees under the Corporation Retirement Plan at the Effective
Time, and the denominator of which is the Present Value of the accrued vested
and nonvested benefits (as defined in ERISA Section 4044(a)(1)-(6)) of the
Corporation Employees under the Corporation Retirement Plan at the Effective
Time.
"RHD Retirement Plan" shall mean the defined benefit plan to be
adopted by RHD pursuant to Section 2.2(a) of this Agreement.
"RHD Retirement Plan Effective Date" shall have the meaning set
forth in Section 2.2(a) of this Agreement.
"RHD Retirement Plan Transfer Date" shall have the meaning set forth
in Section 2.2(b) of this Agreement.
"RHD Savings Plan" shall mean the defined contribution plan to be
adopted by RHD pursuant to Section 3.2(a) of this Agreement.
"RHD Savings Plan Transfer Date" shall have the meaning set forth in
Section 3.2(b) of this Agreement.
"RHD Transferred Retirement Plan Employees" shall have the meaning
set forth in Section 2.2(a) of this Agreement.
"RHD Transferred Savings Plan Employees" shall have the meaning set
forth in Section 3.2(a) of this Agreement.
"Service" shall mean the Internal Revenue Service or any successor
entity thereto.
"Shared Transaction Services Agreements" shall mean the Shared
Transaction Services Agreements between Corporation and New D&B.
<PAGE> 10
10
"Subsidiary" shall mean any corporation, partnership or other entity
of which another entity (i) owns, directly or indirectly, ownership interests
sufficient to elect a majority of the Board of Directors (or persons performing
similar functions) (irrespective of whether at the time any other class or
classes of ownership interests of such corporation, partnership or other entity
shall or might have such voting power upon the occurrence of any contingency) or
(ii) is a general partner or an entity performing similar functions (e.g., a
trustee).
"Tax Allocation Agreement" shall mean the Tax Allocation Agreement
between Corporation and New D&B.
"Transition Services Agreement" shall mean the Transition Services
Agreement between Corporation and New D&B.
ARTICLE II
CORPORATION & DONTECH RETIREMENT PLANS
SECTION 2.1. Assumption by New D&B. Prior to the Effective Time, New
D&B shall assume and become the sponsor of the Corporation Retirement Plan and
New D&B shall be substituted for Corporation in the Corporation Master Trust
Agreement. Active participation of RHD Employees in the Corporation Retirement
Plan shall cease immediately after the Effective Time.
SECTION 2.2. Transfer to RHD Retirement Plan. (a) As soon as
practicable after the Effective Time, but not later than the first day of the
fourth calendar month that begins after the Effective Time (herein referred to
as the "RHD Retirement Plan Effective Date"), RHD shall establish the RHD
Retirement Plan for the benefit of RHD Employees, DonTech Employees and DonTech
Former Employees who were participants in the Corporation Retirement Plan
immediately prior to the Effective Time (the "RHD Transferred Retirement Plan
Employees"). As soon as practicable after the Effective Time, New D&B shall
cause the trustee of the Corporation Retirement Plan to segregate the assets of
the Corporation Retirement Plan allocable to RHD Transferred Retirement Plan
Employees in an amount equal to the sum of (i) and (ii), as follows:
(i) the amount allocable to RHD Transferred Retirement Plan Employees
under ERISA Section 4044 as of the Effective Time, determined using
PBGC Assumptions; and
(ii) the excess (if any) of the fair market value of assets of the
Corporation Retirement Plan over the Present Value of the vested and
nonvested benefits accrued thereunder for all the Corporation
Employees as of the Effective Time, multiplied by the RHD Retirement
Plan Segregation Ratio.
<PAGE> 11
11
(b) As soon as practicable after the Effective Time, the assets
allocable to the RHD Transferred Retirement Plan Employees shall be transferred
to a separate trust established under the RHD Retirement Plan (such date herein
referred to as the "RHD Retirement Plan Transfer Date"); provided, however, that
in no event shall such transfer take place until (i) New D&B has made all
required filings and submissions to the appropriate governmental agencies and
(ii) if requested by New D&B, RHD has furnished to New D&B a favorable
determination letter that the RHD Retirement Plan is qualified under Section
401(a) of the Code. The value of such assets to be transferred shall equal the
value of segregated assets determined under Section 2.2(a) of this Agreement,
adjusted as follows:
(i) reduced by the amount of benefit payments made under the Corporation
Retirement Plan with respect to RHD Transferred Retirement Plan
Employees from the Effective Time to the RHD Retirement Plan
Transfer Date; and
(ii) increased (or decreased) by the share of the net investment income
(or loss) and decreased by the share of investment expenses from the
Effective Time to the RHD Retirement Plan Transfer Date attributable
to the value of such segregated assets.
(c) Unless otherwise agreed to by RHD and New D&B, the assets to
be transferred shall consist of an undivided percentage interest in each asset
that is held by the Corporation Retirement Plan on the RHD Retirement Plan
Transfer Date, such undivided percentage interest being equal to the value of
assets allocable to the RHD Transferred Retirement Plan Employees, divided by
the fair market value of plan assets.
(d) Prior to the RHD Retirement Plan Transfer Date, all benefit
payments to RHD Transferred Retirement Plan Employees shall be made from the
Corporation Retirement Plan.
SECTION 2.3. Allocation of Liabilities. The RHD Group shall retain
all Liabilities relating to the participation of RHD Transferred Retirement Plan
Employees in the Corporation Retirement Plan. The New D&B Group shall assume all
other Liabilities relating to the Corporation Retirement Plan.
SECTION 2.4. DonTech Retirement Plan. As soon as practicable after
the Effective Time, but not later than the first day of the second calendar
month that begins after the Effective Time, RHD shall establish a separate
account within the RHD Retirement Plan trust for the DonTech Retirement Plan and
New D&B shall cause the assets allocable to the DonTech Retirement Plan to be
transferred from the Corporation Master Trust to the separate account
established for such plan.
<PAGE> 12
12
ARTICLE III
CORPORATION AND DONTECH SAVINGS PLANS
SECTION 3.1. Assumption by New D&B. Prior to the Effective Time, New
D&B shall assume and become the sponsor of the Corporation Savings Plan. Active
participation of RHD Employees in the Corporation Savings Plan shall cease
immediately after the Effective Time.
SECTION 3.2. RHD Savings Plan. (a) As of the Effective Time, RHD
shall adopt the RHD Savings Plan for the benefit of RHD Employees who were
participants in the Corporation Savings Plan immediately prior to the Effective
Time. Prior to the Effective Time, RHD Employees shall be given the right to
elect one of the following options with respect to their Corporation Savings
Plan account balances (the "Participant Election Period"): (i) RHD Employees may
keep their balances in the Corporation Savings Plan (such employees being known
as "RHD Bifurcated Savings Plan Employees"); or (ii) RHD Employees may transfer
their balances to the RHD Savings Plan (such employees being known as "RHD
Transferred Savings Plan Employees"). If a RHD Employee fails to elect any of
the foregoing options prior to the end of the Participant Election Period, (i)
his or her balance shall be transferred to the RHD Savings Plan, and (ii) such
employee shall be treated as a RHD Transferred Savings Plan Employee.
(b) Prior to the date on which the transfer of assets and
liabilities to the RHD Savings Plan shall occur (the "RHD Savings Plan Transfer
Date"), which date shall occur as promptly as practicable following the
Participant Election Period, (i) New D&B shall (A) cause the trustee of the
Corporation Savings Plan to segregate, in accordance with the spinoff provisions
set forth under Section 414(l) of the Code, the assets of the Corporation
Savings Plan representing the full account balances of RHD Transferred Savings
Plan Employees for all periods of participation through the Effective Time
(including, as applicable, all contributions and all earnings attributable
thereto); (B) make all required filings and submissions to the appropriate
governmental agencies; and (C) make all required amendments to the Corporation
Savings Plan and related trust agreement necessary to provide for the
segregation and transfer of assets described in this Section 3.2, and (ii) if
requested by New D&B, RHD shall furnish to New D&B a favorable determination
letter that the RHD Savings Plan is qualified under Section 401(a) of the Code.
(c) On the RHD Savings Plan Transfer Date, New D&B shall cause the
trustee of the Corporation Savings Plan to transfer to the trustee of the RHD
Savings Plan the full account balances (inclusive of loans) of RHD Transferred
Savings Plan Employees in kind based on those investment funds in which such
account balances are then invested (including, but not limited to, the stock
funds); provided, however, that loans to
<PAGE> 13
13
RHD Transferred Savings Plan Employees shall be transferred in the form of
notes. In consideration of the segregation and transfer of assets described
herein, the RHD Savings Plan shall, as of the RHD Savings Plan Transfer Date,
assume all Liabilities attributable to such assets.
SECTION 3.3. Vesting. As of the Effective Time, the account balances
of RHD Employees in the Corporation Savings Plan shall fully vest. Future
employer contributions by RHD under the RHD Savings Plan shall vest based on the
vesting schedule thereunder.
SECTION 3.4. Outstanding Loans. During their employment with RHD,
RHD Transferred Savings Plan Employees who have outstanding loans originally
made from the Corporation Savings Plan shall be permitted to repay such loans by
way of regular deductions from their paychecks, and, prior to the RHD Savings
Plan Transfer Date, RHD or New D&B (as the case may be) shall cause all such
deductions to be forwarded to the Corporation Savings Plan as promptly as
practicable. After the Effective Time, no such deductions by RHD shall be made
in respect of RHD Bifurcated Savings Plan Employees who have outstanding loans
from the Corporation Savings Plan, and all such employees shall be required to
repay their loans directly to the Corporation Savings Plan in accordance with
the existing terms thereof.
SECTION 3.5. Employer Stock Fund. (a) Participants in the
Corporation Savings Plan who, immediately prior to the Effective Time, have
balances in the Corporation Common Stock fund shall have such balances
converted, as of the Effective Time, to the extent applicable, to units in
two stock funds. The Corporation Savings Plan shall maintain one stock fund
consisting of only RHD Common Stock ("RHD Stock Fund") and one stock fund
consisting of only New D&B Common Shares ("New D&B Stock Fund"). Each stock fund
shall initially consist of an equal number of shares. The initial percentage
interest of each participant in each stock fund as of the Effective Time
shall equal such participant's percentage interest in the Corporation Common
Stock fund immediately prior to the Effective Time. The RHD Savings Plan shall
maintain a nonemployer stock fund to which the New D&B Stock Fund assets of
RHD Transferred Savings Plan Employees in the Corporation Savings Plan shall be
transferred on the RHD Savings Plan Transfer Date. The RHD Savings Plan shall
also maintain an employer stock fund to which the RHD Stock Fund assets of RHD
Transferred Savings Plan Employees in the Corporation Savings Plan shall be
transferred on the RHD Savings Plan Transfer Date.
(b) Prior to the end of the sixth month after the Distribution
Date, each participant shall liquidate his or her units of Nonemployer Stock
in the nonemployer stock fund and invest the proceeds thereof in any other
investment option available under the applicable plan. If the participant does
not
<PAGE> 14
14
liquidate such units, such units shall be liquidated and invested in either a
fixed income investment option or an employee stock fund option available under
the applicable plan as determined by RHD or New D&B.
(c) A participant may not transfer or contribute any amounts
to a nonemployer stock fund from or after the Effective Time.
SECTION 3.6. Allocation of Liabilities. The RHD Group shall retain
all Liabilities relating to the participation of (a) RHD Transferred Savings
Plan Employees in the Corporation Savings Plan and (b) RHD Bifurcated Savings
Plan Employees in the RHD Savings Plan. The New D&B Group shall assume all other
Liabilities relating to the Corporation Savings Plan.
SECTION 3.7. DonTech Savings Plan. As soon as practicable after the
Effective Time, RHD shall establish a separate account within the RHD Savings
Plan trust for the DonTech Savings Plan and New D&B shall cause the trustee of
the Corporation Master Trust to transfer to the trustee the full account
balances (inclusive of loans) of all participants in the DonTech Savings Plan
("DonTech Participants") in kind based on those investment funds in which such
account balances are then invested (including, but not limited to, the stock
funds) ; provided, however, that loans to DonTech Participants shall be
transferred in the form of notes.
(b) Participants in the DonTech Savings Plan who, immediately prior
to the Effective Time, have balances in the DonTech Common Stock fund shall have
the units of Corporation Common Stock converted, as of the Effective Time, to
the extent applicable, to units in two stock funds. The DonTech Savings Plan
shall maintain one stock fund consisting of RHD Common Stock and
Ameritech Common Stock and one stock fund consisting of only New D&B Common
Shares. The percentage interest of each participant in each stock fund as of
the Effective Time shall equal such participant's percentage interest in the
DonTech Common Stock fund immediately prior to the Effective Time.
ARTICLE IV
NONQUALIFIED PLANS
SECTION 4.1. Corporation Nonqualified Plans. Prior to the Effective
Time, New D&B shall assume and become the sponsor of the Corporation
Supplemental EBP, the Corporation Supplemental EBP Trust, the Corporation
Pension BEP, the Corporation Pension BEP Trust and the Corporation Savings BEP
(collectively, the " Corporation Nonqualified Plans") for the benefit of persons
who, prior to the Effective Time, were participants thereunder; provided,
however, that, with respect to RHD Employees, (i) RHD shall retain the liability
for benefits under the Corporation Savings BEP and (ii) New D&B shall retain
only those Liabilities
<PAGE> 15
15
for benefits under the Corporation Nonqualified Plans (other than the
Corporation Savings BEP) that, prior to the Effective Time, were accrued and to
which such participants had earned vested rights thereunder and (iii) the
Liabilities retained by New D&B under such plans shall be appropriately adjusted
to reflect (A) increases in the contribution limits imposed by Section 415 of
the Code and (B) future accruals under the RHD pension plans.
SECTION 4.2. Service Credit. RHD Employees who were participants
with vested benefits in the Corporation Nonqualified Plans immediately prior to
the Effective Time (the "RHD Nonqualified Plan Participants") shall continue to
receive service credit under such plans for their service with the RHD Group
from and after the Effective Time, but solely for purposes of satisfying the
one-year waiting requirement for a valid election under the Corporation
Nonqualified Plans.
SECTION 4.3. Consent to Termination. Solely with respect to
determining the level of benefits payable under the Corporation Nonqualified
Plans, RHD shall have the authority to consent to the termination of employment
prior to age 60 of a RHD Nonqualified Plan Participant from the RHD Group.
SECTION 4.4. Termination of Employment. Benefits under the
Corporation Nonqualified Plans shall not become payable to a RHD Nonqualified
Plan Participant until such participant terminates employment from the RHD Group
and is otherwise eligible to receive such payment under the terms of the
Corporation Nonqualified Plans.
SECTION 4.5. Noncompetition. Solely with respect to the
noncompetition clauses of the Corporation Nonqualified Plans, New D&B hereby
consents to the employment of the Corporation Nonqualified Plan Participants by
the RHD Group after the Effective Time, whether or not such employment would
otherwise trigger such noncompetition clauses.
SECTION 4.6. Distributions. RHD Nonqualified Plan Participants who
participated in the Corporation Savings BEP immediately prior to the Effective
Time shall receive a distribution thereunder from the RHD Group, based on their
notional elective deferrals through the Effective Time, at the time
distributions are otherwise made under such plan.
SECTION 4.7. Guarantees; Subrogation. The RHD Group agrees that, in
the event the New D&B Group is unable to satisfy its obligations in respect of
the benefits of any RHD Employee that have accrued under the Corporation
Nonqualified Plans prior to the Effective Time, the RHD Group shall make payment
when due with respect to such obligations of the New D&B Group. In the event
that the RHD Group is required to make any payment pursuant to this Section 4.7,
the RHD Group shall have full rights of subrogation against the New D&B Group.
<PAGE> 16
16
SECTION 4.8. Third-Party Beneficiaries. It is the intention of the
parties to this Agreement that the provisions of Section 4.7 shall be
enforceable by (a) the RHD Nonqualified Plan Participants and (b) their
respective surviving beneficiaries.
SECTION 4.9. Joint and Several Liability. RHD and New D&B
acknowledge joint and several liability under the Employee Benefits Agreement
dated as of October 29, 1996 among D&B, Cognizant and ACNielsen with respect to
certain nonqualified plans maintained by Corporation prior to such date. To the
extent joint and several liability is imposed on RHD in respect of a liability
assumed by New D&B under this Agreement, RHD shall be entitled to contribution
from New D&B for the amount of such liability imposed. To the extent joint and
several liability is imposed on New D&B in respect of a liability assumed by RHD
under this Agreement, New D&B shall be entitled to contribution from RHD for the
amount of such liability imposed.
ARTICLE V
WELFARE PLANS
SECTION 5.1. Employee Benefit Welfare Plans. Prior to the Effective
Time, the Corporation shall continue to sponsor its Employee Benefit Welfare
Plans for the benefit of the Corporation Employees. Except as provided in
Section 5.4 and Section 5.6 below, from and after the Effective Time, RHD shall
continue to sponsor its Employee Benefit Welfare Plans solely for the benefit of
RHD Employees and RHD Disabled Employees. From and after the Effective Time, New
D&B shall sponsor its Employee Benefit Welfare Plans for the benefit of New D&B
Employees, Corporation Retirees, New D&B Disabled Employees and DonTech Retirees
who participated in the Corporation Employee Benefit Welfare Plans immediately
prior to the Effective Time. Notwithstanding the foregoing, neither RHD nor New
D&B shall have any obligation to sponsor any Employee Benefit Welfare Plan from
or after the Effective Time.
SECTION 5.2. Pre-Existing Conditions; Dollar Limits. With respect to
any medical plan that may be sponsored by New D&B and RHD after the Effective
Time, New D&B and RHD (a) shall cause there to be waived any pre-existing
condition limitations and (b) shall give effect, in determining any deductible
and maximum out-of-pocket limitations, to claims incurred, and amounts paid by,
and amounts reimbursed to, (in each case during 1998 prior to the Effective
Time) New D&B Employees, RHD Employees, Corporation Retirees, New D&B Disabled
Employees and RHD Disabled Employees under similar plans maintained by
Corporation (or any Affiliate thereof) for their benefit immediately prior to
the Effective Time.
SECTION 5.3. Severance Plans. The RHD Group shall retain all
Liabilities with respect to severance payments made or to be made to RHD
Employees. The New D&B Group shall retain all
69
<PAGE> 17
17
Liabilities with respect to severance payments made or to be made to all other
Corporation Employees who terminated employment prior to the Effective Time. For
purposes of this Section 5.3, the term "severance payments" shall include any
welfare benefit coverage and all other severance related benefits provided under
severance plans and agreements.
SECTION 5.4. Flexible Spending Accounts. From the Effective Time
until December 31, 1998, New D&B shall sponsor its flexible spending accounts
for all Corporation Employees; provided, however, that RHD shall cause all
deductions from participant paychecks to be forwarded to New D&B as promptly as
practicable.
SECTION 5.5 VEBA. Prior to the Effective Time, New D&B shall assume
and become the sponsor of the Corporation Long-Term Disability Plan and New D&B
shall be substituted for Corporation in the Corporation Master Welfare Plan
Trust Agreement. Active participation of RHD Disabled Employees in the
Corporation Long-Term Disability Plan shall cease immediately after the
Effective Time. As soon as practicable after the Effective Time, RHD shall
establish the RHD Long-Term Disability Plan for the benefit of RHD Disabled
Employees who became disabled prior to January 1, 1994 and the assets, as
actuarially calculated, allocable to such RHD Disabled Employees shall
be transferred to a separate trust or insurance arrangement established by RHD
under such plan.
SECTION 5.6. Allocation of Liabilities. (a) The RHD Group shall
retain responsibility for and continue to pay all expenses and benefits relating
to the Corporation Employee Benefit Welfare Plans with respect to claims
incurred from and after the Effective Time by RHD Employees and RHD Disabled
Employees as well as their dependents. The New D&B Group shall be responsible
for and pay expenses and benefits relating to all Employee Benefit Welfare Plan
claims (i) incurred prior to the Effective Time by Corporation Employees, RHD
Disabled Employees and their covered dependents and (ii) incurred by New D&B
Employees, Corporation Retirees, DonTech Retirees and New D&B Disabled Employees
as well as their covered dependents from and after the Effective Time. For
purposes of this paragraph, a claim is deemed incurred when the services that
are the subject of the claim are performed; in the case of life insurance, when
the death occurs; in the case of long-term disability, when the disability
occurs; and, in the case of a hospital stay, when the employee first enters the
hospital. Notwithstanding the foregoing, claims incurred by any employee of a
pre-Distribution Subsidiary of Corporation or their covered dependents under any
welfare plan maintained by such Subsidiary solely for the benefit of its
employees and their dependents shall, whether incurred prior to, on or after the
Effective Time, be the sole responsibility and liability of that Subsidiary.
70
<PAGE> 18
18
(b) The RHD Group shall be responsible for all COBRA coverage for
any RHD Employee and his or her covered dependents who participated in a
Corporation Employee Benefit Welfare Plan and who had or have a loss of health
care coverage due to a qualifying event occurring prior to the Effective Time.
The New D&B Group shall be responsible for all COBRA coverage for any other
Corporation Employee and his or her covered dependents who participated in a
Corporation Employee Benefit Welfare Plan and who had or have a loss of health
care coverage due to a qualifying event occurring prior to the Effective Time.
Notwithstanding the foregoing, a pre-Distribution Subsidiary of Corporation
shall be responsible for all COBRA coverage for its former employees and covered
dependents who participated in a plan maintained solely for their benefit
whether the applicable event occurs prior to, on or after the Effective Time.
COBRA coverage to which a RHD Employee is entitled as a result of a qualifying
event occurring at or after the Effective Time shall be the responsibility of
the RHD Group.
SECTION 5.7. Retiree Welfare Plans. The RHD Group shall be
responsible for providing retiree welfare benefits, where applicable, to RHD
Employees. The New D&B Group shall be responsible for providing retiree welfare
benefits, where applicable, to Corporation Retirees and New D&B Employees
ARTICLE VI
EQUITY-BASED PLANS
SECTION 6.1. Corporation Stock Options. Stock options awarded under
the Corporation Stock Option Plans ("Corporation Stock Options") shall be
treated as follows:
(a) RHD Employees. From and after the Effective Time, each
unexercised Corporation Stock Option held by RHD Employees shall remain
outstanding pursuant to the terms of the award agreements and the Corporation
Stock Option Plans; provided, however, that from and after such time, each
unexercised Corporation Stock Option shall be adjusted as follows: (i) the
number of shares of RHD Common Stock covered by the adjusted stock option shall
be determined by (A) multiplying the number of shares of Corporation Common
Stock covered by the Corporation Stock Option by a fraction, the numerator of
which equals the average of high and low trading prices of a share of
Corporation Common Stock for the five trading days immediately preceding the
ex-dividend date, and the denominator of which equals the average of high and
low trading prices of a share of RHD Common Stock for the five trading days
starting on the ex-dividend date ("RHD Ratio") and (B) rounding down the result
to a whole number of shares and (ii) the exercise price of the adjusted stock
option shall equal the original exercise price multiplied by the reciprocal of
the RHD Ratio.
71
<PAGE> 19
19
(b) New D&B Employees. As of the Effective Time, (i) each
unexercised Corporation Stock Option held by New D&B Employees shall be
cancelled and (ii) such individuals shall receive replacement stock options
awarded under the New D&B Replacement Plans, which shall be adopted by New D&B
prior to the Effective Time. The number of New D&B Common Shares covered by each
replacement stock option shall be determined by (i) multiplying the number of
shares of Corporation Common Stock covered by the cancelled Corporation Stock
Option by a fraction, the numerator of which equals the average of high and low
trading prices of a share of Corporation Common Stock for the five trading days
immediately preceding the ex-dividend date, and the denominator of which equals
the average of high and low trading prices of a New D&B Common Share for the
five trading days starting on the regular way trading date ("New D&B Ratio") and
(ii) rounding down the result to a whole number of shares. The exercise price of
each replacement stock option shall be determined by multiplying the exercise
price of the cancelled Corporation Stock Option by the reciprocal of the New D&B
ratio. Except as otherwise provided in the New D&B Replacement Plans, all other
terms of the replacement stock options shall remain substantially identical to
the terms of the cancelled Corporation Stock Options.
(c) Corporation Retirees; RHD Disabled Employees; and New D&B
Disabled Employees. As of the Effective Time, (i) each unexercised Corporation
Stock Option held by Corporation Retirees, RHD Disabled Employees and New D&B
Disabled Employees shall be adjusted in substantially the same manner as
employees of the RHD Group and (ii) New D&B shall offer to such Corporation
Retirees alternative adjustments or substitutions provided such retirees agree
to surrender their adjusted Corporation Stock Options.
SECTION 6.2. Corporation SARs. All stock appreciation rights awarded
under the Corporation Stock Option Plans (" Corporation SARs") shall be adjusted
or substituted (as the case may be) in substantially the same manner as the
Corporation Stock Options described in Section 6.1 above.
SECTION 6.3. Corporation Founders' Match Program. All Founders'
Match Program stock options awarded under the Corporation Stock Option Plans
("Corporation Founders' Awards") shall be adjusted or substituted (as the case
may be) in substantially the same manner as the Corporation Stock Options
described in Section 6.1 above ("Adjusted Corporation Founders' Awards").
Adjusted Corporation Founders' Awards shall vest if performance goals (as
established prior to the Effective Time) are met at the end of the original
vesting period of such awards (based upon the sum of the share prices of the RHD
Common Stock and the New D&B Shares and taking into account any dividends after
the Effective Time).
(a) RHD Employees. Restrictions on stock purchased on the open
market pursuant to the Corporation Founders' Match
<PAGE> 20
20
Program ("Founders' Stock") shall lapse according to their original terms.
Restrictions on the New D&B Common Shares received in the Distribution as a
dividend on such shares shall lapse as of the Effective Time.
(b) New D&B Employees. Restrictions on Founders' Stock shall lapse
as of the Effective Time. New D&B Common Shares received in the Distribution as
a dividend on the Founders' Stock shall be subject to the restrictions
originally imposed on the Founders' Stock.
SECTION 6.4. Restricted Stock Plan. New D&B Common Shares received
in the Distribution as a dividend on Corporation Restricted Stock ("Dividended
Restricted Stock") shall be subject to the same restrictions as the Corporation
Restricted Stock. In addition, both the Corporation Restricted Stock and the
Dividended Restricted Stock shall be treated as follows:
(a) RHD Employees. As of Effective Time, Dividended Restricted Stock
credited to RHD Employees shall be adjusted pursuant to the Corporation
Restricted Stock Plan and each such individual shall receive a number of shares
of RHD Restricted Stock, determined by multiplying the number of shares of
Dividended Restricted Stock by the RHD Ratio and the reciprocal of the New D&B
Ratio, having the same terms as the Corporation Restricted Stock from which they
arose.
(b) New D&B Employees. As of the Effective Time, Corporation
Restricted Stock and Dividended Restricted Stock credited to New D&B Employees
shall be forfeited and such individuals shall receive replacement New D&B Common
Shares of restricted stock ("New D&B Restricted Stock") equal to (i) the number
of shares of forfeited Dividended Restricted Stock plus (ii) the product of the
number of shares of forfeited Corporation Restricted Stock multiplied by the New
D&B Ratio and the reciprocal of the RHD Ratio, such replacement shares of New
D&B Restricted Stock to have the same terms as the Corporation Restricted Stock
from which they arose.
SECTION 6.5. Performance Unit Plan. Performance shares awarded under
the Performance Unit Plan ("Corporation Performance Shares") shall be treated as
follows:
(a) RHD Employees. As of the Effective Time, RHD Employees shall
receive (if, for the pro rata performance cycle, all targets are met) a
number of shares of RHD Common Stock equal to (i) the pro rata target number of
Corporation Performance Shares plus (ii) the pro rata target number of
Corporation Performance Shares multiplied by the RHD Ratio and the reciprocal of
the New D&B Ratio.
(b) New D&B Employees. As of the Effective Time, Corporation
Performance Share opportunities granted to New D&B Employees shall be
cancelled and such individuals shall
<PAGE> 21
21
receive replacement New D&B Performance Share opportunities representing an
amount of New D&B Common Shares equal to (i) the target number of Corporation
Performance Shares plus (ii) the product of the target number of Corporation
Performance Shares multiplied by the New D&B Ratio and the reciprocal of the RHD
Ratio.
SECTION 6.6. Allocation of Liabilities. The New D&B Group shall
assume all Liabilities with respect to awards granted to New D&B Employees,
Corporation Retirees, RHD Disabled Employees and New D&B Disabled Employees
pursuant to the New D&B Replacement Option Plan. The RHD Group shall retain all
other Liabilities with respect to awards granted pursuant to the Corporation
Stock Option Plans (including, but not limited to, awards granted to RHD
Employees).
ARTICLE VII
OTHER EMPLOYEE BENEFIT ISSUES
SECTION 7.1. Employee Benefit Litigation Liabilities. Except as
otherwise expressly provided in this agreement or with respect to Articles II,
III and VI hereof, the New D&B Group shall assume all Employee Benefit
Litigation Liabilities that are asserted by Corporation Employees prior to the
Effective Time.
SECTION 7.2. Workers' Compensation. The RHD Group shall retain
all Liabilities relating to workers' compensation claims that were incurred (a)
prior to the Effective Time with respect to Corporation Employees who were
employed by the RHD Group after the Effective Time and (b) on and after the
Effective Time with respect to RHD Employees. The New D&B Group shall retain all
Liabilities relating to workers' compensation claims that were incurred (a)
prior to the Effective Time with respect to Corporation Employees who were not
employed by the RHD Group, after the Effective Time and (b) on and after the
Effective Time with respect to New D&B Employees. For purposes of this
paragraph, a claim is deemed incurred when the injury that is the subject of the
claim occurs.
ARTICLE VIII
BENEFIT PLAN PARTICIPATION
SECTION 8.1. Corporation Plans. Except as specifically provided
herein, all RHD Employees shall cease participation in all Corporation Employee
Benefit Plans as of the Effective Time.
SECTION 8.2. RHD Plans. Except as provided in Section 5.6
herein, (a) with respect to any newly created Employee Benefit Plan sponsored by
the RHD Group after the Effective Time, the RHD Group shall cause to be
recognized (to
<PAGE> 22
22
the extent applicable) each RHD Employee's (i) past service with the Corporation
Group to the extent recognized under similar plans maintained by the Corporation
Group immediately prior to the Effective Time and (ii) accrued but unused
vacation time and sick days, and (b) any RHD Employee who participated in a
Corporation Employee Benefit Plan immediately prior to the Effective Time shall
be entitled to immediate participation in a similar newly created Employee
Benefit Plan sponsored by the RHD Group.
SECTION 8.3. New D&B Plans. Except as provided in Section 5.6
herein, (a) with respect to any Employee Benefit Plan sponsored by the New D&B
Group after the Effective Time, the New D&B Group shall cause to be recognized
(to the extent applicable) each New D&B Employee's (i) past service with the
Corporation Group to the extent recognized under similar plans maintained by the
Corporation Group immediately prior to the Effective Time and (ii) accrued but
unused vacation time and sick days, and (b) any New D&B Employee who
participated in a Corporation Employee Benefit Plan immediately prior to the
Effective Time shall be entitled to immediate participation in a similar
Employee Benefit Plan sponsored by New D&B.
SECTION 8.4. Subsequent Employer. Except as provided in Section
5.7 herein, if, during the one-year period following the Effective Time, a RHD
Employee or a New D&B Employee terminates employment with his or her employer
and then immediately commences employment with the RHD Group or the New D&B
Group, the subsequent employer shall cause to be recognized (to the extent
applicable) such employee's past service with the Corporation Group, the RHD
Group or the New D&B Group to the extent recognized under similar plans
maintained by the prior employer. Notwithstanding the foregoing, no past service
shall be recognized with respect to pension accruals under the defined benefit
plans of the subsequent employer.
SECTION 8.5. Right to Amend or Terminate. Except as specifically
provided herein, nothing in this Agreement shall be construed or interpreted to
restrict the RHD Group's or the New D&B Group's right or authority to amend or
terminate any of their Employee Benefit Plans following the Effective Time.
ARTICLE IX
ACCESS TO INFORMATION
SECTION 9.1. Access to Information. Article IV of the
Distribution Agreement shall govern the rights of the RHD Group and the New D&B
Group with respect to access to information. The term "Records" in that Article
shall be read to include all Employee Benefit Records.
<PAGE> 23
23
ARTICLE X
INDEMNIFICATION
SECTION 10.1. Indemnification. Article III of the Distribution
Agreement shall govern the rights of the RHD Group and the New D&B Group with
respect to indemnification. The term "RHD Liabilities" in that Article shall be
read to include all Liabilities assumed or retained by the RHD Group pursuant to
this Agreement. The term "New D&B Liabilities" in that Article shall be read to
include all Liabilities assumed or retained by the New D&B Group pursuant to
this Agreement.
ARTICLE XI
DISPUTE RESOLUTION
SECTION 11.1. Dispute Resolution. Article VI of the Distribution
Agreement shall govern the rights of the RHD Group and the New D&B Group with
respect to dispute resolution. The term "Agreement Dispute" in that Article
shall be read to include all Employee Benefit Disputes.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1. Complete Agreement; Construction. This Agreement,
including the Exhibits and Schedules (if any), and the Distribution Agreement
shall constitute the entire agreement between the parties with respect to the
subject matter hereof and shall supersede all previous negotiations, commitments
and writings with respect to such subject matter. In the event of any
inconsistency between this Agreement and any Schedule hereto, the Schedule shall
prevail. Other than Sections 2.7 and 4.5 and Article VI of the Distribution
Agreement, which shall prevail over any inconsistent or conflicting provisions
in this Agreement, notwithstanding any other provisions in this Agreement to the
contrary, in the event and to the extent that there shall be a conflict between
the provisions of this Agreement and the provisions of the Distribution
Agreement, this Agreement shall control.
SECTION 12.2. Ancillary Agreements. This Agreement is not
intended to address, and should not be interpreted to address, the matters
specifically and expressly covered by the Ancillary Agreements.
SECTION 12.3. Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more such counterparts have
been signed by each of the parties and delivered to the other parties.
<PAGE> 24
24
SECTION 12.4. Survival of Agreements. Except as otherwise
contemplated by this Agreement, all covenants and agreements of the parties
contained in this Agreement shall survive the Distribution Date.
SECTION 12.5. Expenses. Except as otherwise set forth in this
Agreement, the Distribution Agreement or any Ancillary Agreement, all costs and
expenses incurred on or prior to the Distribution Date (whether or not paid on
or prior to the Distribution Date) in connection with the preparation,
execution, delivery and implementation of this Agreement, the Distribution
Agreement, any Ancillary Agreement, the Information Statement (including any
registration statement on Form 10 of which such Information Statement may be a
part) and the Distribution and the consummation of the transactions contemplated
thereby shall be charged to and paid by New D&B. Except as otherwise set forth
in this Agreement, the Distribution Agreement or any Ancillary Agreement, each
party shall bear its own costs and expenses incurred after the Distribution
Date. Any amount or expense to be paid or reimbursed by any party hereto to any
other party hereto shall be so paid or reimbursed promptly after the existence
and amount of such obligation is determined and demand therefor is made.
SECTION 12.6. Notices. All notices and other communications
hereunder shall be in writing and hand delivered or mailed by registered or
certified mail (return receipt requested) or sent by any means of electronic
message transmission with delivery confirmed (by voice or otherwise) to the
parties at the following addresses (or at such other addresses for a party as
shall be specified by like notice) and will be deemed given on the date on which
such notice is received:
To The Dun & Bradstreet Corporation:
One Manhattanville Road
Purchase, NY 10577
Telecopy: (914) 933-6899
Attn: Chief Legal Counsel
To The New Dun & Bradstreet Corporation:
One Diamond Hill Road
Murray Hill, NJ 07974
Telecopy: (908) 665-5803
Attn: Chief Legal Counsel
SECTION 12.7. Waivers. The failure of any party to require
strict performance by any other party of any provision in this Agreement will
not waive or diminish that party's right to demand strict performance thereafter
of that or any other provision hereof.
<PAGE> 25
25
SECTION 12.8. Amendments. Subject to the terms of Section 12.11
hereof, this Agreement may not be modified or amended except by an agreement in
writing signed by each of the parties hereto.
SECTION 12.9. Assignment. This Agreement shall not be assignable, in
whole or in part, directly or indirectly, by any party hereto without the prior
written consent of the other parties hereto, and any attempt to assign any
rights or obligations arising under this Agreement without such consent shall be
void.
SECTION 12.10. Successors and Assigns. The provisions to this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and permitted assigns.
SECTION 12.11. Termination. This Agreement (including, without
limitation, Section 4.8 and Article XI hereof) may be terminated and may be
amended, modified or abandoned at any time prior to the Distribution by and in
the sole discretion of Corporation without the approval of the shareholders of
Corporation. In the event of such termination, no party shall have any liability
of any kind to any other party or any other person. After the Distribution, this
Agreement may not be terminated except by an agreement in writing signed by the
parties; provided, however, that Section 4.8 and Article XI shall not be
terminated or amended after the Distribution in respect of the third party
beneficiaries thereto without the consent of such persons.
SECTION 12.12. Subsidiaries. Each of the parties hereto shall cause
to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Subsidiary of
such party or by any entity that is contemplated to be a Subsidiary of such
party on and after the Distribution Date.
SECTION 12.13. Third Party Beneficiaries. Except as provided in
Section 4.8 and Article XI, this Agreement is solely for the benefit of the
parties hereto and their respective Subsidiaries and Affiliates and should not
be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
SECTION 12.14. Title and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
SECTION 12.15. Exhibits and Schedules. The Exhibits and Schedules,
if any, shall be construed with and as an
<PAGE> 26
26
integral part of this Agreement to the same extent as if the same had been set
forth verbatim herein.
SECTION 12.16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
SECTION 12.17. Consent to Jurisdiction. Without limiting the
provisions of Article XII hereof, each of the parties irrevocably submits to the
exclusive jurisdiction of (a) the Supreme Court of the State of New York, New
York County, and (b) the United States District Court for the Southern District
of New York, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby. Each of the
parties agrees to commence any action, suit or proceeding relating hereto either
in the United States District Court for the Southern District of New York or if
such suit, action or other proceeding may not be brought in such court for
jurisdictional reasons, in the Supreme Court of the State of New York, New York
County. Each of the parties further agrees that service of any process, summons,
notice or document by U.S. registered mail to such party's respective address
set forth above shall be effective service of process for any action, suit or
proceeding in New York with respect to any matters to which it has submitted to
jurisdiction in this Section 12.17. Each of the parties irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement or the transactions contemplated
hereby in (i) the Supreme Court of the State of New York, New York County, or
(ii) the United States District Court for the Southern District of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
SECTION 12.18. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
SECTION 12.19. Governmental Notices; Cooperation.
Notwithstanding anything in this Agreement to the contrary, all actions
contemplated herein with respect to Employee Benefit Plans which are to be
consummated pursuant to this Agreement shall be subject to such notices to,
and/or approvals by, the Service or the PBGC (or any other governmental agency
or entity)
<PAGE> 27
27
as are required or deemed appropriate by such Employee Benefit Plan's sponsor.
RHD and New D&B agree to use their commercially reasonable efforts to cause all
such notices and/or approvals to be filed or obtained, as the case may be. Each
party hereto shall reasonably cooperate with the other parties with respect to
any government filings, employee notices or any other actions reasonably
necessary to maintain and implement the Employee Benefit Plans covered by this
Agreement.
SECTION 12.20. Further Assurances. From time to time, as and
when reasonably requested by any other party hereto, each party hereto shall
execute and deliver, or cause to be executed and delivered, all such documents
and instruments and shall take, or cause to be taken, all such further or other
actions as such other party may reasonably deem necessary or desirable to effect
the purposes of this Agreement and the transactions contemplated hereunder.
<PAGE> 28
IN WITNESS WHEREOF, the parties have duly executed and entered into
this Agreement, as of the date first above written.
THE DUN & BRADSTREET CORPORATION
by
----------------------------
Name:
Title:
THE NEW DUN & BRADSTREET
CORPORATION
by
----------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.4
INTELLECTUAL PROPERTY AGREEMENT
This INTELLECTUAL PROPERTY AGREEMENT (the "Agreement") is dated as
of _______ __, 1998, between THE DUN & BRADSTREET CORPORATION, a Delaware
corporation (the "Corporation"), and THE NEW DUN & BRADSTREET CORPORATION, a
Delaware corporation ("New D&B") (each a "Party" and collectively, the
"Parties").
RECITALS
WHEREAS, the Corporation, acting through its direct and indirect
subsidiaries, currently owns various intellectual property rights used in
connection with a number of businesses, which businesses are described in the
Distribution Agreement dated as of _________ __, 1998, between the Corporation
and New D&B (the "Distribution Agreement"); and
WHEREAS, the Parties hereto have determined that this Agreement is
appropriate in order to effectuate the purposes of the Distribution Agreement as
described therein, and in order to promote a clear understanding of their
respective intellectual property rights subsequent to the execution of said
Distribution Agreement and the Distribution (as defined therein) contemplated
thereby;
NOW, THEREFORE, in consideration of the mutual agreements,
undertakings and covenants herein and therein, the sufficiency of which is
hereby acknowledged, the Parties hereby agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01. Except as may be set forth herein, all defined terms
shall have the meaning set forth in Article I, Section 1.1 of the Distribution
Agreement.
Section 1.02. "Infringement" shall mean any infringement, imitation,
dilution, distortion, misappropriation or other unauthorized use or conduct in
violation or derogation of the rights in question.
Section 1.03. "Intellectual Property" shall mean all intellectual
property rights related to the Assets or Businesses of either the Corporation or
New D&B as defined in the Distribution Agreement, as they are now or may in
future exist or be conducted, including without limitation:
a. any and all rights, privileges and priorities arising under
the laws or treaties of the United States, any state,
territory or possession thereof, any other country or
political subdivision or territory thereof, or the European
Community, relating to intellectual property, including
patents, copyrights, trade names, trademarks, service marks,
mask works, trade secrets,
<PAGE> 2
2
inventions, databases, names and logos, trade dress,
technology, know-how, and other proprietary information and
licenses from third persons granting the right to use any of
the foregoing, including all registrations and applications
for any of the foregoing that have been issued by or filed
with the appropriate authorities, any common-law rights
arising from the use of the foregoing, any rights commonly
known as "industrial property rights" or the "moral rights" of
authors relating to the foregoing, all rights of renewal,
continuations, divisions, extensions and the like regarding
the foregoing and all claims, causes of action, or other
rights arising out of or relating to any actual or threatened
Infringement by any person relating to the foregoing;
b. all computer applications, programs and other software,
including without limitation operating software, network
software, firmware, middleware, and design software, all
design tools, systems documentation and instructions,
databases, and related items except to the extent that they
may be more specifically addressed in the Data Services
Agreement; and
c. all cost information, sales and pricing data, customer
prospect lists, supplier records, customer and supplier lists,
customer and vendor data, correspondence and lists, product
literature, artwork, design, development and manufacturing
files, vendor and customer drawings, formulations and
specifications, quality records and reports and other books,
records, studies, surveys, reports, plans and documents.
Section 1.04. "Intellectual Property Disputes" shall mean any and
all controversies, disputes or claims arising out of, in connection with, or in
relation to the interpretation, performance, nonperformance, validity or breach
of this Agreement or otherwise arising out of, or in any way related to this
Agreement or the Intellectual Property, including, without limitation, any and
all claims based on contract, tort, statute or constitution.
ARTICLE II. OWNERSHIP OF INTELLECTUAL PROPERTY.
General Principles of Allocation and Recognition
Section 2.01. Without limiting any obligation or liability of the
Corporation under the Distribution Agreement or any Ancillary Agreement, each of
the Parties hereto acknowledges, recognizes and agrees that, after the
Distribution, the Corporation (or another member of the RHD Group) shall own all
right, title and interest in all Intellectual Property that (i) originated
primarily with the conduct of the RHD Business or primarily in connection with
the RHD Assets; (ii) was obtained by, or exclusively or primarily for the
conduct of, the RHD Business or in connection with the RHD Assets; (iii) was
developed exclusively or primarily for the conduct of the RHD Business or in
connection with the RHD Assets; (iv) arose from funding by, or exclusively or
primarily for the benefit of the conduct of, the RHD Business or in connection
with the RHD Assets; or (v) as of the Distribution Date is used or held for use
exclusively or
<PAGE> 3
3
primarily for the conduct of the RHD Business or in connection with the RHD
Assets. If a conflict exists between any of the subsections (i) through (iv) of
this Section or Section 2.02 on the one hand and subsection (v) of this Section
on the other hand, then subsection (v) of this Section 2.01 shall prevail.
Section 2.02. Without limiting any obligation or liability of New
D&B under the Distribution Agreement or any Ancillary Agreement, and subject to
the provisions set forth in Article III below, each of the Parties hereto
acknowledges, recognizes and agrees that, after the Distribution, New D&B (or
another member of the New D&B Group) shall own all right, title and interest in
all Intellectual Property owned by the Corporation or any of its subsidiaries
immediately prior to the Distribution other than Intellectual Property described
in subsections (i) through (v) of Section 2.01.
Section 2.03. Certain Specified Items. Without limiting any
obligation or liability of any Party under the Distribution Agreement or any
Ancillary Agreement, each of the Parties hereto acknowledges, recognizes and
agrees that, after the Distribution, all right, title and interest in all
Intellectual Property relating to and associated with the items identified in
Schedule A, if any, shall be owned by or vested in the Party indicated therein.
This provision is intended to supplement the preceding Sections 2.01 and 2.02
with regard to these specified items, and should not be construed in any manner
that would tend to derogate from the validity or applicability of the general
principles of allocation and recognition set forth therein. Nevertheless, if a
conflict exists between this Section 2.03 and Sections 2.01 and 2.02, then this
Section 2.03 shall prevail.
Section 2.04. Rights Arising in Future. Each of the Parties hereto
acknowledges, recognizes and agrees that, after the Distribution Date, (i) any
and all Intellectual Property created by or on behalf of a Party, including
common-law rights related thereto, shall belong solely and exclusively to such
Party; and (ii) any and all subsequent ownership, possession and use by each
Party of the Intellectual Property that it will own subsequent to the
Distribution pursuant to the terms of this Agreement (excluding any possession
or use pursuant to license granted by another Party), including common-law
rights related thereto, shall inure solely to such Party's own benefit.
Section 2.05. No Warranties. Each of the Parties hereto understands
and agrees that, except as otherwise expressly provided, no Party hereto is, in
this Agreement or in any other agreement or document contemplated by this
Agreement or otherwise, making any representation or warranty whatsoever
regarding the Intellectual Property, including, without limitation, as to title,
value or legal sufficiency. It is also agreed and understood that any and all
Intellectual Property assets either transferred or retained by the Parties, as
the case may be, shall be "as is, where is".
Section 2.06. Recognition of Non-Party Rights. The recognition among
the Parties of ownership of Intellectual Property rights under Sections
2.01-2.04 of this Agreement is subject to all pre-existing rights, obligations
and restrictions of non-parties to this Agreement as of the Distribution Date.
<PAGE> 4
4
ARTICLE III. FURTHER ASSURANCES AND COOPERATION.
Section 3.01. Each Party hereto shall execute and deliver, or cause
to be executed and delivered, as and when reasonably requested by any other
Party hereto, all such documents and instruments and shall take, or cause to be
taken, all such further or other actions as such other Party may reasonably deem
necessary or desirable to effect the purposes of this Agreement and/or to
clarify, confirm and/or record the respective ownership rights of the Parties as
provided for in this Agreement.
Section 3.02. Each Party hereto shall reasonably cooperate with the
other Parties with respect to any government filings or any other actions
reasonably necessary to maintain, enforce and/or record the rights to the
Intellectual Property covered by this Agreement.
Section 3.03. Each Party hereto shall, upon the prior written
request of another Party, arrange for the provision of appropriate copies of
Records in its possession or control (or the originals thereof if the Party
making the request has a reasonable need for such originals) created prior to
the Distribution Date and relating to the Intellectual Property, as soon as
reasonably practicable following the receipt of such request, but only to the
extent such items are not already in the possession or control of the requesting
Party.
ARTICLE IV. INDEMNIFICATION.
Section 4.01. Article III of the Distribution Agreement shall govern
the rights of the Corporation and New D&B with respect to indemnification for
any and all Indemnifiable Losses incurred by any Party related to the
Intellectual Property.
ARTICLE V. DISPUTE RESOLUTION.
Section 5.01. Article VI of the Distribution Agreement shall govern
the rights of the Corporation and New D&B with respect to dispute resolution.
The term "Agreement Dispute" in that Article shall be read to include all
Intellectual Property Disputes.
ARTICLE VI. MISCELLANEOUS.
Section 6.01. Complete Agreement; Construction. This Agreement, the
Schedules hereto, the Distribution Agreement and the Data Services Agreement
shall constitute the entire agreement between the Parties with respect to the
subject matter hereof and shall supersede all previous negotiations, commitments
and writings with respect to such subject matter. In the event of any
inconsistency between this Agreement and any Schedule hereto, the Schedule shall
prevail. Other than Sections 2.7, 2.14 and 4.5 of the Distribution Agreement,
which shall prevail over any inconsistent or conflicting provisions in this
Agreement notwithstanding any other provisions in this Agreement to the
contrary, in the event and to the extent that there shall be an
<PAGE> 5
5
inconsistency between the provisions of this Agreement and the provisions of the
Distribution Agreement, this Agreement shall prevail.
Section 6.02. Other Agreements. This Agreement is not intended to
address, and should not be interpreted to address, the matters specifically and
expressly covered by the Distribution Agreement and/or other Ancillary
Agreements.
Section 6.03. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed
by each of the Parties and delivered to the other Party.
Section 6.04. Survival of Agreements. Except as otherwise
contemplated by this Agreement, all covenants and agreements of the Parties
contained in this Agreement shall survive the Distribution Date.
Section 6.05. Notices. All notices and other communications
hereunder shall be in writing and hand delivered or mailed by registered or
certified mail (return receipt requested) or sent by any means of electronic
message transmission with delivery confirmed (by voice or otherwise) to the
Parties at the following addresses (or at such other addresses for a Party as
shall be specified by like notice) and will be deemed given on the date on which
such notice is received:
To The Dun & Bradstreet Corporation:
c/o The Reuben H. Donnelley Corporation
One Manhattanville Road
Purchase, NY 10577
Telecopy: (914) 933-6899
Attn: Chief Legal Counsel
To The New Dun & Bradstreet Corporation:
One Diamond Hill Road
Murray Hill, NJ 07974
Telecopy: (908) 665-5827
Attn: Chief Legal Counsel
Section 6.06. Waivers. The failure of any Party to require strict
performance by any other Party of any provision in this Agreement will not waive
or diminish that Party's right to demand strict performance thereafter of that
or any other provision hereof.
<PAGE> 6
6
Section 6.07. Amendments. Subject to the terms of Section 6.10
hereof, this Agreement may not be modified or amended except by an agreement in
writing signed by each of the Parties hereto.
Section 6.08. Assignment. This Agreement shall not be assignable, in
whole or in part, directly or indirectly, by any Party hereto without the prior
written consent of the other Party hereto, and any attempt to assign any rights
or obligations arising under this Agreement without such consent shall be void.
Section 6.09. Successors and Assigns. The provisions to this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the Parties and their respective successors and permitted assigns.
Section 6.10. Termination. This Agreement may be terminated and may
be amended, modified or abandoned at any time prior to the Distribution by and
in the sole discretion of the Corporation without the approval of New D&B or the
shareholders of the Corporation. In the event of such termination, no Party
shall have any liability of any kind to any other Party or any other person.
After the Distribution, this Agreement may not be terminated except by an
agreement in writing signed by the Parties.
Section 6.11. Subsidiaries. Each of the Parties hereto shall cause
to be performed, and hereby guarantees the performance of, all actions,
agreements and obligations set forth herein to be performed by any Subsidiary of
such Party or by any entity that is contemplated to be a Subsidiary of such
Party on and after the Distribution Date.
Section 6.12. Third Party Beneficiaries. This Agreement is solely
for the benefit of the Parties hereto and their respective Subsidiaries and
Affiliates and should not be deemed to confer upon third Parties any remedy,
claim, liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.
Section 6.13. Title and Headings. Titles and headings to sections
herein are inserted for the convenience of reference only and are not intended
to be a part of or to affect the meaning or interpretation of this Agreement.
Section 6.14. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
Section 6.15. Consent to Jurisdiction. Without limiting the
provisions of Article V hereof, each of the Parties irrevocably submits to the
exclusive jurisdiction of (a) the Supreme Court of the State of New York, New
York County, and (b) the United States District Court for he Southern District
of New York, for the purposes of any suit, action or other proceeding arising
out of this Agreement or any transaction contemplated hereby. Each of the
Parties agrees to commence any action, suit or proceeding relating hereto either
in the United States District Court for the Southern District of New York or if
such suit, action or other proceeding may not be
<PAGE> 7
7
brought in such court for jurisdictional reasons, in the Supreme Court of the
State of New York, New York County. Each of the Parties further agrees that
service of any process, summons, notice or document by U.S. registered mail to
such Party's respective address set forth above shall be effective service of
process for any action, suit or proceeding in New York with respect to any
matters to which it has submitted to jurisdiction in this Section 6.15. Each of
the Parties irrevocably and unconditionally waives any objection to the laying
of venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the Supreme Court of the State of New
York, New York County, or (ii) the United States District Court for the Southern
District of New York, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.
Section 6.16. Severability. In the event any one or more of the
provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby. The Parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
<PAGE> 8
8
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
duly executed as of the day and year first above written.
THE DUN & BRADSTREET CORPORATION
By:
---------------------------------
Name:
Title:
THE NEW DUN & BRADSTREET CORPORATION
By:
---------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.5
SHARED TRANSACTION SERVICES AGREEMENT
BETWEEN
THE DUN & BRADSTREET CORPORATION
AND
THE NEW DUN & BRADSTREET CORPORATION
Dated as of _____________, 1998
<PAGE> 2
SHARED TRANSACTION SERVICES AGREEMENT (this "Agreement"), dated as
of , 1998 (the "Agreement Date"), by and between The New Dun & Bradstreet
Corporation, a Delaware Corporation ("New D&B") and The Dun & Bradstreet
Corporation, a Delaware corporation (the "Corporation").
W I T N E S S E T H :
WHEREAS, the Board of Directors of the Corporation has determined
that it is appropriate, desirable and in the best interests of the holders of
shares of common stock, par value $1.00 per share, of Corporation ("Corporation
Common Stock"), to take certain steps to reorganize Corporation's subsidiaries
and businesses and then to distribute to the holders of the Corporation Common
Stock all the outstanding shares of common stock of New D&B (the
"Distribution");
WHEREAS, prior to the Distribution Date, Dun & Bradstreet, Inc.
("Service Provider") a subsidiary of New D&B, has provided and R.H. Donnelley,
Inc. ("RHD"), a subsidiary of the Corporation, has purchased, pursuant to
various written and oral agreements, the Services described in this Agreement;
and
WHEREAS, in order to facilitate the orderly continuation of RHD's
business for a transitional period after the Distribution Date and to provide
certain services to RHD and the Corporation after the Distribution Date, New
D&B, on behalf of Service Provider, has agreed to provide to RHD and the
Corporation (collectively, RHD and the Corporation are referred to herein as the
"Recipient"), and the Corporation, on behalf of itself and RHD, has agreed to
purchase from Service Provider, the Services described in this Agreement.
NOW, THEREFORE, in consideration of the agreements set forth below,
it is agreed as follows:
ARTICLE 1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. The following defined terms shall have the meanings
specified below:
(1) "Additional Services" shall mean those services, in addition to the
Services, requested by Recipient pursuant to Section 3.2.
(2) "Agreement" shall have the meaning set forth in the Heading.
(3) "Agreement Date" shall have the meaning set forth in the preamble.
(4) "Alternative Provider" shall mean any alternative external service
provider selected by Recipient for the provision of services similar to
the Services following the expiration or termination of this Agreement.
(5) "Corporation" shall have the meaning set forth in the preamble.
(6) "Distribution" shall have the meaning set forth in the Recitals.
<PAGE> 3
2
(7) "Distribution Agreement" shall mean the Distribution Agreement dated as of
____________, 1998, between the Corporation and New D&B.
(8) "Distribution Date" shall mean the date on which the Distribution is made
under the Distribution Agreement.
(9) "Fees" shall mean those charges for the Services set forth in Schedule B.
(10) "New D&B" shall have the meaning set forth in the preamble.
(11) "Parties" shall mean Service Provider and Recipient, collectively.
(12) "Party" shall mean either of Service Provider or Recipient, as the case
may be.
(13) "Recipient" shall have the meaning set forth in the Recitals.
(14) "Recipient Data" shall mean all data or information supplied by Recipient
to Service Provider for processing or transmission in connection with the
Services.
(15) "RHD" shall have the meaning set forth in the Recitals.
(16) "Service Provider" shall have the meaning set forth in the Recitals.
(17) "Service Provider Service Location" shall mean any Service Provider
service location from which Service Provider provides or performs the
Services. The Service Provider Service Locations as of the Agreement Date
are located at Shelton, Connecticut, New York, New York, Allentown,
Pennsylvania, Berkeley Heights, New Jersey and Murray Hill, New Jersey.
(18) "Service" shall mean the Shared Transaction Services.
(19) "Shared Transaction Services" shall mean the services described in
Schedule A.
(20) "Term" shall have the meaning set forth in Article 2.
1.2 References. In this Agreement and the Schedules to this
Agreement:
(1) the Schedules to this Agreement shall be incorporated in and deemed
part of this Agreement and all references to this Agreement shall
include the Schedules to this Agreement; and
(2) references to the word "including" or the phrase "e.g." in this
Agreement shall mean "including, without limitation".
1.3 Headings. The article and section headings are for reference and
convenience only and shall not be considered in the interpretation of this
Agreement.
<PAGE> 4
3
1.4 Interpretation of Documents. In the event of a conflict between
this Agreement and the terms of any of the Schedules, the terms of this
Agreement shall prevail.
ARTICLE 2. TERM OF AGREEMENT.
The term of this Agreement shall commence on the Distribution Date
and shall continue until the earlier of the date the provision or services has
been completed or 12:00 midnight (Eastern Standard Time) on March 15, 1999 (the
"Term"), unless terminated earlier pursuant to Section 13.1.
ARTICLE 3. SERVICES.
3.1 Services. Service Provider shall provide to Recipient, and
Recipient shall purchase from Service Provider, the Shared Transaction Services.
The Services shall be of substantially the same type, quantity, quality and
utilization levels and provided with substantially the same degree of care and
diligence as such services had been provided to Recipient during the period
prior to the Distribution Date.
3.2 Additional Services. In the event that Recipient desires to
receive Additional Services or requires an increase in volume of Services,
Recipient shall notify Service Provider. If Service Provider agrees to provide
Additional Services or to an increase in volume of Services and the parties
agree on the terms applicable thereto, Service Provider and Recipient shall
execute a written amendment to this Agreement setting forth any additional terms
and conditions applicable thereto, including any additional fees.
ARTICLE 4. RECIPIENT OBLIGATIONS.
4.1 Generally. Recipient shall:
(1) comply with any reasonable instructions provided by Service Provider that
are necessary for Service Provider to adequately provide the Services;
(2) comply with all standards and procedures applicable to the Service
Provider Service Location;
(3) promptly report any operational or system problem to Service Provider; and
(4) maintain a business recovery plan detailing the requirements of Recipient
in the event of the occurrence of a disaster affecting the Services and
periodically test such plan.
4.2 Associated Equipment. Recipient shall maintain and be
responsible for all costs (including personnel, maintenance and repair)
associated with communications equipment (including terminals, communications
hardware, modems and telephone lines) that Recipient owns or operates and that
are not located at the Service Provider Service Location necessary to provide
the Services or to transmit the Recipient Data for processing at the Service
Provider Service Location.
<PAGE> 5
4
4.3 Security. Recipient shall ensure that user accounts shall only
be used by the person for whom such account was created or other authorized
personnel. Recipient shall promptly inform Service Provider of any individual
who is no longer authorized to use the Services.
ARTICLE 5. PROPRIETARY RIGHTS.
All software and hardware used by Service Provider to provide the Services is,
or shall be, and shall remain, the exclusive property of Service Provider or its
third party licensor and Recipient shall have no rights or interests in same.
ARTICLE 6. DATA
6.1 Form of Data. All data submitted by Recipient to Service
Provider in connection with the Services shall be in the form substantially
similar to that submitted before the Distribution date, unless otherwise agreed
to in writing by the parties.
6.2 Ownership of Data. The Recipient Data is and shall remain the
property of Recipient or its customers.
6.3 Ownership of Media. Unless furnished to Service Provider by
Recipient, all media upon which Recipient Data is stored is and shall remain the
property of Service Provider. Recipient may, upon Service Provider's consent,
(1) provide Service Provider with a replacement for the media upon which the
Recipient Data is stored or (2) purchase such media from Service Provider at the
price specified by Service Provider.
6.4 Responsibility for Data. Recipient is responsible from the
Agreement Date for (1) the accuracy and completeness of the data submitted by
Recipient in connection with the Services and (2) any errors in and with respect
to data obtained from Service Provider because of any inaccurate or incomplete
data submitted by Recipient to Service Provider.
ARTICLE 7. FEES
7.1 Fees. Recipient shall pay to Service Provider the fees set forth
in Schedule B in respect of each of the Services.
7.2 Time of Payment. The Fees shall be paid by Recipient as set
forth on Schedule B.
7.3 Taxes. Recipient shall pay any value-added tax and any tariff,
duty, export or import fee, sales tax, use tax, service tax or other tax or
charge subsequently imposed by any government or government agency on Recipient
or Service Provider with respect to the Services or the execution or performance
of this Agreement.
7.4 Late Payments. Any fees or payments owing to Service Provider
pursuant to this Agreement that are not paid when due shall bear interest at the
rate of one and one-half
<PAGE> 6
5
(1 1/2) percent per month, but in no event to exceed the highest lawful rate of
interest, calculated from the date such amount was due until the date payment is
received by Service Provider.
ARTICLE 8. CONFIDENTIALITY .
Each of the Parties shall not use or permit the use of (without the
prior consent of the other) and shall keep, and shall cause its consultants and
advisors to keep, confidential all information concerning the other Party in its
possession, its custody or under its control, except to the extent that (1) such
information has been in the public domain through no fault of such Party or (2)
such information has been later lawfully acquired from other sources by such
Party or (3) this Agreement or any other agreement entered into pursuant to this
Agreement permits the use or disclosure of such information, to the extent such
information (a) relates to the period up to the Distribution Date or (b) is
obtained in the course of providing or receiving the Services pursuant to this
Agreement, and each Party shall not (without the prior consent of the other)
otherwise release or disclose such information to any other person, except such
Party's auditors and attorneys, unless compelled to disclose such information by
judicial or administrative process or unless such disclosure is required by law
and such Party has used commercially reasonable efforts to consult with the
other Party prior to such disclosure.
ARTICLE 9. INDEMNITY.
Each Party agrees to indemnify and hold harmless the other Party in
respect of all claims, costs, expenses, damages and liabilities (including
reasonable attorney's fees) arising from the gross negligence or willful
misconduct of the employees, agents or other representatives of the indemnifying
Party after the Agreement Date or the breach of such Party's covenants or other
obligations under this Agreement. In no event shall either Party have any
liability to the other Party for any claims, losses, damages, judgments, costs
or expenses which the other Party may suffer or incur as a result of injuries to
personnel of such other Party or loss or theft or damage to any personal
property of such other Party at the Service Provider Service Location, except as
provided in the foregoing sentence.
ARTICLE 10. DISCLAIMER AND LIMITATION OF LIABILITY.
10.1 DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH HEREIN, SERVICE
PROVIDER MAKES NO REPRESENTATIONS OR WARRANTIES IN RESPECT OF THE SERVICES,
EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
10.2 Limitation of Liability. Recipient acknowledges that the
Services are provided by Service Provider (1) at the request of Recipient in
order to accommodate the Distribution, (2) at Service Provider's cost and that
no profit is being made by Service Provider and (3) with the expectation that
Service Provider is not assuming any financial or operational risks, including
those usually assumed by a service provider. Accordingly, Recipient agrees that
Service Provider shall not be liable for any direct, indirect, special,
incidental, consequential or other damages, of any nature whatsoever, including
lost profits or savings, whether or not such
<PAGE> 7
6
damages are foreseeable, or for any third party claims relating to the Services
or Service Provider's performance under this Agreement.
ARTICLE 11. DISPUTE RESOLUTION.
11.1 Procedure. Any disputes arising out of or in connection with
this Agreement shall be settled in accordance with the dispute resolution
mechanisms set forth in Article VI and Section 8.17 of the Distribution
Agreement.
11.2 Continuity of Services and Performance. Unless otherwise agreed
in writing, the Parties shall continue to provide the Services and honor all
other commitments under this Agreement during the course of dispute resolution
pursuant to the provisions of this Article 12 with respect to all matters not
subject to such dispute, controversy or claim.
ARTICLE 12. CONTINUED PROVISION OF SERVICES.
12.1 Force Majeure. Service Provider shall not be in default of its
obligations hereunder for any delays or failure in performance resulting from
any cause or circumstance beyond the reasonable control of Service Provider,
provided that Service Provider exercises commercially reasonable efforts to
perform its obligations in a timely manner. If any such occurrence prevents
Service Provider from providing any of the Services, Service Provider shall
cooperate with Recipient in obtaining, at Recipient's sole expense, an
alternative source for the affected Services, and Recipient shall be released
from any payment obligation to Service Provider in respect of such Services
during the period of such force majeure.
12.2 Disaster Recovery. Service Provider shall maintain a disaster
recovery policy in accordance with Schedule A. Upon the occurrence of a disaster
affecting the Services, Service Provider shall implement the disaster recovery
policy and Recipient shall be responsible for its proportionate share of any
fees incurred by Service Provider in connection with implementing the disaster
recovery policy.
ARTICLE 13. TERMINATION.
13.1 For Convenience. Recipient may terminate this Agreement at any
time during the Term upon ninety (90) days' notice to Service Provider.
13.2 Effect of Termination. Upon the termination of this Agreement
pursuant to Section 13.1, Recipient shall pay to Service Provider, no later than
the effective date of such termination, the balance of the Fees due for the
Term, together with any incremental costs related to such termination.
ARTICLE 14. TERMINATION ASSISTANCE SERVICES.
Upon the expiration of this Agreement or the effective date of termination of
this Agreement, Service Provider shall have no further obligation to provide the
Services to Recipient and for a period up to (a) sixty (60) days prior to the
expiration or the effective date of termination of this
<PAGE> 8
7
Agreement and (b) thirty (30) days following the expiration of this Agreement or
the effective date of termination of this Agreement, Service Provider shall use
reasonable efforts to cooperate, at Recipient's expense, with (i) the
Alternative Provider or (ii) Recipient, in connection with the transfer of the
Services and the Recipient Data, from Service Provider to the facilities of (x)
the Alternative Provider or (y) Recipient, as requested by Recipient.
ARTICLE 15. MISCELLANEOUS PROVISIONS.
15.1 No Waivers. No failure on the part of either Party to exercise
and no delay in exercising any right or remedy hereunder shall operate as a
waiver thereof nor shall any single or partial exercise by a Party of any right
or remedy hereunder preclude any other right or remedy or further exercise
thereof or the exercise of any other right.
15.2 Consents, Approvals and Requests. Unless otherwise specified in
this Agreement, all consents and approvals, acceptances or similar actions to be
given by either Party under this Agreement shall not be unreasonably withheld or
delayed and each Party shall make only reasonable requests under this Agreement.
15.3 Partial Invalidity. In the event any of the provisions of this
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of the remaining provisions of this
Agreement shall not be affected or impaired.
15.4 Notices. All notices, designations, approvals, consents,
requests, acceptances, rejections or other communications required or permitted
by this Agreement shall be in writing and shall be sent via telecopy to the
telecopy number specified below. A copy of any such notice shall also be sent by
registered express air mail on the date such notice is transmitted by telecopy
to the address specified below:
If to Service Provider:
The Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, New Jersey 07974
Telecopy No.: (908) 665-5827
Attention: Chief Legal Counsel
If to Recipient:
The Reuben H. Donnelley Corporation
One Manhattanville Road
Purchase, New York 10577
Telecopy No.: (914) 933-6899
Attention: Chief Legal Counsel
<PAGE> 9
8
Any Party may at any time, by notice to the other Party transmitted or sent in
the manner described above, change the address or telecopy number to which
communications to it are to be sent.
15.5 Relationship. The performance by Service Provider of its duties
and obligations under this Agreement shall be that of an independent contractor
and nothing herein contained shall create or imply an agency relationship
between the Parties, nor shall this Agreement be deemed to constitute a joint
venture or partnership between the Parties.
15.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
15.7 Covenant of Further Assurances. The Parties covenant and agree
that, subsequent to the execution and delivery of this Agreement and without any
additional consideration, each of the Parties will execute and deliver any
further legal instruments and perform any acts which are or may become
reasonably necessary to effectuate this Agreement.
15.8 Assignment. This Agreement may not be assigned by either Party,
other than to an affiliate of such Party or pursuant to a corporate
reorganization or merger, without the consent of the other Party. Any assignment
in contravention of this Section 15.8 shall be void.
15.9 Entire Understanding. This Agreement represents the entire
understanding of the Parties with respect to the Services and supersedes all
previous writings, correspondence and memoranda with respect thereto, and no
representations, warranties, agreements or covenants, express or implied, of any
kind or character whatsoever with respect to such subject matter have been made
by either Party to the other, except as herein expressly set forth.
15.10 Successors. Subject to the restrictions on assignment set
forth in Section 15.8, this Agreement shall be binding upon and inure to the
benefit of and be enforceable against the Parties hereto and their respective
successors and assigns.
15.11 Amendments. This Agreement can be modified or amended only by
a written amendment executed by both Parties.
15.12 Survival. The provisions of Article 5, Article 8, Article 9,
Article 10, Article 11, Article 14, Section 6.2, Section 6.3, Section 7.2,
Section 13.2, Section 15.6, this Section 15.12 and Section 15.14 shall survive
the expiration or termination of this Agreement.
15.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
15.14 Good Faith and Fair Dealing. Each Party hereby agrees that its
performance of all obligations and exercise of all rights under this Agreement
shall be governed by the fundamental principles of good faith and fair dealing.
<PAGE> 10
9
15.15 Third Party Beneficiaries. Each Party intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person or entity other than Recipient and Service Provider.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
THE NEW DUN & BRADSTREET
CORPORATION
By:
----------------------------------
Name:
Title:
THE DUN & BRADSTREET CORPORATION
By:
----------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.6
DATA SERVICES AGREEMENT
between
THE DUN & BRADSTREET CORPORATION
and
THE NEW DUN & BRADSTREET CORPORATION
Dated as of ________, 1998
Data Center Location: Berkeley Heights, New Jersey
Service Provider: Dun & Bradstreet, Inc.
Recipient: R.H. Donnelley, Inc.
<PAGE> 2
DATA SERVICES AGREEMENT (this "Agreement"), dated as of ______ ___,
1998 (the "Agreement Date"), by and between THE DUN & BRADSTREET CORPORATION
(the "Corporation") and THE NEW DUN & BRADSTREET CORPORATION ("New D&B").
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Corporation has determined
that it is appropriate, desirable and in the best interests of the holders of
shares of common stock, par value $1.00 per share, of Corporation ("Corporation
Common Stock"), to take certain steps to reorganize Corporation's subsidiaries
and businesses and then to distribute to the holders of the Corporation Common
Stock all the outstanding shares of common stock of New D&B (the
"Distribution");
WHEREAS, prior to the Distribution Date, Dun & Bradstreet, Inc.
("Service Provider") a subsidiary of New D&B, has provided and R.H. Donnelley,
Inc. ("Recipient"), a subsidiary of the Corporation, has purchased, pursuant to
various written and oral agreements, the Services described in this Agreement;
and
WHEREAS, in order to facilitate the orderly continuation of
Recipient's business for a transitional period after the Distribution Date, New
D&B, on behalf of Service Provider, has agreed to provide to Recipient, and the
Corporation, on behalf of Recipient, has agreed to purchase from Service
Provider, the Services described in this Agreement.
NOW, THEREFORE, in consideration of the agreements as set forth
below, it is agreed as follows:
ARTICLE 1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. The following defined terms shall have the meanings
specified below:
(1) "Agreement" shall have the meaning set forth in the Heading.
(2) "Agreement Date" shall have the meaning set forth in the
Heading.
(3) "Alternative Provider" shall mean any alternative external
service provider selected by Recipient for the provision of services similar to
the Services following the expiration or termination of this Agreement.
(4) "Corporation" shall have the meaning set forth in the preamble.
(5) "Data Center" shall mean Service Provider's data center located
at Berkeley Heights, New Jersey and any successor location.
<PAGE> 3
2
(6) "Data Processing Services" shall mean the data processing
services described in Schedule A.
(7) "Distribution" shall have the meaning set forth in the Recitals.
(8) "Distribution Agreement" shall mean the Distribution Agreement,
dated as of ________ __, 1998, between the Corporation and New D&B.
(9) "Distribution Date" shall mean the date on which the
Distribution is made under the Distribution Agreement.
(10) "Fees" shall mean those charges for the Services set forth in
Schedule D.
(11) "New D&B" shall have the meaning set forth in the preamble.
(12) "Recipient" shall have the meaning set forth in the Recitals.
(13) "Recipient Data" shall mean all data or information supplied by
Recipient to Service Provider for processing or transmission in connection with
the Services.
(14) "Recipient Software" shall mean the software and related
documentation owned or licensed by Recipient as set forth on Schedule C.
(15) "Service Provider" shall have the meaning set forth in the
Recitals.
(16) "Service Provider Software" shall mean the software and related
documentation (a) owned, acquired or developed by Service Provider that is used
in connection with the provision of the Services or (b) licensed or leased by
Service Provider from a third party which is used in connection with the
provision of the Services. The Service Provider Software is set forth in
Schedule E.
(17) "Services" shall mean the Data Processing Services.
(18) "Term" shall have the meaning set forth in Article 2.
1.2 References. In this Agreement and the Schedules to this
Agreement:
(1) the Schedules to this Agreement shall be incorporated in and
deemed part of this Agreement and all references to this Agreement shall include
the Schedules to this Agreement; and
(2) references to the word "including" or the phrase "e.g." in this
Agreement shall mean "including, without limitation".
<PAGE> 4
3
1.3 Headings. The article and section headings and the table of
contents are for reference and convenience only and shall not be considered in
the interpretation of this Agreement.
1.4 Interpretation of Documents. In the event of a conflict between
this Agreement and the terms of any of the Schedules, the terms of this
Agreement shall prevail.
ARTICLE 2. TERM OF AGREEMENT
The term of this Agreement shall commence on the Distribution Date
and shall continue until 12:00 midnight (Eastern Standard Time) on March 31,
1999 (the "Term"), unless terminated earlier pursuant to Section 14.1.
ARTICLE 3. SERVICES
Service Provider shall provide to Recipient, and Recipient shall
purchase from Service Provider the Data Processing Services described in
Schedule A. The Services shall be provided with substantially the same degree of
care and diligence as such services had been provided to Recipient during the
period prior to the Distribution Date. The Services shall be provided at the
levels of service set forth in Schedule B.
ARTICLE 4. RECIPIENT OBLIGATIONS
4.1 Recipient Software. With respect to the Recipient Software,
Recipient shall:
(1) maintain the Recipient Software and operational features at the
same level that was provided immediately prior to the Distribution Date, and
shall receive maintenance services from those third party service providers that
provided maintenance services to Recipient immediately prior to the Distribution
Date; and
(2) upon notice from Service Provider (which notice shall include
Service Provider's estimate of the costs, if any, of the enhancement or
modification) as soon as possible after it has been determined that an
enhancement or modification is necessary, but in any event upon at least thirty
(30) days' notice, enhance or modify such Recipient Software and operational
features as may be necessary to remain compatible with any systems used by
Service Provider in connection with the Services; provided, however, in the
event such enhancement or modification results in Service Provider incurring any
incremental expense or providing any additional resources, Recipient shall be
responsible for the payment of such incremental expense or the costs of such
additional resources.
<PAGE> 5
4
4.2 Generally. Recipient shall:
(1) comply with any reasonable instructions provided by Service
Provider that are necessary for Service Provider to adequately provide the
Services;
(2) comply with all standards and procedures applicable to the Data
Center;
(3) promptly report any operational or system problem to Service
Provider;
(4) maintain a business recovery plan detailing the requirements of
Recipient in the event of the occurrence of a disaster affecting the Services
and periodically test such plan.
4.3 Associated Equipment. Recipient shall maintain and be
responsible for all costs (including personnel, maintenance and repair)
associated with communications equipment (including terminals, communications
hardware, modems and telephone lines) that Recipient owns or operates and that
is not located at the Data Center necessary to provide the Services or to
transmit the Recipient Data for processing at the Data Center.
4.4 Security. Recipient shall ensure that user accounts shall only
be used by the person for whom such account was created or other authorized
personnel. Recipient shall promptly inform Service Provider of any individual
who is no longer authorized to use the Services.
ARTICLE 5. PROPRIETARY RIGHTS
5.1 Recipient Software. Recipient shall grant a non-exclusive,
nontransferable, royalty-free right for Service Provider, solely in connection
with providing the Services, to (1) have access to and operate the Recipient
Software and (2) use any other hardware, software and documentation owned by
Recipient that is necessary to allow Service Provider to perform the Services.
Recipient represents and warrants that it has obtained or will obtain all
consents or approvals necessary in connection with Service Provider's use of the
Recipient Software, the Licensed Documentation and any other such hardware,
software and documentation.
5.2 Service Provider Software. All Service Provider Software is, or
shall be, and shall remain, the exclusive property of Service Provider or its
third party licensor and Recipient shall have no rights or interests to the
Service Provider Software. Service Provider represents and warrants that it has
obtained or will obtain all consents or approvals necessary in connection with
Service Provider's use of the Service Provider Software to provide the Services.
Notwithstanding the foregoing, in connection with Software licensed from IBM,
Service Provider acknowledges that it has been verbally advised by IBM that the
Service Provider Software provided by IBM may be used by Service Provider to
provide the Services. However, if IBM or any other licensor of Service Provider
Software no longer permits Service Provider to use the Service Provider Software
or any portion thereof to provide the Services, Recipient shall obtain a license
for such software at its own cost (which permits Service Provider to use such
software to provide the Services), Service Provider shall reduce the Fees to
reflect such reduction in its
<PAGE> 6
5
costs and Service Provider shall not be responsible for the loss of the right to
use such software to provide the Services or for any failure or delay of
Recipient in procuring such license provided that Service Provider gives notice
to Recipient and reasonably assists Recipient in procuring such license. If
Recipient's use of Service Provider Software no longer qualifies for
consideration under IBM's "parallel sysplex pricing program" as part of Service
Provider's agreement with IBM, Recipient will either pay to Service Provider the
resulting increase in cost to Service Provider or obtain a license for such
software at its own cost (which permits Service Provider to use such software to
provide the Services) and in the latter event Service Provider shall reduce the
Fees to reflect the reduction in its costs. If Recipient's use of any Service
Provider Software results in the imposition of any "multiversion charges", then
recipient shall pay to Service Provider the resulting increase in cost.
ARTICLE 6. DATA
6.1 Form of Data. All data submitted by Recipient to Service
Provider in connection with the Services shall be in the form substantially
similar to that submitted before the Distribution Date, unless otherwise agreed
to in writing by the parties.
6.2 Ownership of Data. The Recipient Data is and shall remain the
property of Recipient or its customers.
6.3 Ownership of Media. All media upon which Recipient Data is
stored is and shall remain the property of Recipient. In the event additional
media is needed, it shall be obtained by Recipient, and be the property of
Recipient or its lessor.
6.4 Responsibility for Data. Recipient is responsible from the
Agreement Date for (1) the accuracy and completeness of the data submitted by
Recipient in connection with the Services and (2) any errors in and with respect
to data obtained from Service Provider because of any inaccurate or incomplete
data submitted by Recipient to Service Provider.
ARTICLE 7. FEES
7.1 Fees. Recipient shall pay to Service Provider the fees set forth
in Schedule D in respect of each of the Services.
7.2 Time of Payment. The Fees shall be paid by Recipient monthly in
arrears on or before the first business day immediately following the end of
each whole or partial calendar month of the Term.
7.3 Additional Services. In the event that Recipient believes that
its use of a Service will increase above that set forth in Schedule A or in
Schedule B for such Service, then Recipient shall notify Service Provider of the
need for such an increase. Service Provider shall then determine whether any
additional hardware or software is necessary in order for Service Provider to
provide the Service and any additional Fees that Service Provider will charge
for such
<PAGE> 7
6
additional Service. In the event that the parties agree that such additional
Service shall be provided, then, in the event that additional hardware or
software is required, (1) Recipient shall acquire, and provide to Service
Provider, such additional hardware or software (and the right for Service
Provider to use same to provide the Services) and Recipient shall pay to the
supplier or third party lessor or licensor, as may be applicable, the purchase
or lease fees in respect of such additional hardware or software and (2) Service
Provider shall implement the agreed-upon increase to the Fees.
7.4 Taxes. Recipient shall pay any value-added tax and any tariff,
duty, export or import fee, sales tax, use tax, service tax or other tax or
charge subsequently imposed by any government or government agency on Recipient
or Service Provider with respect to the Services or the execution or performance
of this Agreement.
7.5 Late Payments. Any undisputed fees or payments owing to Service
Provider pursuant to this Agreement that are not paid when due shall bear
interest at the rate of one and one-half (1 1/2) percent per month, but in no
event to exceed the highest lawful rate of interest, calculated from the date
such amount was due until the date payment is received by Service Provider.
ARTICLE 8. AUDITS
No more than one (1) time during the term of this Agreement,
Recipient shall have the right during normal business hours and upon reasonable
advance notice (but not less than thirty (30) days' notice), to review the
computer printouts and reports and other records of Service Provider to the
extent such books and records relate to the provision by Service Provider of the
Services. Any such review shall be conducted at Recipient's sole expense.
ARTICLE 9. CONFIDENTIALITY
Each of the Parties shall not use or permit the use of (without the
prior consent of the other) and shall keep, and shall cause its consultants and
advisors to keep, confidential all information concerning the other Party in its
possession, its custody or under its control (except to the extent that (1) such
information has been in the public domain through no fault of such Party or (2)
such information has been later lawfully acquired from other sources by such
Party or (3) this Agreement or any other agreement entered into pursuant to this
Agreement permits the use or disclosure of such information) to the extent such
information (a) relates to the period up to the Distribution Date or (b) is
obtained in the course of providing or receiving the Services pursuant to this
Agreement, and each Party shall not (without the prior consent of the other)
otherwise release or disclose such information to any other person, except such
Party's auditors and attorneys, unless compelled to disclose such information by
judicial or administrative process or unless such disclosure is required by law
and such Party has used commercially reasonable efforts to consult with the
other Party prior to such disclosure.
<PAGE> 8
7
ARTICLE 10. INDEMNITY
10.1 Subject to Section 5.2, Service Provider shall indemnify and
hold harmless Recipient in respect of all claims, costs, expenses, damages and
liabilities (including reasonable attorneys' fees) arising from any claim by a
third party licensor that the Service Provider Software made available to
Recipient by Service Provider infringes such third party's proprietary rights.
10.2 Recipient shall indemnify and hold harmless Service Provider in
respect of all claims, costs, expenses, damages and liabilities (including
reasonable attorneys' fees) arising from any claim by a third party licensor
that the Recipient Software made available to Service Provider by Recipient
infringes such third party's proprietary rights or otherwise for a breach of
Section 5.1.
ARTICLE 11. DISCLAIMER AND LIMITATION OF LIABILITY
11.1 DISCLAIMER. EXCEPT AS EXPRESSLY SET FORTH HEREIN, SERVICE
PROVIDER MAKES NO REPRESENTATIONS OR WARRANTIES IN RESPECT OF THE SERVICES, THE
RECIPIENT SOFTWARE AND THE SERVICE PROVIDER SOFTWARE, EXPRESS OR IMPLIED,
INCLUDING THE WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
11.2 Limitation of Liability. Neither of the parties shall be liable
to the other (or any claiming under or through the other) for any indirect,
special, incidental or consequential damages, including lost profits or savings,
whether or not such damages are foreseeable, or for any third party claims
relating to the Services or a Party's performance under this Agreement
regardless of the form of action (including negligence). Except as may arise as
a result of a party's gross negligence or willful misconduct, and as set forth
in Section 10 above, each party's liability for direct damages arising in
connection with its performance or failure to perform under this Agreement shall
in no event exceed three (3) months' Fees hereunder.
11.3 Acknowledgement. Recipient acknowledges that Recipient has
licensed, purchased or selected the Recipient Software and Service Provider
Software and the hardware upon which such software is installed to be used by
Service Provider in the provision of the Services, or directed Service Provider
to use same. Service Provider shall have no obligation to determine whether or
not the Recipient Software and Service Provider Software and the hardware upon
which such software is installed is adequate for Recipient's purposes,
including, but not limited to, the ability of such Recipient Software and
Service Provider Software and the hardware upon which such software is installed
to adequately process Recipient Data or adequately handle "Year 2000" issues,
such obligations being solely that of Recipient.
11.4 Relief From Obligations. Service Provider shall be relieved of
its obligations under this Agreement to the extent that it's ability to perform
is limited, hindered or disrupted by the acts or omissions of Recipient,
including Recipient's failure to perform its obligations under this Agreement in
a prompt and timely manner.
<PAGE> 9
8
ARTICLE 12. DISPUTE RESOLUTION
12.1 Procedure. Any disputes arising out of or in connection with
this Agreement shall be settled in accordance with the dispute resolution
mechanisms set forth in Article VI and Section 8.17 of the Distribution
Agreement.
12.2 Continuity of Services and Performance. Unless otherwise agreed
in writing, the Parties shall continue to provide the Services and honor all
other commitments under this Agreement during the course of dispute resolution
pursuant to the provisions of this Article 12 with respect to all matters not
subject to such dispute, controversy or claim.
ARTICLE 13. CONTINUED PROVISION OF SERVICES
13.1 Force Majeure. Service Provider shall not be in default of its
obligations hereunder for any delays or failure in performance resulting from
any cause or circumstance beyond the reasonable control of Service Provider,
provided that Service Provider exercises commercially reasonable efforts to
perform its obligations in a timely manner. If any such occurrence prevents
Service Provider from providing any of the Services, Service Provider shall
cooperate with Recipient in obtaining, at Recipient's sole expense, an
alternative source for the affected Services, and Recipient shall be released
from any payment obligation to Service Provider in respect of such Services
during the period of such force majeure.
13.2 Disaster Recovery. Recipient shall maintain a mainframe
computer disaster recovery coverage plan, including coverage for the Services.
Service Provider shall provider mainframe computer capacity for business
recovery purposes as set forth on Schedule F. Upon the occurrence of a disaster
affecting the Services relating to mainframe computing, Service Provider shall
assist Recipient in the implementation of the mainframe computer disaster
recovery procedures and Recipient shall be responsible for its proportionate
share of any fees incurred by Service Provider in connection with implementing
such procedures. Recipient shall provide Service Provider with a copy of the
plan at the beginning of each contract year and promptly after each change
thereto.
ARTICLE 14. TERMINATION
14.1 For Convenience. Recipient may terminate this Agreement at any
time during the Term upon ninety (90) days' notice to Service Provider.
14.2 Effect of Termination. Upon the termination of this Agreement
pursuant to Section 14.1, Recipient shall pay to Service Provider, no later than
the effective date of such termination, the balance of the Fees due for the
Term.
<PAGE> 10
9
ARTICLE 15. TERMINATION ASSISTANCE SERVICES
Upon the expiration of this Agreement or the effective date of
termination of this Agreement, Service Provider shall have no further obligation
to provide the Services to Recipient and for a period of up to (a) sixty (60)
days prior to the expiration or the effective date of termination of this
Agreement and (b) thirty (30) days following the expiration or the effective
date of termination of this Agreement, Service Provider shall use reasonable
efforts to cooperate, at Recipient's expense, with (i) the Alternative Provider
or (ii) Recipient, in connection with the transfer of the Services, the
Recipient Data and the Recipient Software, from Service Provider to the
facilities of (x) the Alternative Provider or (y) Recipient, as requested by
Recipient.
ARTICLE 16. MISCELLANEOUS PROVISIONS
16.1 No Waivers. No failure on the part of either Party to exercise
and no delay in exercising any right or remedy hereunder shall operate as a
waiver thereof nor shall any single or partial exercise by a Party of any right
or remedy hereunder preclude any other right or remedy or further exercise
thereof or the exercise of any other right.
16.2 Consents, Approvals and Requests. Unless otherwise specified in
this Agreement, all consents and approvals, acceptances or similar actions to be
given by either Party under this Agreement shall not be unreasonably withheld or
delayed and each Party shall make only reasonable requests under this Agreement.
16.3 Partial Invalidity. In the event any of the provisions of this
Agreement shall be invalid, illegal or unenforceable in any respect, the
validity, legality or enforceability of the remaining provisions of this
Agreement shall not be affected or impaired.
16.4 Notices. All notices, designations, approvals, consents,
requests, acceptances, rejections or other communications required or permitted
by this Agreement shall be in writing and shall be sent via telecopy to the
telecopy number specified below. A copy of any such notice shall also be sent by
registered express air mail on the date such notice is transmitted by telecopy
to the address specified below:
If to Service Provider:
The Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, New Jersey 07974
Telecopy No.: (908) 665-5827
Attention: Chief Legal Counsel
<PAGE> 11
10
If to Recipient:
Reuben H. Donnelley, Inc.
One Manhattanville Road
Purchase, New York 10577
Telecopy No.: (914) 933-6899
Attention: Chief Legal Counsel
Any Party may at any time, by notice to the other Party transmitted or sent in
the manner described above, change the address or telecopy number to which
communications to it are to be sent.
16.5 Relationship. The performance by Service Provider of its duties
and obligations under this Agreement shall be that of an independent contractor
and nothing herein contained shall create or imply an agency relationship
between the Parties, nor shall this Agreement be deemed to constitute a joint
venture or partnership between the Parties.
16.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED IN THE STATE OF NEW YORK.
16.7 Covenant of Further Assurances. The Parties covenant and agree
that, subsequent to the execution and delivery of this Agreement and without any
additional consideration, each of the Parties will execute and deliver any
further legal instruments and perform any acts which are or may become
reasonably necessary to effectuate this Agreement.
16.8 Assignment. This Agreement may not be assigned by either Party,
other than to an affiliate of such Party or pursuant to a corporate
reorganization or merger, without the consent of the other Party. Any assignment
in contravention of this Section 16.8 shall be void.
16.9 Entire Understanding. This Agreement represents the entire
understanding of the Parties with respect to the Services and supersedes all
previous writings, correspondence and memoranda with respect thereto, and no
representations, warranties, agreements or covenants, express or implied, of any
kind or character whatsoever with respect to such subject matter have been made
by either Party to the other, except as expressly set forth herein.
16.10 Successors. Subject to the restrictions on assignment set
forth in Section 16.8, this Agreement shall be binding upon and inure to the
benefit of an be enforceable against the Parties hereto and their respective
successors and assigns.
16.11 Amendments. This Agreement can be modified or amended only by
a written amendment executed by both Parties.
16.12 Survival. The provisions of Article 5, Article 8, Article 9,
Article 10, Article 11, Article 12, Article 15, Section 6.2, Section 6.3,
Section 7.6, Section 14.2, Section 16.6, this Section 16.12 and Section 16.15
shall survive.
<PAGE> 12
11
16.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which shall constitute one
and the same instrument.
16.14 Third Party Beneficiaries. Each Party intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person or entity other than Recipient and Service Provider.
16.15 Good Faith and Fair Dealing. Each Party hereby agrees that its
performance of all obligations and exercise of all rights under this Agreement
shall be governed by the fundamental principles of good faith and fair dealing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the day and year first above
written.
THE DUN & BRADSTREET CORPORATION
By:
-----------------------------
Name:
Title:
THE NEW DUN & BRADSTREET
CORPORATION
By:
-----------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.7
TRANSITION SERVICES AGREEMENT
between
THE DUN & BRADSTREET CORPORATION
and
THE NEW DUN & BRADSTREET CORPORATION
Dated as of ________ __, 1998
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
SERVICES PROVIDED......................... 1
1.1 Transition Services............................................ 1
1.2 Personnel...................................................... 1
1.3 Representatives................................................ 1
1.4 Level of Transition Services................................... 2
1.5 Limitation of Liability........................................ 2
1.6 Force Majeure.................................................. 3
1.7 Modification of Procedures..................................... 3
1.8 Provider Access................................................ 3
ARTICLE II
COMPENSATION............................ 3
2.1 Consideration.................................................. 3
2.2 Invoices....................................................... 4
2.3 Payment of Invoices............................................ 4
ARTICLE III
CONFIDENTIALITY.......................... 4
3.1 Obligation..................................................... 4
3.2 Care and Inadvertent Disclosure................................ 4
ARTICLE IV
TERM AND TERMINATION........................ 5
4.1 Term........................................................... 5
4.2 Termination.................................................... 5
4.3 Termination of Obligations..................................... 5
4.4 Survival of Certain Obligations................................ 5
ARTICLE V
DISPUTE RESOLUTION......................... 6
5.1 Dispute Resolution............................................. 6
-i-
<PAGE> 3
Page
----
ARTICLE VI
MISCELLANEOUS............................ 6
6.1 Complete Agreement; Construction............................... 6
6.2 Other Ancillary Agreements..................................... 6
6.3 Counterparts................................................... 6
6.4 Survival of Agreements......................................... 6
6.5 Notices........................................................ 6
6.6 Waivers........................................................ 7
6.7 Amendments..................................................... 7
6.8 Assignment..................................................... 7
6.9 Successors and Assigns......................................... 7
6.10 Subsidiaries.................................................. 7
6.11 Third Party Beneficiaries..................................... 7
6.12 Title and Headings............................................ 7
6.13 Appendices.................................................... 8
6.14 Governing Law................................................. 8
6.15 Consent to Jurisdiction....................................... 8
6.16 Severability.................................................. 8
6.17 Laws and Government Regulations............................... 8
6.18 Relationship of Parties....................................... 8
6.19 Definitions................................................... 9
-ii-
<PAGE> 4
TRANSITION SERVICES AGREEMENT
TRANSITION SERVICES AGREEMENT dated as of ________ __, 1998, between
THE DUN & BRADSTREET CORPORATION, a Delaware corporation (the "Corporation"),
and THE NEW DUN & BRADSTREET CORPORATION, a Delaware corporation ("New D&B").
W I T N E S S E T H :
WHEREAS, the Corporation and New D&B have entered into a
Distribution Agreement dated as of the date hereof (the "Distribution
Agreement") pursuant to which, among other matters, New D&B has agreed to
provide, or cause one or more of its Subsidiaries to provide, to the Corporation
certain transitional, administrative and support services on the terms set forth
in this Agreement and the Appendices hereto.
NOW, THEREFORE, subject to the terms, conditions, covenants and
provisions of this Agreement, each of the Corporation and New D&B mutually
covenant and agree as follows:
ARTICLE I
SERVICES PROVIDED
1.1 Transition Services. Upon the terms and subject to the
conditions set forth in this Agreement, with respect to each of those services
set forth in an Appendix hereto, each of which Appendices is made a part of this
Agreement, New D&B will provide to the Corporation the services indicated in
such Appendix (hereinafter referred to individually as a "Transition Service",
and collectively as the "Transition Services") during the time period for each
such Transition Service set forth in such Appendix (hereinafter referred to as
the "Time Periods" for all of the Transition Services, and the "Time Period" for
each Transition Service).
1.2 Personnel. In providing the Transition Services, New D&B as it
deems necessary or appropriate in its sole discretion, may (i) use its personnel
and that of its Affiliates, and (ii) employ the services of third parties to the
extent such third party services are routinely utilized to provide similar
services to other businesses of New D&B or are reasonably necessary for the
efficient performance of any of such Transition Services. The Corporation may
retain at its own expense its own consultants and other professional advisers.
1.3 Representatives. Each of the Corporation and New D&B shall
nominate a representative to act as its primary contact person for the provision
of all of the Transition Services (collectively, the "Primary Coordinators").
The initial Primary Coordinators shall be ________ for the Corporation and
________ for New D&B. The initial coordinators for each
<PAGE> 5
2
specific Transition Service shall be the individuals named in the Appendix
relating to such Transition Service (the "Service Coordinators"). Each party may
treat an act of a Primary Coordinator or Service Coordinator of another party as
being authorized by such other party without inquiring behind such act or
ascertaining whether such Primary Coordinator or Service Coordinator had
authority to so act. New D&B and the Corporation shall advise each other in
writing of any change in the Primary Coordinators and any Service Coordinator
for such Transition Service, setting forth the name of the Primary Coordinator
or Service Coordinator to be replaced and the name of the replacement, and
certifying that the replacement Primary Coordinator or Service Coordinator is
authorized to act for such party in all matters relating to this Agreement. Each
of the Corporation and New D&B agree that all communications relating to the
provision of the Transition Services shall be directed to the Primary
Coordinators.
1.4 Level of Transition Services. (a) New D&B shall perform the
Transition Services for which it is responsible hereunder following commonly
accepted standards of care in the industry and exercising the same degree of
care as it exercises in performing the same or similar services for its own
account as of the date of this Agreement, with priority equal to that provided
to its own businesses or those of any of its Affiliates, Subsidiaries or
divisions. Nothing in this Agreement shall require New D&B to favor the
businesses of the Corporation over its own businesses or those of any of its
Affiliates, Subsidiaries or divisions.
(b) New D&B shall not be required to provide the Corporation with
extraordinary levels of Transition Services, special studies, training, or the
like or the advantage of systems, equipment, facilities, training, or
improvements procured, obtained or made after the Distribution Date by New D&B.
(c) In addition to being subject to the terms and conditions of this
Agreement for the provision of the Transition Services, the Corporation agrees
that the Transition Services provided by third parties shall be subject to the
terms and conditions of any agreements between New D&B and such third parties.
New D&B shall consult with the Corporation concerning the terms and conditions
of any such agreements to be entered into, or proposed to be entered into, with
third parties after the date hereof but the Corporation shall have no right to
require New D&B to reject or amend any of such terms and conditions.
1.5 Limitation of Liability. In the absence of gross negligence or
willful misconduct on the part of New D&B, and whether or not New D&B is
negligent, New D&B shall not be liable for any claims, liabilities, damages,
losses, costs, expenses (including, but not limited to, settlements, judgments,
court costs and reasonable attorneys' fees), fines and penalties, arising out of
any actual or alleged injury, loss or damage of any nature whatsoever in
providing or failing to provide Transition Services for which it is responsible
hereunder to the Corporation. Notwithstanding anything to the contrary contained
herein, in the event New D&B commits an error with respect to or incorrectly
performs or fails to perform any Transition Service, at the Corporation's
request, New D&B shall use reasonable efforts and good faith to correct such
error, re-perform or perform such Transition Service at no additional cost to
such Recipient; provided, that New D&B shall have no obligation to recreate any
lost or destroyed data to the extent the same cannot be cured by the
re-performance of the Transition Service in question.
<PAGE> 6
3
1.6 Force Majeure. Any failure or omission by a party in the
performance of any obligation under this Agreement shall not be deemed a breach
of this Agreement or create any liability, if the same arises from any cause or
causes beyond the control of such party, including, but not limited to, the
following, which, for purposes of this Agreement shall be regarded as beyond the
control of each of the parties hereto: acts of God, fire, storm, flood,
earthquake, governmental regulation or direction, acts of the public enemy, war,
rebellion, insurrection, riot, invasion, strike or lockout; provided, however,
that such party shall resume the performance whenever such causes are removed.
Notwithstanding the foregoing, if such party cannot perform under this Agreement
for a period of forty-five (45) days due to such cause or causes, the affected
party may terminate the Agreement with the defaulting party by providing written
notice thereto.
1.7 Modification of Procedures. New D&B may make changes from time
to time in its standards and procedures for performing the Transition Services
for which it is responsible hereunder. Notwithstanding the foregoing sentence,
unless required by law, New D&B shall not implement any substantial changes
affecting the Corporation unless:
(a) New D&B has furnished the Corporation notice (which may be the
same notice New D&B shall provide its own businesses) thereof;
(b) New D&B changes such procedures for its own businesses at the
same time; and
(c) New D&B gives the Corporation a reasonable period of time for
the Corporation (i) to adapt its operations to accommodate such changes or
(ii) to reject the proposed changes. In the event the Corporation fails to
accept or reject a proposed change on or before a date specified in such
notice of change, the Corporation shall be deemed to have accepted such
change. In the event the Corporation rejects a proposed change but does
not terminate this Agreement, the Corporation agrees to pay any charges
resulting from New D&B's need to maintain different versions of the same
systems, procedures, technologies, or services or resulting from
requirements of third party vendors or suppliers.
1.8 Provider Access. To the extent reasonably required for personnel
of New D&B to perform the Transition Services hereunder, the Corporation shall
provide personnel of New D&B with access to its equipment, office space, plants,
telecommunications and computer equipment and systems, and any other areas and
equipment.
ARTICLE II
COMPENSATION
2.1 Consideration. As consideration for the Transition Services, the
Corporation shall pay to New D&B the amount specified for each such Transition
Service as set forth in the Appendix relating to such Transition Service.
<PAGE> 7
4
2.2 Invoices. After the end of each month, New D&B together with
such party's Affiliates or Subsidiaries providing Transition Services will
submit one invoice to the Corporation for all Transition Services provided to
the Corporation and its Subsidiaries by New D&B during such month. Such monthly
invoices shall be issued no later than the fifteenth day of each succeeding
month. Each invoice shall include a summary list of the previously agreed upon
Transition Service for which there are fixed dollar fees, together with
documentation supporting each of the invoiced amounts that are not covered by
the fixed fee agreements. The total amount set forth on such summary list and
such supporting detail shall equal the invoice total, and will be provided under
separate cover apart from the invoice. All invoices shall be sent to the
attention of Service Coordinator of the Corporation at the address set forth in
Section 6.5 hereof or to such other address as the Corporation shall have
specified by notice in writing to New D&B.
2.3 Payment of Invoices. (a) Payment of all invoices in respect of a
Transition Service shall be made by check or electronic funds transmission in
U.S. Dollars, without any offset or deduction of any nature whatsoever, within
thirty (30) days of the invoice date unless otherwise specified in the Appendix
relating to such Transition Service. All payments shall be made to the account
designated by New D&B, with written confirmation of payment sent by facsimile to
the Service Coordinator or other person designated thereby.
(b) If any payment is not paid when due, New D&B shall have the
right, without any liability to the Corporation, or anyone claiming by or
through the Corporation, to immediately cease providing any or all of the
Transition Services provided by New D&B to the Corporation, which right may be
exercised by New D&B in its sole and absolute discretion.
ARTICLE III
CONFIDENTIALITY
3.1 Obligation. Each party and its Subsidiaries shall not use or
permit the use of (without the prior written consent of the other parties) and
shall keep, and shall cause its consultants and advisors to keep, confidential
all information concerning the other party received pursuant to or in connection
with this Agreement.
3.2 Care and Inadvertent Disclosure. With respect to any
confidential information, each party agrees as follows:
(a) it shall use the same degree of care in safeguarding said
information as it uses to safeguard its own information which must be held
in confidence; and
(b) upon the discovery of any inadvertent disclosure or unauthorized
use of said information, or upon obtaining notice of such a disclosure or
use from the other party, it shall take all necessary actions to prevent
any further inadvertent disclosure or unauthorized use, and, subject to
the provisions of Section 1.5 above, such other party shall be entitled to
pursue any other remedy which may be available to it.
<PAGE> 8
5
ARTICLE IV
TERM AND TERMINATION
4.1 Term. This Agreement shall become effective on the Distribution
Date and shall remain in force until the expiration of the longest Time Period
specified in any Appendix hereto, including any extension thereof, unless this
Agreement is terminated under Sections 1.6, 4.2 or 6.16 prior to the end of such
Time Period.
4.2 Termination. If any party (hereafter called the "Defaulting
Party") shall fail to perform or default in the performance of any of its
obligations under this Agreement (other than a payment default), the party
entitled to the benefit of such performance (hereinafter referred to as a
"Non-Defaulting Party") may give written notice to the Defaulting Party
specifying the nature of such failure or default and stating that the
Non-Defaulting Party intends to terminate this Agreement with respect to the
Defaulting Party if such failure or default is not cured within fifteen days of
such written notice. If any failure or default so specified is not cured within
such fifteen day period, the Non-Defaulting Party may elect to immediately
terminate this Agreement with respect to the Defaulting Party; provided,
however, that if the failure or default relates to a dispute contested in good
faith by the Defaulting Party, the Non-Defaulting Party may not terminate this
Agreement pending the resolution of such dispute in accordance with Article V
hereof. Such termination shall be effective upon giving a written notice of
termination from the Non-Defaulting Party to the Defaulting Party and shall be
without prejudice to any other remedy which may be available to the
Non-Defaulting Party against the Defaulting Party.
4.3 Termination of Obligations. The Corporation specifically agrees
and acknowledges that all obligations of New D&B to provide each Transition
Service hereunder shall immediately cease upon the expiration of the Time Period
for such Transition Service, and New D&B's obligations to provide all of the
Transition Services for which New D&B is responsible hereunder shall immediately
cease upon the termination of this Agreement. Upon the cessation of New D&B's
obligation to provide any Transition Service, the Corporation shall immediately
cease using, directly or indirectly, such Transition Service (including, without
limitation, any and all software of New D&B or third party software provided
through New D&B, telecommunications services or equipment, or computer systems
or equipment).
4.4 Survival of Certain Obligations. Without prejudice to the
survival of the other agreements of the parties, the following obligations shall
survive the termination of this Agreement: (a) the obligations of each party
under Articles III and IV, and (b) New D&B's right to receive the compensation
for the Transition Services provided by it hereunder provided in Section 2.1
above incurred prior to the effective date of termination.
<PAGE> 9
6
ARTICLE V
DISPUTE RESOLUTION
5.1 Dispute Resolution. Any disputes arising out of or in connection
with this Agreement shall be settled in accordance with the dispute resolution
mechanisms set forth in Article VI of the Distribution Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Complete Agreement; Construction. This Agreement, including the
Appendices hereto, shall constitute the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter. In
the event of any inconsistency between this Agreement and any Appendix hereto,
the Appendix shall prevail. In the event and to the extent that there shall be a
conflict between the provisions of this Agreement and the provisions of any
other Ancillary Agreement, this Agreement shall control.
6.2 Other Ancillary Agreements. This Agreement is not intended to
address, and should not be interpreted to address, the matters specifically and
expressly covered by the other Ancillary Agreements.
6.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
6.4 Survival of Agreements. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the Distribution Date.
6.5 Notices. All notices and other communications hereunder shall be
in writing and hand delivered or mailed by registered or certified mail (return
receipt requested) or sent by any means of electronic message transmission with
delivery confirmed (by voice or otherwise) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and will be deemed given on the date on which such notice is received:
<PAGE> 10
7
To the Corporation:
The Reuben H. Donnelley Corporation
One Manhattanville Road
Purchase, New York 10577
Telecopy: (914) 933-6899
Attn.: Chief Legal Counsel
To New D&B:
The New Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, New Jersey 07974
Telecopy: (908) 665-5827
Attn.: Chief Legal Counsel
6.6 Waivers. The failure of any party to require strict performance
by any other party of any provision in this Agreement will not waive or diminish
that party's right to demand strict performance thereafter of that or any other
provision hereof.
6.7 Amendments. This Agreement may not be modified or amended except
by an agreement in writing signed by each of the parties hereto.
6.8 Assignment. This Agreement may not be assigned by either party,
other than to an Affiliate of such party or pursuant to a corporate
reorganization or merger, without the consent of the other party. Any assignment
in contravention of this Section 6.8 shall be void.
6.9 Successors and Assigns. The provisions to this Agreement shall
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns.
6.10 Subsidiaries. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein to be performed by any Subsidiary of such party or
by any entity that is contemplated to be a Subsidiary of such party on and after
the Distribution Date.
6.11 Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and should not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without reference to this Agreement.
6.12 Title and Headings. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
<PAGE> 11
8
6.13 Appendices. The Appendices shall be construed with and as an
integral part of this Agreement to the same extent as if the same had been set
forth verbatim herein. In the event of any inconsistency between the terms of
any Appendix and the terms set forth in the main body of this Agreement, the
terms of the Appendix shall govern.
6.14 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
6.15 Consent to Jurisdiction. Each of the parties irrevocably
submits to the exclusive jurisdiction of (a) the Supreme Court of the State of
New York, New York County, and (b) the United States District Court for the
Southern District of New York, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby.
Each of the parties agrees to commence any action, suit or proceeding relating
hereto either in the United States District Court for the Southern District of
New York or if such suit, action or other proceeding may not be brought in such
court for jurisdictional reasons, in the Supreme Court of the State of New York,
New York County. Each of the parties further agrees that service of any process,
summons, notice or document by U.S. registered mail to such party's respective
address set forth above shall be effective service of process for any action,
suit or proceeding in New York with respect to any matters to which it has
submitted to jurisdiction in this Section 6.15. Each of the parties irrevocably
and unconditionally waives any objection to the laying of venue of any action,
suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in (i) the Supreme Court of the State of New York, New York
County, or (ii) the United States District Court for the Southern District of
New York, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
6.16 Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions,
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.
6.17 Laws and Government Regulations. The Corporation shall be
responsible for (i) compliance with all laws and governmental regulations
affecting its businesses and (ii) any use the Corporation may make of the
Transition Services to assist it in complying with such laws and governmental
regulations. New D&B shall not have any responsibility for the compliance by the
Corporation of such Transition Services with such laws and regulations.
6.18 Relationship of Parties. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision
<PAGE> 12
9
contained herein, and no act of the parties, shall be deemed to create any
relationship between the parties other than the relationship of buyer and seller
of services nor be deemed to vest any rights, interests or claims in any third
parties. The parties do not intend to waive any privileges or rights to which
they may be entitled.
6.19 Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the
Distribution Agreement.
<PAGE> 13
10
IN WITNESS WHEREOF, the parties hereto have caused this Transition
Services Agreement to be executed the day and year first above written.
THE DUN & BRADSTREET CORPORATION
By:
----------------------------------
Name:
Title:
THE NEW DUN & BRADSTREET
CORPORATION
By:
----------------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.8
AMENDED AND RESTATED
TRANSITION SERVICES AGREEMENT
This AMENDED AND RESTATED TRANSITION SERVICES AGREEMENT dated as of
_______________, 1998, among THE DUN & BRADSTREET CORPORATION, a Delaware
corporation (the "Corporation"), THE NEW DUN & BRADSTREET CORPORATION, a
Delaware corporation ("New D&B"), COGNIZANT CORPORATION, a Delaware corporation
("Cognizant"), IMS Health Incorporated, a Delaware corporation ("IMS Health"),
ACNIELSEN CORPORATION, a Delaware corporation ("ACNielsen"), and GARTNER GROUP,
INC., a Delaware corporation ("Gartner") amends and restates in its entirety the
Transition Services Agreement dated as of October 28, 1996 (the "1996 Transition
Services Agreement") among the Corporation, Cognizant and ACNielsen and includes
Gartner as a party to such agreement.
W I T N E S S E T H
WHEREAS, pursuant to a Distribution Agreement dated as of October
28, 1996 (the "1996 Distribution Agreement") among the Corporation, Cognizant
and ACNielsen, each party agreed to provide to the other parties certain
transitional, administrative and support services, including insurance and risk
management services, on the terms set forth in the 1996 Transition Services
Agreement and the Appendix thereto.
WHEREAS, the Corporation and New D&B have entered into a
Distribution Agreement dated the date hereof (the "D&B Distribution Agreement")
pursuant to which, among other matters, each of the Corporation and New D&B have
agreed to provide, or cause one or more of their Subsidiaries to provide, to the
other party and their respective Subsidiaries certain transitional,
administrative and support services.
WHEREAS, Cognizant and IMS Health have entered into a Distribution
Agreement dated the date hereof (the "Cognizant Distribution Agreement" and
together with the 1996 Distribution Agreement and the D&B Distribution
Agreement, the "Distribution Agreements") pursuant to which, among other
matters, each of Cognizant and IMS Health have agreed to provide, or cause one
or more of their Subsidiaries to provide, to the other party and their
respective Subsidiaries certain transitional, administrative and support
services.
WHEREAS, each of the Corporation, New D&B, Cognizant, IMS Health and
ACNielsen agrees that it is in its best interest to amend and restate the 1996
Transition Services Agreement to include each party on the terms set forth in
this Agreement and Gartner agrees that it is in its best interest to become a
party to this Agreement. New D&B shall hereinafter be referred to as the
"Provider", and each of the Corporation, Cognizant, IMS Health, ACNielsen and
Gartner shall hereinafter be referred to as a "Recipient" or collectively, the
"Recipients".
<PAGE> 2
2
NOW, THEREFORE, subject to the terms, conditions, covenants and
provisions of this Agreement, each of the Corporation, New D&B, Cognizant, IMS
Health, ACNielsen and Gartner mutually covenant and agree that as of the date
hereof, the 1996 Transition Services Agreement will be amended and restated in
its entirety as follows:
ARTICLE I
SERVICES PROVIDED
1.1 Transition Services. New D&B (the "Provider") shall provide
comprehensive insurance and risk management services to the Corporation,
Cognizant, IMS Health and ACNielsen (each a "Recipient"; collectively, the
"Recipients"). Such services shall include risk identification, development of
appropriate insurance programs, loss prevention initiatives, accounting for
premiums, deductibles, retentions and defense costs, claims management
(including coordination with insurance carriers), the collection and
distribution of insurance proceeds and such other services as the Corporation's
Risk Management staff has been providing to the Corporation, Cognizant and
ACNielsen as of the date hereof (all such services, collectively, the
"Transition Services").
1.2 Personnel. In providing the Transition Services, the Provider as
it deems necessary or appropriate in its sole discretion, may (i) use the
personnel of such Provider or its Affiliates, and (ii) employ the services of
third parties to the extent such third party services are routinely utilized to
provide similar services to other businesses of such Provider or are reasonably
necessary for the efficient performance of any of such Transition Services. Each
Recipient may retain at its own expense its own consultants and other
professional advisers.
1.3 Representatives. Each of the Corporation, New D&B, Cognizant,
IMS Health and ACNielsen shall nominate a representative to act as its primary
contact person for the provision of all of the Transition Services
(collectively, the "Primary Coordinators"). The initial Primary Coordinators
shall be Frank Colarusso for the Corporation, John Riley, Director of Risk
Management, for New D&B, Stuart Goldshein for Cognizant, Leslye Katz, Vice
President and Treasurer, for IMS Health, John Forster for ACNielsen and Andrea
Tarbox for Gartner. Each party may treat an act of a Primary Coordinator of
another party as being authorized by such other party without inquiring behind
such act or ascertaining whether such Primary Coordinator had authority to so
act. The Provider and the relevant Recipient of a Transition Service shall
advise each other in writing of any change in the Primary Coordinators for such
Transition Service, setting forth the name of the Primary Coordinator to be
replaced and the name of the replacement, and certifying that the replacement
Primary Coordinator is authorized to act for such party in all matters relating
to this Agreement. Each of the Corporation, New D&B, Cognizant, IMS Health,
ACNielsen and Gartner agree that all communications relating to the provision of
the Transition Services shall be directed to the Primary Coordinators.
<PAGE> 3
3
1.4 Level of Transition Services. (a) The Provider shall perform the
Transition Services for which it is responsible hereunder following commonly
accepted standards of care in the industry and exercising the same degree of
care as it exercises in performing the same or similar services for its own
account as of the date of this Agreement, with priority equal to that provided
to its own businesses or those of any of its Affiliates, Subsidiaries or
divisions. Nothing in this Agreement shall require the Provider to favor the
businesses of any Recipient over its own businesses or those of any of its
Affiliates, Subsidiaries or divisions.
(b) The Provider of Transition Services shall not be required to
provide the Recipient of such Transition Services with extraordinary levels of
Transition Services, special studies, training, or the like or the advantage of
systems, equipment, facilities, training, or improvements procured, obtained or
made after the applicable Distribution Date by the Provider.
(c) In addition to being subject to the terms and conditions of this
Agreement for the provision of the Transition Services, each Recipient agrees
that the Transition Services provided by third parties shall be subject to the
terms and conditions of any agreements between the Provider of such Transition
Services and such third parties. The Provider shall consult with the relevant
Recipient concerning the terms and conditions of any such agreements to be
entered into, or proposed to be entered into, with third parties after the date
hereof.
1.5 Limitation of Liability. In the absence of gross negligence or
willful misconduct on the part of the Provider, and whether or not the Provider
is negligent, such Provider shall not be liable for any claims, liabilities,
damages, losses, costs, expenses (including, but not limited to, settlements,
judgments, court costs and reasonable attorneys' fees), fines and penalties,
arising out of any actual or alleged injury, loss or damage of any nature
whatsoever in providing or failing to provide Transition Services for which it
is responsible hereunder to the Recipient of such Transition Services.
Notwithstanding anything to the contrary contained herein, in the event the
Provider commits an error with respect to or incorrectly performs or fails to
perform any Transition Service, at the relevant Recipient's request, the
Provider shall use reasonable efforts and good faith to correct such error,
re-perform or perform such Transition Service at no additional cost to such
Recipient; provided, that the Provider shall have no obligation to recreate any
lost or destroyed data to the extent the same cannot be cured by the
re-performance of the Transition Service in question.
1.6 Force Majeure. Any failure or omission by a party in the
performance of any obligation under this Agreement shall not be deemed a breach
of this Agreement or create any liability, if the same arises from any cause or
causes beyond the control of such party, including, but not limited to, the
following, which, for purposes of this Agreement shall be regarded as beyond the
control of each of the parties hereto: acts of God, fire, storm,
<PAGE> 4
4
flood, earthquake, governmental regulation or direction, acts of the public
enemy, war, rebellion, insurrection riot, invasion, strike or lockout; provided,
however, that such party shall resume the performance whenever such causes are
removed. Notwithstanding the foregoing, if such party cannot perform under this
Agreement for a period of forty-five (45) days due to such cause or causes, the
affected party may terminate the Agreement with the defaulting party by
providing written notice thereto.
1.7 Modification of Procedures. The Provider may make changes from
time to time in its standards and procedures for performing the Transition
Services for which it is responsible hereunder. Notwithstanding the foregoing
sentence, unless required by law, the Provider shall not implement any
substantial changes affecting a Recipient of the relevant Transition Services
unless:
(a) the Provider has furnished such Recipient notice (which shall be
the same notice the Provider shall provide its own businesses) thereof;
(b) the Provider changes such procedures for its own businesses at
the same time; and
(c) the Provider gives such Recipient a reasonable period of time
for such Recipient (i) to adapt its operations to accommodate such changes or
(ii) to reject the proposed changes. In the event such Recipient fails to accept
or reject a proposed change on or before a date specified in such notice of
change, such Recipient shall be deemed to have accepted such change. In the
event such Recipient rejects a proposed change but does not terminate this
Agreement, such Recipient agrees to pay any charges resulting from the
Provider's need to maintain different versions of the same systems, procedures,
technologies, or services or resulting from requirements of third party vendors
or suppliers.
1.8 No Obligation to Continue to Use Services. No Recipient shall
have any obligation to continue to use any of the Transition Services and may
delete any Transition Service from the Transition Services that the Provider is
providing to such Recipient by giving the Provider 180 days notice thereof.
1.9 Provider Access. To the extent reasonably required for personnel
of the Provider to perform the Transition Services for which the Provider is
responsible hereunder, the Recipient of such Transition Services shall provide
personnel of the Provider with access to its equipment, office space, plants,
telecommunications and computer equipment and systems, and any other areas and
equipment.
1.10 Performance Reviews. The Primary Coordinators for each
Recipient shall meet during the fourth quarter of each year with the Primary
Coordinator for the Provider for the purpose of reviewing the performance of the
Provider's Risk Management staff. Any disputes relating to the quality of such
performance shall be brought to the
<PAGE> 5
5
attention of the respective Chief Financial Officers (or person holding an
equivalent title) of the Provider and the Recipients.
ARTICLE II
COMPENSATION
2.1 Consideration. As consideration for the Transition Services,
each Recipient of Transition Services shall pay to the Provider a portion of the
costs and expenses incurred by the Provider relating to the Risk Management
staff as follows: each Recipient shall pay (i) a base charge of $50,000 per year
plus (ii) a proportionate share of any additional costs and expenses (i.e., not
covered by the total base charge) based on such Recipient's proportion of total
revenue as a percentage of the aggregate total revenue of all parties to this
Agreement. For purposes of calculating any additional amount payable pursuant
to clause (ii) of the preceding sentence, a party's revenue shall be that set
forth on its audited financial statements for the most recent year-end. Such
costs and expenses shall be calculated in accordance with generally accepted
accounting principles applied consistently and billed in twelve monthly
installments. Notwithstanding the foregoing, however, any services provided by
the Provider's Risk Management staff to the Provider or the Recipients that are
not in the ordinary course (all such services being "extraordinary services")
shall be borne by the company or companies for whom such extraordinary service
was provided. No extraordinary service shall be provided without the specific
approval of the company to be charged. The costs and expenses to be borne by
each Recipient will be in accordance with the annual Risk Management budget to
be provided by the Primary Coordinator for the Provider during the preceding
calendar year as follows: by May 1 for each of the Corporation, New D&B and
Cognizant; and by September 1 for each of IMS Health, ACNielsen and Gartner. The
Risk Management budget may increase each year in an amount equal to 5% over the
prior year's budget; increases in excess of 5% must be approved by the
respective Primary Coordinators for each Recipient.
2.2 Invoices. After the end of each month, the Provider, together
with its Affiliates or Subsidiaries providing Transition Services will submit
one invoice to the Recipient of such Transition Services for all Transition
Services provided to such Recipient and its Subsidiaries by the Provider during
such month. Such monthly invoices shall be issued no later than the fifteenth
day of each succeeding month. Each invoice shall include a summary list of the
previously agreed upon Transition Service for which there are fixed dollar fees,
together with documentation supporting each of the invoiced amounts that are not
covered by the fixed fee agreements. The total amount set forth on such summary
list and such supporting detail shall equal the invoice total, and will be
provided under separate cover apart from the invoice. All invoices shall be sent
to the attention of the Primary Coordinator of the applicable Recipient at the
address set forth in Section 6.5 hereof or to such other address as such
Recipient shall have specified by notice in writing to the Provider.
2.3 Payment of Invoices. (a) Payment of all invoices in respect of a
Transition Service shall be made by check or electronic funds transmission in
U.S. Dollars, without any offset or deduction of any nature whatsoever, within
thirty (30) days of the invoice date. All payments shall be made to the account
designated by the Provider to the Recipient, with written confirmation of
payment sent by facsimile to the Primary Coordinator or other person designated
thereby.
<PAGE> 6
6
(b) If any payment is not paid when due, the Provider shall have the
right, without any liability to the Recipient of such Transition Service, or
anyone claiming by or through such Recipient, upon five days' notice, to cease
providing any or all of the Transition Services provided by the Provider to such
Recipient, which right may be exercised by the Provider in its sole and absolute
discretion.
ARTICLE III
CONFIDENTIALITY
3.1 Obligation. Each party and its Subsidiaries shall not use or
permit the use of (without the prior written consent of the other parties) and
shall keep, and shall cause its consultants and advisors to keep, confidential
all information concerning the other parties received pursuant to or in
connection with this Agreement. Additionally, any information which is
identified by a party as being "highly sensitive" (in connection with a
contemplated acquisition or otherwise) shall not be disclosed outside of the
Provider's Risk Management staff.
3.2 Care and Inadvertent Disclosure. With respect to any
confidential information, each party agrees as follows:
(a) it shall use the same degree of care in safeguarding said
information as it uses to safeguard its own information which must be held
in confidence; and
(b) upon the discovery of any inadvertent disclosure or
unauthorized use of said information, or upon obtaining notice of such a
disclosure or use from any other party, it shall take all necessary
actions to prevent any further inadvertent disclosure or unauthorized use,
and, subject to the provisions of Section 1.5 above, each such other party
shall be entitled to pursue any other remedy which may be available to it.
ARTICLE IV
TERM AND TERMINATION
4.1 Term. This Agreement shall become effective on June 30, 1998 and
shall remain in force for a period of three years (or in the case of ACNielsen,
IMS Health and Gartner until November 1, 1999). After such initial period, this
Agreement shall automatically be renewed for successive one-year periods until
any party provides at least 180-days notice to the other parties of its
intention not to renew, unless all of the Transition Services are deleted by
each Recipient in accordance with Section 1.8 above, or this Agreement is
terminated under Sections 1.6, 4.3 or 6.16 below prior to the end of such Time
Period.
4.2 Intentionally Left Blank
<PAGE> 7
7
4.3 Termination. If any party (hereafter called the "Defaulting
Party") shall fail to perform or default in the performance of any of its
obligations under this Agreement (other than a payment default), the party
entitled to the benefit of such performance (hereinafter referred to as a
"Non-Defaulting Party") may give written notice to the Defaulting Party
specifying the nature of such failure or default and stating that the
Non-Defaulting Party intends to terminate this Agreement with respect to the
Defaulting Party if such failure or default is not cured within fifteen days of
such written notice. If any failure or default so specified is not cured within
such fifteen day period, the Non-Defaulting Party may elect to immediately
terminate this Agreement with respect to the Defaulting Party; provided,
however, that if the failure or default relates to a dispute contested in good
faith by the Defaulting Party, the Non-Defaulting Party may not terminate this
Agreement pending the resolution of such dispute in accordance with Article V
hereof. Such termination shall be effective upon giving a written notice of
termination from the Non-Defaulting Party to the Defaulting Party and shall be
without prejudice to any other remedy which may be available to the
Non-Defaulting Party against the Defaulting Party.
4.4 Termination of Obligations. Each Recipient specifically agrees
and acknowledges that all obligations of the Provider to provide each Transition
Service for which the Provider is responsible hereunder shall immediately cease,
with respect to such Recipient, upon the termination of this Agreement. Upon the
cessation of the Provider's obligation to provide any Transition Service, the
Recipient of such Transition Service shall immediately cease using, directly or
indirectly, such Transition Service (including, without limitation, any and all
software of the Provider or third party software provided through the Provider,
telecommunications services or equipment, or computer systems or equipment).
4.5 Survival of Certain Obligations. Without prejudice to the
survival of the other agreements of the parties, the following obligations shall
survive the termination of this Agreement: (a) the obligations of each party
under Articles III and IV, and (b) the Provider's right to receive the
compensation for the Transition Services provided by it hereunder provided in
Section 2.1 above incurred prior to the effective date of termination.
ARTICLE V
DISPUTE RESOLUTION
5.1 Dispute Resolution. Any disputes arising out of or in connection
with this Agreement shall be settled in accordance with the dispute resolution
mechanisms set forth in Article VI of the applicable Distribution Agreement
governing the particular parties.
<PAGE> 8
8
ARTICLE VI
MISCELLANEOUS
6.1 Complete Agreement; Construction. This Agreement, including the
Appendix hereto, shall constitute the entire agreement between the parties with
respect to the subject matter hereof and shall supersede all previous
negotiations, commitments and writings with respect to such subject matter. In
the event and to the extent that there shall be a conflict between the
provisions of this Agreement and the provisions of any other Ancillary
Agreement, this Agreement shall control.
6.2 Other Ancillary Agreements. This Agreement is not intended to
address, and should not be interpreted to address, the matters specifically and
expressly covered by the other Ancillary Agreements.
6.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other parties.
6.4 Survival of Agreements. Except as otherwise contemplated by this
Agreement, all covenants and agreements of the parties contained in this
Agreement shall survive the applicable Distribution Date.
6.5 Notices. All notices and other communications hereunder shall be
in writing and hand delivered or mailed by registered or certified mail (return
receipt requested) or sent by any means of electronic message transmission with
delivery confirmed (by voice or otherwise) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by like
notice) and will be deemed given on the date on which such notice is received:
To the Corporation:
[R.H. Donnelley Inc.]
One Manhattanville Road
Purchase, New York 10577
Telecopy: (914) 933-6899
Attn: Frank Colarusso
With a copy to:
[R.H. Donnelley Inc.]
One Manhattanville Road
Purchase, New York 10577
<PAGE> 9
9
Telecopy: (914) 933-6899
Attn: General Counsel
To New D&B:
The New Dun & Bradstreet Corporation
220 East 42 Street
New York, New York 10017
Telecopy: (212) 883-3403
Attn: John Riley, Director of Risk Management
With a copy to:
The New Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, New Jersey 07974
Telecopy: (908) 665-5803
Attn: Chief Legal Counsel
To Cognizant:
Nielsen Media Research, Inc.
299 Park Avenue
New York, New York 10171
Telecopy: 212-708-7504
Attn: Stuart Goldshein
With a copy to:
Nielsen Media Research, Inc.
299 Park Avenue
New York, New York 10171
Telecopy: [ ]
Attn: Chief Legal Officer
To IMS Health:
IMS Health Incorporated
200 Nyala Farms
Westport, Connecticut 06880
Telecopy: (203) 222-4201
Attn: Leslye Katz, Vice President and Treasurer
<PAGE> 10
10
With a copy to:
IMS Health Incorporated
200 Nyala Farms
Westport, Connecticut 06880
Telecopy: (203) 222-4201
Attn: General Counsel
To ACNielsen:
ACNielsen Corporation
177 Broad Street
Stamford, Connecticut 06901
Telecopy: (203) 961-3179
Attn: John Forster
With a copy to:
ACNielsen Corporation
177 Broad Street
Stamford, Connecticut 06901
Telecopy: (203) 961-3179
Attn: General Counsel
To Gartner:
Gartner Group, Inc.
P.O. Box 10212
56 Top Gallant Road
Stamford, Connecticut 06904
Telecopy:
Attn: Andrea Tarbox
With a copy to:
Gartner Group Inc.
P.O. Box 10212
56 Top Gallant Road
Stamford, Connecticut 06904
Telecopy:
Attn: General Counsel
6.6 Waivers. The failure of any party to require strict performance
by any other party of any provision in this Agreement will not waive or diminish
that party's right to demand strict performance thereafter of that or any other
provision hereof.
6.7 Amendments. Subject to the terms of Section 4.3 hereof, this
Agreement may not be modified or amended except by an agreement in writing
signed by each of the parties hereto.
6.8 Assignment. This Agreement may not be assigned by any party,
other than to an Affiliate of such party or pursuant to a corporate
reorganization or merger, without the consent of the other party. Any assignment
in contravention of this Section 6.8 shall be void.
6.9 Successors and Assigns. The provisions to this Agreement shall
be binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and permitted assigns.
6.10 Subsidiaries. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements and
obligations set forth herein
<PAGE> 11
11
to be performed by any Subsidiary of such party or by any entity that is
contemplated to be a Subsidiary of such party on and after the applicable
Distribution Date.
6.11 Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and should not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without reference to this Agreement.
6.12 Title and Headings. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
6.13 Intentionally Left Blank
6.14 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.
6.15 Consent to Jurisdiction. Each of the parties irrevocably
submits to the exclusive jurisdiction of (a) the Supreme Court of the State of
New York, New York County, and (b) the United States District Court for the
Southern District of New York, for the purposes of any suit, action or other
proceeding arising out of this Agreement or any transaction contemplated hereby.
Each of the parties agrees to commence any action, suit or proceeding relating
hereto either in the United States District Court for the Southern District of
New York or if such suit, action or other proceeding may not be brought in such
court for jurisdictional reasons, in the Supreme Court of the State of New York,
New York County. Each of the parties further agrees that service of any process,
summons, notice or document by U.S. registered mail to such party's respective
address set forth above shall be effective service of process for any action,
suit or proceeding in New York with respect to any matters to which it has
submitted to jurisdiction in this Section 6.15. Each of the parties irrevocably
and unconditionally waives any objection to the laying of venue of any action,
suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in (i) the Supreme Court of the State of New York, New York
County, or (ii) the United States District Court for the Southern District of
New York, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
6.16 Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein and therein shall not in any way be affected or
impaired thereby. The parties shall endeavor in good-faith
<PAGE> 12
12
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
6.17 Laws and Government Regulations. Each Recipient shall be
responsible for (i) compliance with all laws and governmental regulations
affecting its businesses and (ii) any use such Recipient may make of the
Transition Services to assist it in complying with such laws and governmental
regulations. While the Provider shall not have any responsibility for the
compliance by the Recipient of such Transition Services with such laws and
regulations, the Provider agrees to use reasonable efforts to cause the
Transition Services to be provided by such party to be designed in such manner
that such Transition Services shall be able to assist the Recipient of such
Transition Services in complying with applicable legal and regulatory
responsibilities.
6.18 Relationship of Parties. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship of buyer and seller of services nor be
deemed to vest any rights, interests or claims in any third parties. The parties
do not intend to waive any privileges or rights to which they may be entitled.
6.19 Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the applicable
Distribution Agreement governing the relevant parties.
<PAGE> 13
13
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Transition Services Agreement to be executed the day and year first
above written.
THE DUN & BRADSTREET CORPORATION
By:
-----------------------------
Name:
Title:
THE NEW DUN & BRADSTREET
CORPORATION
By:
-----------------------------
Name:
Title:
COGNIZANT CORPORATION
By:
-----------------------------
Name:
Title:
IMS HEALTH INCORPORATED
By:
-----------------------------
Name:
Title:
ACNIELSEN CORPORATION
By:
-----------------------------
Name:
Title:
GARTNER GROUP, INC.
By:
-----------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.9
The New Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, New Jersey 07974
June ___, 1998
Kenneth Siegel, Esq.
Cognizant Corporation
200 Nyala Farms
Westport, CT 06880
Earl Doppelt, Esq.
ACNielsen Corporation
177 Broad Street
Stamford, CT 06901
Dear Sirs:
Reference is made to the Distribution Agreement (the "1996 Distribution
Agreement"), dated as of October 28, 1996, among The Dun & Bradstreet
Corporation ("D&B"), Cognizant Corporation ("Cognizant") and ACNielsen
Corporation ("ACNielsen"). D&B has announced its intention to separate into two
separate companies through a distribution (the "New D&B Distribution") to its
stockholders of all of the shares of common stock of its subsidiary The New Dun
& Bradstreet Corporation ("New D&B"). In Section 8.9(b) of the 1996 Distribution
Agreement, D&B agreed not to make a distribution such as the New D&B
Distribution unless it caused the distributed entity to undertake to both
Cognizant and ACNielsen to be jointly and severally liable for all D&B
Liabilities (as defined in the 1996 Distribution Agreement). Therefore, in
accordance with Section 8.9(b) of the 1996 Distribution Agreement and intending
to be legally bound hereby, from and after the effective time of the New D&B
Distribution, New D&B undertakes to each of Cognizant and ACNielsen to be
jointly and severally liable with D&B for all D&B Liabilities under the 1996
Distribution Agreement.
Very truly yours,
THE NEW DUN & BRADSTREET CORPORATION
By: ______________________________
Name:
Title:
<PAGE> 1
Exhibit 21
THE NEW DUN & BRADSTREET CORPORATION
LIST OF ACTIVE SUBSIDIARIES
<TABLE>
<CAPTION>
% Ownership
State or Other (100%
Jurisdiction of Except as
Name Organization Noted)
<S> <C> <C>
D&B ESPANA S.A. Spain
DUN & BRADSTREET (SWITZERLAND) AG Delaware/Switzerland
DUN & BRADSTREET COMPUTER LEASING, INC. Delaware
Fillupar Leasing Partnership Delaware 98.00
DUN & BRADSTREET, INC. Delaware
DUN & BRADSTREET INFORMATION SERVICES INDIA India
PVT. LTD.
DUN & BRADSTREET INTERNATIONAL, LTD. Delaware
Dun & Bradstreet S.A. Argentina
Dun & Bradstreet (Australia) Holdings pty. Australia
Dun & Bradstreet (Australia) Group Pty. Australia
Ltd.
Arrebnac Pty. Ltd. Australia
D&B Pty. Ltd. (Australia) Australia
College Mercantile Pty. Ltd. Australia
Dun & Bradstreet Australia
(Australia) Pty. Limited
Dun & Bradstreet Unit Trust Australia
Moody's Investors Service Pty. Australia
Limited
Dun & Bradstreet Information Services Ges.mbH Austria
Dun & Bradstreet Canada Holding, Ltd. Canada
The D&B Companies of Canada Ltd. Canada
Dun & Bradstreet Do Brasil, Ltda. Delaware/Brazil
N.V. Dun & Bradstreet-Eurinform S.A. Delaware/Belgium
Dun & Bradstreet International Consultant China
(Shanghai) Co. Ltd.
D&B Group, Ltd. Delaware
D&B Europe Limited England
Dun & Bradstreet Limited England
Dun & Bradstreet Limited Ireland
Dun & Bradstreet England
Finance Ltd.
Dun & Bradstreet (U.K.) Ltd. England
Dun & Bradstreet Pension England
Trustees Ltd.
Moody's Investors Service Ltd. England
</TABLE>
<PAGE> 2
2
<TABLE>
<CAPTION>
% Ownership
State or Other (100%
Jurisdiction of Except as
Name Organization Noted)
<S> <C> <C>
DUN & BRADSTREET INTERNATIONAL, LTD. (cont'd)
Dun & Bradstreet Credit Control, Ltd. Delaware
Dun & Bradstreet (HK) Limited Hong Kong
Dun & Bradstreet Deutschland GmbH Germany
D&B Schimmelpfeng Unterstutzungskasse Germany
GmbH
Dun & Bradstreet Holdings B.V. The Netherlands
Dun & Bradstreet Kosmos S.p.A. Italy
Argus Situeziono Aziendali S.r.l. Italy
Data Tech S.r.l. Italy
Orefro L'lnformazione S.p.A. Italy
Consorzio Manifatturieri Italy
S.r.l.
Ore. Tel S.r.L. Italy
Orefro Data S.r.l. Italy
Te.ma.Tel S.r.l. Italy
Dun & Bradstreet B.V. The Netherlands
Perfect Data International N.V. The Netherlands Antilles
Perfect Data Services B.V. The Netherlands
Dun & Bradstreet Holding (Norway) A/S Norway
Dun & Bradstreet Norge A/S Norway
Dun & Bradstreet Soliditet A/S Norway
Dun & Bradstreet (C&EE) Holding B.V. The Netherlands 80.00
Dun & Bradstreet spol s r.o. Czech Republic 80.00
Dun & Bradstreet Hungaria Hungary 80.00
Informacio Szogaltato Korlatolt
Felelosegu Tarasag
Dun & Bradstreet Poland sp. z o.o. Poland 80.00
Dun & Bradstreet S.C.S. France
D&B Management S.A.S. France
Moody's France S.A. France
S&W S.A.S France
Dun & Bradstreet Danmark Holding A/S Denmark
Dun & Bradstreet Denmark A/S Denmark
Dun & Bradstreet (Israel) Ltd. Israel
Dun & Bradstreet Japan Ltd. Japan
D&B Information Services (M) Sdn. Bhd. Malaysia
Dun & Bradstreet de Mexico S.A. de C.V. Mexico
Dun & Bradstreet (New Zealand) Limited New Zealand
Dun & Bradstreet S.A. Peru
Dun & Bradstreet Portugal, Ltda. Portugal
Dun & Bradstreet (Singapore) Pte. Ltd. Singapore
Dun & Bradstreet Nordic AB Sweden
Dun & Bradstreet Finland OY Finland
Dun & Bradstreet Sverige AB Sweden
Beheer en Beleggingsmaatschappij Stivaco B.V. The Netherlands
Dun & Bradstreet Zimbabwe (Private) Zimbabwe
Limited
DUN & BRADSTREET RMS FRANCHISE CORPORATION Delaware
DUNS HOLDING, INC. Delaware
D&B Acquisition Corp. Delaware
Corinthian Leasing Corporation Delaware
DUNS INVESTING VII CORPORATION Delaware
</TABLE>
<PAGE> 3
3
<TABLE>
<CAPTION>
% Ownership
State or Other (100%
Jurisdiction of Except as
Name Organization Noted)
<S> <C> <C>
DUNSNET INC. Delaware
Dun & Bradstreet Marketing Pty. Ltd. Australia
MOODY'S INVESTORS SERVICE, INC. Delaware
Financial Proformas, Inc. Delaware
Moody's Overseas Holdings, Inc. Delaware
Moody's Interbank Credit Services Limited Cyprus
Moody's America Latina Ltda. Brazil
Moody's Canada Inc. Canada
Moody's Deutschland GmbH Germany
Moody's Asia Pacific Limited Hong Kong
Moody's Japan Kabushiki Kaisha Japan
Moody's Singapore Pte Ltd. Singapore
Moody's Investors Service Espana, S.A. Spain
PALMETTO ASSURANCE LTD. Bermuda
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 81,806 116,629
<SECURITIES> 1,296 1,654
<RECEIVABLES> 454,450 474,502
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 268,033 243,155
<PP&E> 768,432 765,726
<DEPRECIATION> 451,211 458,825
<TOTAL-ASSETS> 2,086,046 2,087,955
<CURRENT-LIABILITIES> 1,496,950 1,454,391
<BONDS> 0 0
0 0
0 0
<COMMON> 188,421 188,421
<OTHER-SE> (678,590) (634,615)
<TOTAL-LIABILITY-AND-EQUITY> 2,086,046 2,087,955
<SALES> 0 0
<TOTAL-REVENUES> 1,811,009 471,055
<CGS> 0 0
<TOTAL-COSTS> 1,407,308 378,222
<OTHER-EXPENSES> 19,674 6,482
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 51,633 6,465
<INCOME-PRETAX> 332,394 79,886
<INCOME-TAX> 113,447 28,392
<INCOME-CONTINUING> 218,947 51,494
<DISCONTINUED> 92,034 12,031
<EXTRAORDINARY> 0 0
<CHANGES> (126,938) 0
<NET-INCOME> 184,043 63,525
<EPS-PRIMARY> 1.08 0.37
<EPS-DILUTED> 1.07 0.36
</TABLE>
<PAGE> 1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT ON FORM 10 RELATING TO CERTAIN OF THESE SECURITIES HAS
BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS PRELIMINARY
INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES.
EXHIBIT 99.1
SUBJECT TO COMPLETION OR AMENDMENT, DATED JUNE 18, 1998
INFORMATION STATEMENT
------------------------
THE NEW DUN & BRADSTREET CORPORATION
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
------------------------
R.H. DONNELLEY CORPORATION
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
------------------------
This Information Statement is being furnished in connection with the
distribution (the "Distribution") to holders of common stock, par value $1.00
per share (the "D&B Common Stock"), of The Dun & Bradstreet Corporation ("D&B")
of all of the outstanding shares of common stock, par value $0.01 per share (the
"New D&B Common Stock"), of The New Dun & Bradstreet Corporation ("New D&B"). As
of the Distribution Date (as defined below), New D&B will be comprised of
businesses which accounted for approximately 84% of D&B's revenues and 75% of
D&B's operating income in 1997. See "The New Dun & Bradstreet Corporation
Business".
Shares of New D&B Common Stock will be distributed to holders of D&B Common
Stock of record as of the close of business on , 1998 (the
"Record Date"). Each such holder will receive one share of New D&B Common Stock
for every share of D&B Common Stock held on the Record Date. Certificates
representing shares of New D&B Common Stock will be mailed on June 30, 1998 or
as promptly as practicable thereafter. No consideration will be paid by D&B's
stockholders for shares of New D&B Common Stock. Prior to the date hereof, there
has not been any established trading market for the New D&B Common Stock,
although a "when-issued" market is expected to develop prior to the
Distribution. Application will be made for listing the shares of New D&B Common
Stock on the New York Stock Exchange (the "NYSE") under the symbol "DNB". See
"The Distribution -- Listing and Trading of New D&B Common Stock and R.H.
Donnelley Common Stock".
After the Distribution, D&B's only remaining business will be the R.H.
Donnelley Business (as defined below), and, therefore, in connection with the
Distribution, D&B will change its name to R.H. Donnelley Corporation. See "R.H.
Donnelley Business". The symbol under which shares of D&B Common Stock (which
from and after the Distribution will be known as "R.H. Donnelley Common Stock")
will trade on the NYSE will become "RHD". See "The Distribution -- Listing and
Trading of New D&B Common Stock and R.H. Donnelley Common Stock". In connection
with the Distribution, New D&B will change its name to "The Dun & Bradstreet
Corporation".
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY RECIPIENTS OF THE NEW D&B COMMON STOCK AND
CONTINUING HOLDERS OF R.H. DONNELLEY COMMON STOCK.
------------------------
NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT. WE ARE NOT
ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
Stockholders of D&B with inquiries related to the Distribution should
contact First Chicago Trust Company of New York, the Distribution Agent for the
Distribution, at (800) 519-3111 or Investor Relations for D&B at (908) 665-5030.
The date of this Information Statement is , 1998.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION................ 1
INFORMATION STATEMENT SUMMARY............................... 3
FORWARD-LOOKING STATEMENTS.................................. 11
RISK FACTORS................................................ 12
THE DISTRIBUTION............................................ 19
RELATIONSHIP BETWEEN THE NEW DUN & BRADSTREET CORPORATION
AND R.H. DONNELLEY CORPORATION AFTER THE DISTRIBUTION..... 23
DIVIDEND POLICIES........................................... 28
THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR
TO D&B) CAPITALIZATION.................................... 29
THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR
TO D&B) SELECTED FINANCIAL DATA........................... 30
THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR
TO D&B) CONSOLIDATED PRO FORMA CONDENSED FINANCIAL
STATEMENTS................................................ 32
THE NEW DUN & BRADSTREET CORPORATION (ACCOUNTING SUCCESSOR
TO D&B) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 36
THE NEW DUN & BRADSTREET CORPORATION BUSINESS............... 44
THE NEW DUN & BRADSTREET CORPORATION MANAGEMENT AND
EXECUTIVE COMPENSATION.................................... 53
THE NEW DUN & BRADSTREET CORPORATION SECURITY OWNERSHIP BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................. 62
DESCRIPTION OF THE NEW DUN & BRADSTREET CORPORATION CAPITAL
STOCK..................................................... 65
R.H. DONNELLEY CAPITALIZATION............................... 72
R.H. DONNELLEY SELECTED FINANCIAL DATA...................... 73
R.H. DONNELLEY PRO FORMA CONDENSED FINANCIAL STATEMENTS..... 75
R.H. DONNELLEY MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 80
R.H. DONNELLEY BUSINESS..................................... 89
R.H. DONNELLEY MANAGEMENT AND EXECUTIVE COMPENSATION........ 99
R.H. DONNELLEY SECURITY OWNERSHIP BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..................................... 105
AVAILABLE INFORMATION....................................... 106
REPORTS OF THE NEW DUN & BRADSTREET CORPORATION............. 106
INDEX TO FINANCIAL STATEMENTS............................... F-1
</TABLE>
<PAGE> 3
QUESTIONS AND ANSWERS ABOUT THE DISTRIBUTION
Q1: WHAT IS THE DISTRIBUTION?
A: The Distribution is the method by which The Dun & Bradstreet Corporation
will be separated into two publicly traded companies: (i) The New Dun &
Bradstreet Corporation, which will consist of two leading global
information companies -- Dun & Bradstreet and Moody's Investors Service and
(ii) R.H. Donnelley Corporation, a leading provider of yellow pages and
directory publishing services. Pursuant to the Distribution, D&B will
distribute to its stockholders in a tax-free dividend one share of New D&B
Common Stock for each share of D&B Common Stock held. Immediately after the
Distribution, D&B's stockholders will still own all of D&B's current
businesses, but they will own them through their investments in The New Dun
& Bradstreet Corporation and R.H. Donnelly Corporation.
Q2: WHAT IS THE NEW DUN & BRADSTREET CORPORATION?
A: The New Dun & Bradstreet Corporation is a new company the businesses of
which will include Dun & Bradstreet, a leading provider of
business-to-business credit, marketing and purchasing information and
receivables management services, and Moody's Investors Service, a
preeminent debt-rating company and publisher of financial information for
investors. In connection with the Distribution, The New Dun & Bradstreet
Corporation will change its name to "The Dun & Bradstreet Corporation".
Q3: WHAT IS R.H. DONNELLEY CORPORATION?
A: R.H. Donnelley, currently a subsidiary of D&B, provides sales, marketing
and publishing services for yellow pages and other directory products and
is the largest independent marketer of yellow pages advertising in the
United States. Since after the Distribution D&B's only business will be the
R.H. Donnelley business, in connection with the Distribution, D&B will
change its name to "R.H. Donnelley Corporation".
Q4: WHY IS D&B SEPARATING ITS BUSINESSES?
A: D&B believes that separating its businesses in the Distribution will better
position both New D&B and R.H. Donnelley to achieve their strategic and
financial objectives, benefitting both customers and shareholders of the
companies. D&B believes the separation will enhance management focus on the
businesses, allowing each company to allocate resources and set
compensation policies to meet its own strategic requirements. D&B also
believes the separation will provide New D&B with additional financial
flexibility to pursue growth opportunities and will lead to better investor
understanding of the different businesses.
Q5: HAS D&B DONE THIS BEFORE?
A: D&B successfully effected a spin-off of Cognizant Corporation and ACNielsen
Corporation in November 1996. Since that spin-off, D&B has made significant
progress in pursuing its strategic goals and objectives, and the proposed
spin-off is expected to continue that progress.
Q6: WHY IS THIS TRANSACTION STRUCTURED AS A DISTRIBUTION?
A: The Distribution is the most tax-efficient means of separating D&B's
businesses. D&B has received a ruling from the Internal Revenue Service
that for federal income tax purposes the Distribution of the shares of New
D&B Common Stock to D&B stockholders will be tax-free to D&B and its
stockholders.
Q7: WHAT WILL D&B STOCKHOLDERS RECEIVE IN THE DISTRIBUTION?
A: In the Distribution, D&B stockholders will receive one share of New D&B
Common Stock, and an associated Right under New D&B's stockholder rights
plan, for each share of D&B Common Stock they own. Immediately after the
Distribution, D&B's stockholders will still own their shares of D&B
1
<PAGE> 4
Common Stock and the same stockholders will still own all of D&B's
businesses, but they will own them as two separate investments rather than
as a single investment. After the Distribution, the certificates
representing the "old" D&B Common Stock will represent such stockholders'
interests in the R.H. Donnelley business and the certificates representing
the New D&B Common Stock that stockholders receive in the Distribution will
represent their interest in the New D&B businesses.
Q8: WHAT DOES A D&B STOCKHOLDER NEED TO DO NOW?
A: D&B stockholders do not need to take any action. The approval of the D&B
stockholders is not required to effect the Distribution and D&B is not
seeking a proxy from any stockholders. D&B STOCKHOLDERS SHOULD NOT SEND IN
THEIR D&B SHARE CERTIFICATES. D&B stockholders will automatically receive
their shares of New D&B Common Stock when the Distribution is effected.
Q9: WHERE CAN D&B STOCKHOLDERS GET MORE INFORMATION?
A: D&B stockholders with additional questions related to the Distribution
should contact First Chicago Trust Company of New York, the Distribution
Agent for the Distribution, at Mail Suite 4694, P.O. Box 2536, Jersey City,
NJ 06303-2536, telephone number: (800) 519-3111. Questions may also be
directed to Investor Relations for D&B at One Diamond Hill Road, Murray
Hill, NJ 07974, telephone number: (908) 665-5030.
2
<PAGE> 5
INFORMATION STATEMENT SUMMARY
The following is a summary of certain information contained in this
Information Statement. This summary is included for convenience only and should
not be considered complete. This summary is qualified in its entirety by the
more detailed information and financial statements contained elsewhere in this
Information Statement. In this Information Statement, unless the context
otherwise requires, "D&B" refers to The Dun & Bradstreet Corporation prior to
the Distribution Date, and "R.H. Donnelley" refers to D&B's subsidiary with that
name prior to the Distribution Date and to D&B (which will change its name to
"R.H. Donnelley Corporation") on and after the Distribution Date. In this
Information Statement, unless the context otherwise requires, "New D&B" refers
to The New Dun & Bradstreet Corporation, which is the company whose shares will
be distributed in the Distribution and which will change its name to "The Dun &
Bradstreet Corporation" in connection with the Distribution. Certain capitalized
terms used in this summary are defined elsewhere in this Information Statement.
BUSINESSES OF THE NEW DUN & BRADSTREET CORPORATION AND
R.H. DONNELLEY CORPORATION
The New Dun & Bradstreet
Corporation.............. The New Dun & Bradstreet Corporation is a newly
created Delaware corporation, the businesses of
which will consist of two leading global
information companies -- Dun & Bradstreet, Inc.
("D&B Inc."), the leading provider of commercial
credit, business marketing and purchasing
information and receivables management services;
and Moody's Investors Service, Inc. ("Moody's"), a
leading provider of credit ratings and analysis
covering debt instruments and other obligations
issued in global capital markets and a provider of
business and financial information for investment
research and reference uses (collectively, the "New
D&B Business").
Volney Taylor is currently Chairman and Chief
Executive Officer of D&B and Chairman and Chief
Executive Officer of New D&B. Mr. Taylor will
resign from his positions at D&B effective upon the
Distribution. At the time of the Distribution, the
Board of Directors of New D&B will be composed of
the persons who are serving as directors of D&B
immediately prior to the Distribution Date, and
such persons will resign as directors of D&B
effective upon the Distribution. See "The New Dun &
Bradstreet Corporation Management and Executive
Compensation -- The New Dun & Bradstreet
Corporation Board of Directors". In addition to Mr.
Taylor, the other executive officers of New D&B at
the time of the Distribution will be the persons
who are serving as executive officers of D&B
immediately prior to the Distribution (other than
Frank R. Noonan, as described below), and such
persons will resign from their positions at D&B
effective upon the Distribution. See "The New Dun &
Bradstreet Corporation Management and Executive
Compensation -- The New Dun & Bradstreet
Corporation Executive Officers".
R.H. Donnelley
Corporation................ As a result of the Distribution, the yellow pages
and other directory sales, marketing and publishing
services business (the "R.H. Donnelley Business")
currently conducted by D&B's subsidiary, R.H.
Donnelley, will remain with D&B. Therefore, in
connection with the Distribution, D&B will change
its name to "R.H. Donnelley Corporation".
3
<PAGE> 6
Frank R. Noonan is currently Senior Vice President
of D&B and President of R.H. Donnelley and will be
the President and Chief Executive Officer and a
director of R.H. Donnelley after the Distribution.
Immediately after the Distribution, the other
directors of R.H. Donnelley will be persons who are
not currently directors of D&B. See "R.H. Donnelley
Management and Executive Compensation -- R.H.
Donnelley Corporation Board of Directors". In
addition to Mr. Noonan, the other executive
officers of R.H. Donnelley Corporation immediately
after the Distribution will be drawn from the
current management of D&B and R.H. Donnelley. See
"R.H. Donnelley Management and Executive
Compensation -- R.H. Donnelley Corporation
Executive Officers".
THE DISTRIBUTION
Form of Transaction; Basis
of Presentation............ The Distribution is the method by which D&B will be
separated into two publicly traded companies, The
New Dun & Bradstreet Corporation and R.H. Donnelley
Corporation. In the Distribution, D&B will
distribute to its stockholders shares of New D&B
Common Stock, which will represent a continuing
interest in D&B's businesses to be conducted by New
D&B. After the Distribution, D&B's only business
will be the R.H. Donnelley Business, and the shares
of D&B Common Stock held by D&B stockholders will
represent a continuing ownership interest only in
that business. In connection with the Distribution,
(i) D&B will change its name to "R.H. Donnelley
Corporation" (and therefore from and after the
Distribution, D&B Common Stock will be "R.H.
Donnelley Common Stock"), and (ii) New D&B will
change its name to "The Dun & Bradstreet
Corporation".
Stockholders should note that notwithstanding the
legal form of the Distribution described above
whereby D&B expects to spin off New D&B, because of
the relative significance of the New D&B Business
to D&B, New D&B will be treated as the "accounting
successor" to D&B for financial reporting purposes.
Therefore, the historical financial information for
New D&B included herein is that of D&B with the
R.H. Donnelley Business treated as a discontinued
operation.
The historical financial information for R.H.
Donnelley has been prepared on a stand-alone basis
as described in Note 1 to R.H. Donnelley
Corporation Financial Statements included elsewhere
in this Information Statement. Such historical
financial information includes allocations of
certain D&B corporate headquarters assets,
liabilities and expenses relating to R.H.
Donnelley.
Shares to be Distributed... The Distribution will be made to holders of record
as of the close of business on the Record Date of
issued and outstanding shares of D&B Common Stock.
Each holder of D&B Common Stock on the Record Date
will receive as a dividend one share of New D&B
Common Stock for every share of D&B Common Stock
held. Based on the shares of D&B Common
Stock outstanding as of , 1998, the
Distribution would consist of shares of
New D&B Common Stock.
4
<PAGE> 7
The Board of Directors of New D&B expects to adopt
a stockholder rights plan. Certificates evidencing
shares of New D&B Common Stock issued in the
Distribution will therefore represent the same
number of New D&B Rights (as defined below) issued
under the New D&B Rights Plan. See "Description of
The New Dun & Bradstreet Corporation Capital
Stock -- The New Dun & Bradstreet Corporation
Rights Plan". Unless the context otherwise
requires, references herein to the New D&B Common
Stock include the related New D&B Rights.
D&B stockholders will not have to make any payment
or surrender or exchange certificates representing
shares of D&B Common Stock in order to receive
their pro rata share of the Distribution. NO VOTE
OF HOLDERS OF D&B COMMON STOCK IS REQUIRED OR
SOUGHT IN CONNECTION WITH THE DISTRIBUTION.
Record Date................ The Record Date is , 1998. In order to
be entitled to receive shares of New D&B Common
Stock in the Distribution, holders of shares of D&B
Common Stock must be stockholders as of the close
of business on the Record Date.
Distribution Date.......... The "Distribution Date" is presently expected to be
on or about June 30, 1998.
Distribution Agent......... First Chicago Trust Company of New York will be the
Distribution Agent (the "Distribution Agent") for
the Distribution.
Federal Income Tax
Consequences of the
Distribution............. D&B has received a ruling from the Internal Revenue
Service to the effect that the Distribution will be
tax-free for Federal income tax purposes. D&B
stockholders will apportion their tax basis in D&B
Common Stock held immediately before the
Distribution among such D&B Common Stock (which
will represent each such stockholder's interest in
R.H. Donnelley after the Distribution), and New D&B
Common Stock received in the Distribution, based on
the relative fair market values of the D&B Common
Stock and the New D&B Common Stock as of the
Distribution Date. D&B will provide appropriate
information to each holder of record of D&B Common
Stock as of the close of business on the Record
Date concerning the basis allocation. See "The
Distribution -- Federal Income Tax Consequences of
the Distribution".
Stock Exchange Listing and
Trading.................. Prior to the date hereof, there has not been any
established trading market for the New D&B Common
Stock. Application will be made for listing the
shares of New D&B Common Stock on the NYSE under
the symbol "DNB", and trading is expected to
commence on a "when-issued" basis prior to the
Distribution Date. On the first NYSE trading day
following the Distribution Date, "when-issued"
trading (i.e. a trade which is completed only if
the subject security is actually issued) in respect
of the New D&B Common Stock will end and
"regular-way" trading (i.e. normal NYSE trading)
will begin. See "The Distribution -- Listing and
Trading of New D&B Common Stock and R.H. Donnelley
Common Stock".
R.H. Donnelley Common Stock (i.e. the "old" D&B
Common Stock) will continue to trade on the NYSE,
but the symbol under which it
5
<PAGE> 8
trades will change from "DNB" to "RHD". However,
because of the significant changes that will take
place at D&B as a result of the Distribution, the
trading market for R.H. Donnelley Common Stock
after the Distribution may be significantly
different from that for D&B Common Stock prior to
the Distribution. See "The Distribution -- Listing
and Trading of New D&B Common Stock and R.H.
Donnelley Common Stock".
Relationship Between The
New Dun & Bradstreet
Corporation and R.H.
Donnelley Corporation
After the Distribution... After the Distribution, neither New D&B nor R.H.
Donnelley will have any ownership interest in the
other and each of New D&B and R.H. Donnelley will
be an independent public company. New D&B and D&B
will enter into certain agreements governing the
relationships between New D&B and R.H. Donnelley
subsequent to the Distribution and providing for
the allocation of tax, employee benefits and
certain other liabilities and obligations arising
from periods prior to the Distribution, including
contingent liabilities relating to certain
litigation. In addition, there will be individuals
on the Boards of Directors of New D&B and R.H.
Donnelley who will also serve on the Board of
Directors of the other company. See "Relationship
Between The New Dun & Bradstreet Corporation and
R.H. Donnelley Corporation After the Distribution".
Certain Indebtedness and
Minority-Interest
Financing................ In connection with the Distribution, R.H. Donnelley
will borrow approximately $350 million under a new
bank credit facility and issue $150 million of
senior subordinated notes, all of which will be
guaranteed by D&B. A portion of the proceeds of
this indebtedness will be used to repay existing
indebtedness of D&B. This $500 million of debt will
be an obligation of R.H. Donnelley after the
Distribution. See "Risk Factors -- Risks Relating
to R.H. Donnelley Corporation -- Substantial
Indebtedness and Negative Shareholders' Equity" and
"-- Restrictions Imposed by the R.H. Donnelley
Credit Facility and the R.H. Donnelley Indenture"
and "The Distribution -- Certain Indebtedness and
Minority-Interest Financing". New D&B will retain
the obligation for approximately $300 million of
existing minority interest financing.
Dividend Policies.......... The payment and level of cash dividends by New D&B
and R.H. Donnelley after the Distribution will be
subject to the discretion of the New D&B Board of
Directors and the R.H. Donnelley Board of
Directors, respectively. It is anticipated that New
D&B will initially pay a quarterly dividend of
$0.185 per share and that R.H. Donnelley will
initially pay a quarterly dividend of $0.035 per
share. However, dividend decisions will be based
on, and affected by, a number of factors, including
the respective operating results and financial
requirements of New D&B and R.H. Donnelley on a
stand-alone basis as well as applicable legal and
contractual restrictions. See "Dividend Policies".
Antitakeover Provisions.... The Restated Certificate of Incorporation and
Amended and Restated By-laws of New D&B are
expected to contain provisions that may have the
effect of discouraging an acquisition of control of
New D&B not approved by its Board of Directors.
Such provisions may also have the effect of
discouraging third parties from making proposals
involving an acquisition or change of control of
New D&B, although such proposals,
6
<PAGE> 9
if made, might be considered desirable by a
majority of the stockholders of New D&B. Such
provisions could further have the effect of making
it more difficult for third parties to cause the
replacement of the Board of Directors of New D&B.
These provisions have been designed to enable New
D&B to develop its businesses and foster its
long-term growth without disruptions caused by the
threat of a takeover not deemed by its Board of
Directors to be in the best interests of New D&B
and its stockholders. Certain provisions of the
Distribution Agreement to be entered into between
D&B and New D&B may also have the effect of
discouraging third parties from making proposals
involving an acquisition or change of control of
New D&B. See "Relationship Between The New Dun &
Bradstreet Corporation and R.H. Donnelley
Corporation After the Distribution -- Distribution
Agreement".
New D&B expects to adopt a stockholder rights plan.
The stockholder rights plan is designed to protect
stockholders in the event of an unsolicited offer
and other takeover tactics which, in the opinion of
the New D&B Board of Directors, could impair its
ability to represent stockholder interests. The
provisions of the stockholder rights plan may
render an unsolicited takeover of New D&B more
difficult or less likely to occur or might prevent
such a takeover. See "Description of The New Dun &
Bradstreet Corporation Capital Stock -- The New Dun
& Bradstreet Corporation Rights Plan".
New D&B will be subject to provisions of Delaware
corporate law which may restrict certain business
combination transactions. See "Description of The
New Dun & Bradstreet Corporation Capital
Stock -- Delaware General Corporation Law".
See also "Description of The New Dun & Bradstreet
Corporation Capital Stock -- Provisions of The New
Dun & Bradstreet Corporation Restated Certificate
of Incorporation and Amended and Restated By-laws
Affecting Change in Control".
Risk Factors............... Stockholders should carefully consider the matters
discussed under the section entitled "Risk Factors"
in this Information Statement.
* * *
This Information Statement is being furnished by D&B solely to provide
information to stockholders of D&B who will receive New D&B Common Stock in the
Distribution and who will own R.H. Donnelley Common Stock immediately after the
Distribution. It is not, and is not to be construed as, an inducement or
encouragement to buy or sell any securities of D&B, New D&B or R.H. Donnelley.
The information contained in this Information Statement is believed by D&B and
New D&B to be accurate with respect to D&B, New D&B and R.H. Donnelley as of the
date set forth on the cover. Changes may occur after that date, and none of D&B,
New D&B or R.H. Donnelley will update the information except in the normal
course of their respective public disclosure practices.
7
<PAGE> 10
THE NEW DUN & BRADSTREET CORPORATION
(ACCOUNTING SUCCESSOR TO D&B)
SUMMARY FINANCIAL DATA
The Summary Financial Data of New D&B are derived from the audited and
unaudited interim financial statements of D&B, which reflect the R.H. Donnelley
Business as a discontinued operation. The historical financial statements of D&B
as of December 31, 1996 and 1997 and for each of the years in the three year
period ended December 31, 1997 and as of March 31, 1998 and for the three months
ended March 31, 1997 and 1998 are contained elsewhere in this Information
Statement. The information set forth below should be read in conjunction with,
and is qualified in its entirety by, the information under "The New Dun &
Bradstreet Corporation (Accounting Successor to D&B) Selected Financial Data",
"The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Consolidated
Pro Forma Condensed Financial Statements" and "The New Dun & Bradstreet
Corporation (Accounting Successor to D&B) Management's Discussion and Analysis
of Financial Condition and Results of Operations" and in D&B's Consolidated
Financial Statements and Notes thereto included elsewhere in this Information
Statement.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- ----------------------------------
HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(1)
------------------------------ ------------ ------------------- ------------
1995 1996 1997 1997 1997 1998 1998
-------- -------- -------- ------------ -------- -------- ------------
(AMOUNTS IN MILLIONS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating Revenues........... $1,735.3 $1,782.5 $1,811.0 $1,811.0 $ 436.4 $ 471.1 $ 471.1
Income (Loss) from Continuing
Operations(2).............. $ 95.3 $ (116.1) $ 219.0 $ 238.4 $ 36.5 $ 51.5 $ 54.9
EARNINGS (LOSS) PER SHARE OF
COMMON STOCK FROM CONTINUING
OPERATIONS:
Basic........................ $ 0.56 $ (0.69) $ 1.28 $ 1.40 $ 0.21 $ 0.30 $ 0.32
Diluted...................... $ 0.55 $ (0.69) $ 1.27 $ 1.38 $ 0.21 $ 0.30 $ 0.32
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic........................ 169.5 170.0 170.8 170.8 171.2 171.2 171.2
Diluted...................... 171.6 170.0(4) 172.6 172.6 172.7 174.1 174.1
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------ -------------------------
HISTORICAL HISTORICAL PRO FORMA(1)
------------------------------ ---------- ------------
1995 1996 1997 1998 1998
-------- -------- -------- ---------- ------------
(AMOUNTS IN MILLIONS) (AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets(3)................. $3,644.9 $2,225.4 $2,086.0 $2,087.9 $1,977.0
Shareholders' Equity............ $1,158.3 $ (455.3) $ (490.2) $ (446.2) $ (228.7)
</TABLE>
- ---------------
(1) See "The New Dun & Bradstreet Corporation (Accounting Successor to D&B)
Consolidated Pro Forma Condensed Financial Statements".
(2) 1995 included a fourth-quarter non-recurring pre-tax charge of $188.5
million partially offset by gains of $90.0 million and $28.0 million for the
sale of Interactive Data Corporation and warrants received in connection
with the sale of Donnelley Marketing, respectively. 1996 included one-time
pre-tax charges of $161.2 million for reorganization costs and the loss on
the sale of American Credit Indemnity of $68.2 million.
(3) Includes net assets of discontinued operations of $1,652.2 million, $430.6
million, $296.5 million and $282.5 million, as of December 31, 1995, 1996
and 1997 and March 31, 1998, respectively. 1995 net assets of discontinued
operations include the net assets of Cognizant Corporation and ACNielsen
Corporation of $1,207.3 million.
(4) The exercise of potentially dilutive shares has not been assumed for the
year ended December 31, 1996, since the result is antidilutive.
8
<PAGE> 11
R.H. DONNELLEY
SUMMARY FINANCIAL DATA
The Summary Financial Data of R.H. Donnelley as of December 31, 1996 and
1997, and for each of the years in the three-year period ended December 31,
1997, are derived from the audited financial statements of R.H. Donnelley
included elsewhere in this Information Statement. R.H. Donnelley's audited
financial statements included elsewhere in this Information Statement are
presented as if R.H. Donnelley were a stand-alone entity for all periods
presented. The Summary Financial Data of R.H. Donnelley as of December 31, 1995
and March 31, 1998, and for the three months ended March 31, 1997 and 1998, are
derived from the unaudited financial statements of R.H. Donnelley, and, in the
opinion of management, include all necessary adjustments for a fair presentation
of such data in conformity with generally accepted accounting principles. The
financial data included herein may not necessarily reflect the results of
operations and financial position of R.H. Donnelley in the future or what they
would have been had it been a separate entity. The information set forth below
should be read in conjunction with, and is qualified in its entirety by, the
R.H. Donnelley information under "R.H. Donnelley Capitalization", "R.H.
Donnelley Selected Financial Data", "R.H. Donnelley Pro Forma Condensed
Financial Statements", "R.H. Donnelley Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the R.H. Donnelley Financial
Statements and Notes thereto included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE THREE MONTHS ENDED MARCH 31,
--------------------------------------------------- ----------------------------------------
HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(1)
------------------------------------ ------------ ------------------------- ------------
1995 1996 1997 1997 1997 1998 1998
---------- ---------- ---------- ------------ ---------- ---------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues(2)........ $ 312,940 $ 270,029 $ 239,865 $ 239,865 $ 20,200 $ 24,344 $ 24,344
Income from
Partnerships and
Related Fees..... $ 137,180 $ 132,945 $ 130,171 $ 130,171 $ 5,442 $ 25,642 $ 25,642
Operating
Income(2)........ $ 182,795 $ 167,442 $ 134,739 $ 134,739 $ (2,290) $ 20,246 $ 20,246
Net Income......... $ 108,397 $ 78,085 $ 84,905 $ 60,332 $ (1,374) $ 12,148 $ 6,005
PRO FORMA EARNINGS
PER SHARE DATA(3):
Basic.............. $ 0.64 $ 0.46 $ 0.50 $ 0.35 $ (0.01) $ 0.07 $ 0.04
Diluted............ $ 0.64 $ 0.46 $ 0.50 $ 0.35 $ (0.01) $ 0.07 $ 0.03
SHARES USED IN
COMPUTING PRO FORMA
EARNINGS PER
SHARE(3):
Basic.............. 169,522 170,017 170,765 170,765 171,189 171,153 171,153
Diluted............ 169,883 170,289 171,065 171,065 171,189(5) 172,396 172,396
OTHER FINANCIAL DATA:
Gross Advertising
Sales(2)(4)...... $1,145,944 $1,115,560 $1,067,242 $1,067,242 $ 68,136 $ 147,226 $ 147,226
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------ -------------------------
HISTORICAL HISTORICAL PRO FORMA(1)
------------------------------------ ---------- ------------
1995 1996 1997 1998 1998
---------- ---------- ---------- ---------- ------------
(AMOUNTS IN THOUSANDS) (AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Asset(2).................... $ 520,214 $ 502,193 $ 382,286 $ 359,174 $ 369,674
Long Term Debt.................... $ -- $ -- $ -- $ -- $ 500,000
Shareholder's Equity (Deficit).... $ 386,565 $ 379,184 $ 258,675 $ 245,887 $ (243,613)
</TABLE>
9
<PAGE> 12
- ---------------
(1) See "R.H. Donnelley Pro Forma Condensed Financial Statements".
(2) The Summary Financial Data above include amounts related to businesses that
have been sold and will not be included in R.H. Donnelley's results in
future periods. The P-West (as hereinafter defined) business was sold in May
1996 and the P-East (as hereinafter defined) business was sold in December
1997. The above Summary Financial Data contain the following amounts
applicable to those businesses.
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
AS OF AND FOR
AS OF AND FOR THE THE
YEAR ENDED DECEMBER 31, THREE MONTHS
-------------------------------- ENDED
1995 1996 1997 MARCH 31, 1997
-------- -------- -------- -----------------
<S> <C> <C> <C> <C>
Revenues........................... $140,104 $ 97,263 $ 77,979 $ 635
Operating Income................... $ 22,250 $ 18,587 $ 10,969 $ (914)
Total Assets....................... $131,751 $ 80,962 $ -- $68,660
Gross Advertising Sales............ $133,389 $ 89,939 $ 73,753 $ 1,513
</TABLE>
(3) The computation of pro forma basic earnings per share for the periods
presented is based upon the historical weighted average number of shares of
D&B Common Stock outstanding, reflecting the one-for-one distribution ratio.
The computation of pro forma diluted earnings per share is calculated by
dividing net income by the sum of D&B's historical weighted average common
shares outstanding and potentially dilutive R.H. Donnelley common shares.
Potentially dilutive common shares are calculated in accordance with the
treasury stock method, which assumes that proceeds from the exercise of all
R.H. Donnelley employees' options are used to repurchase common stock at
market value. The amount of shares remaining after proceeds are exhausted
represent the potentially dilutive effect of the options.
(4) The unaudited gross advertising sales is the billing value of advertisements
sold by R.H. Donnelley and DonTech.
(5) The exercise of potentially dilutive shares has not been assumed for the
three months ended March 31, 1997, since the result is antidilutive.
10
<PAGE> 13
FORWARD-LOOKING STATEMENTS
This Information Statement and other materials filed or to be filed by D&B
and New D&B with the Securities and Exchange Commission (the "SEC"), as well as
information included in oral statements or other written statements made or to
be made by D&B and New D&B, contain statements which constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements appear in a number of places in this document and
include, but are not limited to, all statements relating to plans for future
growth and other business development activities as well as capital
expenditures, financing sources and the effects of regulation and competition,
the terms of the Distribution and all other statements regarding the intent,
plans, belief or expectations of the parties or their directors or officers.
Stockholders are cautioned that such forward-looking statements are not
assurances of future performance or events and involve risks and uncertainties
that could cause actual results and developments to differ materially from those
covered in such forward-looking statements. These risks and uncertainties
include, but are not limited to, the complexity and uncertainty regarding the
development of new high-technology products; loss of market share through
competition; introduction of competing products or technologies by other
companies; pricing pressures from competitors and/or customers; changes in the
business information, risk management and yellow pages industries and markets;
the inability to protect proprietary information and technology or to obtain
necessary licenses on commercially reasonable terms; decreases in the volume of
debt securities issued in global capital markets; the loss of key employees to
investment or commercial banks, or elsewhere; the inability to timely and
cost-effectively resolve any problems associated with the Year 2000 issue;
leverage and debt service (including sensitivity to fluctuations in interest
rates); compliance with covenants in loan agreements; the inability to obtain
future financing on satisfactory terms; and the final allocation of assets and
liabilities in connection with the Distribution. Consequently, all the
forward-looking statements contained in this Information Statement are qualified
by the information contained or incorporated herein, including, but not limited
to, the information contained under this heading and in "Risk Factors", "The
Distribution", "The New Dun & Bradstreet Corporation (Accounting Successor to
D&B) Capitalization", "The New Dun & Bradstreet Corporation (Accounting
Successor to D&B) Management's Discussion and Analysis of Financial Condition
and Results of Operations", "The New Dun & Bradstreet Corporation Business",
"R.H. Donnelley Capitalization", "R.H. Donnelley Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "R.H. Donnelley
Business". Neither D&B nor New D&B has any obligation to publicly release any
revision to any forward-looking statement contained or incorporated herein to
reflect any future events or occurrences.
11
<PAGE> 14
RISK FACTORS
RISKS RELATING TO THE NEW DUN & BRADSTREET CORPORATION
AND R.H. DONNELLEY CORPORATION
Potential Taxation
D&B has received a ruling from the Internal Revenue Service to the effect
that, among other things, the Distribution will qualify as a tax-free spin-off
under Section 355 of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code").
The Internal Revenue Service ruling is based on certain factual
representations made by D&B. If such factual representations were incorrect in a
material respect, such ruling could become invalid. D&B is not aware of any
facts or circumstances which would cause such representations to be incorrect in
a material respect. Each of D&B and New D&B will agree in the Distribution
Agreement to certain restrictions on its future actions to provide further
assurances that Section 355 of the Internal Revenue Code will apply to the
Distribution. See "Relationship Between The New Dun & Bradstreet Corporation and
R.H. Donnelley Corporation After the Distribution".
If the Distribution were not to qualify under Section 355 of the Internal
Revenue Code, then, in general, a corporate tax (which would be very
substantial) would be payable by the consolidated group, of which D&B is the
common parent. In addition, under the consolidated return rules, each member of
the consolidated group would be jointly and severally liable for such tax
liability. If the Distribution occurred and it were not to qualify under Section
355 of the Internal Revenue Code, the resulting tax liability would have a
material adverse effect on the financial position, results of operations and
cash flows of each of New D&B and R.H. Donnelley. D&B estimates that the
aggregate shared tax liability in this regard of New D&B and R.H. Donnelley
would be in the range of approximately $1.5 to $2.0 billion. See "The
Distribution -- Federal Income Tax Consequences of the Distribution".
Moreover, if the Distribution were not to qualify under Section 355 of the
Internal Revenue Code, each D&B stockholder receiving shares of New D&B Common
Stock in the Distribution would be treated as if such stockholder had received a
taxable distribution in an amount equal to the fair market value of the New D&B
Common Stock received. See "The Distribution -- Federal Income Tax Consequences
of the Distribution".
Year 2000
Many existing computer systems and software applications may not properly
record or interpret years after the year 1999. Each of New D&B and R.H.
Donnelley relies on computer hardware, software and related technology, together
with data generated therefrom, in the operation of their respective businesses.
Such technology and data are used in creating and delivering the respective
products and services of New D&B and R.H. Donnelley. There can be no assurance
that New D&B or R.H. Donnelley will be able to timely or cost-effectively
complete Year 2000 remediation programs, that such programs will be successful
or that the failure by either company or by third parties outside of their
control with whom they transact business to adequately address their respective
Year 2000 issues will not have a material adverse effect on New D&B or R.H.
Donnelley. See "The New Dun & Bradstreet Corporation (Accounting Successor to
D&B) Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "R.H. Donnelley Management's Discussion and Analysis of
Financial Condition and Results of Operations".
RISKS RELATING TO THE NEW DUN & BRADSTREET CORPORATION
Absence of Prior Trading Market for the New D&B Common Stock
Prior to the date hereof, there has not been any established trading market
for New D&B Common Stock. Application will be made to list the shares of New D&B
Common Stock on the NYSE under the symbol "DNB", and trading is expected to
commence on a "when-issued" basis (i.e. a trade which is
12
<PAGE> 15
completed only if the subject security is actually issued) prior to the
Distribution. See "The Distribution -- Listing and Trading of New D&B Common
Stock and R.H. Donnelley Common Stock".
Changes in Trading Prices of New D&B Common Stock
There can be no assurance as to the prices at which the New D&B Common
Stock will trade before, on or after the Distribution Date. Until the New D&B
Common Stock is fully distributed and an orderly market develops in the New D&B
Common Stock, the price at which such stock trades may fluctuate significantly
and may be lower or higher than the price that would be expected for a fully
distributed issue. Prices for the New D&B Common Stock will be determined in the
marketplace and may be influenced by many factors, including (i) the depth and
liquidity of the market for New D&B Common Stock, (ii) developments affecting
the businesses of New D&B generally and the impact of those factors referred to
below in particular, (iii) investor perception of New D&B and (iv) general
economic and market conditions.
Risk of Interest Rate and Exchange Rate Fluctuations
New D&B expects to fund its operations primarily through its commercial
paper program and other short-term bank lines of credit. Since New D&B will
operate in more than 38 countries, it will be exposed to market risk from
changes in interest rates and foreign exchange rates which could affect its
results of operations and financial condition. In order to reduce the risk from
fluctuations in interest rate and foreign currencies, New D&B may enter into
interest rate swap agreements and/or forward foreign exchange contracts. These
derivative financial instruments are viewed by New D&B as risk management tools
that are entered into for hedging purposes only; New D&B does not intend to use
derivative financial instruments for trading or speculative purposes. However,
there can be no assurance that New D&B will attempt to or be able to hedge all
of its interest rate and foreign exchange exposure at a satisfactory cost or
that such rate fluctuations will not adversely affect the results of operations
and financial condition of New D&B.
Technological Adaptation and Competition
New D&B will compete in businesses which require sophisticated information
systems, software and other technology. The types of systems which New D&B's
businesses require can be expected to be subject to refinements as such systems
and underlying technologies are upgraded and advanced, and there can be no
guarantee that as various systems and technologies become outdated, New D&B will
be able to replace them, to replace them as quickly as New D&B's competition or
to develop and market new and better products and services in the future on a
cost-effective basis.
Litigation
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants D&B, A.C. Nielsen Company and IMS International Inc. (the "IRI
Action"). The complaint alleges, among other things, various violations of the
antitrust laws and damages in excess of $350 million, which amount IRI has asked
to be trebled under the antitrust laws. IRI also seeks punitive damages in an
unspecified amount. In connection with such action, D&B, ACNielsen Corporation
("ACNielsen") and Cognizant Corporation ("Cognizant") entered into an Indemnity
and Joint Defense Agreement (the "Indemnity and Joint Defense Agreement")
pursuant to which ACNielsen agreed to be responsible for any potential
liabilities which may ultimately be incurred by D&B or Cognizant as a result of
such action, up to a maximum amount to be determined by an independent
investment bank if and when any such liabilities are incurred. The determination
of such maximum amount will be based on ACNielsen's ability to satisfy such
liabilities and remain financially viable, subject to certain assumptions and
limitations. However, D&B and Cognizant have agreed that to the extent that
ACNielsen is unable to satisfy any such liabilities in full and remain
financially viable, D&B and Cognizant will each be responsible for 50% of the
difference between the amount, if any, which may be payable as a result of such
litigation and the maximum amount which ACNielsen is then able to pay as
determined by such investment bank. Under the terms of the Distribution
Agreement, dated as of October 28, 1996, among D&B, Cognizant and ACNielsen (the
"1996 Distribution Agreement"), as a condition to the Distribution, New D&B is
13
<PAGE> 16
required to undertake to be jointly and severally liable with D&B to Cognizant
and ACNielsen. Pursuant to the Distribution Agreement, New D&B will assume and
indemnify R.H. Donnelley against any payments to be made in respect of the IRI
Action under the Indemnity and Joint Defense Agreement, the 1996 Distribution
Agreement or otherwise, including any ongoing legal fees and expenses related
thereto. Management of New D&B is unable to predict at this time the final
outcome of the IRI Action or whether the resolution of such matter could
materially affect New D&B's results of operations, cash flows or financial
position.
Certain Antitakeover Provisions
The Restated Certificate of Incorporation and Amended and Restated By-laws
of New D&B contain provisions that may have the effect of discouraging an
acquisition of control of New D&B not approved by its Board of Directors. Such
provisions may also have the effect of discouraging third parties from making
proposals involving an acquisition or change of control of New D&B, although
such proposals, if made, might be considered desirable by a majority of the
stockholders of New D&B. Such provisions could further have the effect of making
it more difficult for third parties to cause the replacement of the Board of
Directors of New D&B. These provisions have been designed to enable New D&B to
develop its businesses and foster its long-term growth without disruptions
caused by the threat of a takeover not deemed by its Board of Directors to be in
the best interests of New D&B and its stockholders. Certain provisions of the
Distribution Agreement may also have the effect of discouraging third parties
from making proposals involving an acquisition or change of control of New D&B.
See "Relationship Between The New Dun & Bradstreet Corporation and R.H.
Donnelley Corporation After the Distribution -- Distribution Agreement".
New D&B expects to adopt a stockholder rights plan. This stockholder rights
plan is designed to protect stockholders in the event of an unsolicited offer
and other takeover tactics which, in the opinion of the New D&B Board of
Directors, could impair its ability to represent stockholder interests. The
provisions of this stockholder rights plan may render an unsolicited takeover of
New D&B more difficult or less likely to occur or might prevent such a takeover.
See "Description of The New Dun & Bradstreet Corporation Capital Stock -- The
New Dun & Bradstreet Corporation Rights Plan".
New D&B will be subject to the provisions of Delaware corporate law which
may restrict certain business combination transactions. See "Description of The
New Dun & Bradstreet Corporation Capital Stock -- Delaware General Corporation
Law".
RISKS RELATING TO R.H. DONNELLEY
Dependence on Key Contracts
R.H. Donnelley's business is dependent upon several significant partnership
and agency agreements. These include the DonTech partnership ("DonTech"), a
partnership with Ameritech advertising services, a subsidiary of Ameritech
Corporation ("Ameritech"), and the CenDon partnership ("CenDon"), a partnership
with Centel Directory Company, a subsidiary of Sprint Corporation ("Sprint"), as
well as sales agency agreements with Bell Atlantic Yellow Pages Company, a
subsidiary of Bell Atlantic Corporation ("Bell Atlantic"), and Sprint Publishing
and Advertising, a subsidiary of Sprint. The equity income from the DonTech
partnership and the fees from other arrangements with an affiliate of Ameritech,
as well as the equity income from the CenDon partnership, are not included in
R.H. Donnelley's revenues but are included in its operating income. The DonTech
partnership and other arrangements with an affiliate of Ameritech represented
approximately 86% of R.H. Donnelley's operating income in 1997. The CenDon
partnership represented approximately 9% of R.H. Donnelley's operating income in
1997. The Bell Atlantic sales agency agreement, the CenDon partnership sales
agency agreement and the Sprint sales agency agreement represented approximately
36%, 12% and 5% of R.H. Donnelley's revenues in 1997, respectively. Such
percentages of revenues do not include revenues of the East Coast proprietary
operations of the R.H. Donnelley Business ("P-East") which was sold in December
1997.
Under their existing terms, the DonTech partnership has no expiration date,
and the CenDon partnership and sales agency agreement and the Sprint sales
agency agreement continue through 2004 (subject to, in the
14
<PAGE> 17
case of the Sprint sales agency agreement, a five year performance review no
later than March 2000 and agreement on a new price schedule for publishing
services by that date) and the Bell Atlantic sales agency agreement continues
through 2005. While these partnerships and sales agency agreements currently
extend for significant periods, no assurance can be given that R.H. Donnelley
will be able to maintain these agreements and relationships after expiration of
the current terms, and a termination, expiration or modification of these
arrangements could have a material adverse effect on R.H. Donnelley's business,
financial condition and results of operations. In addition, although profits
from the DonTech and CenDon partnerships have historically been distributed to
R.H. Donnelley on a monthly basis, R.H. Donnelley does not control either
partnership and its failure to receive distributions from either for any reason
would have a material adverse effect on R.H. Donnelley's business, financial
condition and results of operations. Certain of these agreements are also
subject to termination upon a change of control (as defined therein) of R.H.
Donnelley, including the DonTech partnership. The Distribution does not
constitute a change of control under these agreements.
From these relationships, R.H. Donnelley maintains significant account
receivable balances with an Ameritech affiliate, a Bell Atlantic affiliate and
the CenDon partnership. The failure of any of these parties to fulfill its
obligations to R.H. Donnelley with respect to these account receivable balances
could have a material adverse effect on R.H. Donnelley's business, operating
results and financial condition.
Outsourcing-Related Risks
Local telephone companies currently conduct their yellow pages advertising
sales and publishing operations either internally, through independent providers
of such services or through some combination of both. R.H. Donnelley provides
yellow pages advertising sales and publishing services to local telephone
companies pursuant to long-standing partnership and other agreements with
subsidiaries of Ameritech, Bell Atlantic and Sprint. R.H. Donnelley recently
expanded its relationship with Bell Atlantic to provide, beginning with
directories published in 1999, advertising sales for yellow pages directories in
a new market, the greater Buffalo area, which Bell Atlantic had previously
outsourced to another third-party marketer of yellow pages advertising.
Ameritech, Bell Atlantic and Sprint currently market yellow pages advertising
with internal sales forces in many of their other markets. In addition, each of
them, along with other significant yellow pages publishers, are making
investments to acquire publishing services technology similar to the technology
used at R.H. Donnelley's new Raleigh publishing center. There can be no
assurance that Ameritech, Bell Atlantic, Sprint or any other local telephone
company will decide to outsource yellow pages advertising sales or publishing
services in any of the markets which they currently cover internally or with
independent providers of such services.
R.H. Donnelley's ability to capitalize on any outsourced yellow pages
advertising sales and publishing opportunities from local telephone companies
will depend on a variety of factors, some of which are beyond R.H. Donnelley's
control. These factors include, among others, R.H. Donnelley's ability to:
attract, train, retain and manage qualified personnel for advertising sales or
for its new publishing center in Raleigh, North Carolina and its graphics center
in Dunmore, Pennsylvania (to the extent that the size or scheduling of the
related directories would require R.H. Donnelley to increase its publishing
services capacity); and integrate the information systems, software and other
technology used by R.H. Donnelley's personnel in new markets with R.H.
Donnelley's other information systems, software and technology. There can be no
assurance that R.H. Donnelley will be able to effectively operate and manage any
yellow pages advertising sales and publishing business outsourced to it by local
telephone companies.
Substantial Indebtedness and Negative Shareholders' Equity
In connection with the Distribution, R.H. Donnelley will borrow $350
million under a new $400 million credit facility to be entered into by R.H.
Donnelley prior to the Distribution (the "R.H. Donnelley Credit Facility") and
issue $150 million of senior subordinated notes pursuant to an indenture (the
"R.H. Donnelley Indenture") to be entered into by R.H. Donnelley prior to the
Distribution. The net proceeds of this $500 million of debt will be used (i) to
repay indebtedness of D&B, primarily commercial paper, (ii) pay costs and
expenses related to the Distribution and (iii) repay indebtedness of D&B to
subsidiaries which, following the Distribution, will be subsidiaries of New D&B.
This debt will be an obligation of R.H. Donnelley after the
15
<PAGE> 18
Distribution. After the Distribution, R.H. Donnelley will have indebtedness that
is substantial in relation to its stockholders' equity.
As of March 31, 1998, after giving pro forma effect to the indebtedness
described above and the application of the estimated net proceeds therefrom,
R.H. Donnelley will have approximately $500 million of indebtedness and a
shareholder's deficit of approximately $244 million. R.H. Donnelley anticipates
that it will have $50 million of unused capacity available under the R.H.
Donnelley Credit Facility. The ability of R.H. Donnelley to satisfy its debt
obligations will depend on its future operating performance, which will be
affected by prevailing economic conditions and financial, business, competitive
and other factors, many of which are beyond its control.
R.H. Donnelley believes, based on current circumstances, that R.H.
Donnelley's cash flow, together with available credit capacity under the R.H.
Donnelley Credit Facility, will be sufficient to permit R.H. Donnelley to meet
its operating expenses and capital expenditures and to service its debt
requirements as they become due for the foreseeable future. R.H. Donnelley may,
however, need to refinance all or a portion of its indebtedness on or prior to
maturity, and there can be no assurance that R.H. Donnelley will generate
sufficient cash flow or that future borrowings will be available under the R.H.
Donnelley Credit Facility in an amount sufficient to enable R.H. Donnelley to
service its indebtedness or to fund its other liquidity needs. If R.H. Donnelley
is unable to service its indebtedness, it will be required to adopt alternative
strategies, which may include actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness or
seeking additional equity capital. There can be no assurance that any of these
strategies could be effected on satisfactory terms.
The degree to which R.H. Donnelley is leveraged could have important
consequences, including (i) R.H. Donnelley's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions
or general corporate purposes may be impaired; (ii) a substantial portion of
R.H. Donnelley's cash flows from operations may be dedicated to the payment of
debt service on its indebtedness, thereby reducing the funds available to R.H.
Donnelley for its operations; (iii) R.H. Donnelley may be more leveraged than
certain of its competitors, which may place R.H. Donnelley at a relative
competitive disadvantage; (iv) R.H. Donnelley's flexibility in planning for, or
reacting to, changes in its business and industry may be limited; and (v) R.H.
Donnelley's level of indebtedness could make it more vulnerable in the event of
a downturn in its business or industry or the economy in general. In addition,
the terms of its indebtedness include financial and other restrictive covenants
that will limit the ability of R.H. Donnelley to, among other things, borrow
additional funds. Failure by R.H. Donnelley to comply with such covenants could
result in an event of default which, if not cured or waived, could have a
material adverse effect on R.H. Donnelley.
Restrictions Imposed by the R.H. Donnelley Credit Facility and the R.H.
Donnelley Indenture
The R.H. Donnelley Credit Facility and the R.H. Donnelley Indenture will
contain a number of significant covenants that, among other things, limit or
restrict the ability of R.H. Donnelley to dispose of assets, incur additional
indebtedness, repay other indebtedness, pay dividends, enter into certain
investments or acquisitions, repurchase or redeem capital stock, engage in
mergers or consolidations, or engage in certain transactions with subsidiaries
and affiliates and otherwise restrict corporate activities. There can be no
assurance that such limitations and restrictions will not adversely affect R.H.
Donnelley's ability to finance its future operations or capital needs or engage
in other business activities that may be in the interest of R.H. Donnelley. In
addition, the R.H. Donnelley Credit Facility will also require R.H. Donnelley to
maintain compliance with certain financial ratios. The ability of R.H. Donnelley
to comply with such ratios may be affected by events beyond R.H. Donnelley's
control. A breach of any of these covenants or the inability of R.H. Donnelley
to comply with the required financial ratios could result in a default under the
R.H. Donnelley Indenture and the R.H. Donnelley Credit Facility, as applicable.
In the event of any such default, (i) the indebtedness under the R.H. Donnelley
Indenture could be accelerated and (ii) the lenders under the R.H. Donnelley
Credit Facility could elect to declare all borrowings outstanding under the R.H.
Donnelley Credit Facility, together with accrued interest and other fees, to be
due and payable, to require R.H. Donnelley to apply all of its available cash to
repay such borrowings or to prevent R.H. Donnelley from
16
<PAGE> 19
making debt service payments. If R.H. Donnelley were unable to repay any such
borrowings when due, the lenders could proceed against their collateral, which
consists of substantially all of R.H. Donnelley's assets. If the indebtedness
under the R.H. Donnelley Credit Facility or the R.H. Donnelley Indenture were to
be accelerated, there can be no assurance that the assets of R.H. Donnelley
would be sufficient to repay such indebtedness in full.
Competition
There is competition for yellow pages advertising sales to varying degrees
in R.H. Donnelley's markets from the sales forces of yellow pages publishers
with which R.H. Donnelley is not affiliated. These yellow pages publishers
include local telephone companies with which R.H. Donnelley does not maintain a
contractual relationship, independent publishers (publishers that are not
affiliated with any telephone company), which have slightly increased their
share of the total market for yellow pages advertising sales in the U.S. in
recent years, and national yellow pages sales agents. In the majority of its
markets, R.H. Donnelley benefits from its long-term contractual relationships
with affiliates of the largest potential competitor in a directory market, the
incumbent local telephone company. While R.H. Donnelley's operating results to
date have not been adversely impacted, the Telecommunications Act of 1996
effectively opened local telephone markets to increased competition, and there
can be no assurance that these incumbent local telephone companies will remain
the dominant telephone service providers in the R.H. Donnelley's markets. There
is also competition for advertising sales from other media, including
newspapers, magazines, radio, direct mail, on-line information services,
television and cable television, and advances in technology have brought to the
industry new participants, new products and new channels. There can be no
assurance that R.H. Donnelley will be able to successfully compete in responding
to any such developments.
Effect of Distribution on Trading Market of R.H. Donnelley Common Stock
R.H. Donnelley Common Stock (i.e. the "old" D&B Common Stock) will continue
to trade on the NYSE after the Distribution, but the symbol under which it
trades will change from "DNB" to "RHD". However, because of the significant
changes that will take place as a result of the Distribution, the trading market
for R.H. Donnelley Common Stock after the Distribution may be significantly
different from that for D&B Common Stock prior to the Distribution. After the
Distribution, D&B's only remaining business will be the R.H. Donnelley Business
and the shares of R.H. Donnelley Common Stock held by D&B stockholders will
represent their continuing interest in that business. The market may view R.H.
Donnelley as a "new" company after the Distribution, and due to its smaller
size, it may not be the subject of significant research analyst coverage. There
can be no assurance as to the prices at which the R.H. Donnelley Common Stock
will trade before, on or after the Distribution Date, and until an orderly
market develops in the R.H. Donnelley Common Stock, the price at which it trades
may fluctuate significantly. Prices for R.H. Donnelley Common Stock will be
determined in the marketplace and may be influenced by many factors, including
(i) the depth and liquidity of the market for R.H. Donnelley Common Stock, (ii)
developments affecting the businesses of R.H. Donnelley including the impact of
the factors referred to in this section, (iii) investor perception of R.H.
Donnelley and (iv) general economic and market conditions.
Transition to an Independent Public Company
R.H. Donnelley does not have an operating history as an independent
company. Accordingly, the financial statements included herein may not
necessarily reflect the results of operations, financial condition and cash
flows that would have been achieved had R.H. Donnelley been operated
independently during the periods presented. Historically, D&B has provided
substantially all of R.H. Donnelley's corporate services and employee benefits.
While R.H. Donnelley's management believes the costs of these services and
benefits charged to R.H. Donnelley have been reasonably equivalent to terms
which could have been obtained through arm's-length negotiations with D&B, these
costs may not be indicative of the costs that would have been incurred if R.H.
Donnelley had performed or provided these services as an independent company. In
addition, following the Distribution, R.H. Donnelley will also be responsible
for the additional costs associated with
17
<PAGE> 20
being an independent public company, including costs associated with corporate
governance, listed and registered securities and investor relations.
Sensitivity of Financial Results to Economic Conditions
R.H. Donnelley derives its sales commissions and partnership income and
related fees from the sale of advertising in yellow pages directories.
Advertising sales by R.H. Donnelley, as well as those of yellow pages publishers
in general, generally do not fluctuate widely with economic cycles. However, a
prolonged national or regional economic recession could have a material adverse
effect on R.H. Donnelley's business, operating results and financial condition.
Technological Adaptation and Competition
R.H. Donnelley competes in a business which requires sophisticated
information systems, software and other technology, as well as for its systems
to be able to interface with those of the local telephone companies with which
it has strategic relationships. R.H. Donnelley's technology and databases at its
publishing center in Raleigh, North Carolina also must interface with the
systems of yellow pages publishers for which it provides publishing services and
the systems of printers to which it delivers electronic output. The yellow pages
directory advertising market is subject to changes arising from developments in
technology (including methods used to distribute yellow pages-style information)
and yellow pages users' technological preferences. As a result of these factors,
R.H. Donnelley's growth and future financial performance may depend upon its
ability to develop and market new products and services and to create new
distribution channels, while enhancing existing products, services and
distribution channels, in order to accommodate the latest technological advances
and user preferences, including use of the Internet. A failure by R.H. Donnelley
to anticipate or respond adequately to changes in technology and user
preferences, or an inability to finance any related capital expenditures
(including, if necessary, adaptation or replacement of its information systems,
software, databases or other technology), could have a material adverse effect
on R.H. Donnelley's business, operating results and financial condition.
18
<PAGE> 21
THE DISTRIBUTION
INTRODUCTION
On December 17, 1997, the Board of Directors of D&B announced a plan to
distribute the New D&B Common Stock to all holders of outstanding D&B Common
Stock. On , 1998, the D&B Board of Directors formally approved the
Distribution and declared a dividend payable to each holder of record at the
close of business on the Record Date of one share of New D&B Common Stock for
each share of D&B Common Stock held by such holder at the close of business on
the Record Date.
D&B has received a tax ruling from the Internal Revenue Service that the
receipt by D&B stockholders of the New D&B Common Stock in the Distribution will
be tax-free to such stockholders and D&B for Federal income tax purposes. On or
before the Distribution Date, D&B will deliver all of the outstanding shares of
New D&B Common Stock to the Distribution Agent for transfer and distribution to
the holders of record of D&B Common Stock at the close of business on the Record
Date. The Distribution will be made on or about June 30, 1998.
Questions relating to the Distribution prior to the Distribution Date or
relating to transfers of New D&B Common Stock after the Distribution Date should
be directed to: First Chicago Trust Company of New York, Mail Suite 4694, P.O.
Box 2536, Jersey City, NJ 06303-2536, telephone number: (800) 519-3111.
REASONS FOR THE DISTRIBUTION
The Board of Directors of D&B believes that the Distribution is in the best
interests of D&B and D&B's stockholders and that the separation of New D&B will
provide each of New D&B and R.H. Donnelley with greater managerial and
operational flexibility to respond to changing market conditions in their
different business environments as well as provide New D&B with additional
financial flexibility to pursue growth opportunities. The discussion of the
reasons for the Distribution set forth herein includes forward-looking
statements that are based upon numerous assumptions with respect to the trading
characteristics of the New D&B Common Stock, the ability of New D&B management
to successfully take advantage of growth opportunities and the ability of R.H.
Donnelley to successfully operate as a stand-alone company. Many of such factors
are discussed above under the captions "Forward-Looking Statements" and "Risk
Factors".
Management Considerations. At present, the R.H. Donnelley Business and the
New D&B Business are conducted as separate operating groups under the direction
of D&B. The Distribution should be beneficial to each of D&B's operating groups,
allowing the management of each group to design and implement corporate policies
and strategies that are based primarily on the business characteristics of the
group and to concentrate its financial resources wholly on its own operations.
The Distribution will also permit each of New D&B and R.H. Donnelley to
design incentive compensation programs that relate more directly to its own
business characteristics and performance and will provide each company with a
"pure play" publicly traded equity for use in its compensation programs.
Provide Independent Access to Capital Markets; Facilitate Growth of The New
Dun & Bradstreet Corporation. New D&B intends to pursue growth opportunities in
its business areas and the separation of the businesses is expected to provide
New D&B with additional financial flexibility to do so. After the Distribution,
New D&B will have a capital structure that is expected to facilitate the
acquisitions, joint ventures, partnerships and internal expansion that are
important to remaining competitive in the information services business.
Management of D&B believes that the Distribution will facilitate New D&B's
growth in part because it believes that the New D&B Common Stock will generally
trade at higher price-earnings multiples than those at which D&B Common Stock
has recently traded. Such higher multiples would make such stock a more
attractive acquisition currency for New D&B to deliver, and to the extent such
stock is perceived to be a higher-growth stock, a generally more attractive
investment opportunity for the typical seller of a business to New D&B. In
addition, New D&B would be able to finance additional growth opportunities
through the sale of capital stock with a higher price-earnings multiple.
19
<PAGE> 22
Investor Understanding; Public Relations. Investors should be able to
evaluate better the financial performance of each of New D&B and R.H. Donnelley
and their respective strategies, thereby enhancing the likelihood that each will
achieve appropriate market valuation. In addition, each of the businesses will
be able to focus its public relations efforts on cultivating its own separate
identity.
FORM OF TRANSACTION; BASIS OF PRESENTATION
The Distribution is the method by which D&B will be separated into two
publicly traded companies, New D&B and R.H. Donnelley. In the Distribution, D&B
will distribute to its stockholders shares of New D&B Common Stock, which will
represent a continuing interest in D&B's businesses to be conducted by New D&B.
After the Distribution, D&B's only business will be the R.H. Donnelley Business,
and the shares of D&B Common Stock held by D&B stockholders will represent a
continuing ownership interest only in that business. In connection with the
Distribution, (i) D&B will change its name to "R.H. Donnelley Corporation" (and
therefore from and after the Distribution, D&B Common Stock will be "R.H.
Donnelley Common Stock") and (ii) New D&B will change its name to "The Dun &
Bradstreet Corporation".
Stockholders should note that notwithstanding the legal form of the
Distribution described above whereby D&B expects to spin off New D&B, because of
the relative significance of the New D&B Business to D&B, New D&B will be
treated as the "accounting successor" to D&B for financial reporting purposes.
Therefore, the historical financial information for New D&B included herein is
that of D&B with the R.H. Donnelley Business treated as a discontinued
operation.
The historical financial information for R.H. Donnelley has been prepared
on a stand-alone basis as described in Note 1 to R.H. Donnelley Financial
Statements included elsewhere in this Information Statement. Such historical
financial information includes allocations of certain D&B corporate headquarters
assets, liabilities and expenses relating to R.H. Donnelley.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution will be made on the Distribution Date to stockholders of
record of D&B at the close of business on the Record Date. Based on the
shares of D&B Common Stock outstanding as of , 1998, the
Distribution would consist of shares of New D&B Common Stock. Prior to
the Distribution Date, D&B will deliver all outstanding shares of New D&B Common
Stock to the Distribution Agent for distribution. The Distribution Agent will
mail, on or about the Distribution Date, certificates representing the shares of
New D&B Common Stock to D&B stockholders of record at the close of business on
the Record Date. D&B stockholders will not be required to pay for shares of New
D&B Common Stock received in the Distribution, or to surrender or exchange
certificates representing shares of D&B Common Stock in order to receive shares
of New D&B Common Stock. No vote of D&B stockholders is required or sought in
connection with the Distribution.
IN ORDER TO BE ENTITLED TO RECEIVE SHARES OF NEW D&B COMMON STOCK IN THE
DISTRIBUTION, D&B STOCKHOLDERS MUST BE STOCKHOLDERS AT THE CLOSE OF BUSINESS ON
THE RECORD DATE, , 1998.
The Board of Directors of New D&B expects to adopt a stockholder rights
plan. Certificates evidencing shares of New D&B Common Stock issued in the
Distribution will therefore represent the same number of New D&B Rights issued
under the New D&B Rights Plan. See "Description of The New Dun & Bradstreet
Corporation Capital Stock -- The New Dun & Bradstreet Corporation Rights Plan".
Unless the context otherwise requires, references herein to the New D&B Common
Stock include the related New D&B Rights.
20
<PAGE> 23
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
D&B has received a ruling letter from the Internal Revenue Service to the
effect that, among other things, the Distribution will qualify as a tax-free
spin-off under Section 355 of the Internal Revenue Code. Under Section 355 of
the Internal Revenue Code, in general:
1. Holders of D&B Common Stock will not recognize any income, gain or
loss as a result of the Distribution.
2. Holders of D&B Common Stock will apportion the tax basis of their
D&B Common Stock between such D&B Common Stock and New D&B Common Stock
received by such holder in the Distribution in proportion to the relative
fair market values of such stock on the Distribution Date. D&B will provide
appropriate information to each holder of record of D&B Common Stock as of
the close of business on the Record Date concerning the basis allocation.
3. The holding period for the New D&B Common Stock received in the
Distribution by holders of D&B Common Stock will include the period during
which such holder held the D&B Common Stock with respect to which the
Distribution was made, provided that such D&B Common Stock is held as a
capital asset by such holder on the Distribution Date.
4. The Distribution will not be treated as a taxable disposition of
New D&B by D&B.
Current Treasury regulations require each holder of D&B Common Stock who
receives New D&B Common Stock pursuant to the Distribution to attach to his or
her Federal income tax return for the year in which the Distribution occurs a
detailed statement setting forth such data as may be appropriate in order to
show the applicability of Section 355 of the Internal Revenue Code to the
Distribution. D&B will convey the appropriate information to each holder of
record of D&B Common Stock as of the close of business on the Record Date.
The Internal Revenue Service ruling is based on certain factual
representations made by D&B. If such factual representations were incorrect in a
material respect, such ruling could become invalid. D&B is not aware of any
facts or circumstances which would cause such representations to be incorrect in
a material respect. Each of D&B and New D&B has agreed to certain restrictions
on its future actions to provide further assurances that Section 355 of the
Internal Revenue Code will apply to the Distribution. See "Relationship Between
The New Dun & Bradstreet Corporation and R.H. Donnelley Corporation After the
Distribution". If the Distribution were not to qualify under Section 355 of the
Internal Revenue Code, then in general, a corporate tax (which, as noted below,
would be very substantial) would be payable by the consolidated group, of which
D&B is the common parent, based upon the difference between (x) the fair market
value of the New D&B Common Stock and (y) the adjusted basis of such New D&B
Common Stock. In addition, under the consolidated return rules, each member of
the consolidated group would be jointly and severally liable for such tax
liability. If the Distribution occurred and it were not to qualify under Section
355 of the Internal Revenue Code, the resulting tax liability would have a
material adverse effect on the financial position, results of operations and
cash flows of each of New D&B and R.H. Donnelley. D&B estimates that the
aggregate shared tax liability in this regard of New D&B and R.H. Donnelley
would be in the range of approximately $1.5 to $2.0 billion.
Furthermore, if the Distribution were not to qualify as a tax-free
spin-off, each D&B stockholder receiving shares of New D&B Common Stock in the
Distribution would be treated as if such stockholder had received a taxable
distribution in an amount equal to the fair market value of New D&B Common Stock
received, which would result in (i) a dividend to the extent of such
stockholder's pro rata share of D&B's current and accumulated earnings and
profits, (ii) a reduction in such stockholder's basis in D&B Common Stock to the
extent the amount received exceeds such stockholder's share of earnings and
profits and (iii) a capital gain to the extent the amount received exceeds the
sum of the amount treated as a dividend and the stockholder's basis.
21
<PAGE> 24
D&B STOCKHOLDERS SHOULD CONSULT THEIR OWN ADVISERS AS TO THE SPECIFIC TAX
CONSEQUENCE OF THE DISTRIBUTION, INCLUDING THE APPLICATION AND EFFECT OF
FOREIGN, STATE AND LOCAL TAX LAWS.
LISTING AND TRADING OF NEW D&B COMMON STOCK AND R.H. DONNELLEY COMMON STOCK
Prior to the date hereof, there has not been any established trading market
for New D&B Common Stock. Application will be made to list the shares of New D&B
Common Stock on the NYSE under the symbol "DNB", and trading is expected to
commence on a "when-issued" basis at least two days prior to the Record Date. On
the first NYSE trading day following the Distribution Date, "when-issued"
trading (i.e. a trade which is completed only if the subject security is
actually issued) in respect of the New D&B Common Stock will end and
"regular-way" trading (i.e. normal NYSE trading) will begin.
There can be no assurance as to the prices at which the New D&B Common
Stock will trade before, on or after the Distribution Date. Until the New D&B
Common Stock is fully distributed and an orderly market develops in the New D&B
Common Stock, the price at which it trades may fluctuate significantly and may
be lower or higher than the price that would be expected for a fully distributed
issue. Prices for the New D&B Common Stock will be determined in the marketplace
and may be influenced by many factors, including (i) the depth and liquidity of
the market for New D&B Common Stock, (ii) developments affecting the businesses
of New D&B generally and the impact of the factors referred to in "Risk Factors"
above, (iii) investor perception of New D&B and (iv) general economic and market
conditions.
Shares of New D&B Common Stock distributed to D&B stockholders will be
freely transferable, except for shares of New D&B Common Stock received by
persons who may be deemed to be "affiliates" of New D&B under the Securities Act
of 1933, as amended (the "Securities Act"). Persons who may be deemed to be
affiliates of New D&B after the Distribution generally include individuals or
entities that control, are controlled by, or are under common control with, New
D&B, and may include certain officers and directors of New D&B, as well as
principal stockholders of New D&B. Persons who are affiliates of New D&B will be
permitted to sell their shares of New D&B Common Stock only pursuant to an
effective registration statement under the Securities Act or an exemption for
the registration requirements of the Securities Act, such as the exemption
afforded by Section 4(1) of the Securities Act or Rule 144 thereunder.
R.H. Donnelley Common Stock (i.e. the "old" D&B Common Stock) will continue
to trade on the NYSE after the Distribution, but the symbol under which it
trades will change from "DNB" to "RHD". However, because of the significant
changes that will take place as a result of the Distribution, the trading market
for R.H. Donnelley Common Stock after the Distribution may be significantly
different from that for D&B Common Stock prior to the Distribution. The market
may view R.H. Donnelley as a "new" company after the Distribution, and due to
its smaller size it may not be the subject of significant research analyst
coverage. There can be no assurance as to the prices at which R.H. Donnelley
Common Stock will trade before, on or after the Distribution Date and until an
orderly market develops in the R.H. Donnelley Common Stock, the price at which
it trades may fluctuate significantly. Prices for R.H. Donnelley Common Stock
will be determined in the marketplace and may be influenced by many factors,
including (i) the depth and liquidity of the market for R.H. Donnelley Common
Stock, (ii) developments affecting the businesses of R.H. Donnelley, including
the impact of the factors referred to in "Risk Factors" above, (iii) investor
perception of R.H. Donnelley and (iv) general economic and market conditions.
CERTAIN INDEBTEDNESS AND MINORITY INTEREST FINANCING
In connection with the Distribution, R.H. Donnelley will borrow
approximately $500 million. A portion of the proceeds of this borrowing will be
used to repay existing indebtedness of D&B. This approximately $500 million of
debt will be an obligation of R.H. Donnelley after the Distribution. While the
final form of such financing has not yet been determined, it is expected that
approximately $350 million will come from a senior secured credit facility and
the remainder will come from the issuance of senior subordinated notes. New D&B
will retain the obligation for approximately $300 million of existing minority
interest financing.
22
<PAGE> 25
RELATIONSHIP BETWEEN THE NEW DUN & BRADSTREET CORPORATION
AND R.H. DONNELLEY CORPORATION AFTER THE DISTRIBUTION
New D&B is presently wholly owned by D&B, and the results of operations of
entities that are or will be its subsidiaries have been included in D&B's
consolidated financial results. After the Distribution, D&B (which will change
its name to "R.H. Donnelley Corporation") will not have any ownership interest
in New D&B, and New D&B will be an independent public company. In addition,
after the Distribution, New D&B will not have any ownership interest in R.H.
Donnelley, and R.H. Donnelley will be an independent public company.
Furthermore, except as described below, all contractual relationships existing
prior to the Distribution between D&B and New D&B will be terminated except for
contracts specifically set forth in a schedule to the Distribution Agreement.
Prior to the Distribution, D&B and New D&B will enter into certain
agreements, described below, governing the relationship between R.H. Donnelley
and New D&B subsequent to the Distribution and providing for the allocation of
tax, employee benefits and certain other liabilities and obligations arising
from periods prior to the Distribution. Copies of the forms of such agreements
have been filed as exhibits to the Registration Statement of New D&B in respect
of the registration of the New D&B Common Stock under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). In addition, D&B will file a
Current Report on Form 8-K in connection with the Distribution, and the
agreements will be filed as exhibits to such Report. Such agreements may be
amended by D&B prior to the Distribution Date.
The following description summarizes certain terms of such agreements, but
is qualified by reference to the text of such agreements, which are incorporated
herein by reference.
DISTRIBUTION AGREEMENT
D&B and New D&B will enter into the Distribution Agreement providing for,
among other things, certain corporate transactions required to effect the
Distribution and other arrangements between R.H. Donnelley and New D&B
subsequent to the Distribution.
In particular, the Distribution Agreement defines the assets and
liabilities which are being allocated to and assumed by New D&B and those which
will remain with R.H. Donnelley. The Distribution Agreement also defines what
constitutes the "New D&B Business" and what constitutes the "R.H. Donnelley
Business".
Pursuant to the Distribution Agreement, D&B is obligated to transfer or
cause to be transferred all its right, title and interest in the assets
comprising the New D&B Business and other assets not specifically included in
the R.H. Donnelley Business to New D&B and New D&B is obligated to transfer or
cause to be transferred all its right, title and interest in the assets
comprising the R.H. Donnelley Business to D&B. All assets are being transferred
without any representation or warranty, "as is-where is", and the relevant
transferee bears the risk that any necessary consent to transfer is not
obtained. Each party also agrees to exercise its respective commercially
reasonable efforts promptly to obtain any necessary consents and approvals and
to take such actions as may be reasonably necessary or desirable to carry out
the purposes of the Distribution Agreement and the other agreements summarized
below.
In general, pursuant to the terms of the Distribution Agreement, all assets
of D&B prior to the Distribution Date, other than those relating to the R.H.
Donnelley Business, will become assets of New D&B. The Distribution Agreement
also provides for assumptions of liabilities and cross indemnities designed to
allocate generally, effective as of the Distribution Date, financial
responsibility for all liabilities of D&B, other than those specified to be
transferred to R.H. Donnelley on or prior to the Distribution Date or to remain
with R.H. Donnelley subsequent to the Distribution Date (which liabilities
primarily relate to the R.H. Donnelley Business or the indebtedness to be
incurred in connection with the Distribution), to New D&B. For a discussion of
the respective businesses of New D&B and R.H. Donnelley, see "The New Dun &
Bradstreet Corporation Business" and "R.H. Donnelley Business". The Distribution
Agreement provides for the allocation generally of the financial responsibility
for the liabilities arising out of or in connection with former businesses,
other than those formerly conducted by R.H. Donnelley prior to the Distribution,
to New D&B.
23
<PAGE> 26
Pursuant to the terms of the 1996 Distribution Agreement, as a condition to
the Distribution, New D&B is required to undertake to be jointly and severally
liable with D&B to Cognizant and ACNielsen for any liabilities arising
thereunder. Pursuant to the Distribution Agreement, all liabilities of D&B under
the 1996 Distribution Agreement and related agreements will be liabilities of
New D&B, and New D&B will indemnify R.H. Donnelley against such liabilities. In
addition, any rights of D&B arising under the 1996 Distribution Agreement and
related agreements will be rights of New D&B.
The Distribution Agreement provides that immediately prior to the
Distribution, D&B will transfer cash to New D&B (or its affiliates) in an amount
such that, immediately following the Distribution, R.H. Donnelley's net debt
will be approximately $500 million.
The Distribution Agreement includes provisions governing the administration
of certain insurance programs and the procedures for making claims. The
Distribution Agreement also allocates the right to proceeds and the obligation
to incur deductibles under certain insurance policies.
In the event that any transfers contemplated by the Distribution Agreement
are not effected on or prior to the Distribution Date, the parties will be
required to cooperate to effect such transfers as promptly as practicable
following the Distribution Date, and pending any such transfers, to hold any
asset not so transferred in trust for the use and benefit of the party entitled
thereto (at the expense of the party entitled thereto), and to retain any
liability not so transferred for the account of the party by whom such liability
is to be assumed.
The Distribution Agreement provides that D&B (which will become R.H.
Donnelley) and New D&B will comply with and otherwise not take action
inconsistent with each representation and statement made to the Internal Revenue
Service in connection with D&B's request for a ruling letter as to certain tax
aspects of the Distribution. Each of D&B and New D&B agrees to maintain its
status as a company engaged in the active conduct of a trade or business, as
defined in Section 355(b) of the Internal Revenue Code, to continue to own stock
of certain operating subsidiaries constituting control (within the meaning of
Section 368(c) of the Internal Revenue Code) of such operating subsidiaries and
to maintain at least 90% of the fair market value of its assets in the form of
stock and securities of certain operating subsidiaries, in each case until the
second anniversary of the Distribution Date. Neither D&B nor New D&B expects
this limitation to inhibit its financing or other activities or its ability to
respond to unanticipated developments. Under the Distribution Agreement, D&B
agrees that until two years after the Distribution Date it will not (i) merge or
consolidate with another corporation, (ii) liquidate or partially liquidate,
(iii) sell or transfer all or substantially all of its assets, (iv) redeem or
repurchase its stock (except in certain limited circumstances), or (v) take any
other action which would result in one or more persons acquiring a 50 percent or
greater interest in D&B, unless, prior to taking such action, it obtains a
written opinion of a law firm reasonably acceptable to New D&B or a supplemental
ruling from the Internal Revenue Service that such action will not affect the
tax-free treatment of the Distribution. As a result of the representations in
the request for a ruling letter and the covenants in the Distribution Agreement,
the acquisition of control of each of R.H. Donnelley and New D&B prior to the
second anniversary may be more difficult or less likely to occur because of the
potential substantial liabilities associated with a breach of such
representations or covenants. The Distribution Agreement requires a party that
takes or fails to take any action which contributes to a determination that the
Distribution is not tax-free to D&B, New D&B or their stockholders to indemnify
the other party and its stockholders from any taxes arising therefrom.
Under the Distribution Agreement, each of D&B and New D&B agrees to provide
to the other party, subject to certain conditions, access to certain corporate
records and information and to provide certain services on such terms as are set
forth in a Data Services Agreement, a Shared Transaction Services Agreement and
Transition Services Agreements between such parties.
The Distribution Agreement also provides that, except as otherwise set
forth therein or in any other agreement, all costs or expenses in connection
with the Distribution will be borne by New D&B. New D&B will agree to be liable
for any claims arising from or based upon "controlling person" liability
relating to the Registration Statement on Form 10 filed with the SEC by New D&B.
Except as set forth in the Distribution
24
<PAGE> 27
Agreement or any related agreement, each party shall bear its own costs and
expenses incurred after the Distribution Date.
TAX ALLOCATION AGREEMENT
D&B and New D&B will enter into a Tax Allocation Agreement to the effect
that New D&B will generally be liable for all income taxes of D&B and its
subsidiaries attributable to periods prior to the Distribution, provided that in
the case of any separate company state or local income taxes, R.H. Donnelley and
its subsidiaries and New D&B and its subsidiaries will be liable for their own
liabilities arising from any audit adjustment. For income taxes attributable to
periods beginning after the Distribution, New D&B will be liable for taxes
relating to New D&B and its subsidiaries and R.H. Donnelley will be liable for
taxes relating to R.H. Donnelley and its subsidiaries. For all other taxes, New
D&B and its subsidiaries and R.H. Donnelley and its subsidiaries will be
responsible for their own liabilities for all periods.
EMPLOYEE BENEFITS AGREEMENT
D&B and New D&B will enter into an Employee Benefits Agreement (the
"Employee Benefits Agreement"), which allocates responsibility for certain
employee benefits matters on and after the Distribution Date.
The Employee Benefits Agreement provides that R.H. Donnelley will adopt a
new defined benefit pension plan for its employees and that New D&B will assume
and become the sponsor of the current D&B plan for the benefit of its employees
and in general former employees who terminated employment on or prior to the
Distribution Date. Assets and liabilities of the current D&B pension plan that
are attributable to R.H. Donnelley employees will be transferred to the new R.H.
Donnelley plan.
In addition, R.H. Donnelley will adopt a new savings plan for its
employees, and New D&B will assume and become the sponsor of the D&B savings
plan for the benefit of its employees and former employees who terminated
employment on or prior to the Distribution Date. The account balances of R.H.
Donnelley employees will be transferred to the new R.H. Donnelley plan.
Generally New D&B will assume and become the sponsor of D&B's nonqualified
supplemental pension plans for the benefit of persons who, prior to the
Distribution Date were participants thereunder; provided, however, that with
respect to R.H. Donnelley employees, New D&B generally will retain only those
liabilities that were vested prior to the Distribution Date. R.H. Donnelley will
guarantee payment of the benefits under these plans to its employees in the
event that New D&B is unable to satisfy its obligations.
The Employee Benefits Agreement also provides that R.H. Donnelley will
continue to sponsor its welfare plans for its employees. As of the Distribution
Date, New D&B will adopt welfare plans for the benefit of its employees and
former employees who terminated employment on or prior to the Distribution Date.
R.H. Donnelley will be responsible for providing retiree welfare benefits, where
applicable, to its employees and New D&B will be responsible for providing
retiree welfare benefits, where applicable, to its employees and former
employees who terminated employment on or prior to the Distribution Date.
New D&B and R.H. Donnelley will generally retain the severance liabilities
of their respective employees who terminated employment prior to the
Distribution Date.
With respect to equity-based plans, the Employee Benefits Agreement
provides that unexercised D&B stock options held by R.H. Donnelley employees as
of the Distribution Date will be adjusted to reflect the Distribution. The
number of shares of R.H. Donnelley Common Stock covered by the adjusted stock
options will be determined by (i) multiplying the number of shares of D&B Common
Stock covered by the unexercised D&B stock option by a fraction, the numerator
of which is the average of the Daily Average Trading Prices per share of D&B
Common Stock for the five consecutive trading days immediately preceding the
first date on which D&B Common Stock is traded ex-dividend, and the denominator
of which is the average of the Daily Average Trading Prices per share of R.H.
Donnelley Common Stock for the five consecutive trading days starting on the
first date on which R.H. Donnelley Common Stock is traded ex-dividend (the "R.H.
Donnelley Ratio"), and (ii) rounding down the result to a whole number of
shares. The
25
<PAGE> 28
Daily Average Trading Price of a given stock on a given day means the average of
the high and low trading prices for such stock on such date. The exercise price
per share of an adjusted R.H. Donnelley stock option will be determined by
multiplying the exercise price per share of an unexercised D&B stock option by
the reciprocal of the R.H. Donnelley Ratio.
Unexercised D&B stock options held by New D&B employees as of the
Distribution Date will be converted into options that are exercisable into
shares of New D&B Common Stock. Specifically, each unexercised D&B stock option
held by a New D&B employee will be cancelled, and such individual will receive a
replacement stock option exercisable into shares of New D&B Common Stock. The
number of shares of New D&B Common Stock covered by the replacement stock option
will be determined by (i) multiplying the number of shares of D&B Common Stock
covered by the cancelled D&B stock option by a fraction, the numerator of which
is the average of the Daily Average Trading Prices per share of D&B Common Stock
for the five consecutive trading days immediately preceding the first date on
which D&B Common Stock is traded ex-dividend, and the denominator of which is
the average of the Daily Average Trading Prices per share of New D&B Common
Stock for the five consecutive trading days starting on the first date on which
New D&B Common Stock is traded regular way (the "New D&B Ratio"), and (ii)
rounding down the result to a whole number of shares. The exercise price per
share of a replacement stock option will be determined by multiplying the
exercise price per share of the cancelled D&B stock option by the reciprocal of
the New D&B Ratio. Except as otherwise provided in the applicable plans, all
other terms of the replacement stock options will remain substantially identical
to the terms of the cancelled D&B stock options. The issuance of the replacement
stock options will not result in a compensation charge to New D&B.
Unexercised D&B stock options held by former employees who terminated
employment on or prior to the Distribution Date will be adjusted in
substantially the same manner as options held by R.H. Donnelley employees, and
New D&B will offer such former employees alternative adjustments or
substitutions, provided such former employees agree to surrender their adjusted
stock options.
All limited stock appreciation rights will be adjusted or converted in
substantially the same manner as the unexercised D&B stock options. See "R.H.
Donnelley Management and Executive Compensation -- Option Grants on D&B Common
Stock to R.H. Donnelley Corporation Executives in Last Fiscal Year" and "The New
Dun & Bradstreet Corporation Management and Executive Compensation -- Option
Grants on D&B Common Stock to The New Dun & Bradstreet Corporation Executives in
Last Fiscal Year".
D&B restricted stock held by New D&B employees and New D&B restricted stock
credited to New D&B employees as a dividend shall be forfeited and such
individuals shall receive replacement New D&B restricted stock equal to (i) the
number of shares of forfeited New D&B restricted stock plus (ii) the number of
shares of forfeited D&B restricted stock multiplied by the New D&B Ratio and the
reciprocal of the R.H. Donnelley Ratio, such replacement New D&B restricted
stock to have the same terms as the D&B restricted stock from which they arose.
If performance targets are met pursuant to the D&B Performance Unit Plan,
R.H. Donnelley employees shall receive promptly after the Distribution Date a
number of shares of R.H. Donnelley Common Stock equal to (i) the pro rated
target number of performance shares plus (ii) the pro rated target number of
performance shares multiplied by the R.H. Donnelley Ratio and the reciprocal of
the New D&B Ratio. Outstanding opportunities for New D&B employees to earn
performance shares under the D&B Performance Unit Plan shall be cancelled and
each individual shall receive a replacement opportunity to earn a number of New
D&B performance shares equal to (i) the target number of D&B performance shares
plus (ii) the target number of D&B performance shares multiplied by the New D&B
Ratio and the reciprocal of the R.H. Donnelley Ratio.
The Employee Benefits Agreement also provides that New D&B will generally
retain all employee benefit litigation liabilities that are asserted prior to
the Distribution Date (but not such liabilities that relate to the transferred
retirement and savings plan assets of R.H. Donnelley employees). Except as
otherwise provided in the Employee Benefits Agreement, as of the Distribution
Date, R.H. Donnelley employees will generally cease participation in D&B
employee benefit plans, and R.H. Donnelley will generally recognize, among other
things, their respective employees' past service with D&B under their respective
employee benefit plans. Except as specifically provided therein, nothing in the
Employee Benefits Agreement restricts
26
<PAGE> 29
R.H. Donnelley's or New D&B's ability to amend or terminate any of their
respective employee benefit plans after the Distribution Date.
INTELLECTUAL PROPERTY AGREEMENT
D&B and New D&B will enter into an Intellectual Property Agreement (the "IP
Agreement") which provides for the allocation and recognition by and between
these companies of rights under patents, copyrights, software, technology, trade
secrets and certain other intellectual property owned by New D&B and R.H.
Donnelley and their respective subsidiaries as of the Distribution Date. See
"The New Dun & Bradstreet Corporation Business -- Intellectual Property" and
"R.H. Donnelley Business -- Intellectual Property".
SHARED TRANSACTION SERVICES AGREEMENT
D&B and New D&B will enter into a Shared Transaction Services Agreement
providing for the orderly continuation, for a transitional period after the
Distribution Date, of certain of the shared transaction and other services (such
as payroll, accounts payable, general accounting and computer processing and
support) currently being provided.
DATA SERVICES AGREEMENT
D&B and New D&B will enter into a Data Services Agreement providing for the
orderly continuation, for a transitional period after the Distribution Date, of
certain specified computer processing and related services to be provided by one
party to the other.
TRANSITION SERVICES AGREEMENTS
D&B and New D&B will enter into a Transition Services Agreement pursuant to
which the respective parties have agreed to certain basic terms governing the
provision by one party to the other of specified pension investment management
services or other support services for a transitional period after the
Distribution Date. In addition, D&B, New D&B, Cognizant, IMS Health
Incorporated, a wholly owned subsidiary of Cognizant, and ACNielsen will enter
into an Amended and Restated Transition Services Agreement pursuant to which the
respective parties have agreed to certain basic terms governing the provision of
insurance services by New D&B to the other parties after the Distribution Date.
27
<PAGE> 30
DIVIDEND POLICIES
The payment and level of cash dividends by New D&B and R.H. Donnelley after
the Distribution will be subject to the discretion of the New D&B Board of
Directors and the R.H. Donnelley Board of Directors, respectively. It is
anticipated that New D&B will initially pay a quarterly dividend of $0.185 per
share and that R.H. Donnelley will initially pay a quarterly dividend of $0.035
per share. However, the payment and level of cash dividends by New D&B and R.H.
Donnelley will be based on, and affected by, a number of factors, including the
respective operating results and financial requirements of New D&B and R.H.
Donnelley on a stand-alone basis as well as applicable legal and contractual
restrictions. There can be no assurance that any dividends will be declared or
paid after the Distribution.
28
<PAGE> 31
THE NEW DUN & BRADSTREET CORPORATION
(ACCOUNTING SUCCESSOR TO D&B)
CAPITALIZATION
The following table sets forth the capitalization of D&B as of March 31,
1998, and as adjusted to give effect to the Distribution and the transactions
contemplated thereby. The following data is qualified in its entirety by the
Consolidated Financial Statements of D&B and other information contained
elsewhere in this Information Statement. See "Forward-Looking Statements".
<TABLE>
<CAPTION>
HISTORICAL
MARCH 31, AS ADJUSTED FOR
1998 THE DISTRIBUTION
---------- ---------------------
(DOLLAR AMOUNTS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Cash and Cash Equivalents................................... $ 116.6 $ 288.2(1)
------- -------
Notes Payable............................................... $ 364.8 $ 36.4(1)
------- -------
Minority Interest........................................... $ 301.9 $ 301.9
------- -------
Preferred Stock, authorized -- 10,000,000 shares
$1.00 par value per share -- historical
$0.01 par value per share -- adjusted..................... (2)
Series Common Stock, authorized -- 10,000,000 shares
$0.01 par value per share -- adjusted..................... (2)
Common Stock, authorized -- 400,000,000 shares
$1.00 par value per share, 188,420,996 shares
issued -- historical
$0.01 par value per share, 171,570,140 shares
issued -- adjusted..................................... 188.4 1.7(2)
Capital Surplus............................................. 80.2 250.0(2)
Retained Earnings........................................... 396.2 (275.9)(1)(2)(3)
Treasury Stock, at cost, 16,850,856 shares -- historical.... (906.5) --(2)
Cumulative Translation Adjustment........................... (167.1) (167.1)
Minimum Pension Liability................................... (37.4) (37.4)
------- -------
Total Equity........................................... $(446.2) $(228.7)
------- -------
Total Capitalization.............................. $ 337.1 $ 397.8
======= =======
</TABLE>
- ---------------
(1) In connection with the Distribution, R.H. Donnelley will borrow
approximately $350 million under the R.H. Donnelley Credit Facility and
issue $150 million of senior subordinated notes under the R.H. Donnelley
Indenture all of which will be guaranteed by D&B. A portion of the proceeds
of this indebtedness will be used to repay existing indebtedness of D&B.
This $500 million of debt will be an obligation of R.H. Donnelley after the
Distribution. The adjustment represents a reduction in commercial paper
outstanding as of March 31, 1998 of $328.4 million with the remaining
proceeds of $171.6 million reflected as an increase to cash and cash
equivalents.
(2) To reflect the recapitalization of New D&B in connection with the
Distribution, including the elimination of treasury stock which shares will
be treasury shares of R.H. Donnelley, the adjustment of the par value of the
Preferred and Common Stock to $0.01 per share and the authorization of
Series Common Stock.
(3) To reflect the dividend (for accounting purposes only) of the net assets of
the R.H. Donnelley Business in connection with the Distribution.
29
<PAGE> 32
THE NEW DUN & BRADSTREET CORPORATION
(ACCOUNTING SUCCESSOR TO D&B)
SELECTED FINANCIAL DATA
The following data is qualified in its entirety by the Consolidated
Financial Statements of D&B and other information contained elsewhere in this
Information Statement. The financial data as of and for each of the years in the
five year period ended December 31, 1997 have been derived from the audited
financial statements of D&B, which financial statements as of December 31, 1996
and 1997 and for each of the years in the three year period ended December 31,
1997 are contained elsewhere in this Information Statement. The financial data
as of March 31, 1998 and for the three months ended March 31, 1997 and 1998 have
been derived from the unaudited interim financial statements of D&B contained
elsewhere in this Information Statement. Due to the relative significance of the
New D&B Business to D&B, the transaction will be accounted for as a reverse
spin-off, and as such, the New D&B Business has been classified as a continuing
operation and the R.H. Donnelley Business has been classified as a discontinued
operation. See "The Distribution -- Form of Transaction; Basis of Presentation".
The following financial data should also be read in conjunction with the
information set forth under "The New Dun & Bradstreet Corporation (Accounting
Successor to D&B) Consolidated Pro Forma Condensed Financial Statements" and
"The New Dun & Bradstreet Corporation (Accounting Successor to D&B) Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
D&B's Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Information Statement.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
HISTORICAL PRO FORMA(1)
----------------------------------------------------- ------------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- ------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Operating Revenues.......... $1,676.4 $1,685.0 $1,735.3 $1,782.5 $1,811.0 $1,811.0
Costs and Expenses(2)....... 1,513.7 1,337.9 1,522.4 1,725.3 1,407.3 1,407.3
-------- -------- -------- -------- -------- --------
Operating Income............ 162.7 347.1 212.9 57.2 403.7 403.7
Non-Operating (Expense)
Income -- Net............. 1.6 (35.1) (68.0) (71.2) (71.3) (38.4)
-------- -------- -------- -------- -------- --------
Income from Continuing
Operations before
Provision for Income
Taxes..................... 164.3 312.0 144.9 (14.0) 332.4 365.3
Provision for Income
Taxes..................... 50.4 110.4 49.6 102.1 113.4 126.9
-------- -------- -------- -------- -------- --------
Income (Loss) from:
Continuing Operations..... 113.9 201.6 95.3 (116.1) 219.0 $ 238.4
========
Discontinued Operations,
Net of Income
Taxes(3)................ 166.4 428.0 225.9 72.3 92.0
-------- -------- -------- -------- --------
Income (Loss) before
Cumulative Effect of
Accounting Changes........ 280.3 629.6 321.2 (43.8) 311.0
Cumulative Effect of
Accounting Changes, Net of
Income Tax Benefit(4)..... (242.1) -- -- -- (127.0)
-------- -------- -------- -------- --------
Net Income (Loss)........... $ 38.2 $ 629.6 $ 321.2 $ (43.8) $ 184.0
======== ======== ======== ======== ========
BASIC EARNINGS (LOSS) PER
SHARE OF COMMON STOCK:
Continuing Operations....... $ 0.65 $ 1.18 $ 0.56 $ (0.69) $ 1.28 $ 1.40
========
Discontinued Operations..... 0.94 2.52 1.33 0.43 0.54
-------- -------- -------- -------- --------
Before Cumulative Effect of
Accounting Changes........ 1.59 3.70 1.89 (0.26) 1.82
Cumulative Effect of
Accounting Changes, Net of
Income Tax Benefit(4)..... (1.36) -- -- -- (.74)
-------- -------- -------- -------- --------
Basic Earnings (Loss) Per
Share of Common Stock....... $ 0.23 $ 3.70 $ 1.89 $ (0.26) $ 1.08
======== ======== ======== ======== ========
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------------
HISTORICAL PRO FORMA(1)
------------------- ------------
1997 1998 1998
-------- -------- ------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
RESULTS OF OPERATIONS:
Operating Revenues.......... $ 436.4 $ 471.1 $ 471.1
Costs and Expenses(2)....... 358.5 378.3 378.3
-------- -------- --------
Operating Income............ 77.9 92.8 92.8
Non-Operating (Expense)
Income -- Net............. (22.5) (12.9) (7.1)
-------- -------- --------
Income from Continuing
Operations before
Provision for Income
Taxes..................... 55.4 79.9 85.7
Provision for Income
Taxes..................... 18.9 28.4 30.8
-------- -------- --------
Income (Loss) from:
Continuing Operations..... 36.5 51.5 $ 54.9
========
Discontinued Operations,
Net of Income
Taxes(3)................ (1.6) 12.0
-------- --------
Income (Loss) before
Cumulative Effect of
Accounting Changes........ 34.9 63.5
Cumulative Effect of
Accounting Changes, Net of
Income Tax Benefit(4)..... (127.0) --
-------- --------
Net Income (Loss)........... $ (92.1) $ 63.5
======== ========
BASIC EARNINGS (LOSS) PER
SHARE OF COMMON STOCK:
Continuing Operations....... $ 0.21 $ 0.30 $ 0.32
========
Discontinued Operations..... (0.01) 0.07
-------- --------
Before Cumulative Effect of
Accounting Changes........ 0.20 0.37
Cumulative Effect of
Accounting Changes, Net of
Income Tax Benefit(4)..... (.74) --
-------- --------
Basic Earnings (Loss) Per
Share of Common Stock....... $ (.54) $ 0.37
======== ========
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
HISTORICAL PRO FORMA(1)
----------------------------------------------------- ------------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- -------- ------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
DILUTED EARNINGS (LOSS) PER
SHARE OF COMMON STOCK:
Continuing Operations....... $ 0.64 $ 1.17 $ 0.55 $ (0.69) $ 1.27 $ 1.38
========
Discontinued Operations..... 0.93 2.50 1.32 0.43 0.53
-------- -------- -------- -------- --------
Before Cumulative Effect of
Accounting Changes........ 1.57 3.67 1.87 (0.26) 1.80
Cumulative Effect of
Accounting Changes, Net of
Income Tax Benefit(4)..... (1.35) -- -- -- (.73)
-------- -------- -------- -------- --------
Diluted Earnings (Loss) Per
Share of Common Stock....... $ 0.22 $ 3.67 $ 1.87 $ (0.26) $ 1.07
======== ======== ======== ======== ========
OTHER DATA:
Dividends Per Share........... $ 2.40 $ 2.56 $ 2.63 $ 1.82 $ 0.88
Dividends Paid................ $ 423.0 $ 435.2 $ 446.1 $ 310.8 $ 150.6
Weighted Average Number of
Shares Outstanding --
Basic....................... 177.2 169.9 169.5 170.0 170.8 170.8
Diluted..................... 179.1 171.7 171.6 170.0(6) 172.6 172.6
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
----------------------------------
HISTORICAL PRO FORMA(1)
------------------- ------------
1997 1998 1998
-------- -------- ------------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
DILUTED EARNINGS (LOSS) PER
SHARE OF COMMON STOCK:
Continuing Operations....... $ 0.21 $ 0.30 $ 0.32
========
Discontinued Operations..... (0.01) 0.07
-------- --------
Before Cumulative Effect of
Accounting Changes........ 0.20 0.37
Cumulative Effect of
Accounting Changes, Net of
Income Tax Benefit(4)..... (.73) --
-------- --------
Diluted Earnings (Loss) Per
Share of Common Stock....... $ (.53) $ 0.37
======== ========
OTHER DATA:
Dividends Per Share........... $ 0.22 $ 0.22
Dividends Paid................ $ 37.7 $ 37.7
Weighted Average Number of
Shares Outstanding --
Basic....................... 171.2 171.2 171.2
Diluted..................... 172.7 174.1 174.1
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
HISTORICAL
-----------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets(5)............. $3,575.4 $3,759.8 $3,644.9 $2,225.4 $2,086.0
Shareholders' Equity........ $1,086.6 $1,294.0 $1,158.3 $ (455.3) $ (490.2)
<CAPTION>
AS OF MARCH 31,
-------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
1998 1998
---------- ------------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
BALANCE SHEET:
Total Assets(5)............. $2,087.9 $1,977.0
Shareholders' Equity........ $ (446.2) $ (228.7)
</TABLE>
- ---------------
(1) See "The New Dun & Bradstreet Corporation (Accounting Successor to D&B)
Consolidated Pro Forma Condensed Financial Statements".
(2) 1993 included restructuring expense of $158.8 million partially offset by
gains of $13.6 million for the redemption of preferred shares received from
the 1991 sale of Donnelley Marketing, $9.5 million on the sale of Donnelley
Marketing and $8.9 million for the redemption of notes related to the 1992
sale of Datastream International. 1994 included restructuring expense and a
non-recurring charge of $66.7 million partially offset by a gain on the sale
of DunsNet of $36.0 million. 1995 included a fourth-quarter non-recurring
charge of $188.5 million partially offset by gains of $90.0 million and
$28.0 million for the sale of Interactive Data Corporation and warrants
received in connection with the sale of Donnelley Marketing, respectively.
1996 included one-time charges of $161.2 million for reorganization costs
and the loss on the sale of American Credit Indemnity of $68.2 million.
(3) Income taxes on discontinued operations were $109.0 million, $139.4 million,
$73.4 million, $145.1 million and $52.2 million in 1993, 1994, 1995, 1996
and 1997, respectively, and $8.1 million for the three months ended March
31, 1998. An income tax benefit on discontinued operations was $0.7 million
for the three months ended March 31, 1997.
(4) 1993 included the impact of $127.1 million or $.72 per share basic and $.71
per share diluted for the adoption of SFAS No. 112 and $115.0 million or
$.64 per share (basic and diluted) for the adoption of SFAS No. 106. 1997
included the impact of a change in revenue recognition policies (see Note 1
to the D&B Consolidated Financial Statements).
(5) Includes net assets of discontinued operations of $1,626.0 million, $1,809.3
million, $1,652.2 million, $430.6 million and $296.5 million as of December
31, 1993, 1994, 1995, 1996 and 1997, respectively, and $282.5 million as of
March 31, 1998. 1993, 1994 and 1995 net assets of discontinued operations
included the net assets of Cognizant Corporation and ACNielsen Corporation
of $1,186.4 million, $1,342.3 million and $1,207.3 million, respectively.
(6) The exercise of potentially dilutive shares has not been assumed for the
year ended December 31, 1996, since the result is antidilutive.
31
<PAGE> 34
THE NEW DUN & BRADSTREET CORPORATION
(ACCOUNTING SUCCESSOR TO D&B)
CONSOLIDATED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited consolidated pro forma condensed financial
statements have been prepared giving effect to the Distribution as if it
occurred on March 31, 1998 for the pro forma condensed balance sheet and January
1, 1997 for the pro forma condensed statements of operations. The pro forma
condensed balance sheet and statements of operations set forth below do not
purport to represent what New D&B's financial position actually would have been
had the Distribution occurred on the date indicated or to project New D&B's
operating results for any future period. The pro forma adjustments are based
upon available information and certain assumptions that D&B management believes
are reasonable. The consolidated pro forma condensed financial statements set
forth below should be read in conjunction with, and are qualified in their
entirety by, the information under "The New Dun & Bradstreet Corporation
(Accounting Successor to D&B) Selected Financial Data" and "The New Dun &
Bradstreet Corporation (Accounting Successor to D&B) Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in the D&B
Consolidated Financial Statements and Notes thereto included elsewhere in this
Information Statement.
32
<PAGE> 35
THE NEW DUN & BRADSTREET CORPORATION
(ACCOUNTING SUCCESSOR TO D&B)
CONSOLIDATED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- -----------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING REVENUES......................................... $1,811.0 $1,811.0
-------- --------
Operating Costs............................................ 487.0 487.0
Selling and Administrative Expenses........................ 788.4 788.4
Depreciation and Amortization.............................. 131.9 131.9
-------- --------
OPERATING INCOME........................................... 403.7 403.7
-------- --------
Interest Income............................................ 1.8 1.8
Interest Expense........................................... (53.4) $32.9(A) (20.5)
Other Expense -- Net....................................... (19.7) (19.7)
-------- ----- --------
Non-Operating Expense -- Net............................... (71.3) 32.9 (38.4)
-------- ----- --------
Income from Continuing Operations before Provision for
Income Taxes............................................. 332.4 32.9 365.3
Provision for Income Taxes................................. 113.4 13.5(B) 126.9
-------- ----- --------
INCOME FROM CONTINUING OPERATIONS.......................... $ 219.0 $19.4 $ 238.4
======== ===== ========
EARNINGS PER SHARE OF COMMON STOCK FROM CONTINUING
OPERATIONS:
Basic.................................................... $ 1.28 $ 1.40
Diluted.................................................. $ 1.27 $ 1.38
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic.................................................... 170.8 170.8
Diluted.................................................. 172.6 172.6
</TABLE>
- ---------------
(A) In connection with the Distribution, R.H. Donnelley will borrow
approximately $350 million under the R.H. Donnelley Credit Facility and
issue $150 million of senior subordinated notes under the R.H. Donnelley
Indenture, all of which will be guaranteed by D&B. A portion of the proceeds
of this indebtedness will be used to repay existing indebtedness of D&B.
This $500 million of debt will be the obligation of R.H. Donnelley after the
Distribution. The adjustment represents the reduction in actual interest
expense on debt outstanding during the year, up to a maximum of $500
million, assuming the debt was repaid as of January 1, 1997.
(B) To reflect the tax effect of the pro forma adjustment at the statutory tax
rate.
(C) Management estimates that one-time pre-tax expenditures of approximately $25
million to $30 million ($20 million to $25 million after-tax), including the
costs to terminate outstanding interest rate swaps, will be required to
complete the Distribution. These costs will be recorded as incurred and have
not been considered in the consolidated pro forma condensed statement of
operations.
33
<PAGE> 36
THE NEW DUN & BRADSTREET CORPORATION
(ACCOUNTING SUCCESSOR TO D&B)
CONSOLIDATED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- -----------
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
OPERATING REVENUES....................................... $471.1 $471.1
Operating Costs.......................................... 145.3 145.3
Selling and Administrative Expenses...................... 197.6 197.6
Depreciation and Amortization............................ 35.4 35.4
------ ------
OPERATING INCOME......................................... 92.8 92.8
------ ------
Interest Income.......................................... 0.9 0.9
Interest Expense......................................... (7.3) $5.8(A) (1.5)
Other Expense -- Net..................................... (6.5) (6.5)
------ ---- ------
Non-Operating Expense -- Net............................. (12.9) 5.8 (7.1)
------ ---- ------
Income from Continuing Operations before Provision for
Income Taxes........................................... 79.9 5.8 85.7
Provision for Income Taxes............................... 28.4 2.4(B) 30.8
------ ---- ------
INCOME FROM CONTINUING OPERATIONS........................ $ 51.5 $3.4 $ 54.9
====== ==== ======
EARNINGS PER SHARE OF COMMON STOCK FROM CONTINUING
OPERATIONS:
Basic.................................................. $ 0.30 $ 0.32
Diluted................................................ $ 0.30 $ 0.32
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic.................................................. 171.2 171.2
Diluted................................................ 174.1 174.1
</TABLE>
- ---------------
(A) In connection with the Distribution, R.H. Donnelley will borrow
approximately $350 million under the R.H. Donnelley Credit Facility and
issue $150 million of senior subordinated notes under the R.H. Donnelley
Indenture, all of which will be guaranteed by D&B. A portion of the proceeds
of this indebtedness will be used to repay existing indebtedness of D&B.
This $500 million of debt will be the obligation of R.H. Donnelley after the
Distribution. The adjustment represents the reduction in actual interest
expense on debt outstanding during the period, assuming the debt was repaid
as of January 1, 1997.
(B) To reflect the tax effect of the pro forma adjustment at the statutory tax
rate.
(C) Management estimates that one-time pre-tax expenditures of approximately $25
million to $30 million ($20 million to $25 million after-tax), including the
costs to terminate outstanding interest rate swaps, will be required to
complete the Distribution. These costs will be recorded as incurred and have
not been considered in the consolidated pro forma condensed statement of
operations.
34
<PAGE> 37
THE NEW DUN & BRADSTREET CORPORATION
(ACCOUNTING SUCCESSOR TO D&B)
CONSOLIDATED PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents................................. $ 116.6 $ 171.6(A) $ 288.2
Other Current Assets...................................... 719.3 719.3
-------- ------- --------
Total Current Assets............................ 835.9 171.6 1,007.5
Non-Current Assets........................................ 969.5 969.5
Net Assets of Discontinued Operations..................... 282.5 (282.5)(B) --
-------- ------- --------
Total Assets.............................................. $2,087.9 $(110.9) $1,977.0
======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes Payable............................................. $ 364.8 $(328.4)(A) $ 36.4
Accrued and Other Current Liabilities..................... 1,089.6 1,089.6
-------- ------- --------
Total Current Liabilities....................... 1,454.4 (328.4) 1,126.0
Long-term Liabilities..................................... 777.8 777.8
Minority Interest......................................... 301.9 301.9
Shareholders' Equity
Preferred Stock -- authorized -- 10,000,000 shares;
$1.00 par value per share -- historical.................
$0.01 par value per share -- pro forma..................
Series Common Stock -- authorized -- 10,000,000 shares
$0.01 par value per share -- pro forma..................
Common Stock authorized -- 400,000,000 shares
$1.00 par value per share, 188,420,996 shares
issued -- historical.................................
$0.01 par value per share, 171,570,140 shares
issued -- pro forma.................................. 188.4 (16.9)(C) 1.7
(169.8)(D)
Capital Surplus........................................... 80.2 169.8(D) 250.0
Retained Earnings (Deficit)............................... 396.2 500.0(A) (275.9)
(282.5)(B)
(889.6)(C)
Treasury Stock, at cost, 16,850,856
shares -- historical.................................... (906.5) 906.5(C) --
Cumulative Translation Adjustment......................... (167.1) (167.1)
Minimum Pension Liability Adjustment...................... (37.4) (37.4)
-------- ------- --------
Total Shareholders' Equity...................... (446.2) 217.5 (228.7)
-------- ------- --------
Total Liabilities and Shareholders' Equity...... $2,087.9 $(110.9) $1,977.0
======== ======= ========
</TABLE>
- ---------------
(A) In connection with the Distribution, R.H. Donnelley will borrow
approximately $350 million under the R.H. Donnelley Credit Facility and
issue $150 million of senior subordinated notes under the R.H. Donnelley
Indenture, all of which will be guaranteed by D&B. A portion of this
indebtedness will be used to repay existing indebtedness. This $500 million
of debt will be an obligation of R.H. Donnelley after the Distribution. The
adjustment represents the reduction in commercial paper outstanding as of
March 31, 1998 of $328.4 million with the remaining proceeds of $171.6
million reflected as an increase to cash and cash equivalents.
(B) To reflect the dividend of net assets of R.H. Donnelley (for accounting
purposes only).
(C) To reflect the elimination of treasury stock which shares will be treasury
shares of R.H. Donnelley.
(D) To reflect the adjustment of the par value of the Common Stock to $0.01.
35
<PAGE> 38
THE NEW DUN & BRADSTREET CORPORATION
(ACCOUNTING SUCCESSOR TO D&B)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As described under "The Distribution -- Form of Transaction; Basis of
Presentation", for financial reporting purposes, New D&B will be treated as the
"accounting successor" to D&B. Therefore, the historical financial information
for New D&B included herein and management's discussion and analysis thereof set
forth below are those of D&B, with the R.H. Donnelley Business treated as a
discontinued operation.
OVERVIEW
On December 17, 1997, the Board of Directors of D&B announced a plan to
separate into two publicly traded companies -- New D&B and R.H. Donnelley. The
separation of the two companies will be accomplished through a tax-free dividend
to D&B's stockholders of New D&B Common Stock, which will represent a continuing
interest in businesses to be conducted by New D&B. After the Distribution, D&B's
only business will be the R.H. Donnelley Business, and the shares of D&B Common
Stock held by D&B stockholders will represent a continuing ownership interest
only in that business. In connection with the Distribution, D&B will change its
name to "R.H. Donnelley Corporation" (and therefore from and after the
Distribution, D&B Common Stock will be "R.H. Donnelley Common Stock"), and New
D&B will change its name to "The Dun & Bradstreet Corporation". D&B has received
a ruling from the Internal Revenue Service to the effect that the Distribution
will be tax-free for Federal income tax purposes. New D&B will consist of D&B
Inc. and Moody's.
On November 1, 1996, D&B reorganized into three publicly traded independent
companies by spinning off through a tax-free distribution (the "1996
Distribution") two new companies, (1) Cognizant and (2) ACNielsen, to
shareholders. In conjunction with the 1996 Distribution, D&B also disposed of
Dun & Bradstreet Software ("DBS") and NCH Promotional Services ("NCH"). After
the transaction was completed, D&B's continuing operations consisted of D&B
Inc., Moody's and the R.H. Donnelley Business. For purposes of effecting the
1996 Distribution and governing certain of the ongoing relationships among D&B,
Cognizant and ACNielsen after the 1996 Distribution and to provide for an
orderly transition, D&B, Cognizant and ACNielsen entered into various
agreements, as described in Note 2 to D&B's consolidated financial statements.
Pursuant to Accounting Principles Board Opinion ("APB") No. 30, "Reporting
the Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," the consolidated financial statements of D&B have been
reclassified to reflect both the Distribution and the 1996 Distribution.
Accordingly, revenues, costs and expenses and cash flows of R.H. Donnelley,
Cognizant, ACNielsen, DBS and NCH have been excluded from the respective
captions in the Consolidated Statements of Operations and Consolidated
Statements of Cash Flows. The net operating results of these entities have been
reported, net of applicable income taxes, as "Income (Loss) from Discontinued
Operations," and the net cash flows of these entities have been reported as "Net
Cash (Used In) Provided by Discontinued Operations". The assets and liabilities
of the R.H. Donnelley Business have been excluded from the respective captions
in the Consolidated Balance Sheets and have been reported as "Net Assets of
Discontinued Operations".
RESULTS OF OPERATIONS
Three months ended March 31, 1998 Compared with Three months ended March 31,
1997
D&B's first quarter 1998 income from continuing operations of $51.5 million
was up $15.0 million or 41% from the prior year's first quarter results from
continuing operations. Earnings per share from continuing operations (basic and
diluted) of $.30 was up 43% from the prior year's earnings per share from
continuing operations of $.21. D&B's first quarter net income was $63.5 million
or $.37 per share, both basic and diluted. This compares with a first quarter
1997 net loss of $92.1 million, or a $.54 per share loss basic, $.53 per share
loss diluted. The 1997 results include a one-time, non-cash charge for the
cumulative effect of accounting changes of $127.0 million after-tax ($.74 per
share basic, $.73 per share diluted), with respect to certain of
36
<PAGE> 39
D&B's revenue recognition methods. Effective January 1, 1997, D&B changed its
revenue recognition method for its Credit Information Services and Moody's
businesses. In accordance with APB No. 20, "Accounting Changes," the cumulative
effect of these accounting changes resulted in a pre-tax non-cash charge of
$214.7 million ($127.0 million after-tax).
The company also changed certain of its revenue recognition methods for its
Marketing Information Services and Receivable Management Services businesses.
Previously, the Company included the effect of these changes as part of the
cumulative effect of accounting changes in the Consolidated Statements of
Operations effective January 1, 1997. Subsequent to the initial issuance of the
financial statements and after discussions with the staff of the Securities and
Exchange Commission, it was determined that the accounting for these changes in
revenue recognition methods be amended and therefore applied retroactively for
all periods presented. As such the pre-tax non-cash charge was reduced by $40.0
million ($23.6 after-tax).
Operating revenues for the first quarter were up 8% to $471.1 million in
1998 from $436.4 million in 1997. Revenues for D&B of $338.6 million were up 2%
from the prior year. Excluding the impact of foreign currency fluctuations,
revenue growth for D&B was 6%. D&B U.S. posted an 8% increase in first quarter
revenue, driven by solid growth in traditional credit products, as well as
strong performance in sales of Value Added Products and Database Marketing. D&B
Europe's revenues decreased 8%, driven by unfavorable foreign exchange
fluctuations. Excluding foreign exchange, Europe's results improved modestly, up
1% over the prior year. Growth in the UK, Eastern Europe, Italy, Holland and
Portugal were offset by declines in Switzerland, Norway and Germany. Revenues
from D&B's other regions were up 3%, driven by a 13% improvement in Receivable
Management Services and growth in Latin America, partially offset by declines in
Canada and Asia Pacific resulting from unfavorable foreign exchange. Moody's
posted revenue growth of 25% to $132.5 million over the prior year reflecting
the continuing favorable interest rate environment, the continuing trend toward
the globalization of capital markets and Moody's success in product innovation.
Operating income for the first quarter of 1998 of $92.8 million was 19%
higher than 1997 first quarter operating income of $77.9 million. This growth
reflects the strong revenue results noted above and continued efforts to control
costs.
Non-operating expense-net was $12.9 million for the first quarter of 1998
compared with non-operating expense-net of $22.5 million for the first quarter
of 1997. This significant decrease was a result of sharply lower interest
expense, driven by lower debt and strong cash flow versus prior year.
The effective tax rate was 35.5% for the first quarter of 1998 compared to
34.1% in 1997.
Income from discontinued operations, net of income taxes, was $12.0 million
for the first quarter of 1998 compared to a loss of $1.6 million for the same
period in 1997. Revenue for the R.H. Donnelley Business totaled $41.5 million,
an increase of $22.5 million from $19.0 million reported in the first quarter of
1997 (which included $.8 million of revenues of the East Coast proprietary
operations of the R.H. Donnelley Business ("P-East") which was sold in the
fourth quarter of 1997). This strong increase is the result of a one-time shift
of approximately $19 million in revenues from the DonTech partnership as well as
growth in sales of advertising for both DonTech's Illinois directories and for
Sprint's Las Vegas directory. Certain revenue that in previous years was
reported in later quarters of the year is being reported in the first quarter
this year, a result of the August 1997 restructuring of the DonTech partnership
agreement with Ameritech advertising services. Operating income for the R.H.
Donnelley Business for the first quarter of 1998 was $20.1 million, up $22.4
million from 1997 (which included the $.9 million operating loss of P-East), due
mainly to the DonTech revenue shift.
Year ended December 31, 1997 Compared with Year ended December 31 1996
D&B's basic earnings per share from continuing operations were $1.28 in
1997, up $1.97 from a loss of $.69 per share reported in 1996. On a diluted
basis, D&B reported earnings per share from continuing operations of $1.27 per
share compared with a loss of $.69 per share reported in 1996. The 1996 loss
included all corporate overhead expenses associated with D&B prior to the 1996
Distribution and certain transaction-related expenses. D&B's basic earnings per
share in 1997 were $1.08, up $1.34 from a loss of $.26 per share reported in
1996. On a diluted basis, D&B reported earnings per share of $1.07 compared with
a loss of $.26 in 1996. The 1997 results include a one-time, non-cash charge for
the cumulative effect of accounting changes
37
<PAGE> 40
($.74 per share basic, $.73 per share diluted), with respect to certain of D&B's
revenue recognition methods. Effective January 1, 1997, D&B changed its revenue
recognition method for its Credit Information Services and Moody's businesses.
In accordance with APB No. 20, "Accounting Changes," the cumulative effect of
these accounting changes resulted in a pre-tax non-cash charge of $214.7 million
($127.0 million after-tax).
For Credit Information Services revenue is now recognized as products and
services are used by its customers, which the Company believes is a better
measure of the performance. Prior to 1997, the Company recorded revenue from its
Credit Information Services business on a contract sales basis, while in 1997
revenue was recognized based on usage of products as measured in units. Units
used in 1997, 1996 and 1995 were approximately, 30.7 million, 29.7 million and
29.8 million, respectively.
Operating revenues grew 1.6% to $1,811.0 million from $1,782.5 million in
1996. Excluding the results of American Credit Indemnity ("ACI"), which was
divested in 1996, revenue growth would have increased 5.3% from 1996. Moody's
reported revenues of $457.4 million in 1997, up 18.7% from 1996, driven by gains
in corporate bonds, increased coverage in the mortgage-backed market and
continued expansion outside the U.S. Corporate bonds displayed strong volume
growth, especially in the high-yield market, where volumes were 30% above the
prior year. D&B Inc.'s 1997 revenues were up 1.6% to $1,353.6 million. D&B U.S.
revenues were up 6.3%, including increases in Marketing Information Services of
13.7% and Receivables Management Services of 9.9%. D&B Europe's 1997 revenues of
$426.1 million were 4.3% lower than 1996, resulting from the increased strength
of the U.S. dollar. Excluding the impact of foreign exchange, D&B Europe would
have reported a 4.0% increase in revenues. Other D&B regions reported an 8.8%
decrease in operating revenues to $93.8 million from $102.8 million, primarily
as a result of phasing out certain unprofitable operations in Latin America.
Operating income in 1997 of $403.7 million increased $346.5 million from
$57.2 million in 1996. 1996 operating income included $161.2 million in
transaction costs incurred in conjunction with D&B's 1996 Distribution and a
$68.2 million loss attributable to the sale of ACI. Excluding these
non-recurring items, 1997 operating income would have been up 40.9% from $286.6
million in 1996. Operating income growth reflected strong growth at Moody's and
growth in D&B U.S., partially offset by declines in the international operations
of D&B Inc.
1997 operating costs and selling and administrative expenses increased by
3.7% to $1,226.6 million, excluding corporate expenses in each year, since 1996
included costs associated with the corporate structure prior to the 1996
Distribution.
Non-operating expense-net of $71.3 million in 1997, which primarily
included interest expense on notes payable, and minority interest costs
(included in other expense-net), was essentially unchanged compared with 1996.
Interest expense in 1997 included a $3.2 million charge to mark-to-market
certain interest rate swaps and a $2.9 million charge as a result of interest
rate swap cancellations. These charges were offset by lower financing costs in
1997.
In 1997, D&B's effective tax rate from continuing operations was 34.1%. Due
to tax implications of the 1996 Distribution, discussed below, the 1996
effective tax rate was 729.3%. The underlying effective tax rate, excluding
these one-time items for 1996, was approximately 34%.
Income from discontinued operations, net of income taxes, was $92.0 million
in 1997 and $230.5 million in 1996. Operating results of the R.H. Donnelley
Business comprised the income from discontinued operations in 1997, while 1996
includes operating results of the R.H. Donnelley Business and NCH for the full
year and Cognizant, ACNielsen and DBS for the ten months ended October 31, 1996.
The R.H. Donnelley Business operating income included a gain on the sale of the
East Coast proprietary operations of the R.H. Donnelley Business ("P-East") of
$9.4 million in 1997 and a loss on the sale of the West Coast proprietary
operations of the R.H. Donnelley Business ("P-West") of $28.5 million in 1996.
Also recorded in 1996 was a loss on the disposition of DBS of $220.6 million
($158.2 million after-tax). Additionally, D&B sold NCH in the fourth quarter of
1996. No gain or loss resulted from the sale.
38
<PAGE> 41
Year ended December 31, 1996 Compared with Year ended December 1995
D&B incurred a loss from continuing operations in 1996 of $116.1 million,
or $.69 basic earnings per share ($.69 diluted earnings per share) compared with
earnings of $95.3 million, or $.56 basic earnings per share ($.55 diluted
earnings per share) in 1995. 1996 results included all corporate overhead
expenses associated with D&B prior to the 1996 Distribution and certain
transaction-related expenses. 1995 results included certain non-recurring
charges and gains.
Operating revenues from continuing operations for the year ended December
31, 1996 grew 2.7% to $1,782.5 million from $1,735.3 million in 1995. Excluding
the results of divested businesses, revenue growth would have increased 6.6%
from 1995. Moody's reported revenues of $385.3 million in 1996, up 16.9% from
1995, driven by strong corporate and municipal bond market volumes during the
year. D&B Inc.'s 1996 revenues were up 4.0% to $1,332.3 million. D&B U.S.
revenues were up 4.0%, including increases in Marketing Information Services of
9.7% and Receivables Management Services of 12.2%. D&B Europe and other D&B
regions were up 3.1% and 7.8%, respectively.
Operating income in 1996 of $57.2 million decreased from $212.9 million in
the prior year. Included in operating income in 1996 was $161.2 million in
transaction costs incurred in connection with D&B's 1996 Distribution. These
costs included $75.0 million for professional and consulting fees and $86.2
million primarily for settlement of executive compensation plans and retention
bonuses. Also included in 1996 operating income was the $68.2 million loss
incurred as a result of the sale of ACI in October of 1996. 1995 operating costs
included gains on both the sales of Interactive Data Corporation ("IDC") of
$90.0 million and warrants received in connection with the previous divestiture
of Donnelley Marketing of $28.0 million, offset by a non-recurring charge of
$188.5 million recorded in the fourth quarter of 1995. This charge primarily
reflected an impairment loss in connection with the adoption of the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
($93.7 million), a provision for postemployment benefits ($56.3 million) under
D&B's severance plan, an accrual for contractual obligations that have no future
economic benefits and for penalties to cancel certain contracts ($19.8 million)
and other asset revaluations ($18.7 million).
Operating costs and selling and administrative expenses, excluding the
effects of divestitures, transaction costs associated with the 1996 Distribution
and the fourth-quarter non-recurring charge, increased 8.6% in 1996 compared
with 1995. The increase reflects D&B's investments in new products and services.
D&B reported 1996 non-operating expense-net of $71.2 million compared with
non-operating expense-net of $68.0 million in 1995. The increase was
attributable, in part, to lower interest income earned due to the high cash
requirements of the 1996 Distribution and the sale of ACI, which held $111.5
million of marketable securities at the date of the sale.
Despite a loss from continuing operations, the provision for income taxes
was $102.1 million in 1996. D&B's effective tax rate was 729.3% in 1996 and
34.2% in 1995. In 1996, the higher effective tax rate primarily reflected the
non-deductibility of certain transaction costs, lower tax benefits on losses
from divested businesses and certain foreign taxes incurred in connection with
the 1996 Distribution. The underlying effective tax rate, excluding these
one-time items for 1996, was approximately 34%.
Income from discontinued operations, net of income taxes, was $230.5
million in 1996 compared with $225.9 million in the prior year. 1996 includes
the operating results of the R.H. Donnelley Business and NCH for the full year
and Cognizant, ACNielsen and DBS for the ten months ended October 31, 1996,
while 1995 includes the operating results of all of those entities for the full
year. The R.H. Donnelley Business' 1996 results include a loss on the
disposition of P-West of $28.5 million. D&B also reported a loss on the
disposition of DBS, which was completed in the fourth quarter of 1996, of $220.6
million ($158.2 million after tax). Additionally, D&B sold NCH in the fourth
quarter of 1996, with no resulting gain or loss recorded on the disposition. The
1995 results were affected by the fourth-quarter non-recurring charge of $206.3
million after tax.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure
about Pensions and Other Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132
revises employers' disclosures about pension and
39
<PAGE> 42
other postretirement benefit plans. SFAS No. 132 is effective for fiscal years
beginning after December 15, 1997. Restatement of disclosures for earlier
periods provided for comparative purposes are required unless the information is
not readily available. D&B is in the process of evaluating the disclosure
requirements. The adoption of SFAS No. 132 will have no impact on D&B's results
of operations, financial position or cash flows.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share" ("SFAS No. 128"), which simplifies existing
computational guidelines, revises disclosure requirements and increases the
comparability of earnings per share data on an international basis. D&B adopted
the statement in 1997, which required restatement of all prior-period per share
data presented.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"), which establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general-purpose financial statements. D&B adopted the statement in 1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), which
revises disclosure requirements about operating segments and establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS No. 131 requires that public business enterprises
report financial and descriptive information about their reportable operating
segments. The statement will be adopted by D&B effective year end December 31,
1998 and will require restatement of prior years. SFAS No. 131 is expected to
affect D&B's segment disclosures, but will not affect D&B's results of
operations, financial position or cash flows. D&B is in the process of
evaluating the disclosure requirements.
NON-U.S. OPERATING AND MONETARY ASSETS
D&B has operations in 38 countries. D&B's non-U.S. operations generated
approximately 32% of total revenues, including approximately 26% from European
operations. Thirty-eight percent of D&B's assets are located outside the U.S.,
and no one country had a significant concentration of cash.
At December 31, 1997, D&B had approximately $117 million in forward foreign
exchange contracts outstanding, with various expiration dates through March 1998
(see Note 5 to D&B's consolidated financial statements).
MARKET RISK SENSITIVE INSTRUMENTS
D&B funds its operations primarily through its commercial paper program and
other short-term bank lines of credit. As D&B operates in 38 countries, D&B is
exposed to market risk from changes in interest rates and foreign exchange rates
which could affect its results of operations and financial condition. In order
to reduce the risk from fluctuations in interest rates and foreign currencies,
D&B uses interest rate swap agreements and forward foreign exchange contracts.
These derivative financial instruments are viewed by D&B as risk management
tools that are entered into for hedging purposes only. D&B does not use
derivative financial instruments for trading or speculative purposes.
D&B also has investments in fixed income marketable securities.
Consequently, D&B is exposed to fluctuations in rates on these marketable
securities. Market risk associated with investments in marketable securities is
immaterial and has been excluded from the sensitivity discussions.
A discussion of D&B's accounting policies for derivative financial
instruments is included in the Summary of Significant Accounting Policies in
Note 1 to D&B's consolidated financial statements, and further disclosure
relating to financial instruments is included in Note 5 -- Financial Instruments
with Off-Balance Sheet Risks.
The following analysis presents the sensitivity of the fair value of D&B's
market risk sensitive instruments to changes in market rates and prices.
Interest Rate Risk
D&B is exposed to market risk through its commercial paper program, where
it borrows at prevailing short-term commercial paper rates, and through its
variable-rate short-term bank borrowings.
40
<PAGE> 43
D&B enters into interest rate swap agreements to manage exposure to changes
in interest rates. Specifically, D&B is exposed to fluctuations in both
short-term commercial paper and short-term bank rates. Interest rate swaps allow
D&B to raise funds at floating rates and effectively swap them into fixed rates
that are lower than those available to it if fixed-rate borrowings were made
directly. At December 31, 1997, D&B had $300.0 million of these interest rate
swaps.
The fair value for interest rate risk is calculated by D&B utilizing
estimates of the termination value of D&B's interest rate swaps, commercial
paper borrowings and short-term bank borrowings based upon a 10% increase, or
decrease in interest rates from their December 31, 1997 levels. Fair values are
the present value of projected future cash flows based on the market rates and
prices chosen. At December 31, 1997 the unrealized fair value of the interest
rate swaps was a loss of $11.1 million. Assuming an instantaneous parallel
upward shift in the yield curve of 10% from December 31, 1997 levels, the
unrealized fair value of D&B's interest rate swaps, commercial paper borrowings
and short-term bank borrowings would result in a loss of $2.5 million. Assuming
an instantaneous parallel downward shift in the yield curve of 10% from December
31, 1997 levels, the unrealized fair value of D&B's interest rate swaps,
commercial paper borrowings and short-term bank borrowings would result in a
loss of $20.5 million.
Foreign Exchange Risk
D&B follows a policy of hedging substantially all cross-border intercompany
transactions denominated in a currency other than the functional currency
applicable to each of its various subsidiaries. D&B only uses forward foreign
exchange contracts to implement its hedging strategy. Typically, these contracts
have maturities of 12 months or less. These forward contracts are executed with
creditworthy institutions and are denominated primarily in British Pound, German
Mark, Swedish Krona and Japanese Yen.
The fair value of foreign currency risk is calculated by using estimates of
the cost of closing out all outstanding forward foreign exchange contracts given
a 10% increase or decrease in forward rates from December 31, 1997 levels. At
December 31, 1997, net unrealized gains related to D&B's forward contracts were
$1.1 million. If forward rates increased by 10% from December 31, 1997 levels,
the unrealized loss on these contracts would be $4.7 million. If forward rates
decreased by 10% from December 31, 1997 levels, the unrealized gain on these
contracts would be $6.9 million. However, the estimated potential gain or loss
on forward contracts is expected to be offset by changes in the underlying
transactions. Therefore, the impact of a 10% movement in foreign exchange rates
will be immaterial.
LIQUIDITY AND FINANCIAL POSITION
D&B generates significant, predictable cash flows from its business
operations. Management believes that these cash flows are sufficient to fund its
operating needs, service debt and pay dividends and will continue to be so
subsequent to the Distribution. At March 31, 1998, cash and cash equivalents
totaled $116.6 million, an increase of $34.8 million from $81.8 million held at
December 31, 1997.
Operating activities of continuing operations generated net cash of $143.1
million during the first quarter of 1998 compared to $122.9 million in 1997.
This increase is consistent with the improvement in the income from continuing
operations. Discontinued operations generated $28.4 million in the first quarter
of 1998 compared to $59.9 million in 1997. All interest expense, taxes and
corporate overhead costs have been borne by the continuing operations of D&B.
Additionally, costs incurred to complete the Distribution are the responsibility
of D&B.
Net cash used in investing activities was $36.6 million for the first
quarter of 1998 compared to $34.6 million in 1997 including net cash used in
investing activities of discontinued operations of $2.5 million in the first
quarter of 1998 and $8.7 million in 1997. In the first quarter of 1998 D&B
invested $26.1 million for capital expenditures and additions to computer
software and other intangibles compared to $17.1 million in the comparable
period in 1997.
Net cash used in financing activities was $101.2 million during the first
quarter of 1998 compared to $125.8 million in the first quarter of 1997.
Payments of dividends accounted for $37.7 million in both 1998 and 1997. During
the first quarter of 1998, D&B reduced short-term borrowings by $85.9 million
compared to
41
<PAGE> 44
$99.2 million in the first quarter of 1997. Proceeds from the exercise of stock
options were $22.6 million for the first quarter of 1998 compared to $13.1
million in 1997.
At December 31, 1997, cash and cash equivalents totaled $81.8 million, a
decrease from $127.8 million in 1996. Net cash provided by operating activities
of the continuing operations increased by $200.1 million to $380.0 million in
1997 which was more than sufficient to fund investing activities of $121.6
million and payments of dividends of $150.6 million. This increase is primarily
due to the absence of transaction and divestiture-related costs as a result of
the 1996 Distribution. Net cash provided by operating activities of discontinued
operations decreased by $31.7 million to $120.4 million in 1997. The absence of
this source of cash coupled with the assumption of $500 million of debt by R.H.
Donnelly and the associated debt service after the Distribution will not have a
material adverse impact on D&B's liquidity or financial position.
Net cash used in investing activities totaled $15.9 million in 1997
compared with $210.1 million in 1996. Net cash provided by investing activities
of discontinued operations was $105.7 million in 1997 resulting from the
proceeds from the sale of P-East of $122.0 million offset by spending for
capital expenditures. This compared to net cash used by investing activities of
discontinued operations in 1996 of $180.5 million. In 1997 spending for capital
expenditures, computer software and other intangibles of the continuing
operations totaled $129.1 million. Spending for capital expenditures, computer
software and other intangibles totaled $152.0 million in 1996, which was offset
by proceeds received from the sale of ACI of $93.9 million. Currently D&B has no
material commitments for capital expenditures.
D&B utilizes the commercial paper market as its primary source of
financing. D&B has two committed bank facilities that support the commercial
paper borrowings. One facility permits borrowings of up to $750 million and
matures in August 2001; the other permits borrowings of up to $150 million and
matures in August 1998. D&B has the ability to borrow under these facilities at
prevailing short-term interest rates. D&B also has available non-committed lines
of credit of $82.9 million. As of December 31, 1997, $29.9 million was borrowed
against these facilities. As of March 31, 1998, $36.4 million was borrowed
against these facilities.
D&B is in the process of arranging $600 million of committed revolving
credit facilities with a group of banks, which are expected to replace D&B's
existing $900 million facilities. D&B expects these facilities to be in place
prior to the Distribution. D&B also expects to replace its existing commercial
paper program with a new program subsequent to the Distribution. While it is
expected that the new revolving credit facilities will be used to support any
commercial paper borrowings, D&B may also borrow under these facilities at
prevailing short-term interest rates.
On April 1, 1997, D&B completed a $300.0 million minority interest
financing. Funds raised by this financing were used to repay a portion of the
outstanding short-term debt in April 1997. Also during the second quarter of
1997, D&B reentered the commercial paper market and used the proceeds to repay
the additional amounts outstanding on the short-term debt facility. D&B had
$328.4 million and $421.6 million in commercial paper outstanding at March 31,
1998 and December 31, 1997, respectively. In connection with the Distribution,
R.H. Donnelley will borrow approximately $350 million under the R.H. Donnelley
Credit Facility and issue $150 million of senior subordinated notes under the
R.H. Donnelley Indenture, all of which will be guaranteed by D&B. A portion of
the proceeds of this indebtedness will be used to repay existing indebtedness of
D&B. This $500 million of debt will be an obligation of R.H. Donnelley after the
Distribution.
D&B has interest rate swap agreements, which effectively fix interest rates
on $300.0 million of variable-rate debt through January 2005, at a weighted
average fixed rate of 6.84% (see Note 5 to D&B's consolidated financial
statements). Currently, a portion of the swaps is marked-to-market through
earnings. In connection with the repayment of the outstanding notes payable at
the time of the Distribution, D&B will cancel its outstanding interest rate swap
agreements and recognize into income any previously unrecognized loss. At March
31, 1998, the unrealized fair value of these agreements was a loss of $11.7
million, of which $3.8 million had been recorded as interest expense in 1998 and
1997 ($.6 million in 1998 and $3.2 million in 1997).
Management estimates that one-time cash outlays of approximately $25
million to $30 million, including the costs to terminate the swaps, will be
required to complete the Distribution. These costs will be recorded as incurred.
42
<PAGE> 45
Subsequent to the Distribution, D&B will report a deficit in both retained
earnings and shareholders' equity. The changes in these balance sheet accounts
in connection with the Distribution are primarily the result of recording the
dividend of the net assets of the R.H. Donnelley Business (for accounting
purposes only) and the elimination of treasury stock, which shares will be
treasury shares of R.H. Donnelley after the Distribution. The resultant decrease
in retained earnings and increase in shareholders' equity will not require the
use of cash and are not expected to have any impact on D&B's liquidity.
Additionally, since November 1996 D&B has reported a deficit in shareholders'
equity without adverse effect on its liquidity.
In January 1997, D&B announced a continuation of its systematic stock
repurchase plan, authorizing the purchase of up to 9.8 million shares of D&B
Common Stock. The stock was held in treasury and issued upon exercise of
employee stock options and for compensation plans. Under this plan, D&B
repurchased 2,271,851 shares of its D&B Common Stock for $60.1 million in 1997.
In connection with the Distribution, these shares will be treasury shares of
R.H. Donnelley. New D&B intends to start a new systematic stock repurchase plan
in 1998. D&B also paid dividends of $150.6 million during 1997.
YEAR 2000
D&B relies on computer hardware, software and related technology, together
with data, in the operation of its businesses. Such technology and data are used
in creating and delivering D&B's products and services, as well as in D&B's
internal operations, such as billing and accounting. D&B has initiated an
enterprise-wide program to prepare for the year 2000. D&B has created a Year
2000 program office, reporting to the Chief Executive Officer and to the Chief
Information Officer, to coordinate and oversee D&B's Year 2000 program. In
addition, responsible Year 2000 executives have been appointed, and Year 2000
teams have been established at each of D&B's operating units. D&B has evaluated
the technology and data used in the creation and delivery of its products and
services and in its internal operations, has identified Year 2000 issues related
thereto and developed and has begun to implement a plan to remediate such Year
2000 issues. The plan includes remediating D&B's Year 2000 issues that are
related to its customers, suppliers and distributors, but there can be no
assurances that such third parties will successfully remediate their own Year
2000 issues over which D&B has no control. D&B believes that it will
substantially complete the implementation of its Year 2000 plan prior to the
commencement of the year 2000, and that upon substantial completion of such
implementation, and assuming that D&B's customers, suppliers and distributors
successfully remediate their own Year 2000 issues over which D&B has no control,
D&B will have no material business risk from such Year 2000 issues. The total
cost of D&B's Year 2000 program is estimated to be $70 to $75 million. Of this
amount, approximately $11 million was incurred in 1997. It is estimated that
approximately $40 million, $15 million to $20 million and $4 million will be
incurred in 1998, 1999 and 2000, respectively. Maintenance and modification
costs are expensed as incurred, while the costs of new hardware and software
purchased by D&B are capitalized.
DIVIDENDS
D&B paid a quarterly dividend of $.22 per share in 1997, resulting in a
full-year dividend per share of $.88, a decline of 51.6% from the 1996 dividend
of $1.82 per share. In 1996, D&B reorganized into three publicly traded
independent companies: D&B, Cognizant and ACNielsen. Consequently, D&B paid
quarterly dividends of $.66 per share for the first half of 1996, and in the
second half of 1996, D&B paid quarterly dividends of $.25 per share, reflecting
the revised dividend policies of each of the three companies. Of the $.25 per
share dividend declared for the third and fourth quarters of 1996, $.22 was
attributable to D&B and $.03 was attributable to Cognizant.
On April 15, 1998, the Board of Directors of D&B approved a second quarter
1998 dividend of $.22 per share, payable June 10, 1998 to shareholders of record
at the close of business May 20, 1998. On December 17, 1997, the Board of
Directors approved a first-quarter 1998 dividend of $.22 per share, payable
March 10, 1998, to shareholders of record at the close of business on February
20, 1998. Subject to the approval of its Board of Directors, it is anticipated
that New D&B will initially pay a quarterly dividend of $0.185 per share.
43
<PAGE> 46
THE NEW DUN & BRADSTREET CORPORATION
BUSINESS
As described under "The Distribution -- Form of Transaction; Basis of
Presentation", for financial reporting purposes, New D&B will be treated as the
"accounting successor" to D&B. Therefore, the historical financial information
included herein with respect to New D&B is that of D&B with R.H. Donnelley
treated as a discontinued operation. The following description of the New D&B
Business is derived from the D&B Form 10-K for the year ended December 31, 1997,
but it does not include a description of the R.H. Donnelley Business from which
the New D&B Business is being separated in the Distribution. For a description
of the R.H. Donnelley Business, see "R.H. Donnelley Business" included elsewhere
in this Information Statement.
DUN & BRADSTREET, INC.
General
D&B Inc. is the world's largest provider of business-to-business credit,
marketing and purchasing information and receivables management services. D&B
Inc. operates offices in 36 countries, conducts operations in two other
countries through minority interests in joint venture companies, and operates
through independent correspondents in over 150 additional countries. D&B Inc.
gathers data through telephone and personal interviews with business managers
and through third party sources. At the core of D&B Inc.'s products and services
are its worldwide database containing information on more than 48 million
businesses, the D-U-N-S Numbering System (a numerical identification system used
to identify corporate affiliations), and its ability to integrate business
information from multiple sources and create decision support tools. Companies
throughout the world use D&B Inc.'s products and services to evaluate and make
decisions about their working relationships with customers and suppliers; to
improve efficiency and productivity; to identify growth opportunities and market
their products more successfully; and to take actions that increase revenue,
cash flow and profits. D&B Inc. conducts business in three general regions:
United States; Europe, Africa and Middle East; and Asia-Pacific, Canada and
Latin America.
DUN & BRADSTREET, U.S.
In the United States, D&B Inc. provides Value-Added Products, Credit
Information Services, Marketing Information Services and Receivable Management
Services, as described below.
Value-Added Products
Value-Added Products, which include Database Marketing Services, Predictive
Scoring Services, Decision Support Services, Supplier Evaluation and Management
Services, Software Partner Marketing and Internet Access, provide easy, open
access to D&B Inc.'s databases and allow D&B Inc. to embed its information in
its customers' business processes and technology. These products and services
are scalable for use on individual desktops, in networks and on computer hosts,
and are designed to improve customers' decision making, speed-of-action and
productivity and to help customers realize the full value of their information
and technology investments.
The D-U-N-S Numbering System is a critical component in D&B Inc.'s
Valued-Added Products. As a unique, universal identifier of more than 48 million
businesses around the world, the D-U-N-S Number can help customers tap revenue
and customer service opportunities by uncovering prospects and linking related
customer accounts, identifying cross-selling opportunities within the same
corporate family, eliminating duplicate file entries in customer and supplier
databases, reducing operating costs and increasing purchasing power by linking
interrelated suppliers.
Database Marketing Services help give D&B Inc.'s customers a better
understanding of the profitability and performance of their customers by
enhancing internal customer data with external information and analysis that can
help target the most profitable customers and prospects, analyze market
penetration, territory alignment and market segmentation and perform demand
estimation. Predictive Scoring Services, such as the Commercial Credit Score,
Industry-specific Credit Scores and OneScore, use statistical models to help D&B
44
<PAGE> 47
Inc.'s customers predict the likelihood of delinquent payment or failure to pay
within terms, while the Financial Stress Score is a statistical model that helps
D&B Inc.'s customers predict the likelihood that a customer or prospect will
discontinue operations or file for bankruptcy. Decision Support Services include
desktop decision support systems such as Risk Assessment Manager and Supplier
Assessment Manager. These systems use the customers' rules to automate credit
and purchasing decisions, respectively, using internal and external information,
including D&B Inc.'s predictive scores. Supplier Evaluation and Management
Services provide information and analyses that help customers identify suppliers
and assess the risk of doing business with them. Through alliances being
developed with major business application software providers, Software Partner
Marketing can cleanse, consolidate and migrate legacy customer and vendor data
to a business' new enterprise application system, as well as provide real-time,
online access to D&B Inc. information. Internet access allows customers to
access D&B information directly from D&B Inc.'s web site using secure
transaction services and from the web sites of certain third parties. D&B Inc.
is also developing custom access to its databases through customers' intranets.
Value-Added Products, while a market leader in its industry, faces
competition from various information services and software providers.
Credit Information Services
D&B Inc. provides business credit information on more than 11 million U.S.
businesses. Its core credit information is available through a variety of
company-specific reports, including the Business Information Report, Payment
Analysis Report, Alert Services and business reference directories. Customers
can access this information through D&B Inc.'s web site, personal computer,
mail, telephone, fax and customized connections between D&B Inc. and a
customer's computer systems. Credit Information Services also distributes its
products via a number of other firms, including leading vendors of online
information services and the web sites of certain third parties.
The Business Information Report contains commercial credit information that
may include the D&B Inc. Rating, PAYDEX Score, financials, summary information,
public record data and payment history. The Payment Analysis Report provides
information on a company's payment record and includes the PAYDEX Score,
historical trends and industry comparisons. Alert Services provide businesses
with the ability to monitor accounts or their portfolio for significant changes
that could impact a customer, supplier or partner. The Dun & Bradstreet
Reference Book of American Business contains approximately 3.4 million business
listings in the U.S. and Puerto Rico.
Customers use D&B Inc.'s Credit Information Services to extend commercial
credit, approve loans and leases, underwrite insurance, evaluate vendors, and
make other financial and risk assessment decisions. D&B Inc.'s largest customers
for this information are major manufacturers and wholesalers, insurance
companies, banks, and other credit and financial institutions.
Traditionally, Credit Information Services were offered pursuant to an
annual contract requiring a minimum volume commitment. In January 1998, D&B Inc.
began to offer customers a choice of how to pay for these services. Customers
can now continue to commit to a standard, annual discounted contract or opt for
a flexible, monthly, pay-as-you-go discount plan, with no minimum usage
requirement. It is anticipated that these changes will, in the future, along
with changes in sales force compensation and service practices, generate
increased revenue growth rates. This will be accomplished by attracting and
retaining customers and providing a strong incentive for D&B's sales force to
familiarize customers with the full line of D&B solutions.
Credit Information Services is the leading commercial credit-reporting
agency in the U.S. However, it faces competition from in-house operations of the
businesses it seeks as customers and from other general and specialized credit
reporting agencies and other information services providers. It believes the
principal attributes in judging the competition are information quality,
availability, service and price.
45
<PAGE> 48
Marketing Information Services
Marketing Information Services provides business-to-business marketing
information and analysis. This information is derived from D&B Inc.'s database
of information on more than 48 million businesses in 200 countries. The
information is delivered in print, on diskette, magnetic tape and CD-ROM,
through online information services and other third parties, and via D&B Inc.'s
web site and the web sites of certain third parties. These products and services
help businesses conduct market segmentation, customer profiling, prospect
selection and marketing list development.
Market Data Retrieval ("MDR") offers marketing information that helps
businesses sell to the education market. MDR's database includes information on
course offerings, facilities and more than 4 million educators in 250,000
pre-school, elementary, secondary and higher educational institutions and
libraries in the United States and Canada.
Marketing Information Services, while a market leader in its industry,
faces competition from data providers who have competitive distribution
channels, delivery formats and data quality.
Receivable Management Services
Receivable Management Services ("RMS") provides its customers with a full
range of accounts receivable management services, including third-party
collection of accounts, letter demand services and receivables management
outsourcing programs. These services substitute and/or enhance its customers'
own internal management of accounts receivable.
RMS services and collects delinquent receivables on behalf of 30,000
customers primarily in the business-to-business market. Principal markets
include insurance, telecommunications, and transportation services. Customers
select the applicable RMS service that best meets their receivable portfolio
needs.
RMS uses the Dun & Bradstreet name to communicate with debtors about
delinquent accounts for collection services. Revenues are generally earned on a
contingent fee basis. Receivables outsourcing programs are selected when
customers seek to outsource their accounts receivable function to a third party
vendor. Services include debt verification and collection, customer service
functions and analytical reporting.
RMS has sold franchises to third parties, which are given permission to
sell debt collection services under the RMS name. These franchises cover
portions of 27 states. RMS uses franchises to complement its field sales and
telesales forces. These franchises are located in less concentrated markets
where local presence is preferred. RMS continues to be responsible for all
product fulfillment. Customer ownership remains with RMS with franchisees
retaining exclusive access in their markets.
Certain states require licensing for consumer and commercial debt
collection. RMS, and in some instances the individual collectors, must be
licensed in order to conduct business in these states. The laws under which such
licenses are granted generally require annual license renewal and provide for
denial, suspension or revocation for improper actions or other reasons.
Internationally, RMS provides cross-border receivable services in which the
RMS worldwide offices service cross-border claims for one another. This service
has grown significantly, but comprises only 2 percent of RMS' total revenue.
RMS is considered to be a leader in the commercial receivables management
industry in the U.S. There are several consumer collection agencies that have
larger receivables portfolios, particularly health care and credit card
collection providers. The third-party commercial collection market is highly
fragmented with over 5,000 collection agencies. The outsourcing market has
significantly fewer competitors due to the need for larger scale operations by
the receivables providers. Both markets are very price competitive with status
and statistical reporting and speed of service as key qualitative attributes.
46
<PAGE> 49
DUN & BRADSTREET EUROPE/AFRICA/MIDDLE EAST AND
DUN & BRADSTREET ASIA-PACIFIC, CANADA, LATIN AMERICA
Outside the U.S., D&B Inc. operates through Dun & Bradstreet
Europe/Africa/Middle East and Dun & Bradstreet Asia-Pacific, Canada, Latin
America ("D&B Europe" and "D&B Asia-Pacific, Canada, Latin America",
respectively), which opened their first overseas office in 1857 and today
conduct operations in offices and branches located throughout Europe, Latin
America, Africa, the Middle East, Asia, Japan, the Pacific Rim and Canada.
D&B Europe and D&B Asia-Pacific, Canada, Latin America provide
substantially the same business-to-business credit, marketing and purchasing
information and receivable management services outside the U.S. as those
provided domestically by D&B Inc., D&B Europe and D&B Asia-Pacific, Canada,
Latin America's major products and services include company-specific reports,
analytical tools to help the customer make better business decisions, local and
international credit-reference publications, marketing publications, marketing
information systems, consumer-credit information, as well as receivables
management services. Customers can access information through D&B's web site and
the web sites of certain third parties, personal computer, mail, fax, CD-ROM,
online information services and other third parties.
In 1996, D&B Asia-Pacific, Canada, Latin America reorganized its operations
in Brazil, Mexico, Chile and Venezuela. It continues to provide cross-border
services originating in Latin America through local affiliates, small local
operations centers and an operations center in Florida, and in the Asia-Pacific
region, it is exploring possible joint venture and distribution arrangements to
leverage its staff and data sourcing and distribution capabilities.
D&B Europe continues to invest in data systems and is continuing its
rollout to the European market of a range of new cross-border products. D&B
Europe has also continued investing heavily in a new technology platform, which
is expected to result in enhanced product/service flexibility as well as
opportunities to streamline operations.
D&B Europe and D&B Asia-Pacific, Canada, Latin America's operations are
subject to the usual risks inherent in carrying on business in certain countries
outside of the U.S., including currency fluctuations and possible
nationalization, expropriation, price controls, changes in the availability of
data from public sector sources, limits on providing information across borders
or other restrictive governmental actions. Management believes that the risks of
nationalization or expropriation are reduced because its basic service is the
delivery of information, rather than the production of products that require
manufacturing facilities or the use of natural resources.
D&B Europe and D&B Asia-Pacific, Canada, Latin America face competition
from banks, consumer information companies, application software developers,
online content providers and in-house operations of businesses as well as direct
competition from businesses providing similar services. D&B Europe is believed
to be the largest single supplier of credit information services in Europe. The
competition is primarily local and there are no competitors offering a
comparable range of global services or capabilities. See Note 15 to the D&B
Consolidated Financial Statements.
D&B INC.'S STRATEGY
D&B Inc. intends to focus its business strategy on supplying business
information. Customers realize that their internal information can be made more
powerful by coupling it with external information. In this way, D&B Inc.'s
products and services become embedded in the customer's processes. This strategy
will focus on the following opportunities:
Expand the Use of Traditional Products. Traditional products,
principally the Business Information Report, will continue to be
distributed as in the past. Additional distribution of these products will
occur through new customer sales efforts and through expanded use of the
Internet. Because many of these products are used in conjunction with or
are accessed through Value-Added Products, opportunity exists to leverage
the sale of traditional products globally through sales of Value-Added
Products.
47
<PAGE> 50
Focus Resources on the Development and Deployment of Value-Added
Products. Value-Added Products include a range of new products and
services in the credit, business marketing, purchasing and receivable
management service areas. These products represented 21% of D&B Inc.'s U.S.
revenue in 1997. Revenue from Value-Added Products grew 26% in 1997. D&B
Inc. intends to accelerate deployment of these products through global
distribution and alliances being developed with business partners.
Improve the Profitability of International Operations. The roll-out
of Value-Added Products, which have previously only been available in the
U.S., to markets outside of the U.S. will be a key driver for improving
international profitability. D&B Inc. has established Global Marketing,
Technology and Sales groups to help focus the deployment of these products
internationally, focus efforts with global customers, and centralize
related technology development to eliminate duplicate development efforts.
In addition, cost structures will be reviewed with the intent of
implementing further efficiencies.
MOODY'S INVESTORS SERVICE, INC.
Moody's is a leading global credit rating agency, Moody's publishes credit
opinions, research, and ratings on fixed-income securities, issuers of
securities and other credit obligations. It also provides a broad range of
business and financial information. Credit ratings help investors analyze the
credit risks associated with fixed-income securities. Ratings also create
efficiencies in fixed income markets by providing reliable, credible, and
independent assessments of credit risk. For issuers, Moody's services increase
market liquidity and may reduce transaction costs.
Moody's employs approximately 600 analysts and has a total of more than
1,500 associates located around the world. Moody's maintains offices in 12
countries. Moody's provides ratings and information on governmental and
commercial entities in over 95 countries. Moody's customers include investors;
depositors, creditors, investment banks, commercial banks and other financial
intermediaries; and a wide range of corporate and governmental issuers of
securities.
Moody's publishes rating opinions on a broad range of credit obligations.
These include various United States corporate and governmental obligations,
international cross-border notes and bonds, domestic obligations in foreign
local markets, structured finance securities and commercial paper issues. In
recent years, Moody's has moved beyond its traditional bond ratings activity,
assigning ratings to insurance companies' obligations, bank loans, derivative
product companies, bank deposits and other bank debt, managed funds, and
derivatives. At the end of 1997, Moody's had outstanding ratings on
approximately 85,000 corporate and 62,000 public finance obligations. Ratings
are disseminated to the public through a variety of print and electronic media
including real-time systems, widely used by securities traders and investors.
In addition to its rating activities, Moody's publishes investor-oriented
credit research services to over 30,000 subscribers globally. Moody's publishes
more than 100 research products, including in-depth research on major issuers,
industry studies, special comments, and summary credit opinion handbooks.
Detailed descriptions of both the rated issue and issuer, along with a summary
of the rationale for the assignment of the specific rating, also appear in
various Moody's credit research products. Product selection includes insurance,
utilities, speculative grade instruments, bank and global credit research.
Moody's also offers current and historical business and financial
information for investment research and reference uses. Such information is
published in more than 30 different products and services, in various media,
including manuals, handbooks and guides, as well as on CD-ROM and other
electronic formats. These products and services cover over 20,000 major U.S. and
non-U.S. companies and more than 22,000 municipalities and governmental entities
and their securities. Moody's is presently exploring a disposition of the
business described in this paragraph but there can be no assurance that such a
transaction will be consummated.
PROSPECTS FOR GROWTH
In the last seven years the global public fixed-income markets have
expanded from $13 trillion to $26 trillion in outstanding principal amount.
Moody's believes that the size of the global credit markets will
48
<PAGE> 51
continue to increase. In addition, the securities being issued in the global
fixed-income markets are becoming more complex. Moody's expects that these
trends will increase the demand for high quality, independent credit opinions
from Moody's.
The size of the world capital markets is increasing because, in general,
the global political and economic climate has promoted economic growth and
productive capital investment. Moody's believes that the outlook is generally
favorable for the continued growth of the world capital markets.
Lower cost information technology makes information about investment
alternatives available throughout the world. Investors are able to obtain
information about securities issued outside their national markets. Investors
are also able to obtain information about new financing techniques and new types
of securities that they may wish to purchase or sell. This availability of
information promotes globalization and integration of financial markets. A
number of new "emerging" capital markets have been created. There is investor
and intermediary interest in domestic currency debt obligations from such
markets that are now being sold cross-border in unprecedented volumes.
Another trend that is increasing the size of the world capital markets is
the ongoing disintermediation of the world's financial system. Issuers are
increasingly financing on the global public capital markets, rather than through
financial intermediaries. In addition, financial intermediaries are selling
assets in the global public capital markets, in addition to or instead of
retaining those assets. Structured finance securities markets for many types of
assets have developed in many countries and are contributing to those trends.
The complexity of capital market instruments is also growing. Consequently
assessing the credit risk of such instruments is a challenge for financial
intermediaries and asset managers. In the credit markets, third party ratings
represent an increasingly viable alternative to traditional in-house research as
the geographic scope and complexity of market instruments grow.
Rating fees paid by issuers account for a majority of Moody's revenues.
Therefore, a substantial portion of Moody's revenues is dependent upon the
volume of debt securities issued in the global capital markets. Accordingly,
Moody's is dependent on the macro-economic prospects of the major world
economies and the fiscal and monetary policies pursued by their governments.
Moody's non-U.S. operations are subject to the usual risks inherent in carrying
on business in certain countries outside the United States including currency
fluctuations and possible nationalization, expropriation, price controls, or
other restrictive governmental actions. Management believes that the risks of
nationalization or expropriation are negligible.
COMPETITION
Moody's competes with other credit rating agencies and with credit opinions
offered by investment banks and brokerage firms. Institutional investors also
have in-house credit research capabilities. Credit rating agencies compete, in
addition, with other methods of addressing credit risk, such as credit insurance
and credit derivatives. Moody's most direct competitor in the global credit
rating business is Standard and Poor's Corporation ("S&P"), a division of
McGraw-Hill, Inc. There are some rating markets, based on industry, geography
and/or instrument type, in which S&P has made investments and obtained market
positions superior to Moody's. In other markets the reverse is true. Moody's
believes that its rating revenues and operating income for 1997 are
approximately similar to S&P's.
Other smaller rating agency competitors of Moody's are Duff & Phelps and
Fitch IBCA. Fitch IBCA is a recent combination of the U.S. rating agency, Fitch,
and the British-French rating agency, IBCA. Moody's and S&P are significantly
larger than Duff & Phelps and Fitch IBCA, but increased competition from those
two rating agencies can be expected.
Over the last decade, additional rating agencies have been established,
primarily in emerging markets, and primarily as a result of local capital market
regulation. Regulators worldwide have recognized that credible, independent
credit ratings can further regulatory objectives for the development of public
fixed-income securities markets. The result of such regulatory activity has been
the creation of many primarily national ratings agencies worldwide. Regulation
stimulates the production of less credible ratings and makes all rating systems
appear undifferentiated -- to the detriment of Moody's high quality rating
opinions.
49
<PAGE> 52
Regulators of financial institutions are attempting to improve their
approach to supervision. They are shifting away from rule-based systems that
address only specific risk components and institution-specific
protections -- toward more sophisticated, prudential supervision. The
regulators, evolving approach includes their making qualitative judgments about
the sophistication of each financial institution's risk management processes and
systems, in terms of both market and credit risk. While such regulatory trends
present additional opportunities for the use of Moody's ratings, they may also
result in additional competition for Moody's.
REGULATION
Moody's is registered as an investment advisor under the Investment
Advisers Act of 1940. Moody's has been designated as a Nationally Recognized
Statistical Rating Organization ("NRSRO") by the SEC. The SEC is currently
engaged in a rule-making process to establish the criteria for designation as an
NRSRO; such criteria may impose operating requirements upon Moody's. Moody's is
also subject to regulation in certain countries outside the United States.
BUSINESS STRATEGY
Moody's intends to focus its business strategy on the following
opportunities:
Continue International Expansion. Moody's has established offices in the
major global financial centers. Moody's expects that these centers will continue
to offer the greatest potential for its revenue growth. It anticipates that
these centers will capture much of the expansion in global capital markets, both
from normal growth in volume and from growth as new instruments (e.g.,
speculative grade bonds, and Euro-medium term notes) are introduced.
Focus On Natural Adjacencies. Moody's is pursuing initiatives that expand
credit ratings from securities markets to other credit risk exposures. Moody's
has a committed effort to extend its opinion franchise to the global bank
counterparty universe through emerging market ratings, including bank financial
strength ratings. Insurance financial strength ratings in the property and
casualty, reinsurance, and life insurance markets represent additional growth
opportunities. Moody's is investigating numerous non-traditional opportunities
to extend its opinion franchise.
Pursue Opportunities In New Sectors. The enhancement of risk management
processes will hasten the convergence of the loan and capital markets as
intermediaries and investors seek additional opportunities for the development
of financial markets and a consistent standard of relative risk comparison.
Moody's has a program in place to expand coverage for ratings of bank loans.
The repackaging of financial assets has had a profound effect on the U.S.
fixed-income market. New patterns of securitization will emerge in the next
decade. The bulk of assets securitized in the past five years are consumer
assets owned by banks. Now, commercial assets, principally commercial mortgages,
term receivables, and corporate loans, are increasingly being securitized.
Securitization concepts are rapidly being exported to Europe and Asia. In
addition, securitization is evolving into a strategic corporate finance tool.
Opportunities in these areas will be pursued.
FPI
Financial Proforma, Inc. ("FPI"), a wholly-owned subsidiary of Moody's,
develops and distributes credit education materials, seminars and computer-based
lending simulations, which it complements with financial and risk assessment
software for the commercial lending community.
INTELLECTUAL PROPERTY
New D&B owns and controls a number of trade secrets, confidential
information, trademarks, trade names, copyrights, patents and other intellectual
property rights which, in the aggregate, are of material importance to New D&B's
business. Management of New D&B believes that each of the "Dun & Bradstreet" and
"Moody's" names and related names, marks and logos are of material importance to
New D&B. New D&B is licensed to use certain technology and other intellectual
property rights owned and controlled by
50
<PAGE> 53
others, and, similarly, other companies are licensed to use certain technology
and other intellectual property rights owned and controlled by New D&B. New D&B
considers its trademarks, service marks, databases, software and other
intellectual property to be proprietary and New D&B relies on a combination of
copyright, trademark, trade secret, patent, non-disclosure and contract
safeguards for protection.
The names of New D&B's products and services referred to herein are
trademarks, service marks or registered trademarks or service marks owned by or
licensed to New D&B or one or more of its subsidiaries.
YEAR 2000
New D&B will rely on computer hardware, software and related technology,
together with data, in the operation of its businesses. Such technology and data
are used in creating and delivering New D&B's products and services, as well as
in New D&B's internal operations, such as billing and accounting. New D&B
initiated an enterprise-wide program to prepare for the year 2000. New D&B has
created a Year 2000 program office, reporting to the Chief Executive Officer and
to the Chief Information Officer, to coordinate and oversee New D&B's Year 2000
program. In addition, responsible Year 2000 executives have been appointed, and
Year 2000 teams have been established at each of New D&B's operating units. New
D&B has evaluated the technology and data used in the creation and delivery of
its products and services and in its internal operations, has identified Year
2000 issues related thereto and developed and has begun to implement a plan to
remediate such Year 2000 issues. The plan includes remediating New D&B's Year
2000 issues that are related to its customers, suppliers and distributors, but
there can be no assurances that such third parties will successfully remediate
their own Year 2000 issues over which New D&B has no control. New D&B believes
that it will substantially complete the implementation of its Year 2000 plan
prior to the commencement of the year 2000, and that upon substantial completion
of such implementation, and assuming that New D&B's customers, suppliers and
distributors successfully remediate their own Year 2000 issues over which New
D&B has no control, New D&B will have no material business risk from such Year
2000 issues. The total cost of the New D&B's Year 2000 program is estimated to
be approximately $70 to $75 million.
EMPLOYEES
As of December 31, 1997, the number of full time equivalent employees of
New D&B was approximately 13,400.
PROPERTIES
The executive offices of New D&B are located at One Diamond Hill Road,
Murray Hill, New Jersey in a property owned by New D&B. New D&B's other
properties are geographically distributed to meet sales and operating
requirements worldwide. These properties are generally considered to be both
suitable and adequate to meet current operating requirements and virtually all
space is being utilized.
New D&B owns five properties located within the U.S., consisting of two
buildings in Berkeley Heights, New Jersey, one each in Murray Hill and
Parsippany, New Jersey, and one in New York, New York. New D&B also owns
properties located outside the U.S. in Melbourne, Australia; Curitiba, Brazil;
Santiago, Chile; Mexico City, Mexico; Caracas, Venezuela; High Wycombe, England;
Lyon, France; Marseille, France and Milan, Italy. Its operations are also
conducted from 84 leased offices located throughout the U.S. and 93 leased
non-U.S. office locations.
LEGAL PROCEEDINGS
New D&B and its subsidiaries are involved in legal proceedings, claims and
litigation arising in the ordinary course of business. In the opinion of
management of New D&B, the outcome of such current legal proceedings, claims and
litigation could have a material effect on quarterly or annual operating results
or cash flows when resolved in a future period. However, in the opinion of
management of New D&B, these matters will not materially affect New D&B's
consolidated financial position.
51
<PAGE> 54
In addition, on July 29, 1996, IRI filed a complaint in the United States
District Court for the Southern District of New York, naming as defendants D&B,
A.C. Nielsen Company (a subsidiary of ACNielsen) and IMS International, Inc. (a
subsidiary of Cognizant). The complaint alleges various violations of United
States antitrust laws, including alleged violations of Section 1 and 2 of the
Sherman Act. The complaint also alleges a claim of tortious interference with a
contract and a claim of tortious interference with a prospective business
relationship. These claims relate to the acquisition by defendants of 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's complaint alleges damages in excess of $350 million, which amount IRI has
asked to be trebled under antitrust laws. IRI also seeks punitive damages in an
unspecified amount.
In connection with the IRI action, D&B, Cognizant and ACNielsen entered
into the Indemnity and Joint Defense Agreement pursuant to which ACNielsen will
assume exclusive liability for IRI Liabilities up to the ACN Maximum Amount to
be calculated at such time such liabilities, if any, become payable and that D&B
and Cognizant will share liability equally for any amounts in excess of the ACN
Maximum Amount.
Under the terms of the 1996 Distribution Agreement, as a condition to the
Distribution, New D&B is required to undertake to be jointly and severally
liable with D&B to Cognizant and ACNielsen. Pursuant to the Distribution
Agreement, New D&B will assume and indemnify R.H. Donnelley against any payments
to be made in respect of the IRI Action under the Indemnity and Joint Defense
Agreement, the 1996 Distribution Agreement or otherwise, including any ongoing
legal fees and expenses related thereto. Management is unable to predict at this
time the final outcome of the IRI Action or whether the resolution of such
matter could materially affect New D&B's results of operations, cash flows or
financial position. See "Risk Factors -- Risks Relating to The New Dun &
Bradstreet Corporation -- Litigation".
52
<PAGE> 55
THE NEW DUN & BRADSTREET CORPORATION
MANAGEMENT AND EXECUTIVE COMPENSATION
Volney Taylor is currently Chairman and Chief Executive Officer of D&B and
Chairman and Chief Executive Officer of New D&B. Mr. Taylor will resign from his
positions at D&B effective upon the Distribution. At the time of the
Distribution, the Board of Directors of New D&B will be composed of the persons
who are serving as directors of D&B immediately prior to the Distribution, and
such persons will resign as directors of D&B effective upon the Distribution.
See "--The New Dun & Bradstreet Corporation Board of Directors". In addition to
Mr. Taylor, the other executive officers of New D&B at the time of the
Distribution (other than Frank R. Noonan) will be the persons who are serving as
executive officers of D&B immediately prior to the Distribution, and such
persons will resign from their positions at D&B effective upon the Distribution.
See "--The New Dun & Bradstreet Corporation Executive Officers".
THE NEW DUN & BRADSTREET CORPORATION BOARD OF DIRECTORS
Immediately after the Distribution, New D&B expects to have a Board of
Directors composed of nine directors.
The following table sets forth the names, in alphabetical order, and
information as to the persons who are expected to serve as directors of New D&B
following the Distribution, including information as to service with D&B, if
applicable.
<TABLE>
<CAPTION>
DIRECTOR
POSITIONS WITH OF D&B PRINCIPAL OCCUPATION OTHER
NAME D&B SINCE DURING LAST FIVE YEARS AGE* DIRECTORSHIPS
---- -------------- -------- ---------------------- ---- -------------------
<S> <C> <C> <C> <C> <C>
Hall Adams, Jr.............. Director 1992 Former Chairman of the 64 McDonald's
Board, Chief Executive Corporation; Sears,
Officer, Leo Burnett Roebuck and Co.
Company, Inc.,
Chicago, IL
(advertising agency)
1/1/87 to 12/31/91.
Clifford L. Alexander,
Jr........................ Director 1993 President, Alexander & 64 American Home
Associates, Inc., Products
Washington, DC Corporation;
(consulting firm Cognizant
specializing in Corporation;
workforce Dreyfus General
inclusiveness), 1/1/81 Family of Funds;
to present. Dreyfus Premier
Family of Funds;
Dreyfus Third
Century Fund; MCI
Communications
Corporation; Mutual
of America Life
Insurance Company;
TLC Beatrice
International
Holdings, Inc.
Mary Johnston Evans......... Director 1990 Former Vice Chairman 68 Baxter
of the Board, Amtrak, International Inc.;
Washington, D.C. Delta Air Lines,
(National Railroad Inc.; Household
Passenger Corporation) International,
1975 to 1979. Inc.; Scudder New
Europe Fund; Sun
Company, Inc.
</TABLE>
53
<PAGE> 56
<TABLE>
<CAPTION>
DIRECTOR
POSITIONS WITH OF D&B PRINCIPAL OCCUPATION OTHER
NAME D&B SINCE DURING LAST FIVE YEARS AGE* DIRECTORSHIPS
---- -------------- -------- ---------------------- ---- -------------------
<S> <C> <C> <C> <C> <C>
Ronald L. Kuehn, Jr......... Director 1996 Chairman, President 62 Sonat Inc.; AmSouth
and Chief Executive Bancorporation;
Officer, Sonat Inc., Praxair, Inc.;
Birmingham, AL Protective Life
(natural gas Corporation;
transmission and Transocean Offshore
marketing services, Inc.; Union Carbide
oil and gas Corporation.
exploration and
production activities)
1986 to present.
Robert J. Lanigan........... Director 1978 Chairman Emeritus, 69 Owens-Illinois,
Owens-Illinois, Inc., Inc.; Chrysler
Toledo, OH (glass, Corporation;
paper, plastics and Cognizant
other packaging Corporation; The
products) 1/24/92 to Coleman Company,
present; Chairman of Inc.; Sonat Inc.;
the board 4/18/84 to Transocean Offshore
10/15/91; Chief Inc.
Executive Officer
1/1/84 to 9/30/90.
Vernon R. Loucks Jr......... Director 1978 Chairman of the Board, 63 Baxter
Chief Executive International Inc.;
Officer, Baxter Affymetrix Inc.;
International Inc., Anheuser-Busch
Deerfield, IL (medical Companies, Inc.;
care products and Coastcast
services) 9/16/87 to Corporation;
present; Chairman, Emerson Electric
President, Chief Co.; The Quaker
Executive Officer Oats Company.
7/20/87 to 9/15/87;
President, Chief
Executive Officer
5/3/80 to 7/19/87.
Henry A. McKinnell.......... Director 1997 Executive Vice 55 Pfizer, Inc.;
President, Pfizer, Aviall, Inc.; John
Inc., New York, NY Wiley & Sons.
(diversified research-
based health care
company) 3/1/92 to
present; President,
Pfizer Pharmaceuticals
Group 1/1/97 to
present; President,
Medical Technology
Group 1/1/92 to
12/31/96; Chief
Financial Officer and
Vice President,
Finance 8/1/90 to
1/1/92
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
DIRECTOR
POSITIONS WITH OF D&B PRINCIPAL OCCUPATION OTHER
NAME D&B SINCE DURING LAST FIVE YEARS AGE* DIRECTORSHIPS
---- -------------- -------- ---------------------- ---- -------------------
<S> <C> <C> <C> <C> <C>
Michael R. Quinlan.......... Director 1989 Chairman, Chief 53 McDonald's
Executive Officer, Corporation; The
McDonald's May Department
Corporation, Oak Stores Company.
Brook, IL (global food
service retailer)
3/31/90 to present;
President, Chief
Executive Officer
3/1/87 to 3/30/90;
President, Chief
Operating Officer
6/15/82 to 2/28/87
Volney Taylor............... Chairman, 1984 Chairman, Chief 58
Chief Executive Officer, The
Executive Dun & Bradstreet
Officer, Corporation, Murray
Director Hill, NJ 11/1/96 to
present; Executive
Vice President, 2/1/82
to 10/31/96.
</TABLE>
- ---------------
* As of March 6, 1998
DIRECTOR'S COMPENSATION
It is anticipated that the Board of Directors of New D&B will adopt and
implement a director compensation program as described below prior to, on or
shortly after, the Distribution Date.
If such program is adopted and implemented, each non-employee director will
receive a 1998 retainer of $12,500; thereafter, the retainer will be paid at an
annual rate of $25,000 in quarterly installments. Each non-employee director who
is the Chairman of a Committee of the Board of Directors will be paid an
additional retainer of $2,000 for 1998 and $4,000 annually thereafter in
quarterly installments. A fee of $1,000 will be paid to each non-employee
director for every Board or Committee meeting attended. Directors who are
employed by New D&B shall receive no retainers or meeting fees.
Each director not employed by New D&B may elect on or before December 31 of
any year to have all or a specified part of the retainer and fees during the
subsequent calendar year or years deferred until such director ceases to be a
director. New directors may similarly so elect at the beginning of their terms.
Such deferred amounts are held for the account of directors and receive the rate
earned by one or more investment options in the New D&B Profit Participation
Plan to be sponsored by New D&B as selected by the director. Deferred amounts
and earnings thereon are paid in accordance with a director's election in a lump
sum or five or ten annual installments commencing on the tenth day of the
calendar year following the year in which such person ceases to be a director of
New D&B, except that the balance of a director's account is paid in a lump sum
on the tenth day of the calendar year following the director's death to the
director's estate or to such beneficiary as was previously designated by the
director. A director may change or terminate an election to defer retainers and
fees, effective as of the end of the calendar year in which notice of such
change or termination is given to New D&B.
If implemented, the proposed director compensation program for New D&B will
also include stock-based awards. Each non-employee Director who commences
service with New D&B after the Distribution Date will receive a one-time grant
of such number of shares of restricted stock as equals the average of the high
and low prices of New D&B Common Stock on the date such person is elected a
director divided into the annual directors' retainer fee in effect on such date.
In December of each year, each non-employee Director expected
55
<PAGE> 58
to serve on the Board for the forthcoming year will also receive an annual grant
of stock options with a nominal grant value based on competitive pay levels. In
addition, non-employee directors will receive performance shares based on the
degree to which the New D&B total shareholder return is equal to, greater than
or less than the total shareholder return of the Standard & Poor's 500 Index.
Directors may elect to defer receipt of their performance share awards until
after the termination of their Board service. The number of performance shares
will be based on competitive pay levels.
Unexercised D&B stock options held by New D&B non-employee Directors as of
the Distribution Date will be converted into options that are exercisable into
shares of New D&B Common Stock. Specifically, each unexercised D&B stock option
held by a New D&B non-employee Director will be cancelled, and such individual
will receive a replacement stock option exercisable into shares of New D&B
Common Stock. The number of shares covered by such option and the exercise price
thereof will be calculated in the same manner as described above with respect to
New D&B employees under "Relationship Between The New Dun & Bradstreet
Corporation and R.H. Donnelley Corporation After the Distribution -- Employee
Benefits Agreement". Similarly, other stock-based grants held by New D&B
non-employee Directors as of the Distribution Date will be converted into
comparable grants in respect of shares of New D&B Common Stock. These other
stock-based grants include (i) restricted stock, (ii) phantom stock units
originally granted to certain directors in 1996 in lieu of accrued benefits
under D&B's now-frozen Directors' Retirement Plan and (iii) performance share
opportunities granted in December 1997 to be paid out in February 1999 based on
D&B's total shareholder return for 1998.
COMMITTEES OF THE NEW DUN & BRADSTREET CORPORATION BOARD OF DIRECTORS
Prior to the Distribution, it is anticipated that the New D&B Board of
Directors will establish Audit, Compensation and Benefits, Board Affairs
Committee and Executive Committees and designate specific functions and areas of
oversight as to such committees. No final determination has yet been made as to
the memberships of such standing committees.
THE NEW DUN & BRADSTREET CORPORATION EXECUTIVE OFFICERS
Listed below is certain information as to the executive officers who have
been selected to serve after the Distribution.
<TABLE>
<CAPTION>
NAME, POSITION WITH NEW D&B AND AGE BIOGRAPHICAL DATA
----------------------------------- -----------------
<S> <C>
Volney Taylor, 58............................ See information under "-- The New Dun &
Chairman and Chief Executive Officer Bradstreet Corporation Board of Directors".
William F. Doescher, 60...................... Senior Vice President and Chief
Senior Vice President and Chief Communications Officer of D&B, 11/96 to
Communications Officer present; Senior Vice President -- Global
Communications, D&B, 4/92 to present; Vice
President -- Public Relations and
Advertising, D&B, 4/83 to 10/96.
Nancy L. Henry, 53........................... Senior Vice President and Chief Legal
Senior Vice President and Chief Legal Counsel, D&B, 3/97 to present; Special
Counsel Counsel, Skadden, Arps, Slate, Meagher & Flom
LLP, 4/85 to 3/97.
Elahe Hessamfar, 44.......................... Senior Vice President and Chief Information
Senior Vice President and Chief Information Officer, D&B, 8/97 to present; Chief
Officer Information Officer, Turner Broadcasting
System, 7/93 to 7/97; Vice President
Information Systems, PAC Bell Directories,
5/87 to 6/93.
Peter J. Ross, 52............................ Senior Vice President and Chief Human
Senior Vice President and Chief Human Resources Officer, D&B, 11/96 to present;
Resources Officer Senior Vice President -- Human Resources,
D&B, 6/88 to present.
</TABLE>
56
<PAGE> 59
<TABLE>
<CAPTION>
NAME, POSITION WITH NEW D&B AND AGE BIOGRAPHICAL DATA
----------------------------------- -----------------
<S> <C>
Frank S. Sowinski, 42........................ Senior Vice President and Chief Financial
Senior Vice President and Chief Financial Officer, D&B, 11/96 to present; Executive
Officer Vice President -- Applications, Mass
Marketing & Alliances, Dun & Bradstreet,
U.S., 10/93 to 10/96; Senior Vice
President-Finance & Planning, Dun &
Bradstreet, U.S., 8/89 to 9/93.
Chester J. Geveda, 51........................ Vice President and Controller, D&B, 11/96 to
Vice President and Controller present; Senior Vice President -- Finance,
D&B, 11/96 to present; Senior Vice
President -- Finance and Planning, Dun &
Bradstreet, U.S., 4/93 to 10/96; Senior Vice
President -- Finance and Administration, Dun
& Bradstreet Europe/Africa/Middle East, 9/90
to 3/93.
</TABLE>
COMPENSATION OF THE NEW DUN & BRADSTREET CORPORATION EXECUTIVE OFFICERS
The following table discloses the compensation paid by D&B for services
rendered to D&B in 1997 by New D&B's Chief Executive Officer and by each of the
persons who are anticipated to be one of the four other most highly compensated
executive officers of New D&B following the Distribution. During the period
presented, the individuals were compensated in accordance with D&B's plans and
policies. In that connection, stock-based compensation described in the
following tables is expressed in shares of D&B Common Stock, which will be
converted into an adjusted number of shares of New D&B Common Stock following
the Distribution. See also "Relationship Between The New Dun & Bradstreet
Corporation and R.H. Donnelley Corporation After the Distribution -- Employee
Benefits Agreement".
SUMMARY COMPENSATION TABLE
FOR SERVICES WITH D&B
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ------------------------ ----------
(a) (b) (c) (d) (e) (g) (i)
(f) SECURITIES (h)
RESTRICTED UNDERLYING LONG-TERM
OTHER ANNUAL STOCK OPTIONS/ INCENTIVE ALL OTHER
NAME AND PRINCIPAL SALARY BONUS(1) COMPENSATION AWARD(S)(3) SARS(4) PAYOUTS(5) COMPENSATION
POSITION WITH NEW D&B YEAR ($) ($) (2)($) ($) (#) ($) (6)($)
--------------------- ---- ------- --------- ------------ ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Volney Taylor................. 1997 630,000 1,517,449 231 0 120,540 0 20,449
Chairman and Chief Executive
Officer
Frank S. Sowinski............. 1997 320,000 381,746 36 0 30,130 0 10,177
Senior Vice President and
Chief Financial Officer
Elahe Hessamfar(7)............ 1997 168,750 375,064 20,731 280,625 57,941 0 4,516
Senior Vice President and
Chief Information Officer
Nancy L. Henry(8)............. 1997 219,318 279,549 0 0 35,930 0 3,072
Senior Vice President and
Chief Legal Counsel
Chester J. Geveda, Jr. ....... 1997 257,500 246,711 35 0 16,070 0 8,059
Vice President and
Controller
</TABLE>
- ---------------
(1) The 1997 bonus amounts shown were earned with respect to that year and paid
in 1998. Included in the 1997 amounts is one-half of the 1997 performance
share grant made under the Key Employees Performance Unit Plan for D&B and
subsidiaries (the "PUP") and earned with respect to 1997. The remaining
one-half of the 1997 performance share grant is payable after two years
based on cumulative 1997 -- 1998 performance goals and will be reflected as
long-term incentive payouts in the Summary Compensation Table to appear in
New D&B's 1999 Proxy Statement. The performance shares are paid in
unrestricted shares of D&B Common Stock.
57
<PAGE> 60
(2) Amounts shown represent reimbursement for taxes paid by the named executive
officers with respect to D&B-directed spousal travel and personal use of
automobiles and/or reimbursement for certain other expenses.
(3) Amounts shown represent the dollar value of restricted stock on the date of
grant. The number and value of the aggregate restricted stock holdings of
the named executive officers at December 31, 1997 were: Messrs. Taylor,
Sowinski and Geveda and Ms. Henry -- none; Ms. Hessamfar -- 10,000 shares
($309,375). Ms. Hessamfar's 10,000 shares of restricted stock are scheduled
to vest in full in September 2000. Dividends are paid at the rate
established from time to time for D&B Common Stock.
(4) Amounts shown represent the number of non-qualified stock options granted in
1997.
(5) No payments were made to any of the named executive officers in 1997.
(6) Amounts shown represent aggregate annual D&B contributions for the account
of each named executive officer under the Dun & Bradstreet Profit
Participation Plan (the "PPP") and the Profit Participation Benefit
Equalization Plan (the "PPBEP"), which plans are open to employees of D&B
and certain subsidiaries. The PPP is a tax-qualified defined contribution
plan and the PPBEP is a non-qualified plan that provides benefits to
participants in the PPP equal to the amount of D&B contributions that would
have been made to the participant's PPP account but for certain Federal tax
laws.
(7) Hired effective August 18, 1997. Salary shown represents actual amount paid
for the portion of the year employed. In accordance with her employment
offer, Ms. Hessamfar was guaranteed a full-year bonus for 1997.
(8) Hired effective April 8, 1997. Salary shown represents actual amount paid
for the portion of the year employed. In accordance with her employment
offer, Ms. Henry was also awarded a cash sign-on bonus and was guaranteed a
full-year bonus for 1997.
OPTION GRANTS ON D&B COMMON STOCK TO THE NEW DUN & BRADSTREET CORPORATION
EXECUTIVES IN LAST FISCAL YEAR
The following table provides information on fiscal year 1997 grants of
options to the named New D&B executives to purchase shares of D&B Common Stock.
Options to acquire D&B Common Stock will be replaced by options to acquire New
D&B Common Stock. See "Relationship Between The New Dun & Bradstreet Corporation
and R.H. Donnelley Corporation After the Distribution--Employee Benefits
Agreement".
OPTION GRANTS/SAR GRANTS IN LAST FISCAL YEAR TO PURCHASE D&B COMMON STOCK
<TABLE>
<CAPTION>
(a) (b) (e) (f)
NUMBER OF (c) (d)
SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS/SARS OR
OPTIONS/SARS GRANTED TO BASE GRANT DATE
GRANTED(1) EMPLOYEES IN PRICE EXPIRATION PRESENT VALUE(2)
NAME (#) FISCAL YEAR ($/SHARE) DATE ($)
---- ------------ ------------ --------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Volney Taylor...................... 120,540 3.82% 30.2188 12/22/07 672,613
Frank S. Sowinski.................. 30,130 0.96% 30.2188 12/22/07 168,125
Elahe Hessamfar.................... 27,700 0.88% 30.2188 12/22/07 154,566
30,241 0.96% 27.5938 08/18/07 158,463
Nancy L. Henry..................... 17,300 0.55% 30.2188 12/22/07 96,534
18,630 0.59% 25.6250 04/16/07 96,876
Chester J. Geveda, Jr.............. 16,070 0.51% 30.2188 12/22/07 89,671
</TABLE>
- ---------------
(1) Amounts shown represent the number of non-qualified stock options, without
tandem stock appreciation rights ("SARs"), granted in 1997. Options may not
be exercised for at least one year after grant and may then be exercised in
installments of 25% of the grant amount each year until they are 100%
vested. Payment for all options must be made in full upon exercise in cash
or D&B Common Stock. The option holder may elect to have shares of D&B
Common Stock issuable upon exercise withheld by D&B to pay withholding taxes
due. The options shown include Limited SARs in tandem with the options.
Limited
58
<PAGE> 61
SARs are exercisable only if and to the extent that the related option is
exercisable and are exercisable only during the 30-day period following the
acquisition of at least 20% of the outstanding D&B Common Stock pursuant to
a tender or exchange offer not made by D&B. Each Limited SAR permits the
holder to receive cash equal to the excess over the related option exercise
price of the highest price paid pursuant to a tender or exchange offer for
D&B Common Stock which is in effect at any time during the 60 days preceding
the date upon which the Limited SAR is exercised. Limited SARs can be
exercised regardless of whether D&B supports or opposes the offer.
(2) Grant date present value is based on the Black-Scholes option valuation
model applied to D&B prior to the Distribution, which makes the following
material assumptions for the April 16, 1997 grant, the August 18, 1997 grant
and the December 22, 1997 grant: an expected stock-price volatility factor
of 20.0%, a risk-free rate of return of 6.76%, 6.02% and 5.71% respectively,
a dividend yield of 3.3% and a weighted average exercise date of 4.5 years
from date of grant. These assumptions may or may not be fulfilled. The
amounts shown cannot be considered predictions of future value. In addition,
the options will gain value only to the extent the stock price exceeds the
option exercise price during the life of the option.
AGGREGATE D&B OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR END D&B
OPTION VALUES
The following table provides information on option exercises in 1997 by the
named executives of New D&B and the value of each such executive's unexercised
options to acquire D&B Common Stock at December 31, 1997. See also,
"Relationship Between The New Dun & Bradstreet Corporation and R.H. Donnelley
Corporation After the Distribution -- Employee Benefits Agreement".
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES D&B OPTIONS/SARS AT D&B OPTIONS/SARS AT
ACQUIRED VALUE FISCAL YEAR-END(#) FISCAL YEAR-END(2)($)
ON EXERCISE REALIZED(1) --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Volney Taylor............... 22,817 170,799 403,104 316,836 4,302,261 1,649,054
Frank S. Sowinski........... 3,662 20,388 69,023 69,025 722,342 333,499
Elahe Hessamfar............. 0 0 0 57,941 0 121,025
Nancy L. Henry.............. 0 0 0 35,930 0 111,405
Chester J. Geveda, Jr. ..... 4,266 36,333 57,434 68,310 622,792 404,484
</TABLE>
- ---------------
(1) Amounts shown represent the value realized upon the exercise of stock
options during 1997, which equals the difference between the exercise price
of the options and the average of the high and low market price of the
underlying D&B Common Stock on the exercise date.
(2) The values shown equal the difference between the exercise price of
unexercised in-the-money options and the closing market price of the
underlying D&B Common Stock at December 31, 1997. Options are in-the-money
if the fair market value of the D&B Common Stock exceeds the exercise price
of the option. The options shown include Limited SARs having the terms
described for D&B Limited SARs in Footnote 1 under the caption "-- Option
Grants on D&B Common Stock to The New Dun & Bradstreet Corporation
Executives in Last Fiscal Year" above. Such D&B Limited SARs will be
converted into Limited SARs of New D&B in connection with the Distribution.
See "Relationship Between The New Dun & Bradstreet Corporation and R.H.
Donnelley Corporation After the Distribution -- Employee Benefits
Agreement".
59
<PAGE> 62
LONG-TERM D&B INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(a) (f)
(d) (e)
(b) (c) ESTIMATED FUTURE PAYOUTS
NO. OF PERFORMANCE UNDER NON-STOCK PRICE-BASED PLANS(2)
SHARES, OR OTHER -------------------------------------
UNITS OR PERIOD UNTIL THRESHOLD TARGET MAXIMUM
OTHER MATURATION (#) (#) (#)
NAME RIGHTS(1)(#) OR PAYOUT (0%) (100%) (200%)
---- ------------ ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Volney Taylor....................... 40,310 Two Years 0 40,310 80,620
Frank S. Sowinski................... 10,080 Two Years 0 10,080 20,160
Elahe Hessamfar..................... 9,260 Two Years 0 9,260 18,520
Nancy L. Henry...................... 5,780 Two Years 0 5,780 11,560
Chester J. Geveda, Jr............... 5,370 Two Years 0 5,370 10,740
</TABLE>
- ---------------
(1) Amounts shown represent the performance shares granted under the Dun &
Bradstreet Performance Unit Plan. The performance shares are payable in
February 2000 based on cumulative 1998 -- 1999 performance goals. Earned
awards are paid in unrestricted shares of D&B Common Stock.
(2) Awards may range from 0 to 200% of the targeted number of performance shares
based on achievements within a range of performance goals.
RETIREMENT BENEFITS
The following table sets forth the estimated aggregate annual benefits
payable under Dun & Bradstreet's Retirement Account Plan, Pension Benefit
Equalization Plan ("PBEP") and Supplemental Executive Benefit Plan ("SEBP") as
in effect during 1997 to persons in specified average final compensation and
credited service classifications upon retirement at age 65. Amounts shown in the
table include U.S. Social Security benefits which would be deducted in
calculating benefits payable under these plans. These aggregate annual
retirement benefits do not increase as a result of additional credited service
after 20 years.
<TABLE>
<CAPTION>
ESTIMATED AGGREGATE ANNUAL RETIREMENT BENEFIT
AVERAGE ASSUMING CREDITED SERVICE OF:
FINAL -------------------------------------------------
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------ -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$550,000 275,000 330,000 330,000 330,000 330,000
700,000 350,000 420,000 420,000 420,000 420,000
850,000 425,000 510,000 510,000 510,000 510,000
1,000,000 500,000 600,000 600,000 600,000 600,000
1,300,000 650,000 780,000 780,000 780,000 780,000
1,600,000 800,000 960,000 960,000 960,000 960,000
1,900,000 950,000 1,140,000 1,140,000 1,140,000 1,140,000
</TABLE>
The number of years of credited service under the plans as of December 31,
1997 of Messrs. Taylor, Sowinski and Geveda and Mmes. Hessamfar and Henry are
26, 13, 21, 0 and 0, respectively.
Compensation, for the purpose of determining retirement benefits, consists
of salary, wages, regular cash bonuses, commissions and overtime pay. Severance
pay, contingent payments and other forms of special remuneration are excluded.
Bonuses included in the Summary Compensation Table are normally not paid until
the year following the year in which they are accrued and expensed; therefore,
compensation for purposes of determining retirement benefits varies from the
Summary Compensation Table amounts in that bonuses expensed in the previous
year, but paid in the current year, are part of retirement compensation in the
current year, and current year's bonuses accrued and included in the Summary
Compensation Table are not. For 1997, compensation for purposes of determining
retirement benefits also varies from the Summary Compensation Table in that the
amounts shown in the "Bonus" column include performance share payouts under the
PUP, which are not creditable compensation under the retirement plans.
For the reasons discussed above, compensation for determining retirement
benefits for the named executive officers differed by more than 10% from the
amounts shown in the Summary Compensation Table.
60
<PAGE> 63
1997 compensation for purposes of determining retirement benefits for Messrs.
Taylor, Sowinski and Geveda and Mmes. Hessamfar and Henry was $651,875,
$329,000, $264,011, $168,750 and $219,318, respectively.
Average final compensation is defined as the highest average annual
compensation during five consecutive twelve-month periods in the last ten
consecutive twelve-month periods of the member's credited service. Members vest
in their accrued retirement benefit upon completion of five years of service.
The benefits shown in the table above are calculated on a straight-life annuity
basis.
The Retirement Account Plan, together with the PBEP, provides retirement
income based on a percentage of annual compensation. The percentage of
compensation allocated annually ranges from 3% to 12.5%, based on age and
credited service. Amounts allocated also receive interest credits based on
30-year Treasuries with a minimum interest credit rate of 3%. Executives close
to or eligible to retire as of January 1, 1997 will receive the higher of
benefits provided by the final pay formula in effect prior to 1997 or the
Retirement Account formula.
The SEBP provides retirement benefits in addition to the benefits provided
under the Retirement Account Plan and the PBEP. The SEBP has the effect of
increasing the retirement benefits under the Retirement Account Plan and the
PBEP to the amounts depicted in the preceding table. The SEBP provides maximum
benefits after 20 years. Executives close to or eligible for retirement, as
approved by the Chairman and Chief Executive Officer, will receive maximum
benefits after 15 years.
61
<PAGE> 64
THE NEW DUN & BRADSTREET CORPORATION
SECURITY OWNERSHIP BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All the outstanding shares of New D&B Common Stock are currently held by
D&B. The following table sets forth the number of shares of New D&B Common Stock
that are expected to be beneficially owned after the Distribution by each of the
New D&B directors, by each of the executive officers named in The New Dun &
Bradstreet Corporation Summary Compensation Table above, by all New D&B
directors and executive officers as a group and by each person known by New D&B
to beneficially own more than 5% of the outstanding shares of D&B Common Stock
as of April 30, 1998 ("5% Owners"). Stock ownership information is based on (i)
the number of shares of D&B Common Stock held by directors and executive
officers as of April 30, 1998 (ii) the number of shares held by 5% Owners, based
upon a Schedule 13G filed with the SEC by such 5% Owners and (iii) one share of
New D&B Common Stock being distributed for every share of D&B Common Stock. See
"The Distribution" and "The New Dun & Bradstreet Corporation Management and
Executive Compensation -- Compensation of The New Dun & Bradstreet Corporation
Executive Officers". Information regarding shares subject to options reflects
shares of D&B Common Stock subject to options as of April 30, 1998 and
exercisable within 60 days thereafter, all of which will be converted into
options that are exercisable into shares of New D&B Common Stock. See
"Relationship Between The New Dun & Bradstreet Corporation and R.H. Donnelley
Corporation After the Distribution -- Employee Benefits Agreement". Unless
otherwise stated, the indicated persons have sole voting and investment power
over the shares listed. Percentages are based upon the number of shares of D&B
Common Stock outstanding on April 30, 1998 plus, where applicable, the number of
shares that the indicated person or group had a right to acquire within 60 days
of such date. The mailing address for each of the New D&B directors and
executive officers listed below is One Diamond Hill Road, Murray Hill, New
Jersey 07974.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
OF BENEFICIAL OWNER AND NATURE OF OWNERSHIP OF CLASS(1)
------------------- ----------------------- -----------
<S> <C> <C> <C>
Hall Adams, Jr. ................ 1,400 Owned(2)
3,000 Rights to Acquire Within 60 Days(3)
----------
4,400 --
Clifford L. Alexander, Jr. ..... 900 Owned(2)(4)
3,000 Rights to Acquire Within 60 Days(3)
----------
3,900 --
Mary Johnston Evans............. 46,670 Owned(2)(5)
3,000 Rights to Acquire Within 60 Days(3)
----------
49,670 --
Chester J. Geveda, Jr. ......... 18,005 Owned(4)
57,434 Rights to Acquire Within 60 Days(3)
----------
75,439 --
Nancy L. Henry.................. 1,747 Owned
4,657 Rights to Acquire Within 60 Days(3)
----------
6,404 --
Elahe Hessamfar................. 13,076 Owned(6)
0 Rights to Acquire Within 60 Days(3)
----------
13,076 --
Ronald L. Kuehn, Jr. ........... 1,318 Owned(7)
3,000 Rights to Acquire Within 60 Days(3)
----------
4,318 --
Robert J. Lanigan............... 8,303 Owned(2)(8)
3,000 Rights to Acquire Within 60 Days(3)
----------
11,303 --
</TABLE>
62
<PAGE> 65
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
OF BENEFICIAL OWNER AND NATURE OF OWNERSHIP OF CLASS(1)
------------------- ----------------------- -----------
<S> <C> <C> <C>
Vernon R. Loucks Jr. ........... 2,803 Owned(2)(9)
3,000 Rights to Acquire Within 60 Days(3)
----------
5,803 --
Henry A. McKinnell.............. 1,141 Owned(7)
0 Rights to Acquire Within 60 Days(3)
----------
1,141 --
Michael R. Quinlan.............. 1,400 Owned(2)
3,000 Rights to Acquire Within 60 Days(3)
----------
4,400 --
Frank S. Sowinski............... 6,216 Owned
69,023 Rights to Acquire Within 60 Days(3)
----------
75,239 --
Volney Taylor................... 121,019 Owned
403,105 Rights to Acquire Within 60 Days(3)
----------
524,124 --
All Directors and Executive
Officers as a Group........... 261,634 Owned(5)
657,259 Rights to Acquire Within 60 Days(3)
----------
918,893 --
Harris Associates L.P. and its
general partner, Harris
Associates, Inc. ............. 17,374,440 (10) 10.12 %
Two North La Salle Street,
Ste. 500
Chicago, Illinois 60602-3790
AMVESCAP PLC and certain of its
subsidiaries.................. 12,048,320 (11) 7.02 %
11 Devonshire Square
London EC2M 4YR
England
</TABLE>
- ---------------
(1) Represents ownership of less than 1% of the outstanding New D&B Common
Stock unless otherwise indicated.
(2) Includes 900 shares of restricted stock granted under The Dun & Bradstreet
Corporation Restricted Stock Plan for Non-Employee Directors, which shares
are scheduled to vest in the years 1999, 2000 and 2001.
(3) Represents stock options granted under a D&B plan.
(4) Includes the following number of shares as to which the indicated person
has shared voting and shared investment power: 400 shares for Mr. Alexander
and 9,075 shares for Mr. Geveda.
(5) Includes 44,770 shares owned by Mrs. Evans' spouse, as to which Mrs. Evans
disclaims beneficial ownership.
(6) Represents shares of restricted stock granted under the 1989 Key Employees
Restricted Stock Plan, which shares are scheduled to vest in the year 2000.
(7) Represents shares of restricted stock granted to Mr. Kuehn and Dr.
McKinnell under the 1996 Directors' Plan, which shares are scheduled to
vest in the years 2001 and 2002, respectively.
(8) Includes shares held in two revocable trusts (one trust holding 5,000
shares and the other 1,200 shares) for the benefit of Mr. Lanigan in which
he is the settlor and sole beneficial owner and over which he has sole
investment control.
(9) Includes 300 shares held in a Keogh Plan for the benefit of Mr. Loucks.
63
<PAGE> 66
(10) Harris Associates L.P. ("Harris") and its sole general partner, Harris
Associates, Inc., ("Harris Inc.") jointly filed a Schedule 13G with the SEC
on February 11, 1998. This Schedule 13G shows that Harris, a registered
investment adviser, had as of December 31, 1997, shared voting power over
14,903,640 shares of D&B Common Stock. Of such shares, Harris had sole
dispositive power over 5,171,140 shares and shared dispositive power over
9,732,500 shares. In addition, Harris and Harris Inc. jointly filed an
amendment to their Schedule 13G with the SEC on April 9, 1998. This amended
Schedule 13G shows that Harris had as of March 31, 1998 shared voting power
over 17,374,440 shares of D&B Common Stock. Of such shares, Harris had sole
dispositive power over 5,435,440 shares and shared dispositive power over
11,939,000 shares.
(11) AMVESCAP PLC and its subsidiaries, AVZ, Inc. (a holding company), AIM
Management Group Inc. (a holding company), INVESCO, Inc. (a holding
company), INVESCO North American Holdings, Inc. (a holding company),
INVESCO Capital Management, Inc. (a registered investment adviser), INVESCO
Funds Group, Inc. (a registered investment adviser), INVESCO Management &
Research, Inc. (a registered investment adviser), and INVESCO Realty
Advisers, Inc. (a registered investment adviser), jointly filed a Schedule
13G with the SEC on February 11, 1998. This Schedule 13G shows that these
companies had, as of December 31, 1997, shared voting power and shared
dispositive power over 12,048,320 shares.
64
<PAGE> 67
DESCRIPTION OF THE NEW DUN & BRADSTREET CORPORATION CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of stock that New D&B has
authority to issue under its Restated Certificate of Incorporation is
420,000,000 shares of which 400,000,000 shares represent shares of New D&B
Common Stock, 10,000,000 shares represent shares of Preferred Stock (the "New
D&B Preferred Stock") and 10,000,000 shares represent shares of Series Common
Stock (the "New D&B Series Common Stock"). Based on shares of D&B
Common Stock outstanding as of , 1998, and a distribution ratio of
one share of New D&B Common Stock for every one share of D&B Common Stock,
shares of New D&B Common Stock would be distributed to holders of D&B
Common Stock on the Distribution Date.
NEW D&B COMMON STOCK
Subject to any preferential rights of any New D&B Preferred Stock or New
D&B Series Common Stock created by the Board of Directors of New D&B, each
outstanding share of New D&B Common Stock will be entitled to such dividends, if
any, as may be declared from time to time by the Board of Directors of New D&B.
See "Dividend Policies". Each outstanding share is entitled to one vote on all
matters submitted to a vote of stockholders. In the event of liquidation,
dissolution or winding up of New D&B, holders of New D&B Common Stock are
entitled to receive on a pro rata basis any assets remaining after provision for
payment of creditors and after payment of any liquidation preferences to holders
of New D&B Preferred Stock and New D&B Series Common Stock.
NEW D&B PREFERRED STOCK AND NEW D&B SERIES COMMON STOCK
Each of the authorized Preferred Stock and the authorized Series Common
Stock of New D&B is available for issuance from time to time in one or more
series at the discretion of the New D&B Board of Directors without stockholder
approval. The New D&B Board of Directors has the authority to prescribe for each
series of New D&B Preferred Stock or New D&B Series Common Stock it establishes
the number of shares in that series, the voting rights (if any) to which such
shares in that series are entitled, the consideration for such shares in that
series and the designation, powers, preference and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions of the shares in that series. Depending upon the rights of such
Preferred Stock or Series Common Stock, as applicable, the issuance of New D&B
Preferred Stock or New D&B Series Common Stock, as applicable, could have an
adverse effect on holders of New D&B Common Stock by delaying or preventing a
change in control of New D&B, making removal of the present management of New
D&B more difficult or resulting in restrictions upon the payment of dividends
and other distributions to the holders of New D&B Common Stock.
AUTHORIZED BUT UNISSUED CAPITAL STOCK
Delaware law does not require stockholder approval for any issuance of
authorized shares. However, the listing requirements of the NYSE, which would
apply so long as the New D&B Common Stock remained listed on the NYSE, require
stockholder approval of certain issuances equal to or exceeding 20% of the then
outstanding voting power or then outstanding number of shares of New D&B Common
Stock. These additional shares may be used for a variety of corporate purposes,
including future public offerings to raise additional capital or to facilitate
corporate acquisitions. New D&B currently does not have any plans to issue
additional shares of New D&B Common Stock, New D&B Preferred Stock or New D&B
Series Common Stock other than in connection with employee compensation plans.
One of the effects of the existence of unissued and unreserved New D&B
Common Stock, New D&B Preferred Stock and New D&B Series Common Stock may be to
enable the Board of Directors of New D&B to issue shares to persons friendly to
current management, which issuance could render more difficult or discourage an
attempt to obtain control of New D&B by means of a merger, tender offer, proxy
contest or otherwise, and thereby protect the continuity of New D&B's management
and possibly deprive the stockholders of opportunities to sell their shares of
New D&B Common Stock at prices higher than prevailing
65
<PAGE> 68
market prices. Such additional shares also could be used to dilute the stock
ownership of persons seeking to obtain control of New D&B pursuant to the
operation of the New D&B Rights Plan, which is discussed below.
THE NEW DUN & BRADSTREET CORPORATION RIGHTS PLAN
On , 1998 the Board of Directors of New D&B declared a dividend
of one preferred share purchase right (a "New D&B Right") for each outstanding
share of New D&B Common Stock. The dividend will be payable on ,
1998 (the "New D&B Record Date") to D&B, which will be the sole stockholder of
record on the New D&B Record Date. Each New D&B Right entitles the registered
holder to purchase from New D&B one one-thousandth of a share of Series A Junior
Participating New D&B Preferred Stock, par value $0.01 per share (the "New D&B
Participating Preferred Stock"), of New D&B at a price of $ per one
one-thousandth of a share of New D&B Participating Preferred Stock (as the same
may be adjusted, hereinafter referred to as the "New D&B Participating Preferred
Stock Purchase Price"), subject to adjustment. The description and terms of the
New D&B Rights are set forth in the New D&B Rights Agreement dated as of
, 1998, as the same may be amended from time to time (the "New D&B
Rights Agreement"), between New D&B and First Chicago Trust Company of New York,
as the New D&B Rights Agent (the "New D&B Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (with certain
exceptions, hereinafter referred to in this description of New D&B Rights, an
"Acquiring Person") have acquired beneficial ownership of 15% or more of the
outstanding shares of New D&B Common Stock or (ii) 10 business days (or such
later date as may be determined by action of the Board of Directors prior to
such time as any person or group of affiliated persons becomes an Acquiring
Person) following the commencement of, or announcement of an intention to make,
a tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of the outstanding
shares of New D&B Common Stock (the earlier of such dates hereinafter referred
to in this description of New D&B Rights as the "Rights Distribution Date"), the
New D&B Rights will be evidenced by the certificates representing New D&B Common
Stock.
The New D&B Rights Agreement provides that, until the Rights Distribution
Date (or earlier redemption or expiration of the New D&B Rights), the New D&B
Rights will be transferred with and only with the New D&B Common Stock. Until
the Rights Distribution Date (or earlier redemption or expiration of the New D&B
Rights), New D&B Common Stock certificates will contain a notation incorporating
the New D&B Rights Agreement by reference. Until the Rights Distribution Date
(or earlier redemption or expiration of the New D&B Rights), the surrender for
transfer of any certificates for shares of New D&B Common Stock will also
constitute the transfer of the New D&B Rights associated with the shares of New
D&B Common Stock represented by such certificate. As soon as practicable
following the Rights Distribution Date, separate certificates evidencing the New
D&B Rights ("New D&B Rights Certificates") will be mailed to holders of record
of the New D&B Common Stock as of the close of business on the Rights
Distribution Date and such separate New D&B Rights Certificates alone will
evidence the New D&B Rights.
The New D&B Rights are not exercisable until the Rights Distribution Date.
The New D&B Rights will expire on June 30, 2008 (hereinafter referred to in this
description of New D&B Rights as the "Final Expiration Date"), unless the Final
Expiration Date is advanced or extended or unless the New D&B Rights are earlier
redeemed or exchanged by New D&B, in each case as described below.
The New D&B Participating Preferred Stock Purchase Price payable, and the
number of shares of New D&B Participating Preferred Stock or other securities or
property issuable, upon exercise of the New D&B Rights are subject to adjustment
from time to time to prevent dilution (i) in the event of a stock dividend on,
or a subdivision, combination or reclassification of, the New D&B Participating
Preferred Stock, (ii) upon the grant to holders of the New D&B Participating
Preferred Stock of certain rights or warrants to subscribe for or purchase New
D&B Participating Preferred Stock at a price, or securities convertible into New
D&B Participating Preferred Stock with a conversion price, less than the
then-current market price of the New D&B Participating Preferred Stock or (iii)
upon the distribution to holders of the New D&B Participating Preferred Stock of
evidences of indebtedness or assets (excluding regular periodic cash dividends
or dividends
66
<PAGE> 69
payable in New D&B Participating Preferred Stock) or of subscription rights or
warrants (other than those referred to above).
The New D&B Rights are also subject to adjustment in the event of a stock
dividend on the New D&B Common Stock payable in shares of New D&B Common Stock
or subdivisions, consolidations or combinations of the New D&B Common Stock
occurring, in any such case, prior to the Rights Distribution Date.
Shares of New D&B Participating Preferred Stock purchasable upon exercise
of the New D&B Rights will not be redeemable. Each share of New D&B
Participating Preferred Stock will be entitled, when, as and if declared, to a
minimum preferential quarterly dividend payment of $10 per share but will be
entitled to an aggregate dividend of 1,000 times the dividend declared per share
of New D&B Common Stock. In the event of liquidation, dissolution or winding up
of New D&B, the holders of the New D&B Participating Preferred Stock will be
entitled to a minimum preferential liquidation payment of $100 per share (plus
any accrued but unpaid dividends) but will be entitled to an aggregate payment
of 1,000 times the payment made per share of New D&B Common Stock. Each share of
New D&B Participating Preferred Stock will have 1,000 votes, voting together
with the New D&B Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of New D&B Common Stock are
converted or exchanged, each share of New D&B Participating Preferred Stock will
be entitled to receive 1,000 times the amount received per share of New D&B
Common Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the New D&B Participating Preferred Stock's
dividend, liquidation and voting rights, the value of the one one-thousandth
interest in a share of New D&B Participating Preferred Stock purchasable upon
exercise of each New D&B Right should approximate the value of one share of New
D&B Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a New D&B Right, other than New D&B
Rights beneficially owned by the Acquiring Person (which will thereupon become
void), will thereafter have the right to receive upon exercise of a New D&B
Right and payment of the New D&B Participating Preferred Stock Purchase Price,
that number of shares of New D&B Common Stock having a market value of two times
the New D&B Participating Preferred Stock Purchase Price.
In the event that, after a person or group has become an Acquiring Person,
New D&B is acquired in a merger or other business combination transaction or 50%
or more of its consolidated assets or earning power are sold, proper provision
will be made so that each holder of a New D&B Right (other than New D&B Rights
beneficially owned by an Acquiring Person which will have become void) will
thereafter have the right to receive, upon the exercise thereof, that number of
shares of common stock of the person with whom New D&B has engaged in the
foregoing transaction (or its parent), which number of shares at the time of
such transaction will have a market value of two times the New D&B Participating
Preferred Stock Purchase Price.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
shares of New D&B Common Stock or the occurrence of an event described in the
prior paragraph, the Board of Directors of New D&B may exchange the New D&B
Rights (other than New D&B Rights owned by such person or group which will have
become void), in whole or in part, at an exchange ratio of one share of New D&B
Common Stock, or a fractional share of New D&B Participating Preferred Stock of
equivalent value (or of a share of a class or series of New D&B's Preferred
Stock having similar rights, preferences and privileges), per New D&B Right
(subject to adjustment).
With certain exceptions, no adjustment in the New D&B Participating
Preferred Stock Purchase Price will be required until cumulative adjustments
require an adjustment of at least 1% in such New D&B Participating Preferred
Stock Purchase Price. No fractional shares of New D&B Participating Preferred
Stock will be issued (other than fractions which are integral multiples of one
one-thousandth of a share of New D&B Participating Preferred Stock, which may,
at the election of New D&B, be evidenced by depositary receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the New
D&B Participating Preferred Stock on the last trading period to the date of
exercise.
67
<PAGE> 70
At any time prior to the time an Acquiring Person becomes such, the Board
of Directors of New D&B may redeem the New D&B Rights in whole, but not in part,
at a price of $0.01 per New D&B Right (hereinafter referred to in this
description of New D&B Rights as the "Redemption Price"). The redemption of the
New D&B Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the New D&B Rights, the right to exercise the
New D&B Rights will terminate and the only right of the holders of New D&B
Rights will be to receive the Redemption Price.
For so long as the New D&B Rights are then redeemable, New D&B may, except
with respect to the Redemption Price, amend the New D&B Rights in any manner.
After the New D&B Rights are no longer redeemable, New D&B may, except with
respect to the Redemption Price, amend the New D&B Rights in any manner that
does not adversely affect the interests of holders of the New D&B Rights.
Until a New D&B Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of New D&B, including, without limitation, the right
to vote or to receive dividends.
A copy of the form of New D&B Rights Agreement has been filed as an exhibit
to the Registration Statement on Form 10 of New D&B in respect of the
registration of the New D&B Common Stock under the Exchange Act. A copy of the
New D&B Rights Agreement is available free of charge from New D&B. The summary
description of the New D&B Rights set forth above does not purport to be
complete and is qualified in its entirety by reference to the New D&B Rights
Agreement, as the same may be amended from time to time, which is hereby
incorporated herein by reference.
CERTAIN EFFECTS OF THE NEW DUN & BRADSTREET CORPORATION RIGHTS AGREEMENT
The New D&B Rights Agreement is designed to protect stockholders of New D&B
in the event of unsolicited offers to acquire New D&B and other coercive
takeover tactics which, in the opinion of the Board of Directors of New D&B,
could impair its ability to represent stockholder interests. The provisions of
the New D&B Rights Agreement may render an unsolicited takeover of New D&B more
difficult or less likely to occur or might prevent such a takeover, even though
such takeover may offer New D&B's stockholders the opportunity to sell their
stock at a price above the prevailing market rate and may be favored by a
majority of the stockholders of New D&B.
NO PREEMPTIVE RIGHTS
No holder of any class of stock of New D&B authorized at the time of the
Distribution will have any preemptive right to subscribe to any securities of
New D&B of any kind or class.
DELAWARE GENERAL CORPORATION LAW
The terms of Section 203 of the General Corporation Law of the State of
Delaware (the "DGCL") apply to New D&B since it is a Delaware corporation.
Pursuant to Section 203, with certain exceptions, a Delaware corporation may not
engage in any of a broad range of business combinations, such as mergers,
consolidations and sales of assets, with an "interested stockholder" for a
period of three years from the time that such person became an interested
stockholder unless (a) the transaction that results in the person's becoming an
interested stockholder or the business combination is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (b) upon consummation of the transaction which results in the
stockholder becoming an interested stockholder, the interested stockholder owns
85% or more of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding shares owned by persons who are directors and
also officers and shares owned by certain employee stock plans or (c) on or
after the time the person becomes an interested stockholder, the business
combination is approved by the corporation's board of directors and by holders
of at least two-thirds of the corporation's outstanding voting stock, excluding
shares owned by the interested stockholder, at a meeting of stockholders. Under
Section 203, an "interested stockholder" is defined as any person, other than
the corporation and any direct or indirect majority-owned subsidiary, that is
(a) the owner of 15% or more of the outstanding voting stock of the corporation
or (b) an affiliate or associate of the corporation and was the owner of 15% or
more of the
68
<PAGE> 71
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder. Section 203 does not apply to
a corporation that so provides in an amendment to its certificate of
incorporation or by-laws passed by a majority of its outstanding shares, but
such stockholder action does not become effective for 12 months following its
adoption and would not apply to persons who were already interested stockholders
at the time of the amendment. New D&B's Restated Certificate of Incorporation
does not exclude New D&B from the restrictions imposed under Section 203.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage companies interested in acquiring New D&B to negotiate
in advance with New D&B's Board of Directors, because the stockholder approval
requirement would be avoided if the Board of Directors approves either the
business combination or the transaction which results in the stockholder
becoming an interested stockholder. Such provisions also may have the effect of
preventing changes in the Board of Directors of New D&B. It is further possible
that such provisions could make it more difficult to accomplish transactions
which stockholders may otherwise deem to be in their best interests.
PROVISIONS OF THE NEW DUN & BRADSTREET CORPORATION RESTATED CERTIFICATE OF
INCORPORATION AND AMENDED AND RESTATED BY-LAWS AFFECTING CHANGE IN CONTROL
Certain provisions of the New D&B Restated Certificate of Incorporation and
Amended and Restated By-laws may delay or make more difficult unsolicited
acquisitions or changes of control of New D&B. It is believed that such
provisions will enable New D&B to develop its business in a manner that will
foster its long-term growth without disruption caused by the threat of a
takeover not deemed by its Board of Directors to be in the best interests of New
D&B and its stockholders. Such provisions could have the effect of discouraging
third parties from making proposals involving an unsolicited acquisition or
change of control of New D&B, although such proposals, if made, might be
considered desirable by a majority of New D&B's stockholders. Such provisions
may also have the effect of making it more difficult for third parties to cause
the replacement of the current Board of Directors of New D&B. These provisions
include (i) the availability of capital stock for issuance from time to time at
the discretion of the Board of Directors (see "-- Authorized But Unissued
Capital Stock"), (ii) prohibitions against stockholders calling a special
meeting of stockholders or acting by written consent in lieu of a meeting, (iii)
requirements for advance notice for raising business or making nominations at
stockholders' meetings, (iv) the ability of the Board of Directors to increase
the size of the board and to appoint directors to newly created directorships,
(v) a classified Board of Directors and (vi) higher than majority requirements
to make certain amendments to the By-laws and Certificate of Incorporation.
No Stockholder Action by Written Consent; Special Meetings
The New D&B Restated Certificate of Incorporation and Amended and Restated
By-laws provide that stockholder action can be taken only at an annual or
special meeting and cannot be taken by written consent in lieu of a meeting. The
New D&B Restated Certificate of Incorporation and Amended and Restated By-laws
also provide that special meetings of the stockholders can be called only by the
Chief Executive Officer of New D&B or by a vote of the majority of the Board of
Directors. Furthermore, the By-laws of New D&B provide that only such business
as is specified in the notice of any such special meeting of stockholders may
come before such meeting.
Advance Notice for Raising Business or Making Nominations at Meetings
The By-laws of New D&B establish an advance notice procedure for
stockholder proposals to be brought before an annual meeting of stockholders and
for nominations by stockholders of candidates for election as directors at an
annual or special meeting at which directors are to be elected. Only such
business may be conducted at an annual meeting of stockholders as has been
brought before the meeting by, or at the direction of, the Chairman of the Board
of Directors, or by a stockholder of New D&B who is entitled to vote at the
meeting who has given to the Secretary of New D&B timely written notice, in
proper form, of the
69
<PAGE> 72
stockholder's intention to bring that business before the meeting. The chairman
of such meeting has the authority to make such determinations. Only persons who
are nominated by, or at the direction of, the Chairman of the Board of
Directors, or who are nominated by a stockholder who has given timely written
notice, in proper form, to the Secretary prior to a meeting at which directors
are to be elected will be eligible for election as directors of New D&B.
To be timely, a stockholder's notice of business to be brought before an
annual meeting and nominations of candidates for election as directors at any
annual meeting shall be delivered to the Secretary of New D&B at the principal
executive offices of New D&B not less than 70 days nor more than 90 days prior
to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 20 days, or delayed by more than 70 days, from such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of the seventieth day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made.
To be timely, a stockholder's notice of nominations of persons for election
to the Board of Directors may be made at such a special meeting of stockholders
if the stockholder's notice shall be delivered to the Secretary of New D&B at
the principal executive offices of New D&B not earlier than the ninetieth day
prior to such special meeting and not later than the close of business on the
later of the seventieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
The notice of any nomination for election as a director must set forth the
name and address of, and the class and number of shares of New D&B held by, the
stockholder who intends to make the nomination and the beneficial owner, if any,
on whose behalf the nomination is being made; the name and address of the person
or persons to be nominated; a representation that the stockholder is a holder of
record of stock of New D&B entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to nominate the person or persons
specified in the notice; a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the stockholder; such other information regarding each nominee
proposed by such stockholder as would have been required to be included in a
proxy statement filed pursuant to the proxy rules of the SEC had each nominee
been nominated, or intended to be nominated, by the Board of Directors; and the
consent of each nominee to serve as a director if so elected.
Number of Directors; Filling of Vacancies; Removal
The New D&B Restated Certificate of Incorporation and Amended and Restated
By-laws provide that newly created directorships resulting from an increase in
the authorized number of directors (or any vacancy) may only be filled by a vote
of a majority of directors then in office. Accordingly, the Board of Directors
of New D&B may be able to prevent any stockholder from obtaining majority
representation on the Board of Directors by increasing the size of the board and
filling the newly created directorships with its own nominees. If any applicable
provision of the DGCL expressly confers power on stockholders to fill such a
directorship at a special meeting of stockholders, such a directorship may be
filled at such meeting only by the affirmative vote of at least 80% in voting
power of all shares of New D&B entitled to vote generally in the election of
directors, voting as a single class. Directors may be removed only for cause,
and only by the affirmative vote of at least 80% in voting power of all shares
of New D&B entitled to vote generally in the election of directors, voting as a
single class.
Classified Board of Directors
The New D&B Restated Certificate of Incorporation provides for New D&B's
Board of Directors to be divided into three classes of directors serving
staggered three-year terms. As a result, approximately one third of New D&B's
Board of Directors will be elected each year. See "The New Dun & Bradstreet
Corporation Management and Executive Compensation -- The New Dun & Bradstreet
Corporation Board of Directors".
70
<PAGE> 73
New D&B believes that a classified board will help to assure the continuity
and stability of its Board of Directors, and its business strategies and
policies as determined by its Board, because a majority of the directors at any
given time will have prior experiences as directors of New D&B. This provision
should also help to ensure that New D&B's Board of Directors, if confronted with
an unsolicited proposal from a third party that has acquired a block of New
D&B's voting stock, will have sufficient time to review the proposal and
appropriate alternatives and to seek the best available result for all
stockholders.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of New D&B's Board of
Directors until the second annual stockholders meeting following the date the
acquiror obtains the controlling stock interest, could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of New D&B and could thus increase the likelihood
that incumbent directors will retain their positions.
Amendments to the Amended and Restated By-laws
The New D&B Restated Certificate of Incorporation provides that the
affirmative vote of the holders of at least 80% in voting power of all the
shares of New D&B entitled to vote generally in the election of directors,
voting together as a single class, shall be required in order for the
stockholders to alter, amend or repeal any provision of the Amended and Restated
By-laws which is to the same effect as provisions contained in the Restated
Certificate of Incorporation relating to (i) the amendment of the Amended and
Restated By-laws, (ii) the classified Board of Directors and the filling of
director vacancies and (iii) calling and taking actions at meetings of
stockholders and prohibiting stockholders from taking action by written consent.
Amendments to the Restated Certificate of Incorporation
The New D&B Restated Certificate of Incorporation requires the affirmative
vote of the holders of at least 80% in voting power of all the shares of New D&B
entitled to vote generally in the election of directors, voting together as a
single class, to alter, amend or repeal provisions of the Restated Certificate
of Incorporation relating to (i) the amendment of the Restated Certificate of
Incorporation and/or the Amended and Restated By-laws, (ii) the classified Board
of Directors and the filling of director vacancies and (iii) calling and taking
actions at meetings of stockholders and prohibiting stockholders from taking
action by written consent.
INDEMNIFICATION AND LIMITATION OF LIABILITY FOR DIRECTORS AND OFFICERS
The New D&B Restated Certificate of Incorporation provides that New D&B
shall indemnify directors and officers to the fullest extent permitted by the
laws of the State of Delaware. The New D&B Restated Certificate of Incorporation
also provides that a director of New D&B shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the DGCL as the same exists or may hereafter be
amended.
The indemnification rights conferred by the Restated Certificate of
Incorporation of New D&B are not exclusive of any other right to which a person
seeking indemnification may otherwise be entitled. New D&B will also provide
liability insurance for the directors and officers for certain losses arising
from claims or charges made against them, while acting in their capacities as
directors or officers.
71
<PAGE> 74
R.H. DONNELLEY
CAPITALIZATION
The following table sets forth the pro forma historical capitalization of
R.H. Donnelley as of March 31, 1998 and as adjusted to give effect to the
Distribution and the transactions contemplated thereby. The following data is
qualified in its entirety by the financial statements of R.H. Donnelley
presented on a stand-alone basis and the other information contained elsewhere
in this Information Statement. See "Forward-Looking Statements".
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL
AS OF PRO FORMA
MARCH 31, AS ADJUSTED FOR
1998(1) THE DISTRIBUTION(2)
---------- -------------------
(AMOUNTS IN THOUSANDS, EXCEPT
SHARE AND PER SHARE DATA)
<S> <C> <C>
Cash and Cash Equivalents................................... $ 17 $ 17
======== =========
Long Term Debt.............................................. -- 500,000
-------- ---------
Preferred Stock, par value $1.00 per share,
authorized -- 10,000,000 shares........................... -- --
-------- ---------
Common Stock, par value $1.00 per share,
authorized -- 400,000,000 shares, issued and
outstanding -- 188,420,996 shares, less treasury shares of
16,850,856................................................ 171,570 171,570
Retained Earnings (Deficit)................................. 74,317 (415,183)
Total Equity (Deficit)................................. 245,887 (243,613)
-------- ---------
Total Capitalization.............................. $245,887 $ 256,387
======== =========
</TABLE>
- ---------------
(1) The Pro Forma Historical column reflects the recapitalization of R.H.
Donnelley at the date of the Distribution. See "R.H. Donnelley Pro Forma
Condensed Financial Statements".
(2) In connection with the Distribution, R.H. Donnelley will borrow $350 million
under the R.H. Donnelley Credit Facility and will issue $150 million of
senior subordinated notes under the R.H. Donnelley Indenture. The net
proceeds of the offering of the notes, along with R.H. Donnelley's
anticipated borrowings under the R.H. Donnelley Credit Facility will be used
(i) to repay indebtedness of D&B, primarily commercial paper, (ii) to pay
costs and expenses related to the Distribution and (iii) to repay
indebtedness of D&B to subsidiaries which, following the Distribution, will
be subsidiaries of New D&B. This $500 million of debt will be an obligation
of R.H. Donnelley after the Distribution.
72
<PAGE> 75
R.H. DONNELLEY
SELECTED FINANCIAL DATA
The Selected Financial Data of R.H. Donnelley as of December 31, 1996 and
1997, and for each of the years in the three year period ended December 31,
1997, are derived from the audited financial statements of R.H. Donnelley
included elsewhere in this Information Statement. R.H. Donnelley's audited
financial statements are presented as if R.H. Donnelley were a stand-alone
entity for all periods presented. The Selected Financial Data of R.H. Donnelley
as of December 31, 1993, 1994 and 1995, and for the years ended December 31,
1993 and 1994, are derived from the unaudited financial statements of R.H.
Donnelley, and, in the opinion of management, include all necessary adjustments
for a fair presentation of such data in conformity with generally accepted
accounting principles. The Selected Financial Data as of March 31, 1998 and for
the three months ended March 31, 1997 and 1998 have been derived from the
unaudited interim financial statements of R.H. Donnelley included elsewhere in
this Information Statement, and, in the opinion of management, include all
necessary adjustments for a fair presentation of such data in conformity with
generally accepted accounting principles. The financial data included herein may
not necessarily reflect the results of operations and financial position of R.H.
Donnelley in the future or what they would have been had it been a separate
entity. The information set forth below should be read in conjunction with the
R.H. Donnelley information under "R.H. Donnelley Capitalization", "R.H.
Donnelley Pro Forma Condensed Financial Statements", "R.H. Donnelley
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the R.H. Donnelley Financial Statements and Notes thereto
included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
HISTORICAL PRO FORMA(1)
-------------------------------------------------------------- ------------
1993 1994 1995 1996 1997 1997
---------- ---------- ---------- ---------- ---------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(2):
Revenues........................... $ 333,047 $ 310,313 $ 312,940 $ 270,029 $ 239,865 $ 239,865
Expenses:
Operating Expenses(3)............ 157,546 139,022 157,559 135,500 132,278 132,278
General and Administrative(3).... 124,992 91,368 75,754 83,803 81,089 81,089
Depreciation and Amortization.... 15,694 15,444 16,322 16,229 21,930 21,930
Restructuring Charges............ -- -- 17,690 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total Expenses............. 298,232 245,834 267,325 235,532 235,297 235,297
Income from Partnerships and
Related Fees..................... 129,873 148,770 137,180 132,945 130,171 130,171
---------- ---------- ---------- ---------- ---------- ----------
Operating Income........... 164,688 213,249 182,795 167,442 134,739 134,739
Gain(Loss) on Dispositions......... -- -- -- (28,500) 9,412 9,412
Interest Expense................... -- -- -- -- -- 40,955
---------- ---------- ---------- ---------- ---------- ----------
Income Before Provision for
Income Taxes............. 164,688 213,249 182,795 138,942 144,151 103,196
Provision for Income Taxes......... 65,875 85,300 74,398 60,857 59,246 42,864
---------- ---------- ---------- ---------- ---------- ----------
Net Income................. $ 98,813 $ 127,949 $ 108,397 $ 78,085 $ 84,905 $ 60,332
========== ========== ========== ========== ========== ==========
PRO FORMA EARNINGS PER SHARE(4):
Basic.......................... $ 0.56 $ 0.75 $ 0.64 $ 0.46 $ 0.50 $ 0.35
Diluted........................ $ 0.56 $ 0.75 $ 0.64 $ 0.46 $ 0.50 $ 0.35
SHARES USED IN COMPUTING PRO FORMA
EARNINGS PER SHARE(4):
Basic.......................... 177,200 169,946 169,522 170,017 170,765 170,765
Diluted........................ 177,200 169,946 169,883 170,289 171,065 171,065
OTHER FINANCIAL DATA:
Gross Advertising Sales(5)..... $1,151,700 $1,108,705 $1,145,944 $1,115,560 $1,067,242 $1,067,242
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
------------------------------------
HISTORICAL PRO FORMA(1)
--------------------- ------------
1997 1998 1998
-------- -------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(2):
Revenues........................... $ 20,200 $ 24,344 $ 24,344
Expenses:
Operating Expenses(3)............ 5,553 7,093 7,093
General and Administrative(3).... 16,963 17,695 17,695
Depreciation and Amortization.... 5,416 4,952 4,952
Restructuring Charges............ -- -- --
-------- -------- ----------
Total Expenses............. 27,932 29,740 29,740
Income from Partnerships and
Related Fees..................... 5,442 25,642 25,642
-------- -------- ----------
Operating Income........... (2,290) 20,246 20,246
Gain(Loss) on Dispositions......... -- -- --
Interest Expense................... -- -- 10,239
-------- -------- ----------
Income Before Provision for
Income Taxes............. (2,290) 20,246 10,007
Provision for Income Taxes......... (916) 8,098 4,002
-------- -------- ----------
Net Income................. $ (1,374) $ 12,148 $ 6,005
======== ======== ==========
PRO FORMA EARNINGS PER SHARE(4):
Basic.......................... $ (0.01) $ 0.07 $ 0.04
Diluted........................ $ (0.01) $ 0.07 $ 0.03
SHARES USED IN COMPUTING PRO FORMA
EARNINGS PER SHARE(4):
Basic.......................... 171,189 171,153 171,153
Diluted........................ 171,189(6) 172,396 172,396
OTHER FINANCIAL DATA:
Gross Advertising Sales(5)..... $ 68,136 $147,226 $ 147,226
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------------
HISTORICAL
--------------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(2):
Total Assets...................... $ 512,165 $ 526,168 $ 520,214 $ 502,193 $ 382,286
Long Term Debt....................
Shareholder's Equity (Deficit).... $ 350,942 $ 370,314 $ 386,565 $ 379,184 $ 258,675
<CAPTION>
AS OF MARCH 31,
-------------------------
HISTORICAL PRO FORMA(1)
---------- ------------
1998 1998
---------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA(2):
Total Assets...................... $359,174 $ 369,674
Long Term Debt.................... $ -- $ 500,000
Shareholder's Equity (Deficit).... $245,887 $(243,613)
</TABLE>
73
<PAGE> 76
- ---------------
(1) See "R.H. Donnelley Pro Forma Condensed Financial Statements".
(2) The Selected Financial Data above include amounts related to businesses that
have been sold and will not be included in R.H. Donnelley's results in
future periods. The P-West business was sold in May 1996 and the P-East
business was sold in December 1997. The above Selected Financial Data
contain the following amounts applicable to those businesses.
<TABLE>
<CAPTION>
AS OF AND
FOR THE
AS OF AND FOR THE YEAR ENDED DECEMBER 31, YEAR ENDED
(AMOUNTS IN THOUSANDS) MARCH 31,
--------------------------------------------------- ---------------
1993 1994 1995 1996 1997 1997
-------- -------- -------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $166,176 $148,785 $140,104 $ 97,263 $77,979 $ 635
Operating Income.......... $ 13,199 $ 27,926 $ 22,250 $ 18,587 $10,969 $ (914)
Total Assets.............. $163,440 $138,345 $131,751 $ 80,962 $ -- $68,660
Gross Advertising Sales... $156,631 $139,060 $133,389 $ 89,939 $73,753 $ 1,513
</TABLE>
(3) Allocations of historical corporate expense of D&B are included in operating
expenses and general and administrative expenses. R.H. Donnelley's
management believes these allocations are reasonable. However, the costs of
these services and benefits allocated to R.H. Donnelley are not necessarily
indicative of the costs that would have been incurred if R.H. Donnelley had
performed or provided these services as a separate entity. These allocations
were $24.1 million, $18.6 million and $21.5 million in 1995, 1996 and 1997,
respectively, and were $5.9 million and $5.3 million for the three months
ended March 31, 1997 and the three months ended March 31, 1998,
respectively. No data is available prior to the year ended December 31,
1995.
(4) The computation of pro forma basic earnings per share for the periods
presented is based upon the historical weighted average number of shares of
D&B Common Stock outstanding, reflecting the one-for-one distribution. The
computation of pro forma diluted earnings per share is calculated by
dividing net income by the sum of D&B's historical weighted average common
shares outstanding and potentially dilutive R.H. Donnelley common shares.
Potentially dilutive common shares are calculated in accordance with the
treasury stock method, which assumes that proceeds from the exercise of all
R.H. Donnelley employees' options are used to repurchase common stock at
market value. The amount of shares remaining after the proceeds are
exhausted represent the potentially dilutive effect of the options.
(5) Unaudited gross advertising sales is the billing value of advertisements
sold by R.H. Donnelley and DonTech.
(6) The exercise of potentially dilutive shares has not been assumed for the
three months ended March 31, 1997, since the result is antidilutive.
74
<PAGE> 77
R.H. DONNELLEY
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma condensed financial statements have been
prepared giving effect to the Distribution as if it occurred on March 31, 1998
for the pro forma condensed balance sheet and January 1, 1997 for the pro forma
condensed statements of operations. The pro forma condensed balance sheet and
statements of operations set forth below do not purport to represent what R.H.
Donnelley's financial position and results of operations actually would have
been had the Distribution occurred on the date indicated or to project R.H.
Donnelley's operating results for any future period. The pro forma adjustments
are based upon available information and certain assumptions that R.H.
Donnelley's management believes are reasonable. The pro forma condensed
financial statements set forth below should be read in conjunction with, and are
qualified in their entirety by, the R.H. Donnelley information under "R.H.
Donnelley Selected Financial Data" and "R.H. Donnelley Management's Discussion
and Analysis of Financial Condition and Results of Operations" and in the R.H.
Donnelley Financial Statements and Notes thereto included elsewhere in this
Information Statement.
75
<PAGE> 78
R.H. DONNELLEY
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------- -----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues...................................... $ 239,865 $ 239,865(A)
Expenses:
Operating Expenses.......................... 132,278 132,278
General and Administrative.................. 81,089 81,089(B)
Depreciation and Amortization............... 21,930 21,930
----------- -----------
Total Expenses...................... 235,297 235,297
Income from Partnerships and Other Related
Fees........................................ 130,171 130,171
----------- -----------
Operating Income.............................. 134,739 134,739(A)
Gain on Disposition........................... 9,412 9,412
Interest Expense.............................. -- $(39,656)(C)(D) (40,955)
(1,299)(E)
----------- -------- -----------
Income before Provision for Income
Taxes............................. 144,151 (40,955) 103,196
Provision for Income Taxes.................... 59,246 (16,382)(F) 42,864
----------- -------- -----------
Net Income.................................... $ 84,905 $(24,573) $ 60,332
=========== ======== ===========
Pro Forma Earnings Per Share:
Basic....................................... $ 0.50 $ 0.35
=========== ===========
Diluted..................................... $ 0.50 $ 0.35
=========== ===========
Shares Used in Computing Pro Forma Earnings
Per Share:
Basic....................................... 170,765 170,765
=========== ===========
Diluted..................................... 171,065 171,065
=========== ===========
</TABLE>
See notes to pro forma condensed financial statements
76
<PAGE> 79
R.H. DONNELLEY
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues...................................... $ 24,344 $ 24,344
Expenses:
Operating Expenses.......................... 7,093 7,093
General and Administrative.................. 17,695 17,695(B)
Depreciation and Amortization............... 4,952 4,952
-------- --------
Total Expenses...................... 29,740 29,740
Income from Partnerships and Other Related
Fees........................................ 25,642 25,642
-------- --------
Operating Income.............................. 20,246 20,246
Interest Expense.............................. -- $ (9,914)(C)(D) (10,239)
(325)(E)
-------- -------- --------
Income before Provision for Income
Taxes............................. 20,246 (10,239) 10,007
Provision for Income Taxes.................... 8,098 (4,096)(F) 4,002
-------- -------- --------
Net Income.................................... $ 12,148 $ (6,143) $ 6,005
======== ======== ========
Pro Forma Earnings Per Share:
Basic....................................... $ 0.07 $ 0.04
======== ========
Diluted..................................... $ 0.07 $ 0.03
======== ========
Shares Used in Computing Pro Forma Earnings
Per Share:
Basic....................................... 171,153 171,153
======== ========
Diluted..................................... 172,396 172,396
======== ========
</TABLE>
See notes to pro forma condensed financial statements
77
<PAGE> 80
R.H. DONNELLEY
PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------------------------------------------
PRO FORMA
HISTORICAL HISTORICAL(H) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS:
Cash and Cash Equivalents................ $ 17 $ 17 $ 17
Other Current Assets..................... 136,703 136,703 136,703
-------- -------- ---------
Total Current Assets........... 136,720 136,720 136,720
Non-Current Assets....................... 222,454 222,454 $ 10,500(G) 232,954
-------- -------- --------- ---------
Total Assets................... $359,174 359,174 $ 10,500 $ 369,674
======== ======== ========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY:
Current Liabilities...................... $ 50,527 $ 50,527 $ 50,527
Long Term Debt........................... -- -- $ 500,000(C) 500,000
Other Liabilities........................ 62,760 62,760 62,760
-------- -------- --------- ---------
Total Liabilities.............. 113,287 113,287 500,000 613,287
Shareholder's Equity:
Preferred Stock, par value $1.00 per
share, Authorized -- 10,000,000 shares
Common Stock, par value $1.00 per share,
Authorized -- 400,000,000 shares;
Issued -- 188,420,996 shares, less
treasury shares of 16,850,856.......... -- 171,570 -- 171,570
Common Stock, no par value Authorized --
100 shares; Issued and
Outstanding -- 100 shares.............. 12,002 -- -- --
Capital Surplus.......................... 101,032 -- -- --
Retained Earnings (Deficit).............. 132,853 74,317 (489,500) (415,183)
-------- -------- --------- ---------
Total Shareholder's Equity..... 245,887 245,887 (489,500) (243,613)
-------- -------- --------- ---------
Total Liabilities and
Shareholder's Equity......... $359,174 $359,174 $ 10,500 $ 369,674
======== ======== ========= =========
</TABLE>
See notes to pro forma condensed financial statements
78
<PAGE> 81
R.H. DONNELLEY
NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS
A. The pro forma condensed statement of operations for the year ended December
31, 1997 includes amounts related to the P-East business that was sold in
December 1997 and will not be included in the results going forward. The
following amounts were related to this business.
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Revenues.................................................... $77,979
Operating Income............................................ 10,969
</TABLE>
B. R.H. Donnelley estimates a net increase in operating expense of as much as
approximately $8.6 million annually associated with operating as a publicly
owned company which is not reflected in the pro forma condensed financial
statements.
C. In connection with the Distribution, R.H. Donnelley will borrow $350 million
under the R.H. Donnelley Credit Facility and will issue $150 million of
senior subordinated notes. The net proceeds of the offering of the notes,
along with R.H. Donnelley's anticipated borrowings under the R.H. Donnelley
Credit Facility will be used (i) to repay indebtedness of D&B, primarily
commercial paper, (ii) to pay costs and expenses related to the Distribution
and (iii) to repay indebtedness of D&B to subsidiaries which, following the
Distribution, will be subsidiaries of New D&B. This $500 million of debt
will be an obligation of R.H. Donnelley after the Distribution. The debt is
currently estimated to be comprised of:
<TABLE>
<CAPTION>
BANK FINANCING SENIOR
------------------------------------------------------------------ SUBORDINATED
REVOLVER A LOAN B LOAN C LOAN TOTAL NOTES
----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Amount............... $50 million $75 million $125 million $100 million $350 million $150 million
Estimated Interest... 7.19% 7.19% 7.44% 7.69% 9.13%
Estimated Financing
Costs.............. $5.8 million $4.7 million
Estimated Financing
Term............... 6 years 6 years 7.5 years 8.5 years 6-8.5 years 10 years
</TABLE>
D. Gives effect to the interest expense on $500 million of debt based on a
weighted average interest rate of 7.93% per annum.
E. Gives effect to the amortization of $10.5 million of estimated deferred
financing costs related to the $500 million of debt. The deferred financing
costs will be amortized over the life of the debt.
F. To reflect the tax effect of the pro forma adjustments at the statutory tax
rate.
G. To reflect the $10.5 million of deferred financing costs related to the $500
million of debt.
H. The Pro Forma Historical column reflects the recapitalization of R.H.
Donnelley at the date of the Distribution.
79
<PAGE> 82
R.H. DONNELLEY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of financial condition and results of
operations is prepared as if R.H. Donnelley was a stand-alone entity for all
periods discussed. This discussion should be read in conjunction with the R.H.
Donnelley Financial Statements and Notes thereto included elsewhere in this
Information Statement.
OVERVIEW
R.H. Donnelley is currently a direct wholly owned subsidiary of D&B. On
June , 1998, the Board of Directors of D&B declared the Distribution and
announced that the Distribution will be effected on June 30, 1998. Following the
Distribution, D&B's only remaining subsidiary will be R.H. Donnelley, and each
of D&B and New D&B will be independent, publicly-traded companies. In connection
with the Distribution, D&B will be renamed R.H. Donnelley Corporation and New
D&B will be renamed The Dun & Bradstreet Corporation. R.H. Donnelley provides
sales, marketing and publishing services for yellow pages directories and is the
largest independent marketer of yellow pages advertising in the United States.
R.H. Donnelley is also a leading provider of pre-press publishing services for
yellow pages directories (including a majority of the directories for which it
sells advertising). R.H. Donnelley will retain all the assets and liabilities
related to yellow pages sales, marketing and publishing services after the
Distribution.
The financial statements generally reflect the financial position, results
of operations and cash flows of R.H. Donnelley as if it were a stand-alone
entity for all periods presented. The financial statements include allocations
of certain D&B corporate headquarters assets (including prepaid pension assets)
and liabilities (including postretirement benefits) and expenses (including cash
management, legal, accounting, tax, employee benefits, insurance services, data
services and other D&B corporate overhead) relating to R.H. Donnelley's business
which R.H. Donnelley's management believes to be reasonable. However, the costs
of these services and benefits charged to R.H. Donnelley are not necessarily
indicative of the costs that would have been incurred if R.H. Donnelley had
performed or provided these functions as a separate entity. R.H. Donnelley
estimates a net increase in general and administrative expenses associated with
operating as an independent, publicly-traded company, which may be as much as
approximately $8.6 million annually above the amount which was allocated in 1997
from D&B.
The financial information included herein may not necessarily reflect the
results of operations, financial position, changes in shareholders' equity and
cash flows of R.H. Donnelley in the future or what they would have been had it
been a separate entity during the periods presented. The financial statements
reflect effective tax rates of R.H. Donnelley on a separate company basis. These
rates do not reflect the historical benefit of D&B's global tax planning actions
which have resulted in lower consolidated tax rates. Historically, D&B used a
centralized cash management system to finance R.H. Donnelley's operations. Cash
deposits from R.H. Donnelley's business were transferred to D&B on a daily basis
and D&B funded R.H. Donnelley's disbursement bank accounts as required. No
interest was charged on these transactions with D&B. R.H. Donnelley will not
continue to participate in D&B's cash management system after the Distribution.
R.H. Donnelley will have its own bank accounts and control the use of its cash.
For purposes of governing certain of the ongoing relationships between New
D&B and R.H. Donnelley after the Distribution and to provide for an orderly
transition, D&B and New D&B will enter into various agreements including a
Distribution Agreement, Tax Allocation Agreement, Employee Benefits Agreement,
Intellectual Property Agreement, Shared Transaction Services Agreement, Data
Services Agreement and Transition Services Agreements. For descriptions of these
agreements see "Relationship Between The New Dun & Bradstreet Corporation and
R.H. Donnelley Corporation After The Distribution".
R.H. Donnelley earns income from three primary sources: sales commission
revenues, publishing services revenues and partnership income and related fees.
Sales commission revenues from R.H. Donnelley's Bell Atlantic operations and its
Sprint sales agency operations are recognized by R.H. Donnelley when an
80
<PAGE> 83
advertising contract is signed with a customer. Sales commission revenues for
advertising sales for the CenDon partnership, for which CenDon is the publisher,
are recognized by R.H. Donnelley when a directory is published. Publishing
services revenues are recognized by R.H. Donnelley on a straight-line basis as
services are provided to a customer. R.H. Donnelley does not recognize the
revenues of the DonTech or CenDon partnerships.
R.H. Donnelley recognizes income from the DonTech partnership when an
advertising contract is signed with a customer. R.H. Donnelley also receives
direct fees ("Revenue Participation") from an affiliate of Ameritech, which are
tied to advertising sales generated by the DonTech partnership. R.H. Donnelley
recognizes income from the CenDon partnership when a directory is published.
These items are included in income from partnerships and related fees.
RESULTS OF OPERATIONS
Three Months ended March 31, 1998 Compared with Three Months ended March 31,
1997
Gross advertising sales is the billing value of advertisements sold by R.H.
Donnelley and DonTech. Gross advertising sales in the first quarter of 1998
increased by 116.2% over the corresponding period in the prior year, from $68.1
million in the first quarter of 1997 to $147.2 million in the first quarter of
1998. This increase is primarily due to a restructuring of the DonTech
partnership and a corresponding change in the timing of the DonTech
partnership's recognition of gross advertising sales. In the first quarter of
1997, DonTech recognized gross advertising sales when the related directories
were published. As restructured, in the first quarter of 1998 and thereafter,
DonTech recognizes gross advertising sales when a customer signs an advertising
contract. As a result of the restructured DonTech partnership arrangement, gross
advertising sales are recognized more evenly throughout the year and on an
annual basis should not be materially different than 1997. Also, in December
1997, R.H. Donnelley sold its East Coast proprietary yellow pages business
("P-East"). Excluding DonTech's gross advertising sales of $10.0 million in the
first quarter of 1997 and $75.6 million in the first quarter of 1998 and
P-East's gross advertising sales of $1.5 million in the first quarter of 1997,
gross advertising sales increased 26.3%, from $56.6 million in 1997 to $71.6
million in 1998. The increase is primarily due to a shift in advertising sales
in R.H. Donnelley's Bell Atlantic markets from 1997 to 1998 due to the
rescheduling of certain directories in these markets; gross advertising sales in
these markets increased by $15.1 million in the first quarter of 1998 compared
to the first quarter of 1997, from $53.4 million in 1997 to $68.5 million in
1998.
Revenues are derived from commissions related to advertising sales and do
not include revenues generated by sales of advertising by the DonTech
partnership. Revenues increased from $20.2 million in the first quarter of 1997
to $24.3 million in the first quarter of 1998. Excluding P-East revenues of $0.6
million in the first quarter of 1997, revenues increased by 24.4%, from $19.6
million in the first quarter of 1997 to $24.3 million in the first quarter of
1998. This increase was primarily due to the timing shift in R.H. Donnelley's
Bell Atlantic markets discussed above, which resulted in a $3.1 million increase
in revenues in those markets, from $12.9 million in the first quarter of 1997 to
$16.0 million in the first quarter of 1998. In 1997, scheduling shifts for
certain directories in the Bell Atlantic region affected the timing of R.H.
Donnelley servicing those directories' customers and recording revenues, which
resulted in a shift of revenue into the first quarter of 1998. Publishing
revenues increased by $1.8 million, from $5.8 million in the first quarter of
1997 to $7.6 million in the first quarter of 1998 due to revenues for publishing
services which R.H. Donnelley began providing to Yellow Book USA, L.P. in 1998.
Partnership income and related fees increased by $20.2 million in the first
quarter of 1998, from $5.4 million in the first quarter of 1997 to $25.6 million
in the first quarter of 1998. R.H. Donnelley receives partnership income and
related fees primarily from two sources, the CenDon partnership and the DonTech
partnership. R.H. Donnelley receives 50% of the profits generated by the CenDon
partnership. R.H. Donnelley receives a percentage share of the profits generated
by the DonTech partnership (which percentage share is 50% under the restructured
DonTech partnership arrangement) and, beginning in the third quarter of 1997,
also receives direct fees (Revenue Participation) from an affiliate of Ameritech
which are tied to advertising sales generated by the DonTech partnership. These
items are included in income from partnerships and
81
<PAGE> 84
related fees. Due to the DonTech restructuring discussed above, R.H. Donnelley
recorded $20.0 million of partnership income and related fees from DonTech's
operations in the first quarter of 1998, compared to $1.0 million in the first
quarter of 1997, an increase of $19.0 million. R.H. Donnelley's partnership
income from CenDon increased 27.3% in the first quarter of 1998, from $4.4
million in the first quarter of 1997 to $5.6 million in the first quarter of
1998 due to sales performance in R.H. Donnelley's markets that was well above
industry averages.
R.H. Donnelley's operating and general and administrative expenses
increased from $22.5 million in the first quarter of 1997 to $24.8 million in
the first quarter of 1998. Excluding P-East operating expenses of $1.4 million
in the first quarter of 1997, these costs increased by $3.7 million, from $21.1
million in the first quarter of 1997 to $24.8 million in the first quarter of
1998. For interim reporting purposes, R.H. Donnelley recognizes certain expenses
on a percentage-of-advertising-sales basis. Consequently, since gross
advertising sales in R.H. Donnelley's Bell Atlantic markets increased in the
first quarter of 1998 as compared to the first quarter of 1997 as discussed
above, operating and general and administrative expenses in these markets
increased from $6.5 million in the first quarter of 1997 to $10.5 million in the
first quarter of 1998.
R.H. Donnelley's net income before taxes in the first quarter of 1998 was
$20.2 million compared to a loss of $2.3 million in the first quarter of 1997.
Excluding P-East operating results in the first quarter of 1997, net income
before taxes was a loss of $1.4 million. Prior to the DonTech restructuring
discussed above, R.H. Donnelley's operating results in the first quarter were
significantly below its operating results in other quarters due to the
relatively few directories that were published in the first quarter as compared
to other quarters. The net income increase in the first quarter of 1998 is
primarily due to the DonTech restructuring, which resulted in the significant
increase in partnership income and related fees, also discussed above. In
addition, R.H. Donnelley recorded equity earnings from the CenDon partnership of
$5.6 million in the first quarter of 1998 as compared to $4.4 million in the
first quarter of 1997.
Year ended December 31, 1997 Compared with Year ended December 31, 1996
Gross advertising sales is the billing value of advertisements sold by R.H.
Donnelley and DonTech. Gross advertising sales in 1997 decreased 4.3%, from
$1,115.6 million in 1996 to $1,067.2 million in 1997. In December 1997, R.H.
Donnelley sold its East Coast proprietary yellow pages business ("P-East") and
in May 1996, R.H. Donnelley sold its West Coast proprietary yellow pages
business ("P-West"). The decline in gross advertising sales in 1997 was
primarily due to the sale of P-East, which accounted for gross advertising sales
of $87.8 million in 1996 and $73.8 million in 1997, and the expiration of R.H.
Donnelley's contract with Cincinnati Bell during August 1997, which led to a
reduction in the related gross advertising sales from that contract from $65.0
million in 1996 to $50.1 million in 1997. Gross advertising sales in R.H.
Donnelley's other markets, after adjusting for P-West's gross advertising sales
of $2.1 million in 1996, decreased by 1.8%, from $960.6 million in 1996 to
$943.4 million in 1997 due to lower sales for Bell Atlantic directories because
of the rescheduling of certain directories in those markets, which created a
shift in sales from 1997 to 1998. This decline was partially offset by gross
advertising sales growth in R.H. Donnelley's Sprint markets (primarily Las
Vegas), which was well above industry average levels. DonTech's gross
advertising sales also increased by 1.3%, from $403.5 million in 1996 to $408.6
million in 1997.
Revenues are derived from commissions related to advertising sales and do
not include revenues generated by sales of advertising by the DonTech
partnership. Revenues decreased from $270.0 million in 1996 to $239.9 million in
1997, primarily reflecting the sale of P-East and the expiration of R.H.
Donnelley's contract with Cincinnati Bell. Adjusted for P-East revenues of $95.1
million in 1996 and $78.0 million in 1997, P-West revenues of $2.2 million in
1996 and Cincinnati Bell revenues of $17.1 million in 1996 and $13.1 million in
1997, R.H. Donnelley's revenues declined 4.4% from $155.6 million in 1996 to
$148.8 million in 1997. Revenues were adversely affected by scheduling shifts in
the publication schedules for certain Bell Atlantic directories, which resulted
in a 9.9% decrease in revenues for R.H. Donnelley in its Bell Atlantic markets,
from $95.9 million in 1996 to $86.4 million in 1997. This decrease was partially
offset by a 7.7% increase in revenues in R.H. Donnelley's Sprint markets, from
$37.0 million in 1996 to $39.9 million in 1997; revenue growth was especially
strong in Las Vegas, where directories are published semi-annually due to the
82
<PAGE> 85
strong economic growth in the Las Vegas market and resulting above-average
growth in yellow pages advertising.
Partnership income and related fees decreased in 1997 by 2.1%, from $132.9
million in 1996 to $130.2 million in 1997. R.H. Donnelley receives partnership
income primarily from two sources, the CenDon partnership and the DonTech
partnership. R.H. Donnelley receives 50% of the profits generated by the CenDon
partnership. R.H. Donnelley receives a percentage share of the profits generated
by the DonTech partnership (which percentage share is 50% under the restructured
DonTech partnership arrangement) and, beginning in the third quarter of 1997,
also receives direct fees (Revenue Participation) from an affiliate of Ameritech
which are tied to advertising sales generated by the DonTech partnership. These
items are included in income from partnerships and related fees. R.H.
Donnelley's income related to DonTech declined 4.3% in 1997, from $121.4 million
in 1996 to $116.2 million in 1997, primarily due to a contractual reduction in
R.H. Donnelley's share of DonTech's profits. In 1990, R.H. Donnelley accepted
such contractual reductions in its share of DonTech's profits in return for
amending the DonTech partnership agreement so that it would have no termination
date, and these contractual reductions ended in 1997. A portion of the decline
was also due to sales and production inefficiencies that arose from an
unbalanced production schedule in which the majority of the directories with
which DonTech is affiliated were published in the fourth quarter. In 1997, a
two-year program was instituted that is intended to correct the imbalance and
increase the effectiveness of DonTech's sales force and support operations. R.H.
Donnelley's partnership income from CenDon increased 25.8% in 1997 from $9.7
million in 1996 to $12.2 million in 1997 due to sales growth in CenDon's Las
Vegas markets that was well above industry averages.
R.H. Donnelley's 1997 operating and general and administrative expenses
decreased by 2.7%, from $219.3 million in 1996 to $213.4 million in 1997.
Excluding operating and general and administrative expenses related to P-East
($75.1 million in 1996 and $66.2 million in 1997) and P-West ($1.9 million in
1996), these costs increased by 3.4%, from $142.3 million in 1996 to $147.2
million in 1997. The increase is primarily due to $4 million in start-up costs
that were expensed in 1997 for R.H. Donnelley's new proprietary Cincinnati
directories, which are scheduled to be published in the third quarter of 1998.
Depreciation and amortization increased from $16.2 million in 1996 to $21.9
million in 1997, principally due to the first full year of depreciation and
amortization costs related to the $40 million investment made in 1995 and 1996
for the software, equipment and start-up costs of R.H. Donnelley's new
publishing center in Raleigh, North Carolina. The depreciation and amortization
costs on this investment were approximately $4 million in 1996 and approximately
$9 million in 1997.
R.H. Donnelley's net income before taxes for 1997 was $144.2 million
compared to $138.9 million for 1996. Excluding the gain on the sale of P-East of
$9.4 million and the operating results of P-East of $11.0 million in 1997, net
income before taxes was $123.8 million in 1997. Excluding the loss on the sale
of P-West of $28.5 million and the operating results of P-East ($19.2 million)
and P-West ($0.6 million loss) in 1996, net income before taxes was $148.8
million in 1996. The net income decline was primarily due to several factors
discussed above, including (i) the rescheduling of certain directories in R.H.
Donnelley's Bell Atlantic markets, (ii) a decrease in R.H. Donnelley's share of
partnership income from DonTech, (iii) the first full year of amortization costs
related to R.H. Donnelley's new publishing facility and (iv) expensed start-up
costs for the new proprietary Cincinnati directories.
Year ended December 31, 1996 Compared with Year ended December 31, 1995
Gross advertising sales in 1996 decreased 2.7% compared to the prior year,
from $1,145.9 million in 1995 to $1,115.6 million in 1996. Excluding gross
advertising sales from P-East and P-West, which declined from $133.4 million in
1995 to $89.9 million in 1996 due to the mid-year sale of P-West in 1996 and the
resulting recognition of less than a full year of advertising sales from P-West,
gross advertising sales increased 1.3% from $1,012.6 million in 1995 to $1,025.6
million in 1996. This increase was primarily due to a 9.2% increase in gross
advertising sales in Sprint markets, which was primarily driven by the high
level of economic growth in the Las Vegas market. DonTech's gross advertising
sales decreased by 1.9%, from $411.3 million in 1995 to
83
<PAGE> 86
$403.5 million in 1996, primarily because DonTech's gross advertising sales in
1995 were benefitted by extensions in the publishing cycles for certain of its
directories.
Revenues decreased from $312.9 million in 1995 to $270.0 million in 1996,
primarily due to the sale of R.H. Donnelley's P-West operations in May 1996;
P-West accounted for revenues of $45.0 million in 1995 and $2.2 million in 1996.
Excluding the revenues of P-West and P-East (which was sold in December 1997),
which were $140.1 million in 1995 and $97.3 million in 1996, R.H. Donnelley's
revenues were essentially flat with $172.8 million of revenues in 1995 and
$172.7 million in 1996. Revenue growth in R.H. Donnelley's Sprint markets was
7.2%, from $34.5 million in 1995 to $37.0 million in 1996. This growth was
partially offset by a revenue decline of 4.2% in R.H. Donnelley's Bell Atlantic
markets from $100.1 million in 1995 to $95.9 million in 1996, which was due to
the scheduling shift, discussed above, in the publication dates of certain Bell
Atlantic directories, and a one-time contractual decrease in R.H. Donnelley's
sales commission.
Partnership income decreased in 1996 by 3.1%, from $137.2 million in 1995
to $132.9 million in 1996. R.H. Donnelley's partnership income from DonTech
declined 3.3% in 1996, from $125.6 million in 1995 to $121.4 million in 1996,
primarily due to the contractual decrease, discussed above, in R.H. Donnelley's
share of DonTech's profits and the benefit in 1995 from extending the publishing
cycles for certain directories. R.H. Donnelley's partnership income from CenDon
was essentially flat in 1996 compared to 1995 with $9.5 million in 1995 and $9.7
million in 1996. R.H. Donnelley's 1995 partnership income from CenDon included a
reversal of prior year excess provision accruals of $1.5 million.
R.H. Donnelley's 1996 operating costs and general and administrative
expenses decreased by 6.0%, from $233.3 million in 1995 to $219.3 million in
1996. Excluding operating and general and administrative expenses related to
P-East ($73.1 million in 1995 and $75.1 million in 1996) and P-West ($43.2
million in 1995 and $1.9 million in 1996), and a one-time reversal of prior year
excess provision accruals of $19.9 million in 1995, these expenses increased
from $136.9 million in 1995 to $142.3 million in 1996 primarily due to costs
associated with shifting operations to the new Raleigh publishing center and
legal fees incurred in litigation (which has since been concluded) involving its
Illinois markets.
Depreciation and amortization was essentially flat in 1996 compared to 1995
with $16.3 million in 1995 and $16.2 million in 1996.
R.H. Donnelley's net income before taxes for 1996 was $138.9 million
compared to $182.8 million for 1995. Excluding the loss on the sale of P-West of
$28.5 million in 1996 and the operating results of both P-East ($21.3 million in
1995 and $19.2 million in 1996) and P-West ($1.0 million in 1995 and a $0.6
million loss in 1996), net income before taxes was $148.8 million in 1996
compared to $160.5 million in 1995. A non-recurring charge of $17.7 million was
also recorded in 1995 related to the closing of the Terre Haute publishing
facility. After adjusting for this non-recurring charge and the $19.9 million
reversal of bad debt reserves in 1995 discussed above, net income before taxes
for 1996 compared to 1995 was $148.8 million and $158.3 million, respectively.
This variance was primarily caused by R.H. Donnelley's lower sales commission
rate, discussed above, on sales in its Bell Atlantic markets in 1996, costs
associated with shifting operations to the new Raleigh publishing center and
legal fees, and the benefit to 1995 results from extending the publishing cycles
for certain DonTech directories.
Restructuring Charge
In 1995, R.H. Donnelley recorded a restructuring charge of $17.7 million
for the closing of the Terre Haute publishing facility. The charge included
fixed asset write-offs, as well as severance (cash outlays were made primarily
in 1996 and 1997), legal costs (cash outlays were made in 1996) and a reserve
for additional advertising claims expected to result from the conversion to the
Raleigh publishing center. R.H. Donnelley moved its publishing operations from
Terre Haute, Indiana to Raleigh, North Carolina to enhance its integrated,
cost-effective advertising sales and publishing services. It is expected that
this investment will result in improved productivity, quality and cycle times.
To date, R.H. Donnelley has been able to reduce publishing costs by
approximately 30% and publishing cycle times by approximately 50%.
84
<PAGE> 87
Income Taxes
The financial statements reflect effective tax rates of R.H. Donnelley on a
separate company basis. R.H. Donnelley's effective tax rates were 40.7%, 43.8%,
and 41.1% in 1995, 1996, and 1997, respectively. The increase in the rate in
1996 is related to non-deductible capital losses related to the sale of P-West
which increased the rate 2.8%.
Changes in Financial Position at March 31, 1998 Compared with December 31, 1997
R.H. Donnelley's accounts receivable, net, decreased by $12.3 million in
the first quarter of 1998, primarily due to the collection of Bell Atlantic and
CenDon year-end receivables, which was partially offset by an increase in
receivables related to the DonTech partnership. This decrease is consistent with
prior years.
R.H. Donnelley's total liabilities decreased by $10.3 million in the first
quarter of 1998, primarily due to the payment of year-end accrued liabilities
such as bonuses. This decrease is consistent with prior years.
Changes in Financial Position at December 31, 1997 Compared with December 31,
1996
R.H. Donnelley's accounts receivable, net, decreased $22.3 million in 1997
primarily due to the sale of P-East assets, including receivables of $61.9
million at December 31, 1996. This was off-set by the recording of a receivable
for the Revenue Participation portion of the DonTech agreement ($51.6 million),
which arose due to the DonTech restructuring discussed above. In addition,
receivables also decreased due to delays in publication of certain directories
in the markets served by Bell Atlantic, which created lower revenues and lower
year-end receivables in 1997.
R.H. Donnelley's total liabilities remained essentially flat at $123.6
million in 1997 as compared to $123.0 million in 1996. A decrease of $19.5
million in the deferred income tax liability and a decrease in liabilities as a
result of the sale of P-East were offset by a related increase in reserves in
connection with the sale.
Liquidity And Capital Resources
Three Months ended March 31, 1998 Compared with Three Months ended March 31,
1997
Cash and cash equivalents for the quarters ending March 31, 1998 and March
31, 1997 were $17,000 and $64,000, respectively. These balances reflect D&B's
centralized cash management system, where historically cash deposits were
transferred to D&B on a daily basis and D&B funded R.H. Donnelley's disbursement
bank accounts as required.
Net cash provided by operations was $27.4 million in the first quarter of
1998 and $57.7 million in the first quarter of 1997, a decrease of $30.3
million. Excluding cash provided by P-East in the first quarter of 1997 of $7.4
million, cash provided by operations in the first quarter of 1998 decreased by
$22.9 million. The decrease in 1998 is primarily due to a change in the timing
of cash receipts from DonTech related to the DonTech restructuring discussed
above.
Net cash used in investing activities was $2.5 million in the first quarter
of 1998, compared to $8.7 million in the first quarter of 1997. This decrease is
a result of an increased amount of capital spending, primarily on computer
equipment and furniture and fixtures, in 1997 in connection with office moves
made in late 1996.
Net cash used in financing activities represents cash transferred to D&B
throughout the quarter. As stated above, historically all cash deposits have
been transferred to D&B on a daily basis and D&B has funded R.H. Donnelley's
disbursement bank accounts as required. The net amounts transferred to D&B were
$24.9 million in the first quarter of 1998 and $49.0 million in the first
quarter of 1997. The increased transfer in 1997 is primarily due to higher
amounts of cash received from the DonTech and CenDon partnerships and from
P-East receivables.
85
<PAGE> 88
Years Ended December 31, 1997, 1996 and 1995
Cash and cash equivalents for the years ended 1995, 1996 and 1997 were $1.4
million, $60,000 and $32,000, respectively. These balances reflect D&B's
centralized cash management system, where historically cash deposits were
transferred to D&B on a daily basis and D&B funded R.H. Donnelley's disbursement
bank accounts as required. The 1995 balance reflects certain marketable
securities held by R.H. Donnelley.
Net cash provided by operations was $136.6 million, $100.5 million and
$99.7 million in 1995, 1996 and 1997, respectively. In 1997, R.H. Donnelley
received cash from its partnerships in excess of the related income that was
recorded; consequently, investments in partnerships decreased in 1997.
Investments in partnerships also declined in 1997 due to the DonTech
restructuring discussed above, as the Revenue Participation portion of
DonTech-related income is recorded in accounts receivable, as compared to 1996
and 1995 when all DonTech-related income was recorded as a component of
investments in partnerships. The investment in partnerships account will
increase or decrease in the future depending on the operating results of DonTech
and CenDon and the related amounts of cash disbursements that R.H. Donnelley
receives. After the Distribution, R.H. Donnelley anticipates that it will have
approximately $50 million of unused capacity available under the Revolving
Facility, which will be used as necessary to offset any fluctuations in
liquidity caused by the timing of cash receipts from DonTech and CenDon. The
decrease from 1995 to 1996 was due to an increase of accounts payable in 1995.
Net cash provided from investing activities in 1997 was $105.7 million,
which was primarily derived from the sale of the P-East business for $122.0
million in cash. Net cash used in investing activities in 1995 and 1996 was
$43.0 million and $16.5 million, respectively. In both years there was an
increased amount of capital spending on property and equipment and computer
software.
The majority of capital spending for R.H. Donnelley is computer hardware,
software and upgrades for its production and operating systems. Capital spending
excluding computer software in 1995, 1996 and 1997 was $19.3 million, $16.0
million and $9.1 million, respectively. Computer software spending for those
years was $23.7 million, $21.9 million and $7.2 million, respectively. The
increased spending in 1995 and 1996 is due to the investment R.H. Donnelley has
made in its new publishing facility in Raleigh, North Carolina, which totaled
approximately $23 million in 1995 and approximately $18 million in 1996. Net of
the Raleigh investment, capital and computer software spending in 1995, 1996 and
1997 was $20.0 million, $19.9 million and $16.3 million, respectively.
Currently, R.H. Donnelley has no material commitments for capital expenditures.
Net cash used in financing activities represents cash transferred to D&B
throughout the year. As stated above, all cash deposits were transferred to D&B
on a daily basis and D&B funded R.H. Donnelley's disbursement bank accounts as
required. The net amounts transferred to D&B were $92.1 million, $85.4 million
and $205.4 million in 1995, 1996 and 1997, respectively. The 1997 transfer
includes the proceeds received from the sale of P-East.
In connection with the Distribution, R.H. Donnelley will issue $150 million
of senior subordinated notes and anticipates borrowing approximately $350
million under the R.H. Donnelley Credit Facility. The net proceeds of the note
issuance and the anticipated borrowing will be dividended to D&B to be used (i)
to repay indebtedness of D&B, primarily commercial paper, (ii) to pay costs and
expenses related to the Distribution and (iii) to repay indebtedness of D&B to
subsidiaries which, following the Distribution, will be subsidiaries of New D&B.
This approximately $500 million of debt will be an obligation of R.H. Donnelley
after the Distribution. As of March 31, 1998, after giving pro forma effect to
the indebtedness described above and the application of the estimated net
proceeds therefrom, R.H. Donnelley will have approximately $500 million of
indebtedness and a shareholder's deficit of approximately $244 million. The
projected future interest expense, after tax, on the $500 million of debt will
result initially in a reduction to net income of approximately $25 million per
year. Following the Distribution, R.H. Donnelley anticipates that it will have
$50 million of unused capacity available under the revolving facility portion of
the R.H. Donnelley Credit Facility. Loans obtained under the R.H. Donnelley
Credit Facility mature in the amounts of $2.25 million, $6.0 million, $13.5
million, $17.25 million, $21.0 million, $28.5 million, $38.5 million, $81.0
million and $92.0 million in the first through ninth years, respectively, of the
R.H. Donnelley Credit Facility. R.H. Donnelley believes, based on current
86
<PAGE> 89
circumstances, that R.H. Donnelley's cash flow, together with available credit
capacity under the R.H. Donnelley Credit Facility, will be sufficient to permit
R.H. Donnelley to meet its operating expenses and capital expenditures and to
service its debt requirements as they become due for the foreseeable future.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"), which establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general-purpose financial statements. R.H. Donnelley adopted the statement in
1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), which
revises disclosure requirements about operating segments and establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS No. 131 requires that public business enterprises
report financial and descriptive information about their reportable operating
segments. The statement will be adopted by R.H. Donnelley effective year end
December 31, 1998, and will require restatement of prior years. R.H. Donnelley
is in the process of evaluating the disclosure requirements. The adoption of
SFAS No. 131 will have no impact on R.H. Donnelley's results of operations,
financial position or cash flows.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132
revises employers' disclosures about pension and other postretirement benefit
plans. SFAS No. 132 is effective for fiscal years beginning after December 15,
1997. Restatement of disclosures for earlier periods provided for comparative
purposes is required unless the information is not readily available, in which
case the notes to the financial statements should include all available
information and a description of the information not available. R.H. Donnelley
is in the process of evaluating the disclosure requirements. The adoption of
SFAS No. 132 will have no impact on R.H. Donnelley's results of operations,
financial position or cash flows.
YEAR 2000
The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions.
As part of its Year 2000 compliance program, many of R.H. Donnelley's
currently installed computer systems and software products have been tested for
Year 2000 problems and R.H. Donnelley anticipates that these computer systems
and software products will be fully Year 2000 compliant. Also, R.H. Donnelley is
requesting assurances from all software vendors from which it has purchased or
licensed or from which it may purchase or license software that such software
will correctly process all date information at all times. Through continued
modifications to existing software and conversions to new software, R.H.
Donnelley believes that it will be able to mitigate its exposure to the Year
2000 problem before 2000. However, if continued modifications and conversions
are not made, or are not timely completed, the Year 2000 problem could have a
material adverse effect on R.H. Donnelley's operating results and financial
condition.
R.H. Donnelley plans to have its Year 2000 compliance program substantially
completed by the end of 1998. In 1997, R.H. Donnelley spent approximately $0.5
million addressing the Year 2000 problem and has budgeted expenditures of
approximately $4.4 million for 1998 and approximately $0.3 million for 1999.
These costs will be funded through cash flows from operations.
In addition, it is possible that certain computer systems or software
products with which R.H. Donnelley's computer systems, software, databases or
other technology interface or are integrated of those or third parties with
which R.H. Donnelley maintains business relationships may not accept input of,
store, manipulate and output dates in the year 2000 or thereafter without error
or interruption. R.H. Donnelley has conducted a review of its computer systems
to attempt to identify ways in which its systems could be affected by interface-
87
<PAGE> 90
or integration-related or third-party problems in correctly processing date
information. R.H. Donnelley is also querying applicable third parties with which
it maintains business relationships as to their progress in identifying and
addressing their Year 2000 problems. However, there can be no assurance that
R.H. Donnelley will identify all interface- or integration-related or
third-party date-handling problems in advance of their occurrence, or that R.H.
Donnelley will be able to successfully remedy problems that are discovered. The
expenses of R.H. Donnelley's efforts to identify and address such problems, or
the expenses or liabilities to which R.H. Donnelley may become subject as a
result of such problems, could have a material adverse effect on its operating
results and financial condition.
DIVIDENDS
R.H. Donnelley as a subsidiary of D&B did not pay dividends directly to D&B
shareholders. The net proceeds of R.H. Donnelley's anticipated borrowings under
the senior subordinated notes and the credit facility discussed above will be
dividended to D&B. R.H. Donnelley will also dividend substantially all of its
cash to D&B prior to or on the Distribution Date for transfer to New D&B in
connection with the Distribution. Subject to the approval of R.H. Donnelley's
Board of Directors, following the Distribution, it is anticipated that R.H.
Donnelley will initially pay a quarterly dividend of $0.035 per share.
88
<PAGE> 91
R.H. DONNELLEY
BUSINESS
GENERAL
R.H. Donnelley is the largest independent marketer of yellow pages
advertising in the United States. R.H. Donnelley sold over $1 billion of
advertising in 1997 and is the leader in all of its major markets. R.H.
Donnelley is also a leading provider of pre-press publishing services for yellow
pages directories (including a majority of the directories for which it sells
advertising). In operation since 1886, R.H. Donnelley provides services to over
300 directories, including providing advertising sales for over 270 directories
in 13 states which collectively had a total circulation of approximately 30
million in 1997. R.H. Donnelley has a diversified customer base of approximately
500,000 businesses, many of which rely on yellow pages directories as their
principal or sole form of advertising. Over the past three years, R.H. Donnelley
achieved average advertising sales renewal rates ranging from 100% to 90% in its
major markets.
R.H. Donnelley is strategically aligned on a long-term basis with the
established, leading telephone service provider (the incumbent telephone
company) in each of its major markets, which include Illinois (including
Chicago), New York State (including New York City), Nevada (primarily Las Vegas)
and Florida (including Tallahassee and Orlando). R.H. Donnelley provides yellow
pages advertising marketing and sales in these markets through long-term
contractual agreements with subsidiaries of these incumbent telephone companies,
which are Ameritech, Bell Atlantic and Sprint. R.H. Donnelley has the DonTech
partnership with no expiration date with a subsidiary of Ameritech and long-term
contracts with subsidiaries of Sprint and Bell Atlantic which extend through
2004 and 2005, respectively. These relationships allow the incumbent telephone
companies to gain the benefits of R.H. Donnelley's long-term presence in its
markets, yellow pages marketing and publishing expertise, established
infrastructure and performance-focused, non-union sales force. R.H. Donnelley
benefits from its relationship with the incumbent telephone company's yellow
pages directories, which are the leading directories in terms of numbers of
advertisers, utilization and distribution in the majority of R.H. Donnelley's
markets.
Management believes that R.H. Donnelley's competitive strengths and
business strategy position it to take advantage of significant business
opportunities and anticipated industry trends, including (i) opportunities for
yellow pages advertising sales growth within R.H. Donnelley's existing markets,
(ii) the potential outsourcing of yellow pages operations by local telephone
companies (including those companies with which R.H. Donnelley is currently
affiliated) in new markets and (iii) the increasing use of the yellow pages
sales channel across other advertising media (such as yellow pages advertising
on cable television and the Internet).
Management has completed several actions that it believes will position
R.H. Donnelley for these future growth opportunities and improve earnings
stability, including the completion of R.H. Donnelley's new publishing center in
Raleigh, North Carolina and the restructuring of the DonTech relationship with
Ameritech and the rescheduling of related directories. In addition, R.H.
Donnelley sold the majority of its proprietary yellow pages operations as part
of its primary objective of focusing on long-term alliances with major telephone
service providers. In December 1997, R.H. Donnelley sold for $122 million its
East Coast proprietary yellow pages operations, which included 34 directories in
certain mid-Atlantic states. In May 1996, R.H. Donnelley sold for $22 million
its West Coast proprietary yellow pages operations, which included 18
directories in southern California.
R.H. Donnelley's principal executive offices are located at One
Manhattanville Road, Purchase, NY 10577 and its telephone number is (914)
933-6400.
COMPETITIVE STRENGTHS
R.H. Donnelley believes that it has been able to maintain long-term
telephone company relationships through the quality of its sales force and
marketing techniques and its advanced technology and product innovation. Based
on these attributes and its extensive yellow pages expertise, R.H. Donnelley has
been able to successfully manage significant strategic relationships with
incumbent telephone companies and complex
89
<PAGE> 92
systems integration issues inherent in its business. R.H. Donnelley believes
that it has a strong competitive advantage in each of its markets primarily due
to the following:
LARGEST INDEPENDENT MARKETER OF YELLOW PAGES ADVERTISING. In 1997, R.H.
Donnelley sold over $1 billion of yellow pages advertising, accounting for
approximately 9% of the $11.4 billion of yellow pages advertising sold in the
U.S. All other independent marketers of yellow pages advertising combined
accounted for only 7% of total U.S. yellow pages advertising sales. R.H.
Donnelley's market leadership position, scale of operations and long-standing
relationships with incumbent telephone companies uniquely position it to
capitalize on future growth opportunities by expanding its current relationships
into new markets, developing new relationships and capturing potential yellow
pages outsourcing opportunities.
HIGH RATES OF ADVERTISING SALES RENEWAL. R.H. Donnelley has achieved high
and stable advertising sales renewal rates, with three-year averages of
approximately 91% overall, including 92% in Chicago, 90% in New York City, 100%
in Las Vegas and 90% in Orlando. For many businesses, yellow pages directory
advertising is their principal or sole form of advertising due to its relatively
low cost, widespread distribution, lasting presence and high consumer usage.
These positive features are especially present in an incumbent telephone
company's directories, which are frequently a company's first choice for
advertising. R.H. Donnelley is affiliated with the incumbent local telephone
company in each of its major markets.
LEADING DIRECTORY MARKET SHARES. In each of R.H. Donnelley's major
markets, the directory with which R.H. Donnelley is affiliated has a commanding
market share, based on directory usage. These markets include Chicago (with a
98% market share in 1996, the latest date for which data is available), New York
City (97% in 1997) and Las Vegas (95%), as well as R.H. Donnelley's markets in
New York State (90%) and other regions. Management believes that these
directories will continue to enjoy a leading market share because of their
affiliation with incumbent telephone companies and high-quality, and R.H.
Donnelley's established relationships with advertisers and economies of scale.
Management also believes that these directories are utilized more than any other
directories by both residential and business consumers in its major markets.
STABLE UNDERLYING BUSINESS FUNDAMENTALS. R.H. Donnelley's advertising
sales and profitability are derived primarily from yellow pages advertising
sales pursuant to long-term contractual relationships with subsidiaries of
several of the country's largest local telephone service providers. Its
relationships with Ameritech, Bell Atlantic and Sprint began in 1908, 1909 and
1980, respectively. Furthermore, R.H. Donnelley's business is characterized by a
high level of recurring advertising sales, leading market share positions and
the geographic and industry diversification of its over 500,000 advertisers.
Management believes that these underlying business fundamentals, in combination
with R.H. Donnelley's predictable cost structure and capital expenditure
requirements, provide R.H. Donnelley with a solid base from which to grow.
EXPERIENCED MANAGEMENT TEAM. R.H. Donnelley has assembled a strong and
experienced management team at both the corporate and operating levels. R.H.
Donnelley's management is responsible for R.H. Donnelley's long-term
relationships with incumbent telephone companies and its market leadership
position. In addition, R.H. Donnelley's account managers average over 12 years
of experience in the yellow pages industry.
BUSINESS STRATEGY
R.H. Donnelley has identified its major sources of potential growth and has
developed a business strategy to capitalize on these opportunities. Principal
elements of R.H. Donnelley's business strategy include:
GROW THE CORE BUSINESS IN EXISTING MARKETS. R.H. Donnelley has developed
specialized sales and marketing techniques and infrastructure in order to
increase advertising sales. R.H. Donnelley leverages sophisticated information
systems, access to the local telephone company's extensive telephone subscriber
90
<PAGE> 93
databases and its experienced sales management team in order to (i) better
identify, segment and prioritize profitable sales opportunities, (ii) ensure
continuity with existing customers, (iii) identify the most cost-effective
customer contact method (e.g., mail, telephone or on-site visits) and (iv)
assign industry specialists, who offer customized products and services, to
certain high-potential accounts. Furthermore, R.H. Donnelley attempts to
increase advertisements and revenue per customer by (i) encouraging the use of
larger advertisements, specialized type face and other graphic features,
including color, (ii) increasing the number of headings in directories and (iii)
providing advertising sales for regional, neighborhood, bilingual and foreign
language directories that complement directories with greater geographic
coverage.
CAPTURE POTENTIAL OUTSOURCING OPPORTUNITIES IN NEW MARKETS. Management
anticipates that local telephone service providers, which accounted for 84% of
total U.S. yellow pages advertising sales in 1997, will outsource an increasing
amount of their non-core business, including yellow pages advertising sales and
publishing. Management believes that R.H. Donnelley is well positioned to
leverage certain of its existing strategic relationships into new markets and to
capture other potential outsourcing opportunities due to (i) R.H. Donnelley's
extensive experience and proven track record of success, (ii) its ability to
provide a cost-effective, integrated yellow pages advertising and publishing
solution and (iii) its neutral position as a non-competitor to local telephone
service providers. In addition, in May 1998 R.H. Donnelley became the exclusive
advertising sales agent, beginning with directories published in 1999, for Bell
Atlantic's 26 yellow pages directories in the greater Buffalo area, which were
previously outsourced by Bell Atlantic to another third-party marketer.
LEVERAGE EXISTING ACCOUNT RELATIONSHIPS TO NEW ADVERTISING MEDIA. R.H.
Donnelley's strategy is to provide its small to medium-sized advertisers with an
integrated solution to their advertising needs. For many of these businesses,
printed yellow pages advertising historically has been their principal form of
advertising, and in recent years an increasing number have been seeking to
expand their advertising programs. R.H. Donnelley began selling yellow
pages-style advertising for airing on cable television stations in 1995 and for
placement on the Internet in late 1996, and management believes that it has the
opportunity to expand its core business and cross-sell these growing advertising
media to its current customer base. In addition, certain local telephone
companies have expressed an interest in using R.H. Donnelley's established
yellow pages sales channels to market their telecommunications products and
services in the current, more competitive local telephone market.
CAPITALIZE ON NEW TECHNOLOGY AND ESTABLISHED INFRASTRUCTURE. In mid-1997,
R.H. Donnelley completed its $40 million publishing center in Raleigh, North
Carolina. R.H. Donnelley believes that this investment and its established
infrastructure are critical to marketing its yellow pages advertising sales and
publishing services to potential outsourcers. The new publishing center has
enabled R.H. Donnelley to reduce publishing costs by approximately 30% and
publishing cycle times by approximately 50%. The publishing center utilizes
state-of-the-art digital technology to support the entire yellow pages
advertising sales and publishing process on an integrated basis. Other
significant yellow pages publishers (primarily telephone service providers) are
making similar investments, but management believes that these publishers are at
varying stages in the conversion process which R.H. Donnelley has already
completed. Management also believes that smaller yellow pages publishers may
decide not to undertake such a significant investment program.
INDUSTRY OVERVIEW
The U.S. yellow pages advertising industry generated sales of approximately
$11.4 billion in 1997, with a total circulation for all yellow pages directories
of 489 million. Total advertising sales have increased steadily throughout the
nineties. Over the past five calendar years, yellow pages advertising sales in
the U.S. increased at a compound annual growth rate of 4.1%. Despite a decrease
in the number of U.S. yellow pages publishers from 298 in 1996 to 275 in 1997
due to consolidation in the industry, the number of directories printed
increased by 2.7%.
Yellow pages advertising is considered to be "directional" advertising, as
it is frequently used by consumers who are ready to purchase a product or
service. Industry sources estimate that over 80% of consumers who contact a
merchant after referring to a yellow pages directory intend to make a purchase
and
91
<PAGE> 94
approximately 60% actually do. These sources also estimate that a yellow pages
directory is present in 97% of all U.S. households, and that adults refer to a
yellow pages directory an average of 1.8 times weekly. Yellow pages directories
are easily accessible to consumers, with directories distributed to every home
and business that maintains a telephone.
Yellow pages advertising is the preferred form of advertising for many
businesses and service organizations due to its relatively low cost, broad
demographic and geographic distribution, enduring presence and high consumer
usage rates. While overall advertising tends to track an economy's business
cycle, yellow pages advertising tends to be more stable and does not fluctuate
widely with economic cycles due to its frequent use by small to medium-sized
businesses, often as their principal or sole form of advertising. Yellow pages
advertising also often comprises an integral part of the local advertising
strategy for larger national companies operating at the local level. Yellow
pages advertisers have a strong incentive to increase the size of and renew
their advertisements because advertisements are placed within each heading of a
directory based first on size and then on seniority.
Yellow pages directory advertising competes with all other forms of media
advertising, including television, radio, newspapers and direct mail. Sales from
all forms of advertising in the U.S. rose 6.3% to $186.7 billion in 1997, and
all categories of major media, including yellow pages, posted gains in
advertising sales. The yellow pages' share of the overall U.S. advertising
market remained steady at 6.1% in 1997 and its share of overall U.S. local
advertising sales remained relatively constant at 12.6% in 1997 compared with
12.8% in 1996.
The yellow pages directory business tends to be concentrated among a few
directory publishers. The eight leading yellow pages publishers (all of which
are telephone companies and with three of which R.H. Donnelley maintains
strategic relationships) had total U.S. directory-related advertising sales of
$10.4 billion in 1997 (including advertising sales attributable to R.H.
Donnelley), up from $9.8 billion in 1996. The limited number of yellow pages
publishers reflects the high start-up costs (e.g., marketing, sales, printing,
distribution and database) associated with producing a new directory and the
substantial infrastructure required to maintain a directory. The independent
publisher segment of the yellow pages industry (publishers that are not
affiliated with any telephone company) is highly fragmented and comprises only a
small portion of the total market for yellow pages advertising sales in the U.S.
Independent publishers' share of that market was 6.8% in 1997, compared to 6.4%
in 1996.
In 1997, yellow pages publishers continued to embrace the Internet as a
publishing platform. Most yellow pages publishers, including those with which
R.H. Donnelley maintains strategic relationships, have launched either a
national or regional directory.
DIRECTORY PRODUCTS
R.H. Donnelley's yellow pages advertising sales and publishing activities
principally relate to consumer, business-to-business, neighborhood, foreign
language and bilingual directories. The directories with which R.H. Donnelley is
affiliated are designed to meet the informational needs of consumers and the
advertising needs of local, regional and national businesses. These directories
typically consist of a listing of businesses by various headings along with
advertisements, as well as sections providing community reference information,
including a map of the local area, emergency and governmental telephone numbers
and information regarding area activities and attractions. This additional
information enhances the directory's value as a consumer resource.
Although R.H. Donnelley's focus is primarily on printed directories, it has
begun selling yellow pages-based advertising for new media, including cable
television (in 1995) and the Internet (in 1996). While management believes that
paper-based directory products will account for a significant majority of R.H.
Donnelley's revenues for the foreseeable future, R.H. Donnelley has made modest
commitments related to the growing electronic commerce market. In addition,
DonTech has an agreement to serve as Ameritech's exclusive local advertising
sales agent if Ameritech begins a yellow pages Internet directory in Illinois or
northwest Indiana.
92
<PAGE> 95
Advertising space is sold throughout a directory, including in column and
display forms in the yellow pages, on color tab inserts, and via promotional
coupons and image advertisements on the back and inside covers. The Company
offers its customers a full range of customized artwork and enhanced features,
including full-color advertisements, which allows R.H. Donnelley to create
customized advertising programs that meet its customers' specific needs.
The directories with which R.H. Donnelley is affiliated are an efficient
source of information for consumers. With over 2,000 headings on average, these
directories are both comprehensive and conveniently organized. Management
believes that the completeness and accuracy of the data in these directories is
essential to consumer acceptance. Management believes that these directories
benefit in this regard from R.H. Donnelley's strategic relationships with
incumbent telephone companies, since R.H. Donnelley is assured of receiving
updated telephone account information from these telephone companies prior to
the publication of directories.
ADVERTISING SALES AND MARKETING
Yellow pages advertising is a direct sales business which requires both
servicing existing accounts and developing new customers. R.H. Donnelley has
direct overall sales responsibility for directories in its Bell Atlantic and
Sprint markets and participates in setting sales strategy for DonTech and
evaluating its results. The incumbent telephone companies with which R.H.
Donnelley maintains a strategic relationship typically include billing for
yellow pages advertising as part of a customer's telephone bill, which
management believes has historically benefitted R.H. Donnelley by resulting in
lower bad debt expenses related to yellow pages advertising at these telephone
companies than is experienced by independent yellow pages publishers.
R.H. Donnelley's sophisticated information systems and access to the local
telephone company's extensive telephone subscriber databases are critical to
maintaining and expanding its advertising sales. New listing updates from these
telephone subscriber databases are loaded into R.H. Donnelley's information
systems in order to identify and segment potentially profitable new advertising
sales opportunities, based on an analysis of these accounts' business and
potential advertising programs. For existing accounts, the linkage of these
telephone subscriber databases with R.H. Donnelley's information systems
facilitates the development of customer-specific sales strategies in current and
future sales campaigns as well as customer billing by the local telephone
company.
R.H. Donnelley's multi-tiered sales force and different customer contact
methods reflect its focus on segmenting and prioritizing yellow pages
advertising sales opportunities. R.H. Donnelley's advertising sales activities
are comprised of the following four tiers: (i) direct mail and telemarketing for
broad-based lead generation, coverage of small advertisers and order
confirmation, (ii) telephone sales by commissioned representatives who contact
small and medium-sized advertisers which require minimal ongoing account
maintenance, (iii) on-site visits by sales personnel who cover medium and large
existing and potential customers within specified geographic regions and (iv)
extensive coverage of major accounts by senior account executives. R.H.
Donnelley's sales force also includes industry specialists (who cover certain
potentially high-return accounts and offer customized products and services for
certain industries, such as health care) as well as bilingual sales
representatives who cover Bell Atlantic's foreign language and bilingual
directories in New York City. Generally, R.H. Donnelley's sales management
emphasizes sales person continuity in R.H. Donnelley's account relationships.
R.H. Donnelley employs approximately 500 sales representatives in its Bell
Atlantic, Sprint and Cincinnati markets. R.H. Donnelley's approximately 80
account managers average over 12 years of experience in the yellow pages
industry. R.H. Donnelley's and DonTech's sales forces are entirely non-union,
which is a cost advantage when compared to the union sales forces that are
typical of other marketers of yellow pages advertising, including major
telephone service providers. The non-union status of R.H. Donnelley's and
DonTech's sales forces also provides R.H. Donnelley and DonTech with greater
latitude to redeploy sales personnel. In addition, R.H. Donnelley's and
DonTech's sales forces are largely compensated based on performance, which
aligns the sales forces' incentives with important success factors to R.H.
Donnelley's
93
<PAGE> 96
business, including account generation and retention. On average, approximately
55% of R.H. Donnelley's sales force compensation is variable and based on
performance.
R.H. Donnelley has well-established practices and procedures to manage the
productivity and effectiveness of its sales force. All of R.H. Donnelley's new
account representatives complete a formal seven week training program, which
consists of both classroom training and field training. Sales personnel may also
receive specialized in-campaign training, which is typically based on actual
feedback received during a sales campaign. Furthermore, R.H. Donnelley has
supplied its New York sales force with laptop computers and customized software,
which facilitates the sales process by allowing sales personnel to access
account information, interactively design advertisements and provide advertising
contracts while at a customer's location. R.H. Donnelley is considering
distributing laptop computers with such customized software to its sales forces
in other markets. The ability of R.H. Donnelley's sales management, sales force
and marketing department to successfully integrate their efforts and increase
advertising sales was recently demonstrated in New York City by R.H. Donnelley's
advertising sales for Bell Atlantic's foreign and bilingual neighborhood
directories, which were introduced during 1996 and 1997. Through advertising
sales for these five directories (which are Chinese-language and
Spanish-English), management estimates that R.H. Donnelley generated incremental
advertising sales of $4.0 million in 1997 in a mature urban market.
PUBLISHING AND PRODUCTION
R.H. Donnelley is a leading provider of pre-press publishing services for
yellow pages directories, including advertisement creation, sales contract
management, listing database management, sales reporting and commissions,
pagination, billing services and imaging. R.H. Donnelley recently completed its
$40 million publishing center in Raleigh, North Carolina, which utilizes
custom-designed, state-of-the-art digital technology and relational databases to
support the entire yellow pages advertising sales and publishing process on an
integrated basis, from lead generation and sales presentation to advertisement
creation and printer-ready final output. R.H. Donnelley also has a graphics
center in Dunmore, Pennsylvania which produces artwork for the majority of
advertisements and specialty pages included in the directories for which R.H.
Donnelley provides publishing services. The Dunmore graphics center is
electronically integrated with the Raleigh publishing center. R.H. Donnelley has
staffs of approximately 300 and 140 employees at the Raleigh publishing center
and the Dunmore graphics center, respectively. R.H. Donnelley provides
publishing services for certain Ameritech and Sprint directories, among others,
pursuant to agreements that extend through 2003 and 2004, respectively.
The Raleigh publishing center has enabled R.H. Donnelley to reduce
publishing costs by approximately 30% and publishing cycle times (i.e., the
number of days between closing of an advertising sales campaign and delivery to
the printer of a printer-ready paper or electronic version of the related
directory) by approximately 50%, and, with minimal additional infrastructure and
the potential addition of a second shift, would be able to expand its processing
capacity to meet additional demand. In 1997, the Raleigh and Dunmore centers
provided publishing services for 232 directories, produced over 82,000 pages of
directory advertising, created over 200,000 new advertisements and handled
approximately 1.5 million service order transactions for new or changed
telephone listings.
R.H. Donnelley also offers a broad range of production services to its
publishing-center customers once a printer-ready paper or electronic version of
their directory has been completed. These production services principally
involve R.H. Donnelley's contracting on behalf of these customers with outside
parties for printing, binding and distribution of directories. R.H. Donnelley
provides production services in varying degrees for Sprint.
NEW ADVERTISING MEDIA AND PRODUCTS
In 1995 R.H. Donnelley developed a cable advertising product known as
Yellow Pages Television(R) or YPTV(R). YPTV(R) advertisements begin with a
customer's printed yellow pages advertisement, which is enhanced by audio
content and graphics and aired in a 15 or 30 second spot on cable television.
R.H. Donnelley contracts with an outside party for creation of the YPTV(R)
advertisements. R.H. Donnelley
94
<PAGE> 97
currently offers YPTV(R) in selected Bell Atlantic and Sprint/CenDon markets.
R.H. Donnelley combines marketing of printed yellow pages advertisements with
YPTV(R) in these markets, so that only purchasers of printed advertisements may
advertise through YPTV(R). Management believes that this bundling of YPTV(R)
with printed yellow pages advertisements, together with R.H. Donnelley's
purchases of cable television airtime in bulk, increase this product's
cost-effectiveness to customers. YPTV(R) also typically refers the cable viewer
to the customer's printed yellow pages advertisement, which management expects
will stimulate usage of print directories. R.H. Donnelley generated net revenue
from YPTV(R) of $2.9 million in 1997 in its Bell Atlantic and Sprint/CenDon
markets.
R.H. Donnelley has gained useful experience in electronic commerce
advertising sales by acting as local sales agent for yellow pages advertising
placed on Digital City, an Internet service provided by America Online in
Cincinnati. In addition, DonTech has an agreement to serve as Ameritech's
exclusive local advertising sales agent if Ameritech begins a yellow pages
Internet directory in Illinois or northwest Indiana. The Internet complements
traditional directory advertising, particularly by making it possible to update
a yellow pages advertisement as needed, as compared with typically once a year
for a printed advertisement. Management believes that R.H. Donnelley's
experience in successfully selling advertising in new classified directory
products, such as foreign language and bilingual directories, and its extensive
reach into the business and consumer sectors in its markets will augment its
ability to capitalize on emerging electronic directory opportunities.
In addition, certain local telephone companies have expressed an interest
in using R.H. Donnelley's established yellow pages sales channels to market
their telecommunications products and services in the current, more competitive
local telephone market. These products and services, which would be sold in
conjunction with yellow pages advertising, may include long distance, cellular
telephone, 800 numbers, Internet access and remote call forwarding.
STRATEGIC ALLIANCES/MARKETS SERVED
R.H. Donnelley has major relationships with Ameritech, Bell Atlantic and
Sprint (through their subsidiaries) and provides each of them with advertising
sales and/or publishing services. These relationships and R.H. Donnelley's
proprietary operations encompass directories in 13 states and such major
metropolitan areas as New York City, Chicago, Las Vegas and Orlando.
INFORMATION ON DIRECTORIES AND DIRECTORY ADVERTISEMENTS BY RELATIONSHIP (1997)
<TABLE>
<CAPTION>
AMERITECH(1) BELL ATLANTIC SPRINT/CENDON
------------ ------------- -------------
<S> <C> <C> <C>
Primary markets served............................ IL, IN NY NV, FL, VA, NC
Number of directories............................. 125 95 44
Total circulation (in millions)................... 10.3 14.7 5.5
Directory market share(2)......................... 79%(3) 90% 83%
Advertising sales account retention rate(4)....... 90% 82% 90%
Advertising sales renewal rate(5)................. 93% 88% 97%
Number of advertisers............................. 139,000 158,000(6) 63,000
Number of paid ads and paid listings.............. 787,000 721,000(6) 223,000
Average ad sales(7)............................... $566 $550(6) $767
</TABLE>
- ---------------
(1) Through the DonTech partnership.
(2) Represents R.H. Donnelley's percentage of yellow pages usage in the
applicable markets, based on third-party surveys.
(3) Represents directory market share for the Chicago metropolitan service area
in 1996; 1997 data not available.
(4) Represents the percentage of R.H. Donnelley's 1996 customers who advertised
in 1997 in the applicable markets, excluding customers who disconnected
their telephone service. Including customers who
95
<PAGE> 98
disconnected their telephone service, R.H. Donnelley's advertising sales
account retention rates were 86%, 78% and 87% in its Ameritech, Bell
Atlantic and Sprint/CenDon markets, respectively.
(5) Represents the percentage of R.H. Donnelley's 1996 advertising sales in the
applicable markets which were generated in 1997 from R.H. Donnelley's 1996
customers in those markets.
(6) Represents 1996 data; 1997 data not available.
(7) Average ad sales represents total advertising sales divided by the number of
advertisements sold.
AMERITECH
R.H. Donnelley's relationship with telephone companies currently owned by
Ameritech began in 1908 with the Chicago Telephone Company. Since then, R.H.
Donnelley has had a variety of contractual relationships with Ameritech
including, beginning in 1984, a series of partnerships (collectively referred to
as DonTech or the DonTech partnership). The current partnership arrangement
reflects R.H. Donnelley's goal of lengthening its agreements to provide
advertising sales and/or publishing services and was structured without an
expiration date in exchange for contractual reductions in R.H. Donnelley's
percentage share of DonTech's profits. These contractual reductions were
completed in 1997, and management does not anticipate any further such
reductions. DonTech is a 50/50 general partnership between R.H. Donnelley and a
subsidiary of Ameritech. DonTech is the exclusive local advertising sales agent
for Ameritech's 125 printed and any future Internet directories in Illinois
(including the metropolitan Chicago area) and northwest Indiana. DonTech
receives a sales commission on advertising sold and recognizes these commissions
upon the signing of the related advertising contract. R.H. Donnelley receives
50% of the profits generated by DonTech on a monthly basis and also receives
directly from the Ameritech entity which publishes the directories fees which
are tied to advertising sales generated by DonTech. Income from these sources is
included in R.H. Donnelley's income statement as income from partnerships and
related fees. Under a separate agreement that extends through 2003, R.H.
Donnelley provides publishing services for Ameritech's Illinois and northwestern
Indiana directories on a negotiated basis; the related fees are recognized by
R.H. Donnelley as revenue. Historically, a disproportionate number of the
directories that DonTech sells advertising for were published in the fourth
quarter, which led to inefficient use of DonTech's sales force and R.H.
Donnelley's publishing infrastructure during other times of the year. In 1997, a
two-year program was initiated to reschedule the related directories'
publication dates in order to publish these directories more evenly throughout
the year.
Subject to regulatory approval and certain other conditions, Ameritech
recently agreed to merge with SBC Communications Inc. ("SBC"), which currently
conducts all of its yellow pages operations in-house. The proposed merger will
not trigger any change to the current contractual relationship governing the
DonTech partnership and the related yellow pages directories, and SBC has
announced it intends to continue using the Ameritech brand if such merger is
completed. There can be no assurance as to what effect, if any, the proposed
merger will have on the DonTech partnership.
BELL ATLANTIC
R.H. Donnelley's relationship with Bell Atlantic began with a contract with
New York Telephone Company entered into in 1909. Under the current agreement,
which was entered into in 1985 and extends through 2005, R.H. Donnelley is the
exclusive advertising sales agent for 95 Bell Atlantic directories, which cover
substantially all of New York State, including New York City. The arrangement
was originally with a subsidiary of NYNEX; with the Bell Atlantic/NYNEX merger
in 1997, the agreement was transferred to a subsidiary of Bell Atlantic. R.H.
Donnelley earns a sales commission on advertising sold and recognizes these
commissions upon the signing of the related advertising contract.
R.H. Donnelley's management expects to pursue potential outsourcing
opportunities with Bell Atlantic. Bell Atlantic currently operates in-house
yellow pages advertising sales operations in its service territory between Maine
and West Virginia, except in New York State. In May 1998, R.H. Donnelley became
the exclusive advertising sales agent, beginning with directories published in
1999, for Bell Atlantic's 26 yellow pages directories in the greater Buffalo
area, which previously were outsourced by Bell Atlantic to another
96
<PAGE> 99
third-party marketer. The contract between R.H. Donnelley and the Bell Atlantic
entity which governs their relationship in the greater Buffalo area continues
until 2002, unless extended by Bell Atlantic.
In 1997, R.H. Donnelley sold its East Coast proprietary yellow pages
business to an independent yellow pages publisher and as part of the sale
agreement agreed to forego certain business activities, including yellow pages
advertising sales, in certain mid-Atlantic states until September 1999.
SPRINT
The Sprint relationship began in 1980 when R.H. Donnelley began publishing
directories for predecessors or affiliates of Central Telephone Company and
United Telephone Company of Florida, both since merged into Sprint. R.H.
Donnelley has a partnership with a Sprint affiliate, known as the CenDon
partnership and sales agency agreements with CenDon and a separate affiliate of
Sprint.
CENDON. R.H. Donnelley and a Sprint affiliate each have a 50%
interest in CenDon, which publishes directories in selected Sprint markets
in Nevada (primarily Las Vegas), Florida (including Tallahassee), Virginia
and North Carolina. R.H. Donnelley earns a 50% share of CenDon's income and
records its share as income from partnerships, a component of R.H.
Donnelley's operating income.
In addition to the profits derived from its 50% stake in CenDon, R.H.
Donnelley has a contract to provide advertising sales, marketing and
customer service on an exclusive basis to CenDon and receives a sales
commission for its services. R.H. Donnelley recognizes these commissions as
revenues upon the publication of the related directory. The current CenDon
partnership agreement and the sales agency agreement were entered into in
1988 and extend through 2004. Pursuant to the partnership agreement, R.H.
Donnelley also provides publishing services to CenDon. Fees for these
publishing services are based upon a separate price schedule which extends
through 1999; these fees are recognized by R.H. Donnelley as revenue.
SPRINT SALES AGENCY. In the greater Orlando marketplace, R.H.
Donnelley is Sprint's exclusive advertising sales agent and earns sales
commissions on local advertising and national advertising sales. R.H.
Donnelley recognizes these commissions as revenues upon the signing of the
related advertising contract. The contract which governs this relationship
was entered into in 1994 and extends through 2004, but could be terminated
as a result of a five year performance review required no later than March
1, 2000. R.H. Donnelley also provides publishing services to Sprint
pursuant to this contract; the related fees are recognized by R.H.
Donnelley as revenues. The publishing services portion of this contract
could be terminated if a new price schedule for such services is not agreed
upon by March 1, 2000.
CINCINNATI PROPRIETARY OPERATION
R.H. Donnelley launched a proprietary directory operation in Cincinnati,
northern Kentucky and southeast Indiana in September 1997 and expects to publish
its first directories in the fall of 1998. R.H. Donnelley's historical agreement
with Cincinnati Bell to act as yellow pages advertising sales agent for
Cincinnati Bell's directories expired in August 1997. R.H. Donnelley's
Cincinnati Bell operations accounted for approximately 3% of its operating
income before corporate overhead and depreciation and amortization expense in
1997, which was partially offset by the start-up costs involved with the
proprietary directory operations in 1997.
COMPETITION
There is competition for yellow pages advertising sales to varying degrees
in R.H. Donnelley's markets from the sales forces of yellow pages publishers
with which R.H. Donnelley is not affiliated. These yellow pages publishers
include local telephone companies with which R.H. Donnelley does not maintain a
contractual relationship, independent publishers (publishers that are not
affiliated with any telephone company) and national yellow pages sales agents.
In the majority of its markets, R.H. Donnelley benefits from its long-term
contractual relationships with affiliates of the largest potential competitor in
a directory market, the incumbent local telephone company. The market position
of incumbent local telephone companies may be
97
<PAGE> 100
impacted by the Telecommunications Act of 1996, which effectively opened local
telephone markets to increased competition. There is also competition for
advertising sales from other media, including newspapers, magazines, radio,
direct mail, on-line information services, television and cable television, and
advances in technology have brought to the industry new participants, new
products and new channels, including increasing use of the Internet as an
advertising media.
INTELLECTUAL PROPERTY
R.H. Donnelley owns and controls a number of trade secrets, confidential
information, trademarks, service marks, tradenames, copyrights and other
intellectual property rights which, in the aggregate, are of material importance
to R.H. Donnelley's business. Management believes that the "R.H. Donnelley" name
and related names, marks and logos are material to R.H. Donnelley's business.
R.H. Donnelley is licensed to use certain technology and other intellectual
property rights owned and controlled by others, and, similarly, other companies
are licensed to use certain technology and other intellectual property rights
owned and controlled by R.H. Donnelley. R.H. Donnelley considers its trademarks,
service marks, databases, software and other intellectual property to be
proprietary and R.H. Donnelley relies on a combination of copyright, trademark,
trade secret, non-disclosure and contract safeguards for protection. R.H.
Donnelley also benefits from the use of both the phrase "yellow pages" and the
walking fingers logo, which R.H. Donnelley believes to be in the public domain
in the United States.
The names of R.H. Donnelley's products and services referred to herein are
trademarks, servicemarks or registered trademarks or servicemarks owned by R.H.
Donnelley.
EMPLOYEES
As of March 31, 1998, R.H. Donnelley had approximately 1,417 full-time
employees, of which approximately 300 and 140 were employed at the Raleigh
publishing center and the Dunmore graphics center, respectively. This number
does not include the employees of DonTech. None of R.H. Donnelley's employees
are covered by collective bargaining agreements. R.H. Donnelley considers its
relations with its employees to be good and it has not experienced any strikes
or work stoppages.
PROPERTIES
R.H. Donnelley's operations are conducted from 21 leased locations in 7
states. R.H. Donnelley leases approximately 74,000 square feet for its
administrative headquarters and offices located in Purchase, New York, and
approximately 72,000 square feet in New York, New York for its New York sales
force. R.H. Donnelley's new $40 million Raleigh publishing center is located in
a 55,500 square foot building which R.H. Donnelley leases. R.H. Donnelley leases
20,000 square feet in a building for its graphics center in Dunmore,
Pennsylvania.
LITIGATION
Pursuant to the Distribution Agreement, New D&B will assume and indemnify
R.H. Donnelley against any payments to be made in respect of the IRI Action
under the Indemnity and Joint Defense Agreement, the 1996 Distribution Agreement
or otherwise, including any ongoing legal fees and expenses related thereto.
R.H. Donnelley is involved in legal proceedings, claims and litigation arising
in the ordinary course of business. In the opinion of R.H. Donnelley management,
the outcome of such legal proceedings will not materially affect R.H.
Donnelley's financial position or results of operations.
98
<PAGE> 101
R.H. DONNELLEY
MANAGEMENT AND EXECUTIVE COMPENSATION
Frank R. Noonan is currently Senior Vice President of D&B and President of
R.H. Donnelley and will be the President and Chief Executive Officer and a
director of R.H. Donnelley after the Distribution. The other directors of R.H.
Donnelley immediately after the Distribution will include certain persons who
are not currently directors of D&B. See "-- R.H. Donnelley Board of Directors".
In addition to Mr. Noonan, the other executive officers of R.H. Donnelley
immediately after the Distribution will be drawn from the current management of
D&B and R.H. Donnelley. See "-- R.H. Donnelley Corporation Executive Officers".
R.H. DONNELLEY CORPORATION BOARD OF DIRECTORS
Immediately after the Distribution, R.H. Donnelley expects to have a Board
of Directors composed of approximately six directors.
Frank R. Noonan, who has been President of R.H. Donnelley since August 1991
will be a Director of R.H. Donnelley. Mr. Noonan also has been Senior Vice
President of D&B since August 1991 and a Director of D&B since April 1998. From
May 1989 to August 1991, he was Senior Vice President -- Finance of Dun &
Bradstreet Information Services. As of March 6, 1998, Mr. Noonan was 55 years
old.
In addition to Mr. Noonan, R.H. Donnelley expects that Diane P. Baker,
William G. Jacobi, Robert Kamerschen, Carol J. Parry and Barry Lawson Williams
will be Directors of R.H. Donnelley after the Distribution. Ms. Baker was Senior
Vice President, Chief Financial Officer and Treasurer of the New York Times
Company from 1995 to 1998. Mr. Jacobi is currently the Executive Vice President
of Cognizant Corporation and Chairman of Nielsen Media Research, Inc. and has
held those positions since 1996. Mr. Kamerschen is currently Chairman and Chief
Executive Officer of ADVO Inc. and has held those positions since 1988. Ms.
Parry is currently the Executive Vice President of Chase Manhattan Bank's
Community Development Group and has held that position since 1996. Mr. Williams
is currently President and Founder of Williams Pacific Ventures, a venture
capital consulting firm, and has held such position since 1988.
DIRECTOR'S COMPENSATION
It is anticipated that, following the Distribution, the Board of Directors
of R.H. Donnelley will adopt a non-employee director compensation program
providing for certain cash payments and deferred stock and stock option grants
annually to each non-employee director. Pursuant to this program, it is expected
that each non-employee director annually will receive a cash retainer of
$20,000, 7,500 deferred shares of common stock of R.H. Donnelley, an option to
purchase an additional 7,500 shares, $1,000 for each meeting attended and $2,000
for each committee of the Board of Directors chaired. In addition, it is
expected that each new non-employee director will receive a $25,000 deferred
stock grant under this program upon his or her appointment to the Board of
Directors. It is anticipated that such deferred share and option grants will
vest over a period of three years of future service, subject to acceleration in
the event of death, disability or retirement of the applicable non-employee
director or change in control of R.H. Donnelley.
COMMITTEES OF R.H. DONNELLEY CORPORATION BOARD OF DIRECTORS
Following the Distribution, R.H. Donnelley's Board of Directors will have
an Audit & Finance Committee, a Compensation and Benefits Committee and a
Nominating Committee. The Audit & Finance Committee will, among other matters;
recommend independent certified public accountants; review the scope of the
audit examination, including fees and staffing; review the independence of the
auditors; review and approve non-audit services provided by the auditors, if
any; review findings and recommendations of the auditors and management's
response; and review the internal audit and control function. The Compensation &
Benefits Committee will, among other matters: review management compensation
programs; approve compensation changes for executive officers; review
compensation changes for senior management; and administer stock plans for
management. The Nominating Committee will, among other matters: review potential
candidates and nominate persons to the Board of Directors for positions on the
Board of Directors and the various committees of the Board.
99
<PAGE> 102
R.H. DONNELLEY CORPORATION EXECUTIVE OFFICERS
Listed below is certain information as to the executive officers who have
been selected to serve after the Distribution.
<TABLE>
<CAPTION>
NAME, POSITION WITH R.H. DONNELLEY AND AGE BIOGRAPHICAL DATA
------------------------------------------ -----------------
<S> <C>
Frank R. Noonan, 55.......................... See information under "-- R.H. Donnelley
President and Chief Executive Officer Corporation Board of Directors".
Philip C. Danford, 54........................ Senior Vice President, R.H. Donnelley, 3/98
Senior Vice President and Chief Financial to present; Vice President and Treasurer,
Officer D&B, 9/92 to 3/98; Assistant Treasurer, D&B,
8/88 to 9/92.
Frederick J. Groser, 43...................... Executive Vice President -- Telco Operations,
Senior Vice President R.H. Donnelley, 7/97 to present; Executive
Vice President -- Strategic Marketing and New
Business Development, R.H. Donnelley, 10/95
to 7/97; Vice President and General
Manager -- Sprint Operations, R.H. Donnelley,
2/94 to 10/95; Vice President -- Sales, R.H.
Donnelley, 12/90 to 2/94.
Alexander R. Marasco, 45..................... Executive Vice President -- Operations and
Senior Vice President Systems Development, R.H. Donnelley, 10/95 to
present; Senior Vice President -- Planning,
R.H. Donnelley, 4/91 to 10/95; Assistant Vice
President of Strategic Planning, R.H.
Donnelley, 3/89 to 4/91.
Judith A. Norton, 54......................... Senior Vice President -- Human Resources,
Senior Vice President -- Human Resources R.H. Donnelley, 1/98 to present; Senior Human
Resources Consultant, 1/97 to 1/98; Senior
Vice President Human Resources, Chase
Manhattan Bank, 4/96 to 1/97; Senior Vice
President and Director of Staffing and
Development, Chemical Bank, 1/91 to 4/96.
David C. Swanson, 43......................... Executive Vice President and General
Senior Vice President Manager -- Proprietary Operations, R.H.
Donnelley, 7/97 to present; Executive Vice
President -- Sales, R.H. Donnelley, 10/95 to
7/97; Vice President and General
Manager -- Cincinnati Operations, R.H.
Donnelley, 9/93 to 10/95; Assistant Vice
President -- Operations, R.H. Donnelley, 1/93
to 9/93; General Sales Manager, R.H.
Donnelley, 1/92 to 1/93.
Stephen B. Wiznitzer, 47..................... Senior Vice President and General Counsel,
Senior Vice President and General Counsel R.H. Donnelley, 6/97 to present; Counsel,
NYNEX Corporation, 12/89 to 6/97.
</TABLE>
COMPENSATION OF R.H. DONNELLEY CORPORATION EXECUTIVE OFFICERS
The following table discloses the compensation paid by D&B or R.H.
Donnelley for services rendered to D&B or R.H. Donnelley in 1997 by R.H.
Donnelley's Chief Executive Officer and by each of the persons who are
anticipated to be one of the four other most highly compensated executive
officers of R.H. Donnelley following the Distribution. During the period
presented, the individuals were compensated in accordance with D&B's plans and
policies. In that connection, stock-based compensation described in the
following tables is expressed in shares of D&B Common Stock, the numbers of
which will be adjusted following the Distribution.
100
<PAGE> 103
See also "Relationship Between The New Dun & Bradstreet Corporation and R.H.
Donnelly Corporation After the Distribution -- Employee Benefits Agreements".
SUMMARY COMPENSATION TABLE
FOR SERVICES WITH D&B OR R.H. DONNELLEY
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ----------------------- ---------
(a) (b) (c) (d) (e) (g) (j)
(f) SECURITIES (h)
RESTRICTED UNDERLYING LONG-TERM
NAME AND PRINCIPAL STOCK OPTIONS/ INCENTIVE ALL OTHER
POSITION WITH SALARY BONUS(1) OTHER ANNUAL AWARD(S) SARS(3) PAYOUTS COMPENSATION(4)
R.H. DONNELLEY YEAR ($) ($) COMPENSATION(2)($) ($) ($) ($) ($)
------------------ ---- ------- -------- ------------------ ---------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank R. Noonan............ 1997 347,000 346,913 11,630 0 33,480 0 11,863
Chief Executive Officer
Philip C. Danford.......... 1997 265,000 238,582 0 0 27,571 0 8,787
Senior Vice President and
Chief Financial Officer
Frederick J. Groser........ 1997 195,000 41,288 29 0 13,340 0 6,238
Senior Vice President
Alexander R. Marasco....... 1997 207,900 91,200 6,590 0 13,340 0 6,742
Senior Vice President
David C. Swanson........... 1997 195,000 41,927 2,162 0 13,340 0 6,238
Senior Vice President
</TABLE>
- ---------------
(1) The 1997 bonus amounts shown were earned with respect to that year and paid
in 1998. Included in the 1997 amounts is one-half of the 1997 performance
share grant made under the Key Employees Performance Unit Plan for D&B and
its subsidiaries (the "PUP") and earned with respect to 1997. The remaining
one-half of the 1997 performance share grant is payable, pro rata, at the
time of the reorganization of D&B into two separate companies, based on
performance goals covering the period January, 1997 through the Distribution
Date and will be reflected as long-term incentive payouts in the Summary
Compensation Table appearing in R.H. Donnelley's 1999 Proxy Statement. The
performance shares will be paid in unrestricted shares of D&B Common Stock.
(2) Amounts shown represent reimbursement for taxes paid by the named executive
officers with respect to D&B-directed spousal travel and personal use of
automobiles and/or reimbursement for certain other expenses.
(3) Amounts shown represent the number of non-qualified stock options granted in
1997.
(4) Amounts shown represent aggregate annual D&B contributions for the account
of each named executive officer under the Dun & Bradstreet Profit
Participation Plan (the "PPP") and the Profit Participation Benefit
Equalization Plan (the "PPBEP"), which plans are open to employees of D&B
and certain subsidiaries. The PPP is a tax-qualified defined contribution
plan and the PPBEP is a non-qualified plan that provides benefits to
participants in the PPP equal to the amount of D&B contributions that would
have been made to the participant's PPP account but for certain Federal tax
laws.
OPTION GRANTS ON D&B COMMON STOCK TO
R.H. DONNELLEY CORPORATION EXECUTIVES IN LAST FISCAL YEAR
The following table provides information on fiscal year 1997 grants of
options to the named R.H. Donnelley executives to purchase shares of D&B Common
Stock. Upon the Distribution, options to acquire D&B Common Stock will become
options to purchase R.H. Donnelley Common Stock. See "Relationship Between The
New Dun & Bradstreet Corporation and R.H. Donnelley Corporation After the
Distribution -- Employee Benefits Agreement".
101
<PAGE> 104
OPTION GRANTS/SAR GRANTS IN LAST FISCAL YEAR TO PURCHASE D&B COMMON STOCK
<TABLE>
<CAPTION>
(a) (b) (d) (e) (f)
NUMBER OF (c)
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/SARS GRANTED TO EXERCISE OR GRANT DATE
GRANTED(1) EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE(2)
NAME (#) FISCAL YEAR ($/SHARE) DATE ($)
---- ------------ ------------ ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Frank R. Noonan........... 33,480 1.06% 30.2188 12/22/07 186,818
Philip C. Danford......... 13,340 0.42% 30.2188 12/22/07 74,437
14,231 0.45% 27.7188 7/16/07 75,140
Frederick J. Groser....... 13,340 0.42% 30.2188 12/22/07 74,437
Alexander R. Marasco...... 13,340 0.42% 30.2188 12/22/07 74,437
David C. Swanson.......... 13,340 0.42% 30.2188 12/22/07 74,437
</TABLE>
- ---------------
(1) Amounts shown represent the number of non-qualified stock options, without
tandem stock appreciation rights ("SARs"), granted in 1997. Options may not
be exercised for at least one year after grant and may then be exercised in
installments of 25% of the grant amount each year until they are 100%
vested. Payments for all options must be made in full upon exercise in cash
or D&B Common Stock. The option holder may elect to have shares of D&B
Common Stock issuable upon exercise withheld by D&B to pay withholding taxes
due. The options shown for Mr. Noonan include Limited SARs in tandem with
the options. Limited SARs are exercisable only if and to the extent that the
related option is exercisable and are exercisable only during the 30-day
period following the acquisition of at least 20% of the outstanding D&B
Common Stock pursuant to a tender or exchange offer not made by D&B. Each
Limited SAR permits the holder to receive cash equal to the excess over the
related option exercise price of the highest price paid pursuant to a tender
or exchange offer for D&B Common Stock which is in effect at any time during
the 60 days preceding the date upon which the Limited SAR is exercised.
Limited SARs can be exercised regardless of whether D&B supports or opposes
the offer.
(2) Grant date present value is based on the Black-Scholes option valuation
model applied to D&B prior to the Distribution, which makes the following
material assumptions for the July 16, 1997 grant and the December 22, 1997
grant: an expected stock-price volatility factor of 20.0%, a risk-free rate
of return of 6.06% and 5.71% respectively, a dividend yield of 3.3% and a
weighted average exercise date of 4.5 years from date of grant. These
assumptions may or may not be fulfilled. The amounts shown cannot be
considered predictions of future value. In addition, the options will gain
value only to the extent the stock price exceeds the option exercise price
during the life of the option.
102
<PAGE> 105
AGGREGATE D&B OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR END D&B
OPTION VALUES
The following table provides information on option exercises in 1997 by the
named executives of R.H. Donnelley and the value of each such executive's
unexercised options to acquire D&B Common Stock at December 31, 1997. See also,
"Relationship Between The New Dun & Bradstreet Corporation and R.H. Donnelley
Corporation After the Distribution -- Employee Benefits Agreement".
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED IN-THE-MONEY
D&B OPTIONS/SARS AT D&B OPTIONS/SARS AT
SHARES ACQUIRED VALUE FISCAL YEAR-END(#) FISCAL YEAR-END(2)($)
ON EXERCISE REALIZED(1) --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Frank R. Noonan......... 0 0 110,593 87,423 1,148,181 455,428
Phillip C. Danford...... 0 0 34,630 38,432 282,389 143,915
Frederick J. Groser..... 0 0 24,337 34,450 225,489 176,427
Alexander R. Marasco.... 0 0 35,774 38,384 375,216 206,047
David C. Swanson........ 2,604 25,640 15,803 33,502 131,210 169,679
</TABLE>
- ---------------
(1) Amounts shown represent the value realized upon the exercise of stock
options during 1997, which equals the difference between the exercise price
of the options and the average of the high and low market price of the
underlying D&B Common Stock on the exercise date.
(2) The values shown equal the difference between the exercise price of
unexercised in-the-money options and the closing market price of the
underlying D&B Common Stock at December 31, 1997. Options are in-the-money
if the fair market value of the D&B Common Stock exceeds the exercise price
of the option.
LONG-TERM D&B INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(a) (b) (f)
(c) (d) (e)
PERFORMANCE ESTIMATED FUTURE PAYOUTS
NO. OF OR OTHER UNDER NON-STOCK PRICE-BASED PLANS(2)
SHARES, UNITS PERIOD UNTIL ---------------------------------------
OR OTHER MATURATION THRESHOLD(#) TARGET(#) MAXIMUM(#)
NAME RIGHTS(1)(#) OR PAYOUT (0%) (100%) (200%)
---- ------------- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Frank R. Noonan............... 11,200 Two Years 0 11,200 22,400
Phillip C. Danford............ 4,460 Two Years 0 4,460 8,920
Frederick J. Groser........... 4,460 Two Years 0 4,460 8,920
Alexander R. Marasco.......... 4,460 Two Years 0 4,460 8,920
David C. Swanson.............. 4,460 Two Years 0 4,460 8,920
</TABLE>
- ---------------
(1) Amounts shown represent the performance shares granted under the Dun &
Bradstreet Performance Unit Plan for the intended performance period of
1998-1999. At the time of the Distribution, each named executive officer
will receive a pro rata award of performance shares based on achievement of
performance goals from January, 1998 through the Distribution Date. Earned
pro rata awards will be paid in unrestricted shares of D&B Common Stock.
(2) Pro rata awards may range from 0 to 200% of the targeted performance shares
based on achievements within a range of performance goals.
103
<PAGE> 106
RETIREMENT BENEFITS
The following table sets forth the estimated aggregate annual benefits
payable under D&B's Retirement Account Plan, Supplemental Executive Benefit Plan
("SEBP") and Pension Benefit Equalization Plan ("PBEP") to persons in specified
average final compensation and credited service classification upon retirement
at age 65. Amounts shown in the table include U.S. Social Security benefits and
benefits payable under predecessor plans of D&B which would be deducted in
calculating benefits payable under these plans. These aggregate annual
retirement benefits do not increase as a result of additional credited service
after 20 years.
<TABLE>
<CAPTION>
ESTIMATED AGGREGATE ANNUAL RETIREMENT BENEFIT
AVERAGE ASSUMING CREDITED SERVICE OF:
FINAL --------------------------------------------------
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS
------------ -------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$ 550,000.................................. $275,000 $ 330,000 $ 330,000 $ 330,000
700,000................................. 350,000 420,000 420,000 420,000
850,000................................. 425,000 510,000 510,000 510,000
1,000,000................................. 500,000 600,000 600,000 600,000
1,300,000................................. 650,000 780,000 780,000 780,000
1,600,000................................. 800,000 960,000 960,000 960,000
1,900,000................................. 950,000 1,140,000 1,140,000 1,140,000
</TABLE>
The number of years of credited service under the plans as of December 31,
1997 of Messrs. Noonan and Danford are 8 and 9, respectively.
Compensation, for the purpose of determining retirement benefits, consists
of salary, wages, regular cash bonuses, commissions and overtime pay. Severance
pay, contingent payments and other forms of special remuneration are excluded.
Bonuses included in the Summary Compensation Table are normally not paid until
the year following the year in which they are accrued and expensed; therefore,
compensation for purposes of determining retirement benefits varies from the
Summary Compensation Table amounts in that bonuses expensed in the previous
year, but paid in the current year, are part of retirement compensation in the
current year, and current year's bonuses accrued and included in the Summary
Compensation Table are not. For 1997, compensation for purposes of determining
retirement benefits also varies from the Summary Compensation Table in that the
amounts shown in the "Bonus" column include performance share payouts under the
PUP, which are not creditable compensation under the retirement plans.
For the reasons discussed above, compensation for determining retirement
benefits for the named executive officers differed by more than 10% from the
amounts shown in the Summary Compensation Table. 1997 compensation for purposes
of determining retirement benefits for Messrs. Noonan and Danford was $382,000
and $285,333, respectively.
Average final compensation is defined as the highest average annual
compensation during five consecutive twelve-month periods in the last ten
consecutive twelve-month periods of the member's credited service. Members vest
in their accrued retirement benefit upon completion of five years of service.
The benefits shown in the table above are calculated on a straight-life annuity
basis.
The Retirement Account Plan, together with the PBEP, provides retirement
income based on a percentage of annual compensation. The percentage of
compensation allocated annually ranges from 3% to 12.5%, based on age and
credited service. Amounts allocated also receive interest credits based on
30-year Treasuries with a minimum interest credit rate of 3%. Executives close
to or eligible to retire as of January 1, 1997 will receive the higher of
benefits provided by the final pay formula in effect prior to 1997 or the
Retirement Account formula.
The SEBP provides retirement benefits in addition to the benefits provided
under the Retirement Account Plan and the PBEP. The SEBP has the effect of
increasing the retirement benefits under the Retirement Account Plan and the
PBEP to the amounts depicted in the preceding table. The SEBP provides maximum
benefits after 20 years. Executives close to or eligible for retirement, as
approved by the Chairman and Chief Executive Officer, will receive maximum
benefits after 15 years.
Messrs. Groser, Marasco and Swanson participate in the Retirement Account
Plan and the PBEP, but do not participate in the SEBP.
104
<PAGE> 107
R.H. DONNELLEY
SECURITY OWNERSHIP BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
After the Distribution, shares of D&B Common Stock will be shares of R.H.
Donnelley Common Stock. The following table sets forth the number of shares of
D&B Common Stock, par value $1.00 per share, that are expected to be
beneficially owned after the Distribution by each of the R.H. Donnelley
directors, by each of the executive officers named in the R.H. Donnelley Summary
Compensation Table above, by each person known by R.H. Donnelley to beneficially
own more than 5% of the outstanding D&B Common Stock as of April 30, 1998 (the
"5% Owners"). Stock ownership information is based on (i) the number of shares
of D&B Common Stock held by directors and executive officers as of April 30,
1998 and (ii) the number of shares held by 5% Owners, based upon a Schedule 13G
filed with the SEC by such 5% Owners. Information regarding shares subject to
options reflects shares of D&B Common Stock subject to options as of April 30,
1998 and exercisable within 60 days thereafter, all of which will be converted
into options that are exercisable into shares of R.H. Donnelley Common Stock.
See "Relationship Between The New Dun & Bradstreet Corporation and R.H.
Donnelley Corporation After the Distribution -- Employee Benefits Agreement".
Unless otherwise stated, the indicated persons have sole voting and investment
power over the shares listed. Percentages are based upon the number of shares of
D&B Common Stock outstanding at April 30, 1998, plus, where applicable, the
number of shares of D&B Common Stock that the indicated person or group had a
right to acquire within 60 days of such date. The mailing address for each of
the R.H. Donnelley directors and executive officers listed below is One
Manhattanville Road, Purchase, NY 10577.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL NUMBER OF SHARES
OWNER AND NATURE OF OWNERSHIP PERCENT OF CLASS(1)
------------------------------ ---------------------------------------------------- -------------------
<S> <C> <C> <C>
Frank R. Noonan................... 8,219 Owned
111,545 Rights to Acquire Within 60 Days(2)
----------
119,764 --
Phillip C. Danford................ 178 Owned
34,630 Rights to Acquire Within 60 Days(2)
----------
36,410 --
----------
Frederick J. Groser............... 1,325 Owned
24,337 Rights to Acquire Within 60 Days(2)
----------
25,662 --
Alexander R. Marasco.............. 10,102 Owned
35,774 Rights to Acquire Within 60 Days(2)
----------
45,876 --
David C. Swanson.................. 1,748 Owned
16,805 Rights to Acquire Within 60 Days(2)
----------
18,553 --
All Directors and Executive
Officers as a Group............. 23,174 Owned
223,081 Rights to Acquire Within 60 Days(2)
----------
246,265 --
Harris Associates L.P. and its 10.12%
general partner, Harris
Associates, Inc. ............... 17,374,440(3)
Two North LaSalle Street,
Ste. 500
Chicago, Illinois 60602-3790
AMVESCAP, PLC and certain of its 7.02%
subsidiaries.................... 12,048,320(4)
11 Devonshire Square
London EC2M 4YR
England
</TABLE>
- ---------------
(1) Represents ownership of less than 1% of the outstanding D&B Common Stock
unless otherwise indicated.
(2) Represents stock options granted under a D&B plan.
(3) Harris Associates L.P. ("Harris") and its sole general partner, Harris
Associates, Inc.("Harris Inc."), jointly filed a Schedule 13G with the SEC
on February 11, 1998. This Schedule 13G shows that Harris,
105
<PAGE> 108
a registered investment adviser, had as of December 31, 1997, shared voting
power over 14,903,640 shares of D&B Common Stock. Of such shares, Harris had
sole dispositive power over 5,171,140 shares and shared dispositive power
over 9,732,500 shares. In addition, Harris and Harris Inc. jointly filed an
amendment to their Schedule 13G with the SEC on April 9 , 1998. This
amended Schedule 13G shows that Harris had as of March 31, 1998 shared
voting power over 17,374,440 shares of D&B Common Stock. Of such shares,
Harris had sole dispositive power over 5,435,440 shares and shared
dispositive power over 11,939,000 shares.
(4) AMVESCAP PLC and its subsidiaries, AVZ, Inc. (a holding company), AIM
Management Group Inc. (a holding company), INVESCO, Inc. (a holding
company), INVESCO North American Holdings, Inc. (a holding company), INVESCO
Capital Management, Inc. (a registered investment adviser), INVESCO Funds
Group, Inc. (a registered investment adviser), INVESVCO Management &
Research, Inc. (a registered investment adviser), and INVESCO Realty
Advisers, Inc. (a registered investment adviser), jointly filed a Schedule
13G with the SEC on February 11, 1998. This Schedule 13G shows that these
companies had, as of December 31, 1997, shared voting power and shared
dispositive power over 12,048,320 shares.
AVAILABLE INFORMATION
New D&B has filed with the SEC a Registration Statement on Form 10 with
respect to the shares of New D&B Common Stock to be received by the stockholders
of D&B in the Distribution. This Information Statement does not contain all of
the information set forth in the Form 10 Registration Statement and the exhibits
thereof, to which reference is hereby made. Statements made in this Information
Statement as to the contents of any contract, agreement or other documents
referred to herein are not necessarily complete. With respect to each such
contract, agreement or other documents filed as an exhibit to the Registration
Statement, reference is made to such exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. The Registration Statement and the exhibits thereto
may be inspected and copied at the public reference facilities maintained by the
SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Regional Offices of the SEC at Seven World Trade Center, Suite 1300, New York,
New York 10048 and in the Citicorp Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60662. In addition, copies of the Registration Statement and
related documents may be obtained through the SEC Internet address at
http://www.sec.gov.
REPORTS OF THE NEW DUN & BRADSTREET CORPORATION
After the Distribution, New D&B will be required to comply with the
reporting requirements of the Exchange Act and, in accordance therewith, to file
reports, proxy statements and other information with the SEC.
After the Distribution, such reports, proxy statements and other
information may be inspected and copied at the public reference facilities of
the SEC listed above and obtained by mail from the SEC as described above.
Application will be made for listing the shares of New D&B Common Stock on the
NYSE and, when such shares of New D&B Common Stock commence trading on the NYSE,
such reports, proxy statements and other information will be available for
inspection at the offices of the NYSE, 20 Broad Street, New York, New York
10005.
Additionally, New D&B will be required to provide annual reports,
containing audited financial statements, to its stockholders in connection with
its annual meetings of stockholders.
106
<PAGE> 109
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE DUN & BRADSTREET CORPORATION
Consolidated Financial Statements (Unaudited):
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997.......................... F-2
Consolidated Balance Sheets at March 31, 1998 and December
31, 1997............................................... F-3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1998 and 1997.......................... F-4
Notes to Unaudited Consolidated Financial Statements...... F-5
Report of Independent Accountants........................... F-9
Financial Statements:
Consolidated Statements of Operations for the Three Years
Ended December 31, 1997................................ F-10
Consolidated Balance Sheets at December 31, 1997 and
1996................................................... F-11
Consolidated Statements of Cash Flows for the Three Years
Ended December 31, 1997................................ F-12
Consolidated Statements of Shareholders' Equity for the
Three Years Ended December 31, 1997.................... F-13
Notes to Consolidated Financial Statements................ F-14
THE NEW DUN & BRADSTREET CORPORATION
Report of Independent Accountants........................... F-36
Financial Statements:
Balance Sheet as of April 14, 1998........................ F-37
Notes to Financial Statements............................. F-38
R.H. DONNELLEY INC.
Financial Statements (Unaudited):
Statements of Operations for the Three Months Ended March
31, 1998 and 1997...................................... F-39
Balance Sheets at March 31, 1998 and December 31, 1997.... F-40
Statements of Cash Flows for the Three Months Ended March
31, 1998 and 1997...................................... F-41
Notes to Unaudited Financial Statements................... F-42
Report of Independent Accountants........................... F-44
Financial Statements:
Statements of Operations for the Three Years Ended
December 31, 1997...................................... F-45
Balance Sheets at December 31, 1997 and 1996.............. F-46
Statements of Cash Flows for the Three Years Ended
December 31, 1997...................................... F-47
Statements of Changes in Shareholder's Equity for the
Three Years Ended December 31, 1997.................... F-48
Notes to Financial Statements............................. F-49
DONTECH
Report of Independent Accountants........................... F-61
Financial Statements:
Combined Statements of Operations for the Three Years
Ended December 31, 1997................................ F-62
Combined Balance Sheets as of December 31, 1997 and
1996................................................... F-63
Combined Statements of Cash Flows for the Three Years
Ended December 31, 1997................................ F-64
Combined Statements of Partners' Capital for the Three
Years Ended December 31, 1997.......................... F-65
Notes to Combined Financial Statements.................... F-66
</TABLE>
F-1
<PAGE> 110
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
-------- ----------
(AMOUNTS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Operating Revenues.......................................... $471.1 $ 436.4
------ --------
Operating Costs............................................. 145.3 133.2
Selling and Administrative Expenses......................... 197.6 190.1
Depreciation and Amortization............................... 35.4 35.2
------ --------
Operating Income............................................ 92.8 77.9
------ --------
Interest Income............................................. 0.9 0.1
Interest Expense............................................ (7.3) (21.2)
Other Expense -- Net........................................ (6.5) (1.4)
------ --------
Non-Operating Expense -- Net................................ (12.9) (22.5)
------ --------
Income from Continuing Operations before Provision for
Income Taxes.............................................. 79.9 55.4
Provision for Income Taxes.................................. 28.4 18.9
------ --------
Income from Continuing Operations........................... 51.5 36.5
Income (Loss) from Discontinued Operations, Net of Income
Taxes of $8.1 for 1998 and Income Tax Benefit of $0.7 for
1997...................................................... 12.0 (1.6)
------ --------
Income before Cumulative Effect of Accounting Changes....... 63.5 34.9
Cumulative Effect of Accounting Changes, Net of Income Tax
Benefit of $104.1......................................... -- (127.0)
------ --------
Net Income (Loss)........................................... $ 63.5 $ (92.1)
====== ========
Basic Earnings (Loss) Per Share of Common Stock:
Continuing Operations..................................... $ 0.30 $ 0.21
Discontinued Operations................................... 0.07 (0.01)
------ --------
Before Cumulative Effect of Accounting Changes............ 0.37 0.20
Cumulative Effect of Accounting Changes, Net of Income Tax
Benefit................................................ -- (0.74)
------ --------
Basic Earnings (Loss) Per Share of Common Stock............. $ 0.37 $ (0.54)
====== ========
Diluted Earnings (Loss) Per Share of Common Stock:
Continuing Operations..................................... $ 0.30 $ 0.21
Discontinued Operations................................... 0.07 (0.01)
------ --------
Before Cumulative Effect of Accounting Changes............ 0.37 0.20
Cumulative Effect of Accounting Changes, Net of Income Tax
Benefit................................................ -- (0.73)
------ --------
Diluted Earnings (Loss) Per Share of Common Stock........... $ 0.37 $ (0.53)
====== ========
Dividends Paid Per Share of Common Stock.................... $ 0.22 $ 0.22
------ --------
Weighted Average Number of Shares Outstanding -- Basic...... 171.2 171.2
------ --------
Weighted Average Number of Shares Outstanding -- Diluted.... 174.1 172.7
------ --------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE> 111
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- --------------
(DOLLAR AMOUNTS IN MILLIONS,
ASSETS
EXCEPT PER SHARE DATA)
<S> <C> <C>
Current Assets
Cash and Cash Equivalents................................... $ 116.6 $ 81.8
Accounts Receivable -- Net of Allowance of $45.2 in 1998 and
$39.4 in 1997............................................. 474.5 454.5
Other Current Assets........................................ 244.8 269.2
--------- --------
Total Current Assets.............................. 835.9 805.5
--------- --------
Non-Current Assets
Investments and Notes Receivable............................ 12.8 12.3
Property, Plant and Equipment............................... 306.9 317.2
Prepaid Pension Costs....................................... 194.6 190.7
Computer Software........................................... 128.7 128.0
Goodwill.................................................... 186.9 194.6
Other Non-Current Assets.................................... 139.6 141.2
--------- --------
Total Non-Current Assets.......................... 969.5 984.0
Net Assets of Discontinued Operations....................... 282.5 296.5
--------- --------
Total Assets................................................ $ 2,087.9 $2,086.0
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes Payable............................................... $ 364.8 $ 451.5
Accrued and Other Current Liabilities....................... 449.2 472.0
Unearned Subscription Income................................ 640.4 573.5
--------- --------
Total Current Liabilities......................... 1,454.4 1,497.0
Postretirement and Postemployment Benefits.................. 387.1 389.0
Other Non-Current Liabilities............................... 390.7 388.3
Minority Interest........................................... 301.9 301.9
Shareholders' Equity
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 -- 188,420,996
shares for 1998 and 1997.................................. 188.4 188.4
Capital Surplus............................................. 80.2 80.2
Retained Earnings........................................... 396.2 405.2
Treasury Stock, at cost, 16,850,856 and 17,853,652 shares
for 1998 and 1997, respectively........................... (906.5) (964.0)
Cumulative Translation Adjustment........................... (167.1) (162.6)
Minimum Pension Liability Adjustment........................ (37.4) (37.4)
--------- --------
Total Shareholders' Equity.................................. (446.2) (490.2)
--------- --------
Total Liabilities and Shareholders' Equity.................. $ 2,087.9 $2,086.0
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 112
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
------------------
1998 1997
------- -------
(DOLLAR AMOUNTS IN
MILLIONS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)........................................... $ 63.5 $ (92.1)
Less: Income (Loss) from Discontinued Operations............ 12.0 (1.6)
------- -------
Income (Loss) from Continuing Operations.................. 51.5 (90.5)
Reconciliation of Net Income (Loss) to Net Cash
Provided by Operating Activities:
Cumulative Effect of Accounting Change, Net of Income Tax
Benefits............................................... -- 127.0
Depreciation and Amortization............................. 35.4 35.2
Postemployment Benefit Payments........................... (5.1) (9.9)
Net Decrease in Accounts Receivable....................... (25.3) (78.3)
Accrued Income Taxes...................................... 38.5 (10.4)
Increase in Long Term Liabilities......................... 4.5 30.0
Net Decrease in Other Working Capital Items............... 44.9 118.0
Other..................................................... (1.3) 1.8
------- -------
Net Cash Provided by Operating Activities:
Continuing Operations..................................... 143.1 122.9
Discontinued Operations................................... 28.4 59.9
------- -------
Net Cash Provided by Operating Activities................... 171.5 182.8
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Marketable Securities......................... 3.9 0.1
Payments for Marketable Securities.......................... (4.3) --
Capital Expenditures........................................ (10.0) (4.0)
Additions to Computer Software and Other Intangibles........ (16.1) (13.1)
Net Cash Used in Investing Activities of Discontinued
Operations................................................ (2.5) (8.7)
Other....................................................... (7.6) (8.9)
------- -------
Net Cash Used In Investing Activities....................... (36.6) (34.6)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of Dividends........................................ (37.7) (37.7)
Payments for Purchase of Treasury Shares.................... -- (1.7)
Net Proceeds from Exercise of Stock Options................. 22.6 13.1
Decrease in Short-term Borrowings........................... (85.9) (99.2)
Other....................................................... (0.2) (0.3)
------- -------
Net Cash Used in Financing Activities....................... (101.2) (125.8)
------- -------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... 1.1 2.2
------- -------
Increase in Cash and Cash Equivalents....................... 34.8 24.6
Cash and Cash Equivalents, Beginning of Quarter............. 81.8 127.8
------- -------
Cash and Cash Equivalents, End of Quarter................... $ 116.6 $ 152.4
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 113
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 1 INTERIM CONSOLIDATED FINANCIAL STATEMENTS
These interim consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the consolidated financial statements and related notes of The Dun &
Bradstreet Corporation's (the "Company") 1997 Annual Report on Form 10-K. The
consolidated results for 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 1998
presentation.
NOTE 2 ACCOUNTING CHANGES
Effective January 1, 1997, the Company changed its revenue recognition
method for its Credit Information Services business to recognize revenue as
products and services are used by its customers. Previously, the Company
recognized revenue ratably over the contract period. This change is consistent
with the Company's change in focus from a sales contract basis to a product
usage basis in order to drive revenue growth and increase customer satisfaction.
Additionally, the Company changed its revenue recognition method for its
Moody's Investors Service ("Moody's") business to recognize revenue over the
service period from previously recognizing revenues and costs at the time of
billing. In the opinion of management, these accounting changes bring revenue
recognition methods more in line with the economics of the business and provide
a better measure of operating results.
In accordance with Accounting Principles Board Opinion ("APB") No. 20,
"Accounting Changes," the cumulative effect of changing the accounting for
certain of the Company's revenue recognition policies resulted in a pre-tax,
non-cash charge of $214.7 million ($127.0 million after tax or $.74 per share
basic, $.73 per share diluted) in the quarter ended March 31, 1997.
The Company also changed certain of its revenue recognition methods for its
Marketing Information Services and Receivable Management Services businesses to
recognize revenue over the service period from previously recognizing revenues
and costs at the time of shipment or billing. Previously, the Company included
the effect of these changes as a part of the cumulative effect of accounting
changes in the Consolidated Statements of Operations effective January 1, 1997.
Subsequent to the initial issuance of these financial statements and after
discussions with the staff of the Securities and Exchange Commission, it was
determined that the accounting for these changes in revenue recognition methods
be amended and therefore applied retroactively. The effects of such changes
decreased the pre-tax non-cash charge by $40.0 million to $214.7 million ($127.0
million after tax or $0.74 share basic, $0.73 per share diluted). The effects of
these changes increased net income by $23.6 in the quarter ended March 31, 1997
and increased basic and fully diluted earnings per share for the first quarter
of 1997 by $0.14.
NOTE 3 REORGANIZATION AND DISCONTINUED OPERATIONS
On December 17, 1997, the Board of Directors of the Company announced a
plan, subject to receiving a favorable ruling from the Internal Revenue Service,
to separate into two publicly traded companies -- The New Dun & Bradstreet
Corporation ("New D&B") and R.H. Donnelley Corporation ("R.H. Donnelley"). The
separation (the "Distribution") of the two companies will be accomplished
through a tax-free dividend of a new entity comprised of the Company's Risk
Management Services segment (Moody's Investors Service ("Moody's") and Dun &
Bradstreet, the operating company ("D&B")). The new entity, New D&B, will be
known as "The Dun & Bradstreet Corporation" and the continuing entity will
change its name to
F-5
<PAGE> 114
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
"R.H. Donnelley Corporation" and will consist of the Company's Directory
Information Services segment (R.H. Donnelley Inc., the operating company, and
the DonTech partnership). In April 1998, the Company received a favorable ruling
from the Internal Revenue Service with respect to the tax-free treatment of the
Distribution. The transaction is expected to be completed in the summer of 1998.
Due to the relative significance of the Risk Management Services segment, the
transaction will be accounted for as a reverse spin-off, and as such the Risk
Management Services and Directory Information Services segments have been
classified as continuing and discontinued operations, respectively.
For purposes of governing certain of the ongoing relationships among the
Company and R.H. Donnelley as a result of the Distribution, the companies will
enter into various agreements, including a Distribution Agreement, Tax
Allocation Agreement, Employee Benefits Agreement, Intellectual Property
Agreement, Shared Transaction Services Agreement, Data Services Agreement and
Transition Services Agreements.
Pursuant to Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," the consolidated financial statements of the Company have been
reclassified to reflect the Company's Directory Information Services segment as
discontinued operations.
For financial reporting purposes the assets and liabilities of the
Directory Information Services segment have been separately classified on the
balance sheet as "Net Assets of Discontinued Operations." A summary of these
assets and liabilities at March 31, 1998 and December 31, 1997 was as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Current assets................................ $ 89.8 $ 92.7
Total assets.................................. 341.5 362.3
Current liabilities........................... 57.8 64.6
Total liabilities............................. 59.0 65.8
Net assets of discontinued operations......... 282.5 296.5
</TABLE>
The net operating results of the Directory Information Services segment
have been reported in the caption "Income (Loss) from Discontinued Operations,"
in the consolidated statements of operations. Summarized operating results for
the Directory Information Services segment for the quarters ended March 31, were
as follows:
<TABLE>
<CAPTION>
1998 1997*
----- -----
<S> <C> <C>
Operating revenues.......................................... $41.5 $19.0
Income before provision for income taxes.................... 20.1 (2.3)
Net income.................................................. 12.0 (1.6)
</TABLE>
- ---------------
* 1997 included the results of the East Coast proprietary operations of R.H.
Donnelley.
NOTE 4 RECONCILIATION OF WEIGHTED AVERAGE SHARES
<TABLE>
<CAPTION>
(SHARE DATA IN THOUSANDS) 1998 1997
- ------------------------- ------- -------
<S> <C> <C>
Weighted average number of shares -- basic.................. 171,153 171,189
Dilutive effect of shares issuable under stock options,
restricted stock and performance unit plans............... 2,731 1,257
Adjustment of shares applicable to stock options exercised
during the period and performance unit plans.............. 220 204
------- -------
Weighted average number of shares -- diluted................ 174,104 172,650
======= =======
</TABLE>
F-6
<PAGE> 115
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
As required by Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings per Share," the Company has provided a reconciliation of basic
weighted average shares to diluted weighted average shares within the table
outlined above. The conversion of diluted shares has no impact on the Company's
operating results. All options outstanding at March 31, 1998 and 1997 were
included in the computation of diluted earnings per share because the options'
exercise prices were less than the average market price of the Company's common
stock. The Company's options generally expire 10 years after the initial grant
date.
NOTE 5 COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This statement requires that all items recognized under
accounting standards as components of comprehensive earnings be reported in a
financial statement for the period in which they are recognized and displayed
with the same prominence as other financial statements. This statement also
requires that financial statements for prior periods are reclassified. The
Company's total comprehensive income for the three month period ended March 31,
was as follows:
<TABLE>
<CAPTION>
1998 1997
----- ------
<S> <C> <C>
Net income (loss)........................................... $63.5 $(92.1)
Other comprehensive loss -- foreign currency translation
adjustment................................................ (4.5) (7.5)
----- ------
Total comprehensive income.................................. $59.0 $(99.6)
===== ======
</TABLE>
NOTE 6 NOTES PAYABLE
In connection with the Distribution, R.H. Donnelley will borrow
approximately $350 million under the R.H. Donnelley Credit Facility and issue
$150 million of senior subordinated notes under the R.H. Donnelley Indenture,
all of which will be guaranteed by D&B. A portion of the proceeds of this
indebtedness will be used to repay existing indebtedness of the Company. This
$500 million of debt will become an obligation of R.H. Donnelley after the
Distribution.
NOTE 7 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company enters into interest rate swap agreements to manage exposure to
changes in interest rates. Interest rate swaps allow the Company to raise funds
at floating rates and effectively swap them into fixed rates that are lower than
those available to it if fixed-rate borrowings were made directly. If the
Company terminates a swap agreement, the gain or loss is amortized over the
shorter of the remaining original life of the swap or the debt. At March 31,
1998, the unrealized fair value of the interest rate swaps was a loss of $11.7
million, of which $3.8 million ($.6 million in the first quarter of 1998 and
$3.2 million in 1997) has been recognized in income relating to swaps which do
not qualify for settlement accounting. In connection with the Distribution and
repayment of outstanding notes payable, the Company will cancel all of its
interest rate swap agreements and will record into income the previously
unrecognized fair value loss at the time of termination.
NOTE 8 LITIGATION
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings, claims and litigation
could have a material effect on quarterly or annual operating results or cash
flows when resolved in a future period. However, in the opinion of management,
these matters will not materially affect the Company's consolidated financial
position.
F-7
<PAGE> 116
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
In addition to the litigation referred to above, on July 29, 1996,
Information Resources, Inc. ("IRI") filed a complaint in the United States
District Court for the Southern District of New York, naming as defendants the
Company, A.C. Nielsen Company (a subsidiary of ACNielsen) and IMS International,
Inc.
The complaint alleges various violations of United States antitrust laws,
including alleged violations of Section 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with a contract and a
claim of tortious 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.
On October 15, 1996, defendants moved for an order dismissing all claims in
the complaint. On May 6, 1997, the United States District Court for the Southern
District of New York issued a decision dismissing IRI's claim of attempted
monopolization in the United States, with leave to replead within sixty days.
The Court denied defendants' motion with respect to the remaining claims in the
complaint. On June 3, 1997, defendants filed an answer denying the material
allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim
alleging that IRI has made false and misleading statements about its services
and commercial activities. On July 7, 1997, IRI filed an Amended and Restated
Complaint repleading its alleged claim of monopolization in the United States
and realleging its other claims. By notice of motion dated August 18, 1997,
defendants moved for an order dismissing the amended claim. On December 1, 1997,
the Court denied the motion and, on December 16, 1997, defendants filed a
supplemental answer denying the remaining material allegations of the amended
complaint.
IRI's complaint alleges damages in excess of $350 million, which amount IRI
asked to be trebled under antitrust laws. IRI also seeks punitive damages in an
unspecified amount.
In connection with the IRI action, Cognizant, ACNielsen and the Company
entered into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint
Defense Agreement") pursuant to which they have agreed (i) to certain
arrangements allocating potential liabilities ("IRI Liabilities") that may arise
out of or in connection with the IRI Action and (ii) to conduct a joint defense
of such action. In particular, the Indemnity and Joint Defense Agreement
provides that ACNielsen will assume exclusive liability for IRI Liabilities up
to a maximum amount to be calculated at such time such liabilities, if any,
become payable (the "ACN Maximum Amount"), and that the Company and Cognizant
will share liability equally for any amounts in excess of the ACN Maximum
Amount. The ACN Maximum Amount will be determined by an investment banking firm
as the maximum amount which ACNielsen is able to pay after giving effect to (i)
any plan submitted by such investment bank which is designed to maximize the
claims paying ability of ACNielsen without impairing the investment banking
firm's ability to deliver a viability opinion (but which will not require any
action requiring stockholder approval), and (ii) payment of related fees and
expenses. For these purposes, financial viability means the ability of
ACNielsen, after giving effect to such plan, the payment of related fees and
expenses, and the payment of the ACN Maximum Amount, to pay its debts as they
become due and to finance the current and anticipated operating and capital
requirements of its business, as reconstituted by such plan, for two years from
the date any such plan is expected to be implemented.
In connection with the Distribution, the Company and R.H. Donnelley will
enter into an agreement whereby the Company will retain all potential
liabilities arising from the IRI Action.
Management is unable to predict at this time the final outcome of the IRI
Action or whether the resolution of this matter could materially affect the
Company's results of operations, cash flows or financial position.
F-8
<PAGE> 117
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors
of The Dun & Bradstreet Corporation:
We have audited the accompanying consolidated balance sheets of The Dun &
Bradstreet Corporation and Subsidiaries at December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1997, 1996 and 1995 (restated as
described in Note 1). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Dun &
Bradstreet Corporation and Subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1997, 1996 and 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed certain revenue recognition accounting policies in 1997.
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
COOPERS & LYBRAND L.L.P.
New York, New York
February 13, 1998, except for the effect of the
1998 Distribution described in Note 2 for
which the date is April 15, 1998 and the
restatement described in Note 1 for which
the date is June 17, 1998.
F-9
<PAGE> 118
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- --------------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Operating Revenues...................................... $ 1,811.0 $ 1,782.5 $ 1,735.3
----------- ----------- ------------
Operating Costs......................................... 487.0 617.2 626.1
Selling and Administrative Expenses..................... 788.4 806.3 748.4
Depreciation and Amortization........................... 131.9 140.6 147.9
Reorganization Costs.................................... -- 161.2 --
----------- ----------- ------------
Operating Income........................................ 403.7 57.2 212.9
----------- ----------- ------------
Interest Income......................................... 1.8 4.4 10.2
Interest Expense........................................ (53.4) (37.1) (37.3)
Other Expense -- Net.................................... (19.7) (38.5) (40.9)
----------- ----------- ------------
Non-Operating Expense -- Net............................ (71.3) (71.2) (68.0)
----------- ----------- ------------
Income (Loss) from Continuing Operations before
Provision for Income Taxes............................ 332.4 (14.0) 144.9
Provision for Income Taxes.............................. 113.4 102.1 49.6
----------- ----------- ------------
Income (Loss) from Continuing Operations................ 219.0 (116.1) 95.3
----------- ----------- ------------
Discontinued Operations:
Income from Discontinued Operations, Net of Income
Taxes of $52.2, $207.5 and $73.4 for 1997, 1996 and
1995, respectively................................. 92.0 230.5 225.9
Loss on Disposal, Net of Income Tax Benefit of $62.4
for 1996........................................... -- (158.2) --
----------- ----------- ------------
Income from Discontinued Operations..................... 92.0 72.3 225.9
----------- ----------- ------------
Income (Loss) before Cumulative Effect of Accounting
Changes............................................... 311.0 (43.8) 321.2
Cumulative Effect of Accounting Changes, Net of Income
Tax Benefit of $87.7.................................. (127.0) -- --
----------- ----------- ------------
Net Income (Loss)....................................... $ 184.0 $ (43.8) $ 321.2
=========== =========== ============
Basic Earnings (Loss) Per Share of Common Stock:
Continuing Operations................................. $ 1.28 $ (0.69) $ 0.56
Discontinued Operations............................... 0.54 0.43 1.33
----------- ----------- ------------
Before Cumulative Effect of Accounting Changes........ 1.82 (0.26) 1.89
Cumulative Effect of Accounting Changes, Net of Income
Tax Benefit........................................ (0.74) -- --
----------- ----------- ------------
Basic Earnings (Loss) Per Share of Common Stock......... $ 1.08 $ (0.26) $ 1.89
=========== =========== ============
Diluted Earnings (Loss) Per Share of Common Stock:
Continuing Operations................................. $ 1.27 $ (0.69) $ 0.55
Discontinued Operations............................... 0.53 0.43 1.32
----------- ----------- ------------
Before Cumulative Effect of Accounting Changes........ 1.80 (0.26) 1.87
Cumulative Effect of Accounting Changes, Net of Income
Tax Benefit........................................ (0.73) -- --
----------- ----------- ------------
Diluted Earnings (Loss) Per Share of Common Stock....... $ 1.07 $ (0.26) $ 1.87
=========== =========== ============
Weighted Average Number of Shares Outstanding:
Basic................................................. 170,765,000 170,017,000 169,522,000
----------- ----------- ------------
Diluted............................................... 172,552,000 170,017,000 171,608,000
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE> 119
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996
----------- ------------
(DOLLAR AMOUNTS IN
MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents................................... $ 81.8 $ 127.8
Accounts Receivable -- Net of Allowance of $39.4 in 1997 and
$26.5 in 1996............................................. 454.5 442.4
Other Current Assets........................................ 269.2 190.1
-------- ---------
Total Current Assets.............................. 805.5 760.3
-------- ---------
Non-Current Assets
Investments and Notes Receivable............................ 12.3 58.5
Property, Plant and Equipment............................... 317.2 342.3
Prepaid Pension Costs....................................... 190.7 161.8
Computer Software........................................... 128.0 108.7
Goodwill.................................................... 194.6 216.2
Other Non-Current Assets.................................... 141.2 147.0
-------- ---------
Total Non-Current Assets.......................... 984.0 1,034.5
Net Assets of Discontinued Operations....................... 296.5 430.6
-------- ---------
Total Assets................................................ $2,086.0 $ 2,225.4
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes Payable............................................... $ 451.5 $ 1,120.7
Accrued and Other Current Liabilities....................... 472.0 550.1
Unearned Subscription Income................................ 573.5 337.0
-------- ---------
Total Current Liabilities......................... 1,497.0 2,007.8
Postretirement and Postemployment Benefits.................. 389.0 344.1
Other Non-Current Liabilities............................... 388.3 328.8
Minority Interest........................................... 301.9 --
Shareholders' Equity
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 -- 188,420,996
shares for 1997 and 1996.................................. 188.4 188.4
Capital Surplus............................................. 80.2 72.6
Retained Earnings........................................... 405.2 456.7
Treasury Stock, at cost, 17,853,652 and 17,612,776 shares
for 1997 and 1996, respectively........................... (964.0) (1,019.7)
Cumulative Translation Adjustment........................... (162.6) (153.3)
Minimum Pension Liability Adjustment........................ (37.4) --
-------- ---------
Total Shareholders' Equity.................................. (490.2) (455.3)
-------- ---------
Total Liabilities and Shareholders' Equity.................. $2,086.0 $ 2,225.4
======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE> 120
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- -------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)........................................... $ 184.0 $ (43.8) $ 321.2
Less:
Income (Loss) from Discontinued Operations................ 92.0 72.3 225.9
--------- ------- -------
Income (Loss) from Continuing Operations.................. 92.0 (116.1) 95.3
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities:
Cumulative Effect of Accounting Change, Net of Income Tax
Benefit................................................ 127.0 -- --
Depreciation and Amortization............................. 131.9 140.6 147.9
(Gains) Loss from Sale of Businesses, Net of Income
Taxes.................................................. -- 68.2 (118.0)
Decrease (Increase) Note Receivable....................... 47.5 (55.3) 2.2
Non-Recurring Charge...................................... -- -- 188.5
Restructuring Payments.................................... -- (39.4) (60.1)
Postemployment Benefit Payments........................... (30.6) (50.3) (60.0)
Net Increase in Accounts Receivable....................... (33.8) (52.1) (44.0)
Deferred Income Taxes..................................... 7.0 83.2 (66.9)
Accrued Income Taxes...................................... (38.7) 16.2 27.2
Increase in Long Term Liabilities......................... 38.7 105.4 (21.0)
Net Decrease in Other Working Capital Items............... 84.3 89.5 41.0
Other..................................................... (45.3) (10.0) 6.4
--------- ------- -------
Net Cash Provided By Operating Activities:
Continuing Operations..................................... 380.0 179.9 138.5
Discontinued Operations................................... 120.4 152.1 730.2
--------- ------- -------
Net Cash Provided by Operating Activities................... 500.4 332.0 868.7
--------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Marketable Securities................ 27.2 17.6 34.1
Payments for Marketable Securities.......................... (27.1) (2.4) (22.9)
Proceeds from Sale of Businesses............................ -- 93.9 230.0
Capital Expenditures........................................ (50.3) (57.9) (97.5)
Additions to Computer Software and Other Intangibles........ (78.8) (94.1) (118.3)
Net Cash Provided By (Used in) Investing Activities of
Discontinued Operations................................... 105.7 (180.5) (324.7)
Other....................................................... 7.4 13.3 (12.5)
--------- ------- -------
Net Cash (Used In) Provided By Investing Activities......... (15.9) (210.1) (311.8)
--------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of Dividends........................................ (150.6) (310.8) (446.1)
Payments for Purchase of Treasury Shares.................... (60.1) (25.6) (72.3)
Net Proceeds from Exercise of Stock Options................. 40.8 63.7 42.2
Increase (Decrease) in Commercial Paper Borrowings.......... 421.6 (405.0) (38.7)
Increase in Minority Interest............................... 300.0 -- --
(Decrease) Increase in Other Short-Term Borrowings.......... (1,090.6) 1,116.2 --
Payment of Redeemable Partnership Interests................. -- (575.0) --
Net Cash Used in Financing Activities of Discontinued
Operations................................................ -- -- (23.1)
Other....................................................... 9.2 (1.1) (0.4)
--------- ------- -------
Net Cash Used In Financing Activities....................... (529.7) (137.6) (538.4)
--------- ------- -------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... (0.8) (2.1) 4.0
--------- ------- -------
(Decrease) Increase in Cash and Cash Equivalents............ (46.0) 17.8 22.5
Cash and Cash Equivalents, Beginning of Year................ 127.8 145.6 123.1
--------- ------- -------
Cash and Cash Equivalents, End of Year...................... $ 81.8 $ 127.8 $ 145.6
========= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE> 121
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------------------
MINIMUM
COMMON CUMULATIVE PENSION TOTAL
STOCK CAPITAL RETAINED TREASURY TRANSLATION LIABILITY SHAREHOLDERS'
($1 PAR VALUE) SURPLUS EARNINGS STOCK ADJUSTMENT ADJUSTMENT EQUITY
-------------- ------- --------- --------- ----------- ---------- -------------
(DOLLAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............ $188.4 $67.2 $2,299.1 $(1,077.2) $(183.5) $ -- $ 1,294.0
------ ----- -------- --------- ------- ------ ---------
Net Income.......................... 321.2 321.2
Cash Dividends ($2.63 per share).... (446.1) (446.1)
Treasury Shares Reissued Under Stock
Options and Deferred Compensation
Plans (741,526)................... 2.8 34.2 37.0
Treasury Shares Reissued Under
Restricted Stock Plan (174,100)... 8.0 8.0
Treasury Shares Acquired
(1,297,138)....................... (72.3) (72.3)
Change in Cumulative Translation
Adjustment........................ 6.2 6.2
Unrealized Gains on Investments..... 10.3 10.3
------ ----- -------- --------- ------- ------ ---------
BALANCE, DECEMBER 31, 1995.......... 188.4 70.0 2,184.5 (1,107.3) (177.3) -- 1,158.3
------ ----- -------- --------- ------- ------ ---------
Net Loss............................ (43.8) (43.8)
Cash Dividends ($1.82 per share).... (310.8) (310.8)
Stock Dividend to Shareholders of
Cognizant and ACNielsen, Including
800,000 Treasury Shares........... (1,370.2) 49.5 79.8 (1,240.9)
Treasury Shares Reissued Under Stock
Options and Deferred Compensation
Plans (1,525,935)................. 2.6 59.0 61.6
Treasury Shares Reissued Under
Restricted Stock Plan (16,410).... 4.7 4.7
Treasury Shares Acquired
(923,199)......................... (25.6) (25.6)
Change in Cumulative Translation
Adjustment........................ (55.8) (55.8)
Unrealized Losses on Investments.... (3.0) (3.0)
------ ----- -------- --------- ------- ------ ---------
BALANCE, DECEMBER 31, 1996.......... 188.4 72.6 456.7 (1,019.7) (153.3) -- (455.3)
------ ----- -------- --------- ------- ------ ---------
Net Income.......................... 184.0 184.0
Cash Dividends ($.88 per share)..... (150.6) (150.6)
Adjustment to Stock Dividend to
Shareholders of Cognizant and
ACNielsen......................... (11.3) (11.3)
Treasury Shares Reissued Under Stock
Options and Deferred Compensation
Plans (2,010,091)................. 7.6 (72.4) 115.6 50.8
Treasury Shares Reissued Under
Restricted Stock Plan (20,884).... 0.2 0.2
Treasury Shares Acquired
(2,271,851)....................... (60.1) (60.1)
Change in Cumulative Translation
Adjustment........................ (9.3) (9.3)
Minimum Pension Liability
Adjustment........................ (37.4) (37.4)
Unrealized Losses on Investments.... (1.2) (1.2)
------ ----- -------- --------- ------- ------ ---------
BALANCE, DECEMBER 31, 1997.......... $188.4 $80.2 $ 405.2 $ (964.0) $(162.6) $(37.4) $ (490.2)
====== ===== ======== ========= ======= ====== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
<PAGE> 122
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include those of The Dun & Bradstreet
Corporation (the "Company") and its subsidiaries and investments in which the
Company has a controlling interest. Investments in companies over which the
Company has significant influence but not a controlling interest are carried on
an equity basis. The effects of all significant intercompany transactions have
been eliminated.
The financial statements of subsidiaries outside the United States and
Canada reflect a fiscal year ending November 30 to facilitate timely reporting
of the Company's consolidated financial results.
As discussed more thoroughly in Note 2, R.H. Donnelley, Cognizant
Corporation ("Cognizant"), ACNielsen Corporation ("ACNielsen"), Dun & Bradstreet
Software ("DBS") and NCH Promotional Services ("NCH") are presented as
discontinued operations.
Cash Equivalents
Marketable securities that mature within 90 days of purchase date are
considered cash equivalents and are stated at cost, which approximates fair
value.
Marketable Securities
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
marketable securities at December 31, 1997 and 1996, are classified as
"available for sale" and are reported at fair value, with net unrealized gains
and losses reported in shareholders' equity.
The fair value of current and non-current marketable securities was
estimated based on quoted market prices. Realized gains and losses on marketable
securities are determined on the specific identification method.
The Company's marketable securities, $53.0 million and $46.1 million at
December 31, 1997 and 1996, respectively, consisted primarily of debt securities
of the U.S. Government and its agencies.
Property, Plant and Equipment
Buildings, machinery and equipment are depreciated principally using the
straight-line method over a period of three to 40 years. Leasehold improvements
are amortized on a straight-line basis over the shorter of the term of the lease
or the estimated useful life of the improvement.
Computer Software, Goodwill and Intangible Assets
Certain computer software costs are capitalized in accordance with SFAS No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," and are reported at the lower of unamortized cost or net
realizable value. Costs in connection with business process reengineering are
expensed as incurred. Other intangibles result from acquisitions and database
enhancements. Computer software and other intangibles are being amortized, using
principally the straight-line method, over three to five years and five to 15
years, respectively. Goodwill represents the excess purchase price over the fair
value of identifiable net assets of businesses acquired and is amortized on a
straight-line basis over five to 40 years.
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS No. 121") in 1995. This statement requires that long-lived assets and
certain identifiable intangibles held and used by an entity be reviewed for
F-14
<PAGE> 123
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In general, this statement
requires recognition of an impairment loss when the sum of undiscounted expected
future cash flows is less than the carrying amount of such assets. The
measurement for such an impairment loss is then based on the fair value of the
asset (see Note 3).
At each balance sheet date, the Company reviews the recoverability of
goodwill, not identified with long-lived assets, based on estimated undiscounted
future cash flows from operating activities compared with the carrying value of
goodwill, and recognizes any impairment on the basis of such comparison. The
recognition and measurement of goodwill impairment is assessed at the business
unit level.
Revenue Recognition
The Company recognizes revenue as services are performed, information is
delivered and products and services are used by its customers. Amounts billed
for service and subscriptions are credited to unearned subscription income and
reflected in operating revenues over the subscription term, which is generally
one year.
Accounting Changes
Effective January 1, 1997, the Company changed its revenue recognition
method for its Credit Information Services business to recognize revenue as
products and services are used by its customers. Previously, the Company
recognized revenue ratably over the contract period. This change is consistent
with the Company's change in focus from a sales contract basis to a product
usage basis in order to drive revenue growth and increase customer satisfaction.
Additionally, the Company changed its revenue recognition method for its
Moody's Investors Service ("Moody's") business to recognize revenue over the
service period from previously recognizing revenues and costs at the time of
billing. In the opinion of management, these accounting changes bring revenue
recognition methods more in line with the economics of the business and provide
a better measure of operating results.
In accordance with Accounting Principles Board Opinion ("APB") No. 20,
"Accounting Changes," the cumulative effect of changing the accounting for
certain of the Company's revenue recognition policies resulted in a pre-tax,
non-cash charge of $214.7 million ($127.0 million after tax or $.74 per share
basic, $.73 per share diluted). On a pro-forma basis these changes would have
increased 1996 and decreased 1995 net income by $3.1 million and $7.9 million,
respectively. The impact on basic and diluted earnings per share would have been
an increase in 1996 of $.02 per share and a decrease in 1995 of $.04 per share.
The Company also changed certain of its revenue recognition methods for its
Marketing Information Services and Receivable Management Services businesses to
recognize revenue over the service period from previously recognizing revenues
and costs at the time of shipment or billing. Previously, the Company included
the effect of these changes as part of the cumulative effect of accounting
changes in the Consolidated Statements of Operations effective January 1, 1997.
Subsequent to the initial issuance of these financial statements and after
discussions with the staff of the Securities and Exchange Commission, it was
determined that the accounting for these changes in revenue recognition methods
be amended and therefore applied retroactively for all periods presented. The
effects of such changes decreased the pre-tax non-cash charge by $40.0 million
to $214.7 million ($127.0 million after tax or $0.74 share basic, $0.73 per
share diluted). The effects of these changes increased 1997, 1996 and 1995 net
income by $23.6, and $0.6, $0.4 respectfully, and increased basic and fully
diluted earnings per share for 1997 by $0.14. There was no impact to 1996 or
1995 earnings per share. The impact on shareholders equity was a decrease of
$23.6 and $24.2 as of December 31, 1996 and 1995 with no effect as of December
31, 1997.
F-15
<PAGE> 124
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
Foreign Currency Translation
For all operations outside the United States where the Company has
designated the local currency as the functional currency, assets and liabilities
are translated using the end-of-year exchange rates, and revenues and expenses
are translated using average exchange rates for the year. For these countries,
currency translation adjustments are accumulated in a separate component of
shareholders' equity, whereas realized transaction gains and losses are
recognized in other expense-net. For operations in countries that are considered
to be highly inflationary, where the U.S. dollar is designated as the functional
currency, monetary assets and liabilities are translated using end-of-year
exchange rates, nonmonetary accounts are translated using historical exchange
rates. Translation and transaction gains of $0.9 million in 1997 and $4.2
million in 1995 and losses of $0.9 million in 1996 are recognized in other
expense-net.
Earnings Per Share of Common Stock
The Company adopted SFAS No. 128, "Earnings per Share," ("SFAS No. 128"),
in 1997. As required by the statement, the Company restated all prior-period per
share data presented. SFAS No. 128 requires presentation of both basic and
diluted earnings per share. Basic earnings per share are calculated based on the
weighted average number of shares of common stock outstanding during the
reporting period. Diluted earnings per share are calculated giving effect to all
potentially dilutive common shares, assuming such shares were outstanding during
the reporting period.
Financial Instruments
At times, the Company uses forward foreign exchange contracts and interest
rate swaps to hedge existing assets, liabilities and firm commitments. The
Company does not use any derivatives for trading or speculative purposes.
Gains and losses on forward foreign exchange contracts that qualify as
hedges of existing assets or liabilities are included in the carrying amounts of
those assets or liabilities and are ultimately recognized in income as part of
those carrying amounts. Gains and losses related to qualifying hedges of firm
commitments are also deferred and are recognized in income or as adjustments of
carrying amounts when the hedged transactions occur. For forward foreign
exchange contracts, the risk reduction is assessed on a transaction basis, and
contract amounts and terms are matched to existing intercompany transactions.
The Company uses interest rate swaps to hedge interest rate risk on
commercial paper. Settlement accounting is accorded to the swaps that have
contractual, periodic payment terms considered to be aligned to the expected
future commercial paper issuances. The commercial paper issuances are expected
to continue through the term of the existing interest rate swaps. Periodic swap
payments and receipts under the interest rate swaps are recorded as part of
interest expense. Neither the swap contracts nor the gains or losses on these
contracts, which are designated and effective as hedges, are recognized in the
financial statements.
If a hedging instrument is sold or terminated prior to maturity, gains and
losses will continue to be deferred until the hedged item is recognized in
income. If a hedging instrument ceases to qualify for settlement accounting, any
subsequent gains and losses are recognized currently in income.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
F-16
<PAGE> 125
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
Estimates are used in the determination of allowances for doubtful accounts,
depreciation and amortization, computer software, employee benefits plans, taxes
and contingencies, among others.
Reclassifications
As discussed in Note 2, the consolidated financial statements have been
reclassified to identify separately the results of operations, net assets and
cash flows of the Company's discontinued operations. In addition, certain
prior-year amounts have been reclassified to conform to the 1997 presentation.
NOTE 2 REORGANIZATION AND DISCONTINUED OPERATIONS
Pursuant to APB No. 30, "Reporting the Results of Operations -- Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions," the consolidated financial
statements of the Company have been reclassified to reflect as discontinued
operations, the companies that comprised the Company's Directory Information
Services business segment as a result of the expected 1998 Distribution and the
companies that comprised the Company's Marketing Information Services, Software
Services and Other Business Services business segments as a result of the 1996
Distribution.
1998 Distribution
On December 17, 1997, the Company announced a plan to separate into two
publicly traded independent companies -- The New Dun & Bradstreet Corporation
("New D&B") and R.H. Donnelley Corporation. The separation (the "1998
Distribution") of the two companies will be accomplished through a tax-free
dividend of a new entity comprised of the Company's Risk Management Services
segment (Moody's Investors Service ("Moody's") and Dun & Bradstreet, the
operating company ("D&B")). The new entity, New D&B, will change its name to
"The Dun & Bradstreet Corporation" and the continuing entity will change its
name to "R.H. Donnelley Corporation" and will consist of the Company's Directory
Information Services segment (R.H. Donnelley, the operating company and the
DonTech partnership). Due to the relative significance of the Risk Management
Services segment, the transaction will be accounted for as a reverse spin-off,
and as such the Risk Management Services and Directory Information Services
segments have been classified as continuing and discontinued operations,
respectively. In April 1998, the Company received a favorable ruling from the
Internal Revenue Service with respect to the tax-free treatment of the 1998
Distribution. The transaction is expected to be completed in the summer of 1998.
For purposes of governing certain of the ongoing relationships among the
Company and R.H. Donnelley as a result of the 1998 Distribution, the companies
will enter into various agreements, including a Distribution Agreement, Tax
Allocation Agreement, Employee Benefits Agreement, Intellectual Property
Agreement, Shared Transaction Services Agreement, Data Services Agreement and
Transition Services Agreements.
For financial reporting purposes the assets and liabilities of the
Directory Information Services segment have been separately classified on the
balance sheet as "Net Assets of Discontinued Operations." A summary of these
assets and liabilities at December 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets............................. $ 92.7 $157.0
Total assets............................... 362.3 515.7
Current liabilities........................ 64.6 49.7
Total liabilities.......................... 65.8 85.1
Net assets of discontinued operations...... 296.5 430.6
</TABLE>
F-17
<PAGE> 126
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
The net operating results of the Directory Information Services segment
have been reported in the caption "Income from Discontinued Operations," in the
consolidated statements of operations. Summarized operating results for the
Directory Information Services segment for the years ended December 31, were as
follows:
<TABLE>
<CAPTION>
1997* 1996* 1995
------ ------ ------
<S> <C> <C> <C>
Operating revenues............................... $343.4 $377.6 $423.7
Income before provision for income taxes......... 144.2 141.1 186.4
Net income....................................... 92.0 89.5 122.7
</TABLE>
- ---------------
* 1997 net income included a pre-tax gain on the sale of the East Coast
proprietary operations of R.H. Donnelley ("P-East") of $9.4 million and 1996
net income included a pre-tax loss on the sale of the West Coast proprietary
operations of R.H. Donnelley ("P-West") of $28.5 million.
1996 Distribution
On November 1, 1996, the Company reorganized into three publicly traded
independent companies by spinning off through a tax-free distribution two of its
businesses to shareholders (the "1996 Distribution"). The Distribution resulted
in the following three companies: 1) The Dun & Bradstreet Corporation,
consisting of Dun & Bradstreet, the operating company ("D&B"), Moody's and R.H.
Donnelley, 2) ACNielsen; and 3) Cognizant, consisting of IMS International, Inc.
("IMS"), Gartner Group, Nielsen Media Research, Pilot Software, Cognizant
Technology Solutions Corporation, Cognizant Enterprises and Erisco. In
connection with the 1996 Distribution, DBS and NCH were sold. On October 10,
1996, following receipt of a ruling from the Internal Revenue Service that the
transaction would be tax-free to the Company and its U.S. shareholders, the
Company's Board of Directors declared a dividend distribution to shareholders of
record on October 21, 1996, consisting of one share of Cognizant common stock
for each share of the Company's common stock and one share of ACNielsen common
stock for every three shares of the Company's common stock held on such record
date. The 1996 Distribution was effected on November 1, 1996. These transactions
resulted in a non-cash dividend that reduced shareholders' equity by $1,240.9
million. During 1997, adjustments to the dividend of $11.3 million were
recorded, primarily as a result of employee benefits plan revisions.
For purposes of governing certain of the ongoing relationships among the
Company, Cognizant and ACNielsen as a result of the 1996 Distribution, the three
new companies entered into various agreements, including a Distribution
Agreement, Tax Allocation Agreement, Employee Benefits Agreement, Indemnity and
Joint Defense Agreement, Intellectual Property Agreement, Shared Transaction
Services Agreement, Data Services Agreement and Transition Services Agreements.
These agreements set forth the principles to be applied in allocating certain
related costs and specified portions of contingent liabilities to be share if
certain amounts are exceeded, which by their nature, cannot be predicted at this
time, but could be significant.
The net operating results of the Company's Marketing Information Services,
Software Services and Other Business Services business segments have been
included in the Consolidated Statements of Operations in the caption "Net Income
(Loss) from Discontinued Operations." These segments included the companies
F-18
<PAGE> 127
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
that made up Cognizant and ACNielsen, along with DBS and NCH. Summarized
operating results for those discontinued operations for the years ended December
31, were as follows:
<TABLE>
<CAPTION>
1996* 1995
-------- --------
<S> <C> <C>
Operating revenues.............................. $2,761.6 $3,256.9
Income before provision for income taxes........ 297.0 113.0
Net income...................................... 141.1 103.3
</TABLE>
- ---------------
* 1996 revenues include the results of Cognizant, ACNielsen and DBS for the 10
months ended October 31, 1996, and the results of NCH for the full year.
The Company completed the sale of DBS on November 1, 1996, for proceeds of
$191.3 million, including a note of $41.2 million, resulting in a pre-tax loss
of $220.6 million ($158.2 million after-tax). Pursuant to the Distribution
Agreement, the cash proceeds from the sale were transferred to Cognizant. During
the third quarter of 1997, cash was received from the buyer to satisfy the note
receivable, which was due in May 1998.
The sale of NCH was completed on December 31, 1996. Pursuant to the
Distribution Agreement, the proceeds of $20.5 million from the sale of NCH,
which included a note of $8.5 million, were transferred to Cognizant. At
December 31, 1996, the Company recorded a receivable of $20.5 million from the
buyer of NCH and a corresponding payable to Cognizant. These transactions were
settled in January 1997. The Company did not incur a gain or loss on the sale.
Also included in 1996 results, within discontinued operations, are tax
costs allocated to discontinued operations of $49.1 million.
NOTE 3 NON-RECURRING ITEMS
The 1996 results for the Company reflect after-tax non-recurring charges of
$262.3 million, incurred as a result of the 1996 Distribution and the sale of
American Credit Indemnity ("ACI"). Of the $262.3 million, $229.4 million was
recorded in pre-tax income and a net tax cost of $32.9 million was recorded in
the provision for income taxes. The $229.4 million represents reorganization
costs of $161.2 million (professional and consulting fees of $75.0 million and
settlement of executive compensation plans and retention bonuses of $86.2
million) and $68.2 million resulting from the losses incurred on the sale of ACI
completed in October 1996.
In the fourth quarter of 1995, the Company recorded within operating costs
a charge of $188.5 million. This charge primarily reflected an impairment loss
in connection with the adoption of the provisions of SFAS No. 121 ($93.7
million), a provision for postemployment benefits ($56.3 million) under the
Company's severance plan, an accrual for contractual obligations that have no
future economic benefits and for penalties to cancel certain contracts ($19.8
million) and other asset revaluations ($18.7 million).
This non-recurring charge evolved from the Company's annual budget and
strategic planning process, which included a review of the Company's underlying
cost structure, products and services, and assets used in the business. Based
upon such analysis, management, having the authority to approve such business
decisions, committed in December 1995 to a plan to discontinue certain product
lines and dispose of certain other assets, resulting in the charge. These
decisions were not reversed or modified as a result of the Company's 1996
Distribution, which was reviewed and approved by the Board of Directors on
January 9, 1996.
Also in 1995, the Company recorded in operating costs a $28.0 million gain
related to the sale of warrants received in connection with the divestiture of
Donnelley Marketing and a $90.0 million gain relating to the sale of Interactive
Data Corporation ("IDC").
F-19
<PAGE> 128
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 4 RECONCILIATION OF WEIGHTED AVERAGE SHARES
<TABLE>
<CAPTION>
1997 1996 1995
(SHARE DATA IN THOUSANDS) ------- ------- -------
<S> <C> <C> <C>
Weighted average number of shares-basic..................... 170,765 170,017 169,522
Dilutive effect of shares issuable as of year-end under
stock options, restricted stock and performance unit
plans..................................................... 1,629 -- 2,061
Adjustment of shares applicable to stock options exercised
during the year and performance unit plans................ 158 -- 25
------- ------- -------
Weighted average number of shares-diluted................... 172,552 170,017 171,608
======= ======= =======
</TABLE>
As required by SFAS No. 128, the Company has provided a reconciliation of
basic weighted average shares to diluted weighted average shares within the
table outlined above. The conversion of dilutive shares has no impact on the
Company's operating results. The exercise of potentially dilutive shares has not
been assumed for the year ended December 31, 1996, since the result is
antidilutive. Options to purchase 3.1 million and 3.2 million shares of common
stock were outstanding at December 31, 1997 and 1995, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the Company's
common stock. The Company's options generally expire 10 years after the initial
grant date.
NOTE 5 FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS
The Company uses interest rate swap agreements and forward foreign exchange
contracts to reduce exposure to fluctuations in interest and foreign exchange
rates. The Company does not use derivative financial instruments for trading or
speculative purposes. If a hedging instrument ceases to qualify as a hedge, any
subsequent gains and losses are recognized currently in income. Collateral is
generally not required for these types of instruments.
By their nature, all such instruments involve risk, including the credit
risk of non-performance by counterparties. However, at December 31, 1997 and
1996, in management's opinion there was no significant risk of loss in the event
of non-performance of the counterparties to these financial instruments. The
Company controls its exposure to credit risk through monitoring procedures.
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements to manage exposure to
changes in interest rates. Interest rate swaps allow the Company to raise funds
at floating rates and effectively swap them into fixed rates that are lower than
those available to it if fixed-rate borrowings were made directly. These
agreements involve the exchange of floating-rate for fixed-rate payments without
the exchange of the underlying principal amount. Fixed-interest-rate payments
are at rates ranging from 6.67% to 7.02%. Floating-rate payments received are
based on rates tied to prevailing short-term interest rates. If the Company
terminates a swap agreement, the gain or loss is amortized over the shorter of
the remaining original life of the debt or the swap. In the first quarter of
1997, $2.9 million was recorded in connection with the termination of swaps and
corresponding debt. At December 31, 1997, the unrealized fair value of the
interest rate swaps was a loss of $11.1 million, of which $3.2 million has been
recorded in 1997 relating to swaps which do not qualify for settlement
accounting. At December 31, 1996, the unrealized fair value of the interest rate
swaps was a loss of $15.8 million.
F-20
<PAGE> 129
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
The following table indicates the type of swaps in use at December 31, 1997
and 1996, and their weighted average interest rates. Average variable rates are
those in effect at the reporting date and may change significantly over the
lives of the contracts.
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Variable to fixed swaps --
Notional amount.................................. $300.0 $600.0
Average pay (fixed) rate......................... 6.84% 6.94%
Average receive (variable) rate.................. 5.75% 5.57%
</TABLE>
The swap contracts expire from August 31, 2001, through January 15, 2005.
In connection with the 1998 Distribution and repayment of outstanding notes
payable, the Company will cancel the interest rate swap agreements and will
record into income the previously unrecognized fair value loss at the time of
termination.
Foreign Exchange
In order to reduce the risk of foreign currency exchange rate fluctuations,
the Company follows a policy of hedging substantially all cross-border
intercompany transactions denominated in a currency other than the functional
currency applicable to each of its various subsidiaries. The financial
instruments used to hedge these cross-border intercompany transactions are
forward foreign exchange contracts with maturities of six months or less. These
forward contracts are executed with creditworthy institutions and are
denominated primarily in the British Pound, German Mark, Swedish Krona and
Japanese Yen. The gains and losses on these forward contracts are recorded to
income or expense and are essentially offset by the gains and losses on the
underlying foreign currency transactions. The Company does not enter into
forward foreign exchange contracts for speculative or trading purposes.
At December 31, 1997 and 1996, the Company had approximately $117 million
and $114 million, respectively, of forward foreign exchange contracts
outstanding with various expiration dates through March 1998 and March 1997,
respectively. At December 31, 1997, unrealized gains on these contracts were
$1.5 million and the unrealized losses were $.4 million. At December 31, 1996,
unrealized gains on these contracts were $3.5 million and the unrealized losses
were $1.3 million.
NOTE 6 PENSION AND POSTRETIREMENT BENEFITS
Pension Plans
The Company has defined benefit pension plans covering substantially all
associates in the United States. The benefits to be paid to associates under
these plans are based on years of credited service and average final
compensation. Pension costs are determined actuarially and funded in accordance
with the Internal Revenue Code. Supplemental and excess plans in the United
States are maintained to provide retirement benefits in excess of levels allowed
by ERISA .
Effective January 1, 1997, the D&B Retirement Plan was amended to provide
retirement income based on a percentage of annual compensation, rather than
final pay. The percentage of compensation allocated annually to a retirement
account ranges from 3% to 12.5%, based on age and service. Amounts allocated
under the plan also receive interest credits based on 30-year Treasury Bonds
with a minimum interest credit rate of 3%. Associates close to or eligible for
retirement as of January 1, 1997, will receive the higher of benefits provided
by the final pay formula or retirement account formula.
In accordance with SFAS No. 87, "Employers' Accounting for Pensions," the
Company has recorded an additional minimum pension liability for each benefits
plan for which the accumulated benefits obligation exceeds plan assets. This
amount has been recorded as a long-term liability with an offsetting intangible
asset.
F-21
<PAGE> 130
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
To the extent that these additional liabilities exceeded related unrecognized
prior service cost and net transition obligation, the increase in liabilities is
charged directly to shareholders' equity. At December 31, 1997, $37.4 million
was reported as a separate reduction of shareholders' equity.
The Company has retained the obligation for pension benefits for personnel
who retired prior to November 1, 1996 from the businesses that comprise
discontinued operations from the 1996 Distribution. The Company will also retain
the obligation for pension benefits for personnel who retire from R.H. Donnelley
prior to the effective date of the 1998 Distribution. Pension obligations and
related plan assets for active employees of R.H. Donnelley determined in
accordance with Internal Revenue Code Section 414(l), will be transferred to
R.H. Donnelley at the Distribution. A net asset of $8.6 million is included in
net assets of discontinued operations at December 31, 1997.
The Company's non-U.S. subsidiaries provide retirement benefits for
associates consistent with local practices, primarily using defined benefit or
termination indemnity plans.
The components of net periodic pension costs for the years ended December
31, for both continuing and discontinued operations, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Service cost............................. $18.4 $34.8 $43.1
Interest cost............................ 83.4 87.4 108.5
Actual return on plan assets............. (242.8) (173.2) (248.1)
Net amortization and deferral............ 137.5 67.3 126.8
------ ------ ------
Net periodic pension cost (income)....... $(3.5) $16.3 $30.3
====== ====== ======
</TABLE>
Discontinued operations were allocated pension expense of $1.0 million,
$11.5 million and $12.2 million in 1997, 1996 and 1995, respectively.
The status of defined benefit pension plans at December 31, 1997 and 1996
(which includes both the Company and R.H. Donnelley) is as follows:
<TABLE>
<CAPTION>
FUNDED UNFUNDED
------------------- ---------------------------------
U.S.(1) NON-U.S.
----------------- -------------
1997 1996 1997 1996 1997 1996
-------- -------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Fair value of plan assets.................... $1,328.7 $1,146.5 $ -- $ -- $ -- $ --
-------- -------- ------- ------- ----- -----
Actuarial present value of benefit
obligations:
Vested benefits............................ 954.5 811.8 162.0 95.8 6.3 7.1
Non-vested benefits........................ 18.4 35.7 3.4 4.6 -- --
-------- -------- ------- ------- ----- -----
Accumulated benefit obligations............ 972.9 847.5 165.4 100.4 6.3 7.1
Effect of projected future salary
increases............................... 69.3 89.7 18.3 60.5 -- --
-------- -------- ------- ------- ----- -----
Projected benefit obligations.............. 1,042.2 937.2 183.7 160.9 6.3 7.1
-------- -------- ------- ------- ----- -----
Plan assets in excess of (less than)
projected benefit obligations.............. 286.5 209.3 (183.7) (160.9) (6.3) (7.1)
Unrecognized net loss (gain)................. (59.0) 0.5 55.8 30.2 -- --
</TABLE>
F-22
<PAGE> 131
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FUNDED UNFUNDED
------------------- ---------------------------------
U.S.(1) NON-U.S.
----------------- -------------
1997 1996 1997 1996 1997 1996
-------- -------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Unrecognized prior service cost.............. 9.9 6.7 23.9 22.8 -- --
Unrecognized net transition (asset)
obligation................................. (37.2) (44.4) 1.2 1.6 -- --
Adjustment to recognize minimum liability.... -- -- (62.6) (6.4) -- --
-------- -------- ------- ------- ----- -----
Prepaid (accrued) pension cost............... $ 200.2 $ 172.1 $(165.4) $(112.7) $(6.3) $(7.1)
======== ======== ======= ======= ===== =====
</TABLE>
- ---------------
(1) Represents supplemental and excess plans for which grantor trusts (with
assets of $57.4 million and $58.9 million at December 31, 1997 and 1996,
respectively) have been established to pay plan benefits.
The weighted average expected long-term rate of return on pension plan
assets was 9.70% for 1997 and 9.75% for 1996 and 1995. At December 31, 1997 and
1996, the projected benefit obligations were determined using weighted average
discount rates of 7.01% and 7.77%, respectively, and weighted average rates of
increase in future compensation levels of 4.46% and 5.15%, respectively. Plan
assets are invested in diversified portfolios that consist primarily of equity
and debt securities.
Postretirement Benefits
In addition to providing pension benefits, the Company provides various
health-care and life-insurance benefits for retired associates. Substantially
all of the Company's associates in the United States become eligible for these
benefits if they reach normal retirement age while working for the Company.
Certain of the Company's subsidiaries outside the United States have
postretirement benefit plans, although most participants are covered by
government sponsored or administered programs. The cost of Company sponsored
postretirement benefit plans outside the U.S. is not significant.
The Company has retained the obligation for postretirement benefits for
personnel who retired prior to November 1, 1996 from the businesses that
comprise discontinued operations. The Company will retain the obligation for
postretirement benefits for personnel who retire from R.H. Donnelley with
Company benefits prior to the effective date of the 1998 Distribution.
Postretirement benefit obligations for active employees of R.H. Donnelley
will be transferred to R.H. Donnelley at the Distribution. An obligation of
$10.7 million is included in net assets of discontinued operations at December
31, 1997.
The components of net periodic postretirement benefit cost other than
pensions for the years ended December 31, for both continuing and discontinued
operations are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service cost................................ $ 3.5 $ 5.9 $ 5.1
Interest cost............................... 14.6 15.4 16.0
Net amortization and deferral............... (4.5) (4.8) (5.0)
----- ----- -----
Net periodic postretirement benefit cost.... $13.6 $16.5 $16.1
===== ===== =====
</TABLE>
Discontinued operations were allocated net periodic postretirement benefit
cost of $1.7 million, $6.3 million and $6.7 million in 1997, 1996 and 1995,
respectively.
F-23
<PAGE> 132
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
The status of postretirement benefit plans other than pensions at December
31, 1997 and 1996 (which includes both the Company and R.H. Donnelley) is as
follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Retirees and dependents................................ $(175.6) $(165.9)
Active associates -- eligible.......................... (18.9) (15.7)
Active associates -- not yet eligible.................. (22.0) (15.0)
------- -------
Accumulated postretirement benefit obligation............ (216.5) (196.6)
Unrecognized net (gain) loss............................. 18.0 (0.2)
Unrecognized prior service credit........................ (7.3) (11.9)
------- -------
Accrued postretirement benefit obligation................ $(205.8) $(208.7)
======= =======
</TABLE>
Benefits are paid as incurred from general corporate assets.
The accumulated postretirement benefit obligation at December 31, 1997 and
1996 was determined using discount rates of 7.0% and 7.75%, respectively. The
assumed rate of future increases in per capita cost of covered health-care
benefits is 7.3% in 1998, decreasing gradually to 5.0% for the year 2021 and
remaining constant thereafter. Increasing the assumed health-care cost trend
rate by one percentage point in each year would increase the accumulated
postretirement benefit obligation by $22.3 million and would increase annual
aggregate service and interest costs by $1.9 million.
NOTE 7 EMPLOYEE STOCK PLANS
The Company has granted options to certain associates, under its Key
Employees Stock Option Plans, to purchase shares of its common stock at the
market price on the date of the grant. Under the plans, the options vest ratably
over a four year period and expire ten years from the date of the grant. The
1991 Key Employees Stock Option Plan provides for the granting of up to 17
million shares.
When the 1998 Distribution is completed, employees of D&B will be granted
substitute awards, preserving the economic value, as closely as possible, of the
options that existed immediately prior to the 1998 Distribution and any awards
or options held by them in respect of R.H. Donnelley Corporation will be
surrendered. For employees of R.H. Donnelley, the number of shares subject to
options and the option exercise price will be adjusted immediately following the
1998 Distribution to preserve, as closely as possible the economic value of the
options that existed immediately prior to the 1998 Distribution. The remaining
holders of unexercised options, including retirees and certain other former
employees of the Company will be offered the choice of converting their options
to the Company's or continuing to hold R.H. Donnelley Corporation options.
In November 1996, in conjunction with the 1996 Distribution, those
individuals who became employees of Cognizant or ACNielsen were granted
substitute awards in the stock of their new employer, and any stock awards or
options held by them in respect of the Company were reflected as surrendered in
the following table. For the remaining holders of unexercised options, including
employees of the Company, retirees and certain other former employees of the
Company, the number of shares subject to options and the option exercise price
was adjusted immediately following the 1996 Distribution to preserve, as closely
as possible, the economic value of the options that existed prior to the 1996
Distribution, pursuant to the plans.
The Company applies APB No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for the stock option plans. The Company
has adopted the disclosure-only provisions of SFAS No. 123, "Accounting
F-24
<PAGE> 133
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
for Stock-Based Compensation" ("SFAS No. 123"). Had compensation cost for the
Company's stock option plan been determined based on the fair value at the grant
date for awards in 1997, 1996 and 1995 (excluding awards granted to employees of
discontinued operations) consistent with the provisions of SFAS No. 123, the
Company's income (loss) from continuing operations and earnings (loss) per share
would have been reduced to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -----
<S> <C> <C> <C>
Income (loss) from continuing operations
As reported......................................... $219.0 $(116.1) $95.3
Pro forma........................................... $215.4 $(119.7) $95.3
Basic earnings (loss) per share of common stock from
continuing operations
As reported......................................... $ 1.28 $ (0.69) $0.56
Pro forma........................................... $ 1.26 $ (0.70) $0.56
Diluted earnings (loss) per share of common stock from
continuing operations
As reported......................................... $ 1.27 $ (0.69) $0.55
Pro forma........................................... $ 1.25 $ (0.70) $0.55
</TABLE>
The pro-forma disclosures shown are not representative of the effects on
income (loss) and earnings (loss) per share in future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
AFTER 1996
PRIOR TO DISTRIBUTION
1996 AND FOR
1997 DISTRIBUTION CONVERSION
--------- ------------ ------------
<S> <C> <C> <C>
Expected dividend yield.................... 3.3% 4.7% 3.7%
Expected stock volatility.................. 20% 15% 17%
Risk-free interest rate.................... 5.73% 6.08% 5.85%
Expected holding period.................... 4.5 years 5.0 years 4.5 years
</TABLE>
Options outstanding at December 31, 1997 were granted during the years 1988
through 1997 and are exercisable over periods ending not later than 2007. At
December 31, 1997, 1996 and 1995, options for 8,133,155 shares, 8,313,166 shares
and 4,859,596 shares of common stock, respectively, were exercisable and
1,450,195 shares, 4,240,772 shares and 10,306,592 shares, respectively, were
available for future grants under the plans.
Changes in stock options for the three years ended December 31, 1997, are
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
SHARES PRICE($)
---------- ----------------
<S> <C> <C>
Options outstanding, January 1, 1995.................. 8,733,172 53.57
Granted............................................. 1,821,780 63.35
Exercised........................................... (736,145) 46.11
Surrendered or expired.............................. (671,079) 56.63
---------- -----
</TABLE>
F-25
<PAGE> 134
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
SHARES PRICE($)
---------- ----------------
<S> <C> <C>
Options outstanding, December 31, 1995................ 9,147,728 55.90
Granted............................................. 10,704 60.25
Exercised........................................... (977,042) 51.09
Surrendered or expired.............................. (689,297) 59.10
---------- -----
Options outstanding at October 31, 1996............... 7,492,093 56.23
Attributable to 1996 Distribution................... (2,958,686) 57.08
---------- -----
Options outstanding at October 31, 1996............... 4,533,407 55.68
---------- -----
Options converted at November 1, 1996................. 11,958,980 21.10
Granted............................................. 4,452,250 22.96
Exercised........................................... (543,354) 21.02
Surrendered or expired.............................. (451,416) 22.87
---------- -----
Options outstanding at December 31, 1996.............. 15,416,460 21.59
Granted............................................. 3,151,980 30.01
Exercised........................................... (2,008,234) 20.38
Surrendered or expired.............................. (840,878) 22.97
---------- -----
OPTIONS OUTSTANDING AT DECEMBER 31, 1997.............. 15,719,328 23.36
========== =====
</TABLE>
The options outstanding at December 31, 1997, include 1,410,088 of options
held by employees of R.H. Donnelley.
The weighted average fair value of options granted during 1997, 1996 and
1995 was $5.52, $3.61, and $7.61, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
STOCK OPTIONS STOCK OPTIONS
OUTSTANDING EXERCISABLE
---------------------------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- --------------- ---------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$15.73 - $22.55 5,705,704 4.2 Years $19.74 5,270,726 $19.68
$22.75 - $30.22 10,013,624 8.9 Years $25.42 2,862,429 $23.50
---------- ---------
15,719,328 8,133,155
========== =========
</TABLE>
The plans also provide for the granting of stock appreciation rights and
limited stock appreciation rights in tandem with stock options to certain key
employees. At December 31, 1997, there were 34,048 stock appreciation rights
attached to stock options and 1,154,495 limited stock appreciation rights
("LSARs") attached to stock options, which are exercisable only if, and to the
extent that, the related option is exercisable and, in the case of LSARs, only
upon the occurrence of specified contingent events.
Under the 1989 Key Employees Restricted Stock Plan, key associates may be
granted restricted shares of the Company's stock. The plan provides for the
granting of up to 1,800,000 shares of the Company's common stock prior to
December 31, 1998. During 1997, 1996 and 1995, restricted shares of 20,000,
19,779 and 184,465, respectively, were awarded under the plan. Forfeitures in
1996 and 1995 totaled 6,877 and 10,365,
F-26
<PAGE> 135
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
respectively. There were no forfeitures during 1997. The restrictions on the
majority of such shares lapse over a period of three years from the date of the
grant and the cost is charged to compensation expense ratably.
Under the 1997 Key Employees Performance Unit Plan, key associates may be
granted shares of the Company's stock based on the achievement of two year
revenue growth goals or other key operating objectives, where appropriate. At
the end of the performance period, Company performance at target will yield the
targeted amount of shares, while Company performance above or below target will
yield larger or smaller share awards, respectively. During 1997, 471,644 shares
were granted at a weighted average fair value of $30.94 per share. Recorded in
selling and administrative expenses in 1997 was compensation expense of $14.6
million for the plan.
NOTE 8 INCOME TAXES
Income before provision for income taxes consisted of:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
U.S.............................................. $321.8 $(15.3) $170.7
Non-U.S.......................................... 10.6 1.3 (25.8)
------ ------ ------
$332.4 $(14.0) $144.9
====== ====== ======
</TABLE>
The provision (benefit) for income taxes consisted of:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current tax provision:
U.S. Federal................................... $ 31.9 $ 40.6 $ 72.8
State and local................................ 52.9 (22.4) 14.6
Non-U.S. ...................................... 21.6 0.7 28.9
------ ------ ------
Total current tax provision...................... 106.4 18.9 116.3
------ ------ ------
Deferred tax (benefit) provision:
U.S. Federal................................... 36.5 52.7 (30.5)
State and local................................ (23.1) 15.0 (24.5)
Non-U.S. ...................................... (6.4) 15.5 (11.9)
------ ------ ------
Total deferred tax (benefit) provision:.......... 7.0 83.2 (66.9)
------ ------ ------
Provision for income taxes....................... $113.4 $102.1 $ 49.6
====== ====== ======
</TABLE>
The following table summarizes the significant differences between the U.S.
Federal statutory tax rate and the Company's effective tax rate for financial
statement purposes.
<TABLE>
<CAPTION>
1997 1996 1995
----- ------- -----
<S> <C> <C> <C>
Statutory tax rate................................ 35.0% 35.0% 35.0%
State and local taxes, net of U.S. Federal tax
benefit......................................... 4.9 33.1 (4.5)
Non-U.S. taxes.................................... 4.6 (110.9) 8.9
Recognition of capital and ordinary losses........ (10.4) 181.4 (21.5)
Non-recurring reorganization costs................ -- (845.5) --
Repatriation of foreign earnings.................. -- (11.5) 16.3
Other............................................. -- (10.9) --
----- ------- -----
Effective tax rate................................ 34.1% (729.3%) 34.2%
----- ------- -----
</TABLE>
F-27
<PAGE> 136
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
Income taxes paid were approximately $170.3 million, $170.2 million, $119.9
million in 1997, 1996, and 1995, respectively. Income taxes refunded were
approximately $37.6 million, $140.9 million, and $17.8 million in 1997, 1996 and
1995, respectively.
Deferred tax assets (liabilities) are consisted of the following at
December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Operating losses..................................... $ 53.7 $ 33.6 $ 117.6
Postretirement benefits.............................. 49.0 79.5 49.1
Postemployment benefits.............................. 12.8 22.5 34.5
Reorganization and restructuring costs............... 4.4 11.3 34.7
Bad debts............................................ 12.7 5.7 5.1
Other................................................ 12.3 13.4 18.2
------ ------- -------
Total deferred tax assets.............................. 144.9 166.0 259.2
Valuation allowance.................................... (53.7) (33.6) (16.4)
------ ------- -------
Net deferred tax asset................................. 91.2 132.4 242.8
------ ------- -------
Deferred tax liabilities:
Intangibles.......................................... (31.7) (47.4) (40.2)
Revenue recognition.................................. -- (12.3) (10.6)
Tax-leasing transactions............................. (22.1) (37.8) (68.9)
Depreciation......................................... (13.5) (4.0) (9.0)
------ ------- -------
Total deferred tax liability........................... (67.3) (101.5) (128.7)
------ ------- -------
Net deferred tax asset................................. $ 23.9 $ 30.9 $ 114.1
====== ======= =======
</TABLE>
At December 31, 1997, undistributed earnings of non-U.S. subsidiaries
aggregated approximately $98.1 million. Deferred tax liabilities have not been
recognized for these undistributed earnings because its management's intention
to reinvest such undistributed earnings outside the U.S. If all undistributed
earnings were remitted to the U.S., the amount of incremental U.S. Federal and
foreign income taxes payable, net of foreign tax credits, would be approximately
$39.3 million. During 1996, $467.9 million of non-U.S. earnings, primarily from
the Cognizant and ACNielsen businesses, were repatriated by the Company in order
to facilitate its 1996 reorganization. During the three year period ended
December 31, 1983, the Company invested $304.4 million in tax-leasing
transactions, varying in length from 4.5 to 25 years. These leases provided the
Company with benefits from tax deductions in excess of taxable income for
Federal income tax purposes. These amounts are included in deferred income
taxes.
NOTE 9 NOTES PAYABLE
Notes payable consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------ --------
<S> <C> <C>
Commercial paper................................. $421.6 $ --
Bank notes....................................... 29.9 1,120.7
------ --------
$451.5 $1,120.7
====== ========
</TABLE>
The Company had commercial paper borrowings of $421.6 million at December
31, 1997. Interest rates on these borrowings ranged from 5.62% to 6.10%.
F-28
<PAGE> 137
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
The Company has two committed bank facilities that support the Company's
commercial paper borrowings. One of the facilities permits borrowings of up to
$750 million and matures in August 2001. The second facility permits borrowings
of up to $150 million and matures in August 1998. Under these facilities the
Company has the ability to borrow at prevailing short-term interest rates. At
December 31, 1997, there was no outstanding balance against these facilities. At
December 31, 1996, $880.0 million was borrowed against these facilities. The
Company also had non-committed lines of credit of $111 million at December 31,
1997. At year-end 1997, $29.9 million was borrowed against these non-committed
facilities. At December 31, 1996, $240.7 million was borrowed against
non-committed facilities of $305 million. None of these arrangements had
material commitment fees or compensating balance requirements.
The weighted average interest rates on commercial paper and notes payable
at December 31, 1997 and 1996 were 5.97% and 5.78%, respectively.
Interest paid totaled $49.6 million, $43.2 million and $28.3 million for
the years ended December 31, 1997, 1996 and 1995, respectively.
In connection with the 1998 Distribution, R.H. Donnelley will borrow
approximately $350 million under the R.H. Donnelley Credit Facility and issue
$150 million of senior subordinated notes under the R.H. Donnelley Indenture,
all of which will be guaranteed by D&B. A portion of the proceeds of this
indebtedness will be used to repay existing indebtedness of D&B. This $500
million of debt will be an obligation of R.H. Donnelley after the 1998
Distribution.
NOTE 10 INVESTMENT PARTNERSHIPS
During 1993, the Company participated in the formation of a limited
partnership to invest in various securities, including those of the Company.
Third-party investors held limited-partner and special investors interests
totaling $500.0 million. Funds raised by the partnership provided a source of
financing for the Company's repurchase in 1993 of 8.3 million shares of its
common stock. During the fourth quarter of 1996, the Company redeemed these
partnership interests. This redemption was financed with short-term borrowings.
The partnership is presently engaged in the business of licensing database
assets and computer software. One of the Company's subsidiaries serves as
managing general partner, and two subsidiaries hold limited-partner interests.
In April 1997, the partnership raised $300.0 million of minority interest
financing from a third-party investor. The Company's subsidiaries contributed
assets to the partnership, and the third-party investor contributed cash ($300.0
million) in exchange for a limited-partner interest. Funds raised by the
partnership were loaned to the Company and used to repay existing short-term
debt in April 1997. At December 31, 1997, the third-party investment in this
partnership was included in minority interest.
For financial reporting purposes, the results of operations, assets,
liabilities and cash flows of the partnership described above are included in
the Company's consolidated financial statements.
NOTE 11 CAPITAL STOCK
In October 1988, the Company adopted a Shareholders' Rights Plan. The plan
is intended to protect the shareholders' interests in the event of an
unsolicited attempt to acquire the Company. The plan is not intended to prevent
a takeover of the Company on terms that are favorable and fair to all
shareholders and will not interfere with a merger approved by the Board of
Directors.
Under the plan, each share of the Company's common stock has a right that
trades with the stock until the right becomes exercisable. Each right entitles
the shareholders to buy 1/100 of a share of Series A participating preferred
stock at a purchase price of $230, subject to adjustment. The rights will not be
F-29
<PAGE> 138
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
exercisable until a person or group ("Acquiring Person") acquires beneficial
ownership of, or commences a tender offer for, 20% or more of the Company's
outstanding common stock.
In the event the Company is acquired in a merger or other business
combination or subject to other transactions, as described in the Shareholders'
Rights Plan, each right will entitle its holder (other than the Acquiring
Person) to receive, upon exercise, stock with a value of two times the exercise
price in the form of the Company's common stock or, where appropriate, the
Acquiring Person's common stock. The Company may redeem the rights, which expire
in October 1998, for $.01 per right, under certain circumstances.
The shareholders have authorized the issuance of 10.0 million shares of $1
par value preferred stock. The preferred stock can be issued with varying terms,
as determined by the Board of Directors.
NOTE 12 LEASE COMMITMENTS
Certain of the Company's operations are conducted from leased facilities,
which are under operating leases that expire over the next 10 years. The Company
also leases certain computer and other equipment under operating leases that
expire over the next five years. These leases are frequently renegotiated or
otherwise changed as advancements in computer technology produce opportunities
to lower costs and improve performance. Additionally, the Company has agreements
with various third parties to purchase certain data processing and
telecommunications services extending beyond one year. Rental expenses under
operating leases were $80.9 million, $106.3 million and $110.7 million for the
years ended December 31, 1997, 1996 and 1995, respectively. Future minimum lease
payments under noncancelable leases at December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 77.1
1999........................................................ 63.5
2000........................................................ 40.1
2001........................................................ 28.6
2002........................................................ 22.6
Thereafter.................................................. 23.0
------
Total............................................. $254.9
======
</TABLE>
NOTE 13 LITIGATION
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such current legal proceedings, claims and litigation
could have a material effect on quarterly or annual operating results or cash
flows when resolved in a future period. However, in the opinion of management,
these matters will not materially affect the Company's consolidated financial
position.
INFORMATION RESOURCES
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants the Company, A.C. Nielsen Company (a subsidiary of ACNielsen) and
IMS International, Inc.
The complaint alleges various violations of United States antitrust laws,
including alleged violations of Section 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with a contract and a
claim of tortious 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
F-30
<PAGE> 139
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
alleged agreement with IRI when it agreed to be acquired by the defendants and
that the defendants induced SRG to breach that agreement.
On October 15, 1996, defendants moved for an order dismissing all claims in
the complaint. On May 6, 1997, the United States District Court for the Southern
District of New York issued a decision dismissing IRI's claim of attempted
monopolization in the United States, with leave to replead within 60 days. The
Court denied defendants' motion with respect to the remaining claims in the
complaint. On June 3, 1997, defendants filed an answer denying the material
allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim
alleging that IRI has made false and misleading statements about its services
and commercial activities. On July 7, 1997, IRI filed an Amended and Restated
Complaint repleading its alleged claim of monopolization in the United States
and realleging its other claims. By notice of motion dated August 18, 1997,
defendants moved for an order dismissing the amended claim. On December 1, 1997,
the Court denied the motion and, on December 16, 1997, defendants filed a
supplemental answer denying the remaining material allegations of the amended
complaint.
IRI's complaint alleges damages in excess of $350 million, which amount IRI
asked to be trebled under antitrust laws. IRI also seeks punitive damages in an
unspecified amount.
In connection with the IRI action, Cognizant, ACNielsen and the Company
entered into an Indemnity and Joint Defense Agreement (the "Indemnity and Joint
Defense Agreement") pursuant to which they have agreed (i) to certain
arrangements allocating potential liabilities ("IRI Liabilities") that may arise
out of or in connection with the IRI Action and (ii) to conduct a joint defense
of such action. In particular, the Indemnity and Joint Defense Agreement
provides that ACNielsen will assume exclusive liability for IRI Liabilities up
to a maximum amount to be calculated at such time such liabilities, if any,
become payable (the "ACN Maximum Amount"), and that the Company and Cognizant
will share liability equally for any amounts in excess of the ACN Maximum
Amount. The ACN Maximum Amount will be determined by an investment banking firm
as the maximum amount that ACNielsen is able to pay after giving effect to (i)
any plan submitted by such investment bank which is designed to maximize the
claims-paying ability of ACNielsen without impairing the investment banking
firm's ability to deliver a viability opinion (but which will not require any
action requiring stockholder approval) and (ii) payment of related fees and
expenses. For these purposes, financial viability means the ability of
ACNielsen, after giving effect to such plan, the payment of related fees and
expenses and the payment of the ACN Maximum Amount, to pay its debts as they
become due and to finance the current and anticipated operating and capital
requirements of its business, as reconstituted by such plan, for two years from
the date any such plan is expected to be implemented.
In connection with the 1998 Distribution, the Company and R.H. Donnelley
will enter into an agreement whereby the Company will retain all potential
liabilities arising from the IRI Action.
Management is unable to predict at this time the final outcome of the IRI
Action or whether the resolution of this matter could materially affect the
Company's results of operations, cash flows or financial position.
F-31
<PAGE> 140
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 14 SUPPLEMENTAL FINANCIAL DATA
Other Current Assets:
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
Deferred taxes............................................. $ 67.1 $ 50.3
Prepaid expenses........................................... 200.0 136.0
Other...................................................... 2.1 3.8
------ ------
$269.2 $190.1
====== ======
</TABLE>
Property, Plant and Equipment -- Net, carried at cost:
<TABLE>
<CAPTION>
AT DECEMBER 31,
1997 1996
-------- --------
<S> <C> <C>
Buildings................................................ $203.1 $197.8
Machinery and equipment.................................. 455.1 447.8
------ ------
658.2 645.6
Less accumulated depreciation............................ 398.6 364.4
------ ------
259.6 281.2
Leasehold improvements, less: accumulated amortization of
$52.6 and $48.0........................................ 28.7 32.1
Land..................................................... 28.9 29.0
------ ------
$317.2 $342.3
====== ======
</TABLE>
Computer Software and Goodwill:
<TABLE>
<CAPTION>
COMPUTER
SOFTWARE GOODWILL
-------- --------
<S> <C> <C>
January 1, 1996.......................................... $ 80.1 $282.0
Additions at cost........................................ 82.4 0.8
Amortization............................................. (33.6) (7.6)
Other deductions and reclassifications................... (20.2) (59.0)(1)
------ ------
December 31, 1996........................................ 108.7 216.2
Additions at cost........................................ 68.7 --
Amortization............................................. (50.6) (5.1)
Other deductions and reclassifications................... 1.2 (16.5)(2)
------ ------
December 31, 1997........................................ $128.0 $194.6
====== ======
</TABLE>
- ---------------
(1) Sale of ACI in 1996.
(2) Impact of foreign currency fluctuations.
<TABLE>
<CAPTION>
ADDITIONS
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
For the year ended December 31, 1997................ $26.5 $9.0 $ 3.9 $39.4
For the year ended December 31, 1996................ $14.5 $7.2 $ 4.8 $26.5
For the year ended December 31, 1995................ $15.4 $7.8 $(8.7) $14.5
</TABLE>
F-32
<PAGE> 141
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Other Expense -- Net:
Minority interest......................................... $16.9 $33.4 $45.7
Other..................................................... 2.8 5.1 (4.8)
----- ----- -----
$19.7 $38.5 $40.9
===== ===== =====
</TABLE>
NOTE 15 SEGMENT INFORMATION
The Company, operating in 38 countries, provides commercial credit and
business marketing information, receivable management services, debt rating and
financial information for investors. Intersegment sales are immaterial.
Geographic Segments
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING REVENUES:
United States............................................. $1,240.5 $1,187.2 $1,159.4
Europe.................................................... 467.6 481.7 465.8
Other Non-U.S............................................. 102.9 113.6 110.1
-------- -------- --------
Total....................................................... $1,811.0 $1,782.5 $1,735.3
======== ======== ========
OPERATING INCOME (LOSS):
United States(1).......................................... $ 396.4 $ 41.8 $ 220.5
Europe(2)................................................. 8.8 12.9 3.7
Other Non-U.S. (3)........................................ (1.5) 2.5 (11.3)
-------- -------- --------
Total....................................................... 403.7 57.2 212.9
Non-Operating Expense -- Net.............................. (71.3) (71.2) (68.0)
-------- -------- --------
Income from Continuing Operations before Provision for
Income Taxes.............................................. $ 332.4 $ (14.0) $ 144.9
======== ======== ========
ASSETS:
United States............................................. $1,104.2 $1,011.8 $1,168.3
Europe.................................................... 583.6 660.0 774.1
Other Non-U.S............................................. 101.7 123.0 50.3
Discontinued Operations................................... 296.5 430.6 1,652.2
-------- -------- --------
Total....................................................... $2,086.0 $2,225.4 $3,644.9
======== ======== ========
</TABLE>
- ---------------
(1) 1996 Operating Income included a loss on the sale of ACI of $68.2 million
and reorganization costs of $161.2 million. 1995 included a fourth-quarter
non-recurring charge of $167.0 million partially offset by gains on the sale
of IDC of $90.0 million and the sale of warrants received in connection with
the sale of Donnelley Marketing of $28.0 million.
(2) 1995 Operating Income included a fourth-quarter non-recurring charge of $8.4
million.
(3) 1995 Operating Loss included a fourth-quarter non-recurring charge of $13.1
million.
F-33
<PAGE> 142
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR
-------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
1997(1)(2)(3)
Operating Revenues................................... $ 436.4 $440.9 $447.8 $ 485.9 $1,811.0
------- ------ ------ ------- --------
Operating Income..................................... $ 77.9 $ 89.1 $ 97.8 $ 138.9 $ 403.7
------- ------ ------ ------- --------
Income (Loss):
Continuing Operations, Net of Income Taxes......... $ 36.5 $ 47.7 $ 54.6 $ 80.2 $ 219.0
Discontinued Operations, Net of Income Taxes(4).... (1.6) 6.3 30.6 56.7 92.0
------- ------ ------ ------- --------
Before Cumulative Effect of Accounting Changes....... 34.9 54.0 85.2 136.9 311.0
Cumulative Effect of Accounting Changes, Net of
Income Tax Benefit................................. (127.0) -- -- -- (127.0)
------- ------ ------ ------- --------
Net Income (Loss).................................... $ (92.1) $ 54.0 $ 85.2 $ 136.9 $ 184.0
------- ------ ------ ------- --------
Basic Earnings (Loss) Per Share of Common Stock:
Continuing Operations.............................. $ 0.21 $ 0.28 $ 0.32 $ 0.47 $ 1.28
Discontinued Operations............................ (0.01) 0.04 0.18 0.33 0.54
------- ------ ------ ------- --------
Before Cumulative Effect of Accounting Changes..... 0.20 0.32 0.50 0.80 1.82
Cumulative Effect of Accounting Changes, Net of
Income Tax Benefit............................... (0.74) -- -- -- (0.74)
------- ------ ------ ------- --------
Basic Earnings (Loss) Per Share of Common Stock...... $ (0.54) $ 0.32 $ 0.50 $ 0.80 $ 1.08
------- ------ ------ ------- --------
Diluted Earnings (Loss) Per Share of Common Stock(5):
Continuing Operations.............................. $ 0.21 $ 0.28 $ 0.31 $ 0.46 $ 1.27
Discontinued Operations............................ (0.01) 0.03 0.18 0.33 0.53
------- ------ ------ ------- --------
Before Cumulative Effect of Accounting Changes..... 0.20 0.31 0.49 0.79 1.80
Cumulative Effect of Accounting Changes, Net of
Income Tax Benefit............................... (0.73) -- -- -- (0.73)
------- ------ ------ ------- --------
Diluted Earnings (Loss) Per Share of Common Stock.... $ (0.53) $ 0.31 $ 0.49 $ 0.79 $ 1.07
======= ====== ====== ======= ========
1996(2)(3)
Operating Revenues................................... $ 429.7 $439.4 $442.1 $ 471.3 $1,782.5
------- ------ ------ ------- --------
Operating Income (Loss)(6)........................... $ 53.6 $ (2.4) $ 54.8 $ (48.8) $ 57.2
------- ------ ------ ------- --------
Income (Loss):
Continuing Operations, Net of Income Taxes......... $ 29.2 $(24.1) $(12.7) $(108.5) $ (116.1)
Discontinued Operations, Net of Income Taxes(7).... 35.6 (18.5) 63.5 (8.3) 72.3
------- ------ ------ ------- --------
Net Income (Loss).................................... $ 64.8 $(42.6) $ 50.8 $(116.8) $ (43.8)
======= ====== ====== ======= ========
Basic Earnings (Loss) Per Share of Common Stock(5):
Continuing Operations.............................. $ 0.17 $(0.14) $(0.07) $ (0.64) $ (0.69)
Discontinued Operations............................ 0.21 (0.11) 0.37 (0.05) 0.43
------- ------ ------ ------- --------
Basic Earnings (Loss) Per Share of Common Stock...... $ 0.38 $(0.25) $ 0.30 $ (0.69) $ (0.26)
======= ====== ====== ======= ========
Diluted Earnings (Loss) Per Share of Common Stock(5):
Continuing Operations.............................. $ 0.17 $(0.14) $(0.07) $ (0.64) $ (0.69)
Discontinued Operations............................ 0.21 (0.11) 0.37 (0.05) 0.43
------- ------ ------ ------- --------
Diluted Earnings (Loss) Per Share of Common Stock.... $ 0.38 $(0.25) $ 0.30 $ (0.69) $ (0.26)
======= ====== ====== ======= ========
</TABLE>
- ---------------
(1) In 1997, the Company changed its revenue recognition methods as discussed in
Note 1. This resulted in a one-time non-cash cumulative effect charge of
$127.0 million, after tax, effective January 1, 1997. As a result of this
accounting change, results for the first three quarters of 1997 have been
restated as follows: Revenue decreased by $3.6 million, increased by $6.8
million and decreased by $2.7 million; Operating Income decreased by $4.7
million, increased by $5.8 million and decreased by $3.8 million; Net Income
(Loss) decreased by $130.0 million, increased by $3.8 million and decreased
by $2.5 million, respectively.
F-34
<PAGE> 143
THE DUN & BRADSTREET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(TABULAR AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
(2) In connection with the Company's adoption of SFAS No. 128, all prior-period
earnings per share data were restated to reflect basic and diluted earnings
per share.
(3) Results have also been reclassified to reflect R.H. Donnelley as
discontinued operations.
(4) Income from Discontinued Operations included a $9.4 million pre-tax gain on
the sale of P-East in the quarter ended December 31, 1997.
(5) The number of weighted average shares outstanding changes as common shares
are issued for employee plans and other purposes or as shares are
repurchased. For this reason, the sum of quarterly earnings per common share
may not be the same as earnings per common share for the year.
(6) Operating Income (Loss) included reorganization costs of $1.4 million, $7.6
million, $18.9 million and $133.3 million incurred in the quarters ended
March 31, June 30, September 30 and December 31, 1996, respectively, and
loss on the sale of ACI of $63.8 million and $4.4 million for quarters ended
June 30 and September 30, 1996, respectively.
(7) Income (Loss) from Discontinued Operations included a pre-tax loss on the
sale of P-West of $25.0 million and $3.5 million in the quarters ended June
30 and September 30, 1996, respectively.
F-35
<PAGE> 144
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of The New Dun & Bradstreet Corporation:
We have audited the accompanying balance sheet of The New Dun & Bradstreet
Corporation, a wholly owned subsidiary of The Dun & Bradstreet Corporation, as
of April 14, 1998. This financial statement is the responsibility of the
management of The New Dun & Bradstreet Corporation. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosure in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of The New Dun & Bradstreet
Corporation as of April 14, 1998, in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
COOPERS & LYBRAND L.L.P.
New York, New York
April 15, 1998
F-36
<PAGE> 145
THE NEW DUN & BRADSTREET CORPORATION
BALANCE SHEET
APRIL 14, 1998
ASSETS
<TABLE>
<S> <C>
Cash........................................................ $10.00
======
</TABLE>
LIABILITIES AND SHAREHOLDER'S EQUITY
<TABLE>
<S> <C>
Common Stock, par value $0.01 per share; authorized -- 1,000
shares; issued and
outstanding -- 1,000 shares............................... $10.00
======
</TABLE>
F-37
<PAGE> 146
THE NEW DUN & BRADSTREET CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION
On April 8, 1998, The New Dun & Bradstreet Corporation (the "Company") was
incorporated under the General Corporation Law of the State of Delaware. The
Company has the authority under its Certificate of Incorporation to issue 1,000
shares of common stock, par value $0.01 per share, one thousand shares of which
were issued to The Dun & Bradstreet Corporation ("D&B") on April 14, 1998. The
Company has no assets other than cash and has not commenced operations. The
Company's activities to date have been solely related to its incorporation.
NOTE 2. PROPOSED REORGANIZATIONS
On December 17, 1997, the Board of Directors of D&B announced a plan to
distribute the Common Stock of the Company to all holders of outstanding shares
of Common Stock of D&B (the "Distribution"). Through a series of transactions to
be effected prior to the Distribution, the businesses of Dun & Bradstreet Inc.
and Moody's Investors Service will become part of the Company. After the
Distribution, the Company will operate as an independent company providing
commercial credit and business marketing information, receivable management
services, debt rating and financial information for investors, in approximately
38 countries. In connection with the Distribution, application has been made to
list the Common Stock on the New York Stock Exchange.
NOTE 3. AMENDED CERTIFICATE OF INCORPORATION
Prior to the date of the Distribution, the Company will file a Restated
Certificate of Incorporation which will authorize the issuance of 420,000,000
shares of all classes of stock of which 10,000,000 shares will represent shares
of preferred stock, par value $.01 per share, 400,000,000 shares will represent
shares of Common Stock, par value $.01 per share, and 10,000,000 shares will
represent shares of Series Common Stock, par value $.01 per share.
F-38
<PAGE> 147
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
1998 1997
---- ----
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Revenues.................................................... $ 24,344 $ 20,200
Expenses:
Operating Expenses........................................ 7,093 5,553
General and Administrative................................ 17,695 16,963
Depreciation and Amortization............................. 4,952 5,416
-------- --------
Total Expenses.................................... 29,740 27,932
Income from Partnerships and Related Fees................... 25,642 5,442
-------- --------
Operating Income.................................. 20,246 (2,290)
Provision for (Benefit from) Income Taxes................... 8,098 (916)
-------- --------
Net Income (Loss)................................. $ 12,148 $ (1,374)
======== ========
Pro Forma Earnings Per Share
Basic..................................................... $ 0.07 $ (0.01)
======== ========
Diluted................................................... $ 0.07 $ (0.01)
======== ========
Shares Used in Computing Pro Forma Earnings Per Share
Basic..................................................... 171,153 171,189
Diluted................................................... 172,396 171,189
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE> 148
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents................................. $ 17 $ 32
Accounts Receivable:
Billed................................................. 1,605 5,208
Unbilled............................................... 122,580 129,620
Allowance for Doubtful Accounts........................ (5,657) (4,014)
-------- --------
Total Accounts receivable -- net.................. 118,528 130,814
Deferred Contract Costs................................... 16,645 6,944
Other Current Assets...................................... 1,530 4,950
-------- --------
Total Current Assets.............................. 136,720 142,740
Property and Equipment -- net............................. 23,607 25,460
Prepaid Pension Costs..................................... 9,530 9,530
Computer Software -- net.................................. 36,895 37,546
Partnership Investments................................... 152,422 167,010
-------- --------
Total Assets...................................... $359,174 $382,286
======== ========
Current Liabilities:
Accounts Payable.......................................... $ 967 $ 1,395
Accrued and Other Current Liabilities..................... 49,560 58,070
-------- --------
Total Current Liabilities......................... 50,527 59,465
Postretirement and Postemployment Benefits................ 12,920 12,920
Deferred Income Taxes..................................... 34,456 34,456
Other Liabilities......................................... 15,384 16,770
-------- --------
Total Liabilities................................. 113,287 123,611
Commitments and Contingencies
Shareholder's Equity:
Common Stock, No Par Value, 100 Shares Authorized; 100
Shares Issued and Outstanding.......................... 12,002 12,002
Capital Surplus........................................... 101,032 101,032
Retained Earnings......................................... 132,853 145,641
-------- --------
Total Shareholders' Equity........................ 245,887 258,675
-------- --------
Total Liabilities and Shareholders' Equity........ $359,174 $382,286
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE> 149
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income................................................ $ 12,148 $ (1,374)
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
Depreciation and Amortization.......................... 4,952 5,416
Provision for Doubtful Accounts........................ 1,262 1,104
Cash Received in Excess of Income from Partnerships.... 14,588 33,347
Loss on Sale of Property and Equipment................. 37 483
Net Decrease in Accounts Receivable.................... 11,023 50,516
Change in Other Current Assets......................... 3,420 4,731
Change in Deferred Contract Costs...................... (9,701) (28,434)
Change in Accounts Payable, Accrued and Other Current
Liabilities........................................... (8,938) (10,535)
Change in Postretirement and Postemployment
Liabilities........................................... -- 2,900
Change in Other Liabilities............................ (1,386) (450)
-------- --------
Net Cash Provided by Operating Activities......... 27,405 57,704
-------- --------
Cash Flows from Investing Activities
Additions to Property and Equipment....................... (651) (6,704)
Additions to Computer Software............................ (1,834) (1,986)
-------- --------
Net Cash Used by Investing Activities............. (2,485) (8,690)
-------- --------
Cash Flows from Financing Activities
Net Distributions to Parent............................... (24,935) (49,010)
-------- --------
Net Cash Used by Financing Activities............. (24,935) (49,010)
-------- --------
Increase (Decrease) in Cash and Cash Equivalents.......... (15) 4
Cash and Cash Equivalents, Beginning of Quarter............. 32 60
-------- --------
Cash and Cash Equivalents, End of Quarter................... $ 17 $ 64
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE> 150
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BACKGROUND AND BASIS OF PRESENTATION
On December 17, 1997, the Board of Directors of The Dun & Bradstreet
Corporation ("D&B") approved in principle a plan to separate into two
publicly-traded companies -- R.H. Donnelley Corporation and The New Dun &
Bradstreet Corporation ("New D&B"). The distribution ("Distribution") is the
method by which D&B will distribute to its stockholders shares of New D&B Common
Stock, which will represent a continuing interest in D&B's businesses to be
conducted by New D&B. After the Distribution, D&B's only subsidiary will be R.H.
Donnelley Inc. ("R.H. Donnelley").
The financial statements reflect the financial position, results of
operations, and cash flows of R.H. Donnelley as if R.H. Donnelley were a
separate entity. The financial statements of R.H. Donnelley include allocations
of certain D&B corporate headquarters assets, liabilities and expenses relating
to R.H. Donnelley's businesses that will be transferred to R.H. Donnelley from
D&B. Management believes these allocations are reasonable. However, the costs of
these services and benefits charged to R.H. Donnelley are not necessarily
indicative of the costs that would have been incurred if R.H. Donnelley had
performed or provided these functions as a separate entity.
These 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 of R.H. Donnelley for the year ended
December 31, 1997 included in this Information Statement. 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.
2. RECONCILIATION OF SHARES USED IN COMPUTING PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Weighted average number of shares -- basic.................. 171,153 171,189
Effect of potentially dilutive stock options................ 1,243 --
Weighted average number of shares -- diluted................ 172,396 171,189
</TABLE>
As required by SFAS No. 128, R.H. Donnelley has provided a reconciliation
of basic weighted average shares to diluted weighted average shares within the
table outlined above. The conversion of diluted shares has no impact on
operating results. For 1997, the effect of potentially diluted stock options
would be antidilutive and have not been included in the calculation. R.H.
Donnelley's options generally expire 10 years after the initial grant date.
3. COMPREHENSIVE INCOME
Effective January 1, 1998, R.H. Donnelley adopted SFAS No. 130, "Reporting
Comprehensive Income". This statement requires that all items recognized under
accounting standards as components of comprehensive earnings be reported in a
financial statement for the period in which they are recognized and displayed
with the same prominence as other financial statements. There were no additional
components of comprehensive income and, as a result, R.H. Donnelley's total
comprehensive income for the three month period ended March 31, 1998 and 1997
were equal to net income for those periods.
4. COMMITMENT
In connection with the Distribution, R.H. Donnelley will borrow $350
million under a New Credit Facility (the "New Credit Facility") and will issue
$150 million of senior subordinated notes. The net
F-42
<PAGE> 151
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS)
proceeds of the offering of the notes, along with R.H. Donnelley's anticipated
borrowings under the New Credit Facility, will be used (i) to repay indebtedness
of D&B, primarily commercial paper, (ii) to pay costs and expenses related to
the Distribution and (iii) to repay indebtedness of D&B to subsidiaries which,
following the Distribution, will be subsidiaries of New D&B.
5. LITIGATION
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States District Court for the Southern District of New York, naming
as defendants D&B, A.C. Nielsen Company and IMS International Inc. (the "IRI
Action"). New D&B will assume and indemnify R.H. Donnelley against any payments
to be made by R.H. Donnelley in respect to the IRI Action under the 1996
Distribution Agreement, under the Indemnity and Joint Defense Agreement or
otherwise, including any ongoing legal fees and expenses related thereto.
In the normal course of business, R.H. Donnelley is subject to proceedings,
lawsuits and other claims. In the opinion of R.H. Donnelley's management, the
outcome of such current legal proceedings, claims and litigation will not
materially affect R.H. Donnelley's financial position or results of operations.
6. DONTECH PARTNERSHIPS
In 1991, R.H. Donnelley formed a general partnership with Ameritech
Corporation ("Ameritech"), the DonTech Partnership ("DonTech I"). Prior to
August 1997, DonTech I published various directories, solicited advertising, and
manufactured and delivered directories in Illinois and Northwest Indiana. During
August 1997, R.H. Donnelley signed a series of agreements with Ameritech
changing the structure of the existing partnership. A new partnership was formed
("DonTech II" and, together with DonTech I, "DonTech" or the "DonTech
Partnerships") appointing DonTech the exclusive agent in perpetuity for yellow
page directories published by Ameritech in Illinois and Northwest Indiana.
The following are summarized combined financial information (unaudited) of
the DonTech Partnerships:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Gross Revenues........................................... $91,542 $10,900
Operating Income......................................... $58,556 $ 300
Net Income Before Taxes.................................. $58,556 $ 300
</TABLE>
F-43
<PAGE> 152
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of R.H. Donnelley Inc.:
We have audited the accompanying balance sheets of R.H. Donnelley Inc.
(formerly known as The Reuben H. Donnelley Corporation and a wholly owned
subsidiary of the The Dun & Bradstreet Corporation) at December 31, 1997 and
1996, and the related statements of operations, shareholder's equity and cash
flows for each of the years in the three year period ended December 31, 1997.
These financial statements are the responsibility of R.H. Donnelley Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of R.H. Donnelley Inc. at
December 31, 1997 and 1996, and the results of its operations and cash flows for
each of the years in the three year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
COOPERS & LYBRAND L.L.P.
New York, New York
March 31, 1998
F-44
<PAGE> 153
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues................................................... $239,865 $270,029 $312,940
Expenses:
Operating Expenses....................................... 132,278 135,500 157,559
General and Administrative............................... 81,089 83,803 75,754
Depreciation and Amortization............................ 21,930 16,229 16,322
Restructuring Charges.................................... -- -- 17,690
-------- -------- --------
Total Expenses................................... 235,297 235,532 267,325
Income from Partnerships and Related Fees.................. 130,171 132,945 137,180
-------- -------- --------
Operating Income................................. 134,739 167,442 182,795
Gain (Loss) on Dispositions................................ 9,412 (28,500) --
-------- -------- --------
Income Before Provision for Income Taxes......... 144,151 138,942 182,795
Provision for Income Taxes................................. 59,246 60,857 74,398
-------- -------- --------
Net Income....................................... $ 84,905 $ 78,085 $108,397
======== ======== ========
Pro Forma Earnings Per Share:
Basic.................................................... $ 0.50 $ 0.46 $ 0.64
======== ======== ========
Diluted.................................................. $ 0.50 $ 0.46 $ 0.64
======== ======== ========
Shares Used in Computing Pro Forma Earnings Per Share:
Basic.................................................... 170,765 170,017 169,522
Diluted.................................................. 171,065 170,289 169,883
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE> 154
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents................................. $ 32 $ 60
Accounts Receivable:
Billed................................................. 5,208 21,322
Unbilled............................................... 129,620 143,443
Allowance for Doubtful Accounts........................ (4,014) (11,607)
-------- --------
Total Accounts Receivable -- net.................. 130,814 153,158
Deferred Contract Costs................................... 6,944 17,301
Other Current Assets...................................... 4,950 13,630
-------- --------
Total Current Assets.............................. 142,740 184,149
Property and Equipment -- net............................. 25,460 30,752
Prepaid Pension Costs..................................... 9,530 10,329
Computer Software -- net.................................. 37,546 40,050
Partnership Investments................................... 167,010 233,706
Other Non-Current Assets.................................. -- 3,207
-------- --------
Total Assets...................................... $382,286 $502,193
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts Payable.......................................... $ 1,395 $ 785
Accrued and Other Current Liabilities..................... 58,070 57,764
-------- --------
Total Current Liabilities......................... 59,465 58,549
Postretirement and Postemployment Benefits................ 12,920 10,020
Deferred Income Taxes..................................... 34,456 53,990
Other Liabilities......................................... 16,770 450
-------- --------
Total Liabilities................................. 123,611 123,009
Commitments and Contingencies
SHAREHOLDER'S EQUITY:
Common Stock, No Par Value, 100 Shares Authorized; 100
Shares Issued and Outstanding.......................... 12,002 12,002
Capital Surplus........................................... 101,032 101,032
Retained Earnings......................................... 145,641 266,150
-------- --------
Total Shareholder's Equity........................ 258,675 379,184
-------- --------
Total Liabilities and Shareholder's Equity........ $382,286 $502,193
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE> 155
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.............................................. $ 84,905 $ 78,085 $108,397
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization........................ 21,930 16,229 16,322
Provision for Doubtful Accounts...................... 11,815 11,743 10,861
(Gain) Loss from Sales of Businesses................. (9,412) 28,500 --
Cash Received in Excess of (Less Than) Income from
Partnerships....................................... 62,540 (18,593) (11,609)
Loss on Sale of Property, Plant and Equipment........ 1,551 724 1,149
Net Increase in Accounts Receivable.................. (37,519) (5,616) (11,000)
Change in Other Current Assets....................... 8,460 6,709 (1,715)
Change in Deferred Contracts Costs................... (6,746) (8,403) 262
Change in Accounts Payable, Accrued and Other Current
Liabilities........................................ (38,993) (26,781) 7,396
Change in Postretirement and Postemployment
Liabilities........................................ 2,900 (5,100) 4,120
Change in Other Liabilities.......................... 16,320 -- 450
Change in Deferred Income Taxes...................... (19,534) 23,586 11,969
Other................................................ 1,437 (545) --
--------- -------- --------
Net Cash Provided by Operating Activities....... 99,654 100,538 136,602
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Businesses........................ 122,000 21,368 --
Additions to Property and Equipment..................... (9,078) (15,965) (19,289)
Additions to Computer Software.......................... (7,190) (21,859) (23,723)
--------- -------- --------
Net Cash (Used In) Provided by Investing
Activities.................................... 105,732 (16,456) (43,012)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Distributions to D&B................................ (205,414) (85,466) (92,146)
--------- -------- --------
Net Cash Used In Financing Activities........... (205,414) (85,466) (92,146)
--------- -------- --------
Increase (Decrease) in Cash and Cash
Equivalents................................... (28) (1,384) 1,444
Cash and Cash Equivalents, Beginning of Year.............. 60 1,444 --
--------- -------- --------
Cash and Cash Equivalents, End of Year.................... $ 32 $ 60 $ 1,444
========= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE> 156
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
COMMON TOTAL
STOCK CAPITAL RETAINED SHAREHOLDER'S
(NO PAR VALUE) SURPLUS EARNINGS EQUITY
--------------- -------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995................. $12,002 $101,032 $ 257,280 $ 370,314
Net Income............................... 108,397 108,397
Net Distributions to D&B................. (92,146) (92,146)
------- -------- --------- ---------
BALANCE, DECEMBER 31, 1995............... 12,002 101,032 273,531 386,565
------- -------- --------- ---------
Net Income............................... 78,085 78,085
Net Distributions to D&B................. (85,466) (85,466)
------- -------- --------- ---------
BALANCE, DECEMBER 31, 1996............... 12,002 101,032 266,150 379,184
------- -------- --------- ---------
Net Income............................... 84,905 84,905
Net Distributions to D&B................. (205,414) (205,414)
------- -------- --------- ---------
BALANCE, DECEMBER 31, 1997............... $12,002 $101,032 $ 145,641 $ 258,675
======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-48
<PAGE> 157
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. BACKGROUND AND BASIS OF PRESENTATION
On December 17, 1997, the Board of Directors of The Dun & Bradstreet
Corporation ("D&B") approved in principle a plan to separate into two
publicly-traded companies -- R.H. Donnelley Corporation and The New Dun &
Bradstreet Corporation ("New D&B"). The distribution ("Distribution") is the
method by which D&B will distribute to its stockholders shares of New D&B Common
Stock, which will represent a continuing interest in D&B's businesses to be
conducted by New D&B. After the Distribution, D&B's only subsidiary will be R.H.
Donnelley Inc. ("R.H. Donnelley"). Shares of D&B Common Stock held by D&B
stockholders will represent a continuing ownership interest in R.H. Donnelley.
In connection with the Distribution, D&B will change its name to "R.H. Donnelley
Corporation" and therefore from and after the Distribution, D&B Common Stock
will be R.H. Donnelley Corporation Common Stock and New D&B will change its name
to "The Dun & Bradstreet Corporation." D&B has received a ruling from the
Internal Revenue Service to the effect that the Distribution will be tax-free
for Federal income tax purposes. Due to the relative significance of D&B to R.H.
Donnelley, the transaction will be accounted for as a reverse spin-off.
Historically R.H. Donnelley has operated through a number of long-term strategic
alliances with affiliates of Ameritech, Bell Atlantic, Sprint and with other
smaller local telephone service providers or yellow pages publishers acting as
publisher, partner or sales agent based on its contractual business
relationships. The Ameritech relationship has no expiration date, the Sprint and
Bell Atlantic contracts expire in 2004 and 2005, respectively. R.H. Donnelley's
revenue and cash flow is principally derived from commissions received from the
sale of advertisements placed in yellow pages directories. In addition, R.H.
Donnelley also receives revenue for publishing services such as advertisement
creation and database management on a negotiated fee basis.
R.H. Donnelley was incorporated on August 9, 1961 with 100 shares of Common
Stock authorized, and outstanding with no par value, all of which are owned by
D&B. R.H. Donnelley provides sales, marketing and publishing services for yellow
pages and other directory products and is the largest independent marketer of
yellow pages advertising in the United States. R.H. Donnelley will retain all
the assets and liabilities related to the yellow pages and other directory
product sales, marketing and publishing service businesses after the
Distribution.
The financial statements reflect the financial position, results of
operations, and cash flows of R.H. Donnelley as if it were a separate entity for
all periods presented. The financial statements include allocations of certain
D&B corporate headquarters assets (including prepaid pension assets) and
liabilities (including postretirement benefits), and expenses (including cash
management, legal, accounting, tax, employee benefits, insurance services, data
services and other D&B corporate overhead) relating to R.H. Donnelley's
businesses that will be transferred to R.H. Donnelley from D&B. Management
believes these allocations are reasonable. However, the costs of these services
and benefits charged to R.H. Donnelley are not necessarily indicative of the
costs that would have been incurred if R.H. Donnelley had performed or provided
these functions as a separate entity.
The financial information included herein may not necessarily reflect the
results of operations, financial position, changes in shareholder's equity and
cash flows of R.H. Donnelley in the future or what they would have been had it
been a separate, stand-alone entity during the periods presented.
For purposes of governing certain of the ongoing relationships between R.H.
Donnelley and D&B after the Distribution and to provide for orderly transition,
R.H. Donnelley and D&B will enter into various agreements including a
Distribution Agreement, Tax Allocation Agreement, Employee Benefits Agreement,
Shared Transaction Services Agreements, Intellectual Property Agreement, Data
Services Agreements, and Transition Services Agreements. Summaries of these
agreements are set forth elsewhere in this Information Statement.
F-49
<PAGE> 158
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash equivalents include highly liquid investments with a maturity of less
than three months at the time of acquisition.
Property and Equipment
Machinery and equipment are depreciated over their estimated useful lives
using principally the straight-line method. Estimated useful lives are five
years for machinery and equipment, ten years for furniture and fixtures, and
three to five years for computer equipment. Leasehold improvements are amortized
on a straight-line basis over the shorter of the term of the lease or the
estimated useful life of the improvement.
Capitalized Software Costs
Certain direct costs incurred for computer software to meet the internal
needs of R.H. Donnelley are capitalized. These costs are amortized on a
straight-line basis, over five years.
Long-Lived Assets
R.H. Donnelley adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121") in 1995. This
statement requires that long-lived assets and certain identifiable intangibles
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In general, this statement requires recognition of an impairment
loss when the sum of undiscounted expected future cash flows is less than the
carrying amount of such assets. The measurement for such an impairment loss is
then based on the fair value of the asset.
Revenue Recognition
R.H. Donnelley recognizes revenue as earned, which is based on contractual
relationships. For relationships where R.H. Donnelley acts as a sales agent,
revenue is comprised of sales commissions and is recognized upon execution of
contracts for the sale of advertising. For relationships where R.H. Donnelley is
the publisher, revenues are recognized when directories are published.
Publishing services are recognized throughout the year as the services are
performed.
Income from Partnerships and Related Fees
R.H. Donnelley has significant influence, but not a controlling interest
over its partnerships and accounts for them under the equity method of
accounting. Income from partnerships represent R.H. Donnelley's share of the
profits generated by the DonTech Partnerships, the Cendon Partnership and the
C-Don Partnership with Commonwealth Telephone Company during 1997, 1996 and
1995, and of the UniDon Partnership with United Telephone Company during 1995.
Other related fees represents R.H. Donnelley's revenue participation earnings in
1997 from APIL Partners Partnership ("APIL"), a subsidiary of Ameritech
Corporation.
Unbilled Receivables
For sales agency relationships, unbilled receivables represent revenues
earned from the sale of advertising in directories that are scheduled to be
published by the publisher. These receivables will be billed upon
F-50
<PAGE> 159
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
directory publication in accordance with contractual provisions. For businesses
where R.H. Donnelley is the publisher, unbilled receivables represent revenues
earned on published directories. Customers are billed ratably over the life of
the directories, generally 12 months.
Income Taxes
R.H. Donnelley has been included in the Federal and certain state income
tax returns of D&B. The provision for income taxes in the financial statements
has been calculated on a separate-company basis; income taxes paid on behalf of
R.H. Donnelley by D&B are included in equity. After the Distribution, R.H.
Donnelley will file separate income tax returns.
Concentration of Credit Risk
R.H. Donnelley maintains significant accounts receivable balances from its
relationships with affiliates of Ameritech, Bell Atlantic and with the CenDon
Partnership.
Deferred Contract Costs
Direct costs incurred by R.H. Donnelley as publisher are deferred until
these directories are published. Direct costs on contracts for which R.H.
Donnelley is a sales agent are expensed in the year in which they are incurred.
Contract Fees
All costs associated with the renegotiation and extension of contracts are
expensed when incurred.
Financial Instruments
At December 31, 1997, R.H. Donnelley's financial instruments included cash,
receivables, and accounts payable. At December 31, 1997, the fair values of
cash, receivables and accounts payable approximated carrying values because of
the short-term nature of these instruments.
Pro Forma Earnings Per Share of Common Stock
In 1997, R.H. Donnelley adopted SFAS No. 128, "Earnings Per Share." Basic
earnings per share are calculated by dividing net income by D&B's historical
weighted average common shares outstanding, reflecting the one-for-one
distribution ratio. Diluted earnings per share are calculated by dividing net
income by the sum of D&B's historical weighted average common shares outstanding
and potentially dilutive R.H. Donnelley common shares. Potentially dilutive
common shares are calculated in accordance with the treasury stock method, which
assumes that proceeds from the exercise of all employee options are used to
repurchase common stock at market value. The amount of shares remaining after
the proceeds are exhausted represent the potentially dilutive effect of the
options.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and the disclosure of contingent assets and liabilities. Actual
results could differ from those estimates. Estimates are used in the
determination of allowances for doubtful accounts, depreciation and
amortization, computer software, employee benefit plans, taxes and contingencies
among others.
F-51
<PAGE> 160
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. RECONCILIATION OF SHARES USED IN COMPUTING PRO FORMA EARNINGS PER SHARE
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Weighted average number of shares -- basic.................. 170,765 170,017 169,522
Effect of potentially dilutive stock options as of year
end....................................................... 300 272 361
------- ------- -------
Weighted average number of shares -- diluted................ 171,065 170,289 169,883
======= ======= =======
</TABLE>
As required by SFAS No. 128, R.H. Donnelley has provided a reconciliation
of basic weighted average shares to diluted weighted average shares within the
table outlined above. The conversion of dilutive shares has no impact on
operating results. The R.H. Donnelley's options generally expire 10 years after
the initial grant date.
4. NON-RECURRING ITEMS
Sale of Businesses
In 1997, included in the operating results was a pretax gain of $9,412,
related to the sale of its East Coast proprietary operations ("P-East"). In
connection with the sale of the P-East business, R.H. Donnelley has accrued for
the continuing obligation to provide publishing service through the year 2002.
The 1996 results reflect a pre-tax charge of $28,500, incurred as a result
of the sale of the West Coast proprietary operations ("P-West").
Restructuring
In 1995, R.H. Donnelley recorded a restructuring charge of $17,690 in
connection with the closing of the Terre Haute publishing facility. R.H.
Donnelley moved its publishing operations from Terre Haute, Indiana to Raleigh,
North Carolina. The restructuring charge was recorded to cover fixed asset
write-offs, severance, legal costs, publishing costs, and advertising claims. At
December 31, 1997, no restructuring reserve remains.
5. PARTNERSHIPS
DonTech
In 1991, R.H. Donnelley formed a general partnership with Ameritech
Corporation ("Ameritech"), the DonTech Partnership ("DonTech I"). Prior to
August 1997, DonTech I published various directories, solicited advertising, and
manufactured and delivered directories in Illinois and Northwest Indiana. Under
this agreement, R.H. Donnelley's share in DonTech I declined 1% each year
between 1995 and 1997, from 55% to 53%. In August 1997, R.H. Donnelley signed a
series of agreements with Ameritech changing the structure of the existing
partnership. A new partnership was formed ("DonTech II" and, together with
DonTech I, "DonTech" or the "DonTech Partnerships") appointing DonTech the
exclusive sales agent in perpetuity for yellow page directories published by
Ameritech in Illinois and Northwest Indiana. Under the new sales agency
partnership of which R.H. Donnelley receives a 50% share of the profits, DonTech
performs the advertising sales function for the directories and earns a
commission while APIL serves as the directories publisher. R.H. Donnelley
receives an ongoing revenue participation fee from APIL in exchange for
exclusive publishing rights. R.H. Donnelley receives payments directly from APIL
for publishing services pursuant to a contract valid through the year 2003.
R.H. Donnelley recognized equity earnings of $64,618, $121,354, and
$125,578 from the DonTech partnership during 1997, 1996, and 1995, respectively.
In addition, R.H. Donnelley recognized Revenue
F-52
<PAGE> 161
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Participation earnings from APIL of $51,610 during 1997. Together, they
represent 86%, 72% and 69% of R.H. Donnelley's operating income for the three
years ended December 31, 1997, respectively.
R.H. Donnelley's investment in DonTech was $151,979 and $215,373 at
December 31, 1997 and 1996, respectively.
CenDon
R.H. Donnelley has a partnership, the CenDon Partnership ("CenDon") with
the Sprint Corporation ("Sprint") through a subsidiary of Sprint. R.H. Donnelley
has a 50% interest in CenDon which publishes directories in selected Sprint
markets in Nevada, Florida, Virginia and North Carolina. R.H. Donnelley earns a
50% share of CenDon's income. R.H. Donnelley provides sales and publishing
services for the CenDon partnership. The partnership is billed upon the
publication of each directory based on a contractual rate for sales and is
billed pro rata during the year for publishing for services based on a
contractual fee. Sales and publishing services revenue for R.H. Donnelley were
$35,126, $32,258, and $29,800 for 1997, 1996 and 1995, respectively. The CenDon
partnership agreement extends until 2004. RHD recognized equity earnings of
$12,219, $9,695 and $9,451 from the CenDon partnership during 1997, 1996 and
1995, respectively. RHD's investment in CenDon was $15,031 and $15,902 at
December 31, 1997 and 1996, respectively.
6. OTHER TRANSACTIONS WITH AFFILIATES
D&B uses a centralized cash management system to finance its operations.
Cash deposits from the R.H. Donnelley's businesses are transferred to D&B on a
daily basis and D&B funds the R.H. Donnelley's disbursement bank accounts as
required. No interest has been charged on these transactions
D&B provided certain centralized services (see Note 1 to the financial
statements) to R.H. Donnelley. Expenses related to these services were allocated
to R.H. Donnelley based on utilization of specific services or, where an
estimate could not be determined, based on R.H. Donnelley's revenues in
proportion to D&B's total revenues. Management believes these allocation methods
are reasonable. However, the costs of these services and benefits charged to
R.H. Donnelley are not necessarily indicative of the costs that would have been
incurred if R.H. Donnelley had performed or provided these services as a
separate entity. These allocations were $21,531, $18,626 and $24,111 in 1997,
1996, and 1995 respectively, and are included in operating expenses and general
and administrative expenses in the Statement of Operations. Amounts due to D&B
for these expenses are included in equity.
Net distributions to D&B, included in equity, includes net cash transfers
third party liabilities paid on behalf of R.H. Donnelley by D&B, amounts due
to/from D&B for services and other charges. No interest has been charged on
these intercompany transactions.
F-53
<PAGE> 162
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
7. COMMITMENTS AND CONTINGENCIES
Certain of the R.H. Donnelley's operations are conducted from leased
facilities, which are under operating leases. Rent expense under real estate
operating leases for the years 1997, 1996, and 1995 was $8,612, $9,482 and
$10,068, respectively. The approximate minimum rent for real estate operating
leases that have remaining noncancelable lease terms in excess of one year at
December 31, 1997, are:
<TABLE>
<S> <C>
1998....................................................... $8,031
1999....................................................... 6,325
2000....................................................... 5,365
2001....................................................... 4,874
2002....................................................... 5,030
Thereafter................................................. 27,742
-------
Total............................................ $57,367
=======
</TABLE>
R.H. Donnelley also leases certain computer and other equipment under
operating leases. Rent expense under computer and other equipment leases was
$2,245, $1,762 and $1,072 for 1997, 1996, and 1995 respectively. At December 31,
1997 the approximate minimum annual rental obligation for computer and other
equipment under operating leases that have remaining noncancelable lease terms
in excess of one year is not significant.
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in
the United States district court for the Southern district of New York, having
as defendant D&B, A.C. Nielson Company, and IMS International Inc. ("the IRI
Action"). New D&B will assume and indemnify R.H. Donnelley against any payments
to be made by R.H. Donnelley in respect to the IRI Action under the Distribution
Agreement, under the Indemnity and Joint Defense Agreement or otherwise,
including any ongoing legal fees and expenses related thereto.
In the normal course of business, R.H. Donnelley is subject to proceedings,
lawsuits and other claims. In the opinion of R.H. Donnelley management, the
outcome of such current legal proceedings, claims and litigation will not
materially affect R.H. Donnelley's financial position or results of operations.
8. PENSION AND POSTRETIREMENT BENEFITS
Upon the Distribution, R.H. Donnelley will assume responsibility for
pension benefits for active employees of R.H. Donnelley, DonTech active
employees and DonTech vested terminated employees with benefits under the D&B
Retirement Plan. The responsibility for R.H. Donnelley retirees and vested
terminated employees prior to the Distribution will remain with New D&B. R.H.
Donnelley will assume responsibility for postretirement benefits for active
employees of R.H. Donnelley and a portion of the cost of postretirement benefits
for certain DonTech employees. An allocation of assets and liabilities related
to active employee benefits has been included in the financial statements.
Pension
R.H. Donnelley participates in D&B's defined benefit pension plan covering
substantially all employees. Effective January 1, 1997, the D&B Retirement Plan
was amended to provide retirement income based on a percentage of annual
compensation, rather than final pay. R.H. Donnelley accounts for the plan as a
multi-employer plan. Accordingly, RHD has recorded pension costs as allocated by
D&B totaling $996, $1,082, and
F-54
<PAGE> 163
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
$1,077 for the years 1997, 1996 and 1995, respectively. The assumptions of the
multi-employer plan are described below.
The weighted average expected long-term rate of return on pension plan
assets was 9.70% for 1997 and 9.75% for 1996, and 1995. At December 31, 1997 and
1996, the projected benefit obligations were determined using weighted average
discount rates of 7.01% and 7.77%, respectively, and weighted average rates of
increase in future compensation levels of 4.46% and 5.15%, respectively. Plan
assets are invested in diversified portfolios that consist primarily of equity
and debt securities.
Savings Plan
Certain employees of R.H. Donnelley are also eligible to participate in the
D&B sponsored defined contribution plan. RHD makes a matching contribution of up
to 50% of employees' contribution based on specified limits of the employee's
salary. R.H. Donnelley's expense related to this plan was $2,243, $2,268, and
$3,288 for the years 1997, 1996 and 1995, respectively.
Postretirement Benefits
In addition to providing pension benefits, D&B provides various health-care
and life-insurance benefits for retired employees. Employees are eligible for
these benefits if they reach normal retirement age while working for R.H.
Donnelley.
R.H. Donnelley accounts for the plan as a multi-employer plan. Accordingly,
R.H. Donnelley has recorded postretirement benefits costs as allocated by D&B
totaling $1,724, $1,873, and $1,864 for the years 1997, 1996 and 1995. The
assumption used for the multi-employer plan follows.
The accumulated postretirement benefits obligation at December 31, 1997 and
1996, was determined using discount rates of 7.0% and 7.75%, respectively. The
assumed rate of future increases in per capita cost of covered health-care
benefits is 7.3% in 1998, decreasing gradually to 5.0% for the year 2021 and
remaining constant thereafter.
9. EMPLOYEE STOCK OPTION PLANS
Under D&B's Key Employees Stock Option Plans, certain employees of R.H.
Donnelley are eligible for the grant of stock options, stock appreciation rights
and limited stock appreciation rights in tandem with stock options. These awards
are granted at the market price on the date of the grant.
Immediately following the Distribution, outstanding awards under the
post-Distribution D&B Key Employees Stock Option Plans held by R.H. Donnelley
employees will be adjusted to have the same ratio of the exercise price per
option to the market value per share, the same aggregate difference between
market value and exercised price and the same vesting provisions, option periods
and other terms and conditions applicable prior to the Distribution.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which requires that companies with stock-based compensation plans
either recognize compensation expense based on the fair value of options granted
or continue to apply the existing accounting rules and disclose pro forma net
income and earnings per share assuming the fair value method had been applied.
R.H. Donnelley has chosen to continue applying Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for the fixed stock option
plans. Had compensation cost for R.H. Donnelley's stock-based compensation plans
been determined based on the fair value at the grant dates for awards to R.H.
Donnelley's employees under those plans, consistent with the
F-55
<PAGE> 164
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
method of SFAS No. 123, R.H. Donnelley's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Net income:
As reported................................ $84,905 $78,085 $108,397
Pro forma.................................. $84,542 $77,844 $108,397
Pro forma basic earnings per share of
common stock
As reported............................. $ 0.50 $ 0.46 $ 0.64
Pro forma............................... $ 0.50 $ 0.46 $ 0.64
Pro forma diluted earnings per share of
common stock
As reported............................. $ 0.50 $ 0.46 $ 0.64
Pro forma............................... $ 0.49 $ 0.46 $ 0.64
</TABLE>
The pro-forma disclosures shown are not representative of the effects on
income and earnings per share in future years.
The fair value of D&B's stock options used to compute the R.H. Donnelley's
pro forma income disclosures is the estimated present value at grant date using
the Black-Scholes option-pricing model. The weighted average assumptions used
for 1997 were as follows dividend yield of 3.3%, expected volatility of 20%,
risk-free interest rate of 5.73%, and an expected holding period of 4.5 years.
The following weighted average assumptions were used to value grants made prior
to the November 1, 1996 distribution: dividend yield of 4.7%, expected
volatility of 15%, a risk-free interest rate of 6.08%, and an expected holding
period of five years. The incremental fair value of the R.H. Donnelley's options
converted on October 31, 1996, used to compute pro-forma income disclosures and
the value of new grants after November 1, 1996, was determined using the
Black-Scholes option-pricing model with the following weighted average
assumptions: dividend yield of 3.7%, expected volatility of 17%, a risk-free
interest rate of 5.85%, and an expected holding period of 4.5 years. The D&B
assumptions used in the option-pricing model may not be valid for R.H. Donnelley
on a going forward basis.
Options outstanding at December 31, 1997, were granted during the years
1988 through 1997 and are exercisable over periods ending not later than 2007.
At December 31, 1997 and 1996, options for 606,459 shares and 575,941 shares of
common stock, respectively, were exercisable and 1,450,195 shares, 4,240,772
shares and 10,306,592 shares, respectively, were available for future grants
under the plans at December 31, 1997, 1996 and 1995, respectively.
F-56
<PAGE> 165
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Changes in stock options for the three years ended December 31, 1997, are
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE($)
--------- --------
<S> <C> <C>
Options outstanding, January 1, 1995: 340,730 $53.48
Granted................................................... 79,228 63.20
Exercised................................................. (27,619) 44.54
Surrendered or expired.................................... -- --
--------- ------
Options outstanding, December 31, 1995: 392,339 56.07
Granted................................................... -- --
Exercised................................................. (52,133) 51.99
Surrendered or expired.................................... (8,034) 57.18
--------- ------
Options outstanding, October 31, 1996....................... 332,172 56.68
--------- ------
Options converted, November 1, 1996......................... 876,137 21.48
Granted................................................... 474,305 22.87
Exercised................................................. (9,053) 20.95
Surrendered or expired.................................... (15,816) 22.12
--------- ------
Options outstanding, December 31, 1996:..................... 1,325,573 21.97
Granted................................................... 378,991 29.95
Exercised................................................. (175,064) 20.45
Surrendered or expired.................................... (119,412) 22.87
--------- ------
Options outstanding, December 31, 1997...................... 1,410,088 $24.23
========= ======
</TABLE>
The weighted average fair value of options granted during 1997, 1996 and
1995 was $5.54, $3.60 and $7.60, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
STOCK OPTIONS OUTSTANDING STOCK OPTIONS EXERCISABLE
---------------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES SHARES LIFE PRICE SHARES PRICE
-------------- --------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
$ 15.73-$20.46 271,096 4 years $19.36 230,672 $19.17
$ 20.94-$24.75 767,626 6.7 years $23.13 375,787 $23.05
$ 27.72-$30.22 371,366 9.8 years $30.06 -- $ --
--------- -------
1,410,088 606,459
========= =======
</TABLE>
F-57
<PAGE> 166
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
10. INCOME TAXES
Provision for income taxes consisted of:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current Tax Provision:
U.S. Federal............................. $ 63,629 $ 28,634 $ 48,839
State and local.......................... 8,660 15,675 13,232
-------- -------- --------
Total current tax provision...... 72,289 44,309 62,071
Deferred tax (benefit) provision
U.S. Federal............................. (15,777) 19,347 9,473
State and local.......................... 2,734 (2,799) 2,854
-------- -------- --------
Total deferred tax (benefit)
provision...................... (13,043) 16,548 12,327
-------- -------- --------
Provision for income taxes............... $ 59,246 $ 60,857 $ 74,398
======== ======== ========
</TABLE>
The following table summarizes the significant differences between the U.S.
Federal statutory tax rate and R.H. Donnelley's effective tax rate for financial
statement purposes.
<TABLE>
<CAPTION>
1997 1996 1995
------ ----- -----
<S> <C> <C> <C>
Statutory tax rate................................. 35.0% 35.0% 35.0%
State and local taxes, net of U.S. Federal tax
benefit.......................................... 5.1 6.0 5.7
Non-deductible capital losses...................... 0.0 2.8 0.0
Non-deductible expense............................. 1.0 0.0 0.0
------ ----- -----
Effective tax rate................................. 41.1% 43.8% 40.7%
====== ===== =====
</TABLE>
Deferred tax assets (liabilities) consisted of the following at December
31,
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits................................ $ 4,288 $ 4,008
Postemployment benefits................................ 3,210 1,718
Reorganization and restructuring costs................. 937 1,606
Bad debts.............................................. 1,606 4,643
Intangibles............................................ 2,571 2,367
Other.................................................. 15,535 401
------- -------
Total deferred tax asset................................. 28,147 14,743
------- -------
Deferred tax liabilities:
Revenue recognition.................................... 45,160 51,270
Pension................................................ 3,812 4,132
Plant, property and equipment.......................... 829 906
Capitalized project costs.............................. 12,802 12,425
------- -------
Total deferred tax liabilities........................... 62,603 68,733
------- -------
Net deferred tax liability............................... $34,456 $53,990
======= =======
</TABLE>
F-58
<PAGE> 167
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
11. SUPPLEMENTAL FINANCIAL INFORMATION
Property and Equipment, Net:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Computer equipment..................................... $ 35,516 $ 38,971
Machinery and equipment................................ 4,949 5,368
Furniture and fixtures................................. 7,927 8,417
Leasehold improvements................................. 7,193 5,541
-------- --------
Total at cost................................ 55,585 58,297
Less accumulated depreciation.......................... (30,125) (27,545)
-------- --------
Total net fixed assets................................. $ 25,460 $ 30,752
======== ========
</TABLE>
Computer Software:
<TABLE>
<CAPTION>
COMPUTER
SOFTWARE
--------
<S> <C>
January 1, 1996............................................. $22,101
Additions at cost........................................... 21,859
Amortization................................................ (3,910)
-------
December 31, 1996...................................... 40,050
Additions at cost........................................... 7,190
Transfer in................................................. 95
Amortization................................................ (9,789)
-------
December 31, 1997...................................... $37,546
=======
</TABLE>
Accumulated amortization on computer software costs was $14,001 and $5,896
at December 31, 1997 and 1996, respectively.
F-59
<PAGE> 168
R.H. DONNELLEY INC.
(A WHOLLY OWNED SUBSIDIARY OF THE DUN & BRADSTREET CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
12. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS(A) PERIOD
- ------------------------------------------------- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
For the year ended December 31, 1997........... $11,607 $11,815 $19,408 $ 4,014
For the year ended December 31, 1996........... 21,167 11,743 21,303 11,607
For the year ended December 31, 1995........... 32,421 10,861 22,115 21,167
</TABLE>
- ---------------
(a) Includes accounts written off.
13. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------- YEAR ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 DECEMBER 31
-------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
1997
Revenues........................ $20,207 $ 60,465 $62,728 $ 96,465 $239,865
Operating income (loss)......... $(2,290) $ 9,789 $46,833 $ 80,407 $134,739
Net income...................... $(1,374) $ 5,873 $28,100 $ 52,306 $ 84,905
Pro forma earning per share
data:
Basic......................... $ (0.01) $ 0.03 $ 0.16 $ 0.32 $ 0.50
Diluted....................... $ (0.01) $ 0.03 $ 0.16 $ 0.32 $ 0.50
1996
Revenues........................ $23,170 $ 64,615 $57,743 $124,501 $270,029
Operating income (loss)......... $ 6,921 $ (4,400) $27,468 $137,453 $167,442
Net income...................... $ 3,889 $(18,490) $15,437 $ 77,249 $ 78,085
Pro forma earning per share
data:
Basic......................... $ 0.02 $ (0.11) $ 0.09 $ 0.46 $ 0.46
Diluted....................... $ 0.02 $ (0.11) $ 0.09 $ 0.46 $ 0.46
</TABLE>
F-60
<PAGE> 169
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Partners of DonTech
We have audited the accompanying combined balance sheets of AM-DON (doing
business as "DonTech" and hereafter referred to as "DonTech I") and the DonTech
II Partnership ("DonTech II") as of December 31, 1997 and 1996, and the related
combined statements of operations, partners' capital, and cash flows for each of
the years in the three year period ended December 31, 1997. These financial
statements are the responsibility of the management of DonTech I and DonTech II.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of DonTech I and
DonTech II as of December 31, 1997 and 1996, and the combined results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
January 8, 1998
F-61
<PAGE> 170
DONTECH
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales...................................................... $503,912 $459,083 $442,952
Less Allowances............................................ 77,788 50,202 51,076
-------- -------- --------
Net Sales........................................ 426,124 408,881 391,876
Expenses:
Salary and Wages......................................... 12,133 -- --
Commission............................................... 4,558 -- --
Telephone Company Fees................................... 83,210 83,532 83,995
Printing and Manufacturing............................... 39,085 35,221 34,632
Selling.................................................. 36,236 33,060 30,464
Compilation.............................................. 8,888 9,067 9,870
Delivery................................................. 7,703 7,316 10,950
Administrative........................................... 7,696 3,444 6,138
Occupancy and Depreciation............................... 9,880 8,148 6,175
Other.................................................... 12,489 9,476 8,980
-------- -------- --------
Total Operating Expenses......................... 221,878 189,264 191,204
-------- -------- --------
Income from Operations........................... 204,246 219,617 200,672
Other Income............................................... 2,064 2,677 3,775
-------- -------- --------
Net Income....................................... $206,310 $222,294 $204,447
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-62
<PAGE> 171
DONTECH
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 6,824 $ 4,559
Accounts Receivable, Net of Allowance for Doubtful
Accounts of $35,581 (1997) and $13,908 (1996).......... 225,240 261,252
Deferred Expenses......................................... 41,513 86,329
Commission Receivable..................................... 43,681 --
Other..................................................... 6,241 3,057
-------- --------
Total Current Assets.............................. 323,499 355,197
Fixed Assets, Net of Accumulated Depreciation and
Amortization.............................................. 4,898 6,621
-------- --------
Total Assets...................................... $328,397 $361,818
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts Payable.......................................... $ 21,417 $ 23,720
Accrued Liabilities....................................... 5,623 5,106
Deferred Sales Revenue.................................... 162,760 174,105
-------- --------
Total Current Liabilities......................... 189,800 202,931
Partners' Capital........................................... 165,597 158,887
Partnership Contributions Receivable........................ (27,000) --
-------- --------
Total Partners' Capital........................... 138,597 158,887
-------- --------
Total Liabilities and Partners' Capital........... $328,397 $361,818
======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-63
<PAGE> 172
DONTECH
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................ $ 206,310 $ 222,294 $ 204,447
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization...................... 3,246 3,526 2,806
Provision for Uncollectible Accounts............... 32,474 7,105 6,190
Changes in Assets and Liabilities:
Increase in Accounts Receivable.................. (40,144) (27,791) (28,295)
(Increase) Decrease in Deferred Printing and
Manufacturing................................. 20,788 (5,460) (2,476)
(Increase) Decrease in Deferred Selling.......... 13,076 (1,430) (4,957)
Decrease in Deferred Compilation................. 5,309 255 1,046
Decrease in Deferred Delivery.................... 1,895 19 518
Decrease in Deferred Directory Operating
Service....................................... 1,468 322 630
(Increase) Decrease in Deferred Other............ 2,280 702 (1,616)
(Increase) Decrease in Other Current Assets...... (3,184) (1,675) 75
Increase (Decrease) in Accounts Payable.......... (2,303) 923 (3,433)
Increase (Decrease) in Accrued Liabilities....... 517 (5,420) 712
Increase (Decrease) in Deferred Sales Revenue.... (11,345) 5,280 17,920
--------- --------- ---------
Total Adjustments............................. 24,077 (23,644) (10,880)
--------- --------- ---------
Net Cash Provided by Operating Activities..... 230,387 198,650 193,567
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Fixed Assets............................. (1,522) (1,029) (5,850)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partner Contributions................................. 2,998 -- --
Distributions to Partners............................. (229,598) (195,553) (191,200)
--------- --------- ---------
Net Cash Used in Financing Activities......... (226,600) (195,553) (191,200)
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents.... 2,265 2,068 (3,483)
Cash and Cash Equivalents, Beginning of Year............ 4,559 2,491 5,974
--------- --------- ---------
Cash and Cash Equivalents, End of Year.................. $ 6,824 $ 4,559 $ 2,491
========= ========= =========
NONCASH FINANCING ACTIVITIES:
Partnership Capital Contributions Receivable.......... $ 27,000 $ -- $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-64
<PAGE> 173
DONTECH
COMBINED STATEMENTS OF PARTNERS' CAPITAL
THREE YEARS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
THE
REUBEN H. AMERITECH
DONNELLEY PUBLISHING OF
CORPORATION ILLINOIS, INC. TOTAL
----------- -------------- ---------
<S> <C> <C> <C>
Balance, December 31, 1994............................. $ 67,749 $ 51,150 $ 118,899
Net Income............................................. 112,446 92,001 204,447
Distributions to Partners.............................. (107,525) (83,675) (191,200)
--------- --------- ---------
Balance, December 31, 1995............................. 72,670 59,476 132,146
Net Income............................................. 120,039 102,255 222,294
Distributions to Partners.............................. (106,920) (88,633) (195,553)
--------- --------- ---------
Balance, December 31, 1996............................. 85,789 73,098 158,887
Contributions, Per Agreement........................... 13,500 13,500 27,000
Contributions Receivable............................... (13,500) (13,500) (27,000)
Net Income............................................. 118,162 88,148 206,310
Distributions to Partners.............................. (121,688) (104,912) (226,600)
--------- --------- ---------
Balance, December 31, 1997............................. $ 82,263 $ 56,334 $ 138,597
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-65
<PAGE> 174
DONTECH
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. FORM OF ORGANIZATION AND NATURE OF BUSINESS
AM-DON d.b.a. DonTech ("DonTech") is a general partnership between R.H.
Donnelley Inc. ("R.H. Donnelley"), a Delaware corporation, and Ameritech
Publishing of Illinois, Inc. ("API/IL"), an Illinois corporation, doing business
as Ameritech advertising services ("Aas"). Under a new structure as defined in
the "Master Agreement" dated August 19, 1997, the existing partnership is
defined as "DonTech I". Concurrently, API/IL and Donnelley formed a new
partnership defined as "DonTech II".
DonTech I participated in a Directory Agreement with R.H. Donnelley,
Illinois Bell Telephone Company ("IBT"), doing business as Ameritech Illinois,
API/IL and Aas. DonTech I also participated in a Subcontracting Agreement with
API to perform certain of API's obligations under the Publishing Services
Contract between API and Indiana Bell Telephone Company, Incorporated ("Indiana
Bell"), doing business as Ameritech Indiana. DonTech I published various
directories, as identified in the Directory Agreements, solicited advertising,
its primary source of revenues, and manufactured and delivered such directories.
DonTech I's net income was allocated to each partner based on a predefined
percentage as set forth in the amended partnership agreement.
In accordance with the Second Amended and Restated AM-Don Partnership
Agreement, effective August 19, 1997, the DonTech I partnership ceased
publishing directories as of January 1, 1998. The partnership will recognize the
deferred revenue and expenses recorded as of December 31, 1997 over the
remaining life of those directories published prior to January 1, 1998. Upon
completion of the earnings process, the partnership will thereafter wind up in
accordance with the agreement.
In August 1997, R.H. Donnelley and API/IL reached an agreement regarding a
revised partnership structure through which a new DonTech partnership became the
exclusive sales agent in perpetuity for the yellow page directories to be
published in Illinois and Northwest Indiana by APIL Partners Partnership (the
"Publisher"). The new partnership, known as "DonTech II", receives a 27%
commission on sales, net of provisions (capped at 6.1%), from the Publisher.
DonTech II's cost structure includes only sales, sales operations, office
services, finance, facilities and related overhead. DonTech II profits are
shared equally between the partners.
A Board of Directors (the "Board") was appointed to administer the
activities of each partnership. From time to time during the term of the
partnerships, the Board may call for additional capital contributions in equal
amounts from each of the partners if, in the opinion of the Board, additional
capital is required for the operation of the partnerships.
The accompanying financial statements of DonTech I and DonTech II are shown
on a combined basis. As DonTech II was formed in August 1997, the combined
statements of operations for the three years in the period ended December 31,
1997 only include the results of operations of DonTech II for the period from
August 1997 through December 1997. All significant affiliated accounts and
transactions have been eliminated in preparation of the combined financial
statements.
2. SIGNIFICANT ACCOUNTING POLICIES
a. Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with an
initial maturity date of three months or less. The carrying value of cash
equivalents estimates fair value due to the short-term nature.
b. Revenue Recognition
Substantially all DonTech I sales made to customers in the cities covered
by the directories are recorded as deferred sales revenue and accounts
receivable in the month of publication. Revenue related to these sales
F-66
<PAGE> 175
DONTECH
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS)
is recognized over the lives of the directories, generally twelve months. Sales
made to customers outside the cities covered by the directories are recognized
each quarter. Sales for national accounts are recognized in full in the month of
publication.
For DonTech II, revenue is comprised of sales commissions and is recognized
upon execution of contracts for the sale of advertising.
c. Fixed Assets
Fixed assets are recorded at cost and are depreciated on a straight-line
basis over the estimated useful lives of the assets. Upon asset retirement or
other disposition, cost and the related accumulated depreciation are removed
from the accounts, and gain or loss is included in the statement of operations.
Amounts for repairs and maintenance are charged to operations as incurred.
d. Deferred Expenses
The printing, manufacturing, compilation, sales, delivery and
administrative costs of DonTech I publications are deferred and recognized in
proportion to revenue.
e. Postretirement Benefits Other Than Pensions
The partnerships are obligated to provide postretirement benefits
consisting mainly of life and health insurance to substantially all employees
and their dependents. The accrual method of accounting is utilized for
postretirement health care and life insurance benefits.
f. Income Taxes
No provision for income taxes is made as the proportional share of each
partnership's income is the responsibility of the individual partners.
3. DEFERRED EXPENSES
Deferred expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Printing and manufacturing.................................. $13,932 $34,720
Selling..................................................... 20,331 33,407
Compilation................................................. 3,310 8,619
Delivery.................................................... 1,089 2,984
Directory operating services................................ 750 2,218
Other....................................................... 2,101 4,381
------- -------
$41,513 $86,329
======= =======
</TABLE>
F-67
<PAGE> 176
DONTECH
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS)
4. FIXED ASSETS
Fixed assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Machinery and equipment..................................... $18,816 $17,329
Furniture and fixtures...................................... 3,727 3,712
Leasehold improvements...................................... 995 974
------- -------
23,538 22,015
Less accumulated depreciation and amortization.............. 18,640 15,394
------- -------
$ 4,898 $ 6,621
======= =======
</TABLE>
5. RELATED PARTY TRANSACTIONS
DonTech I
Under the Directory Agreement, DonTech I is obligated to pay IBT a minimum
of $75 million per year in exchange for billing and collection services
performed by IBT. The base fee for these services is $75 million for each
calendar year until the Directory Agreement is terminated. Under the terms of
the recently revised partnership agreement the responsibility for payment of
these fees is transferred to Ameritech effective January 1, 1998.
In addition to the base fee, DonTech I has agreed to pay IBT an amount
equal to 7 1/2% of the increase in total revenue received from certain sources
identified in the Directory Agreement over such revenues received in the
immediately preceding calendar year. The additional fee due to IBT was $609,
$1,122 and $487 in 1997, 1996 and 1995, respectively. IBT also provides
directory operations services (white pages compilation) to DonTech I. DonTech I
paid approximately $2 million to IBT in 1997, 1996 and 1995 for these services.
However, effective January 1, 1998, under the terms of the revised partnership
agreement the cost of these services becomes the responsibility of Ameritech.
R.H. Donnelley provides compilation, photocomposition, and data processing
services to DonTech I. The Dun & Bradstreet Corporation, of which R.H. Donnelley
is a wholly owned subsidiary, provides employee benefits and administrative
services, and certain business insurance coverages for each partnership. The
amount paid for these services is determined at the beginning of each year based
upon estimated activity and adjusted to actual at the end of each year. The
amount paid for these services was approximately $22 million in each of the
years ended December 31, 1997, 1996 and 1995. The amount paid for employee
benefits includes the administration of each partnership's Profit Sharing and
401(k) Plans as well as its health care, long and short term disability, dental
and pension plans. Effective June 1, 1997, DonTech I became self-insured for
health care, long and short term disability and dental plans at which time it
terminated its coverages for these plans through The Dun & Bradstreet
Corporation. DonTech II will assume the obligations of these plans.
DonTech I also entered into subcontracting agreements for the publishing of
certain Indiana Bell directories. For the first four months of 1997, under a
Directory Fulfillment Memorandum of Understanding, DonTech I was obligated to
perform certain directory fulfillment services for Aas. The obligation for these
services was transferred to an outside vendor effective May 1, 1997.
Amended Partnership Allocation
In 1997, the partners negotiated a settlement agreement regarding excessive
bad debt write-offs incurred by DonTech I during the year ended December 31,
1997. The agreement provided for a special allocation of
F-68
<PAGE> 177
DONTECH
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS)
the excessive bad debts between the partners based upon a negotiated ratio. The
effect of this settlement agreement has been included in the allocation of net
income as presented in the statement of partners' capital at December 31, 1997.
DonTech II
Under the terms of the DonTech II partnership agreement, The Dun &
Bradstreet Corporation provides certain employee benefits and administrative
services. These include the administration of the partnership's profit Sharing
and 401(k) Plans, as well as its pension plans. Also, certain business insurance
coverages for the partnership will be provided by both The Dun & Bradstreet
Corporation and Ameritech.
Under the provisions of the "Revenue Participation Agreement" dated August
19, 1997, in exchange for exclusive publishing rights, the Publisher agreed to
pay R.H. Donnelley revenue participation interests. The revenue participation
interests are based upon gross revenues of DonTech II, net of provisions (capped
at 6.1% per annum) and sales commissions paid by DonTech II. The revenue
participation interest is as follows:
<TABLE>
<S> <C>
1997................................................. 43.7%
1998................................................. 34.8%
1999 and thereafter.................................. 35.9%
</TABLE>
6. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject each partnership to
concentration of credit risk consist principally of commercial paper and
accounts receivables. The partnerships invest their excess cash in commercial
paper with an investment rating of AA or higher and have not experienced any
losses on these investments.
Each partnership's trade accounts receivable are primarily composed of
amounts due from customers whose businesses are in the state of Illinois.
Collateral is generally not required from either partnership's customers.
7. PARTNERSHIP CONTRIBUTION RECEIVABLE
For DonTech II, the respective partner capital contributions are to be made
in equal proportion according to the Initial Capital Schedule as reflected in
the DonTech II Partnership Agreement. As of December 31, 1997, the total amount
of capital required to be contributed by the partners was $27,000.
At December 31, 1997, the respective partnership capital accounts have been
credited with the amount of required capital contributions and have been offset
by a corresponding contributions receivable as the funds had not been received.
8. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results could differ from those estimates.
F-69
<PAGE> 178
DONTECH
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS)
9. LEASE COMMITMENTS
DonTech I leases certain office and warehouse facilities under
noncancelable lease arrangements. These leases and the related obligations will
be assumed by Don Tech II. Rent expense under these operating leases was
approximately $2,603, $2,564 and $2,323 in 1997, 1996 and 1995, respectively.
The future minimum lease payments required under noncancelable operating
leases that have initial or remaining lease terms in excess of one year as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
1998................................................ $1,814
1999................................................ 843
2000................................................ 814
2001................................................ 726
2002................................................ 466
Thereafter.......................................... 831
------
$5,494
======
</TABLE>
10. EMPLOYEE RETIREMENT AND PROFIT PARTICIPATION PLANS
Each partnership participates in a defined benefit pension plan covering
substantially all of its respective employees (the "Principal Plan"). The
Principal Plan's assets are invested in equity funds, fixed income funds and
real estate. The components of net periodic pension costs for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost................................................ $ 935 $ 909 $ 945
Interest cost............................................... 1,185 1,020 1,093
Actual return on plan assets................................ (3,465) (1,618) 185
Net amortization and deferral............................... 2,465 870 (549)
------- ------- -------
Net periodic pension cost................................... $ 1,120 $ 1,181 $ 1,674
======= ======= =======
</TABLE>
The reconciliation of the funded status of the Principal Plan at December
31 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Fair value of plan assets................................... $ 20,195 $ 13,863
-------- --------
Actuarial present value of benefit obligations:
Vested benefits........................................... (12,706) (10,540)
Nonvested benefits........................................ (1,086) (1,285)
-------- --------
Accumulated benefit obligations............................. (13,792) (11,825)
Effect of future salary increases........................... 3,895 3,773
Projected benefit obligations............................... (17,686) (15,598)
-------- --------
Plan assets in excess of (less than) projected benefit
obligations............................................... 2,509 (1,735)
Unrecognized net (gain)/loss................................ (2,093) 43
Unrecognized prior service cost............................. 2,826 2,751
Adjustment to recognize minimum liability................... (148) (189)
-------- --------
Prepaid (accrued) pension cost.............................. $ 3,094 $ 870
======== ========
</TABLE>
F-70
<PAGE> 179
DONTECH
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRINCIPAL ASSUMPTIONS 1997 1996 1995
--------------------- -------- -------- -------
<S> <C> <C> <C>
Weighted average discount rate.............................. 7.00% 7.75% 7.50%
Weighted average rate of compensation increase.............. 3.16% 3.16% 4.16%
Long-term rate of return on assets.......................... 9.75% 9.75% 9.75%
</TABLE>
Additionally, each respective partnership participates in a Profit
Participation Plan (the "Profit Plan") that covers substantially all its
employees. Employees may voluntarily contribute up to 16% of their salaries to
the Profit Plan and are guaranteed a matching contribution of fifty cents per
dollar contributed up to 6%. Each partnership also makes contributions to the
Profit Plan based on a formula and contingent upon the attainment of financial
goals set in advance as defined in the Plan. The contributions made to the plan
were $926, $809 and $1,025 in 1997, 1996 and 1995, respectively.
11. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED
BEGINNING TO BALANCE AT
OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS(A) PERIOD
----------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Allowance For Doubtful Accounts
For year ended December 31, 1997............... $13,908 $40,230 $18,557 $35,581
For year ended December 31, 1996............... $23,106 $50,202 $59,400 $13,908
For year ended December 31, 1995............... $18,777 $51,076 $46,747 $23,106
</TABLE>
- ---------------
(a) Includes accounts written off.
F-71
<PAGE> 1
EXHIBIT 99.2
, 1998
To all Dun & Bradstreet Stockholders:
On , 1998, the Board of Directors of The Dun & Bradstreet
Corporation ("D&B") declared a dividend of shares of The New Dun & Bradstreet
Corporation ("New D&B") to achieve the reorganization of D&B into two separate
companies.
If you are a stockholder of D&B as of the close of business on ,
1998, the record date for the dividend, certificates representing shares in New
D&B will be mailed to you automatically. For each share of D&B you hold, you
will receive one share of New D&B.
In connection with the Distribution, D&B will change its name to "R.H.
Donnelley Corporation" and New D&B will change its name to "The Dun & Bradstreet
Corporation". Stock certificates representing your shares in New D&B will be
sent to you on or about June 30, 1998. After the Distribution, the D&B stock
certificates you currently hold will represent your investment in the "new" R.H.
Donnelley Corporation. D&B stockholders should not send in their D&B stock
certificates.
Shares of New D&B will trade "regular way" on the New York Stock Exchange
beginning , 1998. The symbol for New D&B will be "DNB" and the symbol
for the "new" R.H. Donnelley Corporation will become "RHD".
Detailed information on the reorganization plan and the businesses of New
D&B and R.H. Donnelley is contained in the accompanying document, which we urge
you to read carefully.
The Board believes the reorganization will enhance management focus on the
businesses allowing the two companies to pursue opportunities that will improve
their competitive position, enhance their valuation and create wealth for
stockholders.
Sincerely,
Volney Taylor
Chairman and Chief Executive Officer
The Dun & Bradstreet Corporation
<PAGE> 1
Exhibit 99.3
- --------------------------------------------------------------------------------
THE NEW DUN & BRADSTREET CORPORATION
and
FIRST CHICAGO TRUST COMPANY OF NEW YORK
as Rights Agent
Rights Agreement
Dated as of June ___, 1998
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
Section 1. Certain Definitions........................................ 2
Section 2. Appointment of Rights Agent................................ 8
Section 3. Issue of Right Certificates................................ 9
Section 4. Form of Right Certificates................................. 12
Section 5. Countersignature and Registration.......................... 13
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost
or Stolen Right Certificates............................. 14
Section 7. Exercise of Rights, Purchase Price; Expiration
Date of Rights........................................... 15
Section 8. Cancellation and Destruction of Right
Certificates............................................. 18
Section 9. Availability of Shares of Preferred Stock.................. 19
Section 10. Preferred Stock Record Date................................ 22
Section 11. Adjustment of Purchase Price, Number of Shares
and Number of Rights..................................... 22
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares................................................ 42
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earnings Power................................. 42
Section 14. Fractional Rights and Fractional Shares.................... 50
Section 15. Rights of Action........................................... 53
Section 16. Agreement of Right Holders................................. 54
Section 17. Right Certificate Holder Not Deemed a
Stockholder.............................................. 55
Section 18. Concerning the Rights Agent................................ 55
Section 19. Merger or Consolidation or Change of Name of
Rights Agent............................................. 56
Section 20. Duties of Rights Agent..................................... 57
Section 21. Change of Rights Agent..................................... 62
<PAGE> 3
Page
----
Section 22. Issuance of New Right Certificates......................... 64
Section 23. Redemption................................................. 65
Section 24. Exchange................................................... 66
Section 25. Notice of Certain Events................................... 68
Section 26. Notices.................................................... 70
Section 27. Supplements and Amendments................................. 71
Section 28. Successors................................................. 72
Section 29. Benefits of this Agreement................................. 72
Section 30. Determinations and Actions by the Board of
Directors................................................ 72
Section 31. Severability............................................... 73
Section 32. Governing Law.............................................. 73
Section 33. Counterparts............................................... 73
Section 34. Descriptive Headings....................................... 74
- ii -
<PAGE> 4
RIGHTS AGREEMENT
Agreement, dated as of June __, 1998 between The New Dun &
Bradstreet Corporation, a Delaware corporation (the "Company"), and First
Chicago Trust Company of New York (the "Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each share of
Common Stock (as hereinafter defined) of the Company outstanding as of the close
of business (as defined below) on June ___, 1998 (the "Record Date") each Right
representing the right to purchase one-thousandth (subject to adjustment) of a
share of Preferred Stock (as hereinafter defined), upon the terms and subject to
the conditions herein set forth, and the Board of Directors has further
authorized and directed the issuance of one Right (subject to adjustment as
provided herein) with respect to each share of Common Stock that shall become
outstanding between the Record Date and the earliest of the Distribution Date,
the Redemption Date and the Final Expiration Date (as such terms are hereinafter
defined); provided, however, that Rights may be issued with respect to shares of
Common Stock that shall become outstanding after the Distribution Date and prior
to the Redemption Date and the Final Expiration Date in accordance with Section
22.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
<PAGE> 5
2
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meaning indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which shall be the Beneficial Owner (as such
term is hereinafter defined) of 15% or more of the shares of Common Stock
then outstanding, but shall not include an Exempt Person (as such term is
hereinafter defined); provided, however, that if the Board of Directors of
the Company determines in good faith that a Person who would otherwise be
an "Acquiring Person" has become such inadvertently (including, without
limitation, because (i) such Person was unaware that it beneficially owned
a percentage of Common Stock that would otherwise cause such Person to be
an "Acquiring Person" or (ii) such Person was aware of the extent of its
Beneficial Ownership of Common Stock but had no actual knowledge of the
consequences of such Beneficial Ownership under this Rights Agreement) and
without any intention of changing or influencing control of the Company,
and such Person, as promptly as practicable after being advised of such
determination divested or divests himself or itself of Beneficial
Ownership of a sufficient number of shares of Common Stock so that such
Person would no longer be an Acquiring Person, then such Person shall not
be deemed to be or to have become an "Acquiring Person" for any purposes
of this Agreement. Notwithstanding the foregoing, (i) the sole stockholder
of the Company at the time of the adoption of
<PAGE> 6
3
this Agreement will not be deemed an Acquiring Person for any purposes of
this Agreement prior to the distribution by such Person of the Company's
outstanding Common Stock to the stockholders of such Person and (ii) no
Person shall become an "Acquiring Person" as the result of an acquisition
of shares of Common Stock by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 15% or more of the shares of Common
Stock then outstanding, provided, however, that if a Person shall become
the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding by reason of such share acquisitions by the Company and
thereafter becomes the Beneficial Owner of any additional shares of Common
Stock (other than pursuant to a dividend or distribution paid or made by
the Company on the outstanding Common Stock in shares of Common Stock or
pursuant to a split or subdivision of the outstanding Common Stock), then
such Person shall be deemed to be an "Acquiring Person" unless upon the
consummation of the acquisition of such additional shares of Common Stock
such Person does not own 15% or more of the shares of Common Stock then
outstanding. For all purposes of this Agreement, any calculation of the
number of shares of Common Stock outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding shares of Common Stock of which any Person is the Beneficial
Owner, shall be made in accordance with the
<PAGE> 7
4
last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date hereof.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of, shall be
deemed to have "Beneficial Ownership" of and shall be deemed to
"beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to beneficially own, directly or indirectly
within the meaning of Rule 13d-3 of the General Rules and
Regulations under the Exchange Act as in effect on the date of this
Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), or upon
the exercise of conversion rights, exchange rights, rights, warrants
or options, or otherwise; provided, however, that a Person
<PAGE> 8
5
shall not be deemed the Beneficial Owner of, or to beneficially own,
(x) securities tendered pursuant to a tender or exchange offer made
by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase,
(y) securities which such Person has a right to acquire on the
exercise of Rights at any time prior to the time a Person becomes an
Acquiring Person or (z) securities issuable upon exercise of Rights
from and after the time a Person becomes an Acquiring Person if such
Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date or pursuant
to Section 3(a) or Section 22 hereof ("original Rights") or pursuant
to Section 11(i) or Section 11(n) with respect to an adjustment to
original Rights; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; provided, however, that a Person shall
not be deemed the Beneficial Owner of, or to beneficially own, any
security by reason of such agreement, arrangement or understanding
if the agreement, arrangement or understanding to vote such security
(1) arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations promulgated under the Exchange Act and (2) is not also
<PAGE> 9
6
then reportable on Schedule 13D under the Exchange Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to
Section 1(c)(ii)(B)) or disposing of any securities of the Company.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in the State of New
York, or the State in which the principal office of the Rights Agent
is located, are authorized or obligated by law or executive order to
close.
(e) "close of business" on any given date shall mean 5:00 P.M., New
York City time, on such date; provided, however, that if such date is not
a Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(f) "Common Stock" when used with reference to the Company shall
mean the common stock, par value $.01, of the Company (but shall not
include the Series Common Stock, par value $.01 of the Company). "Common
Stock" when used with reference to any Person other than the Company shall
mean
<PAGE> 10
7
the capital stock (or, in the case of an unincorporated entity, the
equivalent equity interest) with the greatest voting power of such other
Person or, if such other Person is a subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in Section
3 hereof.
(h) "equivalent preferred shares" shall have the meaning set forth
in Section 11(b) hereof.
(i) "Exempt Person" shall mean the Company, any Subsidiary (as such
term is hereinafter defined) of the Company, in each case including,
without limitation, in its fiduciary capacity, or, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any entity or
trustee holding Common Stock for or pursuant to the terms of any such plan
or for the purpose of funding any such plan or funding other employee
benefits for employees of the Company or of any Subsidiary of the Company.
(j) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(k) "New York Stock Exchange" shall mean the New York Stock
Exchange, Inc.
(l) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such
entity.
(m) "Preferred Stock" shall mean the Series A Junior Participating
Preferred Stock, without par value, of the
<PAGE> 11
8
Company having the rights and preferences set forth in the Form of
Certificate of Designation attached to this Agreement as Exhibit A.
(n) "Record Date" shall have the meaning set forth in the preamble
to this Agreement.
(o) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(p) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(q) "Stock Acquisition Date" shall mean the first date of public
announcement (which for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) of the
Exchange Act) by the Company or an Acquiring Person that an Acquiring
Person has become such or such earlier date as a majority of the Board of
Directors shall become aware of the existence of an Acquiring Person.
(r) "Subsidiary" of any Person shall mean any corporation or other
entity of which securities or other ownership interests having ordinary
voting power sufficient to elect a majority of the board of directors or
other persons performing similar functions are beneficially owned,
directly or indirectly, by such Person, and any corporation or other
entity that is otherwise controlled by such Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3
<PAGE> 12
9
hereof, shall prior to the Distribution Date also be the holders of Common
Stock) in accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment. The Company may from time to time appoint such
co-Rights Agents as it may deem necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i)
the tenth day after the Stock Acquisition Date or (ii) the tenth business day
(or such later date as may be determined by action of the Board of Directors
prior to such time as any Person becomes an Acquiring Person) after the date of
the commencement by any Person (other than an Exempt Person) of, or of the first
public announcement of the intention of such Person (other than an Exempt
Person) to commence, a tender or exchange offer the consummation of which would
result in any Person (other than an Exempt Person) becoming the Beneficial Owner
of shares of Common Stock aggregating 15% or more of the Common Stock then
outstanding (including any such date which is after the date of this Agreement
and prior to the issuance of the Rights), the earlier of such dates being herein
referred to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for
Common Stock registered in the names of the holders thereof and not by separate
Right Certificates, and (y) the Rights will be transferable only in connection
with the transfer of Common Stock. As soon as practicable after the Distribution
Date, the Company will prepare and execute, the Rights Agent will countersign,
and the Company will send or cause to be sent (and
<PAGE> 13
10
the Rights Agent will, if requested, send) by first-class, insured,
postage-prepaid mail, to each record holder of Common Stock as of the close of
business on the Distribution Date (other than any Acquiring Person or any
Associate or Affiliate of an Acquiring Person), at the address of such holder
shown on the records of the Company, a Right Certificate, in substantially the
form of Exhibit B hereto (a "Right Certificate"), evidencing one Right (subject
to adjustment as provided herein) for each share of Common Stock so held. As of
the Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Shares of Preferred
Stock, in substantially the form of Exhibit C hereto (the "Summary of Rights"),
by first-class, postage-prepaid mail, to each record holder of Common Stock as
of the close of business on the Record Date (other than any Acquiring Person or
any Associate or Affiliate of any Acquiring Person), at the address of such
holder shown on the records of the Company. With respect to certificates for
Common Stock outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution Date
(or the earlier of the Redemption Date or the Final Expiration Date), the
surrender for transfer of any certificate for Common Stock outstanding on the
Record Date, with or without a copy of the Summary of Rights, shall also
<PAGE> 14
11
constitute the transfer of the Rights associated with the Common Stock
represented thereby.
Certificates issued for Common Stock (including, without limitation,
upon transfer of outstanding Common Stock, disposition of Common Stock out of
treasury stock or issuance or reissuance of Common Stock out of authorized but
unissued shares) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date or the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them the following
legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between The Dun &
Bradstreet Corporation (formerly known as The New Dun & Bradstreet
Corporation) and First Chicago Trust Company of New York, dated as
of June __, 1998 as the same may be amended from time to time (the
"Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal
executive offices of The Dun & Bradstreet Corporation. Under certain
circumstances, as set forth in the Rights Agreement, such Rights
will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Dun & Bradstreet Corporation will
mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights
Agreement, Rights owned by or transferred to any Person who becomes
an Acquiring Person (as defined in the Rights Agreement) and certain
transferees thereof will become null and void and will no longer be
transferable.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for
<PAGE> 15
12
transfer of any such certificate, except as otherwise provided herein, shall
also constitute the transfer of the Rights associated with the Common Stock
represented thereby. In the event that the Company purchases or otherwise
acquires any Common Stock after the Record Date but prior to the Distribution
Date, any Rights associated with such Common Stock shall be deemed cancelled and
retired so that the Company shall not be entitled to exercise any Rights
associated with the Common Stock which are no longer outstanding.
Notwithstanding this paragraph (c), the omission of a legend shall
not affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
Section 4. Form of Right Certificates. The Right Certificates (and
the forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of the New York
Stock Exchange or of any other stock exchange or automated quotation system on
which the Rights may from time to time be listed, or to conform to usage.
Subject to the provisions of Sections 11, 13 and 22 hereof, the Right
Certificates shall entitle the holders thereof to purchase such number of one
one-
<PAGE> 16
13
thousandths of a share of Preferred Stock as shall be set forth therein at the
price per one one-thousandth of a share of Preferred Stock set forth therein
(the "Purchase Price"), but the number of such one one-thousandths of a share of
Preferred Stock and the Purchase Price shall be subject to adjustment as
provided herein.
Section 5. Countersignature and Registration. (a) The Right
Certificates shall be executed on behalf of the Company by the Chairman of the
Board of Directors, the President, any of the Vice Presidents, the Treasurer or
the Controller of the Company, either manually or by facsimile signature, shall
have affixed thereto the Company's seal or a facsimile thereof, and shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the Person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any Person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to
<PAGE> 17
14
sign such Right Certificate, although at the date of the execution of this
Agreement any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at an office or agency designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a)
Subject to the provisions of Sections 7(e), 11(a)(ii) and 14 hereof, at any time
after the close of business on the Distribution Date, and prior to the close of
business on the earlier of the Redemption Date or the Final Expiration Date, any
Right Certificate or Right Certificates may be transferred, split up, combined
or exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a share of
Preferred Stock as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right
<PAGE> 18
15
Certificates to be transferred, split up, combined or exchanged at the office or
agency of the Rights Agent designated for such purpose. Thereupon the Rights
Agent shall countersign and deliver to the Person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment of a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Right Certificates.
(b) Subject to the provisions of Section 11(a)(ii) hereof, at any
time after the Distribution Date and prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, upon receipt by the
Company and the Rights Agent of evidence reasonably satisfactory to them of the
loss, theft, destruction or mutilation of a Right Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
them, and, at the Company's request, reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the Company
will make and deliver a new Right Certificate of like tenor to the Rights Agent
for delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights, Purchase Price; Expiration Date of
Rights. (a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution
<PAGE> 19
16
Date, and thereafter the registered holder of any Right Certificate may, subject
to Section 11(a)(ii) hereof and except as otherwise provided herein, exercise
the Rights evidenced thereby in whole or in part upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the office or agency of the Rights Agent
designated for such purpose, together with payment of the Purchase Price for
each one one-thousandth of a share of Preferred Stock as to which the Rights are
exercised, at any time which is both after the Distribution Date and prior to
the earliest of (i) the close of business on June 30, 2008 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof (the "Redemption Date") or (iii) the time at which such Rights
are exchanged as provided in Section 24 hereof.
(b) The Purchase Price shall be initially $___ for each one
one-thousandth of a share of Preferred Stock purchasable upon the exercise of a
Right. The Purchase Price and the number of one one-thousandths of a share of
Preferred Stock or other securities or property to be acquired upon exercise of
a Right shall be subject to adjustment from time to time as provided in Sections
11 and 13 hereof and shall be payable in lawful money of the United States of
America in accordance with paragraph (c) of this Section 7.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by
<PAGE> 20
17
payment of the aggregate Purchase Price for the shares of Preferred Stock to be
purchased and an amount equal to any applicable transfer tax required to be paid
by the holder of such Right Certificate in accordance with Section 9 hereof, in
cash or by certified check, cashier's check or money order payable to the order
of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Stock certificates for the number of
shares of Preferred Stock to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests, or (B)
requisition from the depositary agent depositary receipts representing interests
in such number of one one-thousandths of a share of Preferred Stock as are to be
purchased (in which case certificates for the Preferred Stock represented by
such receipts shall be deposited by the transfer agent with the depositary
agent) and the Company hereby directs the depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional shares in accordance with Section
14 hereof, (iii) promptly after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Right Certificate, registered in such name or names as may be
designated by such holder and (iv) when appropriate, after receipt, promptly
deliver such cash to or upon the order of the registered holder of such Right
Certificate.
<PAGE> 21
18
(d) Except as otherwise provided herein, in case the registered
holder of any Right Certificate shall exercise less than all the Rights
evidenced thereby, a new Right Certificate evidencing Rights equivalent to the
exercisable Rights remaining unexercised shall be issued by the Rights Agent to
the registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of Rights upon the occurrence of any
purported transfer or exercise of Rights pursuant to Section 6 hereof or this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or election to purchase set
forth on the reverse side of the Rights Certificate surrendered for such
transfer or exercise and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) thereof as the Company
shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this
<PAGE> 22
19
Agreement. The Company shall deliver to the Rights Agent for cancellation and
retirement, and the Rights Agent shall so cancel and retire, any other Right
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all cancelled Right
Certificates to the Company, or shall, at the written request of the Company,
destroy such cancelled Right Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
Section 9. Availability of Shares of Preferred Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock or any shares of Preferred Stock held in its treasury, the
number of shares of Preferred Stock that will be sufficient to permit the
exercise in full of all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
time that a Person becomes an Acquiring Person, shares of Common Stock and other
securities) issuable upon the exercise of Rights may be listed or admitted to
trading on the New York Stock Exchange or listed on any other national
securities exchange or quotation system, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on the New York
Stock Exchange or listed on any other exchange or quotation system upon official
notice of issuance upon such exercise.
<PAGE> 23
20
(c) From and after such time as the Rights become exercisable, the
Company shall use its best efforts, if then necessary to permit the issuance of
shares of Preferred Stock (and following the time that a Person first becomes an
Acquiring Person, shares of Common Stock and other securities) upon the exercise
of Rights, to register and qualify such shares of Preferred Stock (and following
the time that a Person first becomes an Acquiring Person, shares of Common Stock
and other securities) under the Securities Act and any applicable state
securities or "Blue Sky" laws (to the extent exemptions therefrom are not
available), cause such registration statement and qualifications to become
effective as soon as possible after such filing and keep such registration and
qualifications effective until the earlier of the date as of which the Rights
are no longer exercisable for such securities and the Final Expiration Date. The
Company may temporarily suspend, for a period of time not to exceed 90 days, the
exercisability of the Rights in order to prepare and file a registration
statement under the Securities Act and permit it to become effective. Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration
<PAGE> 24
21
statement under the Securities Act (if required) shall have been declared
effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock (and,
following the time that a Person becomes an Acquiring Person, shares of Common
Stock and other securities) delivered upon exercise of Rights shall, at the time
of delivery of the certificates therefor (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any shares of Preferred Stock (or shares of Common Stock or other
securities) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable in respect of any transfer
or delivery of Right Certificates to a Person other than, or the issuance or
delivery of certificates or depositary receipts for the Preferred Stock (or
shares of Common Stock or other securities) in a name other than that of, the
registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or deliver any certificates or depositary receipts for
Preferred Stock (or shares of Common Stock or other securities) upon the
exercise of any Rights until any such tax shall have been paid (any such tax
being payable by that holder of such Right Certificate at the time of surrender)
<PAGE> 25
22
or until it has been established to the Company's reasonable satisfaction that
no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name
any certificate for Preferred Stock is issued upon the exercise of Rights shall
for all purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock transfer books of the Company
are closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Stock for which the
Rights shall be exercisable, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares and
Number of Rights. The Purchase Price, the number of shares of Preferred Stock or
other securities or property purchasable upon exercise of each Right and the
number of Rights
<PAGE> 26
23
outstanding are subject to adjustment from time to time as provided in this
Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable
in shares of Preferred Stock, (B) subdivide the outstanding
Preferred Stock, (C) combine the outstanding Preferred Stock into a
smaller number of Preferred Stock or (D) issue any shares of its
capital stock in a reclassification of the Preferred Stock
(including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section
11(a), the Purchase Price in effect at the time of the record date
for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares
of capital stock issuable on such date, shall be proportionately
adjusted so that the holder of any Right exercised after such time
shall be entitled to receive the aggregate number and kind of shares
of capital stock which, if such Right had been exercised immediately
prior to such date and at a time when the Preferred Stock transfer
books of the Company were open, the holder would have owned upon
such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification;
<PAGE> 27
24
provided, however, that in no event shall the consideration to be
paid upon the exercise of one Right be less than the aggregate par
value of the shares of capital stock of the Company issuable upon
exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event
that any Person becomes an Acquiring Person, then (A) the Purchase
Price shall be adjusted to be the Purchase Price in effect
immediately prior to such Person becoming an Acquiring Person
multiplied by the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior
to such Person becoming an Acquiring Person, whether or not such
Right was then exercisable, and (B) each holder of a Right, except
as otherwise provided in this Section 11(a)(ii) and Subsection
11(a)(iii), hereof, shall thereafter have the right to receive, upon
exercise at a price equal to the Purchase Price (as so adjusted), in
accordance with the terms of this Agreement and in lieu of shares of
Preferred Stock, such number of shares of Common Stock (or at the
option of the Company, such number of one one-thousandths of shares
of Preferred Stock) as shall equal the result obtained by (x)
multiplying the then current Purchase Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right is
then exercisable and dividing that product by (y) 50% of the
<PAGE> 28
25
then current per share market price of the Company's Common Stock
(determined pursuant to Section 11(d) hereof) on the date such
Person became an Acquiring Person; provided, however, that the
Purchase Price and the number of shares of Common Stock so
receivable upon exercise of a Right shall thereafter be subject to
further adjustment as appropriate in accordance with Section 11(f)
hereof. Notwithstanding anything in this Agreement to the contrary,
however, from and after the time (the "invalidation time") when any
Person first becomes an Acquiring Person, any Rights that are
beneficially owned by (x) any Acquiring Person (or any Affiliate or
Associate of any Acquiring Person), (y) a transferee of any
Acquiring Person (or any such Affiliate or Associate) who becomes a
transferee after the invalidation time or (z) a transferee of any
Acquiring Person (or any such Affiliate or Associate) who became a
transferee prior to or concurrently with the invalidation time
pursuant to either (I) a transfer from the Acquiring Person to
holders of its equity securities or to any Person with whom it has
any continuing agreement, arrangement or understanding regarding the
transferred Rights or (II) a transfer which the Board of Directors
has determined is part of a plan, arrangement or understanding which
has the purpose or effect of avoiding the provisions of this
paragraph, and subsequent transferees of such Persons,
<PAGE> 29
26
shall be void without any further action and any holder of such
Rights shall thereafter have no rights whatsoever with respect to
such Rights under any provision of this Agreement. The Company shall
use all reasonable efforts to ensure that the provisions of this
Section 11(a)(ii) are complied with, but shall have no liability to
any holder of Right Certificates or other Person as a result of its
failure to make any determinations with respect to an Acquiring
Person or its Affiliates, Associates or transferees hereunder. From
and after the invalidation time, no Right Certificate shall be
issued pursuant to Section 3 or Section 6 hereof that represents
Rights that are or have become void pursuant to the provisions of
this paragraph, and any Right Certificate delivered to the Rights
Agent that represents Rights that are or have become void pursuant
to the provisions of this paragraph shall be cancelled. From and
after the occurrence of an event specified in Section 13(a) hereof,
any Rights that theretofore have not been exercised pursuant to this
Section 11(a)(ii) shall thereafter be exercisable only in accordance
with Section 13 and not pursuant to this Section 11(a)(ii).
(iii) The Company may at its option substitute for a share of
Common Stock issuable upon the exercise of Rights in accordance with
the foregoing subparagraph (ii) such number or fractions of shares
of Preferred
<PAGE> 30
27
Stock having an aggregate current market value equal to the current
per share market price of a share of Common Stock. In the event that
there shall not be sufficient shares of Common Stock issued but not
outstanding or authorized but unissued to permit the exercise in
full of the Rights in accordance with the foregoing subparagraph
(ii), the Board of Directors shall, to the extent permitted by
applicable law and any material agreements then in effect to which
the Company is a party (A) determine the excess of (1) the value of
the shares of Common Stock issuable upon the exercise of a Right in
accordance with the foregoing subparagraph (ii) (the "Current
Value") over (2) the then current Purchase Price multiplied by the
number of one one-thousandths of shares of Preferred Stock for which
a Right was exercisable immediately prior to the time that the
Acquiring Person became such (such excess, the "Spread"), and (B)
with respect to each Right (other than Rights which have become void
pursuant to Section 11(a)(ii)), make adequate provision to
substitute for the shares of Common Stock issuable in accordance
with subparagraph (ii) upon exercise of the Right and payment of the
applicable Purchase Price, (1) cash, (2) a reduction in the Purchase
Price, (3) shares of Preferred Stock or other equity securities of
the Company (including, without limitation, shares or fractions of
shares of preferred stock which, by virtue
<PAGE> 31
28
of having dividend, voting and liquidation rights substantially
comparable to those of the shares of Common Stock, are deemed in
good faith by the Board of Directors to have substantially the same
value as the shares of Common Stock (such shares of preferred stock
and shares or fractions of shares of preferred stock are hereinafter
referred to as "Common Stock equivalents"), (4) debt securities of
the Company, (5) other assets, or (6) any combination of the
foregoing, having a value which, when added to the value of the
shares of Common Stock actually issued upon exercise of such Right,
shall have an aggregate value equal to the Current Value (less the
amount of any reduction in the Purchase Price), where such aggregate
value has been determined by the Board of Directors upon the advice
of a nationally recognized investment banking firm selected in good
faith by the Board of Directors; provided, however, if the Company
shall not make adequate provision to deliver value pursuant to
clause (B) above within thirty (30) days following the date that the
Acquiring Person became such (the "Section 11(a)(ii) Trigger Date"),
then the Company shall be obligated to deliver, to the extent
permitted by applicable law and any material agreements then in
effect to which the Company is a party, upon the surrender for
exercise of a Right and without requiring payment of the Purchase
Price, shares of Common Stock
<PAGE> 32
29
(to the extent available), and then, if necessary, such number or
fractions of shares of Preferred Stock (to the extent available) and
then, if necessary, cash, which shares and/or cash have an aggregate
value equal to the Spread. If, upon the date any Person becomes an
Acquiring Person, the Board of Directors shall determine in good
faith that it is likely that sufficient additional shares of Common
Stock could be authorized for issuance upon exercise in full of the
Rights, then, if the Board of Directors so elects, the thirty (30)
day period set forth above may be extended to the extent necessary,
but not more than ninety (90) days after the Section 11(a)(ii)
Trigger Date, in order that the Company may seek stockholder
approval for the authorization of such additional shares (such
thirty (30) day period, as it may be extended, is herein called the
"Substitution Period"). To the extent that the Company determines
that some action need be taken pursuant to the second and/or third
sentence of this Section 11(a)(iii), the Company (x) shall provide,
subject to Section 11(a)(ii) hereof and the last sentence of this
Section 11(a)(iii) hereof, that such action shall apply uniformly to
all outstanding Rights and (y) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order to
seek any authorization of additional shares and/or to decide the
appropriate form of distribution
<PAGE> 33
30
to be made pursuant to such second sentence and to determine the
value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of
the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
For purposes of this Section 11(a)(iii), the value of the shares of
Common Stock shall be the current per share market price (as
determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii)
Trigger Date and the per share or fractional value of any "Common
Stock equivalent" shall be deemed to equal the current per share
market price of the Common Stock. The Board of Directors of the
Company may, but shall not be required to, establish procedures to
allocate the right to receive shares of Common Stock upon the
exercise of the Rights among holders of Rights pursuant to this
Section 11(a)(iii).
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling
them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Stock (or shares having
similar rights, privileges and preferences as the Preferred Stock
("equivalent preferred shares")) or securities convertible into Preferred
Stock or equivalent preferred shares at a price per share of Preferred
Stock or equivalent preferred
<PAGE> 34
31
shares (or having a conversion price per share, if a security convertible
into shares of Preferred Stock or equivalent preferred shares) less than
the then current per share market price of the Preferred Stock (determined
pursuant to Section 11(d) hereof) on such record date, the Purchase Price
to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of shares of
Preferred Stock and equivalent preferred shares outstanding on such record
date plus the number of shares of Preferred Stock and equivalent preferred
shares which the aggregate offering price of the total number of shares of
Preferred Stock and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price,
and the denominator of which shall be the number of shares of Preferred
Stock and equivalent preferred shares outstanding on such record date plus
the number of additional shares of Preferred Stock and/or equivalent
preferred shares to be offered for subscription or purchase (or into which
the convertible securities so to be offered are initially convertible);
provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company issuable upon exercise of one
Right. In case such subscription price may
<PAGE> 35
32
be paid in a consideration part or all of which shall be in a form other
than cash, the value of such consideration shall be as determined in good
faith by the Board of Directors of the Company, whose determination shall
be described in a statement filed with the Rights Agent. Shares of
Preferred Stock and equivalent preferred shares owned by or held for the
account of the Company shall not be deemed outstanding for the purpose of
any such computation. Such adjustment shall be made successively whenever
such a record date is fixed; and in the event that such rights, options or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not
been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price
to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share
market price of the Preferred Stock (determined pursuant to Section 11(d)
hereof) on such
<PAGE> 36
33
record date, less the fair market value (as determined in good faith by
the Board of Directors of the Company whose determination shall be
described in a statement filed with the Rights Agent) of the portion of
the assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one share of Preferred
Stock, and the denominator of which shall be such current per share market
price (determined pursuant to Section 11(d) hereof) of the Preferred
Stock; provided, however, that in no event shall the consideration to be
paid upon the exercise of one Right be less than the aggregate par value
of the shares of capital stock of the Company to be issued upon exercise
of one Right. Such adjustments shall be made successively whenever such a
record date is fixed; and in the event that such distribution is not so
made, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(d) (i) Except as otherwise provided herein, for the purpose of any
computation hereunder, the "current per share market price" of any
security (a "Security" for the purpose of this Section 11(d)(i)) on any
date shall be deemed to be the average of the daily closing prices per
share of such Security for the 30 consecutive Trading Days (as such term
is hereinafter defined) immediately prior to such date; provided, however,
that in the event that the current per share market price of the Security
is determined during a
<PAGE> 37
34
period following the announcement by the issuer of such Security of (A) a
dividend or distribution on such Security payable in shares of such
Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security, and prior
to the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current
per share market price shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The closing
price for each day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported by the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the
Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading
or, if the Security is not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter
market, as reported by NASDAQ or such other system then in use, or, if on
any
<PAGE> 38
35
such date the Security is not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market
maker making a market in the Security selected by the Board of Directors
of the Company. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Security is listed or
admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(ii) For the purpose of any computation hereunder, if the Preferred
Stock is publicly traded, the "current per share market price" of the
Preferred Stock shall be determined in accordance with the method set
forth in Section 11(d)(i). If the Preferred Stock is not publicly traded
but the Common Stock is publicly traded, the "current per share market
price" of the Preferred Stock shall be conclusively deemed to be the
current per share market price of the Common Stock as determined pursuant
to Section 11(d)(i) multiplied by one thousand (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring
after the date hereof). If neither the Common Stock nor the Preferred
Stock is publicly traded, "current per share market price" shall mean the
fair value per share as determined in good faith by the Board of Directors
of the Company, whose determination shall be described in a statement
filed with the Rights Agent.
<PAGE> 39
36
(e) No adjustment in the Purchase Price shall be required unless
such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments which by
reason of this Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 11 shall be made to the nearest cent or to
the nearest one ten-thousandth of a share of Preferred Stock or share of
Common Stock or other share or security as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i)
three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than the
Preferred Stock, thereafter the Purchase Price and the number of such
other shares so receivable upon exercise of a Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the Preferred Stock
contained in Sections 11(a), 11(b), 11(c), 11(e), 11(h), 11(i) and 11(m)
and the provisions of Sections 7, 9, 10, 13 and 14 hereof with
<PAGE> 40
37
respect to the Preferred Stock shall apply on like terms to any such other
shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right
to purchase, at the adjusted Purchase Price, the number of one
one-thousandths of a share of Preferred Stock purchasable from time to
time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result
of the calculations made in Sections 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that
number of one one-thousandths of a share of Preferred Stock (calculated to
the nearest one ten-thousandth of a share of Preferred Stock) obtained by
(i) multiplying (x) the number of one one-thousandths of a share covered
by a Right immediately prior to such adjustment by (y) the Purchase Price
in effect immediately prior to such adjustment of the Purchase Price and
(ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of
<PAGE> 41
38
one one-thousandths of a share of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after such adjustment
of the number of Rights shall be exercisable for the number of one
one-thousandths of a share of Preferred Stock for which a Right was
exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that
number of Rights (calculated to the nearest one ten-thousandth) obtained
by dividing the Purchase Price in effect immediately prior to adjustment
of the Purchase Price by the Purchase Price in effect immediately after
adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount
of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the
date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company may, as promptly as practicable, cause to be
distributed to holders of record of Right Certificates on such record date
Right Certificates evidencing, subject to Section 14 hereof, the
additional Rights to which such holders shall be entitled as a result of
such adjustment, or, at the option of the Company, shall
<PAGE> 42
39
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such
holders shall be entitled after such adjustment. Right Certificates so to
be distributed shall be issued, executed and countersigned in the manner
provided for herein and shall be registered in the names of the holders of
record of Right Certificates on the record date specified in the public
announcement.
(j) Irrespective of any adjustment or change in the Purchase Price
or the number of one one-thousandths of a share of Preferred Stock
issuable upon the exercise of the Rights, the Right Certificates
theretofore and thereafter issued may continue to express the Purchase
Price and the number of one one-thousandths of a share of Preferred Stock
which were expressed in the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the Preferred
Stock or other shares of capital stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and
<PAGE> 43
40
nonassessable shares of Preferred Stock or other such shares at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event the issuing to the holder of any Right exercised after such
record date of the Preferred Stock and other capital stock or securities
of the Company, if any, issuable upon such exercise over and above the
Preferred Stock and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price,
in addition to those adjustments expressly required by this Section 11, as
and to the extent that it in its sole discretion shall determine to be
advisable in order that any consolidation or subdivision of the Preferred
Stock, issuance wholly for cash of any shares of Preferred Stock at less
than the current market price, issuance wholly for cash or Preferred Stock
or securities which by their terms are convertible into or
<PAGE> 44
41
exchangeable for Preferred Stock, dividends on Preferred Stock payable in
shares of Preferred Stock or issuance of rights, options or warrants
referred to hereinabove in Section 11(b), hereafter made by the Company to
holders of its Preferred Stock shall not be taxable to such stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in
the event that at any time after the date of this Agreement and prior to
the Distribution Date, the Company shall (i) declare or pay any dividend
on the Common Stock payable in Common Stock or (ii) effect a subdivision,
combination or consolidation of the Common Stock (by reclassification or
otherwise than by payment of a dividend payable in Common Stock) into a
greater or lesser number of Common Stock, then in any such case, the
number of Rights associated with each share of Common Stock then
outstanding, or issued or delivered thereafter, shall be proportionately
adjusted so that the number of Rights thereafter associated with each
share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator
of which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately following the occurrence of such event.
<PAGE> 45
42
(o) The Company agrees that, after the earlier of the Distribution
Date or the Stock Acquisition Date, it will not, except as permitted by
Sections 23, 24 or 27 hereof, take (or permit any Subsidiary to take) any
action if at the time such action is taken it is reasonably foreseeable
that such action will diminish substantially or eliminate the benefits
intended to be afforded by the Rights.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common Stock
or the Preferred Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25
hereof (if so required under Section 25 hereof). The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earnings Power. (a) In the event, directly or indirectly, at any time after any
Person has become an Acquiring Person, (i) the Company shall merge with and into
any other Person, (ii) any Person shall consolidate with the Company, or any
Person shall merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger
<PAGE> 46
43
and, in connection with such merger, all or part of the Common Stock shall be
changed into or exchanged for stock or other securities of any other Person (or
of the Company) or cash or any other property, or (iii) the Company shall sell
or otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer), in one or more transactions, assets or earning power
aggregating 50% or more of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person (other than the Company or
one or more of its wholly-owned Subsidiaries), then upon the first occurrence of
such event, proper provision shall be made so that: (A) each holder of record of
a Right (other than Rights which have become void pursuant to Section 11(a)(ii))
shall thereafter have the right to receive, upon the exercise thereof at a price
equal to the then current Purchase Price multiplied by the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
(whether or not such Right was then exercisable) immediately prior to the time
that any Person first became an Acquiring Person (each as subsequently adjusted
thereafter pursuant to Sections 11(a)(i), 11(b), 11(c), 11(h), 11(i) and 11(m)),
in accordance with the terms of this Agreement and in lieu of Preferred Stock,
such number of validly issued, fully paid and non-assessable and freely
tradeable shares of Common Stock of the Principal Party (as defined herein) not
subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by (1) multiplying the then
current Purchase Price by the number of one
<PAGE> 47
44
one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to the time that any Person first became an Acquiring Person
(as subsequently adjusted thereafter pursuant to Sections 11(a)(i), 11(b),
11(c), 11(h), 11(i) and 11(m)) and (2) dividing that product by 50% of the then
current per share market price of the Common Stock of such Principal Party
(determined pursuant to Section 11(d)(i) hereof) on the date of consummation of
such consolidation, merger, sale or transfer; provided that the Purchase Price
and the number of shares of Common Stock of such Principal Party issuable upon
exercise of each Right shall be further adjusted as provided in Section 11(f) of
this Agreement to reflect any events occurring in respect of such Principal
Party after the date of the such consolidation, merger, sale or transfer; (B)
such Principal Party shall thereafter be liable for, and shall assume, by virtue
of such consolidation, merger, sale or transfer, all the obligations and duties
of the Company pursuant to this Agreement; (C) the term "Company" shall
thereafter be deemed to refer to such Principal Party; and (D) such Principal
Party shall take such steps (including, but not limited to, the reservation of a
sufficient number of its shares of Common Stock in accordance with Section 9
hereof) in connection with such consummation of any such transaction as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to the shares of its Common Stock
thereafter deliverable upon the exercise of the Rights; provided that, upon the
subsequent occurrence of any consolidation,
<PAGE> 48
45
merger, sale or transfer of assets or other extraordinary transaction in respect
of such Principal Party, each holder of a Right shall thereupon be entitled to
receive, upon exercise of a Right and payment of the Purchase Price as provided
in this Section 13(a), such cash, shares, rights, warrants and other property
which such holder would have been entitled to receive had such holder, at the
time of such transaction, owned the Common Stock of the Principal Party
receivable upon the exercise of a Right pursuant to this Section 13(a), and such
Principal Party shall take such steps (including, but not limited to,
reservation of shares of stock) as may be necessary to permit the subsequent
exercise of the Rights in accordance with the terms hereof for such cash,
shares, rights, warrants and other property.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in (i) or (ii) of
the first sentence of Section 13(a) hereof: (A) the Person that is the
issuer of the securities into which the shares of Common Stock are
converted in such merger or consolidation, or, if there is more than one
such issuer, the issuer the shares of Common Stock of which have the
greatest aggregate market value of shares outstanding, or (B) if no
securities are so issued, (x) the Person that is the other party to the
merger, if such Person survives said merger, or, if there is more than one
such Person, the Person the shares of Common Stock of which have the
greatest aggregate market value of shares outstanding or (y) if the
<PAGE> 49
46
Person that is the other party to the merger does not survive the merger,
the Person that does survive the merger (including the Company if it
survives) or (z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in (iii) of the
first sentence in Section 13(a) hereof, the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that is a
party to such transaction or transactions receives the same portion of the
assets or earning power so transferred or if the Person receiving the
greatest portion of the assets or earning power cannot be determined,
whichever of such Persons as is the issuer of Common Stock having the
greatest aggregate market value of shares outstanding;
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
and the Common Stocks of all of such persons have been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of
Common Stock having the greatest aggregate market value
<PAGE> 50
47
of shares outstanding, or (3) if such Person is owned, directly or indirectly,
by a joint venture formed by two or more Persons that are not owned, directly or
indirectly, by the same Person, the rules set forth in clauses (1) and (2) above
shall apply to each of the owners having an interest in the venture as if the
Person owned by the joint venture was a Subsidiary of both or all of such joint
venturers, and the Principal Party in each such case shall bear the obligations
set forth in this Section 13 in the same ratio as its interest in such Person
bears to the total of such interests.
(c) The Company shall not consummate any consolidation, merger, sale
or transfer referred to in Section 13(a) hereof unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Sections 13(a)
and (b) hereof shall promptly be performed in accordance with their terms and
that such consolidation, merger, sale or transfer of assets shall not result in
a default by the Principal Party under this Agreement as the same shall have
been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof
and providing that, as soon as practicable after executing such agreement
pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the
Securities Act, if necessary, with respect to the Rights and the
securities purchasable upon exercise of the Rights on an appropriate form,
use its best efforts to cause
<PAGE> 51
48
such registration statement to become effective as soon as practicable
after such filing and use its best efforts to cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the Final Expiration Date, and
similarly comply with applicable state securities laws;
(ii) use its best efforts, if the Common Stock of the
Principal Party shall be listed or admitted to trading on the New York
Stock Exchange or on another national securities exchange, to list or
admit to trading (or continue the listing of) the Rights and the
securities purchasable upon exercise of the Rights on the New York Stock
Exchange or such securities exchange, or, if the Common Stock of the
Principal Party shall not be listed or admitted to trading on the New York
Stock Exchange or a national securities exchange, to cause the Rights and
the securities receivable upon exercise of the Rights to be reported by
such other system then in use;
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and
(iv) obtain waivers of any rights of first refusal or
preemptive rights in respect of the Common Stock of the Principal Party
subject to purchase upon exercise of outstanding Rights.
<PAGE> 52
49
(d) In case the Principal Party has provision in any of its
authorized securities or in its certificate of incorporation or by-laws or other
instrument governing its corporate affairs, which provision would have the
effect of (i) causing such Principal Party to issue (other than to holders of
Rights pursuant to this Section 13), in connection with, or as a consequence of,
the consummation of a transaction referred to in this Section 13, shares of
Common Stock of such Principal Party at less than the then current market price
per share thereof (determined pursuant to Section 11(d) hereof) or securities
exercisable for, or convertible into, Common Stock of such Principal Party at
less than such then current market price, or (ii) providing for any special
payment, tax or similar provision in connection with the issuance of the Common
Stock of such Principal Party pursuant to the provisions of Section 13, then, in
such event, the Company hereby agrees with each holder of Rights that it shall
not consummate any such transaction unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing that the provision in question of such
Principal Party shall have been cancelled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
(e) The Company covenants and agrees that it shall not, at any time
after a Person first becomes an Acquiring Person
<PAGE> 53
50
enter into any transaction of the type contemplated by (i) -(iii) of Section
13(a) hereof if (x) at the time of or immediately after such consolidation,
merger, sale, transfer or other transaction there are any rights, warrants or
other instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights, (y) prior to, simultaneously with or immediately after
such consolidation, merger, sale, transfer of other transaction, the
stockholders of the Person who constitutes, or would constitute, the Principal
Party for purposes of Section 13(a) hereof shall have received a distribution of
Rights previously owned by such Person or any of its Affiliates or Associates or
(z) the form or nature of organization of the Principal Party would preclude or
limit the exercisability of the Rights.
Section 14. Fractional Rights and Fractional Shares. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights (except prior to the Distribution
Date in accordance with Section 11(n) hereof). In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such
<PAGE> 54
51
fractional Rights would have been otherwise issuable. The closing price for any
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Rights are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or, if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors of the Company. If on any such date no such
market maker is making a market in the Rights, the fair value of the Rights on
such date as determined in good faith by the Board of Directors of the Company
shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates
<PAGE> 55
52
which evidence fractional shares of Preferred Stock (other than fractions which
are integral multiples of one one-thousandth of a share of Preferred Stock).
Interests in fractions of Preferred Stock in integral multiples of one
one-thousandth of a share of Preferred Stock may, at the election of the
Company, be evidenced by depositary receipts, pursuant to an appropriate
agreement between the Company and a depositary selected by it; provided, that
such agreement shall provide that the holders of such depositary receipts shall
have all the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Stock represented by such depositary
receipts. In lieu of fractional shares of Preferred Stock that are not integral
multiples of one one-thousandth of a share of Preferred Stock, the Company shall
pay to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one share of Preferred Stock. For the purposes of this
Section 14(b), the current market value of a share of Preferred Stock shall be
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) The Company shall not be required to issue fractions of shares
of Common Stock or to distribute certificates which evidence fractional shares
of Common Stock upon the exercise or exchange of Rights. In lieu of such
fractional shares of Common Stock, the Company shall pay to the registered
<PAGE> 56
53
holders of the Right Certificates with regard to which such fractional shares of
Common Stock would otherwise be issuable in an amount in cash equal to the same
fraction of the current market value of a whole share of Common Stock (as
determined in accordance with Section 14(a) hereof) for the Trading Day
immediately prior to the date of such exercise or exchange.
(d) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), on his own behalf and for his own
benefit, may enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Stock) in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically
<PAGE> 57
54
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of, the obligations of any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the office or agency of the Rights Agent designated for such purpose,
duly endorsed or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person
in whose name the Right Certificate (or, prior to the Distribution Date,
the Common Stock certificate) is registered as the absolute owner thereof
and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the Common Stock
certificate made by anyone other than the Company or the Rights Agent) for
all purposes whatsoever, and neither the Company nor the Rights Agent
shall be affected by any notice to the contrary.
<PAGE> 58
55
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Stock or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in this Agreement), or to receive dividends or
subscription rights, or otherwise, until the Rights evidenced by such Right
Certificate shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. (a) The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the
<PAGE> 59
56
Rights Agent, for anything done or omitted by the Rights Agent in connection
with the acceptance and administration of this Agreement, including the costs
and expenses of defending against any claim of liability arising therefrom,
directly or indirectly.
(b) The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Stock or Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent. (a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust powers of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, that such corporation
<PAGE> 60
57
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the
<PAGE> 61
58
Company and the holders of Right Certificates, by their acceptance thereof,
shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the Rights Agent as to
any action taken or omitted by it in good faith and in accordance with
such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence
in respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of
the Chairman of the Board of Directors, the President, any Vice President,
the Treasurer, the Controller or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Company and
any other Person only for its own negligence, bad faith or wilful
misconduct.
<PAGE> 62
59
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be
deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in respect
of the validity or execution of any Right Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this Agreement or in
any Right Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant
to Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Sections
3, 11, 13, 23 and 24, or the ascertaining of the existence of facts that
would require any such change or adjustment (except with respect to the
exercise of Rights evidenced by Right Certificates after receipt of a
certificate furnished pursuant to Section 12, describing such change or
adjustment); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
shares of Preferred Stock or other securities to be issued
<PAGE> 63
60
pursuant to this Agreement or any Right Certificate or as to whether any
shares of Preferred Stock or other securities will, when issued, be
validly authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and delivered
all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or
performing by the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from
any person reasonably believed by the Rights Agent to be one of the
Chairman of the Board of Directors, the President, the Chief Financial
Officer or the Secretary of the Company, and to apply to such officers for
advice or instructions in connection with its duties, and it shall not be
liable for any action taken or suffered by it in good faith in accordance
with instructions of any such officer or for any delay in acting while
waiting for those instructions. Any application by the Rights Agent for
written instructions from the Company may, at the option of the Rights
Agent, set forth in writing any action proposed to be taken or omitted by
the Rights Agent under this Agreement and the date on and/or after which
such action shall be taken or such omission shall be effective. The Rights
Agent shall not be liable for any action taken by, or
<PAGE> 64
61
omission of, the Rights Agent in accordance with a proposal included in
any such application on or after the date specified in such application
(which date shall not be less than five Business Days after the date any
officer of the Company actually receives such application, unless any such
officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an
omission), the Rights Agent shall have received written instructions in
response to such application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though
it were not Rights Agent under this Agreement. Nothing herein shall
preclude the Rights Agent from acting in any other capacity for the
Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Company resulting from
any such act, default, neglect or misconduct,
<PAGE> 65
62
provided reasonable care was exercised in the selection and continued
employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the
form of assignment or the form of election to purchase set forth on the
reverse thereof, as the case may be, has not been completed to certify the
holder is not an Acquiring Person (or an Affiliate or Associate thereof),
the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Stock or Preferred Stock by registered or certified
mail, and, following the Distribution Date, to the holders of the Right
Certificates by first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon 30 days' notice in writing, mailed to the Rights
Agent or successor Rights Agent, as the case may be, and to each transfer agent
of the Common Stock or Preferred Stock by registered or certified mail, and,
following the Distribution Date, to the holders of the Right Certificates by
first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights
<PAGE> 66
63
Agent. If the Company shall fail to make such appointment within a period of 30
days after giving notice of such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Right Certificate (who shall, with such
notice, submit his Right Certificate for inspection by the Company), then the
registered holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Company or by such a court, shall be (A) a
corporation organized and doing business under the laws of the United States or
any State thereof, which is authorized under such laws to exercise corporate
trust or stock transfer powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50 million or (B) an
affiliate of a corporation described in clause (A) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the
<PAGE> 67
64
Common Stock or Preferred Stock, and, following the Distribution Date, mail a
notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such forms as may be approved by its Board of Directors to reflect any
adjustment or change in the Purchase Price and the number or kind or class of
shares or other securities or property purchasable under the Right Certificates
made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of Common Stock following the Distribution
Date and prior to the earlier of the Redemption Date and the Final Expiration
Date, the Company may with respect to shares of Common Stock so issued or sold
pursuant to (i) the exercise of stock options, (ii) under any employee plan or
arrangement, (iii) upon the exercise, conversion or exchange of securities,
notes or debentures issued by the Company or (iv) a contractual obligation of
the Company in each case existing prior to the Distribution Date, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale.
<PAGE> 68
65
Section 23. Redemption. (a) The Board of Directors of the Company
may, at any time prior to such time as any Person first becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(the redemption price being hereinafter referred to as the "Redemption Price").
The redemption of the Rights may be made effective at such time, on such basis
and with such conditions as the Board of Directors in its sole discretion may
establish. The Company may, at its option, pay the Redemption Price in cash,
shares of Common Stock (based on the current market price of the Common Stock at
the time of redemption) or any other form of consideration deemed appropriate by
the Board of Directors.
(b) Immediately upon the action of the Board of Directors ordering
the redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the Board of Directors may establish for the effectiveness of
such redemption), and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights (or such later time as the Board of
Directors may
<PAGE> 69
66
establish for the effectiveness of such redemption), the Company shall mail a
notice of redemption to all the holders of the then outstanding Rights at their
last addresses as they appear upon the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the transfer agent for
the Common Stock. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of redemption shall state the method by which the payment of the Redemption
Price will be made.
Section 24. Exchange. (a) The Board of Directors of the Company may,
at its option, at any time after any Person first becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have not become effective or that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) for shares of Common
Stock at an exchange ratio of one share of Common Stock per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such amount per Right being hereinafter
referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board
of Directors shall not be empowered to effect such exchange at any time (1)
after any Person (other than an Exempt Person), together with all Affiliates and
Associates of such Person, becomes the Beneficial Owner of shares of Common
Stock aggregating 50% or more of the shares of Common Stock then outstanding.
From and after the occurrence of an event specified
<PAGE> 70
67
in Section 13(a) hereof, any Rights that theretofore have not been exchanged
pursuant to this Section 24(a) shall thereafter be exercisable only in
accordance with Section 13 and may not be exchanged pursuant to this Section
24(a). The exchange of the Rights by the Board of Directors may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish.
(b) Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to
paragraph (a) of this Section 24 and without any further action and without any
notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of shares
of Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any such exchange; provided, however, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The Company
shall promptly mail a notice of any such exchange to all of the holders of the
Rights so exchanged at their last addresses as they appear upon the registry
books of the Rights Agent. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of exchange will state the method by which the exchange of the
shares of Common Stock for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be
<PAGE> 71
68
effected pro rata based on the number of Rights (other than Rights which have
become void pursuant to the provisions of Section 11(a)(ii) hereof) held by each
holder of Rights.
(c) The Company may at its option and, in the event that there shall
not be sufficient shares of Common Stock issued but not outstanding or
authorized but unissued to permit an exchange of Rights as contemplated in
accordance with this Section 24, the Company shall substitute to the extent of
such insufficiency, for each share of Common Stock that would otherwise be
issuable upon exchange of a Right, a number of shares of Preferred Stock or
fraction thereof (or equivalent preferred shares as such term is defined in
Section 11(b)) such that the current per share market price (determined pursuant
to Section 11(d) hereof) of one share of Preferred Stock (or equivalent
preferred share) multiplied by such number or fraction is equal to the current
per share market price of one share of Common Stock (determined pursuant to
Section 11(d) hereof) as of the date of such exchange).
Section 25. Notice of Certain Events. (a) In case the Company shall
at any time after the earlier of the Distribution Date or the Stock Acquisition
Date propose (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Stock or to make any other distribution to the holders
of its Preferred Stock (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Stock rights or warrants to subscribe for
or to purchase any additional shares of Preferred Stock or shares of stock of
any
<PAGE> 72
69
class or any other securities, rights or options, (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification involving
only the subdivision or combination of outstanding Preferred Stock), (iv) to
effect the liquidation, dissolution or winding up of the Company, or (v) to
declare or pay any dividend on the Common Stock payable in Common Stock or to
effect a subdivision, combination or consolidation of the Common Stock (by
reclassification or otherwise than by payment of dividends in Common Stock),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of the Common Stock and/or Preferred Stock,
if any such date is to be fixed, and such notice shall be so given in the case
of any action covered by clause (i) or (ii) above at least 10 days prior to the
record date for determining holders of the Preferred Stock for purposes of such
action, and in the case of any such other action, at least 10 days prior to the
date of the taking of such proposed action or the date of participation therein
by the holders of the Common Stock and/or Preferred Stock, whichever shall be
the earlier.
(b) In case any event described in Section 11(a)(ii) or Section 13
shall occur then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate
<PAGE> 73
70
(or if occurring prior to the Distribution Date, the holders of the Common
Stock) in accordance with Section 26 hereof, a notice of the occurrence of such
event, which notice shall describe such event and the consequences of such event
to holders of Rights under Section 11(a)(ii) and Section 13 hereof.
Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
The Dun & Bradstreet Corporation
One Diamond Hill Road
Murray Hill, New Jersey 07974
Attn: Chief Legal Counsel
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
First Chicago Trust Company of New York
525 Washington Boulevard -- Suite 4660
Jersey City, New Jersey 07310
Attn: Tenders and Exchanges Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at
<PAGE> 74
71
the address of such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments. Except as otherwise provided
in this Section 27, for so long as the Rights are then redeemable, the Company
may in its sole and absolute discretion, and the Rights Agent shall if the
Company so directs, supplement or amend any provision of this Agreement in any
respect without the approval of any holders of the Rights. At any time when the
Rights are no longer redeemable, except as otherwise provided in this Section
27, the Company may, and the Rights Agent shall, if the Company so directs,
supplement or amend this Agreement without the approval of any holders of Rights
Certificates in order to (i) cure any ambiguity, (ii) correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, (iii) shorten or lengthen any time period hereunder, or (iv)
change or supplement the provisions hereunder in any manner which the Company
may deem necessary or desirable; provided that no such supplement or amendment
shall adversely affect the interests of the holders of Rights as such (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person),
and no such amendment may cause the rights again to become redeemable or cause
the Agreement again to become amendable other than in accordance with this
sentence. Notwithstanding anything contained in this Agreement to the contrary,
no supplement or amendment shall be made which decreases the Redemption Price.
Upon the delivery of a certificate from an appropriate officer of
<PAGE> 75
72
the Company which states that the proposed supplement or amendment is in
compliance with the terms of this Section 27, the Rights Agent shall execute
such supplement or amendment.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Stock).
Section 30. Determinations and Actions by the Board of Directors.
The Board of Directors of the Company shall have the exclusive power and
authority to administer this Agreement and to exercise the rights and powers
specifically granted to the Board of Directors of the Company or to the Company,
or as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power to (i) interpret the
provisions of this Agreement and (ii) make all determinations deemed necessary
or advisable for the administration of this Agreement (including, without
limitation, a determination to redeem or not redeem the Rights or to amend
<PAGE> 76
73
this Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) that are done or made by the Board of Directors of the
Company in good faith, shall (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights, as such, and all other
parties, and (y) not subject the Board of Directors to any liability to the
holders of the Rights.
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement or applicable to this Agreement is held by a court
of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
Section 32. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
<PAGE> 77
74
Section 34. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested, all as of the day and year first above written.
Attest: THE NEW DUN & BRADSTREET
CORPORATION
By
-------------------------------
Name:
Title:
FIRST CHICAGO TRUST COMPANY
OF NEW YORK
By
-------------------------------
Name:
Title:
<PAGE> 78
Exhibit A
FORM
OF
CERTIFICATE OF DESIGNATION
OF
Series A JUNIOR PARTICIPATING PREFERRED STOCK
OF
The New Dun & Bradstreet Corporation
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
-------------------
The New Dun & Bradstreet Corporation, a corporation organized and
existing under the General Corporation Law of the State of Delaware (hereinafter
called the "Company"), hereby certifies that the following resolution was duly
adopted by the Board of Directors of the Company as required by Section 151 of
the General Corporation Law of the State of Delaware at a meeting duly called
and held on June 3, 1998.
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors of the Company (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Company's
Certificate of Incorporation, as amended to date (hereinafter called the
"Certificate of Incorporation"), the Board of Directors hereby creates a series
of Preferred Stock, par value $.01 per share, of the Company and hereby states
the designation and number of shares, and fixes the relative rights, powers and
preferences thereof, and the limitations thereof, as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 500,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into Series A Preferred Stock.
A-1
<PAGE> 79
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock of the Company (the "Preferred Stock") (or any similar stock)
ranking prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock, in preference to
the holders of Common Stock, par value $.01 per share, of the Company (the
"Common Stock") and of any other stock of the Company ranking junior to the
Series A Preferred Stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the last day of January, April, July, and
October in each year (each such date being referred to herein as a "Dividend
Payment Date"), commencing on the first Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $10
or (b) subject to the provision for adjustment hereinafter set forth, 1000 times
the aggregate per share amount of all cash dividends, and 1000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock, declared
on the Common Stock since the immediately preceding Dividend Payment Date or,
with respect to the first Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Company shall at any time after June 3, 1998 declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Dividend Payment Date and the next subsequent
Dividend Payment Date, a dividend of $10 per share on the Series A Preferred
Stock shall nevertheless be payable, when, as and if declared, on such
subsequent Dividend Payment Date.
A-2
<PAGE> 80
(C) Dividends shall begin to accrue and be cumulative, whether or
not earned or declared, on outstanding shares of Series A Preferred Stock from
the Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for the
first Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of issue is
a Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive a quarterly
dividend and before such Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights;
(A) Subject to the provision for adjustment hereinafter set forth
and except as otherwise provided in the Certificate of Incorporation or
required by law, each share of Series A Preferred Stock shall entitle the
holder thereof to 1000 votes on all matters upon which the holders of the
Common Stock of the Company are entitled to vote. In the event the Company
shall at any time after June 3, 1998 declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the number of votes per share to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or in any other Certificate of Designations creating a
series of Preferred Stock or any similar stock, and except as otherwise
required by law, the holders of shares of Series A Preferred Stock and the
A-3
<PAGE> 81
holders of shares of Common Stock and any other capital stock of the
Company having general voting rights shall vote together as one class on
all matters submitted to a vote of stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not earned or declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the Company
shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (as to dividends) to the
Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (as to
dividends) with the Series A Preferred Stock, except dividends paid
ratably on the Series A Preferred Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock, provided that the Company may at any time
redeem, purchase or otherwise acquire shares of any such junior
stock in exchange for shares of any stock of the Company ranking
junior (as to dividends and upon dissolution, liquidation or winding
up) to the Series A Preferred Stock or rights, warrants or options
to acquire such junior stock;
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock
ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
in accordance with a purchase offer made in writing or by
publication (as determined by the Board of
A-4
<PAGE> 82
Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series
or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their retirement become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors, subject to any
conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of the Common Stock or of shares of any other stock of
the Company ranking junior, upon liquidation, dissolution or winding up, to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not earned or
declared, to the date of such payment, provided that the holders of shares of
Series A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
1000 times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (B) to the holders of shares of stock ranking on a parity
upon liquidation, dissolution or winding up with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event, however, that there are not sufficient assets available to permit payment
in full of the Series A liquidation preference and the liquidation preferences
of all other classes and series of stock of the Company, if any, that rank on a
parity with the Series A Preferred Stock in respect thereof, then the assets
available for such distribution shall be distributed ratably to the holders of
the Series A Preferred Stock and the holders of such parity shares in the
proportion to their respective liquidation preferences. In the event the Company
shall at any time after June 3, 1998 declare or pay any dividend
A-5
<PAGE> 83
on the Common Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the aggregate amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under the proviso in clause
(A) of the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the Company shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are converted into, exchanged for or changed into
other stock or securities, cash and/or any other property, then in any such case
each share of Series A Preferred Stock shall at the same time be similarly
converted into, exchanged for or changed into an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 1000 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is converted, exchanged or converted. In the event the Company shall at any time
after June 3, 1998 declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth in
the preceding sentence with respect to the conversion, exchange or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
Section 8. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable from any holder.
Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Company, junior to all other
series of Preferred Stock and senior to the Common Stock.
Section 10. Amendment. If any proposed amendment to the Certificate
of Incorporation (including this Certificate of Designations) would alter,
change or repeal any of the preferences, powers or special rights given to the
Series A
A-6
<PAGE> 84
Preferred Stock so as to affect the Series A Preferred Stock adversely, then the
holders of the Series A Preferred Stock shall be entitled to vote separately as
a class upon such amendment, and the affirmative vote of two-thirds of the
outstanding shares of the Series A Preferred Stock, voting separately as a
class, shall be necessary for the adoption thereof, in addition to such other
vote as may be required by the General Corporation Law of the State of Delaware.
Section 11. Fractional Shares. Series A Preferred Stock may be
issued in fractions of a share that shall entitle the holder, in proportion to
such holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
A-7
<PAGE> 85
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Company by its ______________ and attested by its Secretary this
__th day of June, 1998.
_______________________________
[Title]
Attest:
_______________________
Secretary
A-8
<PAGE> 86
Exhibit B
Form of Right Certificate
Certificate No. R- ____ ___ Rights
NOT EXERCISABLE AFTER June 30, 2008 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO
EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR
TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN
THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND
VOID AND WILL NO LONGER BE TRANSFERABLE.
Right Certificate
THE DUN & BRADSTREET CORPORATION
(formerly known as The New Dun & Bradstreet Corporation)
This certifies that ___________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of June ___, 1998 as the same may be amended from time to
time (the "Rights Agreement"), between The Dun & Bradstreet Corporation
(formerly known as The New Dun & Bradstreet Corporation), a Delaware corporation
(the "Company"), and First Chicago Trust Company of New York (the "Rights
Agent"), to purchase from the Company at any time after the Distribution Date
(as such term is defined in the Rights Agreement) and prior to 5:00 P.M., New
York City time, on June 30, 2008 at the office or agency of the Rights Agent
designated for such purpose, or of its successor as Rights Agent, one
one-thousandth of a fully paid non-assessable share of Series A Junior
Participating Preferred Stock, par value $.01 per share (the "Preferred Stock"),
of the Company, at a purchase price of $___ per one one-thousandth of a share of
Preferred Stock (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Rights Certificate (and the number of one
one-thousandths of a share of Preferred Stock which may be purchased upon
exercise hereof) set forth above, and the Purchase Price set forth above, are
the number and Purchase Price as of June ___, 1998 based on the Preferred Stock
as constituted at such date. As provided in the Rights Agreement, the Purchase
Price, the number of one one-thousandths of a share of Preferred Stock (or other
securities or property) which may be purchased upon the exercise of the Rights
and the number of Rights evidenced by this Right Certificate are subject to
modification and adjustment upon the happening of certain events.
B-1
<PAGE> 87
This Right Certificate is subject to all of the terms, provisions
and conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned office or agency of the Rights Agent. The
Company will mail to the holder of this Right Certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
This Right Certificate, with or without other Right Certificates,
upon surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for shares
of Preferred Stock or shares of the Company's Common Stock, par value $.01 per
share.
No fractional shares of Preferred Stock or Common Stock will be
issued upon the exercise or exchange of any Right or Rights evidenced hereby
(other than fractions of Preferred Stock which are integral multiples of one
one-thousandth of a share of Preferred Stock, which may, at the election of the
Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise or exchange hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to
B-2
<PAGE> 88
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by this Right certificate shall have been exercised as provided
in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-3
<PAGE> 89
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of _______________.
ATTEST: THE DUN & BRADSTREET
CORPORATION (formerly known as
The New Dun & Bradstreet
Corporation)
By __________________ By __________________
Countersigned:
____________________________,
as Rights Agent
By _________________________
Authorized Signature
B-4
<PAGE> 90
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED _________________________ hereby sells, assigns
and transfer unto ______________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
Rights represented by this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint
___________________ Attorney, to transfer said Rights on the books of the
within-named Company, with full power of substitution.
Dated: _________________
________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a bank, trust company, broker,
dealer or other eligible institution participating in a recognized signature
guarantee medallion program
________________________________________________________________________________
(To be completed)
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by, were not acquired by the
undersigned from, and are not being assigned to, an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
________________________________
Signature
B-5
<PAGE> 91
Form of Reverse Side of Right Certificate - continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate)
To The Dun & Bradstreet Corporation (formerly known as The New Dun & Bradstreet
Corporation):
The undersigned hereby irrevocably elects to exercise
__________________ Rights represented by this Right Certificate to purchase the
shares of Preferred Stock (or other securities or property) issuable upon the
exercise of such Rights and requests that certificates for such shares of
Preferred Stock (or such other securities) be issued in the name of:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivery to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ____________________
________________________________
Signature
(Signature must conform to holder specified on Right Certificate)
Signature Guaranteed:
Signature must be guaranteed by bank, trust company, broker, dealer
or other eligible institution participating in a recognized signature guarantee
medallion program.
B-6
<PAGE> 92
Form of Reverse Side of Right Certificate -- continued
________________________________________________________________________________
(To be completed)
The undersigned certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement)
________________________________
Signature
________________________________________________________________________________
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, such Assignment or Election to Purchase will not be honored.
B-7
<PAGE> 93
Exhibit C
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS
OWNED BY OR TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS
DEFINED IN THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL
BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE
Shares of Preferred Stock
On June 3, 1998 the Board of Directors of The New Dun & Bradstreet
Corporation (the "Company") declared a dividend of one preferred share purchase
right (a "Right") for each outstanding share of common stock, par value $.01 per
share of the Company (the "Common Stock"). The dividend is payable on June ___,
1998 (the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-thousandth
of a share of Series A Junior Participating Preferred Stock, par value $.01 per
share (the "Preferred Stock") of the Company at a price of $___ per one
one-thousandth of a share of Preferred Stock (as the same may be adjusted, the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement dated as of June ___, 1998 as the
same may be amended from time to time (the "Rights Agreement"), between the
Company and First Chicago Trust Company of New York, as Rights Agent (the
"Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (with
certain exceptions an "Acquiring Person") have acquired beneficial ownership of
15% or more of the outstanding shares of Common Stock or (ii) 10 business days
(or such later date as may be determined by action of the Board of Directors
prior to such time as any person or group of affiliated persons becomes an
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of the
outstanding shares of Common Stock (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced by such Common Stock
certificate together with a copy of this Summary of Rights.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Stock. Until the Distribution Date (or earlier
redemption or expiration of the Rights), Common Stock certificates will contain
a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for shares of Common Stock
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights, will also constitute the transfer of the Rights associated
with the shares of Common Stock represented by such certificate. As soon as
practicable following the Distribution
<PAGE> 94
Date, separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Stock as of the close of business on
the Distribution Date and such separate Right Certificates alone will evidence
the Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire on June 30, 2008 (the "Final Expiration Date"), unless the
Final Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case as described below.
The Purchase Price payable, and the number of shares of Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of
certain rights or warrants to subscribe for or purchase Preferred Stock at a
price, or securities convertible into Preferred Stock with a conversion price,
less than the then-current market price of the Preferred Stock or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends or dividends payable in
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
The Rights are also subject to adjustment in the event of a stock
dividend on the Common Stock payable in shares of Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case,
prior to the Distribution Date.
Shares of Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each share of Preferred Stock will be entitled, when, as
and if declared, to a minimum preferential quarterly dividend payment of $10 per
share but will be entitled to an aggregate dividend of 1000 times the dividend
declared per share of Common Stock. In the event of liquidation, dissolution or
winding up of the Company, the holders of the Preferred Stock will be entitled
to a minimum preferential liquidation payment of $100 per share (plus any
accrued but unpaid dividends) but will be entitled to an aggregate payment of
1000 times the payment made per share of Common Stock. Each share of Preferred
Stock will have 1000 votes, voting together with the Common Stock. Finally, in
the event of any merger, consolidation or other transaction in which shares of
Common Stock are converted or exchanged, each share of Preferred Stock will be
entitled to receive 1000 times the amount received per share of Common Stock.
These rights are protected by customary antidilution provisions.
Because of the nature of the Preferred Stock's dividend, liquidation
and voting rights, the value of the one
2
<PAGE> 95
one-thousandth interest in a share of Preferred Stock purchasable upon exercise
of each Right should approximate the value of one share of Common Stock.
In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereupon become void),
will thereafter have the right to receive upon exercise of a Right and payment
of the Purchase Price, that number of shares of Common Stock having a market
value of two times the Purchase Price.
In the event that, after a person or group has become an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold,
proper provision will be made so that each holder of a Right (other than Rights
beneficially owned by an Acquiring Person which will have become void) will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the person with whom the Company has engaged in the foregoing transaction (or
its parent), which number of shares at the time of such transaction will have a
market value of two times the Purchase Price.
At any time after any person or group becomes an Acquiring Person
and prior to the acquisition by such person or group of 50% or more of the
outstanding shares of Common Stock or the occurrence of an event described in
the prior paragraph, the Board of Directors of the Company may exchange the
Rights (other than Rights owned by such person or group which will have become
void), in whole or in part, at an exchange ratio of one share of Common Stock,
or a fractional share of Preferred Stock (or of a share of a similar class or
series of the Company's preferred stock having similar rights, preferences and
privileges) of equivalent value, per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock will be issued
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock, which may, at the election of the Company, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Preferred Stock on the last
trading day prior to the date of exercise.
At any time prior to the time an Acquiring Person becomes such, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may
3
<PAGE> 96
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
For so long as the Rights are then redeemable, the Company may,
except with respect to the redemption price, amend the Rights in any manner.
After the Rights are no longer redeemable, the Company may, except with respect
to the redemption price, amend the Rights in any manner that does not adversely
affect the interests of holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities
and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A
dated June ___, 1998. A copy of the Rights Agreement is available free of charge
from the Company. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement,
as the same may be amended from time to time, which is hereby incorporated
herein by reference.
4
