<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-07155
R.H. DONNELLEY CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2740040
----------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
One Manhattanville Road, Purchase N.Y. 10577
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Title of Class Shares Outstanding at November 12, 1998
- ------------------------------- ---------------------------------------
Common Stock, par value $1 per share 34,198,780
Commission file number 333-59287
R.H. DONNELLEY INC. *
- ----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2467635
- -------------------------- -------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
One Manhattanville Road, Purchase N.Y. 10577
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (914) 933-6400
[FN]
* R.H. Donnelley Inc. is a wholly owned subsidiary of R.H. Donnelley
Corporation which became subject to the filing requirements of Section 15(d) on
October 1, 1998. As of October 31, 1998, 100 shares of R.H. Donnelley Inc.
common stock, no par value, were outstanding.
</FN>
<PAGE>
R.H. DONNELLEY CORPORATION
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION PAGE
<TABLE>
<CAPTION>
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1998 and 1997 3
Consolidated Balance Sheets at September 30, 1998 and
December 31, 1997 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 16
</TABLE>
<PAGE>
R.H. Donnelley Corporation and Subsidiary
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Amounts in thousands, except per share data 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $53,391 $62,728 $115,740 $143,392
Expenses:
Operating Expenses 23,634 28,966 42,990 61,133
General and Administrative 28,293 28,852 64,274 74,559
Depreciation and Amortization 4,854 5,460 14,710 16,490
------- ------- ------- -------
Total Expenses 56,781 63,278 121,974 152,182
Income from Partnerships and
Related Fees 46,445 47,375 108,669 63,114
Operating Income 43,055 46,825 102,435 54,324
Interest Expense, net 10,356 -- 13,371 --
Income before Provision for Income Taxes 32,699 46,825 89,064 54,324
Provision for Income Taxes 13,080 18,730 35,626 21,730
------- ------- ------- -------
Net Income $19,619 $28,095 $53,438 $32,594
======= ======= ======= =======
Net Income Per Share of Common Stock:
Basic $0.57 $0.82 $1.56 $0.95
Diluted $0.57 $0.82 $1.55 $0.95
Shares Used in Computing Earnings Per Share:
Basic 34,223 34,100 34,249 34,179
Diluted 34,443 34,348 34,491 34,367
Cash Dividends Paid Per Share $0.175 -- $0.175 --
====== ====== ====== ======
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
R.H. Donnelley Corporation and Subsidiary
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
Amounts in thousands, except share data
Assets
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $10,204 $32
Accounts Receivable
Billed 3,238 5,208
Unbilled 63,747 78,010
Other 10,286 4,562
Allowance for Doubtful Accounts (5,258) (4,014)
-------- -------
Total Accounts Receivable, net 72,013 83,766
Deferred Contract Costs 11,429 6,944
Other Current Assets 2,278 388
-------- -------
Total Current Assets 95,924 91,130
Non-Current Assets
Partnership Investments and Related Receivables 241,050 218,620
Property and Equipment, net 22,383 25,460
Computer Software, net 35,768 37,546
Other Non-Current Assets 19,148 9,530
-------- -------
Total Assets $414,273 $382,286
======== =========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts Payable $3,153 $1,395
Accrued and Other Current Liabilities 69,479 58,070
Current Portion of Long-Term Debt 3,188 --
-------- -------
Total Current Liabilities 75,820 59,465
Long-Term Debt 483,750 --
Deferred Income Taxes 39,394 34,456
Postretirement and Postemployment Benefits 13,451 12,920
Other Liabilities 13,462 16,770
-------- -------
Total Liabilities 625,877 123,611
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 - 51,621,894
shares for 1998 and 51,967,421
shares for 1997 51,622 51,967
Additional Paid In Capital 248 --
Retained (Deficit) Earnings (245,399) 224,562
Treasury Stock, at cost, 17,423,114 shares for
1998 and 17,853,652 shares for 1997 (18,075) (17,854)
-------- -------
Total Shareholders' Equity (211,604) 258,675
-------- -------
Total Liabilities and Shareholders' Equity $414,273 $382,286
======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
R.H. Donnelley Corporation and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
Amounts in thousands 1998 1997
Cash Flows from Operating Activities:
<S> <C> <C>
Net Income $53,438 $32,594
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 14,710 16,490
Amortization of Deferred Financing Costs 499 --
Provision for Doubtful Accounts 6,397 10,453
Cash Received (Less Than) in Excess of Income
from Partnerships and Related Receivables (22,430) 33,144
Decrease in Accounts Receivable 5,356 43,780
Increase in Deferred Contract Costs (4,485) (25,253)
Increase in Other Assets (1,990) (841)
Increase (Decrease) in Accounts Payable, Accrued
and Other Current Liabilities 14,240 (3,112)
Increase in Other Long-Term Liabilities 2,161 2,450
Other, net 37 (139)
------- -------
Net Cash Provided by Operating Activities 67,933 109,566
Cash Flows from Investing Activities:
Additions to Property and Equipment (4,177) (8,748)
Additions to Computer Software (6,788) (5,506)
------- -------
Net Cash Used in Investing Activities (10,965) (14,254)
Cash Flows from Financing Activities:
Net Proceeds from Long-Term Borrowings 489,983 --
Repayment of Debt (13,062) --
Net Distributions to D&B (517,137) (95,308)
Purchase of Treasury Stock (1,017) --
Payment of Dividend (6,028) --
Other, net 465 --
------- -------
Net Cash Used in Financing Activities (46,796) (95,308)
Increase in Cash and Cash Equivalents 10,172 4
Cash and Cash Equivalents, at Beginning of Year 32 60
------- -------
Cash and Cash Equivalents, at End of Period $10,204 $64
======= =======
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
<PAGE>
R.H. DONNELLEY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 (the `Company') and The New Dun &
Bradstreet Corporation (`New D&B'). The distribution (`Distribution') was the
method by which D&B distributed to its stockholders shares of New D&B common
stock, which represent a continuing interest in the D&B businesses now conducted
by New D&B. On July 1, 1998, as part of the Distribution, D&B distributed to
its stockholders shares of New D&B stock. Shares of D&B common stock held by
D&B stockholders represent a continuing ownership interest in the Company. In
connection with the Distribution, D&B changed its name to R.H. Donnelley
Corporation and D&B common stock has become the Company's common stock (the
`Common Stock'). After the Distribution, the Company's only operating
subsidiary is R.H. Donnelley Inc. (`Donnelley'). Therefore, on a consolidated
basis, the financial statements of the Company and Donnelley are substantially
identical. The financial statements of the Company have been restated to
reflect the recapitalization.
The financial statements reflect the financial position, results of
operations, and cash flows of the Company as if it were a separate entity. The
financial statements include allocations of certain D&B corporate headquarters
assets, liabilities and expenses relating to the Company's businesses that were
transferred from D&B on June 30, 1998. Management believes these allocations
are reasonable. However, the costs of these services and benefit charges are
not necessarily indicative of the costs that would have been incurred if the
Company 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 the Company for the year ended December 31,
1997. Certain 1997 amounts have been restated to conform to the 1998
presentation. 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 Earnings Per Share
As required by SFAS No. 128, the Company has provided a reconciliation of
basic weighted average shares outstanding to diluted weighted average shares
outstanding during the period in the table below. The conversion of dilutive
shares has no impact on operating results.
<TABLE>
<CAPTION>
Three months Nine Months
ended September 30, ended September 30,
------------------ -------------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Weighted average number of shares- basic 34,223 34,100 34,249 34,179
Effect of potentially dilutive stock options 220 248 242 188
----- ------- ------ ------
Weighted average number of shares -diluted 34,443 34,348 34,491 34,367
====== ====== ====== ======
</TABLE>
3. Commitment
On June 5, 1998, Donnelley entered into a credit agreement with the Chase
Manhattan Bank, as Administrative Agent and the Lenders party thereto (the
`Credit Agreement'). Under the terms of the Credit Agreement, Donnelley
obtained a Senior Revolving Credit Facility of $100 million (the `Revolver') and
Senior Secured Term Facilities in the aggregate amount of $300 million, of which
Donnelley initially borrowed $350 million. The Revolver expires on June 4, 2004
at which time all outstanding borrowings are due. The Senior Secured Term
Facilities mature between June 4, 2004 and December 5, 2006. Donnelley also
issued $150 million of Senior Subordinated Notes. These Notes pay interest
semi-annually at the annual rate of 9.125% and are due in 2008. The net
proceeds of the $500 million were dividended to D&B (and distributed to New
D&B in connection with the Distribution), but repayment of such indebtedness
remains an obligation of Donnelley, and is guaranteed by the Company. At
September 30, 1998, Donnelley had outstanding borrowings under the Credit
Agreement of $336.9 million at a weighted average interest rate of 7.43% per
annum.
To reduce the impact of changes in interest rates on its floating rate long-
term debt under the Credit Agreement, Donnelley entered into three interest rate
swap agreements, expiring 2001 - 2003, having an aggregate notional principal
amount of $175 million. These agreements effectively change the interest rate
on $175 million of floating rate borrowing to fixed rates. The differential is
accrued as interest rates change and is recorded to interest expense. The
notional amount of the swap agreements is used to measure interest to be paid or
received and does not represent the amount of exposure to credit loss.
Donnelley is exposed to credit risk in the event the counterparty does not pay
the interest owed under the interest rate swap agreements; however, Donnelley
does not anticipate nonperformance by the counterparty.
4. 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 has assumed and will indemnify the Company against any
payments to be made by the Company in respect to the IRI Action under the 1996
Distribution Agreement between D&B, Cognizant and ACNielsen, under the Indemnity
and Joint Defense Agreement or otherwise, including any ongoing legal fees and
expenses related thereto.
In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims. In the opinion of management, the outcome of such
current legal proceedings, claims and litigation will not materially affect the
Company's financial position or results of operations on an annual basis.
5. DonTech Partnerships
In 1991, Donnelley formed a general partnership with an affiliate of
Ameritech Corporation (`Ameritech'), the DonTech Partnership (`DonTech I').
Prior to August 1997, DonTech I solicited advertising, published and delivered
various directories in Illinois and Northwest Indiana. During August 1997,
Donnelley signed a series of agreements with Ameritech changing the structure of
the existing partnership. A new partnership was formed (`DonTech') which was
appointed the exclusive sales agent, in perpetuity, for yellow page directories
that will now be published by Ameritech in Illinois and Northwest Indiana.
The following is summarized combined financial information of the DonTech
Partnerships:
<TABLE>
<CAPTION>
Three months Nine Months
ended September 30, ended September 30,
1998 1997 1998 1997
(in thousands)
<S> <C> <C> <C> <C>
Gross Revenues $69,469 $130,470 $247,684 $355,669
Gross Profit 35,321 64,255 159,877 174,314
Income Before Taxes 28,982 55,215 141,567 151,636
</TABLE>
6. Subsequent Events
On October 27, 1998, the Company announced that the Board of Directors
authorized the Company to repurchase up to $20 million of its common stock. The
shares may be purchased from time to time over a two year period in the open
market depending on market conditions, in accordance with guidelines established
by the Securities and Exchange Commission.
Also on October 27, 1998, the Board of Directors declared a dividend of
$0.175 per share payable on December 10, 1998 to holders of record on November
20, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The matters discussed in this Form 10-Q of R.H. Donnelley Corporation (the
`Company') and R.H. Donnelley Inc. (`Donnelley') contain forward looking
statements that involve risks and uncertainties including risks associated with
developments in the telecommunications industry, including the ongoing
consolidation of telecommunications providers, trends towards alternatives to
print advertising, risks associated with addressing the Year 2000 issues,
including risks related to estimating costs of remediation and predicting the
readiness of third party customers and vendors, and other risks detailed from
time to time in the Company's and Donnelley's filings with the Securities and
Exchange Commission. These statements reflect the Company's current beliefs and
specific assumptions with respect to future business decisions and are based on
information currently available. Accordingly, the statements are subject to
significant risks, uncertainties and contingencies which could cause the
Company's actual operating results, performance or business prospects to differ
from those expressed in, or implied by, these statements.
FINANCIAL REVIEW
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 - the Company and The New Dun & Bradstreet Corporation (`New
D&B'). The distribution (`Distribution') was the method by which D&B
distributed to its stockholders shares of New D&B common stock, which represent
a continuing interest in the D&B businesses now conducted by New D&B. On July
1, 1998, as part of the Distribution, D&B distributed to its stockholders shares
of New D&B stock. Shares of D&B common stock held by D&B stockholders represent
a continuing ownership interest in the Company. In connection with the
Distribution, D&B changed its name to R.H. Donnelley Corporation and D&B common
stock has become the Company's common stock (the `Common Stock'). After the
Distribution, the Company's only operating subsidiary is Donnelley.
Certain events and transactions occurred during 1997 which impact the
comparability of the three and nine month results for 1997 and 1998. In August
1997, Donnelley signed a series of agreements with an affiliate of Ameritech
(`Ameritech') changing the structure of the existing DonTech partnership
(`DonTech I'). A new partnership was formed (`DonTech') and was appointed the
exclusive sales agent, in perpetuity, for yellow page directories that are now
published by Ameritech in Illinois and Northwest Indiana (the `DonTech
Restructuring'). Prior to the DonTech Restructuring, DonTech I was the
publisher of annual yellow page directories for Ameritech and recognized
revenues and costs when related directories were published. Under the new
structure, DonTech now recognizes revenues and costs when a customer signs an
advertising sales contract. The total sales in any given year should be
comparable regardless of whether they are recognized when a directory publishes
or when an advertising sales contract is signed. Therefore, the effect of the
DonTech Restructuring should not, on an annual basis, result in materially
different financial results than during 1997. Also, in August 1997, the
Company's contract with Cincinnati Bell expired and in December 1997, the
Company sold its Proprietary-East business (`P-East'). Finally, changes in
scheduling of directory publication dates and sales campaigns for both DonTech
and Bell Atlantic make quarterly comparisons difficult over the time period.
Three Months Ended September 30, 1998 Compared with Three Months Ended September
30, 1997
Gross advertising sales is the billing value of advertisements sold by the
Company, including DonTech. Gross advertising sales figures set forth below are
presented on the same basis on which revenue is recognized (that is, when a
customer signs a sales contract where the Company is a sales agent or when the
directory is published where the Company is the publisher). Gross advertising
sales in the third quarter of 1998 were $300.1 million compared to $200.8
million for the third quarter 1997. Excluding P-East gross advertising sales of
$20.3 million, gross advertising sales increased $119.6 million from $180.5
million in 1997. This increase is primarily due to the DonTech Restructuring, a
shift in the scheduling of certain sales campaigns in the Bell Atlantic region
and the publication of the Company's inaugural annual directory from its
Cincinnati proprietary operations.
On a publication cycle basis (that is, reflecting sales when a directory is
published, regardless of the Company's role), gross advertising sales were
$182.7 million compared to $188.5 million in 1997. Excluding P-East sales of
$20.3 million, publication cycle sales for the quarter were up $14.5 million
compared to the third quarter 1997 amount of $168.2 million. The increase is
primarily attributable to the publication of the Company's inaugural annual
directory from its Cincinnati proprietary operations and higher sales from the
Company's partnerships, particularly from strong growth in the Las Vegas area.
These increases were partially offset by lower sales in Bell Atlantic
directories, primarily in the New York City area.
Revenues are derived from commissions related to advertising sales and from
publishing services provided by the Company, but do not include revenues
generated by sales of advertising by the DonTech partnership. Revenues for the
third quarter of 1998 were $53.4 million as compared to $62.7 million in the
third quarter of 1997. Excluding revenues of the former P-East business of
$23.2 million, revenues were up $13.9 million compared to $39.5 million for the
third quarter of 1997. This increase is primarily due to the publication of the
Company's inaugural directory in Cincinnati and higher publishing revenues
principally due to publishing services which the Company began providing to an
independent yellow pages publisher in 1998 under a long-term agreement.
Partnership income and related fees of $46.4 million was essentially
unchanged from the prior year quarter. Under the terms of the DonTech
Restructuring, the Company receives 50% of the profits generated by the
partnership and receives direct fees from Ameritech which are tied to
advertising sales generated by the partnership. The Company also receives 50%
of the profits generated by the CenDon partnership, a partnership between
Donnelley and an affiliate of Sprint.
Operating and general and administrative expenses were $51.9 million
compared to $57.8 million in the third quarter of 1997. Excluding expenses for
P-East of $19.0 million, expenses were $13.1 million higher than the third
quarter of 1997 amount of $38.8 million. This increase is primarily due to the
expenses related to the publication of the Company's Cincinnati proprietary
directory, increased publishing costs related to the contract with an
independent yellow pages publisher and higher general and administrative
expenses related to being an independent public company after the separation
from D&B.
As a result of the above factors, operating income was $43.1 million as
compared to $46.8 million in the third quarter of 1997. Excluding P-East
operating income of $4.1 million, operating income was essentially unchanged
from the third quarter of 1997 amount of $42.7 million.
Interest expense of $10.4 million in the third quarter of 1998 represents
the interest on the Debt (as defined below; see ` - Liquidity and Capital
Resources').
Nine Months Ended September 30, 1998 Compared with Nine Months Ended September
30, 1997
Gross advertising sales through September 30, 1998 was $701.7 million
compared to $502.8 million for the comparable period of 1997. Excluding gross
advertising sales for P-East of $38.9 million, gross advertising sales increased
by $237.8 million, which was primarily due to the DonTech Restructuring.
Increases due to scheduling shifts for certain sales campaigns in the Bell
Atlantic region were offset by the impact of the expiration of the Cincinnati
Bell contract in 1997.
On a publication cycle basis, gross advertising sales for 1998 were $641.1
million, compared to $709.3 million for 1997. Excluding gross advertising sales
for P-East of $38.9 million, gross advertising sales decreased $29.3 million
from $670.4 million in 1997. This decrease is primarily related to the
expiration of the Cincinnati Bell contract partially offset by gross advertising
sales from the Company's Cincinnati proprietary directory and strong growth at
DonTech and in Sprint's Las Vegas business.
Revenues through September 30, 1998 were $115.7 million compared to $143.4
million through September 30, 1997. Excluding revenues from the former P-East
business of $37.7 million, revenues were $10.0 million higher than the 1997
amount of $105.7 million. The increase is primarily due to higher publishing
revenues from publishing services which the Company began providing to an
independent yellow pages publisher in 1998 and the shift in the scheduling of
certain sales campaigns in the Company's Bell Atlantic markets. The Company
anticipates that this increase from the Bell Atlantic markets will reverse
itself in the fourth quarter and that for the full year, revenues will be
essentially flat as compared to 1997.
Partnership income and related fees of $108.7 million increased by $45.6
million from $63.1 million in 1997 primarily due to the DonTech Restructuring.
The effect of the DonTech Restructuring is expected to reverse itself in the
fourth quarter.
Operating and general and administrative expenses for the nine months ended
September 30, 1998 were $107.3 million compared to $135.7 million in 1997.
Excluding P-East expenses of $34.2 million, operating and general and
administrative expenses increased $5.8 million from the 1997 amount of $101.5
million. This increase is primarily due to higher expenses related to the
publication of the Company's proprietary Cincinnati directory, higher publishing
costs related to the contract with an independent yellow pages publisher and
higher information technology spending, principally the result of timing.
As a result of the above factors, operating income for 1998 was $102.4
million compared to $54.3 million for 1997. Excluding P-East operating income
of $4.2 million, operating income increased $52.3 million compared to $50.1
million in 1997.
Interest expense of $13.4 million through September 30, 1998 represents the
interest on the Debt incurred in connection with the Distribution.
Liquidity And Capital Resources
On June 5, 1998, Donnelley entered into a credit agreement with the Chase
Manhattan Bank, as Administrative Agent, and the Lenders party thereto (the
`Credit Agreement'). Under the terms of the Credit Agreement, Donnelley
obtained a Senior Revolving Credit Facility of $100 million (the `Revolver') and
Senior Secured Term Facilities in the aggregate amount of $300 million, of which
Donnelley initially borrowed $350 million. The Revolver expires on June 4, 2004
at which time all outstanding borrowings are due. The Senior Secured Term
Facilities mature between June 4, 2004 and December 5, 2006. In addition,
Donnelley issued $150 million of Senior Subordinated Notes (the `Notes'). These
Notes pay interest semi-annually at the annual rate of 9.125%, and are due in
2008. The net proceeds of the $500 million (the `Debt') were dividended to D&B
(and distributed to New D&B in connection with the Distribution), but repayment
of such indebtedness remains an obligation of Donnelley, and is guaranteed by
the Company. The Credit Agreement and the Indenture governing the Notes each
contain various financial and other restrictions, including restrictions on
indebtedness, capital expenditures and commitments. At September 30, 1998, the
Company had $336.9 million of outstanding debt under the Credit Agreement
at a weighted average interest rate of 7.43% per annum.
To reduce the impact of changes in interest rates on its floating rate long-
term debt under the Credit Agreement, Donnelley subsequently entered into three
interest rate swap agreements having a total notional principal amount of $175
million. These agreements effectively change the interest rate on $175 million
of floating rate borrowing to fixed rates. The interest rate swap agreements
have terms of 3 - 5 years. The notional amount of the swap agreements is used
to measure interest to be paid or received and does not represent the amount of
exposure to credit loss. Donnelley is exposed to credit risk in the event of
nonperformance by the other party to the interest rate swap agreements.
However, Donnelley does not anticipate nonperformance by the counterparty.
Cash Flow
Net cash provided by operations was $67.9 million through September 30, 1998
compared to $109.6 million through September 30, 1997. Cash flow from
operations decreased $27.9 million excluding cash provided by operations through
September 30, 1997 from the P-East business of $13.8 million. This decrease is
primarily attributable to significantly higher income from partnerships in
excess of cash received, higher taxes paid of $11.2 million and cash provided in
1997 from the Cincinnati Bell relationship of $5.1 million. Cash received from
partnerships through September 30, 1998 was $10.0 million less than cash
received from partnerships through September 30, 1997, and income from
partnerships for the 1998 period was $45.0 million higher than income from
partnerships for the 1997 period. The increase in partnership income is related
to the DonTech Restructuring, and on an annual basis, the income and cash
received from partnerships should be comparable to 1997.
Net cash used in investing activities was $11.0 million through September
30, 1998 compared to $14.3 million through September 30, 1997. The higher
capital spending in 1997 is primarily attributable to purchases of computer
equipment and furniture and fixtures in connection with the relocation of the
Corporate office and the expansion of the Raleigh, N.C. office. Currently, the
Company has no material commitments for capital spending.
Net cash used in financing activities was $46.8 million through September
30, 1998 compared to $95.3 million through September 30, 1997. Prior to July 1,
1998, all cash deposits were transferred to D&B on a daily basis and D&B funded
Donnelley's disbursement bank accounts as required. The net amounts transferred
to D&B were $517.1 million in 1998 and $95.3 million through September 30, 1997.
In connection with the Distribution, the Company received $490.0 million from
the issuance of the Debt which was dividended to D&B and distributed to New D&B.
Additionally, cash was used in 1998 to repay debt ($13.1 million), to repurchase
common stock under Donnelley's systematic stock repurchase plan ($1.0 million)
and to pay a dividend to shareholders ($6.0 million).
On October 27, 1998, the Company announced its decision to institute a stock
repurchase program and to eliminate the quarterly dividend after the payment of
the 1998 fourth quarter dividend payable on December 10, 1998. Under the terms
of the stock repurchase program, the Company is authorized to buy back up to $20
million of its common stock over a two year period.
The Company believes that cash generation, together with available debt
capacity under the Revolver will be sufficient to permit the Company to fund its
cash requirements, including its operating expenses, anticipated capital
expenditures and its debt service requirements, for the foreseeable future.
Year 2000 Issue
The Year 2000 (`Y2K') issue 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 Y2K compliance program, all of the Company's installed
computer systems and software products have been assessed for Y2K problems and
the Company anticipates that these computer systems and software products will
be fully Y2K compliant. The Company is currently in the process of replacing
its financial systems (General Ledger, Accounts Receivable, and Fixed Assets)
with systems that use programs from Oracle Corporation. The Company anticipates
that all financial systems will be tested, certified and implemented by the
first quarter of 1999. For all remaining systems, software programs are being
modified or replaced. The Company is requesting assurances from all software
vendors from which it has purchased or licensed software, 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 the conversions to new software, the Company believes that it will be able
to mitigate its exposure to the Y2K issue before 2000. However, if continued
modifications and conversions are not made, or not completed on a timely basis,
the Y2K issue could have a material adverse effect on the Company's operating
results and financial condition.
The Company's Y2K compliance program is divided into five major phases - (1)
the assessment of all computer systems and software products (collectively the
`Computer Systems') for Y2K compliance, (2) the remediation (i.e. conversion or
modification) of each Computer System to be Y2K compliant, (3) the testing of
the remediation to confirm that such remediation has not adversely impacted the
operation of the Computer Systems, (4) the implementation of the remediated
Computer Systems into production and (5) certification of the remediation for
Y2K compliance. The percentage of completion of each phase as of October 1998
is shown in the table below:
<TABLE>
<CAPTION>
October 1998
<S> <C>
Assessment 100%
Remediation 96%
Testing 70%
Implementation 70%
Certification 36%
</TABLE>
The Company expects to be substantially completed with each phase of its
program by year-end and to have its Y2K compliance program completed by the
first quarter of 1999. The Company has targeted this date to provide itself
additional time in case of any unanticipated delays or in the event any
complications arise. The Company has spent approximately $3.4 million
addressing the Y2K issues and estimates that it will spend an additional $0.8
million in 1998 and approximately $1.1 million in 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 the Company's computer systems, software, databases or other
technology interface or are integrated with may not accept input of, store,
manipulate and output dates in the year 2000 or thereafter without error or
interruption. The Company has conducted a review of its computer systems to
attempt to identify ways in which its systems could be affected by interface- or
integration-related problems in correctly processing date information. The
Company is also querying those third-parties with which it maintains business
relationships as to their progress in identifying and addressing their Y2K
issues. Detailed evaluations of the major third parties have been initiated and
contingency plans will be developed if necessary. There can be no assurance
that the Company will identify all interface- or integration- related or third
party related problems in advance of their occurrence, or that the Company will
be able to successfully remedy problems that are discovered. The expenses of
the Company's efforts to identify and address such problems, or the expenses and
liabilities to which the Company may become subject to as a result of such
problems, could have a material adverse effect on its results of operations and
financial condition.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the discussion of legal proceedings found in the
Information Statement attached as Exhibit 99.1 to the Company's Current Report
on Form 8-K filed on June 30, 1998. New D&B has assumed the defense of the
matter discussed therein and to the best of the Company's knowledge there have
been no material changes in the status of the proceedings referenced therein.
The Company is involved in certain legal proceedings incidental to the
normal conduct of its business. The Company does not believe that any
liabilities relating to such legal proceedings to which it is a party are
likely to be, individually or in the aggregate, material to its consolidated
financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Stockholders of R.H. Donnelley Corporation was held on
August 24, 1998. At the meeting, the stockholders acted upon a proposal to
amend the Company's Restated Certificate of Incorporation to effect a one-for-
five reverse split of the Company's Common Stock. The result of the voting on
this matter was as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Votes For Votes Against Votes Abstained
113,564,841 32,860,165 244,099
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
Exhibit No. Document
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to Amendment No. 1 to the
Registration Statement on Form S-4, filed with the
Securities and Exchange Commission on August 7, 1998,
Registration No. 333-59287)
3.2 By-laws of the Company (incorporated by reference to Exhibit
3.2 to the Registration Statement on Form S-4, filed with
the Securities and Exchange Commission on July 17, 1998,
Registration No. 333-59287)
3.3 Certificate of Incorporation of Donnelley (incorporated by
reference to Exhibit 3.3 to Amendment No. 1 to the
Registration Statement on Form S-4, filed with the Securities
and Exchange Commission on August 7, 1998, Registration No.
333-59287)
3.4 By-laws of Donnelley (incorporated by reference to Exhibit
3.4 to the Registration Statement on Form S-4, filed with the
Securities and Exchange Commission on July 17, 1998,
Registration No. 333-59287)
4.1 Indenture dated as of June 5, 1998 between Donnelley, as
Issuer, the Company, as Guarantor, and the Bank of New York,
as Trustee, with respect to the 9 1/8% Senior Subordinated
Notes due 2008 (incorporated by reference to Exhibit 4.1 to
the Registration Statement on Form S-4, filed with the
Securities and Exchange Commission on July 17, 1998,
Registration No. 333-59287)
4.2 Form of the 9 1/8% Senior Subordinated Notes due 2008
(included in Exhibit 4.1)
4.3 Company Guarantee (included in Exhibit 4.1)
4.4 Exchange and Registration Rights Agreement dated as of June
5, 1998, among the Company, Donnelley, and Goldman, Sachs &
Co. and Chase Securities Inc., as Initial Purchasers
(incorporated by reference to Exhibit 4.4 to the Registration
Statement on Form S-4, filed with the Securities and Exchange
Commission on July 17, 1998, Registration No. 333-59287)
4.5 Rights Agreement, dated as of October 27, 1998 between R.H.
Donnelley Corporation and First Chicago Trust Company
(incorporated by reference to Exhibit 4 to the Registration
Statement on Form 8-A, filed with the Securities and Exchange
Commission on November 5, 1998, Registration No. 001-07155)
10.1 Employment Agreement dated as of September 28, 1998 between
the Company and Frank R. Noonan.
10.2 Employment Agreement dated as of September 28, 1998 between
the Company and Philip C. Danford.
10.3 Employment Agreement dated as of September 28, 1998 between
the Company and Alexander R. Marasco.
10.4 Employment Agreement dated as of September 28, 1998 between
the Company and David C. Swanson.
10.5 Employment Agreement dated as of September 28, 1998 between
the Company and Frederick J. Groser.
27.1 Financial Data Schedule of the Company
27.2 Financial Data Schedule of Donnelley
(b) Reports on Form 8-K:
A report on Form 8-K was filed July 17, 1998 under Item 5-Other Events to
report on the Company's decision to (i) convene a special meeting of
stockholders to approve a one-for-five reverse stock split, (ii) commence a
systematic stock repurchase program to offset shares issued under the Company's
employee and director compensation plans and (iii) issue a quarterly dividend.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
R.H. DONNELLEY CORPORATION
Date: November 13, 1998 By: PHILIP C. DANFORD
-----------------------------------------------
Philip C. Danford
Senior Vice President and Chief Financial Officer
Date: November 13, 1998 By: ANNA M. PATRUNO
-------------------------------------------------
Anna M. Patruno
Vice President and Controller
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
R.H. DONNELLEY INC.
Date: November 13, 1998 By: PHILIP C. DANFORD
--------------------------------------------------
Philip C. Danford
Senior Vice President and Chief Financial Officer
Date: November 13, 1998 By: ANNA M. PATRUNO
--------------------------------------------------
Anna M. Patruno
Vice President and Controller
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM R.H.
DONNELLEY CORPORATION'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 10,204 64
<SECURITIES> 0 0
<RECEIVABLES> 77,271 119,581
<ALLOWANCES> 5,258 8,002
<INVENTORY> 0 0
<CURRENT-ASSETS> 13,707 44,840
<PP&E> 59,734 66,588
<DEPRECIATION> 37,351 36,003
<TOTAL-ASSETS> 414,273 438,818
<CURRENT-LIABILITIES> 75,820 55,437
<BONDS> 483,750 0
0 0
0 0
<COMMON> 51,622 52,179
<OTHER-SE> (263,226) 264,292
<TOTAL-LIABILITY-AND-EQUITY> 414,273 438,818
<SALES> 0 0
<TOTAL-REVENUES> 115,740 143,392
<CGS> 0 0
<TOTAL-COSTS> 13,305 89,068
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,371 0
<INCOME-PRETAX> 89,064 54,324
<INCOME-TAX> 35,626 21,730
<INCOME-CONTINUING> 53,438 32,594
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 53,438 32,594
<EPS-PRIMARY> 1.56 0.95
<EPS-DILUTED> 1.55 0.95
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM R.H.
DONNELLEY INC.'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 10,204 64
<SECURITIES> 0 0
<RECEIVABLES> 77,271 119,581
<ALLOWANCES> 5,258 8,002
<INVENTORY> 0 0
<CURRENT-ASSETS> 13,707 44,840
<PP&E> 59,734 66,588
<DEPRECIATION> 37,351 36,003
<TOTAL-ASSETS> 414,273 438,818
<CURRENT-LIABILITIES> 75,820 55,437
<BONDS> 483,750 0
0 0
0 0
<COMMON> 12,002 12,002
<OTHER-SE> (223,606) 304,469
<TOTAL-LIABILITY-AND-EQUITY> 414,273 438,818
<SALES> 0 0
<TOTAL-REVENUES> 115,740 143,392
<CGS> 0 0
<TOTAL-COSTS> 13,305 89,068
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,371 0
<INCOME-PRETAX> 89,064 54,324
<INCOME-TAX> 35,626 21,730
<INCOME-CONTINUING> 53,438 32,594
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 53,438 32,594
<EPS-PRIMARY> 1.56 0.95
<EPS-DILUTED> 1.55 0.95
</TABLE>
<PAGE>
EMPLOYMENT AGREEMENT dated Monday, September 28, 1998 by and between R.H.
Donnelley Corporation, a Delaware corporation, (the `Company') and Frank R.
Noonan (the `Executive').
WHEREAS, the transaction pursuant to which the Company has been separated
from its former parent company (the `Spinoff') has been consummated as of July
1, 1998, and
WHEREAS, Executive is currently serving as Chief Executive Officer of the
Company or of its subsidiary, R.H. Donnelley, Inc.; and
WHEREAS, Executive is willing so to continue his employment on the terms
hereinafter set forth in this agreement (the `Agreement');
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. Term of Employment. Subject to the provisions of Section 8 of this
Agreement, Executive shall be employed by the Company or by R.H. Donnelley, Inc.
for a period (the `Employment Term') commencing on the date hereof (the
`Commencement Date') and ending on the third anniversary of the Spinoff. On the
third and each succeeding anniversary of the Spinoff, the Employment Term shall
automatically be extended for one additional year unless, not later than ninety
days prior to such anniversary, the Company or the Executive shall have given
notice of its or his intention not to extend the Employment Term. Any such
nonrenewal of this Agreement by the Company shall be treated as a termination of
Executive's employment without Cause, as hereinafter defined.
2. Position. (a) Executive shall serve as Chief Executive Officer of the
Company or of R.H. Donnelley, Inc. In such position, Executive shall have such
duties and authority as shall be determined from time to time by, and shall
report to, the Board of Directors of the Company (the `Board').
(b) During the Employment Term, Executive will devote substantially all of
his business time and best efforts to the performance of his duties hereunder
and will not engage in any other business, profession or occupation for
compensation or otherwise which would conflict with the rendition of such
services either directly or indirectly, without the prior written consent of the
Board; provided that nothing herein shall be deemed to preclude Executive from
serving on business, civic or charitable boards or committees, as long as such
activities do not materially interfere with the performance of Executive's
duties hereunder.
3. Base Salary. Company shall pay Executive an annual base salary (the `Base
Salary') at the initial annual rate of $430,000, payable in equal monthly
installments or otherwise in accordance with the payroll and personnel practices
of the Company from time to time. Base Salary shall be reviewed annually by the
Board or a committee thereof to which the Board may from time to time have
delegated such authority (the `Committee') for possible increase (but not
decrease) in the sole discretion of the Board or the Committee, as the case may
be.
4. Bonus. With respect to each fiscal year all or part of which is contained
in the Employment Term, Executive shall be eligible to participate in the
Company's Annual Incentive Plan or any successor plan thereto, with a target
bonus opportunity of 80% of Base Salary and a maximum bonus opportunity not less
than that for which he is eligible on the date hereof (the `Bonus').
5. Additional Compensation. As further compensation, Executive will be
eligible for participation in all bonuses, long term incentive compensation and
stock options and other equity participation arrangements (at the same level of
opportunity as that applicable in the ordinary course on the Effective Date)
made available generally to senior executives of the Company.
6. Employee Benefits. During the Employment Term, Executive shall be
eligible, on the same basis as he is currently eligible, for employee benefits
(including fringe benefits, vacation, pension and profit sharing plan
participation and life, health, accident and disability insurance) no less
favorable than those benefits for which he is eligible immediately prior to the
Commencement Date.
7. Business Expenses. Reasonable travel, entertainment and other business
expenses incurred by Executive in the performance of his duties hereunder shall
be reimbursed by the Company in accordance with Company policies from time to
time.
8. Termination of Employment. Each of Executive and the Company may
terminate the employment of Executive hereunder at any time in accordance with
this Section 8. Executive's entitlements hereunder in the event of any such
termination shall be as set forth in this Section 8. The provisions of this
Section 8 shall survive any nonrenewal of this Agreement by the Company pursuant
to Section 1.
(a) For Cause by the Company. If Executive's employment is terminated by
the company for Cause, he shall be entitled to receive his Base Salary through
the Date of Termination, as hereinafter defined. All other benefits due
Executive following Executive's termination of employment pursuant to this
Section 8(a) shall be determined in accordance with the plans, policies and
practices of the Company. Notwithstanding the foregoing, Executive's employment
shall not be deemed to have been terminated for Cause unless and until the Board
shall have (A) determined, by the affirmative vote (which cannot be delegated)
of not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after notice to Executive
in accordance with Section 8(g) and an opportunity for Executive, together with
his counsel, to be heard before the Board), that, in its good faith opinion, one
or more of the items constituting `Cause' has occurred or existed, and (B)
specified the particulars thereof in detail and in writing.
(b) Death or Disability. Executive's employment hereunder shall terminate
upon his death and may be terminated by the Company upon his Disability during
the Employment Term. Upon termination of Executive's employment hereunder upon
the Executive's Disability or death, Executive or his estate (as the case may
be) shall be entitled to receive Base Salary through the date of such
termination, plus a pro-rata portion of target Bonus, based on the number of
whole or partial months from the beginning of the bonus period to the Date of
Termination. In addition, if Executive's employment is terminated as a result
of Disability, Executive shall continue to be eligible to participate in all
health, medical and dental benefit plans of the Company, until age 65 in
accordance with the terms, conditions and elections, if any, applicable to or in
effect with respect to Executive at the time of termination of employment.
(c) Without Cause by the Company; By Executive for Good Reason. If, during
the Employment Term Executive's employment is terminated by the Company without
Cause, or by Executive for Good Reason, as hereinafter defined, Executive shall
be entitled to the following benefits:
(i) Base Salary through the Date of Termination at the rate in effect
at the time of Notice of Termination, as defined in Section 8(f) herein,
is given, or if higher, at the rate in effect immediately prior to the
event or circumstance leading to the termination of employment, plus all
other amounts to which Executive is entitled under any compensation or
benefit plan of the Company.
(ii) In lieu of any further salary payments to Executive for periods
subsequent to the date of termination, the Company shall pay as
severance pay, not later than the fifth day following the Date of
Termination, a severance payment (the `Severance Payment') equal to
three times the sum of (A) Base Salary at the rate in effect on the date
Notice of Termination is given, or if higher, at the rate in effect
immediately prior to the event or circumstance leading to the
termination of employment, plus (B) target Bonus, paid in lump sum
without reduction for time value of money.
(iii) Continued eligibility to participate in all health, medical and
dental benefit plans of the Company for which Executive was eligible
immediately prior to the time of the Notice of Termination, or
comparable coverage, for three years, or, if sooner, until comparable
health insurance coverage is available to Executive in connection with
subsequent employment or self-employment. The coverage for which
Executive shall continue to be eligible under this Section shall be made
available at no greater cost or tax cost to Executive than that
applicable to Executive at the time of termination of employment.
(iv) Term life insurance equivalent in coverage, and at no greater
cost or tax cost to Executive, to that elected by Executive at the time
of the Notice of Termination, until the last day of the third calendar
year beginning after termination of employment, or, if sooner, until
comparable life insurance coverage is available to Executive in
connection with subsequent employment or self-employment.
(v) For three years following termination of employment or, if sooner,
until subsequently employed or self-employed, (A) all perquisites and
similar benefits he was receiving immediately prior to the time of
Notice of Termination, (B) reimbursement of expenses relating to
financial planning services up to a maximum amount per year equal to the
average of such amounts paid to Executive for the two calendar years
preceding the Date of Termination and (C) reimbursement of expenses
relating to outplacement services, subject to a maximum reimbursement
under this clause (C) of $50,000 per year.
(d) Retirement. If during the Employment Term, Executive retires at normal
retirement age under the Company's qualified pension plan or any successor plan,
Executive shall be entitled to the payments and benefits specified in Section
8(b) as if his employment had terminated as a result of Disability.
(e) Voluntary Termination of Employment. If during the Employment Term,
Executive terminates his employment under circumstances other than those
specified in this Section 8, Executive shall be entitled to the payments and
benefits specified in Section 8(a).
(f) Notice and Date of Termination. (i) Any purported termination of
employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 18(i)
hereof. For purposes of this Agreement, a `Notice of Termination' shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated. If the event or circumstance on which the proposed termination of
employment is based is susceptible of cure, the Notice of Termination shall not
be delivered until Executive or the Company, as the case may be, has had at
least 30 days to effect such cure, and unless such event or circumstance
persists at the end of such cure period.
(ii) `Date of Termination' shall mean (A) if employment is terminated
for Disability, thirty (30) days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time
performance of his duties during such thirty (30) day period), (B) if
employment is terminated by reason of death, the date of death, and (C)
if employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination of
employment by the Company for Cause shall not be less than ten (10) days
after the date such Notice of Termination is given and shall coincide
with the written determination referred to in the last sentence of
Section 8(a); provided that if within thirty (30) days after any Notice
of Termination is given the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of the
parties, by a binding arbitration award, or by a final judgment, order
or decree of a court of competent jurisdiction (which is not appealable
or the time for appeal therefrom having expired and no appeal having
been perfected); provided further that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such
dispute with reasonable diligence.
(g) Any provision of this Agreement to the contrary notwithstanding,
Executive shall be obligated to execute a general release of claims in favor of
the Company, in the form used generally by the Company in connection with
termination of employment from time to time, as a condition to receiving
benefits and payments under this Agreement.
9. Definitions. (a) `Cause' shall mean (i) Executive's willful and continued
failure substantially to perform the duties of his position (other than as a
result of total or partial incapacity due to physical or mental illness or as a
result of a termination by Executive for Good Reason, as hereinafter defined),
(ii) any willful act or omission by the Executive constituting dishonesty, fraud
or other malfeasance, which in any such case is demonstrably injurious to the
financial condition or business reputation of the Company or any of its
affiliates, or (iii) the Executive's conviction of a felony under the laws of
the United States or any state thereof or any other jurisdiction in which the
Company or any of its subsidiaries conducts business which materially impairs
the value of Executive's services to the Company or any of its subsidiaries.
For purposes of this definition, no act or failure to act shall be deemed
`willful' unless effected by Executive not in good faith and without a
reasonable belief that such action or failure to act was in or not opposed to
the best interests of the Company.
(b) `Change in Control' shall mean the occurrence of any of the following
events after July 14, 1998:
(i) Any `person,' as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the `Exchange Act')
(other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any company
owned directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the
Company), is or becomes the `beneficial owner' (as defined in rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the
Company's then outstanding securities;
(ii) During any period of two consecutive years commencing on July 14,
1998, individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by a
person (as defined above) who has entered into an agreement with the
Company to effect a transaction described in subsections (i), (iii) or
(iv) of this definition) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute at least a majority thereof;
(iii) The shareholders of the Company have approved a merger or
consolidation of the Company with any other company and all other
required governmental approvals of such merger or consolidation have
been obtained, other than (A) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity)
more than 60% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no person (as defined above) becomes the beneficial owner (as
defined above) of more than 20% of the combined voting power of the
Company's then outstanding securities; or
(iv) The shareholders of the Company have approved a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets, and
all other required governmental approvals of such transaction have been
obtained.
(c) `Disability' shall mean the Executive's inability, as a result of
physical or mental incapacity, to perform the duties of his position for a
period of six (6) consecutive months or for an aggregate of six (6) months in
any twelve (12) consecutive month period. Any question as to the existence of
the Disability of Executive as to which Executive and the Company cannot agree
shall be determined in writing by a qualified independent physician mutually
acceptable to Executive and the Company. If Executive and the Company cannot
agree as to a qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall make such
determination in writing. The determination of Disability made in writing to
the Company and Executive shall be final and conclusive for all purposes of the
Agreement.
(d) `Good Reason' means:
(i) Removal from, or failure to be reappointed or reelected to,
Executive's position as specified in Section 2 (other than as a result
of a promotion).
(ii) Material diminution in Executive's title, position, duties or
responsibilities, change in Executive's reporting relationships or the
assignment to Executive of duties that are inconsistent, in a material
respect, with the scope of duties and responsibilities associated with
Executive's position as specified in Section 2.
(iii) Reduction in Base Salary or target or maximum Bonus opportunity,
reduction in level of participation in long term incentive, stock option
and other equity award, benefit and other plans for senior executives or
other material breach of this Agreement by the Company.
(iv) Relocation of the executive's principal workplace without his
consent to a location outside the New York metropolitan area.
10. SERP and Retiree Health Benefits. If Executive's employment is
terminated by the Company without Cause or by Executive for Good Reason, in
addition to receiving the benefits described in Section 8(c) above, Executive
shall receive three additional years of age and service credit for vesting,
eligibility (for participation and for any early retirement or other benefit)
and benefit accrual purposes under the Company's defined benefit pension plan
and any related supplemental plan (including any successor plan thereto) and the
Company's retiree health, medical and dental plans and shall be fully vested in
his accrued benefits under such plans. Compensation paid in connection with
termination of employment under this Agreement shall not be treated as
compensation for purposes of computing his benefit under such plans.
11. Certain Payments. (a) If any of the payments or benefits received or to
be received by Executive in connection with a Change in Control or Executive's
termination of employment, whether or not pursuant to this Agreement (such
payments or benefits, excluding the Gross-Up Payment, as hereinafter defined,
shall hereinafter be referred to as the `Total Payments') will be subject to an
excise tax as provided for in Section 4999 of the Internal Revenue Code (the
`Code') (the `Excise Tax'), the Company shall pay to Executive an additional
amount (the `Gross-Up Payment') such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments; provided, however, that
if the Total Payments are less than 360% of the Executive's Base Amount, as
defined in section 280G(b)(3) of the Code, the Executive shall not be entitled
to the Gross-Up Payment, and the Total Payments shall be reduced as provided for
in Section 11(d) below.
(b) For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total Payments shall be treated as `parachute payments' (within the meaning of
section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (`Tax
Counsel') reasonably acceptable to Executive and selected by the accounting firm
acting as the `Auditor', as defined below, such payments or benefits (in whole
or in part) do not constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, (ii) all `Excess parachute payments' within the
meaning of section 280G(b)(1) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of
the Base Amount allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in accordance
with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income tax at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of Executive's residence or, if higher, in the state and locality of
Executive's principal place of employment, on the date of termination (or if
there is no date of termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 11), net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(c) In the event that the Excise Tax is finally determined to be less than
the amount taken into account hereunder in calculating the Gross-Up Payment,
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (including that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive
to the extent that such repayment results in a reduction in Excise Tax and/or a
federal, state or local income or employment tax deduction) plus interest on the
amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B)
of the Code. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder in calculating the Gross-Up Payment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to such excess) at
the time that the amount of such excess is finally determined. The Executive
and the Company shall each reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the existence or
amount of liability for Excise Tax with respect to the Total Payments.
(d) If the Total Payments would constitute an Excess parachute payment,
but are less than 360% of the Base Amount, such payments shall be reduced to the
largest amount that may be paid to the Executive without the imposition of the
Excise Tax or the disallowance as deductions to the Company under Section 280G
of the Code of any such payments.
(e) All determinations under this Section 11 shall be made by a
nationally recognized accounting firm selected by the Executive (the `Auditor').
The Company shall cooperate in good faith in making such determinations and in
providing the necessary information for this purpose.
12. Indemnification. The Company will indemnify Executive (and his legal
representative or other successors) to the fullest extent permitted (including a
payment of expenses in advance of final disposition of a proceeding) by
applicable law, as in effect at the time of the subject act or omission, or by
the Certificate of Incorporation and By-Laws of the Company, as in effect at
such time or on the Commencement Date, or by the terms of any indemnification
agreement between the Company and Executive, whichever affords or afforded
greatest protection to Executive, and Executive shall be entitled to the
protection of any insurance policies the Company may elect to maintain generally
for the benefit of its directors and officers (and to the extent the Company
maintains such an insurance policy or policies, Executive shall be covered by
such policy or policies, in accordance with its or their terms to the maximum
extent of the coverage available for any Company officer or director), against
all costs, charges and expenses whatsoever incurred or sustained by him or his
legal representatives (including but not limited to any judgment entered by a
court of law) at the time such costs, charges and expenses are incurred or
sustained, in connection with any action, suit or proceeding to which Executive
(or his legal representatives or other successors) may be made a party by reason
of his having accepted employment with the Company or by reason of his being or
having been a director, officer or employee of the Company, or any subsidiary of
the Company, or his serving or having served any other enterprise as a director,
officer or employee at the request of the Company. Executive's rights under
this Section 12 shall continue without time limit for so long as he may be
subject to any such liability, whether or not the Employment Term may have
ended.
13. Non-Competition. (a) Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and its affiliates and
accordingly agrees that during the Employment Term and for a period of one year
after the termination thereof;
(i) The Executive will not directly or indirectly engage in any
business which is in competition with any line of business conducted by
the Company or its affiliates (including without limitation by
performing or soliciting the performance of services for any person who
is a customer or client of the Company or any of its affiliates) whether
such engagement is as an officer, director, proprietor, employee,
partner, investor (other than as a holder of less than 1% of the
outstanding capital stock of a publicly traded corporation), consultant,
advisor, agent, sales representative or other participant, in any
location in which the Company or any of its affiliates conducted any
such competing line of business.
(ii) Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited from
engaging in by clause (i) above.
(iii) Executive will not directly or indirectly induce any employee of
the Company or any of its affiliates to engage in any activity in which
Executive is prohibited to engage by this Section, or to terminate his
or her employment with the Company or any of its affiliates, and will
not directly or indirectly employ or offer employment to any person who
was employed by the Company or any of its affiliates unless such person
shall have ceased to be employed by the Company or any of its affiliates
for a period of at least 12 months.
(iv) Executive will not directly or indirectly solicit subscribers or
suppliers of the Company or telephone companies for which the Company
serves as sales agent or induce any such person to terminate its
relationships with the Company.
(b) It is expressly understood and agreed that although Executive and the
Company consider the restrictions contained in this Section 13 to be reasonable,
if a final judicial determination is made by a court of competent jurisdiction
that the time or territory or any other restriction contained in this Agreement
is an unenforceable restriction against Executive, the provisions of this
Agreement shall not be rendered void but shall be deemed amended to apply as to
such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction contained in this Agreement
is unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
14. Confidentiality; Nondisparagement. (a) Executive will not at any time
(whether during or after his employment with the Company) disclose or use for
his own benefit or purposes or the benefit or purposes of any other person,
firm, partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, information, data, or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans, employees,
organizational structure or the business and affairs of the Company generally,
or of any subsidiary or affiliate of the Company, provided that the foregoing
shall not apply to information which is not unique to the Company or which is
generally known to the industry or the public other than as a result of
Executive's breach of this covenant. Executive agrees that upon termination of
his employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company and its affiliates, except that he may retain personal notes,
notebooks and diaries. Executive further agrees that he will not retain or use
for his account at any time any trade names, trademark or other proprietary
business designation used or owned in connection with the business of the
Company or its affiliates.
(b) Executive will not at any time (whether during or after his employment
with the Company) knowingly make any statement, written or oral, or take any
other action relating to the Company or its officers or directors that would
disparage or otherwise harm the Company, its business or its reputation or those
of any of its officers and directors.
15. Material Inducement; Specific Performance. Executive acknowledges and
agrees that the covenants entered into by Executive in Section 13 and 14 are
essential elements of the parties' agreement as expressed herein, are a material
inducement for the Company to enter into this Agreement and the breach thereof
would be a material breach of this Agreement. Executive further acknowledges
and agrees that the Company's remedies at law for a breach or threatened breach
of any of the provisions of Section 13 or Section 14 would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to obtain equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available.
16. Litigation Support. Executive agrees that he will assist and cooperate
with the Company in connection with the defense or prosecution of any claim that
may be made against or by the Company or its affiliates, or in connection with
any ongoing or future investigation or dispute or claim of any kind involving
the Company or its affiliates, including any proceeding before any arbitral,
administrative, judicial, legislative, or other body or agency, including
testifying in any proceeding, to the extent such claims, investigations or
proceedings relate to services performed or required to be performed by
Executive, pertinent knowledge possessed by Executive, or any act or omission
by Executive. Executive further agrees to perform all acts and to execute and
deliver any documents that may be reasonably necessary to carry out the
provisions of this Section.
17. Legal Fees. The Company will pay or reimburse Executive, as incurred,
all legal fees and costs incurred by Executive in enforcing his rights under the
Agreement, if Executive's position substantially prevails. Following a Change
in Control, the Company will pay or reimburse Executive, as incurred, for all
such fees and costs unless Executive's claim was frivolous or was brought or
pursued by Executive in bad faith.
18. Miscellaneous. (a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
(b) Entire Agreement/Amendments. This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by the
Company. There are no restrictions, agreements, promises, warranties, covenants
or undertakings between the parties with respect to the subject matter herein
other than those expressly set forth herein and in the incentive compensation
and other employee benefit plans and arrangements of the Company referenced
herein. This Agreement may not be altered, modified, or amended except by
written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver of
such party's rights or deprive such party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(d) Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by Executive and
shall be assignable by the Company only with the consent of Executive except as
set forth in Section 18(h); provided that no such assignment by the Company
shall relieve the Company of any liability hereunder, whether accrued before or
after such assignment.
(f)No Mitigation. Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, and no such employment, if obtained, or compensation or benefits
payable in connection therewith, shall reduce any amounts or benefits to which
Executive is entitled hereunder except as provided for in Sections 8(c) and (d).
(g) Arbitration. Any dispute between the parties to this Agreement arising
from or relating to the terms of this Agreement or the employment of Executive
by the Company shall be submitted to arbitration in New York, New York under the
auspices of the American Arbitration Association.
(h) Successors; Binding Agreement
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. Such assumption and agreement
shall be obtained prior to the effectiveness of any such succession. As
used in this Agreement, `Company' shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law,
or otherwise. Prior to a Change in Control, the term `Company' shall
also mean any affiliate of the Company to which Executive may be
transferred and the Company shall cause such successor employer to be
considered the `Company' bound by the terms of this Agreement and this
Agreement shall be amended to so provide. Following a Change in Control
the term `Company' shall not mean any affiliate of the Company to which
Executive may be transferred unless Executive shall have previously
approved of such transfer in writing, in which case the Company shall
cause such successor employer to be considered the `Company' bound by
the terms of this Agreement and this Agreement shall be amended to so
provide.
(ii) This Agreement shall inure to the benefit of and be binding upon
personal or legal representatives, executors, administrators,
successors, heirs, distributers, devisees and legatees. If Executive
should die while any amount would still be payable to Executive
hereunder if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the devisee, legatee or other designee of
Executive or, if there is no such designee, to the estate of Executive.
(i) Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Executive at the address appearing from time to time in the personnel records of
the Company and to the Company at the address of its corporate headquarters,
directed to the attention of the Board with a copy to the Secretary of the
Company, or in either case to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
(j) Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(k) Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
Frank R. Noonan
_____________________________
R.H. DONNELLEY CORPORATION
By:__________________________
Title:
<PAGE>
EMPLOYMENT AGREEMENT dated Monday, September 28, 1998 by and between R.H.
Donnelley Corporation, a Delaware corporation, (the `Company') and Philip C.
Danford (the `Executive').
WHEREAS, the transaction pursuant to which the Company has been separated
from its former parent company (the `Spinoff') has been consummated as of July
1, 1998, and
WHEREAS, Executive is currently serving as an executive of the Company or of
its subsidiary, R.H. Donnelley, Inc.; and
WHEREAS, Executive is willing so to continue his employment on the terms
hereinafter set forth in this agreement (the `Agreement');
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. Term of Employment. Subject to the provisions of Section 8 of this
Agreement, Executive shall be employed by the Company or by R.H. Donnelley, Inc.
for a period (the `Employment Term') commencing on the date hereof (the
`Commencement Date') and ending on the third anniversary of the Spinoff. On the
third and each succeeding anniversary of the Spinoff, the Employment Term shall
automatically be extended for one additional year unless, not later than ninety
days prior to such anniversary, the Company or the Executive shall have given
notice of its or his intention not to extend the Employment Term.
2. Position. (a) Executive shall serve as a senior executive officer of the
Company or of R.H. Donnelley, Inc. In such position, Executive shall have such
duties and authority as shall be determined from time to time by the Board of
Directors of the Company (the `Board') or its designee.
(b) During the Employment Term, Executive will devote substantially all of
his business time and best efforts to the performance of his duties hereunder
and will not engage in any other business, profession or occupation for
compensation or otherwise which would conflict with the rendition of such
services either directly or indirectly, without the prior written consent of the
Board; provided that nothing herein shall be deemed to preclude Executive from
serving on business, civic or charitable boards or committees, as long as such
activities do not materially interfere with the performance of Executive's
duties hereunder.
3. Base Salary. Company shall pay Executive an annual base salary (the `Base
Salary') at the initial annual rate of $300,000, payable in equal monthly
installments or otherwise in accordance with the payroll and personnel practices
of the Company from time to time. Base Salary shall be reviewed annually by the
Board or a committee thereof to which the Board may from time to time have
delegated such authority (the `Committee') for possible increase (but not
decrease) in the sole discretion of the Board or the Committee, as the case may
be.
4. Bonus. With respect to each fiscal year all or part of which is contained
in the Employment Term, Executive shall be eligible to participate in the
Company's Annual Incentive Plan or any successor plan thereto, with a target
bonus opportunity of 60% of Base Salary and a maximum bonus opportunity not less
than that for which he is eligible on the date hereof (the `Bonus').
5. Additional Compensation. As further compensation, Executive will be
eligible for participation in all bonuses, long-term incentive compensation and
stock options and other equity participation arrangements (at the same
opportunity as that applicable in the ordinary course on the Effective Date)
made available generally to senior executives of the Company.
6. Employee Benefits. During the Employment Term, Executive shall be
eligible, on the same basis as he is currently eligible, for employee benefits
(including fringe benefits, vacation, pension and profit sharing plan
participation and life, health, accident and disability insurance) no less
favorable than those benefits for which he is eligible immediately prior to the
Commencement Date.
7. Business Expenses. Reasonable travel, entertainment and other business
expenses incurred by Executive in the performance of his duties hereunder shall
be reimbursed by the Company in accordance with Company policies from time to
time.
8. Termination of Employment. Each of Executive and the Company may
terminate the employment of Executive hereunder at any time in accordance with
this Section 8. Executive's entitlements hereunder in the event of any such
termination shall be as set forth in this Section 8. The provisions of this
Section 8 shall survive any nonrenewal of this Agreement by the Company pursuant
to Section 1.
(a) For Cause by the Company. If Executive's employment is terminated by
the company for Cause, he shall be entitled to receive his Base Salary through
the Date of Termination, as hereinafter defined. All other benefits due
Executive following Executive's termination of employment pursuant to this
Section 8(a) shall be determined in accordance with the plans, policies and
practices of the Company.
(b) Death or Disability. Executive's employment hereunder shall terminate
upon his death and may be terminated by the Company upon his Disability during
the Employment Term. Upon termination of Executive's employment hereunder upon
the Executive's Disability or death, Executive or his estate (as the case may
be) shall be entitled to receive Base Salary through the date of such
termination, plus a pro-rata portion of target Bonus, based on the number of
whole or partial months from the beginning of the bonus period to the Date of
Termination. In addition, if Executive's employment is terminated as a result of
Disability, Executive shall continue to be eligible to participate in all
health, medical and dental benefit plans of the Company, until age 65 in
accordance with the terms, conditions and elections, if any, applicable to or in
effect with respect to Executive at the time of termination of employment.
(c) Without Cause by the Company Not Following a Change in Control. If,
during the Employment Term and prior to a Change in Control, as hereinafter
defined, or more than two years after a Change in Control, Executive's
employment is terminated by the Company without Cause, Executive shall be
entitled to the following benefits:
(i) Base Salary through the Date of Termination at the rate in effect
at the time of Notice of Termination, as defined in Section 8(g) herein,
is given, or if higher, at the rate in effect immediately prior to the
event or circumstance leading to the termination of employment, plus all
other amounts to which Executive is entitled under any compensation or
benefit plan of the Company.
(ii) In lieu of any further salary payments to Executive for periods
subsequent to the date of termination, the Company shall pay as
severance pay, not later than the fifth day following the Date of
Termination, a severance payment (the `Severance Payment') equal to two
times the sum of (A) Base Salary at the rate in effect on the date
Notice of Termination is given, or if higher, at the rate in effect
immediately prior to the event or circumstance leading to the
termination of employment, plus (B) target Bonus, paid in lump sum
without reduction for time value of money.
(iii) Continued eligibility to participate in all health, medical and
dental benefit plans of the Company for which Executive was eligible
immediately prior to the time of the Notice of Termination, or
comparable coverage, for two years, or, if sooner, until comparable
health insurance coverage is available to Executive in connection with
subsequent employment or self-employment. The coverage for which
Executive shall continue to be eligible under this Section shall be made
available at no greater cost or tax cost to Executive than that
applicable to Executive at the time of termination of employment.
(iv) Term life insurance equivalent in coverage, and at no greater
cost or tax cost to Executive, to that elected by Executive at the time
of Notice of Termination, until the last day of the second calendar year
beginning after termination of employment, or, if sooner, until
comparable life insurance coverage is available to Executive in
connection with subsequent employment or self-employment.
(d) Termination Within Two Years Following a Change in Control. If, during
the Employment Term and within two years following a Change in Control,
Executive's employment is terminated by the Company without Cause, or by the
Executive for Good Reason, as hereinafter defined, Executive shall be entitled
to the payments and benefits set forth in Section 8(c), except that for purposes
of this Section 8(d), references in such Section to `two' times or `two' years
shall be changed to `three' times and `three' years. In addition, Executive
shall be entitled to receive, for the three years following termination of
employment or, if sooner, until subsequently employed or self-employed, (i) all
perquisites and similar benefits he was receiving immediately prior to the time
of Notice of Termination, (ii) reimbursement of expenses relating to financial
planning services, up to a maximum amount per year equal to the average of such
amounts paid to Executive for the two calendar years preceding the Date of
Termination and (iii) reimbursement of expenses relating to outplacement
services, subject to a maximum reimbursement under this clause (iii) of $25,000.
For purposes of this Agreement, termination of employment after the
commencement of negotiations with a potential acquiror or business combination
partner shall be deemed to be a termination of employment within two years
following a Change in Control if such negotiations result in a transaction with
such acquiror or business combination partner which constitutes a Change in
Control.
(e) Retirement. If during the Employment Term, Executive retires at normal
retirement age under the Company's qualified pension plan or any successor plan,
Executive shall be entitled to the payments and benefits specified in Section
8(b) as if his employment had terminated as a result of Disability.
(f) Voluntary Termination of Employment. If during the Employment Term,
Executive terminates his employment under circumstances other than those
specified in this Section 8, Executive shall be entitled to the payments and
benefits specified in Section 8(a).
(g) Notice and Date of Termination. (i) Any purported termination of
employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 18(i)
hereof. For purposes of this Agreement, a `Notice of Termination' shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated. If the event or circumstance on which the proposed termination of
employment is based is susceptible of cure, the Notice of Termination shall not
be delivered until Executive or the Company, as the case may be, has had at
least 30 days to effect such cure, and unless such event or circumstance
persists at the end of such cure period.
(ii) `Date of Termination' shall mean (A) if employment is terminated
for Disability, thirty (30) days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time
performance of his duties during such thirty (30) day period), (B) if
employment is terminated by reason of death, the date of death, and (C)
if employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination of
employment by the Company for Cause shall not be less than ten (10) days
after the date such Notice of Termination is given); provided that if
within thirty (30) days after any Notice of Termination is given the
party receiving such Notice of Termination notifies the other party that
a dispute exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally determined, either by
mutual written agreement of the parties, by a binding arbitration award,
or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected); provided further
that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
(h) Any provision of this Agreement to the contrary notwithstanding,
Executive shall be obligated to execute a general release of claims in favor of
the Company, in the form used generally by the Company in connection with
termination of employment from time to time, as a condition to receiving
benefits and payments under this Agreement.
9. Definitions. (a) `Cause' shall mean (i) Executive's willful and continued
failure substantially to perform the duties of his position (other than as a
result of total or partial incapacity due to physical or mental illness or as a
result of a termination by Executive for Good Reason, as hereinafter defined),
(ii) any willful act or omission by the Executive constituting dishonesty, fraud
or other malfeasance, which in any such case is demonstrably injurious to the
financial condition or business reputation of the Company or any of its
affiliates, or (iii) the Executive's conviction of a felony under the laws of
the United States or any state thereof or any other jurisdiction in which the
Company or any of its subsidiaries conducts business which materially impairs
the value of Executive's services to the Company or any of its subsidiaries.
For purposes of this definition, no act or failure to act shall be deemed
`willful' unless effected by Executive not in good faith and without a
reasonable belief that such action or failure to act was in or not opposed to
the best interests of the Company.
(b) `Change in Control' shall mean the occurrence of any of the following
events after July 14, 1998:
(i) Any `person,' as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the `Exchange Act')
(other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any company
owned directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the
Company), is or becomes the `beneficial owner' (as defined in rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the
Company's then outstanding securities;
(ii) During any period of two consecutive years commencing on July 14,
1998, individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by a
person (as defined above) who has entered into an agreement with the
Company to effect a transaction described in subsections (i), (iii) or
(iv) of this definition) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute at least a majority thereof;
(iii) The shareholders of the Company have approved a merger or
consolidation of the Company with any other company and all other
required governmental approvals of such merger or consolidation have
been obtained, other than (A) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity)
more than 60% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no person (as defined above) becomes the beneficial owner (as
defined above) of more than 20% of the combined voting power of the
Company's then outstanding securities; or
(iv) The shareholders of the Company have approved a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets, and
all other required governmental approvals of such transaction have been
obtained.
(c) `Disability' shall mean the Executive's inability, as a result of
physical or mental incapacity, to perform the duties of his position for a
period of six (6) consecutive months or for an aggregate of six (6) months in
any twelve (12) consecutive month period. Any question as to the existence of
the Disability of Executive as to which Executive and the Company cannot agree
shall be determined in writing by a qualified independent physician mutually
acceptable to Executive and the Company. If Executive and the Company cannot
agree as to a qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall make such
determination in writing. The determination of Disability made in writing to
the Company and Executive shall be final and conclusive for all purposes of the
Agreement.
(d) `Good Reason' means:
(i) Removal from, or failure to be reappointed or reelected to,
Executive's position as specified in Section 2 (other than as a result
of a promotion).
(ii) Material diminution in Executive's title, position, duties or
responsibilities, or the assignment to Executive of duties that are
inconsistent, in a material respect, with the scope of duties and
responsibilities associated with Executive's position as specified in
Section 2.
(iii) Reduction in Base Salary or target or maximum Bonus opportunity,
reduction in level of participation in long term incentive, stock option
and other equity award, benefit and other plans for senior executives or
other material breach of this Agreement by the Company.
(iv) Relocation of the executive's principal workplace without his
consent to a location outside the New York metropolitan area.
10. SERP and Retiree Health Benefits. If Executive's employment is
terminated by the Company without Cause or by Executive for Good Reason within
two years after a Change in Control, in addition to receiving the benefits
described in Section 8(c) and 8(d) above, Executive shall receive three
additional years of age and service credit for vesting, eligibility (for
participation and for any early retirement or other benefit) and benefit accrual
purposes under the Company's defined benefit pension plan and any related
supplemental plan (including any successor plan thereto) and the Company's
retiree health, medical and dental plans and shall be fully vested in his
accrued benefits under such plans. Compensation paid in connection with
termination of employment under this Agreement shall not be treated as
compensation for purposes of computing his benefit under such plans.
11. Certain Payments. (a) If any of the payments or benefits received or to
be received by Executive in connection with a Change in Control or Executive's
termination of employment, whether or not pursuant to this Agreement (such
payments or benefits, excluding the Gross-Up Payment, as hereinafter defined,
shall hereinafter be referred to as the `Total Payments') will be subject to an
excise tax as provided for in Section 4999 of the Internal Revenue Code (the
`Code') (the `Excise Tax'), the Company shall pay to Executive an additional
amount (the `Gross-Up Payment') such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments; provided, however, that
if the Total Payments are less than 360% of the Executive's Base Amount, as
defined in section 280G(b)(3) of the Code, the Executive shall not be entitled
to the Gross-Up Payment, and the Total Payments shall be reduced as provided for
in Section 11(d) below.
(b) For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total Payments shall be treated as `parachute payments' (within the meaning of
section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (`Tax
Counsel') reasonably acceptable to Executive and selected by the accounting firm
acting as the `Auditor', as defined below, such payments or benefits (in whole
or in part) do not constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, (ii) all `Excess parachute payments' within the
meaning of section 280G(b)(1) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of
the Base Amount allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in accordance
with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income tax at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of Executive's residence or, if higher, in the state and locality of
Executive's principal place of employment, on the date of termination (or if
there is no date of termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 11), net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(c) In the event that the Excise Tax is finally determined to be less than
the amount taken into account hereunder in calculating the Gross-Up Payment,
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (including that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive
to the extent that such repayment results in a reduction in Excise Tax and/or a
federal, state or local income or employment tax deduction) plus interest on the
amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B)
of the Code. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder in calculating the Gross-Up Payment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to such excess) at
the time that the amount of such excess is finally determined. The Executive
and the Company shall each reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the existence or
amount of liability for Excise Tax with respect to the Total Payments.
(d) If the Total Payments would constitute an Excess parachute payment, but
are less than 360% of the Base Amount, such payments shall be reduced to the
largest amount that may be paid to the Executive without the imposition of the
Excise Tax or the disallowance as deductions to the Company under Section 280G
of the Code of any such payments.
(e) All determinations under this Section 11 shall be made by a nationally
recognized accounting firm selected by the Executive (the `Auditor'). The
Company shall cooperate in good faith in making such determinations and in
providing the necessary information for this purpose.
12. Indemnification. The Company will indemnify Executive (and his legal
representative or other successors) to the fullest extent permitted (including a
payment of expenses in advance of final disposition of a proceeding) by
applicable law, as in effect at the time of the subject act or omission, or by
the Certificate of Incorporation and By-Laws of the Company, as in effect at
such time or on the Commencement Date, or by the terms of any indemnification
agreement between the Company and Executive, whichever affords or afforded
greatest protection to Executive, and Executive shall be entitled to the
protection of any insurance policies the Company may elect to maintain generally
for the benefit of its directors and officers (and to the extent the Company
maintains such an insurance policy or policies, Executive shall be covered by
such policy or policies, in accordance with its or their terms to the maximum
extent of the coverage available for any Company officer or director), against
all costs, charges and expenses whatsoever incurred or sustained by him or his
legal representatives (including but not limited to any judgment entered by a
court of law) at the time such costs, charges and expenses are incurred or
sustained, in connection with any action, suit or proceeding to which Executive
(or his legal representatives or other successors) may be made a party by reason
of his having accepted employment with the Company or by reason of his being or
having been a director, officer or employee of the Company, or any subsidiary of
the Company, or his serving or having served any other enterprise as a director,
officer or employee at the request of the Company. Executive's rights under
this Section 12 shall continue without time limit for so long as he may be
subject to any such liability, whether or not the Employment Term may have
ended.
13. Non-Competition. (a) Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and its affiliates and
accordingly agrees that during the Employment Term and for a period of one year
after the termination thereof;
(i) The Executive will not directly or indirectly engage in any
business which is in competition with any line of business conducted by
the Company or its affiliates (including without limitation by
performing or soliciting the performance of services for any person who
is a customer or client of the Company or any of its affiliates) whether
such engagement is as an officer, director, proprietor, employee,
partner, investor (other than as a holder of less than 1% of the
outstanding capital stock of a publicly traded corporation), consultant,
advisor, agent, sales representative or other participant, in any
location in which the Company or any of its affiliates conducted any
such competing line of business.
(ii) Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited from
engaging in by clause (i) above.
(iii) Executive will not directly or indirectly induce any employee of
the Company or any of its affiliates to engage in any activity in which
Executive is prohibited to engage by this Section, or to terminate his
or her employment with the Company or any of its affiliates, and will
not directly or indirectly employ or offer employment to any person who
was employed by the Company or any of its affiliates unless such person
shall have ceased to be employed by the Company or any of its affiliates
for a period of at least 12 months.
(iv) Executive will not directly or indirectly solicit subscribers or
suppliers of the Company or telephone companies for which the Company
serves as sales agent or induce any such person to terminate its
relationships with the Company.
(b) It is expressly understood and agreed that although Executive and the
Company consider the restrictions contained in this Section 13 to be reasonable,
if a final judicial determination is made by a court of competent jurisdiction
that the time or territory or any other restriction contained in this Agreement
is an unenforceable restriction against Executive, the provisions of this
Agreement shall not be rendered void but shall be deemed amended to apply as to
such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction contained in this Agreement
is unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
14. Confidentiality; Nondisparagement. (a) Executive will not at any time
(whether during or after his employment with the Company) disclose or use for
his own benefit or purposes or the benefit or purposes of any other person,
firm, partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, information, data, or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans, employees,
organizational structure or the business and affairs of the Company generally,
or of any subsidiary or affiliate of the Company, provided that the foregoing
shall not apply to information which is not unique to the Company or which is
generally known to the industry or the public other than as a result of
Executive's breach of this covenant. Executive agrees that upon termination of
his employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company and its affiliates, except that he may retain personal notes,
notebooks and diaries. Executive further agrees that he will not retain or use
for his account at any time any trade names, trademark or other proprietary
business designation used or owned in connection with the business of the
Company or its affiliates.
(b) Executive will not at any time (whether during or after his employment
with the Company) knowingly make any statement, written or oral, or take any
other action relating to the Company or its officers or directors that would
disparage or otherwise harm the Company, its business or its reputation or those
of any of its officers and directors.
15. Material Inducement; Specific Performance. Executive acknowledges and
agrees that the covenants entered into by Executive in Section 13 and 14 are
essential elements of the parties' agreement as expressed herein, are a material
inducement for the Company to enter into this Agreement and the breach thereof
would be a material breach of this Agreement. Executive further acknowledges
and agrees that the Company's remedies at law for a breach or threatened breach
of any of the provisions of Section 13 or Section 14 would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to obtain equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available.
16. Litigation Support. Executive agrees that he will assist and cooperate
with the Company in connection with the defense or prosecution of any claim that
may be made against or by the Company or its affiliates, or in connection with
any ongoing or future investigation or dispute or claim of any kind involving
the Company or its affiliates, including any proceeding before any arbitral,
administrative, judicial, legislative, or other body or agency, including
testifying in any proceeding, to the extent such claims, investigations or
proceedings relate to services performed or required to be performed by
Executive, pertinent knowledge possessed by Executive, or any act or omission by
Executive. Executive further agrees to perform all acts and to execute and
deliver any documents that may be reasonably necessary to carry out the
provisions of this Section.
17. Legal Fees. The Company will pay or reimburse Executive, as incurred,
all legal fees and costs incurred by Executive in enforcing his rights under the
Agreement, if Executive's position substantially prevails. Following a Change
in Control, the Company will pay or reimburse Executive, as incurred, for all
such fees and costs unless Executive's claim was frivolous or was brought or
pursued by Executive in bad faith.
18. Miscellaneous. (a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
(b) Entire Agreement/Amendments. This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by the
Company. There are no restrictions, agreements, promises, warranties, covenants
or undertakings between the parties with respect to the subject matter herein
other than those expressly set forth herein and in the incentive compensation
and other employee benefit plans and arrangements of the Company referenced
herein. This Agreement may not be altered, modified, or amended except by
written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver of
such party's rights or deprive such party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(d) Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by Executive and
shall be assignable by the Company only with the consent of Executive except as
set forth in Section 18(h); provided that no such assignment by the Company
shall relieve the Company of any liability hereunder, whether accrued before or
after such assignment.
(f) No Mitigation. Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, and no such employment, if obtained, or compensation or benefits
payable in connection therewith, shall reduce any amounts or benefits to which
Executive is entitled hereunder except as provided for in Sections 8(c) and (d).
(g) Arbitration. Any dispute between the parties to this Agreement arising
from or relating to the terms of this Agreement or the employment of Executive
by the Company shall be submitted to arbitration in New York, New York under the
auspices of the American Arbitration Association.
(h) Successors; Binding Agreement
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. Such assumption and agreement
shall be obtained prior to the effectiveness of any such succession. As
used in this Agreement, `Company' shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law,
or otherwise. Prior to a Change in Control, the term `Company' shall
also mean any affiliate of the Company to which Executive may be
transferred and the Company shall cause such successor employer to be
considered the `Company' bound by the terms of this Agreement and this
Agreement shall be amended to so provide. Following a Change in Control
the term `Company' shall not mean any affiliate of the Company to which
Executive may be transferred unless Executive shall have previously
approved of such transfer in writing, in which case the Company shall
cause such successor employer to be considered the `Company' bound by
the terms of this Agreement and this Agreement shall be amended to so
provide.
(ii) This Agreement shall inure to the benefit of and be binding upon
personal or legal representatives, executors, administrators,
successors, heirs, distributers, devisees and legatees. If Executive
should die while any amount would still be payable to Executive
hereunder if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the devisee, legatee or other designee of
Executive or, if there is no such designee, to the estate of Executive.
(i) Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Executive at the address appearing from time to time in the personnel records of
the Company and to the Company at the address of its corporate headquarters,
directed to the attention of the Board with a copy to the Secretary of the
Company, or in either case to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
(j) Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(k) Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
Philip C. Danford
___________________________
R.H. DONNELLEY CORPORATION
By: ________________________
Title:
<PAGE>
EMPLOYMENT AGREEMENT dated Monday, September 28, 1998 by and between R.H.
Donnelley Corporation, a Delaware corporation, (the `Company') and Alexander R.
Marasco (the `Executive').
WHEREAS, the transaction pursuant to which the Company has been separated
from its former parent company (the `Spinoff') has been consummated as of July
1, 1998, and
WHEREAS, Executive is currently serving as an executive of the Company or of
its subsidiary, R.H. Donnelley, Inc.; and
WHEREAS, Executive is willing so to continue his employment on the terms
hereinafter set forth in this agreement (the `Agreement');
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. Term of Employment. Subject to the provisions of Section 8 of this
Agreement, Executive shall be employed by the Company or by R.H. Donnelley, Inc.
for a period (the `Employment Term') commencing on the date hereof (the
`Commencement Date') and ending on the third anniversary of the Spinoff. On the
third and each succeeding anniversary of the Spinoff, the Employment Term shall
automatically be extended for one additional year unless, not later than ninety
days prior to such anniversary, the Company or the Executive shall have given
notice of its or his intention not to extend the Employment Term.
2. Position. (a) Executive shall serve as a senior executive officer of the
Company or of R.H. Donnelley, Inc. In such position, Executive shall have such
duties and authority as shall be determined from time to time by the Board of
Directors of the Company (the `Board') or its designee.
(b) During the Employment Term, Executive will devote substantially all of
his business time and best efforts to the performance of his duties hereunder
and will not engage in any other business, profession or occupation for
compensation or otherwise which would conflict with the rendition of such
services either directly or indirectly, without the prior written consent of the
Board; provided that nothing herein shall be deemed to preclude Executive from
serving on business, civic or charitable boards or committees, as long as such
activities do not materially interfere with the performance of Executive's
duties hereunder.
3. Base Salary. Company shall pay Executive an annual base salary (the `Base
Salary') at the initial annual rate of $230,000, payable in equal monthly
installments or otherwise in accordance with the payroll and personnel practices
of the Company from time to time. Base Salary shall be reviewed annually by the
Board or a committee thereof to which the Board may from time to time have
delegated such authority (the `Committee') for possible increase (but not
decrease) in the sole discretion of the Board or the Committee, as the case may
be.
4. Bonus. With respect to each fiscal year all or part of which is contained
in the Employment Term, Executive shall be eligible to participate in the
Company's Annual Incentive Plan or any successor plan thereto, with a target
bonus opportunity of 60% of Base Salary and a maximum bonus opportunity not less
than that for which he is eligible on the date hereof (the `Bonus').
5. Additional Compensation. As further compensation, Executive will be
eligible for participation in all bonuses, long-term incentive compensation and
stock options and other equity participation arrangements (at the same
opportunity as that applicable in the ordinary course on the Effective Date)
made available generally to senior executives of the Company.
6. Employee Benefits. During the Employment Term, Executive shall be
eligible, on the same basis as he is currently eligible, for employee benefits
(including fringe benefits, vacation, pension and profit sharing plan
participation and life, health, accident and disability insurance) no less
favorable than those benefits for which he is eligible immediately prior to the
Commencement Date.
7. Business Expenses. Reasonable travel, entertainment and other business
expenses incurred by Executive in the performance of his duties hereunder shall
be reimbursed by the Company in accordance with Company policies from time to
time.
8. Termination of Employment. Each of Executive and the Company may
terminate the employment of Executive hereunder at any time in accordance with
this Section 8. Executive's entitlements hereunder in the event of any such
termination shall be as set forth in this Section 8. The provisions of this
Section 8 shall survive any nonrenewal of this Agreement by the Company pursuant
to Section 1.
(a) For Cause by the Company. If Executive's employment is terminated by
the company for Cause, he shall be entitled to receive his Base Salary through
the Date of Termination, as hereinafter defined. All other benefits due
Executive following Executive's termination of employment pursuant to this
Section 8(a) shall be determined in accordance with the plans, policies and
practices of the Company.
(b) Death or Disability. Executive's employment hereunder shall terminate
upon his death and may be terminated by the Company upon his Disability during
the Employment Term. Upon termination of Executive's employment hereunder upon
the Executive's Disability or death, Executive or his estate (as the case may
be) shall be entitled to receive Base Salary through the date of such
termination, plus a pro-rata portion of target Bonus, based on the number of
whole or partial months from the beginning of the bonus period to the Date of
Termination. In addition, if Executive's employment is terminated as a result of
Disability, Executive shall continue to be eligible to participate in all
health, medical and dental benefit plans of the Company, until age 65 in
accordance with the terms, conditions and elections, if any, applicable to or in
effect with respect to Executive at the time of termination of employment.
(c) Without Cause by the Company Not Following a Change in Control. If,
during the Employment Term and prior to a Change in Control, as hereinafter
defined, or more than two years after a Change in Control, Executive's
employment is terminated by the Company without Cause, Executive shall be
entitled to the following benefits:
(i) Base Salary through the Date of Termination at the rate in effect
at the time of Notice of Termination, as defined in Section 8(g) herein,
is given, or if higher, at the rate in effect immediately prior to the
event or circumstance leading to the termination of employment, plus all
other amounts to which Executive is entitled under any compensation or
benefit plan of the Company.
(ii) In lieu of any further salary payments to Executive for periods
subsequent to the date of termination, the Company shall pay as
severance pay, not later than the fifth day following the Date of
Termination, a severance payment (the `Severance Payment') equal to two
times the sum of (A) Base Salary at the rate in effect on the date
Notice of Termination is given, or if higher, at the rate in effect
immediately prior to the event or circumstance leading to the
termination of employment, plus (B) target Bonus, paid in lump sum
without reduction for time value of money.
(iii) Continued eligibility to participate in all health, medical and
dental benefit plans of the Company for which Executive was eligible
immediately prior to the time of the Notice of Termination, or
comparable coverage, for two years, or, if sooner, until comparable
health insurance coverage is available to Executive in connection with
subsequent employment or self-employment. The coverage for which
Executive shall continue to be eligible under this Section shall be made
available at no greater cost or tax cost to Executive than that
applicable to Executive at the time of termination of employment.
(iv) Term life insurance equivalent in coverage, and at no greater
cost or tax cost to Executive, to that elected by Executive at the time
of the Notice of Termination, until the last day of the second calendar
year beginning after termination of employment, or, if sooner, until
comparable life insurance coverage is available to Executive in
connection with subsequent employment or self-employment.
(d) Termination Within Two Years Following a Change in Control. If, during
the Employment Term and within two years following a Change in Control,
Executive's employment is terminated by the Company without Cause, or by the
Executive for Good Reason, as hereinafter defined, Executive shall be entitled
to the payments and benefits set forth in Section 8(c), except that for purposes
of this Section 8(d), references in such Section to `two' times or `two' years
shall be changed to `three' times and `three' years. In addition, Executive
shall be entitled to receive, for the three years following termination of
employment or, if sooner, until subsequently employed or self-employed, (i) all
perquisites and similar benefits he was receiving immediately prior to the time
of Notice of Termination, (ii) reimbursement of expenses relating to financial
planning services, up to a maximum amount per year equal to the average of such
amounts paid to Executive for the two calendar years preceding the Date of
Termination and (iii) reimbursement of expenses relating to outplacement
services, subject to a maximum reimbursement under this clause (iii) of $25,000.
For purposes of this Agreement, termination of employment after the
commencement of negotiations with a potential acquiror or business combination
partner shall be deemed to be a termination of employment within two years
following a Change in Control if such negotiations result in a transaction with
such acquiror or business combination partner which constitutes a Change in
Control.
(e) Retirement. If during the Employment Term, Executive retires at normal
retirement age under the Company's qualified pension plan or any successor plan,
Executive shall be entitled to the payments and benefits specified in Section
8(b) as if his employment had terminated as a result of Disability.
(f) Voluntary Termination of Employment. If during the Employment Term,
Executive terminates his employment under circumstances other than those
specified in this Section 8, Executive shall be entitled to the payments and
benefits specified in Section 8(a).
(g) Notice and Date of Termination. (i) Any purported termination of
employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 17(i)
hereof. For purposes of this Agreement, a `Notice of Termination' shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated. If the event or circumstance on which the proposed termination of
employment is based is susceptible of cure, the Notice of Termination shall not
be delivered until Executive or the Company, as the case may be, has had at
least 30 days to effect such cure, and unless such event or circumstance
persists at the end of such cure period.
(ii) `Date of Termination' shall mean (A) if employment is terminated
for Disability, thirty (30) days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time
performance of his duties during such thirty (30) day period), (B) if
employment is terminated by reason of death, the date of death, and (C)
if employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination of
employment by the Company for Cause shall not be less than ten (10) days
after the date such Notice of Termination is given); provided that if
within thirty (30) days after any Notice of Termination is given the
party receiving such Notice of Termination notifies the other party that
a dispute exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally determined, either by
mutual written agreement of the parties, by a binding arbitration award,
or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or the time for appeal therefrom
having expired and no appeal having been perfected); provided further
that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
(h) Any provision of this Agreement to the contrary notwithstanding,
Executive shall be obligated to execute a general release of claims in favor of
the Company, in the form used generally by the Company in connection with
termination of employment from time to time, as a condition to receiving
benefits and payments under this Agreement.
9. Definitions. (a) `Cause' shall mean (i) Executive's willful and continued
failure substantially to perform the duties of his position (other than as a
result of total or partial incapacity due to physical or mental illness or as a
result of a termination by Executive for Good Reason, as hereinafter defined),
(ii) any willful act or omission by the Executive constituting dishonesty, fraud
or other malfeasance, which in any such case is demonstrably injurious to the
financial condition or business reputation of the Company or any of its
affiliates, or (iii) the Executive's conviction of a felony under the laws of
the United States or any state thereof or any other jurisdiction in which the
Company or any of its subsidiaries conducts business which materially impairs
the value of Executive's services to the Company or any of its subsidiaries.
For purposes of this definition, no act or failure to act shall be deemed
`willful' unless effected by Executive not in good faith and without a
reasonable belief that such action or failure to act was in or not opposed to
the best interests of the Company.
(b) `Change in Control' shall mean the occurrence of any of the following
events after July 14, 1998:
(i) Any `person,' as such term is used in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the `Exchange Act')
(other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any company
owned directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the
Company), is or becomes the `beneficial owner' (as defined in rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the
Company's then outstanding securities;
(ii) During any period of two consecutive years commencing on July 14,
1998, individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by a
person (as defined above) who has entered into an agreement with the
Company to effect a transaction described in subsections (i), (iii) or
(iv) of this definition) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason
to constitute at least a majority thereof;
(iii) The shareholders of the Company have approved a merger or
consolidation of the Company with any other company and all other
required governmental approvals of such merger or consolidation have
been obtained, other than (A) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity)
more than 60% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no person (as defined above) becomes the beneficial owner (as
defined above) of more than 20% of the combined voting power of the
Company's then outstanding securities; or
(iv) The shareholders of the Company have approved a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets, and
all other required governmental approvals of such transaction have been
obtained.
(c) `Disability' shall mean the Executive's inability, as a result of
physical or mental incapacity, to perform the duties of his position for a
period of six (6) consecutive months or for an aggregate of six (6) months in
any twelve (12) consecutive month period. Any question as to the existence of
the Disability of Executive as to which Executive and the Company cannot agree
shall be determined in writing by a qualified independent physician mutually
acceptable to Executive and the Company. If Executive and the Company cannot
agree as to a qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall make such
determination in writing. The determination of Disability made in writing to
the Company and Executive shall be final and conclusive for all purposes of the
Agreement.
(d) `Good Reason' means:
(i) Removal from, or failure to be reappointed or reelected to,
Executive's position as specified in Section 2 (other than as a result
of a promotion).
(ii) Material diminution in Executive's title, position, duties or
responsibilities, or the assignment to Executive of duties that are
inconsistent, in a material respect, with the scope of duties and
responsibilities associated with Executive's position as specified in
Section 2.
(iii) Reduction in Base Salary or target or maximum Bonus opportunity,
reduction in level of participation in long term incentive, stock option
and other equity award, benefit and other plans for senior executives or
other material breach of this Agreement by the Company.
(iv) Relocation of the executive's principal workplace without his
consent to a location outside the New York metropolitan area.
10. Certain Payments. (a) If any of the payments or benefits received or to
be received by Executive in connection with a Change in Control or Executive's
termination of employment, whether or not pursuant to this Agreement (such
payments or benefits, excluding the Gross-Up Payment, as hereinafter defined,
shall hereinafter be referred to as the `Total Payments') will be subject to an
excise tax as provided for in Section 4999 of the Internal Revenue Code (the
`Code') (the `Excise Tax'), the Company shall pay to Executive an additional
amount (the `Gross-Up Payment') such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments; provided, however, that
if the Total Payments are less than 360% of the Executive's Base Amount, as
defined in section 280G(b)(3) of the Code, the Executive shall not be entitled
to the Gross-Up Payment, and the Total Payments shall be reduced as provided for
in Section 10(d) below.
(b) For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total Payments shall be treated as `parachute payments' (within the meaning of
section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (`Tax
Counsel') reasonably acceptable to Executive and selected by the accounting firm
acting as the `Auditor', as defined below, such payments or benefits (in whole
or in part) do not constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, (ii) all `Excess parachute payments' within the
meaning of section 280G(b)(1) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of
the Base Amount allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in accordance
with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income tax at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of Executive's residence or, if higher, in the state and locality of
Executive's principal place of employment, on the date of termination (or if
there is no date of termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 10), net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(c) In the event that the Excise Tax is finally determined to be less than
the amount taken into account hereunder in calculating the Gross-Up Payment,
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (including that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive
to the extent that such repayment results in a reduction in Excise Tax and/or a
federal, state or local income or employment tax deduction) plus interest on the
amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B)
of the Code. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder in calculating the Gross-Up Payment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to such excess) at
the time that the amount of such excess is finally determined. The Executive
and the Company shall each reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the existence or
amount of liability for Excise Tax with respect to the Total Payments.
(d) If the Total Payments would constitute an Excess parachute payment, but
are less than 360% of the Base Amount, such payments shall be reduced to the
largest amount that may be paid to the Executive without the imposition of the
Excise Tax or the disallowance as deductions to the Company under Section 280G
of the Code of any such payments.
(e) All determinations under this Section 10 shall be made by a nationally
recognized accounting firm selected by the Executive (the `Auditor'). The
Company shall cooperate in good faith in making such determinations and in
providing the necessary information for this purpose.
11. Indemnification. The Company will indemnify Executive (and his legal
representative or other successors) to the fullest extent permitted (including a
payment of expenses in advance of final disposition of a proceeding) by
applicable law, as in effect at the time of the subject act or omission, or by
the Certificate of Incorporation and By-Laws of the Company, as in effect at
such time or on the Commencement Date, or by the terms of any indemnification
agreement between the Company and Executive, whichever affords or afforded
greatest protection to Executive, and Executive shall be entitled to the
protection of any insurance policies the Company may elect to maintain generally
for the benefit of its directors and officers (and to the extent the Company
maintains such an insurance policy or policies, Executive shall be covered by
such policy or policies, in accordance with its or their terms to the maximum
extent of the coverage available for any Company officer or director), against
all costs, charges and expenses whatsoever incurred or sustained by him or his
legal representatives (including but not limited to any judgment entered by a
court of law) at the time such costs, charges and expenses are incurred or
sustained, in connection with any action, suit or proceeding to which Executive
(or his legal representatives or other successors) may be made a party by reason
of his having accepted employment with the Company or by reason of his being or
having been a director, officer or employee of the Company, or any subsidiary of
the Company, or his serving or having served any other enterprise as a director,
officer or employee at the request of the Company. Executive's rights under
this Section 11 shall continue without time limit for so long as he may be
subject to any such liability, whether or not the Employment Term may have
ended.
12. Non-Competition. (a) Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and its affiliates and
accordingly agrees that during the Employment Term and for a period of one year
after the termination thereof;
(i) The Executive will not directly or indirectly engage in any
business which is in competition with any line of business conducted by
the Company or its affiliates (including without limitation by
performing or soliciting the performance of services for any person who
is a customer or client of the Company or any of its affiliates) whether
such engagement is as an officer, director, proprietor, employee,
partner, investor (other than as a holder of less than 1% of the
outstanding capital stock of a publicly traded corporation), consultant,
advisor, agent, sales representative or other participant, in any
location in which the Company or any of its affiliates conducted any
such competing line of business.
(ii) Executive will not directly or indirectly assist others in
engaging in any of the activities in which Executive is prohibited from
engaging in by clause (i) above.
(iii) Executive will not directly or indirectly induce any employee of
the Company or any of its affiliates to engage in any activity in which
Executive is prohibited to engage by this Section, or to terminate his
or her employment with the Company or any of its affiliates, and will
not directly or indirectly employ or offer employment to any person who
was employed by the Company or any of its affiliates unless such person
shall have ceased to be employed by the Company or any of its affiliates
for a period of at least 12 months.
(iv) Executive will not directly or indirectly solicit subscribers or
suppliers of the Company or telephone companies for which the Company
serves as sales agent or induce any such person to terminate its
relationships with the Company.
(b) It is expressly understood and agreed that although Executive and the
Company consider the restrictions contained in this Section 12 to be reasonable,
if a final judicial determination is made by a court of competent jurisdiction
that the time or territory or any other restriction contained in this Agreement
is an unenforceable restriction against Executive, the provisions of this
Agreement shall not be rendered void but shall be deemed amended to apply as to
such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction contained in this Agreement
is unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
13. Confidentiality; Nondisparagement. (a) Executive will not at any time
(whether during or after his employment with the Company) disclose or use for
his own benefit or purposes or the benefit or purposes of any other person,
firm, partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, information, data, or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans, employees,
organizational structure or the business and affairs of the Company generally,
or of any subsidiary or affiliate of the Company, provided that the foregoing
shall not apply to information which is not unique to the Company or which is
generally known to the industry or the public other than as a result of
Executive's breach of this covenant. Executive agrees that upon termination of
his employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company and its affiliates, except that he may retain personal notes,
notebooks and diaries. Executive further agrees that he will not retain or use
for his account at any time any trade names, trademark or other proprietary
business designation used or owned in connection with the business of the
Company or its affiliates.
(b) Executive will not at any time (whether during or after his
employment with the Company) knowingly make any statement, written or oral, or
take any other action relating to the Company or its officers or directors that
would disparage or otherwise harm the Company, its business or its reputation or
those of any of its officers and directors.
14. Material Inducement; Specific Performance. Executive acknowledges and
agrees that the covenants entered into by Executive in Section 12 and 13 are
essential elements of the parties' agreement as expressed herein, are a material
inducement for the Company to enter into this Agreement and the breach thereof
would be a material breach of this Agreement. Executive further acknowledges
and agrees that the Company's remedies at law for a breach or threatened breach
of any of the provisions of Section 12 or Section 13 would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to obtain equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available.
15. Litigation Support. Executive agrees that he will assist and cooperate
with the Company in connection with the defense or prosecution of any claim that
may be made against or by the Company or its affiliates, or in connection with
any ongoing or future investigation or dispute or claim of any kind involving
the Company or its affiliates, including any proceeding before any arbitral,
administrative, judicial, legislative, or other body or agency, including
testifying in any proceeding, to the extent such claims, investigations or
proceedings relate to services performed or required to be performed by
Executive, pertinent knowledge possessed by Executive, or any act or omission by
Executive. Executive further agrees to perform all acts and to execute and
deliver any documents that may be reasonably necessary to carry out the
provisions of this Section.
16. Legal Fees. The Company will pay or reimburse Executive, as incurred,
all legal fees and costs incurred by Executive in enforcing his rights under the
Agreement, if Executive's position substantially prevails. Following a Change
in Control, the Company will pay or reimburse Executive, as incurred, for all
such fees and costs unless Executive's claim was frivolous or was brought or
pursued by Executive in bad faith.
17. Miscellaneous. (a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
(b) Entire Agreement/Amendments. This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by the
Company. There are no restrictions, agreements, promises, warranties, covenants
or undertakings between the parties with respect to the subject matter herein
other than those expressly set forth herein and in the incentive compensation
and other employee benefit plans and arrangements of the Company referenced
herein. This Agreement may not be altered, modified, or amended except by
written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver of
such party's rights or deprive such party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(d) Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by Executive and
shall be assignable by the Company only with the consent of Executive except as
set forth in Section 17(h); provided that no such assignment by the Company
shall relieve the Company of any liability hereunder, whether accrued before or
after such assignment.
(f) No Mitigation. Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, and no such employment, if obtained, or compensation or benefits
payable in connection therewith, shall reduce any amounts or benefits to which
Executive is entitled hereunder except as provided for in Sections 8(c) and (d).
(g) Arbitration. Any dispute between the parties to this Agreement arising
from or relating to the terms of this Agreement or the employment of Executive
by the Company shall be submitted to arbitration in New York, New York under the
auspices of the American Arbitration Association.
(h) Successors; Binding Agreement
(i) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it
if no such succession had taken place. Such assumption and agreement
shall be obtained prior to the effectiveness of any such succession. As
used in this Agreement, `Company' shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law,
or otherwise. Prior to a Change in Control, the term `Company' shall
also mean any affiliate of the Company to which Executive may be
transferred and the Company shall cause such successor employer to be
considered the `Company' bound by the terms of this Agreement and this
Agreement shall be amended to so provide. Following a Change in Control
the term `Company' shall not mean any affiliate of the Company to which
Executive may be transferred unless Executive shall have previously
approved of such transfer in writing, in which case the Company shall
cause such successor employer to be considered the `Company' bound by
the terms of this Agreement and this Agreement shall be amended to so
provide.
(ii) This Agreement shall inure to the benefit of and be binding upon
personal or legal representatives, executors, administrators,
successors, heirs, distributers, devisees and legatees. If Executive
should die while any amount would still be payable to Executive
hereunder if Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the devisee, legatee or other designee of
Executive or, if there is no such designee, to the estate of Executive.
(i) Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Executive at the address appearing from time to time in the personnel records of
the Company and to the Company at the address of its corporate headquarters,
directed to the attention of the Board with a copy to the Secretary of the
Company, or in either case to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
(j) Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(k) Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
Alexander R. Marasco
___________________________
R.H. DONNELLEY CORPORATION
By:_______________________
Title:
<PAGE>
EMPLOYMENT AGREEMENT dated Monday, September 28, 1998 by and between R.H.
Donnelley Corporation, a Delaware corporation, (the `Company') and David C.
Swanson (the `Executive').
WHEREAS, the transaction pursuant to which the Company has been separated
from its former parent company (the `Spinoff') has been consummated as of July
1, 1998, and
WHEREAS, Executive is currently serving as an executive of the Company or of
its subsidiary, R.H. Donnelley, Inc.; and
WHEREAS, Executive is willing so to continue his employment on the terms
hereinafter set forth in this agreement (the `Agreement');
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. Term of Employment. Subject to the provisions of Section 8 of this
Agreement, Executive shall be employed by the Company or by R.H. Donnelley, Inc.
for a period (the `Employment Term') commencing on the date hereof (the
`Commencement Date') and ending on the third anniversary of the Spinoff. On the
third and each succeeding anniversary of the Spinoff, the Employment Term shall
automatically be extended for one additional year unless, not later than ninety
days prior to such anniversary, the Company or the Executive shall have given
notice of its or his intention not to extend the Employment Term.
2. Position. (a) Executive shall serve as a senior executive officer of the
Company or of R.H. Donnelley, Inc. In such position, Executive shall have such
duties and authority as shall be determined from time to time by the Board of
Directors of the Company (the `Board') or its designee.
(b) During the Employment Term, Executive will devote substantially all of
his business time and best efforts to the performance of his duties hereunder
and will not engage in any other business, profession or occupation for
compensation or otherwise which would conflict with the rendition of such
services either directly or indirectly, without the prior written consent of the
Board; provided that nothing herein shall be deemed to preclude Executive from
serving on business, civic or charitable boards or committees, as long as such
activities do not materially interfere with the performance of Executive's
duties hereunder.
3. Base Salary. Company shall pay Executive an annual base salary (the `Base
Salary') at the initial annual rate of $215,000, payable in equal monthly
installments or otherwise in accordance with the payroll and personnel practices
of the Company from time to time. Base Salary shall be reviewed annually by the
Board or a committee thereof to which the Board may from time to time have
delegated such authority (the `Committee') for possible increase (but not
decrease) in the sole discretion of the Board or the Committee, as the case may
be.
4. Bonus. With respect to each fiscal year all or part of which is contained
in the Employment Term, Executive shall be eligible to participate in the
Company's Annual Incentive Plan or any successor plan thereto, with a target
bonus opportunity of 60% of Base Salary and a maximum bonus opportunity not less
than that for which he is eligible on the date hereof (the `Bonus').
5. Additional Compensation. As further compensation, Executive will be
eligible for participation in all bonuses, long-term incentive compensation and
stock options and other equity participation arrangements (at the same
opportunity as that applicable in the ordinary course on the Effective Date)
made available generally to senior executives of the Company.
6. Employee Benefits. During the Employment Term, Executive shall be
eligible, on the same basis as he is currently eligible, for employee benefits
(including fringe benefits, vacation, pension and profit sharing plan
participation and life, health, accident and disability insurance) no less
favorable than those benefits for which he is eligible immediately prior to the
Commencement Date.
7. Business Expenses. Reasonable travel, entertainment and other business
expenses incurred by Executive in the performance of his duties hereunder shall
be reimbursed by the Company in accordance with Company policies from time to
time.
8. Termination of Employment. Each of Executive and the Company may
terminate the employment of Executive hereunder at any time in accordance with
this Section 8. Executive's entitlements hereunder in the event of any such
termination shall be as set forth in this Section 8. The provisions of this
Section 8 shall survive any nonrenewal of this Agreement by the Company pursuant
to Section 1.
(a) For Cause by the Company. If Executive's employment is terminated by the
company for Cause, he shall be entitled to receive his Base Salary through the
Date of Termination, as hereinafter defined. All other benefits due Executive
following Executive's termination of employment pursuant to this Section 8(a)
shall be determined in accordance with the plans, policies and practices of the
Company.
(b) Death or Disability. Executive's employment hereunder shall terminate
upon his death and may be terminated by the Company upon his Disability during
the Employment Term. Upon termination of Executive's employment hereunder upon
the Executive's Disability or death, Executive or his estate (as the case may
be) shall be entitled to receive Base Salary through the date of such
termination, plus a pro-rata portion of target Bonus, based on the number of
whole or partial months from the beginning of the bonus period to the Date of
Termination. In addition, if Executive's employment is terminated as a result of
Disability, Executive shall continue to be eligible to participate in all
health, medical and dental benefit plans of the Company, until age 65 in
accordance with the terms, conditions and elections, if any, applicable to or in
effect with respect to Executive at the time of termination of employment.
(c) Without Cause by the Company Not Following a Change in Control. If,
during the Employment Term and prior to a Change in Control, as hereinafter
defined, or more than two years after a Change in Control, Executive's
employment is terminated by the Company without Cause, Executive shall be
entitled to the following benefits:
(i) Base Salary through the Date of Termination at the rate in effect at
the time of Notice of Termination, as defined in Section 8(g) herein, is
given, or if higher, at the rate in effect immediately prior to the event
or circumstance leading to the termination of employment, plus all other
amounts to which Executive is entitled under any compensation or benefit
plan of the Company.
(ii) In lieu of any further salary payments to Executive for periods
subsequent to the date of termination, the Company shall pay as severance
pay, not later than the fifth day following the Date of Termination, a
severance payment (the `Severance Payment') equal to two times the sum of
(A) Base Salary at the rate in effect on the date Notice of Termination is
given, or if higher, at the rate in effect immediately prior to the event
or circumstance leading to the termination of employment, plus (B) target
Bonus, paid in lump sum without reduction for time value of money.
(iii) Continued eligibility to participate in all health, medical and
dental benefit plans of the Company for which Executive was eligible
immediately prior to the time of the Notice of Termination, or comparable
coverage, for two years, or, if sooner, until comparable health insurance
coverage is available to Executive in connection with subsequent employment
or self-employment. The coverage for which Executive shall continue to be
eligible under this Section shall be made available at no greater cost or
tax cost to Executive than that applicable to Executive at the time of
termination of employment.
(iv) Term life insurance equivalent in coverage, and at no greater cost
or tax cost to Executive, to that elected by Executive at the time of the
Notice of Termination, until the last day of the second calendar year
beginning after termination of employment, or, if sooner, until comparable
life insurance coverage is available to Executive in connection with
subsequent employment or self-employment.
(d) Termination Within Two Years Following a Change in Control. If, during
the Employment Term and within two years following a Change in Control,
Executive's employment is terminated by the Company without Cause, or by the
Executive for Good Reason, as hereinafter defined, Executive shall be entitled
to the payments and benefits set forth in Section 8(c), except that for purposes
of this Section 8(d), references in such Section to `two' times or `two' years
shall be changed to `three' times and `three' years. In addition, Executive
shall be entitled to receive, for the three years following termination of
employment or, if sooner, until subsequently employed or self-employed, (i) all
perquisites and similar benefits he was receiving immediately prior to the time
of Notice of Termination, (ii) reimbursement of expenses relating to financial
planning services, up to a maximum amount per year equal to the average of such
amounts paid to Executive for the two calendar years preceding the Date of
Termination and (iii) reimbursement of expenses relating to outplacement
services, subject to a maximum reimbursement under this clause (iii) of $25,000.
For purposes of this Agreement, termination of employment after the
commencement of negotiations with a potential acquiror or business combination
partner shall be deemed to be a termination of employment within two years
following a Change in Control if such negotiations result in a transaction with
such acquiror or business combination partner which constitutes a Change in
Control.
(e) Retirement. If during the Employment Term, Executive retires at normal
retirement age under the Company's qualified pension plan or any successor plan,
Executive shall be entitled to the payments and benefits specified in Section
8(b) as if his employment had terminated as a result of Disability.
(f) Voluntary Termination of Employment. If during the Employment Term,
Executive terminates his employment under circumstances other than those
specified in this Section 8, Executive shall be entitled to the payments and
benefits specified in Section 8(a).
(g) Notice and Date of Termination. (i) Any purported termination of
employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 17(i)
hereof. For purposes of this Agreement, a `Notice of Termination' shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated. If the event or circumstance on which the proposed termination of
employment is based is susceptible of cure, the Notice of Termination shall not
be delivered until Executive or the Company, as the case may be, has had at
least 30 days to effect such cure, and unless such event or circumstance
persists at the end of such cure period.
(ii) `Date of Termination' shall mean (A) if employment is terminated
for Disability, thirty (30) days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time
performance of his duties during such thirty (30) day period), (B) if
employment is terminated by reason of death, the date of death, and (C) if
employment is terminated for any other reason, the date specified in the
Notice of Termination (which, in the case of a termination of employment by
the Company for Cause shall not be less than ten (10) days after the date
such Notice of Termination is given); provided that if within thirty (30)
days after any Notice of Termination is given the party receiving such
Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement
of the parties, by a binding arbitration award, or by a final judgment,
order or decree of a court of competent jurisdiction (which is not
appealable or the time for appeal therefrom having expired and no appeal
having been perfected); provided further that the Date of Termination shall
be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such
dispute with reasonable diligence.
(h) Any provision of this Agreement to the contrary notwithstanding,
Executive shall be obligated to execute a general release of claims in favor of
the Company, in the form used generally by the Company in connection with
termination of employment from time to time, as a condition to receiving
benefits and payments under this Agreement.
9. Definitions. (a) `Cause' shall mean (i) Executive's willful and continued
failure substantially to perform the duties of his position (other than as a
result of total or partial incapacity due to physical or mental illness or as a
result of a termination by Executive for Good Reason, as hereinafter defined),
(ii) any willful act or omission by the Executive constituting dishonesty, fraud
or other malfeasance, which in any such case is demonstrably injurious to the
financial condition or business reputation of the Company or any of its
affiliates, or (iii) the Executive's conviction of a felony under the laws of
the United States or any state thereof or any other jurisdiction in which the
Company or any of its subsidiaries conducts business which materially impairs
the value of Executive's services to the Company or any of its subsidiaries.
For purposes of this definition, no act or failure to act shall be deemed
`willful' unless effected by Executive not in good faith and without a
reasonable belief that such action or failure to act was in or not opposed to
the best interests of the Company.
(b) `Change in Control' shall mean the occurrence of any of the following
events after July 14, 1998:
(i) Any `person,' as such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the `Exchange Act') (other
than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any company owned directly or
indirectly by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
`beneficial owner' (as defined in rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding
securities;
(ii) During any period of two consecutive years commencing on July 14,
1998, individuals who at the beginning of such period constitute the Board,
and any new director (other than a director designated by a person (as
defined above) who has entered into an agreement with the Company to effect
a transaction described in subsections (i), (iii) or (iv) of this
definition) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a
majority thereof;
(iii) The shareholders of the Company have approved a merger or
consolidation of the Company with any other company and all other required
governmental approvals of such merger or consolidation have been obtained,
other than (A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 60% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (B) a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person (as defined above)
becomes the beneficial owner (as defined above) of more than 20% of the
combined voting power of the Company's then outstanding securities; or
(iv) The shareholders of the Company have approved a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets, and all
other required governmental approvals of such transaction have been
obtained.
(c) `Disability' shall mean the Executive's inability, as a result of
physical or mental incapacity, to perform the duties of his position for a
period of six (6) consecutive months or for an aggregate of six (6) months in
any twelve (12) consecutive month period. Any question as to the existence of
the Disability of Executive as to which Executive and the Company cannot agree
shall be determined in writing by a qualified independent physician mutually
acceptable to Executive and the Company. If Executive and the Company cannot
agree as to a qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall make such
determination in writing. The determination of Disability made in writing to
the Company and Executive shall be final and conclusive for all purposes of the
Agreement.
(d) `Good Reason' means:
(i) Removal from, or failure to be reappointed or reelected to,
Executive's position as specified in Section 2 (other than as a result of a
promotion).
(ii) Material diminution in Executive's title, position, duties or
responsibilities, or the assignment to Executive of duties that are
inconsistent, in a material respect, with the scope of duties and
responsibilities associated with Executive's position as specified in
Section 2.
(iii) Reduction in Base Salary or target or maximum Bonus opportunity,
reduction in level of participation in long term incentive, stock option
and other equity award, benefit and other plans for senior executives or
other material breach of this Agreement by the Company.
(iv) Relocation of the executive's principal workplace without his
consent to a location outside the New York metropolitan area.
10. Certain Payments. (a) If any of the payments or benefits received or to
be received by Executive in connection with a Change in Control or Executive's
termination of employment, whether or not pursuant to this Agreement (such
payments or benefits, excluding the Gross-Up Payment, as hereinafter defined,
shall hereinafter be referred to as the `Total Payments') will be subject to an
excise tax as provided for in Section 4999 of the Internal Revenue Code (the
`Code') (the `Excise Tax'), the Company shall pay to Executive an additional
amount (the `Gross-Up Payment') such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments; provided, however, that
if the Total Payments are less than 360% of the Executive's Base Amount, as
defined in section 280G(b)(3) of the Code, the Executive shall not be entitled
to the Gross-Up Payment, and the Total Payments shall be reduced as provided for
in Section 10(d) below.
(b) For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total Payments shall be treated as `parachute payments' (within the meaning of
section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (`Tax
Counsel') reasonably acceptable to Executive and selected by the accounting firm
acting as the `Auditor', as defined below, such payments or benefits (in whole
or in part) do not constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, (ii) all `Excess parachute payments' within the
meaning of section 280G(b)(1) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of
the Base Amount allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in accordance
with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income tax at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of Executive's residence or, if higher, in the state and locality of
Executive's principal place of employment, on the date of termination (or if
there is no date of termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 10), net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(c) In the event that the Excise Tax is finally determined to be less than
the amount taken into account hereunder in calculating the Gross-Up Payment,
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (including that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive
to the extent that such repayment results in a reduction in Excise Tax and/or a
federal, state or local income or employment tax deduction) plus interest on the
amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B)
of the Code. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder in calculating the Gross-Up Payment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to such excess) at
the time that the amount of such excess is finally determined. The Executive
and the Company shall each reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the existence or
amount of liability for Excise Tax with respect to the Total Payments.
(d) If the Total Payments would constitute an Excess parachute payment, but
are less than 360% of the Base Amount, such payments shall be reduced to the
largest amount that may be paid to the Executive without the imposition of the
Excise Tax or the disallowance as deductions to the Company under Section 280G
of the Code of any such payments.
(e) All determinations under this Section 10 shall be made by a nationally
recognized accounting firm selected by the Executive (the `Auditor'). The
Company shall cooperate in good faith in making such determinations and in
providing the necessary information for this purpose.
11. Indemnification. The Company will indemnify Executive (and his legal
representative or other successors) to the fullest extent permitted (including a
payment of expenses in advance of final disposition of a proceeding) by
applicable law, as in effect at the time of the subject act or omission, or by
the Certificate of Incorporation and By-Laws of the Company, as in effect at
such time or on the Commencement Date, or by the terms of any indemnification
agreement between the Company and Executive, whichever affords or afforded
greatest protection to Executive, and Executive shall be entitled to the
protection of any insurance policies the Company may elect to maintain generally
for the benefit of its directors and officers (and to the extent the Company
maintains such an insurance policy or policies, Executive shall be covered by
such policy or policies, in accordance with its or their terms to the maximum
extent of the coverage available for any Company officer or director), against
all costs, charges and expenses whatsoever incurred or sustained by him or his
legal representatives (including but not limited to any judgment entered by a
court of law) at the time such costs, charges and expenses are incurred or
sustained, in connection with any action, suit or proceeding to which Executive
(or his legal representatives or other successors) may be made a party by reason
of his having accepted employment with the Company or by reason of his being or
having been a director, officer or employee of the Company, or any subsidiary of
the Company, or his serving or having served any other enterprise as a director,
officer or employee at the request of the Company. Executive's rights under
this Section 11 shall continue without time limit for so long as he may be
subject to any such liability, whether or not the Employment Term may have
ended.
12. Non-Competition. (a) Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and its affiliates and
accordingly agrees that during the Employment Term and for a period of one year
after the termination thereof;
(i) The Executive will not directly or indirectly engage in any business
which is in competition with any line of business conducted by the Company
or its affiliates (including without limitation by performing or soliciting
the performance of services for any person who is a customer or client of
the Company or any of its affiliates) whether such engagement is as an
officer, director, proprietor, employee, partner, investor (other than as a
holder of less than 1% of the outstanding capital stock of a publicly
traded corporation), consultant, advisor, agent, sales representative or
other participant, in any location in which the Company or any of its
affiliates conducted any such competing line of business.
(ii) Executive will not directly or indirectly assist others in engaging
in any of the activities in which Executive is prohibited from engaging in
by clause (i) above.
(iii) Executive will not directly or indirectly induce any employee of
the Company or any of its affiliates to engage in any activity in which
Executive is prohibited to engage by this Section, or to terminate his or
her employment with the Company or any of its affiliates, and will not
directly or indirectly employ or offer employment to any person who was
employed by the Company or any of its affiliates unless such person shall
have ceased to be employed by the Company or any of its affiliates for a
period of at least 12 months.
(iv) Executive will not directly or indirectly solicit subscribers or
suppliers of the Company or telephone companies for which the Company
serves as sales agent or induce any such person to terminate its
relationships with the Company.
(b) It is expressly understood and agreed that although Executive and the
Company consider the restrictions contained in this Section 12 to be reasonable,
if a final judicial determination is made by a court of competent jurisdiction
that the time or territory or any other restriction contained in this Agreement
is an unenforceable restriction against Executive, the provisions of this
Agreement shall not be rendered void but shall be deemed amended to apply as to
such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction contained in this Agreement
is unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
13. Confidentiality; Nondisparagement. (a) Executive will not at any time
(whether during or after his employment with the Company) disclose or use for
his own benefit or purposes or the benefit or purposes of any other person,
firm, partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, information, data, or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans, employees,
organizational structure or the business and affairs of the Company generally,
or of any subsidiary or affiliate of the Company, provided that the foregoing
shall not apply to information which is not unique to the Company or which is
generally known to the industry or the public other than as a result of
Executive's breach of this covenant. Executive agrees that upon termination of
his employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company and its affiliates, except that he may retain personal notes,
notebooks and diaries. Executive further agrees that he will not retain or use
for his account at any time any trade names, trademark or other proprietary
business designation used or owned in connection with the business of the
Company or its affiliates.
(b) Executive will not at any time (whether during or after his employment
with the Company) knowingly make any statement, written or oral, or take any
other action relating to the Company or its officers or directors that would
disparage or otherwise harm the Company, its business or its reputation or those
of any of its officers and directors.
14. Material Inducement; Specific Performance. Executive acknowledges and
agrees that the covenants entered into by Executive in Section 12 and 13 are
essential elements of the parties' agreement as expressed herein, are a material
inducement for the Company to enter into this Agreement and the breach thereof
would be a material breach of this Agreement. Executive further acknowledges
and agrees that the Company's remedies at law for a breach or threatened breach
of any of the provisions of Section 12 or Section 13 would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to obtain equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available.
15. Litigation Support. Executive agrees that he will assist and cooperate
with the Company in connection with the defense or prosecution of any claim that
may be made against or by the Company or its affiliates, or in connection with
any ongoing or future investigation or dispute or claim of any kind involving
the Company or its affiliates, including any proceeding before any arbitral,
administrative, judicial, legislative, or other body or agency, including
testifying in any proceeding, to the extent such claims, investigations or
proceedings relate to services performed or required to be performed by
Executive, pertinent knowledge possessed by Executive, or any act or omission by
Executive. Executive further agrees to perform all acts and to execute and
deliver any documents that may be reasonably necessary to carry out the
provisions of this Section.
16. Legal Fees. The Company will pay or reimburse Executive, as incurred,
all legal fees and costs incurred by Executive in enforcing his rights under the
Agreement, if Executive's position substantially prevails. Following a Change
in Control, the Company will pay or reimburse Executive, as incurred, for all
such fees and costs unless Executive's claim was frivolous or was brought or
pursued by Executive in bad faith.
17. Miscellaneous. (a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
(b) Entire Agreement/Amendments. This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by the
Company. There are no restrictions, agreements, promises, warranties, covenants
or undertakings between the parties with respect to the subject matter herein
other than those expressly set forth herein and in the incentive compensation
and other employee benefit plans and arrangements of the Company referenced
herein. This Agreement may not be altered, modified, or amended except by
written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver of such
party's rights or deprive such party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(d) Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by Executive and
shall be assignable by the Company only with the consent of Executive except as
set forth in Section 17(h); provided that no such assignment by the Company
shall relieve the Company of any liability hereunder, whether accrued before or
after such assignment.
(f) No Mitigation. Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, and no such employment, if obtained, or compensation or benefits
payable in connection therewith, shall reduce any amounts or benefits to which
Executive is entitled hereunder except as provided for in Sections 8(c) and (d).
(g) Arbitration. Any dispute between the parties to this Agreement arising
from or relating to the terms of this Agreement or the employment of Executive
by the Company shall be submitted to arbitration in New York, New York under the
auspices of the American Arbitration Association.
(h) Successors; Binding Agreement
(i) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place. Such assumption and agreement shall be obtained prior to the
effectiveness of any such succession. As used in this Agreement, `Company'
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise. Prior to a Change in
Control, the term `Company' shall also mean any affiliate of the Company to
which Executive may be transferred and the Company shall cause such
successor employer to be considered the `Company' bound by the terms of
this Agreement and this Agreement shall be amended to so provide.
Following a Change in Control the term `Company' shall not mean any
affiliate of the Company to which Executive may be transferred unless
Executive shall have previously approved of such transfer in writing, in
which case the Company shall cause such successor employer to be considered
the `Company' bound by the terms of this Agreement and this Agreement shall
be amended to so provide.
(ii) This Agreement shall inure to the benefit of and be binding upon
personal or legal representatives, executors, administrators, successors,
heirs, distributers, devisees and legatees. If Executive should die while
any amount would still be payable to Executive hereunder if Executive
had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
devisee, legatee or other designee of Executive or, if there is no such
designee, to the estate of Executive.
(i) Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Executive at the address appearing from time to time in the personnel records of
the Company and to the Company at the address of its corporate headquarters,
directed to the attention of the Board with a copy to the Secretary of the
Company, or in either case to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
(j) Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(k) Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
David C. Swanson
__________________________
R.H. DONNELLEY CORPORATION
By: ______________________
Title:
<PAGE>
EMPLOYMENT AGREEMENT dated Monday, September 28, 1998 by and between R.H.
Donnelley Corporation, a Delaware corporation, (the `Company') and Frederick J.
Groser (the `Executive').
WHEREAS, the transaction pursuant to which the Company has been separated
from its former parent company (the `Spinoff') has been consummated as of July
1, 1998, and
WHEREAS, Executive is currently serving as an executive of the Company or of
its subsidiary, R.H. Donnelley, Inc.; and
WHEREAS, Executive is willing so to continue his employment on the terms
hereinafter set forth in this agreement (the `Agreement');
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. Term of Employment. Subject to the provisions of Section 8 of this
Agreement, Executive shall be employed by the Company or by R.H. Donnelley, Inc.
for a period (the `Employment Term') commencing on the date hereof (the
`Commencement Date') and ending on the third anniversary of the Spinoff. On the
third and each succeeding anniversary of the Spinoff, the Employment Term shall
automatically be extended for one additional year unless, not later than ninety
days prior to such anniversary, the Company or the Executive shall have given
notice of its or his intention not to extend the Employment Term.
2. Position. (a) Executive shall serve as a senior executive officer of the
Company or of R.H. Donnelley, Inc. In such position, Executive shall have such
duties and authority as shall be determined from time to time by the Board of
Directors of the Company (the `Board') or its designee.
(b) During the Employment Term, Executive will devote substantially all of
his business time and best efforts to the performance of his duties hereunder
and will not engage in any other business, profession or occupation for
compensation or otherwise which would conflict with the rendition of such
services either directly or indirectly, without the prior written consent of the
Board; provided that nothing herein shall be deemed to preclude Executive from
serving on business, civic or charitable boards or committees, as long as such
activities do not materially interfere with the performance of Executive's
duties hereunder.
3. Base Salary. Company shall pay Executive an annual base salary (the `Base
Salary') at the initial annual rate of $230,000, payable in equal monthly
installments or otherwise in accordance with the payroll and personnel practices
of the Company from time to time. Base Salary shall be reviewed annually by the
Board or a committee thereof to which the Board may from time to time have
delegated such authority (the `Committee') for possible increase (but not
decrease) in the sole discretion of the Board or the Committee, as the case may
be.
4. Bonus. With respect to each fiscal year all or part of which is contained
in the Employment Term, Executive shall be eligible to participate in the
Company's Annual Incentive Plan or any successor plan thereto, with a target
bonus opportunity of 60% of Base Salary and a maximum bonus opportunity not less
than that for which he is eligible on the date hereof (the `Bonus').
5. Additional Compensation. As further compensation, Executive will be
eligible for participation in all bonuses, long-term incentive compensation and
stock options and other equity participation arrangements (at the same
opportunity as that applicable in the ordinary course on the Effective Date)
made available generally to senior executives of the Company.
6. Employee Benefits. During the Employment Term, Executive shall be
eligible, on the same basis as he is currently eligible, for employee benefits
(including fringe benefits, vacation, pension and profit sharing plan
participation and life, health, accident and disability insurance) no less
favorable than those benefits for which he is eligible immediately prior to the
Commencement Date.
7. Business Expenses. Reasonable travel, entertainment and other business
expenses incurred by Executive in the performance of his duties hereunder shall
be reimbursed by the Company in accordance with Company policies from time to
time.
8. Termination of Employment. Each of Executive and the Company may
terminate the employment of Executive hereunder at any time in accordance with
this Section 8. Executive's entitlements hereunder in the event of any such
termination shall be as set forth in this Section 8. The provisions of this
Section 8 shall survive any nonrenewal of this Agreement by the Company pursuant
to Section 1.
(a) For Cause by the Company. If Executive's employment is terminated by the
company for Cause, he shall be entitled to receive his Base Salary through the
Date of Termination, as hereinafter defined. All other benefits due Executive
following Executive's termination of employment pursuant to this Section 8(a)
shall be determined in accordance with the plans, policies and practices of the
Company.
(b) Death or Disability. Executive's employment hereunder shall terminate
upon his death and may be terminated by the Company upon his Disability during
the Employment Term. Upon termination of Executive's employment hereunder upon
the Executive's Disability or death, Executive or his estate (as the case may
be) shall be entitled to receive Base Salary through the date of such
termination, plus a pro-rata portion of target Bonus, based on the number of
whole or partial months from the beginning of the bonus period to the Date of
Termination. In addition, if Executive's employment is terminated as a result of
Disability, Executive shall continue to be eligible to participate in all
health, medical and dental benefit plans of the Company, until age 65 in
accordance with the terms, conditions and elections, if any, applicable to or in
effect with respect to Executive at the time of termination of employment.
(c) Without Cause by the Company Not Following a Change in Control. If,
during the Employment Term and prior to a Change in Control, as hereinafter
defined, or more than two years after a Change in Control, Executive's
employment is terminated by the Company without Cause, Executive shall be
entitled to the following benefits:
(i) Base Salary through the Date of Termination at the rate in effect at
the time of Notice of Termination, as defined in Section 8(g) herein, is
given, or if higher, at the rate in effect immediately prior to the event
or circumstance leading to the termination of employment, plus all other
amounts to which Executive is entitled under any compensation or benefit
plan of the Company.
(ii) In lieu of any further salary payments to Executive for periods
subsequent to the date of termination, the Company shall pay as severance
pay, not later than the fifth day following the Date of Termination, a
severance payment (the `Severance Payment') equal to two times the sum of
(A) Base Salary at the rate in effect on the date Notice of Termination is
given, or if higher, at the rate in effect immediately prior to the event
or circumstance leading to the termination of employment, plus (B) target
Bonus, paid in lump sum without reduction for time value of money.
(iii) Continued eligibility to participate in all health, medical and
dental benefit plans of the Company for which Executive was eligible
immediately prior to the time of the Notice of Termination, or comparable
coverage, for two years, or, if sooner, until comparable health insurance
coverage is available to Executive in connection with subsequent employment
or self-employment. The coverage for which Executive shall continue to be
eligible under this Section shall be made available at no greater cost or
tax cost to Executive than that applicable to Executive at the time of
termination of employment.
(iv) Term life insurance equivalent in coverage, and at no greater cost
or tax cost to Executive, to that elected by Executive at the time of the
Notice of Termination, until the last day of the second calendar year
beginning after termination of employment, or, if sooner, until comparable
life insurance coverage is available to Executive in connection with
subsequent employment or self-employment.
(d) Termination Within Two Years Following a Change in Control. If, during
the Employment Term and within two years following a Change in Control,
Executive's employment is terminated by the Company without Cause, or by the
Executive for Good Reason, as hereinafter defined, Executive shall be entitled
to the payments and benefits set forth in Section 8(c), except that for purposes
of this Section 8(d), references in such Section to `two' times or `two' years
shall be changed to `three' times and `three' years. In addition, Executive
shall be entitled to receive, for the three years following termination of
employment or, if sooner, until subsequently employed or self-employed, (i) all
perquisites and similar benefits he was receiving immediately prior to the time
of Notice of Termination, (ii) reimbursement of expenses relating to financial
planning services, up to a maximum amount per year equal to the average of such
amounts paid to Executive for the two calendar years preceding the Date of
Termination and (iii) reimbursement of expenses relating to outplacement
services, subject to a maximum reimbursement under this clause (iii) of $25,000.
For purposes of this Agreement, termination of employment after the
commencement of negotiations with a potential acquiror or business combination
partner shall be deemed to be a termination of employment within two years
following a Change in Control if such negotiations result in a transaction with
such acquiror or business combination partner which constitutes a Change in
Control.
(e) Retirement. If during the Employment Term, Executive retires at normal
retirement age under the Company's qualified pension plan or any successor plan,
Executive shall be entitled to the payments and benefits specified in Section
8(b) as if his employment had terminated as a result of Disability.
(f) Voluntary Termination of Employment. If during the Employment Term,
Executive terminates his employment under circumstances other than those
specified in this Section 8, Executive shall be entitled to the payments and
benefits specified in Section 8(a).
(g) Notice and Date of Termination. (i) Any purported termination of
employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 17(i)
hereof. For purposes of this Agreement, a `Notice of Termination' shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated. If the event or circumstance on which the proposed termination of
employment is based is susceptible of cure, the Notice of Termination shall not
be delivered until Executive or the Company, as the case may be, has had at
least 30 days to effect such cure, and unless such event or circumstance
persists at the end of such cure period.
(ii) `Date of Termination' shall mean (A) if employment is terminated
for Disability, thirty (30) days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time
performance of his duties during such thirty (30) day period), (B) if
employment is terminated by reason of death, the date of death, and (C) if
employment is terminated for any other reason, the date specified in the
Notice of Termination (which, in the case of a termination of employment by
the Company for Cause shall not be less than ten (10) days after the date
such Notice of Termination is given); provided that if within thirty (30)
days after any Notice of Termination is given the party receiving such
Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined, either by mutual written agreement
of the parties, by a binding arbitration award, or by a final judgment,
order or decree of a court of competent jurisdiction (which is not
appealable or the time for appeal therefrom having expired and no appeal
having been perfected); provided further that the Date of Termination shall
be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such
dispute with reasonable diligence.
(h) Any provision of this Agreement to the contrary notwithstanding,
Executive shall be obligated to execute a general release of claims in favor of
the Company, in the form used generally by the Company in connection with
termination of employment from time to time, as a condition to receiving
benefits and payments under this Agreement.
9. Definitions. (a) `Cause' shall mean (i) Executive's willful and continued
failure substantially to perform the duties of his position (other than as a
result of total or partial incapacity due to physical or mental illness or as a
result of a termination by Executive for Good Reason, as hereinafter defined),
(ii) any willful act or omission by the Executive constituting dishonesty, fraud
or other malfeasance, which in any such case is demonstrably injurious to the
financial condition or business reputation of the Company or any of its
affiliates, or (iii) the Executive's conviction of a felony under the laws of
the United States or any state thereof or any other jurisdiction in which the
Company or any of its subsidiaries conducts business which materially impairs
the value of Executive's services to the Company or any of its subsidiaries.
For purposes of this definition, no act or failure to act shall be deemed
`willful' unless effected by Executive not in good faith and without a
reasonable belief that such action or failure to act was in or not opposed to
the best interests of the Company.
(b) `Change in Control' shall mean the occurrence of any of the following
events after July 14, 1998:
(i) Any `person,' as such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the `Exchange Act') (other
than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any company owned directly or
indirectly by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or becomes the
`beneficial owner' (as defined in rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding
securities;
(ii) During any period of two consecutive years commencing on July 14,
1998, individuals who at the beginning of such period constitute the Board,
and any new director (other than a director designated by a person (as
defined above) who has entered into an agreement with the Company to effect
a transaction described in subsections (i), (iii) or (iv) of this
definition) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute at least a
majority thereof;
(iii) The shareholders of the Company have approved a merger or
consolidation of the Company with any other company and all other required
governmental approvals of such merger or consolidation have been obtained,
other than (A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 60% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or (B) a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no person (as defined above)
becomes the beneficial owner (as defined above) of more than 20% of the
combined voting power of the Company's then outstanding securities; or
(iv) The shareholders of the Company have approved a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets, and all
other required governmental approvals of such transaction have been
obtained.
(c) `Disability' shall mean the Executive's inability, as a result of
physical or mental incapacity, to perform the duties of his position for a
period of six (6) consecutive months or for an aggregate of six (6) months in
any twelve (12) consecutive month period. Any question as to the existence of
the Disability of Executive as to which Executive and the Company cannot agree
shall be determined in writing by a qualified independent physician mutually
acceptable to Executive and the Company. If Executive and the Company cannot
agree as to a qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall make such
determination in writing. The determination of Disability made in writing to
the Company and Executive shall be final and conclusive for all purposes of the
Agreement.
(d) `Good Reason' means:
(i) Removal from, or failure to be reappointed or reelected to,
Executive's position as specified in Section 2 (other than as a result of a
promotion).
(ii) Material diminution in Executive's title, position, duties or
responsibilities, or the assignment to Executive of duties that are
inconsistent, in a material respect, with the scope of duties and
responsibilities associated with Executive's position as specified in
Section 2.
(iii) Reduction in Base Salary or target or maximum Bonus opportunity,
reduction in level of participation in long term incentive, stock option
and other equity award, benefit and other plans for senior executives or
other material breach of this Agreement by the Company.
(iv) Relocation of the executive's principal workplace without his
consent to a location outside the New York metropolitan area.
10. Certain Payments. (a) If any of the payments or benefits received or to
be received by Executive in connection with a Change in Control or Executive's
termination of employment, whether or not pursuant to this Agreement (such
payments or benefits, excluding the Gross-Up Payment, as hereinafter defined,
shall hereinafter be referred to as the `Total Payments') will be subject to an
excise tax as provided for in Section 4999 of the Internal Revenue Code (the
`Code') (the `Excise Tax'), the Company shall pay to Executive an additional
amount (the `Gross-Up Payment') such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Total Payments and any
federal, state and local income and employment taxes and Excise Tax upon the
Gross-Up Payment, shall be equal to the Total Payments; provided, however, that
if the Total Payments are less than 360% of the Executive's Base Amount, as
defined in section 280G(b)(3) of the Code, the Executive shall not be entitled
to the Gross-Up Payment, and the Total Payments shall be reduced as provided for
in Section 10(d) below.
(b) For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total Payments shall be treated as `parachute payments' (within the meaning of
section 280G(b)(2) of the Code) unless, in the opinion of tax counsel (`Tax
Counsel') reasonably acceptable to Executive and selected by the accounting firm
acting as the `Auditor', as defined below, such payments or benefits (in whole
or in part) do not constitute parachute payments, including by reason of section
280G(b)(4)(A) of the Code, (ii) all `Excess parachute payments' within the
meaning of section 280G(b)(1) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered (within the meaning of section 280G(b)(4)(B) of the Code) in excess of
the Base Amount allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor in accordance
with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income tax at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of Executive's residence or, if higher, in the state and locality of
Executive's principal place of employment, on the date of termination (or if
there is no date of termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 10), net of the maximum reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes.
(c) In the event that the Excise Tax is finally determined to be less than
the amount taken into account hereunder in calculating the Gross-Up Payment,
Executive shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the Gross-Up
Payment attributable to such reduction (including that portion of the Gross-Up
Payment attributable to the Excise Tax and federal, state and local income and
employment taxes imposed on the Gross-Up Payment being repaid by the Executive
to the extent that such repayment results in a reduction in Excise Tax and/or a
federal, state or local income or employment tax deduction) plus interest on the
amount of such repayment at 120% of the rate provided in section 1274(b)(2)(B)
of the Code. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder in calculating the Gross-Up Payment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to such excess) at
the time that the amount of such excess is finally determined. The Executive
and the Company shall each reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the existence or
amount of liability for Excise Tax with respect to the Total Payments.
(d) If the Total Payments would constitute an Excess parachute payment, but
are less than 360% of the Base Amount, such payments shall be reduced to the
largest amount that may be paid to the Executive without the imposition of the
Excise Tax or the disallowance as deductions to the Company under Section 280G
of the Code of any such payments.
(e) All determinations under this Section 10 shall be made by a nationally
recognized accounting firm selected by the Executive (the `Auditor'). The
Company shall cooperate in good faith in making such determinations and in
providing the necessary information for this purpose.
11. Indemnification. The Company will indemnify Executive (and his legal
representative or other successors) to the fullest extent permitted (including a
payment of expenses in advance of final disposition of a proceeding) by
applicable law, as in effect at the time of the subject act or omission, or by
the Certificate of Incorporation and By-Laws of the Company, as in effect at
such time or on the Commencement Date, or by the terms of any indemnification
agreement between the Company and Executive, whichever affords or afforded
greatest protection to Executive, and Executive shall be entitled to the
protection of any insurance policies the Company may elect to maintain generally
for the benefit of its directors and officers (and to the extent the Company
maintains such an insurance policy or policies, Executive shall be covered by
such policy or policies, in accordance with its or their terms to the maximum
extent of the coverage available for any Company officer or director), against
all costs, charges and expenses whatsoever incurred or sustained by him or his
legal representatives (including but not limited to any judgment entered by a
court of law) at the time such costs, charges and expenses are incurred or
sustained, in connection with any action, suit or proceeding to which Executive
(or his legal representatives or other successors) may be made a party by reason
of his having accepted employment with the Company or by reason of his being or
having been a director, officer or employee of the Company, or any subsidiary of
the Company, or his serving or having served any other enterprise as a director,
officer or employee at the request of the Company. Executive's rights under
this Section 11 shall continue without time limit for so long as he may be
subject to any such liability, whether or not the Employment Term may have
ended.
12. Non-Competition. (a) Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and its affiliates and
accordingly agrees that during the Employment Term and for a period of one year
after the termination thereof;
(i) The Executive will not directly or indirectly engage in any business
which is in competition with any line of business conducted by the Company
or its affiliates (including without limitation by performing or soliciting
the performance of services for any person who is a customer or client of
the Company or any of its affiliates) whether such engagement is as an
officer, director, proprietor, employee, partner, investor (other than as a
holder of less than 1% of the outstanding capital stock of a publicly
traded corporation), consultant, advisor, agent, sales representative or
other participant, in any location in which the Company or any of its
affiliates conducted any such competing line of business.
(ii) Executive will not directly or indirectly assist others in engaging
in any of the activities in which Executive is prohibited from engaging in
by clause (i) above.
(iii) Executive will not directly or indirectly induce any employee of
the Company or any of its affiliates to engage in any activity in which
Executive is prohibited to engage by this Section, or to terminate his or
her employment with the Company or any of its affiliates, and will not
directly or indirectly employ or offer employment to any person who was
employed by the Company or any of its affiliates unless such person shall
have ceased to be employed by the Company or any of its affiliates for a
period of at least 12 months.
(iv) Executive will not directly or indirectly solicit subscribers or
suppliers of the Company or telephone companies for which the Company
serves as sales agent or induce any such person to terminate its
relationships with the Company.
(b) It is expressly understood and agreed that although Executive and the
Company consider the restrictions contained in this Section 12 to be reasonable,
if a final judicial determination is made by a court of competent jurisdiction
that the time or territory or any other restriction contained in this Agreement
is an unenforceable restriction against Executive, the provisions of this
Agreement shall not be rendered void but shall be deemed amended to apply as to
such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction contained in this Agreement
is unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
13. Confidentiality; Nondisparagement. (a) Executive will not at any time
(whether during or after his employment with the Company) disclose or use for
his own benefit or purposes or the benefit or purposes of any other person,
firm, partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, information, data, or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans, employees,
organizational structure or the business and affairs of the Company generally,
or of any subsidiary or affiliate of the Company, provided that the foregoing
shall not apply to information which is not unique to the Company or which is
generally known to the industry or the public other than as a result of
Executive's breach of this covenant. Executive agrees that upon termination of
his employment with the Company for any reason, he will return to the Company
immediately all memoranda, books, papers, plans, information, letters and other
data, and all copies thereof or therefrom, in any way relating to the business
of the Company and its affiliates, except that he may retain personal notes,
notebooks and diaries. Executive further agrees that he will not retain or use
for his account at any time any trade names, trademark or other proprietary
business designation used or owned in connection with the business of the
Company or its affiliates.
(b) Executive will not at any time (whether during or after his employment
with the Company) knowingly make any statement, written or oral, or take any
other action relating to the Company or its officers or directors that would
disparage or otherwise harm the Company, its business or its reputation or those
of any of its officers and directors.
14. Material Inducement; Specific Performance. Executive acknowledges and
agrees that the covenants entered into by Executive in Section 12 and 13 are
essential elements of the parties' agreement as expressed herein, are a material
inducement for the Company to enter into this Agreement and the breach thereof
would be a material breach of this Agreement. Executive further acknowledges
and agrees that the Company's remedies at law for a breach or threatened breach
of any of the provisions of Section 12 or Section 13 would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to obtain equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available.
15. Litigation Support. Executive agrees that he will assist and cooperate
with the Company in connection with the defense or prosecution of any claim that
may be made against or by the Company or its affiliates, or in connection with
any ongoing or future investigation or dispute or claim of any kind involving
the Company or its affiliates, including any proceeding before any arbitral,
administrative, judicial, legislative, or other body or agency, including
testifying in any proceeding, to the extent such claims, investigations or
proceedings relate to services performed or required to be performed by
Executive, pertinent knowledge possessed by Executive, or any act or omission by
Executive. Executive further agrees to perform all acts and to execute and
deliver any documents that may be reasonably necessary to carry out the
provisions of this Section.
16. Legal Fees. The Company will pay or reimburse Executive, as incurred,
all legal fees and costs incurred by Executive in enforcing his rights under the
Agreement, if Executive's position substantially prevails. Following a Change
in Control, the Company will pay or reimburse Executive, as incurred, for all
such fees and costs unless Executive's claim was frivolous or was brought or
pursued by Executive in bad faith.
17. Miscellaneous. (a) Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
(b) Entire Agreement/Amendments. This Agreement contains the entire
understanding of the parties with respect to the employment of Executive by the
Company. There are no restrictions, agreements, promises, warranties, covenants
or undertakings between the parties with respect to the subject matter herein
other than those expressly set forth herein and in the incentive compensation
and other employee benefit plans and arrangements of the Company referenced
herein. This Agreement may not be altered, modified, or amended except by
written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver of such
party's rights or deprive such party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
(d) Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by Executive and
shall be assignable by the Company only with the consent of Executive except as
set forth in Section 17(h); provided that no such assignment by the Company
shall relieve the Company of any liability hereunder, whether accrued before or
after such assignment.
(f) No Mitigation. Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, and no such employment, if obtained, or compensation or benefits
payable in connection therewith, shall reduce any amounts or benefits to which
Executive is entitled hereunder except as provided for in Sections 8(c) and (d).
(g) Arbitration. Any dispute between the parties to this Agreement arising
from or relating to the terms of this Agreement or the employment of Executive
by the Company shall be submitted to arbitration in New York, New York under the
auspices of the American Arbitration Association.
(h) Successors; Binding Agreement
(i) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place. Such assumption and agreement shall be obtained prior to the
effectiveness of any such succession. As used in this Agreement, `Company'
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise. Prior to a Change in
Control, the term `Company' shall also mean any affiliate of the Company to
which Executive may be transferred and the Company shall cause such
successor employer to be considered the `Company' bound by the terms of
this Agreement and this Agreement shall be amended to so provide.
Following a Change in Control the term `Company' shall not mean any
affiliate of the Company to which Executive may be transferred unless
Executive shall have previously approved of such transfer in writing, in
which case the Company shall cause such successor employer to be considered
the `Company' bound by the terms of this Agreement and this Agreement shall
be amended to so provide.
(ii) This Agreement shall inure to the benefit of and be binding upon
personal or legal representatives, executors, administrators, successors,
heirs, distributers, devisees and legatees. If Executive should die while
any amount would still be payable to Executive hereunder if Executive
had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to the
devisee, legatee or other designee of Executive or, if there is no such
designee, to the estate of Executive.
(i) Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
Executive at the address appearing from time to time in the personnel records of
the Company and to the Company at the address of its corporate headquarters,
directed to the attention of the Board with a copy to the Secretary of the
Company, or in either case to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
(j) Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(k) Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
Frederick J. Groser
__________________________
R.H. DONNELLEY CORPORATION
By:_______________________
Title:
