Amendment No.5 to Form 10

As filed with the Securities and Exchange Commission on October 28, 2016

File No. 001-37817

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 5 to

Form 10

 

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12(b) OR 12(g)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

Conduent Incorporated

(Exact name of registrant as specified in its charter)

 

 

 

New York   81-2983623

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

233 Mount Airy Road, Suite 100

Basking Ridge, New Jersey

  07920
(Address of Principal Executive Offices)   (Zip Code)

Registrant’s telephone number, including area code:

(908) 758-1200

 

 

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class to be so Registered

 

Name of Each Exchange on

Which Each Class is to be Registered

Common Stock, par value $0.01   New York Stock Exchange

Securities to be registered pursuant to Section 12(g) of the Act:

None.

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,

a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”

“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

 


Conduent Incorporated

Information Required in Registration Statement

Cross-Reference Sheet Between the Information Statement and Items of Form 10

This Registration Statement on Form 10 incorporates by reference information contained in our Information Statement filed as Exhibit 99.1 to this Form 10. For your convenience, we have provided below a cross-reference sheet identifying where the items required by Form 10 can be found in the Information Statement.

 

Item

No.

   Caption    Location in Information Statement
1.    Business    See “Summary,” “Risk Factors,” “Cautionary Statement Concerning Forward-Looking Statements,” “The Spin-Off,” “Capitalization,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Where You Can Find More Information”
1A.    Risk Factors    See “Risk Factors” and “Cautionary Statement Concerning Forward-Looking Statements”
2.    Financial Information    See “Summary,” “Risk Factors,” “Capitalization,” “Selected Historical Financial Data,” “Unaudited Pro Forma Combined Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
3.    Properties    See “Business—Facilities”
4.    Security Ownership of Certain Beneficial Owners and Management    See “Security Ownership of Certain Beneficial Owners and Management”
5.    Directors and Executive Officers    See “Management”
6.    Executive Compensation    See “Management” and “Compensation Discussion and Analysis”
7.    Certain Relationships and Related Transactions, and Director Independence    See “Risk Factors,” “Management” and “Certain Relationships and Related Party Transactions”
8.    Legal Proceedings    See “Business—Legal Proceedings”
9.    Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters    See “The Spin-Off,” “Dividend Policy,” “Security Ownership of Certain Beneficial Owners and Management” and “Description of Our Capital Stock”
10.    Recent Sales of Unregistered Securities    See “Description of Our Capital Stock”
11.    Description of Registrant’s Securities to be Registered    See “Description of Our Capital Stock”
12.    Indemnification of Directors and Officers    See “Description of Our Capital Stock” and “Certain Relationships and Related Party Transactions—Agreements with Xerox—Separation and Distribution Agreement”

 

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Item

No.

   Caption    Location in Information Statement
13.    Financial Statements and Supplementary Data    See “Summary,” “Selected Historical Financial Data,” “Unaudited Pro Forma Combined Financial Statements” and “Index to Financial Statements” and the financial statements referenced therein
14.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure    None
15.    Financial Statements and Exhibits   

(a) Financial Statements

 

See “Unaudited Pro Forma Combined Financial Statements” and “Index to Financial Statements” and the financial statements referenced therein

 

(b) Exhibits

 

See below

 

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The following documents are filed as exhibits hereto:

 

Exhibit

Number

  

Exhibit Description

  2.1    Form of Separation and Distribution Agreement by and between Xerox Corporation and Conduent Incorporated**††
  3.1    Form of Restated Certificate of Incorporation of Conduent Incorporated
  3.2    Form of Amended and Restated By-Laws of Conduent Incorporated††
10.1    Form of Transition Services Agreement by and between Xerox Corporation and Conduent Incorporated**††
10.2    Form of Tax Matters Agreement by and between Xerox Corporation and Conduent Incorporated**
10.3    Form of Employee Matters Agreement by and between Xerox Corporation and Conduent Incorporated**†††
10.4    Form of Intellectual Property Agreement by and between Xerox Corporation and Conduent Incorporated**††
10.5    Form of Trademark License Agreement among Xerox Corporation, Xerox Overseas, Inc. and Conduent Incorporated**††
10.6    Agreement, dated January 28, 2016, among Xerox Corporation, Icahn Partners Master Fund LP, Icahn Partners LP, Icahn Onshore LP, Icahn Offshore LP, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings L.P., Icahn Enterprises G.P. Inc., Beckton Corp., High River Limited Partnership, Hopper Investments LLC, Barberry Corp., Jonathan Christodoro and Carl C. Icahn†
10.7   

Letter Agreement dated June 10, 2016 between Xerox Corporation and Ashok Vemuri regarding compensation arrangements.

 

Incorporated by reference to Exhibit 99.2 to Xerox Corporation’s Current Report on Form 8-K dated June 14, 2016. See SEC File Number 001-04471.

10.8    Form of Conduent Incorporated Performance Incentive Plan††††
10.9    Form of Conduent Incorporated Equity Compensation Plan for Non-Employee Directors††††
10.10    Letter Agreement dated September 7, 2016 between Xerox Corporation and Jay Chu regarding compensation arrangements.††††
10.11    Letter Agreement dated September 29, 2016 between Xerox Corporation and Frederick Koury regarding compensation arrangements.††††
10.12    Letter Agreement dated July 22, 2016 between Xerox Corporation and J. Michael Peffer regarding compensation arrangements.††††
10.13    Letter Agreement dated September 6, 2016 between Xerox Corporation and Brian Webb-Walsh regarding compensation arrangements.††††
10.14    Exchange Agreement dated October 27, 2016 by and among Darwin Deason, Conduent Incorporated and Xerox Corporation.
21.1    List of subsidiaries of Conduent Incorporated
99.1    Preliminary Information Statement of Conduent Incorporated, subject to completion, dated October 28, 2016.
99.2    Form of Notice of Internet Availability of Information Statement Materials*

 

* To be filed by amendment.
** Conduent Incorporated hereby undertakes to furnish supplementally a copy of any omitted schedule or exhibit to such agreement to the U.S. Securities and Exchange Commission upon request.
Previously filed on August 15, 2016.
†† Previously filed on September 26, 2016.
††† Previously filed on October 11, 2016.
†††† Previously filed on October 21, 2016.

 

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SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 5 to its Registration Statement on Form 10 to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Conduent Incorporated
By:  

/s/ Brian Webb-Walsh

  Name:   Brian Webb-Walsh
  Title:  

Vice President and Chief

Financial Officer

Dated: October 28, 2016

 

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EXHIBIT INDEX

 

Exhibit

Number

  

Exhibit Description

  2.1    Form of Separation and Distribution Agreement by and between Xerox Corporation and Conduent Incorporated**††
  3.1    Form of Restated Certificate of Incorporation of Conduent Incorporated
  3.2    Form of Amended and Restated By-Laws of Conduent Incorporated††
10.1    Form of Transition Services Agreement by and between Xerox Corporation and Conduent Incorporated**††
10.2    Form of Tax Matters Agreement by and between Xerox Corporation and Conduent Incorporated**
10.3    Form of Employee Matters Agreement by and between Xerox Corporation and Conduent Incorporated**†††
10.4    Form of Intellectual Property Agreement by and between Xerox Corporation and Conduent Incorporated**††
10.5    Form of Trademark License Agreement among Xerox Corporation, Xerox Overseas, Inc. and Conduent Incorporated**††
10.6    Agreement, dated January 28, 2016, among Xerox Corporation, Icahn Partners Master Fund LP, Icahn Partners LP, Icahn Onshore LP, Icahn Offshore LP, Icahn Capital LP, IPH GP LLC, Icahn Enterprises Holdings L.P., Icahn Enterprises G.P. Inc., Beckton Corp., High River Limited Partnership, Hopper Investments LLC, Barberry Corp., Jonathan Christodoro and Carl C. Icahn†
10.7   

Letter Agreement dated June 10, 2016 between Xerox Corporation and Ashok Vemuri regarding compensation arrangements.

 

Incorporated by reference to Exhibit 99.2 to Xerox Corporation’s Current Report on Form 8-K dated June 14, 2016. See SEC File Number 001-04471.

10.8    Form of Conduent Incorporated Performance Incentive Plan††††
10.9    Form of Conduent Incorporated Equity Compensation Plan for Non-Employee Directors††††
10.10    Letter Agreement dated September 7, 2016 between Xerox Corporation and Jay Chu regarding compensation arrangements.††††
10.11    Letter Agreement dated September 29, 2016 between Xerox Corporation and Frederick Koury regarding compensation arrangements.††††
10.12    Letter Agreement dated July 22, 2016 between Xerox Corporation and J. Michael Peffer regarding compensation arrangements.††††
10.13    Letter Agreement dated September 6, 2016 between Xerox Corporation and Brian Webb-Walsh regarding compensation arrangements.††††
10.14    Exchange Agreement dated October 27, 2016 by and among Darwin Deason, Conduent Incorporated and Xerox Corporation.
21.1    List of subsidiaries of Conduent Incorporated
99.1    Preliminary Information Statement of Conduent Incorporated, subject to completion, dated October 28, 2016.
99.2    Form of Notice of Internet Availability of Information Statement Materials*

 

  

 

* To be filed by amendment.
** Conduent Incorporated hereby undertakes to furnish supplementally a copy of any omitted schedule or exhibit to such agreement to the U.S. Securities and Exchange Commission upon request.
Previously filed on August 15, 2016.
†† Previously filed on September 26, 2016.
††† Previously filed on October 11, 2016.
†††† Previously filed on October 21, 2016.

 

6

EX-3.1

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

OF

CONDUENT INCORPORATED

UNDER SECTION 807 OF THE

BUSINESS CORPORATION LAW

1. The name of the Corporation is “CONDUENT INCORPORATED”.

2. The Certificate of Incorporation was filed in the Office of the Secretary of State of the State of New York on June 9, 2016.

3. This restatement of the Certificate of Incorporation was authorized by the unanimous written consent of the Board of Directors of the Corporation and by the unanimous written consent of the holders of all of the outstanding shares of the Corporation entitled to vote on the restatement of the Certificate of Incorporation. The Certificate of Incorporation is hereby amended or changed to effect the following amendments or changes authorized by the Business Corporation Law of the State of New York: (a) the amendment and replacement in its entirety of Article SEVENTH relating to the Board of Directors of the Corporation, (b) the addition of Article TENTH relating to Section 912 of the Business Corporation Law of the State of New York, (c) the addition of Article ELEVENTH relating to the selection of an exclusive forum and (d) the addition of Article TWELFTH relating to amendments to the By-Laws of the Corporation. The Certificate of Incorporation is hereby restated as amended or changed to read as herein set forth in full:

FIRST: The name of the Corporation is CONDUENT INCORPORATED.

SECOND: The purpose for which it is formed is to engage in any lawful act or activity for which corporations may be organized under the Business Corporation Law of the State of New York, provided that the Corporation shall not engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained.

THIRD: The office of the Corporation is to be located in New York County, New York.

FOURTH: The aggregate number of shares which the Corporation shall have the authority to issue is 1,000,000,000 shares of Common Stock, of the par value of $0.01 each (hereinafter referred to as “Common Stock”), and 100,000,000 shares of Preferred Stock, of the par value of $0.01 each (hereinafter referred to as “Preferred Stock”).


1. The Board of Directors is authorized, at any time or from time to time, to provide for the issuance of Preferred Stock in series, and to establish the number of shares to be included in each such series, and to fix the designation, relative rights, preferences and limitations of the shares of each such series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following:

(a) the number of shares constituting that series and the distinctive designation of that series;

(b) whether the holders thereof shall be entitled to cumulative, noncumulative or partially cumulative dividends and, with respect to shares entitled to dividends, the dividend rate or rates, including, without limitation, the methods and procedures for determining such rate or rates, and any other terms and conditions relating to such dividends;

(c) whether, and if so upon what terms and conditions, such shares shall be convertible into, or exchangeable for, other securities or property;

(d) whether, and if so upon what terms and conditions, such shares shall be redeemable;

(e) whether the shares shall be subject to any sinking fund provided for the purchase or redemption of such shares and, if so, the terms of such fund;

(f) whether the holders thereof shall be entitled to voting rights and, if so, the terms and conditions for the exercise thereof;

(g) whether, and if so to what extent and upon what terms and conditions, the holders thereof shall be entitled to rights upon the liquidation of, or upon any distribution of the assets of, the Corporation; and

(h) any other relative rights, preferences and limitations of that series.

2. No holder of Common Stock or Preferred Stock shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever, or of any obligations or other securities convertible into, or exchangeable for, any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.

SERIES A CONVERTIBLE PERPETUAL PREFERRED STOCK

3. (a) Designation. There is hereby created out of the authorized and unissued shares of Preferred Stock of the Corporation a series of preferred stock designated as the “Series A Convertible Perpetual Preferred Stock” (the “Series A Preferred Stock”). The number of shares constituting such series shall be 120,000.

(b) Definitions. As used herein with respect to the Series A Preferred Stock, the following terms shall have the following meanings, whether used in the singular or the plural:

accrued and unpaid dividends” means an amount computed at the annual dividend rate for the shares of the Series A Preferred Stock from the date on which dividends on such share became cumulative to and including the date to which such dividends are to be accrued, less the aggregate amount of all dividends theretofore paid on such share; but no interest shall be payable upon any arrearages.

Additional Shares” has the meaning set forth in Subdivision 3(l)(i).

Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified

 

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Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

Applicable Conversion Price” at any given time means the price equal to $1,000 divided by the Applicable Conversion Rate in effect at such time.

Applicable Conversion Rate” means the Conversion Rate in effect at any given time.

Board of Directors” means the board of directors of the Corporation or any committee thereof duly authorized to act in the relevant matter on behalf of such board of directors.

Business Day” means any day other than a Saturday, Sunday or any other day on which banks in New York City, New York are generally required or authorized by law to be closed.

Certificate of Incorporation” means the Restated Certificate of Incorporation of Conduent Incorporated, as amended.

Close of Business” means 5:00 pm, New York City time, on the date in question.

Closing Price” of the Common Stock or any securities distributed in a Spin-Off, as the case may be, on any date of determination means:

(i) the closing sale price of the Common Stock or such other securities (or, if no closing sale price is reported, the last reported sale price of the Common Stock or such other securities) on the New York Stock Exchange on such date;

(ii) if the Common Stock or such other securities are not traded on the New York Stock Exchange on such date, the closing sale price of the Common Stock or such other securities (or, if no closing sale price is reported, the last reported sale price of the Common Stock or such other securities) as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock or such other securities are traded on such date;

(iii) if the Common Stock or such other securities are not traded on a U.S. national or regional securities exchange on such date, the last quoted bid price for the Common Stock or such other securities on such date in the over-the-counter market as reported by Pink OTC Markets Inc. or similar organization; or

(iv) if the Common Stock or such other securities are not quoted by Pink OTC Markets Inc. or a similar organization on such date, as determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose.

 

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For purposes of this Subdivision 3, all references herein to the “Closing Price” and “last reported sale price” of the Common Stock on the New York Stock Exchange shall be such closing sale price and last reported sale price as reflected on the website of the New York Stock Exchange (http://www.nyse.com).

Common Stock Outstanding” means, at any given time, the number of shares of Common Stock issued and outstanding at such time.

Conversion Date” has the meaning set forth in Subdivision 3(i)(v)(B).

Conversion Rate” means, with respect to each share of Series A Preferred Stock,                  shares of Common Stock, subject to adjustment in accordance with the provisions of this Subdivision 3.

Current Market Price” means, in the case of any distribution giving rise to an adjustment to the Conversion Rate pursuant to Subdivision 3(j)(iv), Subdivision 3(j)(v) or Subdivision 3(j)(vi) or a distribution upon conversion pursuant to Subdivision 3(j)(viii), the average Closing Price of the Common Stock during the ten consecutive Trading Day period ending on and including the Trading Day immediately preceding the Ex-Dividend Date for such distribution. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Rate are called for pursuant to Subdivision 3(j), such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of Subdivision 3(j) and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.

Distributed Property” has the meaning set forth in Subdivision 3(j)(v).

Dividend Payment Date” has the meaning set forth in Subdivision 3(d)(ii).

Dividend Period” means each period from, and including, a Dividend Payment Date (or with respect to the initial Dividend Period, the Issue Date) to, but excluding, the following Dividend Payment Date.

Dividend Rate” has the meaning set forth in Subdivision 3(d)(i).

Dividend Record Date” has the meaning set forth in Subdivision 3(d)(iv).

Dividend Threshold Amount” has the meaning set forth in Subdivision 3(j)(vi)(B).

Exchange Act” means the Securities Exchange Act of 1934, as amended.

Exchange Property” has the meaning set forth in Subdivision 3(k)(i).

Ex-Dividend Date” means the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the relevant dividend, distribution or issuance.

Expiration Date” has the meaning set forth in Subdivision 3(j)(vii).

 

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Expiration Time” has the meaning set forth in Subdivision 3(j)(vii).

Fair Market Value” means the amount which a willing buyer would pay a willing seller in an arm’s-length transaction as reasonably determined by the Board of Directors in good faith; provided, however, that with respect to Subdivision 3(o)(ii), Fair Market Value shall mean the value of the Optional Redemption Transferred Shares determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose.

Fiscal Quarter” means, with respect to the Corporation, the fiscal quarter publicly disclosed by the Corporation.

Fundamental Change” means the occurrence of any of the following:

(i) a “person” or “group” within the meaning of Section 13(d) of the Exchange Act files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect ultimate “beneficial owner”, as defined in Rule 13d-3 under the Exchange Act, of common equity of the Corporation representing more than 50% of the voting power of the Common Stock;

(ii) consummation of any consolidation, merger or other business combination of the Corporation with or into another Person or any sale, lease or conveyance in one transaction or a series of transactions of all or substantially all of the consolidated assets of the Corporation and its subsidiaries, taken as a whole, to any Person other than one of the Corporation’s subsidiaries, in each case pursuant to which the Common Stock will be converted into cash, securities or other property, other than:

(A) pursuant to a transaction in which the Persons that “beneficially owned” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, Voting Shares of the Corporation immediately prior to such transaction beneficially own, directly or indirectly, Voting Shares representing a majority of the total voting power of all outstanding classes of Voting Shares of the continuing or surviving Person immediately after the transaction; or

(B) any merger or consolidation primarily for the purpose of changing the jurisdiction of incorporation of the Corporation and resulting in a reclassification, conversion or exchange of outstanding shares of common stock solely into shares of common stock of the surviving entity; or

(iii) the Common Stock ceases to be listed on a U.S. national securities exchange or association (other than as a result of a transaction described in clause (ii) above);

provided, however, that a Fundamental Change with respect to clauses (i) or (ii) above shall not be deemed to have occurred if at least 90% of the consideration received by holders of the Common Stock in the transaction or transactions consists of common stock that is traded on a U.S. national securities exchange or that will be traded on a U.S. national securities exchange when issued or exchanged in connection with such transaction.

Fundamental Change Notice” has the meaning set forth in Subdivision 3(m)(ii).

 

5


Fundamental Change Redemption Date” has the meaning set forth in Subdivision 3(m)(i).

Fundamental Change Redemption Price” has the meaning set forth in Subdivision 3(m)(i).

Holder(s)” means the Person(s) in whose name the shares of the Series A Preferred Stock are registered, which may be treated by the Corporation, as the absolute owner of the shares of Series A Preferred Stock for the purpose of making payment and settling the related conversions and for all other purposes. The initial Holder shall be Darwin Deason.

Issue Date” means the date upon which any shares of Series A Preferred Stock are first issued.

Junior Securities” has the meaning set forth in Subdivision 3(c)(i).

junior stock” means the Common Stock and any other stock of the Corporation, now or hereafter authorized, over which the Series A Preferred Stock has preference or priority either in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation.

Liquidation Preference” means, with respect to each share of Series A Preferred Stock, at any time, $1,000.

Make-Whole Acquisition” means the occurrence of a transaction described under clauses (i) or (ii) of the definition of “Fundamental Change”.

Make-Whole Acquisition Conversion Period” has the meaning set forth in Subdivision 3(l)(i).

Make-Whole Acquisition Effective Date” has the meaning set forth in Subdivision 3(l)(i).

Make-Whole Acquisition Stock Price” means the price paid per share of Common Stock in the event of a Make-Whole Acquisition. If the holders of shares of Common Stock receive only cash in the Make-Whole Acquisition, the Make-Whole Acquisition Stock Price shall be the cash amount paid per share of Common Stock. Otherwise, the Make-Whole Acquisition Stock Price shall be the average of the Closing Price per share of Common Stock on the 10 Trading Days up to, but not including, the Make-Whole Acquisition Effective Date.

Mandatory Conversion Date” has the meaning set forth in Subdivision 3(h)(iii).

Notice of Mandatory Conversion” has the meaning set forth in Subdivision 3(h)(iii).

Optional Redemption Date” has the meaning set forth in Subdivision 3(o)(ii)(B).

 

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Optional Redemption Notice” has the meaning set forth in Subdivision 3(o)(ii)(A).

Optional Redemption Transferred Shares” has the meaning set forth in Subdivision 3(o)(ii).

Parity Securities” has the meaning set forth in Subdivision 3(c)(ii).

Permitted Transferee(s)” means any of (w) the spouse of Darwin Deason, (x) any lineal descendant of Darwin Deason or any brother or sister of Darwin Deason, (y) any brother or sister of Darwin Deason, or (z) any trust for the direct or indirect benefit of exclusively Darwin Deason and/or the spouse of Darwin Deason; any lineal descendant of Darwin Deason or any brother or sister of Darwin Deason; or any brother or sister of Darwin Deason.

Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock corporation, limited liability company or trust.

Preferred Stock” means the Preferred Stock, par value of $0.01 each, of the Corporation.

Record Date” means, with respect to any issuance, dividend or distribution declared, paid or made on or with respect to any capital stock of the Corporation, the date fixed for the determination of the holders of such capital stock entitled to receive such issuance, dividend or distribution.

Registrar” means the Corporation or any other registrar appointed by the Corporation.

Reorganization Event” has the meaning set forth in Subdivision 3(k)(i).

Senior Securities” has the meaning set forth in Subdivision 3(c)(iii).

Series A Preferred Stock” has the meaning set forth in Subdivision 3(a).

Spin-Off” has the meaning set forth in Subdivision 3(j)(v).

Spin-Off Valuation Period” has the meaning set forth in Subdivision 3(j)(v).

Trading Day” means a day on which the shares of Common Stock or any securities distributed in a Spin-Off, as the case may be:

(i) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the Close of Business; and

(ii) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.

 

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Transfer” means, with respect to each share of Series A Preferred Stock, the sale, transfer, pledge, assignment, loan or other disposition or encumbrance of such share of Series A Preferred Stock.

Trigger Event” has the meaning set forth in Subdivision 3(j)(xv).

Voting Shares” of a Person means shares of all classes of Capital Stock of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of the board of directors of such Person.

(c) Ranking. The Series A Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation, rank:

(i) senior to the Corporation’s Common Stock and each other class or series of capital stock that the Corporation may issue in the future the terms of which do not expressly provide that it ranks on a parity with or senior to the Series A Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively, the “Junior Securities”);

(ii) on a parity with each class or series of Preferred Stock established after the Issue Date by the Corporation the terms of which expressly provide that such class or series will rank on a parity with the Series A Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively, the “Parity Securities”); and

(iii) subject to the approval of the holders of the Series A Preferred Stock to the extent required by Subdivision 3(n), junior to any class or series of the Corporation’s capital stock that the Corporation may issue in the future the terms of which expressly provide that such class or series shall rank senior to the Series A Preferred Stock (collectively, the “Senior Securities”).

For the avoidance of doubt, the Corporation has the right to authorize and/or issue additional shares or classes or series of Junior Securities or Parity Securities without notice to or consent of the Holder(s).

(d) Dividends.

(i) The Holder(s) shall be entitled to receive, on each share of Series A Preferred Stock, when, as and if declared by the Board of Directors, out of any funds legally available for the payment of dividends, cumulative cash dividends at a rate per annum equal to 8.0% of the Liquidation Preference (the “Dividend Rate”) in accordance with subdivision 1 of Article FOURTH of the Certificate of Incorporation and this Subdivision 3(d); provided, however, that in the event that on any Dividend Payment Date there shall be accrued and unpaid dividends for any prior Dividend Period, the Dividend Rate shall equal 8.0% per annum of the sum of (x) the Liquidation Preference and (y) the amount of all such accrued and unpaid dividends for any prior Dividend Periods.

 

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(ii) Dividends will accrue and cumulate from the Issue Date and are payable quarterly in arrears on the first day of January, April, July and October (each, a “Dividend Payment Date”), commencing on the first Dividend Payment Date following the Issue Date. If a Dividend Payment Date falls on a day that is not a Business Day, the dividends will be paid on the next Business Day as if it were paid on the Dividend Payment Date and no interest will accrue in connection therewith. If dividends on any shares of the Series A Preferred Stock shall be cumulative from a date less than thirty days prior to the first quarter-yearly dividend payment date in respect of such shares, the dividends accrued on such shares to such date shall not be payable on such date but shall be payable on the next following quarter-yearly dividend payment date.

(iii) The amount of dividends payable for each full quarterly Dividend Period will be computed by dividing the Dividend Rate by four. The amount of dividends payable for the initial Dividend Period, or any other Dividend Period shorter or longer than a full quarterly Dividend Period, will be computed on the basis of the actual number of days elapsed during such Dividend Period over a 360-day year.

(iv) Dividends will be paid to the Holder(s) as such Holder(s) appear in the records of the Corporation at the Close of Business on the 15th day of the immediately preceding calendar month in which the applicable Dividend Payment Date falls (the “Dividend Record Date”). The Dividend Record Date shall apply regardless of whether any particular Dividend Record Date is a Business Day.

(v) Dividends on any share of Series A Preferred Stock converted to Common Stock shall cease to accumulate on the Mandatory Conversion Date or any applicable Conversion Date, as applicable.

(vi) In case the stated dividends and the amounts payable on liquidation are not paid in full, the shares of the Series A Preferred Stock shall share ratably in the payment of dividends (including accumulations, if any) in accordance with the sums which would be payable on said shares if all dividends were declared and paid in full, and in any distribution of assets other than by way of dividends in accordance with the sums which would be payable on such distributions if all sums payable were discharged in full.

(vii) So long as any shares of the Series A Preferred Stock are outstanding, no dividend whatever shall be paid or declared at any time, and no distribution made, on any junior stock (other than in junior stock) nor shall any shares of junior stock be purchased or otherwise acquired for value or redeemed at any time by the Corporation or any subsidiary unless all dividends on the Series A Preferred Stock for all past quarter-yearly dividend periods (other than the first quarter-yearly dividend period for any shares if the dividend on such shares for such period shall not then be payable pursuant to the provisions of Subdivision 3(d)(ii)) shall have been paid and the full dividends thereon for the then current quarter-yearly dividend period shall have been paid or declared and a sum sufficient for the payment thereof set apart; provided, however, that the foregoing restriction in this Subdivision 3(d) shall not apply to the acquisition of any junior stock solely in exchange for, or solely out of the proceeds of sale of, any other junior stock. Subject to the foregoing provisions of this Subdivision 3(d), and to any further limitations

 

9


prescribed by the Board of Directors in accordance with subdivision 1 of Article FOURTH of the Certificate of Incorporation, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors may be declared and paid on any junior stock from time to time out of any funds of the Corporation legally available therefor, and the Series A Preferred Stock shall not be entitled to participate in any such dividends.

(viii) The holders of shares of the Series A Preferred Stock shall not be entitled to receive any dividends thereon other than the dividends referred to in this Subdivision 3(d).

(e) Liquidation.

(i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the Holder(s) shall be entitled to receive for each share of Series A Preferred Stock out of the assets of the Corporation or proceeds thereof legally available for distribution to stockholders of the Corporation, after satisfaction of all liabilities, if any, to creditors of the Corporation and subject to the rights of holders of any Senior Securities, and before any distribution of such assets or proceeds is made to or set aside for the holders of Junior Securities, a liquidating distribution in an amount equal to (x) the Liquidation Preference and (y) an amount equal to any accrued and unpaid dividends on such share of Series A Preferred Stock through the date of such liquidating distribution. The holders of the Junior Securities shall be entitled, to the exclusion of the holders of the Series A Preferred Stock, to share ratably in all the remaining assets of the Corporation in accordance with their respective rights. After payment of the full amount of such liquidating distribution, the Holder(s) will not be entitled to any further participation in any distribution of assets by, and shall have no right or claim to any remaining assets, of the Corporation.

(ii) In the event the assets of the Corporation available for distribution to stockholders upon any liquidation, dissolution or winding-up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to all outstanding shares of the Series A Preferred Stock and the corresponding amounts payable on any Parity Securities, the Holder(s) and the holders of such Parity Securities shall share ratably in any distribution of assets of the Corporation in proportion to the full respective liquidating distributions which would be payable on such shares if all amounts payable thereon were paid in full.

(iii) Neither the consolidation or merger of the Corporation with or into any other entity, nor the consolidation or merger of any other entity with or into the Corporation, nor the sale, lease or other transfer or disposition of all or substantially all of the Corporation’s property or business or other assets shall, in and of itself, constitute a liquidation, dissolution or winding up of the Corporation.

(f) Maturity. The Series A Preferred Stock shall be perpetual, unless converted in accordance with this Certificate of Incorporation or redeemed either at the option of the Holder pursuant to Subdivision 3(m) or at the option of the Corporation pursuant to Subdivision 3(o)(ii).

 

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(g) Conversion at the Holder’s Option. Each Holder shall have the right, at such Holder’s option, at any time and from time to time, to convert all or any portion of such Holder’s Series A Preferred Stock into shares of Common Stock at the Applicable Conversion Rate, plus cash in lieu of fractional shares, plus an amount equal to any accrued and unpaid dividends on the shares of Series A Preferred Stock so converted through the date of such conversion, subject to compliance with the conversion procedures set forth in Subdivision 3(i).

(h) Mandatory Conversion at the Corporations Option.

(i) The Corporation shall have the right, at its option, at any time or from time to time to cause some or all of the Series A Preferred Stock to be converted into shares of Common Stock at the then Applicable Conversion Rate, plus cash in lieu of fractional shares, plus an amount equal to any accrued and unpaid dividends on the shares of Series A Preferred Stock so converted through the Mandatory Conversion Date, if, for 20 Trading Days during any period of 30 consecutive Trading Days (including the last Trading Day of such period), ending on the Trading Day preceding the date the Corporation delivers a Notice of Mandatory Conversion, the Closing Price of the Common Stock exceeds 136.94% of the then Applicable Conversion Price.

(ii) If the Corporation elects to cause fewer than all of the shares of Series A Preferred Stock to be converted pursuant to this Subdivision 3(h), the Corporation shall select the Series A Preferred Stock to be converted on a pro rata basis or by another method the Board of Directors, in its sole discretion, considers fair to the Holders. If the Corporation selects a portion of a Holder’s Series A Preferred Stock for partial mandatory conversion and such Holder converts a portion of its shares of Series A Preferred Stock, the converted portion will be deemed to be from the portion selected for mandatory conversion under this Subdivision 3(h).

(iii) If the Corporation elects to exercise the mandatory conversion right pursuant to this Subdivision 3(h), the Corporation shall provide notice of such conversion to each Holder (such notice, a “Notice of Mandatory Conversion”). The conversion date shall be a date selected by the Corporation (the “Mandatory Conversion Date”) and shall be no more than 7 days after the date on which the Corporation provides such Notice of Mandatory Conversion. In addition to any information required by applicable law or regulation, the Notice of Mandatory Conversion shall state, as appropriate:

(A) the Mandatory Conversion Date;

(B) the number of shares of Common Stock to be issued upon conversion of each share of Series A Preferred Stock; and

(C) the number of shares of Series A Preferred Stock to be converted.

 

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(i) Conversion Procedures.

(i) As provided in Subdivision 3(d)(v), dividends on any share of Series A Preferred Stock converted to Common Stock shall cease to accumulate on the Mandatory Conversion Date or any applicable Conversion Date, as applicable, and such shares of Series A Preferred Stock shall cease to be outstanding upon conversion.

(ii) Prior to the Close of Business on the Mandatory Conversion Date or any applicable Conversion Date, shares of Common Stock (and/or other securities, if applicable) issuable upon conversion of any shares of Series A Preferred Stock shall not be deemed outstanding for any purpose, and the Holder(s) shall have no rights with respect to the Common Stock (and/or other securities, if applicable) issuable upon conversion (including voting rights, rights to respond to tender offers for the Common Stock (and/or other securities, if applicable) issuable upon conversion and rights to receive any dividends or other distributions on the Common Stock (and/or other securities, if applicable) issuable upon conversion) by virtue of holding shares of Series A Preferred Stock.

(iii) The Person(s) entitled to receive the Common Stock (and/or cash, securities or other property, if applicable) issuable upon conversion of Series A Preferred Stock shall be treated for all purposes as the record holder(s) of such shares of Common Stock (and/or other securities, if applicable) as of the Close of Business on the Mandatory Conversion Date or any applicable Conversion Date. In the event that a Holder shall not by written notice designate the name in which shares of Common Stock (and/or cash, securities or other property, if applicable) and payments of cash in lieu of fractional shares, if any, and accrued and unpaid dividends, if any, to be issued or paid upon conversion of shares of Series A Preferred Stock should be registered or paid or the manner in which such shares should be delivered, the Corporation shall be entitled to register and deliver such shares, and make such payments, in the name of the Holder and in the manner shown on the records of the Corporation.

(iv) Shares of Series A Preferred Stock duly converted in accordance with this Certificate of Incorporation, or otherwise reacquired by the Corporation, will resume the status of authorized and unissued Preferred Stock, undesignated as to series and available for future issuance. The Corporation may from time-to-time take such appropriate action as may be necessary to reduce the authorized number of shares of Series A Preferred Stock; provided that no decrease shall reduce the authorized number of Series A Preferred Stock to a number less than the number of shares then outstanding.

(v) Conversion into shares of Common Stock will occur on the Mandatory Conversion Date or any applicable Conversion Date as follows:

(A) On the Mandatory Conversion Date, certificates representing shares of Common Stock shall be issued and delivered to the Holder(s) or their designee upon presentation and surrender of the certificate evidencing the Series A Preferred Stock to the Corporation and, if required, the furnishing of appropriate endorsements and transfer documents and the payment of all transfer and similar taxes.

 

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(B) On the date of any conversion at the option of the Holder(s) pursuant to Subdivision 3(g), a Holder must do each of the following in order to convert:

 

  (1) surrender the shares of Series A Preferred Stock to the Corporation;

 

  (2) if required, furnish appropriate endorsements and transfer documents; and

 

  (3) if required, pay all transfer or similar taxes.

The date on which a Holder complies with the procedures in this Subdivision 3(i)(v) is the “Conversion Date”.

(vi) Fractional Shares.

(A) No fractional shares of Common Stock will be issued as a result of any conversion of shares of Series A Preferred Stock.

(B) In lieu of any fractional share of Common Stock otherwise issuable in respect of any conversion pursuant to Subdivision 3(g) or Subdivision 3(h), the Corporation shall pay an amount in cash (computed to the nearest cent) equal to the same fraction of the Closing Price of the Common Stock determined as of the second Trading Day immediately preceding the Conversion Date.

(C) If more than one share of the Series A Preferred Stock is surrendered for conversion at one time by or for the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Series A Preferred Stock so surrendered.

(j) Anti-Dilution Adjustments.

(i) The Conversion Rate shall be adjusted from time to time by the Corporation in accordance with this Subdivision 3(j).

(ii) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, pay a dividend or make a distribution on its Common Stock in shares of its Common Stock to all or substantially all holders of its Common Stock, then the Conversion Rate shall be adjusted based on the following formula:

 

CR1    =   CR0   ×  

OS1

  
         OS0   

 

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where,    
CR0   =   the Conversion Rate in effect at the Close of Business on the Record Date for such dividend or distribution;
CR1   =   the Conversion Rate in effect immediately after the Record Date for such dividend or distribution;
OS0   =   the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such dividend or distribution; and
OS1   =   the number of shares of Common Stock that would be outstanding immediately after, and solely as a result of, such dividend or distribution.

Any adjustment made pursuant to this Subdivision 3(j)(ii) shall become effective immediately after the Record Date for such dividend or distribution. If any dividend or distribution that is the subject of this Subdivision 3(j)(ii) is declared but not so paid or made, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay or make such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. For the avoidance of doubt, for purposes of this Subdivision 3(j)(ii), the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such dividend or distribution shall not include shares of Common Stock held in treasury, if any.

(iii) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, (x) subdivide the then Common Stock Outstanding into a greater number of shares of Common Stock or (y) combine the then Common Stock Outstanding into a smaller number of shares of Common Stock, then the Conversion Rate shall be adjusted based on the following formula:

 

CR1   =   CR0   ×  

OS1

  
        OS0   

 

where,    
CR0   =   the Conversion Rate in effect at the Close of Business on the effective date of such subdivision or combination;
CR1   =   the Conversion Rate in effect immediately after the effective date of such subdivision or combination;
OS0   =   the number of shares of Common Stock Outstanding at the Close of Business on the effective date of such subdivision or combination; and
OS1   =   the number of shares of Common Stock that would be outstanding immediately after, and solely as a result of, such subdivision or combination.

Any adjustment made pursuant to this Subdivision 3(j)(iii) shall become effective immediately after the effective date of such subdivision or combination.

 

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(iv) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, distribute to holders of all or substantially all of the Common Stock any rights or warrants (other than a distribution of rights issued pursuant to a stockholder’s rights plan, to the extent such rights are attached to shares of Common Stock (in which event the provisions of Subdivision 3(j)(xv) shall apply), a dividend reinvestment plan or an issuance in connection with a transaction in which Subdivision 3(k) applies) entitling them to subscribe for or purchase, for a period of not more than 60 calendar days from the issuance date of such distribution, shares of Common Stock at a price per share less than the Current Market Price of the Common Stock, the Conversion Rate shall be adjusted based on the following formula:

 

CR   =    CR0    ×  

OS0 + X

  
          OS0 + Y   

 

where,    
CR0   =   the Conversion Rate in effect at the Close of Business on the Record Date for such distribution;
CR’   =   the Conversion Rate in effect immediately after the Record Date for such distribution;
OS0   =   the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such distribution;
X   =   the total number of shares of Common Stock issuable pursuant to such rights or warrants; and
Y   =   the number of shares of Common Stock equal to (x) the aggregate price payable to exercise such rights or warrants divided by (y) the Current Market Price of the Common Stock.

Any adjustment made pursuant to this Subdivision 3(j)(iv) shall become effective immediately after the Record Date for such distribution. If such rights or warrants described in this Subdivision 3(j)(iv) are not so distributed, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to distribute such rights or warrants, to the Conversion Rate that would then be in effect if such distribution had not been declared. To the extent that such rights or warrants are not exercised prior to their expiration or shares of Common Stock are otherwise not delivered pursuant to such rights or warrants upon the exercise of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate which would then be in effect had the adjustments made upon the distribution of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock actually delivered. In determining the aggregate price payable to exercise such rights or warrants, there shall be taken into account any consideration received by the Corporation upon exercise of such rights and warrants and the value of such consideration (if other than cash, to be determined in good faith by the Board of Directors). For the avoidance of doubt, for purposes of this Subdivision 3(j)(iv), the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such distribution shall not include shares of Common Stock held in treasury, if any.

 

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(v) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, by dividend or otherwise, distribute to all or substantially all holders of the Common Stock shares of any class of capital stock of the Corporation, evidences of its indebtedness, assets, property or rights or warrants to acquire the Corporation’s capital stock or other securities, but excluding:

(A) any dividends or distributions referred to in Subdivision 3(j)(ii);

(B) any rights or warrants referred to in Subdivision 3(j)(iv);

(C) any dividends or distributions referred to in Subdivision 3(j)(vi);

(D) any dividends and distributions in connection with a transaction to which Subdivision 3(k) shall apply; and

(E) any Spin-Offs to which the provision set forth below in this Subdivision 3(j)(v) shall apply,

(any such shares of capital stock, indebtedness, assets, property or rights or warrants to acquire Common Stock or other securities, hereinafter in this Subdivision 3(j)(v) called the “Distributed Property”), then, in each such case, the Conversion Rate shall be adjusted based on the following formula:

 

CR   =   CR0   ×   

SP0

  
         SP0 – FMV   

 

where,     
CR0   =    the Conversion Rate in effect at the Close of Business on the Record Date for such distribution;
CR’   =    the Conversion Rate in effect immediately after the Record Date for such distribution;
SP0   =    the Current Market Price of the Common Stock; and
FMV   =    the Fair Market Value on the Record Date for such distribution of the Distributed Property, expressed as amount per share of Common Stock.

If the transaction that gives rise to an adjustment pursuant to this Subdivision 3(j)(v) is one pursuant to which the payment of a dividend or other distribution on the Common Stock consists of shares of capital stock of, or similar equity interests in, a Subsidiary or other business unit of the Corporation (a “Spin-Off”) that are, or when issued will be, traded or listed on the New York Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market or any other U.S. national securities exchange or association, the Conversion Rate shall be adjusted based on the following formula:

 

CR     =        CR0      ×       

(FMV + MP0)

  
        MP0   

 

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where,    
CR0   =   the Conversion Rate in effect at the Close of Business on the Record Date for such distribution;
CR’   =   the Conversion Rate in effect immediately after the Record Date for such distribution;
FMV   =   the average of the Closing Prices of the capital stock or similar equity interest distributed to holders of Common Stock applicable to one share of Common Stock over the 10 consecutive Trading Day period beginning on, and including, the effective date of the Spin-Off (the “Spin-Off Valuation Period”); and
MP0   =   the average of the Closing Prices of the Common Stock over the Spin-Off Valuation Period.

Any adjustment made pursuant to this Subdivision 3(j)(v) shall become effective immediately after the Record Date for such distribution. If any dividend or distribution of the type described in this Subdivision 3(j)(v) is declared but not so paid or made, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. If an adjustment to the Conversion Rate is required under this Subdivision 3(j)(v), delivery of any additional shares of Common Stock that may be deliverable upon conversion as a result of an adjustment required under this Subdivision 3(j)(v) shall be delayed to the extent necessary in order to complete the calculations provided for in this Subdivision 3(j)(v).

(vi) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, by dividend or otherwise make a distribution to all or substantially all holders of its outstanding shares of Common Stock consisting exclusively of cash, but excluding:

(A) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Corporation (whether voluntary or involuntary), or upon a transaction to which Subdivision 3(k) applies, or

(B) regular cash dividends to the extent that such dividends do not exceed $0.25 per share in any Fiscal Quarter (the “Dividend Threshold Amount”),

then the Conversion Rate shall be adjusted based on the following formula:

 

CR1   =   CR0   ×  

SP0

  
        SP0 – DIV   

 

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where,    
CR0   =   the Conversion Rate in effect at the Close of Business on the Record Date for such dividend or distribution;
CR1   =   the Conversion Rate in effect immediately after the Record Date for such dividend or distribution;
SP0   =   the Current Market Price of the Common Stock; and
DIV   =   the amount in cash per share of Common Stock of the dividend or distribution, as determined pursuant to the following sentences. If any adjustment is required to be made as set forth in this Subdivision 3(j)(vi) as a result of a distribution (1) that is a regularly scheduled quarterly dividend, such adjustment would be based on the amount by which such dividend exceeds the Dividend Threshold Amount or (2) that is not a regularly scheduled quarterly dividend, such adjustment would be based on the full amount of such distribution. The Dividend Threshold Amount is subject to adjustment on an inversely proportional basis whenever the Conversion Rate is adjusted; provided that no adjustment shall be made to the Dividend Threshold Amount for any adjustment made to the Conversion Rate as described under this Subdivision 3(j)(vi).

Any adjustment made pursuant to this Subdivision 3(j)(vi) shall become effective immediately after the Record Date for such dividend or distribution. If any dividend or distribution of the type described in this Subdivision 3(j)(vi) is not so paid or made, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared.

(vii) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, make a payment in respect of a tender offer or exchange offer for all or any portion of the Common Stock subject to the tender offer rules, to the extent that the cash and value of any other consideration included in the payment per share of Common Stock exceeds the Closing Price of the Common Stock on the trading day immediately succeeding the last date on which tenders or exchanges may be made pursuant to such tender offer or exchange offer (the “Expiration Date”), then the Conversion Rate shall be adjusted based on the following formula:

 

CR1   =   CR0   ×  

FMV + (SP1 × OS1)

  
        SP1 × OS0   

 

where,    
CR0   =   the Conversion Rate in effect at the Close of Business on the Expiration Date;
CR1   =   the Conversion Rate in effect immediately after the Expiration Date;
FMV   =   the Fair Market Value, on the Expiration Date, of the aggregate value of all cash and any other consideration paid or payable for shares of Common Stock validly tendered or exchanged and not withdrawn as of the Expiration Date;
OS1   =   the number of shares of Common Stock outstanding immediately after the last time tenders or exchanges may be made pursuant to such tender offer or exchange offer (the “Expiration Time”);
OS0   =   the number of shares of Common Stock outstanding immediately prior to the Expiration Time; and
SP1   =   the average of the Closing Price of Common Stock during the ten consecutive Trading Day period commencing on the Trading Day immediately after the Expiration Date.

 

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Any adjustment made pursuant to this Subdivision 3(j)(vii) shall become effective immediately prior to 9:00 a.m., New York City time, on the Trading Day immediately following the Expiration Date. If the Corporation, or one of its subsidiaries, is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Corporation or such subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Rate shall be readjusted to be the Conversion Rate that would then be in effect if such tender offer or exchange offer had not been made. Except as set forth in the preceding sentence, if the application of this Subdivision 3(j)(vii) to any tender offer or exchange offer would result in a decrease in the Conversion Rate, no adjustment shall be made for such tender offer or exchange offer under this Subdivision 3(j)(vii). If an adjustment to the Conversion Rate is required under this Subdivision 3(j)(vii), delivery of any additional shares of Common Stock upon conversion of the Series A Preferred Stock shall be delayed to the extent necessary in order to complete the calculations provided for in this Subdivision 3(j)(vii).

(viii) In cases where the Fair Market Value of shares of capital stock, evidences of indebtedness, assets (including cash), or securities or certain rights, warrants or options to purchase securities of the Corporation, or the amount of the cash dividend or distribution applicable to one share of Common Stock, distributed to all or substantially all holders of the Common Stock:

(A) equals or exceeds the Current Market Price of the Common Stock; or

(B) the Current Market Price of the Common Stock exceeds the Fair Market Value of such assets, debt securities or rights, warrants or options or the amount of cash so distributed by less than $1.00,

rather than being entitled to an adjustment in the Conversion Rate, the Holder(s) will be entitled to receive upon conversion, in addition to shares of Common Stock, the kind and amount of shares of capital stock, evidences of indebtedness, assets, or securities or rights, warrants or options comprising the distribution, if any, that such Holder(s) would have received if such Holder(s) had held a number of shares of Common Stock equal to the number of shares of Series A Preferred Stock held multiplied by the Conversion Rate in effect immediately prior to the record date for determining the holders of Common Stock entitled to receive the distribution.

(ix) All calculations under this Subdivision 3(j) shall be made to the nearest 1/100,000 of a share of Common Stock per share of Series A Preferred Stock. No adjustment in the Conversion Rate is required if the amount of such adjustment would be less than 1%; provided, however, that any such adjustment not required to be made pursuant to this Subdivision 3(j)(ix) will be carried forward and taken into account in any subsequent adjustment.

 

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(x) No adjustment to the Conversion Rate shall be made if the Holder(s) may participate in the transaction that would otherwise give rise to an adjustment, as a result of holding the Series A Preferred Stock, without having to convert the Series A Preferred Stock, as if they held the full number of shares of Common Stock into which a share of the Series A Preferred Stock may then be converted.

(xi) The Corporation may, but is not required to, make such increases in the Conversion Rate, in addition to those required by Subdivision 3(j)(ii) through (vii), as the Board of Directors deems advisable to avoid or diminish any income tax to holders of Common Stock resulting from any dividend or distribution of Common Stock (or rights to acquire Common Stock) or from any event treated as such for income tax purposes.

(xii) In addition to the foregoing, to the extent permitted by applicable law and subject to the applicable rules of the New York Stock Exchange, the Corporation from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least 20 Business Days, the increase is irrevocable during the period and the Board of Directors shall have made a determination that such increase would be in the best interests of the Corporation, which determination shall be conclusive. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Corporation shall mail to Holder(s) a notice of the increase, which notice will be given at least 15 calendar days prior to the effectiveness of any such increase, and such notice shall state the increased Conversion Rate and the period during which it will be in effect.

(xiii) If during a period applicable for calculating the Closing Price of Common Stock or any other security, an event occurs that requires an adjustment to the Conversion Rate, the Closing Price of such security shall be calculated for such period in a manner reasonably determined by the Corporation to appropriately reflect the impact of such event on the price of such security during such period. Whenever any provision of this Subdivision 3 requires a calculation of an average of Closing Prices of Common Stock or any other security over multiple days, appropriate adjustments shall be made to account for any adjustment to the Conversion Rate that becomes effective, or any event requiring an adjustment to the Conversion Rate where the Record Date of the event occurs, at any time during the period during which the average is to be calculated.

(xiv) Whenever the Conversion Rate is to be adjusted in accordance with Subdivision 3(j), the Corporation shall compute the Conversion Rate in accordance with Subdivision 3(j), taking into account Subdivision 3(j)(ix), and provide, or cause to be provided, a written notice to the Holder(s) of the occurrence of such event and setting forth the adjusted Conversion Rate.

(xv) Rights Plans. If the Corporation has a rights plan in effect with respect to the Common Stock on the Mandatory Conversion Date or any Conversion Date, upon conversion of any shares of the Series A Preferred Stock, the Holder of such shares will

 

20


receive, in addition to the shares of Common Stock, the rights under the rights plan relating to such Common Stock, unless, prior to the Mandatory Conversion Date or such Conversion Date, the rights have (x) become exercisable or (y) separated from the shares of Common Stock in accordance with the provisions of such rights plan (the first of events to occur being the “Trigger Event”), in either of which cases the Conversion Rate will be adjusted, effective automatically at the time of such Trigger Event, as if the Corporation had made a distribution of such rights to all holders of the Common Stock as described in Subdivision 3(j)(iv) (without giving effect to the 60 day limit on the exercisability of rights and warrants ordinarily subject to such Subdivision 3(j)(iv)), subject to appropriate readjustment in the event of the expiration, termination or redemption of such rights prior to the exercise, deemed exercise or exchange thereof. Notwithstanding the foregoing, to the extent any such stockholder rights are exchanged by the Corporation for shares of Common Stock, the Conversion Rate shall be appropriately readjusted as if such stockholder rights had not been issued, but the Corporation had instead issued the shares of Common Stock issued upon such exchange as a dividend or distribution of shares of Common Stock subject to Subdivision 3(j)(ii).

(k) Reorganization Events.

(i) In the event that there occurs:

(A) any consolidation, merger or other business combination of the Corporation with or into another Person;

(B) any sale, transfer, lease or conveyance to another Person of all or substantially all of the property and assets of the Corporation;

(C) any reclassification, recapitalization or reorganization of the Corporation; or

(D) any statutory exchange of the outstanding shares of Common Stock for securities of another Person (other than in connection with a consolidation, merger or other business combination);

and in each case, the holders of the Common Stock receive stock, other securities or other property or assets (including cash or any combination thereof) with respect to or in exchange for the Common Stock (any such event or transaction, a “Reorganization Event”) each share of Series A Preferred Stock outstanding immediately prior to such Reorganization Event shall, without notice to or consent of the Holder(s) and subject to Subdivision 3(k)(v), become convertible (but, for the avoidance of doubt, shall not be automatically converted in connection with such Reorganization Event) into the kind of securities, cash and other property received in such Reorganization Event by the holders of the Common Stock (other than the counterparty to the Reorganization Event or an Affiliate of such counterparty) (such securities, cash and other property, the “Exchange Property”).

 

21


(ii) In the event that holders of the shares of Common Stock have the opportunity to elect the form of consideration to be received in such transaction, the consideration that the Holder(s) are entitled to receive upon conversion shall be deemed to be the types and amounts of consideration received by a majority of the holders of the shares of Common Stock that did make an affirmative election.

(iii) The above provisions of this Subdivision 3(k) shall similarly apply to successive Reorganization Events and the provisions of Subdivision 3(j) shall apply to any shares of capital stock received by the holders of Common Stock in any such Reorganization Event.

(iv) The Corporation (or any successor) shall, within 20 days of the consummation of any Reorganization Event, provide written notice to the Holder(s) of such consummation of such event and of the kind and amount of the cash, securities or other property that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Subdivision 3(k).

(v) The Corporation shall not enter into any agreement for a transaction constituting a Reorganization Event unless:

(A) such agreement provides for, or does not interfere with or prevent (as applicable), conversion of the Series A Preferred Stock into the Exchange Property in a manner that is consistent with and gives effect to this Subdivision 3(k); and

(B) to the extent that the Corporation is not the surviving corporation in such Reorganization Event or will be dissolved in connection with such Reorganization Event, proper provision shall be made in the agreements governing such Reorganization Event for the conversion of the Series A Preferred Stock into stock of the Person surviving such Reorganization Event or, in the case of a Reorganization Event described in Subdivision 3(k)(i)(B), an exchange of Series A Preferred Stock for the stock of the Person to whom the Corporation’s assets are conveyed or transferred, and such stock of the Person surviving such Reorganization Event or to whom the Corporation’s assets are conveyed or transferred shall have voting powers, preferences and relative, participating, optional or other special rights as nearly equal as possible to those provided in this Certificate of Incorporation.

(l) Holder’s Right to Convert Upon a Make-Whole Acquisition.

(i) In addition to any other rights of conversion set forth herein, in the event a Make-Whole Acquisition occurs, each Holder shall have the right, at such Holder’s option, to convert all or any portion of such Holder’s shares of Series A Preferred Stock into shares of Common Stock during the period (the “Make-Whole Acquisition Conversion Period”) beginning on the effective date of the Make-Whole Acquisition (the “Make-Whole Acquisition Effective Date”) and ending on the date that is 30 calendar days after the Make-Whole Acquisition Effective Date at the Applicable Conversion

 

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Rate, plus a number of additional shares of Common Stock (the “Additional Shares”) determined pursuant to Subdivision 3(l)(ii), plus cash in lieu of fractional shares, plus an amount equal to any accrued and unpaid dividends on the shares of Series A Preferred Stock so converted through the date of such conversion, subject to compliance with the conversion procedures set forth in Subdivision 3(i).

 

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(ii) The number of Additional Shares per share of Series A Preferred Stock shall be determined by reference to the table below for the applicable Make-Whole Acquisition Effective Date and the applicable Make-Whole Acquisition Stock Price:

 

     Make-Whole Acquisition Stock Price  
Make-Whole Acquisition Effective Date    $      $      $      $      $  

February 1, 2015 and thereafter

              

The exact Make-Whole Acquisition Stock Price and Make-Whole Acquisition Effective Date may not be set forth in the table, in which case:

(A) if the Make-Whole Acquisition Stock Price is between two Make-Whole Acquisition Stock Price amounts in the table or the Make-Whole Acquisition Effective Date is between two Make-Whole Acquisition Effective Dates in the table, the number of Additional Shares will be determined by straight-line interpolation between the number of Additional Shares set forth for the higher and lower Make-Whole Acquisition Stock Price amounts and the two Make-Whole Acquisition Effective Dates, as applicable, based on a 365-day year;

(B) if the Make-Whole Acquisition Stock Price is in excess of $         per share (subject to adjustment pursuant to Subdivision 3(j)), no Additional Shares will be issued upon conversion of the Series A Preferred Stock;

(C) if the Make-Whole Acquisition Stock Price is less than $         per share (subject to adjustment pursuant to Subdivision 3(j)), no Additional Shares will be issued upon conversion of the Series A Preferred Stock; and

(D) if the Make-Whole Acquisition Effective Date is after the fifth anniversary of the Issue Date, then the number of Additional Shares will be determined by reference to the last row in the table.

The Make-Whole Acquisition Stock Prices set forth in the table above shall be adjusted pursuant to Subdivision 3(j) as of any date the Conversion Rate is adjusted. The adjusted Make-Whole Acquisition Stock Prices will equal the Make-Whole Acquisition Stock Prices applicable immediately prior to such adjustment multiplied by a fraction, the numerator of which is the Conversion Rate immediately prior to the adjustment and the denominator of which is the Conversion Rate as so adjusted. Each of the number of Additional Shares in the table shall also be subject to adjustment in the same manner as the Conversion Rate pursuant to Subdivision 3(j).

(iii) On or before the 20th calendar day prior to the date the Corporation anticipates the Make-Whole Acquisition being consummated or within two Business Days of becoming aware of a Make-Whole Acquisition of the type set forth in clause (i) of the definition of Make-Whole Acquisition, a written notice shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holder(s) as they appear in the records of the Corporation. Such notice shall contain:

(A) the date as of which the Make-Whole Acquisition is anticipated to be effective or the Make-Whole Acquisition Effective Date, as applicable; and

(B) the date by which a Make-Whole Acquisition conversion pursuant to this Subdivision 3(l) must be exercised.

 

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(iv) On the Make-Whole Acquisition Effective Date or as soon as practicable thereafter, another written notice shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holder(s) as they appear in the records of the Corporation. Such notice shall contain:

(A) the date that shall be 30 calendar days after the Make-Whole Acquisition Effective Date;

(B) the number of Additional Shares;

(C) the amount of cash, securities and other consideration receivable by a Holder upon conversion; and

(D) the instructions a Holder must follow to exercise its Make-Whole Acquisition conversion right pursuant to this Subdivision 3(l).

(v) To exercise its Make-Whole Acquisition conversion right pursuant to this Subdivision 3(l), a Holder must, no later than 5:00 p.m., New York City time, on or before the date specified in the notice sent pursuant to Subdivision 3(l)(iv), comply with the procedures set forth in Subdivision 3(i), and indicate that it is exercising its Make-Whole Acquisition conversion right pursuant to this Subdivision 3(l).

(vi) If a Holder does not elect to exercise its Make-Whole Acquisition conversion right pursuant to this Subdivision 3(l), the shares of Series A Preferred Stock or successor security held by it shall remain outstanding (unless otherwise converted as provided herein), but the Holder will not be eligible to receive Additional Shares.

(vii) Upon a Make-Whole Acquisition conversion, the Conversion Agent shall, except as otherwise provided in the instructions provided by the Holder thereof in the written notice provided to the Corporation or its successor as set forth in Subdivision 3(l)(v), deliver to the Holder such cash, securities or other property as are issuable with respect to the shares of Series A Preferred Stock converted.

(viii) In the event that a Make-Whole Acquisition conversion is effected with respect to shares of Series A Preferred Stock or a successor security representing less than all the shares of Series A Preferred Stock or a successor security held by a Holder, upon such Make-Whole Acquisition conversion, the Corporation or its successor shall execute and the Registrar shall, unless otherwise instructed in writing, countersign and deliver to the Holder thereof, at the expense of the Corporation or its successors, a certificate evidencing the shares of Series A Preferred Stock or such successor security held by the Holder as to which a Make-Whole Acquisition conversion was not effected.

 

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(m) Holder’s Redemption Right Upon a Fundamental Change.

(i) Upon the occurrence of a Fundamental Change, each Holder shall have the option, during the period commencing on the date the applicable Fundamental Change Notice (as defined below) is mailed to Holders of the Series A Preferred Stock and ending at the Close of Business on the 45th Business Day thereafter (the “Fundamental Change Redemption Date”), to require the Corporation to redeem all, or any portion, of such Holder’s shares of Series A Preferred Stock at the redemption price per share equal to the Liquidation Preference per share of Series A Preferred Stock plus an amount equal to any accrued and unpaid dividends on the shares of Series A Preferred Stock so redeemed to, but not including, the Fundamental Change Redemption Date (the “Fundamental Change Redemption Price”).

(ii) Within 30 days following a Fundamental Change, the Corporation shall mail to each Holder of shares of the Series A Preferred Stock a notice (the “Fundamental Change Notice”) setting forth the details of the Fundamental Change and the special redemption rights occasioned thereby. In addition to any information required by law or by the applicable rules of any exchange upon which the Series A Preferred Stock may be listed or admitted to trading, such notice shall state: (a) the Fundamental Change Redemption Date; (b) the Fundamental Change Redemption Price; (c) the place or places where certificates for shares may be surrendered for payment of the Fundamental Change Redemption Price, including any procedures applicable to redemption to be accomplished through book-entry transfers; (d) the procedures that the Holder of Series A Preferred Stock must follow to exercise such Holder’s rights under this Subdivision 3(m); and (e) that dividends on the shares tendered for redemption will cease to accumulate on the Fundamental Change Redemption Date.

(iii) To exercise such Holder’s special redemption right under this Subdivision 3(m), a Holder must (a) surrender the certificate or certificates evidencing the shares of Series A Preferred Stock to be redeemed, duly endorsed in a form satisfactory to the Corporation, at the office of the Corporation and (b) notify the Corporation at such office that such Holder elects to exercise such Holder’s fundamental change redemption rights and the number of shares such Holder wishes to have redeemed. In the event that a Holder fails to notify the Corporation of the number of shares of Series A Preferred Stock which such Holder wishes to have redeemed, such Holder shall be deemed to have elected to have redeemed all shares represented by the certificate or certificates surrendered for redemption.

(iv) Exercise by a Holder of such Holder’s special redemption right following a Fundamental Change is irrevocable, except that a Holder may withdraw its election to exercise such Holder’s special redemption right at any time on or before the Fundamental Change Redemption Date by delivering a written or facsimile transmission notice to the Corporation at the address or facsimile number specified in the Fundamental Change Notice. Such notice, to be effective, must be received by the Corporation prior to the close of business on the Fundamental Change Redemption Date. All shares of Series A Preferred Stock tendered for redemption pursuant to the Holder’s fundamental change redemption rights as described herein and not withdrawn shall be redeemed at or prior to

 

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the Close of Business on the Fundamental Change Redemption Date. From and after the Fundamental Change Redemption Date, unless the Corporation defaults in payment of the Fundamental Change Redemption Price, dividends on the shares of Series A Preferred Stock tendered for redemption shall cease to accumulate, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Series A Preferred Stock, and all rights of Holders thereof as shareholders of the Corporation (except the right to receive from the Company the Fundamental Change Redemption Price) shall cease. As soon as practical after the Fundamental Change Redemption Date, the Corporation shall deliver a new certificate representing the unredeemed portion, if any, of the shares of Series A Preferred Stock represented by the certificate or certificates surrendered for redemption.

(n) Voting Rights.

(i) Unless the consent of the Holder(s) of a greater number of shares shall then be required by law and except as provided in Subdivisions 3(n)(ii), 3(n)(iii) and 3(n)(iv), the consent of the Holder(s) of at least two-thirds of the shares of Series A Preferred Stock at the time outstanding, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, at which the Series A Preferred Stock shall vote separately as a class, shall be necessary to permit, effect or validate any one or more of the following:

(A) The authorization of, or any increase in the authorized amount of, any class of stock ranking prior to the Series A Preferred Stock;

(B) The amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation, or of the By-Laws of the Corporation (whether, directly or indirectly, by merger, consolidation or otherwise) which would affect adversely any right, preference, privilege or voting power of the Series A Preferred Stock or of the Holder(s) thereof; and

(C) The voluntary liquidation, dissolution or winding up of the Corporation, or the sale, lease or conveyance (other than by mortgage) of all or substantially all of the property or business of the Corporation, or the consolidation, merger or other business combination of the Corporation with or into any other Person, except any such sale, lease or conveyance (other than by mortgage) of all or substantially all of the property or business of the Corporation or consolidation or merger or other business combination wherein none of the rights, preferences, privileges or voting powers of the Series A Preferred Stock or the Holder(s) thereof are adversely affected.

(ii) The Holder(s) shall have no voting rights with respect to any consolidation, merger or other business combination of the Corporation with or into any other Person if:

(A) to the extent the Corporation is not the surviving Person in such transaction, the Holder(s) will receive the stock of the Person surviving such transaction and such stock shall have voting powers, preferences and relative, participating, optional or other special rights as nearly equal as possible to those provided in this Certificate of Incorporation; and

(B) upon conversion of the Series A Preferred Stock or the stock of the Person surviving such transaction issued in accordance with Subdivision 3(k)(v), the Holder(s) will receive Exchange Property in accordance with Subdivision 3(k).

 

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(iii) The Holder(s) shall have no voting rights with respect to any sale, lease or conveyance (other than by mortgage) of all or substantially all of the property or business of the Corporation if:

(A) to the extent the Corporation is not the surviving Person in such transaction, the Holder(s) will receive the stock of the Person to whom all or substantially all of the property or business of the Corporation is sold, leased or conveyed and such stock shall have voting powers, preferences and relative, participating, optional or other special rights as nearly equal as possible to those provided in this Certificate of Incorporation; and

(B) upon conversion of the Series A Preferred Stock or the stock of the Person to whom all or substantially all of the property or business of the Corporation is sold, leased or conveyed issued in accordance with Subdivision 3(k)(v), the Holder(s) will receive Exchange Property in accordance with Subdivision 3(k).

(iv) The Holder(s) shall not have any voting rights if, at or prior to the effective time of the act with respect to which such vote would otherwise be required, all outstanding shares of Series A Preferred Stock shall have been converted into shares of Common Stock.

(v) Except as otherwise expressly provided in the Certificate of Incorporation and except as otherwise provided by law, voting rights upon any and all matters shall be vested exclusively in the holders of the Common Stock.

(vi) Unless and until six quarter-yearly dividends on the Series A Preferred Stock shall be in default, in whole or in part, the entire voting power, except as otherwise provided in the Certificate of Incorporation or By-Laws, shall be vested exclusively in the Common Stock in accordance with the provisions of, and except as otherwise expressly provided in, the Certificate of Incorporation. If and whenever six full quarter-yearly dividends (whether or not consecutive) payable on the Series A Preferred Stock shall be in arrears, in whole or in part, the number of Directors then constituting the Board of Directors shall be increased by two and the holders of the Series A Preferred Stock, voting separately as a class, shall be entitled to elect the two additional directors at any annual meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series A Preferred Stock called as hereinafter provided. Whenever all arrears in dividends on the Series A Preferred Stock then outstanding shall

 

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have been paid and dividends thereon for the current quarter-yearly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Series A Preferred Stock to elect such additional two Directors shall cease (but subject always to the same provisions for the vesting of such voting rights in the case of any similar future arrearages in dividends), and the terms of office of all persons elected as Directors by the holders of the Series A Preferred Stock shall forthwith terminate and the number of the Board of Directors shall be reduced accordingly. At any time after such voting power shall have been so vested in the Series A Preferred Stock, the Secretary of the Corporation may, and upon the written request of any holder of the Series A Preferred Stock (addressed to the Secretary at the principal office of the Corporation) shall, call a special meeting of the holders of the Series A Preferred Stock for the election of the two Directors to be elected by them as herein provided, such call to be made by notice similar to that provided in the By-Laws for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within twenty days after receipt of any such request, then any holder of Series A Preferred Stock may call such meeting, upon the notice above provided, and for that purpose shall have access to the stock books of the Corporation. The Directors elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in place thereof. In case any vacancy shall occur among the Directors elected by the holders of the Series A Preferred Stock, a successor shall be elected to serve until the next annual meeting of the shareholders or special meeting held in place thereof by the then remaining Director elected by the holders of the Series A Preferred Stock or the successor of such remaining Director.

In any case in which the holders of Series A Preferred Stock shall be entitled to vote pursuant to the provisions of the Certificate of Incorporation or pursuant to law, each holder of Series A Preferred Stock shall be entitled to one vote for each share thereof held.

(o) Transfer; Optional Redemption by the Corporation Upon Transfer.

(i) The Transfer of the Series A Preferred Stock by the Holder(s) thereof shall not be restricted other than pursuant to the requirements of applicable law; provided, however, that, with respect to any such Transfer of shares of Series A Preferred Stock, the shares so Transferred must have an aggregate Liquidation Preference of at least $1 million and, if applicable, any shares owned by the Holder effecting such Transfer following such Transfer must have an aggregate Liquidation Preference of at least $1 million.

(ii) Upon a Transfer of the Series A Preferred Stock pursuant to Subdivision 3(o)(i) to a Person other than a Permitted Transferee, the Corporation shall have the right, at its option, to redeem, in part or in whole, such Transferred shares of Series A Preferred Stock (the “Optional Redemption Transferred Shares”) at any time on or following the fifth anniversary of the date of such Transfer at a redemption price per share of Series A Preferred Stock equal to the then Fair Market Value of such Optional Redemption Transferred Shares and an amount equal to any accrued and unpaid dividends on such Optional Redemption Transferred Shares to, but not including, the Optional Redemption Date.

 

29


(A) If the Corporation exercises its optional redemption right to redeem the Optional Redemption Transferred Shares pursuant to Subdivision 3(o)(ii), a written notice (the “Optional Redemption Notice”) shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holder(s) of such Optional Redemption Transferred Shares, which shall contain the number of Optional Redemption Transferred Shares, the name of the nationally recognized independent investment banking firm selected by the Corporation to determine the Fair Market Value of the Optional Redemption Transferred Shares to be redeemed, the Fair Market Value of the Optional Redemption Transferred Shares (on a per share and aggregate basis) and such other information required by applicable law.

(B) The date of the redemption of the Optional Redemption Transferred Shares shall be a date selected by the Corporation that is not less than 30 calendar days and not more than 60 calendar days after the date on which the Corporation provides Optional Redemption Notice (the “Optional Redemption Date”).

(C) If, on or before the Optional Redemption Date specified in the Optional Redemption Notice, the Corporation has set aside all funds necessary for such redemption, separate and apart from its other funds, in trust for the pro rata benefit of the Holder(s) of the Optional Redemption Transferred Shares so called for redemption, so as to be and continue to be available therefor, then, notwithstanding that any certificate for the Optional Redemption Transferred Shares so called for redemption shall not have been surrendered for cancellation, all the Optional Redemption Transferred Shares so called for redemption shall no longer be deemed outstanding on and after such Optional Redemption Date, and the right to receive dividends thereon and all other rights with respect to such shares shall forthwith on such Optional Redemption Date cease and terminate, except only the right of the Holder(s) thereof to receive the amount payable on redemption thereof without interest.

(iii) A Holder effecting a Transfer pursuant to this Subdivision 3(o) must notify the Registrar of the Transfer on the date of the Transfer. Any purported Transfer of shares of Series A Preferred Stock not in accordance with this Subdivision 3(o) shall be void and have no effect; provided, however, that the failure to notify the Registrar of any Transfer shall not cause such Transfer to be void and of no effect.

(p) Reservation of Common Stock.

(i) The Corporation has reserved and shall continue at all times to reserve and keep available out of its authorized and unissued Common Stock or shares acquired by the Corporation, solely for issuance upon the conversion of shares of Series A Preferred Stock as provided in this Subdivision 3, free from any preemptive or other similar rights,

 

30


such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series A Preferred Stock then outstanding. The Corporation shall take all such corporate and other actions as from time to time may be necessary to ensure that all shares of Common Stock issuable upon conversion of shares of Series A Preferred Stock at the Conversion Rate in effect from time to time will, upon issue, be duly and validly authorized and issued, fully paid and nonassessable and free of any preemptive or similar rights. For purposes of this Subdivision 3(p), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series A Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single Holder.

(ii) Notwithstanding the foregoing, the Corporation shall be entitled to deliver upon conversion of shares of Series A Preferred Stock, as herein provided, shares of Common Stock acquired by the Corporation (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as (x) any such acquired shares are free and clear of all liens, charges, security interests or encumbrances (other than liens, charges, security interests and other encumbrances created by the Holders) and (y) all such acquired shares have all the same attributes as any other share of Common Stock then outstanding, including without limitation any rights that may then be attached to all or substantially all of the Common Stock then outstanding pursuant to any stockholders’ rights plan or similar arrangement.

(iii) All shares of Common Stock delivered upon conversion of the Series A Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests and other encumbrances (other than liens, charges, security interests and other encumbrances created by the Holder(s)).

(iv) Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series A Preferred Stock, the Corporation shall use its reasonable best efforts to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority.

(v) The Corporation hereby covenants and agrees that, if at any time the Common Stock shall be listed on the New York Stock Exchange or any other national securities exchange or automated quotation system, the Corporation will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all the Common Stock issuable upon conversion of the Series A Preferred Stock.

(q) Replacement Certificates. The Corporation shall replace any mutilated Series A Preferred Stock certificate at the Holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the Holder’s expense upon delivery to the Corporation of satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may reasonably be required by the Corporation.

 

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(r) Miscellaneous.

(i) All notices referred to herein shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three Business Days after the mailing thereof if sent by registered or certified mail with postage prepaid, addressed: (x) if to the Corporation, to its office at                     , or (y) if to any Holder, to such Holder at the address of such Holder as listed in the stock record books of the Corporation or (z) to such other address as the Corporation or any such Holder, as the case may be, shall have designated by notice similarly given.

(ii) No Holder of Series A Preferred Stock shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever, or of any obligations or other securities convertible into, or exchangeable for, any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.

The shares of Series A Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Certificate of Incorporation or as provided by applicable law.

FIFTH: The Secretary of State of the State of New York is hereby designated as the agent of the Corporation upon whom process in any action or proceeding against it may be served. The post office address to which the Secretary of State shall mail a copy of any process against it served on him is:

SIXTH: Its duration is to be perpetual.

SEVENTH: The Board of Directors shall consist of one or more directors, with the exact number to be determined in the manner prescribed by the By-Laws.

1. Unless the election is contested, each director shall be elected by the affirmative vote of a majority of the votes cast for or against the director at any meeting for the election of directors at which a quorum is present. In a contested election, directors shall be elected by a plurality of the votes cast at a meeting of shareholders by the holders of shares of the Corporation entitled to vote in the election. An election shall be considered contested if as of the record date there are more nominees for election than positions on the Board of Directors to be filled by election at the meeting.

2. Until such time that a single person or entity or “group” of persons or entities who have filed as a “group” as defined under Section 13(d) of the Securities Exchange Act of 1934,

 

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as amended, owns at least a majority of the outstanding stock of the Corporation, no director may be removed from the Board of Directors without cause. Following such time, (a) shareholders of the Corporation shall have the power to remove (without cause) and replace directors at a special meeting called in accordance with the terms of the By-Laws of the Corporation and (b) any such removal and replacement shall be authorized by a majority of the votes cast at such meeting by the holders of shares of stock of the Corporation entitled to vote thereon (an abstention shall not count as a vote cast).

3. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the Board of Directors for any reason may only be filled by a vote of a majority of the directors then in office, even if less than a quorum of the Board of Directors exists.

EIGHTH: The Corporation may purchase, acquire, hold and dispose of the stocks, bonds and other evidences of indebtedness of any corporation, domestic or foreign, and may issue in exchange therefor, its stock, bonds or other obligations.

NINTH: A person who is or was a director of the Corporation shall not be personally liable to the Corporation or its shareholders for damages for any breach of duty in such capacity, except to the extent that the Business Corporation Law of the State of New York as in effect from time to time expressly provides that this Article shall not eliminate or limit such personal liability. Nothing in this Article shall directly or indirectly increase the liability of any such person based upon acts or omissions occurring before the adoption hereof. No amendment, modification or repeal of this Article shall adversely affect any right or protection of any director that exists at the time of such change.

TENTH: The Corporation expressly elects not to be governed by Section 912 of the Business Corporation Law of the State of New York, as the same may be amended and supplemented.

ELEVENTH: Unless the Corporation consents in writing to the selection of an alternative forum, any state or federal court located in New York County in the State of New York (any such court, a “Chosen Court”) shall, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding purportedly brought on behalf of the Corporation, (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee or shareholder of the Corporation to the Corporation or the Corporation’s shareholders, (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Business Corporation Law of the State of New York or this Certificate of Incorporation or the Corporation’s By-Laws (with respect to each, as may be amended from time to time), or (iv) any action or proceeding asserting a claim otherwise governed by the internal affairs doctrine. Any person holding, purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be (a) deemed to have notice of and consented to the provisions of this Article ELEVENTH, and (b) deemed to have waived any argument relating to the inconvenience of the Chosen Court in connection with any action or proceeding described in this Article ELEVENTH. If any action or proceeding the subject matter of which is within the scope of this Article ELEVENTH is filed in a court other than a Chosen Court (a “Foreign Action”) in the name of any shareholder, such shareholder shall

 

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be deemed to have consented to (i) the personal jurisdiction of any Chosen Court in connection with any action or proceeding brought in any such court to enforce this Article ELEVENTH (an “Enforcement Action”) and (ii) having service of process made upon such shareholder in any such Enforcement Action by service upon such shareholder’s counsel in the Foreign Action as agent for such shareholder.

TWELFTH: The By-Laws of the Corporation may be amended, repealed or adopted by the Board of Directors, except the affirmative vote of the holders of a majority of the voting power of all the shares of the Corporation entitled to vote in the election of directors, voting together as a single class, shall be required to amend, alter, repeal or adopt any By-Law that is inconsistent with the first sentence of Article I, Section 2 of the By-Laws. Any By-Law adopted by the Board of Directors may be amended or repealed by shareholders entitled to vote thereon in the manner prescribed by the By-Laws.

 

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IN WITNESS WHEREOF this Restated Certificate of Incorporation has been signed this day of             , 2016.

 

 

Name:

Title:

 

EX-10.2

Exhibit 10.2

TAX MATTERS AGREEMENT

by and between

XEROX CORPORATION

and

CONDUENT INCORPORATED

 

 

As of                     , 2016

 

 


TABLE OF CONTENTS

Page

ARTICLE I

Certain Definitions and Other Matters

ARTICLE II

Allocation of Tax Liabilities and Benefits

 

SECTION 2.01.    Indemnity by Parent      6   
SECTION 2.02.    Indemnity by Spinco      6   
SECTION 2.03.    Allocation of Ordinary Taxes      6   
SECTION 2.04.    Allocation of Transaction Taxes      7   
SECTION 2.05.    Allocation of Reorganization Taxes      9   
SECTION 2.06.    Allocation of Transfer Taxes      9   
SECTION 2.07.    Refunds and Credits      10   
SECTION 2.08.    No Duplicative Payment      10   
SECTION 2.09.    Amount of Indemnity Payments      10   
SECTION 2.10.    Treatment of Indemnity Payments      10   

ARTICLE III

  

Preparation and Filing of Tax Returns, Payment of Taxes and Tax Contests

  

SECTION 3.01.    Parent Responsibility for Preparing Tax Returns      11   
SECTION 3.02.    Spinco Responsibility for Preparing Tax Returns      11   
SECTION 3.03.    Method of Preparing Tax Returns      11   
SECTION 3.04.    Information Packages      11   
SECTION 3.05.    Filing of Tax Returns and Payment of Taxes      12   
SECTION 3.06.    Adjustment Requests (Including Amended Tax Returns)      12   
SECTION 3.07.    Tax Contests      13   
SECTION 3.08.    Expenses and Applicability      14   

ARTICLE IV

  

Tax Matters Relating to the Spin-Off

  

SECTION 4.01.    Mutual Representations      14   
SECTION 4.02.    Mutual Covenants      14   
SECTION 4.03.    Termination of Tax Sharing Agreements      14   
SECTION 4.04.    Restricted Actions      14   
SECTION 4.05.    Consent To Take Certain Restricted Actions      16   
SECTION 4.06.    Procedures Regarding Opinions and Rulings      16   
SECTION 4.07.    Notification and Certification Regarding Certain Acquisition Transactions      17   

 

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SECTION 4.08.    Tax Reporting of the Spin-Off      18   
SECTION 4.09.    Actions after the Distribution on the Distribution Date      18   
SECTION 4.10.    Actions after the Distribution Date for Remainder of Calendar Year      18   
SECTION 4.11.    Protective Section 336(e) Election      19   

ARTICLE V

  

Procedural Matters

  

SECTION 5.01.    Cooperation      19   
SECTION 5.02.    Indemnification Claims and Payments      20   
SECTION 5.03.    Tax Disputes      20   

ARTICLE VI

  

Miscellaneous

  

SECTION 6.01.    Counterparts; Entire Agreement      20   
SECTION 6.02.    Governing Law; Jurisdiction      21   
SECTION 6.03.    Assignability      21   
SECTION 6.04.    Third-Party Beneficiaries      21   
SECTION 6.05.    Notices      22   
SECTION 6.06.    Severability      23   
SECTION 6.07.    Expenses      23   
SECTION 6.08.    Headings      23   
SECTION 6.09.    Survival of Covenants      23   
SECTION 6.10.    Waivers of Default      23   
SECTION 6.11.    Specific Performance      24   
SECTION 6.12.    Amendments      24   
SECTION 6.13.    Interpretation      24   
SECTION 6.14.    Late Payments      24   
SECTION 6.15.    Further Assurances      24   
SECTION 6.16.    Termination      24   
SECTION 6.17.    Confidentiality      25   
Appendix A    - Intended Tax Treatment   
Appendix B    - Foreign Reorganization   
Appendix C    - Ordinary Tax Allocation   
Appendix D    - Specially Allocated Refunds and Credits   

 

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This TAX MATTERS AGREEMENT (this “Agreement”) is entered into as of                 , 2016, by and between XEROX CORPORATION, a New York corporation (“Parent”), and CONDUENT INCORPORATED, a New York corporation and a wholly owned subsidiary of Parent (“Spinco” and, together with Parent, the “Parties”).

W I T N E S S E T H:

WHEREAS Spinco is a wholly owned subsidiary of Parent and a member of its consolidated group;

WHEREAS, pursuant to an agreement dated as of the date of this Agreement (the “Separation Agreement”), Parent and Spinco have effected or agreed to effect the Separation and the Distribution (together, the “Spin-Off”);

WHEREAS the Parties intend that each step of the Internal Transactions, the Contribution and the Distribution qualify for its Intended Tax Treatment; and

WHEREAS the Parties desire to provide for and agree upon the allocation of liability for Taxes arising prior to, as a result of, and subsequent to the Spin-Off, and to provide for and agree upon certain other matters relating to Taxes.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and intending to be legally bound, the parties hereto agree as follows:

ARTICLE I

Certain Definitions and Other Matters

For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings. Capitalized terms used but not defined in this Agreement have the meanings ascribed to them in the Separation Agreement.

10% Acquisition Transaction” has the meaning set forth in Section 4.07(b).

Active Trade or Business” means the active conduct (determined in accordance with Section 355(b) of the Code) of the trade or business described in the Tax Opinion Representations for purposes of satisfying the requirements of Section 355(b) of the Code as it applies to the Distribution with respect to Spinco.

Adjustment Request” means any formal or informal claim or request made or filed with any Tax Authority for the adjustment, refund, credit or offset of Taxes, including any amended Tax Return claiming adjustment to the Taxes as reported on that Tax Return or, if applicable, to such Taxes as previously adjusted.


Agreement” has the meaning ascribed to such term in the preamble.

CFC” means a “controlled foreign corporation” (within the meaning of Section 957(a) of the Code or any comparable state, local or foreign Law).

Code” means the U.S. Internal Revenue Code of 1986, as amended.

Contribution” means the transfer or deemed transfer of Conduent Assets by Parent to Spinco (in one or more steps) in exchange for Conduent stock (and, if applicable, securities), the assumption of the Conduent Liabilities and cash as part of the Reorganization.

Cravath” means Cravath, Swaine & Moore LLP.

Cravath Tax Opinion” means the written opinion of Cravath issued to Parent and dated as of the Distribution Date to the effect that each step of the Internal Transactions, the Contribution and the Distribution should qualify for its Intended Tax Treatment for U.S. Federal income Tax purposes.

Final Determination” means (i) any final determination of liability in respect of a Tax that, under applicable Law, is not subject to further appeal, review or modification through proceedings or otherwise (including the expiration of a statute of limitations or period for the filing of claims for refunds, amended Tax Returns or appeals from adverse determinations), including a “determination” as defined in Section 1313(a) of the Code or execution of an IRS Form 870AD or other similar form, or (ii) the payment of Tax by a Party (or its Subsidiary) that is responsible for payment of that Tax under applicable Law, or the execution of an IRS Form 870 or other similar form, with respect to any item disallowed or adjusted by a Tax Authority, as long as the responsible Party determines that no action should be taken to recoup that payment or file a claim for refund with respect to that item, and the other Party agrees.

Foreign Reorganization” means the steps of the Spin-Off set forth on Appendix B.

Indemnifying Party” means a Party from which indemnification is or may be sought under this Agreement.

Indemnitee” means any Person entitled to indemnification pursuant to this Agreement.

Indemnity Payment” means an indemnity payment contemplated by any Transaction Agreement.

Intended Tax Treatment” means, with respect to each step of the Internal Transactions, the Contribution and the Distribution, the Tax consequences set forth for such step on Appendix A.

IRS” means the U.S. Internal Revenue Service.

 

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Non-US Spinco Member” means (i) any member of the Spinco Tax Group other than a member that is incorporated, organized or otherwise formed under the laws of the United States or any state thereof or the District of Columbia and (ii) any member of the Spinco Tax Group formed under the laws of the United States or any state thereof or the District of Columbia that is owned, in whole or in part, directly or indirectly, by any member of the Spinco Tax Group described in clause (i).

Ordinary Course of Business” means an action taken by a Person if that action is taken in the ordinary course of the normal day-to-day operations of that Person.

Ordinary Taxes” means Taxes other than (i) Transfer Taxes, (ii) Transaction Taxes and (iii) Reorganization Taxes.

Parent” has the meaning ascribed to such term in the preamble.

Parent Consolidated Group” means any consolidated, combined, unitary or similar group of which (i) any member of the Parent Tax Group is or was a member and (ii) any member of the Spinco Tax Group is or was a member.

Parent Tax Group” means (i) Parent, (ii) any Person that is or was a Subsidiary of Parent at any time prior to the Distribution, excluding each member of the Spinco Tax Group, and (iii) any Person that becomes a Subsidiary of Parent at any time after the Distribution.

Parties” has the meaning ascribed to such term in the preamble.

Post-Distribution Period” means any taxable period (or portion thereof) beginning after the Distribution Date.

Pre-Distribution Period” means any taxable period (or portion thereof) ending on or before the Distribution Date.

Proposed Acquisition Transaction” has the meaning ascribed to such term in Section 4.04(b).

Protective Section 336(e) Election” means the election to be made pursuant to Section 4.11 of this Agreement.

Records” has the meaning ascribed to such term in Section 5.01.

Regulations” means the Treasury Regulations promulgated under the Code.

Reorganization Tax” means, with respect to each step of the Foreign Reorganization, the aggregate Tax liability (other than liability for Transfer Taxes), as determined by Parent, of the Parent Tax Group and the Spinco Tax Group for such step.

Restricted Period” has the meaning ascribed to such term in Section 4.04.

 

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Ruling” means a private letter ruling (including any supplemental ruling) issued by the IRS in connection with the Spin-Off, whether granted prior to, on or after the date hereof.

Satisfactory Guidance” has the meaning ascribed to such term in Section 4.05(b).

Section 336(e) Tax Basis” has the meaning ascribed to such term in Section 2.04(d).

Separation Agreement” has the meaning ascribed to such term in the recitals.

Spin-Off” has the meaning ascribed to such term in the recitals.

Spinco” has the meaning ascribed to such term in the preamble.

Spinco Capital Stock” means (i) all classes or series of stock or other equity interests in Spinco and (ii) all instruments properly treated as stock in Spinco for U.S. Federal income Tax purposes.

Spinco Tax Group” means (i) Spinco, (ii) any Person that is or was a Subsidiary of Spinco as of the Distribution or at any time prior to the Distribution, (iii) any Person that was a Subsidiary of one or more Persons described in clause (ii) at any time prior to the Distribution and (iv) any Person that becomes a Subsidiary of Spinco at any time after the Distribution but excluding, in the case of clause (ii) or (iii), any Person that is a Subsidiary of Parent immediately after the Distribution.

Straddle Period” means any taxable period that includes (but does not end on) the Distribution Date.

Tax” means all forms of taxation or duties imposed by a Governmental Authority, in each case in the nature of a tax, together with any related interest, penalties or other additions to tax.

Tax Advisor” means a Tax counsel or accountant of recognized national standing in the relevant jurisdiction.

Tax Asset Value” has the meaning ascribed to such term in Section 2.04(d)(i).

Tax Authority” means any Governmental Authority charged with the determination, collection or imposition of Taxes.

Tax Benefit” means any Tax refund or other reduction of Taxes paid or currently payable as a result of a credit or offset or the Tax effect of any item of loss, deduction or credit or any other item (including increases in Tax basis).

 

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Tax Contest” means an audit, review, examination or other administrative or judicial proceeding, in each case by any Tax Authority.

Tax Dispute” has the meaning ascribed to such term in Section 5.03.

Tax Opinions/Rulings” means (i) any Ruling and (ii) any opinion of a Tax Advisor relating to the Spin-Off, including the Cravath Tax Opinion and any opinion issued to allow a party to take actions otherwise prohibited under Section 4.04(a) of this Agreement.

Tax Opinion Representations” means the representations regarding certain facts in existence at the applicable time made by Parent and Spinco that serve as a basis for the Cravath Tax Opinion.

Tax Return” means any report of Taxes due, any claims for a refund, credit or offset of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document required or permitted to be filed under applicable Tax Law, including any attachments, exhibits, or other materials submitted with any of the foregoing, and any amendments or supplements to any of the foregoing.

Tax Return Preparer” means, with respect to any Tax Return that Parent is responsible for filing under Section 3.01, Parent and, with respect to any Tax Return that Spinco is responsible for filing under Section 3.02, Spinco.

Transaction Agreements” means this Agreement, the Separation Agreement and any Ancillary Agreement.

Transaction Tax Allocation Percentage” means, with respect to a Party, the quotient, expressed as a percentage and rounded to two (2) decimal points, of the market capitalization of the Party divided by the sum of the market capitalizations of each Party. The market capitalization of a Party means the product of: (i) the volume-weighted average trading price per share of the common stock of that Party for the twenty (20) consecutive trading days beginning on and following the first trading day following the Distribution Date, as quoted by Bloomberg Financial Services through its “Volume at Price” function, rounded to the nearest whole cent, multiplied by (ii) the arithmetic average of the number of shares of that Party’s common stock outstanding, on a fully diluted basis, on each of such twenty (20) trading days, rounded to two (2) decimal points.

Transaction Tax Contest” means a Tax Contest with the purpose or effect of determining or redetermining Transaction Taxes.

Transaction Taxes” means all (i) Taxes imposed on Parent, Spinco or any of their respective Subsidiaries resulting from the failure of any step of the Internal Transactions, the Contribution or the Distribution to qualify for its Intended Tax Treatment, (ii) Taxes imposed on any third party resulting from the failure of any step of the Internal Transactions, the Contribution or the Distribution to qualify for its Intended Tax Treatment for which Parent, Spinco or any of their respective Subsidiaries is or becomes liable for any reason and (iii) reasonable, out-of-pocket legal, accounting and other advisory or court fees incurred in connection with liability for Taxes described in clause (i) or (ii).

 

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Transfer Taxes” means any sales, use, stamp, duty or other transfer Taxes.

Treasury Regulations” means the Treasury regulations promulgated under the Code.

Unqualified Tax Opinion” has the meaning ascribed to such term in Section 4.05(c).

ARTICLE II

Allocation of Tax Liabilities and Benefits

SECTION 2.01. Indemnity by Parent. From and after the Distribution, Parent shall be liable for, and shall indemnify, save and hold harmless Spinco from, the following Taxes, whether incurred directly by Spinco or indirectly through a member of the Spinco Tax Group, without duplication:

(a) Ordinary Taxes allocated to Parent under Section 2.03;

(b) Transaction Taxes allocated to Parent under Section 2.04;

(c) Reorganization Taxes allocated to Parent under Section 2.05; and

(d) Transfer Taxes allocated to Parent under Section 2.06.

SECTION 2.02. Indemnity by Spinco. From and after the Distribution, Spinco shall be liable for, and shall indemnify, save and hold harmless Parent from, the following Taxes, whether incurred directly by Parent or indirectly through a member of the Parent Tax Group, without duplication:

(a) Ordinary Taxes allocated to Spinco under Section 2.03;

(b) Transaction Taxes allocated to Spinco under Section 2.04;

(c) Reorganization Taxes allocated to Spinco under Section 2.05; and

(d) Transfer Taxes allocated to Spinco under Section 2.06.

SECTION 2.03. Allocation of Ordinary Taxes. (a) For any Pre-Distribution Period:

(i) Ordinary Taxes of Parent and its Subsidiaries that are attributable to the BPO Business shall be allocated to Spinco; and

 

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(ii) all other Ordinary Taxes of Parent and its Subsidiaries shall be allocated to Parent.

The determination of whether Ordinary Taxes of Parent and its Subsidiaries are attributable to the Spinco Business shall be made according to the methodology set forth in Appendix C.

(b) For any Post-Distribution Period:

(i) Ordinary Taxes of Parent and its Subsidiaries shall be allocated to Parent; and

(ii) Ordinary Taxes of Spinco and its Subsidiaries shall be allocated to Spinco.

(c) In the case of any Straddle Period, Taxes shall be allocated between the Pre-Distribution Period and the Post-Distribution Period, in the case of: (i) real, personal and intangible property Taxes, on a daily pro rata basis; and (ii) other Taxes, as if the relevant taxable period ended as of the close of business on the Distribution Date. In the case of any such other Taxes attributable to the ownership of any equity interest in any partnership, other “flowthrough” entity or CFC, such Taxes shall be allocated between the Pre-Distribution Period and the Post-Distribution Period as if the taxable period of such partnership, other “flowthrough” entity or CFC ended as of the close of business on the Distribution Date (whether or not such Taxes arise in a Straddle Period of the applicable owner).

(d) Notwithstanding the foregoing, (i) to the extent Ordinary Taxes of Parent, Spinco or their respective Subsidiaries consist of interest, penalties or other additions to tax that result from any member of the Parent Tax Group’s action or omission in breach of Section 3.05 of this Agreement (except for an action or omission resulting from any member of the Spinco Tax Group’s action or omission in breach of Section 3.04 of this Agreement), such Ordinary Taxes shall be allocated to Parent to such extent and (ii) to the extent any such Ordinary Taxes consist of interest, penalties or other additions to tax that result from any member of the Spinco Tax Group’s action or omission in breach of Section 3.05 of this Agreement (except for an action or omission resulting from any member of the Parent Tax Group’s action or omission in breach of Section 3.04 of this Agreement), such Ordinary Taxes shall be allocated to Spinco to such extent.

SECTION 2.04. Allocation of Transaction Taxes. (a) Transaction Taxes shall be allocated to Spinco to the extent such Transaction Taxes result from:

(i) the failure to be true and correct of any Tax Opinion Representation made by Spinco;

(ii) any action or omission by any member of the Spinco Tax Group in breach of any covenant or agreement contained in any Transaction Agreement;

 

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(iii) any action by Spinco or any of its Affiliates described in Section 4.04, without regard to Section 4.05;

(iv) the direct or indirect acquisition after the Distribution by one or more Persons of stock in Spinco that results in Transaction Taxes as a result of the application of Section 355(a)(1)(B) or Section 355(e) of the Code; or

(v) any other action or omission by any member of the Spinco Tax Group that Spinco knows or reasonably should expect could give rise to Transaction Taxes.

(b) Transaction Taxes shall be allocated to Parent to the extent such Transaction Taxes result from:

(i) the failure to be true and correct of any Tax Opinion Representation made by Parent;

(ii) any action or omission by any member of the Parent Tax Group in breach of any covenant or agreement contained in any Transaction Agreement;

(iii) the direct or indirect acquisition after the Distribution by one or more Persons of stock in Parent that results in Transaction Taxes as a result of the application of Section 355(a)(1)(B) or Section 355(e) of the Code; or

(iv) any other action or omission by any member of the Parent Tax Group that Parent knows or reasonably should expect could give rise to Transaction Taxes.

(c) Notwithstanding clause (a) or (b) of this Section, if a Transaction Tax would be allocated under neither clause (a) nor (b) of this Section or would be allocated under both clauses (a) and (b) of this Section, the Transaction Tax shall be allocated between the Parties in accordance with each Party’s relative Transaction Tax Allocation Percentage.

(d) Notwithstanding any other provision of this Agreement, if the Contribution or Distribution fails to qualify (in whole or in part) for its Intended Tax Treatment and, as a result of such failure, either alone or together with the Protective Section 336(e) Election, Spinco or any member of the Spinco Tax Group realizes an increase in Tax basis (the “Section 336(e) Tax Basis”), Spinco shall make annual payments to Parent in an amount equal to the product of (i) the Tax Asset Value for the applicable taxable year multiplied by (ii) one hundred percent minus the percentage of the Transaction Taxes that resulted from such failure that Spinco paid (either to Parent or directly to the applicable Tax Authority).

(i) For purposes of this Agreement, “Tax Asset Value” for a taxable year means the product of (A)(1) the total depreciation and amortization claimed on any member of the Spinco Tax Group’s U.S. Federal income Tax Return for such taxable year to the extent arising out of the Section 336(e) Tax Basis plus

 

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(2) any portion of the Section 336(e) Tax Basis that is taken into account in determining gain or loss in a taxable transaction and (B) the combined U.S. Federal and state income Tax rate used by Spinco for financial accounting purposes for such taxable year, as adjusted under Section 2.04(d)(ii).

(ii) If any deferred tax asset resulting from any depreciation or amortization described in Section 2.04(d)(i)(A)(1) claimed for the applicable tax year is properly reduced or offset by a valuation allowance in Spinco’s consolidated U.S. financial statements prepared in accordance with GAAP for such taxable year, the Tax Asset Value for such taxable year will be reduced, but not below zero, by the amount of such valuation allowance. If any valuation allowance previously taken into account in the determination of the Tax Asset Value under the previous sentence is released or reduced in Spinco’s consolidated U.S. financial statements prepared in accordance with GAAP for a taxable year, the Tax Asset Value for such taxable year will be increased by an amount equal to the amount of such release or reduction.

(iii) Any payment made pursuant to this paragraph (d) shall be made on or before the date on which Spinco files its U.S. Federal income Tax Return for the applicable taxable year.

(e) Notwithstanding any other provision of this Agreement, if Transaction Taxes are incurred other than as a result of the Contribution or the Distribution failing to qualify (in whole or in part) for its Intended Tax Treatment or Reorganization Taxes are incurred in excess of the amount allocated to Parent under the first sentence of Section 2.05 and, as a result of such Transaction Taxes or Reorganization Taxes, any member of the Parent Tax Group or the Spinco Tax Group actually realizes a Tax Benefit, then the Parties shall make appropriate payments to share the Tax Benefit in the same manner as the Taxes were allocated pursuant to this Agreement (provided that no Tax shall be considered to be allocated to a Party for purposes of computing a payment under this Section 2.04(e) to the extent such other Party owes but has not yet paid any amount in respect of such Tax).

SECTION 2.05. Allocation of Reorganization Taxes. Reorganization Taxes for each step of the Foreign Reorganization shall be allocated to Parent up to the amount set forth for such step on Appendix B. Any excess shall be allocated to Spinco to the extent such excess results from an action or omission by any member of the Spinco Tax Group in breach of Section 4.10 and otherwise shall be allocated between the Parties in accordance with each Party’s relative Transaction Tax Allocation Percentage.

SECTION 2.06. Allocation of Transfer Taxes. (a) All Transfer Taxes incurred as a result of the Spin-Off for which any member of the Parent Tax Group is primarily or in the first instance responsible under applicable Law shall be allocated to Parent and all such Transfer Taxes for which any member of the Spinco Tax Group is primarily or in the first instance responsible under applicable Law shall be allocated to Spinco.

 

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(b) Notwithstanding clause (a) of this Section, if a Transfer Tax would be allocated under clause (a) of this Section to neither Parent nor Spinco or to both Parent and Spinco, then 50% of such Transfer Tax shall be allocated to Parent and 50% of such Transfer Tax shall be allocated to Spinco.

SECTION 2.07. Refunds and Credits. Except to the extent provided in Appendix D, if Parent, Spinco or any of their respective Subsidiaries receives a refund of a Tax for which the other Party is liable (in whole or in part) under this Agreement (a “Refund Recipient”), such Refund Recipient shall pay to the other Party, within 30 days of receipt of such refund, an amount equal to the product of (i) such refund, net of any Taxes and reasonable out-of-pocket expenses incurred in connection with the receipt of such refund, multiplied by (ii) the percentage of such Tax for which the other Party is liable under this Agreement (reduced to the extent such other Party owes but has not yet paid any amount in respect of such Tax under this Agreement). If a Party would be a Refund Recipient but for the fact it elected to apply a refund to which it would otherwise have been entitled against a Tax liability arising in a subsequent taxable period, then for purposes of the immediately preceding sentence, such Party shall be treated as a Refund Recipient with respect to such refund, and shall be treated as receiving such refund on the due date of the Tax Return to which such refund is applied to reduce the subsequent Tax liability.

SECTION 2.08. No Duplicative Payment. (a) Notwithstanding anything to the contrary in this Agreement, it is intended that the provisions of this Agreement will not result in a duplicative payment of any amount required to be paid under the Transaction Agreements, and this Agreement will be construed accordingly.

(b) Spinco shall be treated as having paid Taxes for which it is liable under this Agreement to the extent any amounts in respect of such Taxes were either paid by any member of the Spinco Tax Group to Parent or to the applicable Tax Authority or were taken into account in determining the amount of any Intercompany Account settled as part of the Spin-Off, in each case as determined by Parent.

SECTION 2.09. Amount of Indemnity Payments. The amount of any Indemnity Payment shall be (i) reduced to take into account any Tax Benefit actually realized by the indemnitee resulting from the incurrence of the liability in respect of which the Indemnity Payment is made and (ii) increased to take into account any Tax cost actually realized by the indemnitee resulting from the receipt of the Indemnity Payment (including any Tax cost arising from such Indemnity Payment having resulted in income or gain to either Party, for example, under Section 1.1502-19 of the Regulations, and any Taxes imposed on additional amounts payable pursuant to this clause).

SECTION 2.10. Treatment of Indemnity Payments. Any Indemnity Payment (other than any portion of a payment that represents interest) shall be treated by Parent and Spinco for all Tax purposes as a distribution from Spinco to Parent immediately prior to the Distribution (if made by Spinco to Parent) or as a contribution from Parent to Spinco immediately prior to the Distribution (if made by Parent to Spinco), except as otherwise required by applicable Law or a Final Determination.

 

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ARTICLE III

Preparation and Filing of Tax Returns, Payment of Taxes and Tax Contests

SECTION 3.01. Parent Responsibility for Preparing Tax Returns. Parent shall timely prepare, or cause to be prepared, all Tax Returns of the Parent Tax Group and the Spinco Tax Group for any taxable period beginning before the Distribution Date other than Tax Returns described in Section 3.02. If Spinco is responsible for filing any such Tax Return under Section 3.05(a), Parent shall, subject to Section 3.03, promptly deliver such prepared Tax Return to Spinco reasonably in advance of the applicable filing deadline.

SECTION 3.02. Spinco Responsibility for Preparing Tax Returns. Spinco shall timely prepare, or cause to be prepared, all Tax Returns for the Spinco Tax Group for any taxable period beginning before the Distribution Date if such Tax Returns are of a type that a member of the Spinco Tax Group has historically been responsible for preparing. If Parent is responsible for filing any such Tax Return under Section 3.05(a), Spinco shall, subject to Section 3.03, promptly deliver such prepared Tax Return to Parent reasonably in advance of the applicable filing deadline.

SECTION 3.03. Method of Preparing Tax Returns. Any Tax Return described in Section 3.01 or Section 3.02 shall be correct and complete in all material respects. To the extent that any such Tax Return directly relates to matters for which the other Party is reasonably expected to have an indemnification obligation to the Tax Return Preparer, or that may give rise to a refund to which that other Party would be entitled, under this Agreement, the Tax Return Preparer shall (i) prepare the relevant portions of the Tax Return on a basis consistent with past practice, except (w) as necessary to reflect the Spin-Off, (x) as required by applicable Law or to correct any clear error, (y) as a result of changes or elections made on any Tax Return of a Parent Consolidated Group that do not relate primarily to Spinco or (z) as mutually agreed by the Parties; (ii) notify the other Party of any such portions not prepared on a basis consistent with past practice; (iii) provide the other Party a commercially reasonable opportunity to review the relevant portions of the Tax Return; (iv) consider in good faith any reasonable comments made by the other Party; and (v) use commercially reasonable efforts to incorporate, in the portion of such Tax Return related to the other Party’s potential indemnification obligation (or refund entitlement), any reasonable comments made by the other Party relating to the Tax Return Preparer’s compliance with clause (i).

SECTION 3.04. Information Packages. Each Party (i) shall provide to the other Party (in the format reasonably determined by the other Party) all information and assistance requested by the other Party as reasonably necessary to prepare any Tax Return described in Section 3.01 or 3.02 on a timely basis consistent with the current practices of Parent and its Subsidiaries in preparing Tax Returns and (ii) in so providing such information and assistance, shall use any systems and third-party service providers as are consistent with the current practices of Parent and its Subsidiaries in preparing Tax Returns.

 

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SECTION 3.05. Filing of Tax Returns and Payment of Taxes. (a) Each Party shall execute and timely file, or cause to be executed and timely filed, each Tax Return that it (or one of its Subsidiaries) is responsible for filing under applicable Law and shall timely pay, or cause to be paid, to the relevant Tax Authority any amount shown as due on each such Tax Return. The obligation to make payments pursuant to this Section 3.05(a) shall not affect a Party’s right, if any, to receive payments under Section 3.05(b) or otherwise be indemnified with respect to the applicable Tax liability.

(b) In addition to its obligations under Section 3.03, the relevant Tax Return Preparer shall, no later than fifteen business days before the due date (including extensions) of any Tax Return described in Section 3.01 or 3.02, notify the other Party of any amount (or any portion of any such amount) shown as due on that Tax Return for which the other Party must indemnify the Tax Return Preparer under this Agreement. The other Party shall pay such amount to the Tax Return Preparer no later than the due date (including extensions) of the relevant Tax Return. A failure by an Indemnitee to give notice as provided in this Section 3.05(b) shall not relieve the Indemnifying Party’s indemnification obligations under this Agreement, except to the extent that the Indemnifying Party shall have been actually prejudiced by such failure.

(c) Any notice provided pursuant to Section 3.05(b) shall include a written statement setting forth (i) the aggregate amount of Tax shown as due on the applicable Tax Return and (ii) back-up calculations showing the amount for which the other Party must indemnify the Tax Return Preparer under this Agreement. In the case where any portion of such amount represents income attributable to the ownership of any equity interest in any partnership, other “flowthrough” entity or CFC, the taxable period of which was a Straddle Period, such back-up calculations shall set forth the hypothetical “closing of the books” of such partnership, other “flowthrough” entity or CFC pursuant to Section 2.03(c).

(d) In the case of any Tax Return that is required to be prepared by one Party under this Agreement and that is required by Law to be filed by another Party (or by its authorized representative), the latter Party will not be required to file such Tax Return under this Agreement if there is no substantial authority for the Tax treatment of any material Tax items reported on the Tax Return.

SECTION 3.06. Adjustment Requests (Including Amended Tax Returns). (a) Spinco will not file any Adjustment Request with respect to any Tax for which Parent has an indemnification obligation under this Agreement or that would otherwise reasonably be expected to give rise to a Tax liability for which Parent would be responsible (and for which Parent may not seek indemnification under this Agreement) and Parent will not file any Adjustment Request with respect to any Tax for which Spinco has an indemnification obligation under this Agreement or that would otherwise reasonably be expected to give rise to a Tax liability for which Spinco would be responsible (and for which Spinco may not seek indemnification under this Agreement), in each case without the consent of the other Party (not to be unreasonably withheld, conditioned or delayed). Any Adjustment Request that the Parties consent to make under this Section 3.06 will be prepared by the Tax Return Preparer for the Tax Return to be adjusted.

 

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(b) Spinco and its Affiliates will make any available elections to waive the right to carry back any Tax attributes of any member of the Spinco Tax Group from any Post-Distribution Period to any Pre-Distribution Period of such member and will not make any affirmative election to claim any such carryback.

SECTION 3.07. Tax Contests. (a) Parent or Spinco, as applicable, shall, within 30 days of becoming aware of any Tax Contest (including a Transaction Tax Contest) that could reasonably be expected to cause the other Party to have an indemnification obligation (or refund entitlement) under this Agreement, notify the other Party of such Tax Contest and thereafter promptly forward or make available to the Indemnifying Party copies of notices and communications relating to the relevant portions of such Tax Contest. A failure by an Indemnitee to give notice as provided in this Section 3.07(a) (or to promptly forward any such notices or communications) shall not relieve the Indemnifying Party’s indemnification obligations under this Agreement, except to the extent that the Indemnifying Party shall have been actually prejudiced by such failure.

(b) Parent and Spinco each shall have the exclusive right to control the conduct and settlement of any Tax Contest, other than a Transaction Tax Contest, relating to any Tax Return that it is responsible for preparing pursuant to Section 3.01 or 3.02, as applicable. Notwithstanding the foregoing, if the conduct or settlement of any portion or aspect of any such Tax Contest could reasonably be expected to cause a Party to have an indemnification obligation (or refund entitlement) under this Agreement, then (i) the Indemnifying Party shall have the right to share joint control over the conduct and settlement of that portion or aspect and (ii) whether or not the Indemnifying Party exercises that right, the Indemnitee shall not accept or enter into any settlement without the consent of the Indemnifying Party (not to be unreasonably withheld, conditioned or delayed).

(c) Parent and Spinco shall have the right to control jointly the conduct and settlement of any Transaction Tax Contest. Notwithstanding the foregoing, Parent shall be entitled to control exclusively the conduct and settlement of any Transaction Tax Contest if Parent notifies Spinco that (notwithstanding the rights and obligations of the Parties under this Agreement) Parent agrees to pay (and indemnify Spinco against) any Transaction Taxes resulting from such Transaction Tax Contest.

(d) In any case where the Parties control jointly the conduct and settlement of any Tax Contest (or portion or aspect thereof): (i) neither Party shall accept or enter into any settlement of such Tax Contest (or the relevant portion or aspect thereof) without the consent of the other Party (not to be unreasonably withheld, conditioned or delayed), (ii) both Parties shall have a right to review and consent (not to be unreasonably withheld, conditioned or delayed) to any correspondence or filings to be submitted to any Tax Authority with respect to such Tax Contest (or the relevant portion or aspect thereof) and (iii) both Parties shall have the right to attend any formally scheduled meetings with any Tax Authority or hearings or proceedings before any judicial authority, in each case with respect to such Tax Contest (or the relevant portion or aspect thereof).

 

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SECTION 3.08. Expenses and Applicability. (a) Each Party shall bear its own expenses in the course of any Tax Contest, other than expenses included in the definition of Transaction Taxes, which shall be governed by Article II.

(b) This Article III shall not apply before the Distribution.

ARTICLE IV

Tax Matters Relating to the Spin-Off

SECTION 4.01. Mutual Representations. Each Party represents that it knows of no fact, and has no plan or intention to take any action, that it knows or reasonably should expect, after consultation with a Tax Advisor, (i) is inconsistent with the qualification of any step of the Internal Transactions, the Contribution or the Distribution for its Intended Tax Treatment or (ii) would adversely affect the effectiveness or validity any Ruling that has been requested or received from the IRS.

SECTION 4.02. Mutual Covenants. (a) Each Party shall use its reasonable best efforts to cause the Cravath Tax Opinion to be issued, including by executing the Tax Opinion Representations requested by Cravath that are true and correct.

(b) Except as otherwise expressly required or permitted by the Transaction Agreements, after the Distribution neither Party shall take or fail to take, or cause or permit its respective Subsidiaries to take or fail to take, any action, if such action or omission would be inconsistent with its Tax Opinion Representations or the Intended Tax Treatment.

SECTION 4.03. Termination of Tax Sharing Agreements. Prior to the Distribution, the Parties shall terminate all Tax allocation or sharing agreements that are exclusively between one or more members of the Spinco Tax Group, on the one hand, and one or more members of the Parent Tax Group, on the other hand (other than this Agreement). Upon withdrawal, all rights and obligations under such agreements shall cease.

SECTION 4.04. Restricted Actions. (a) Subject to Section 4.05, during the period that begins on the Distribution and ends on the second anniversary of the Distribution Date (the “Restricted Period”), Spinco will not (and will not cause or permit its Subsidiaries to), in any transaction or series of transactions:

(i) liquidate or partially liquidate Spinco or any other member of the Spinco Tax Group, whether by merger, consolidation, conversion or otherwise;

 

14


(ii) enter into or cause or permit any Proposed Acquisition Transaction;

(iii) redeem or otherwise repurchase (directly or indirectly) any Spinco Capital Stock, except to the extent such redemptions or repurchases meet the following requirements: (w) there is a good business purpose for the stock purchases, (x) the stock to be purchased is widely held, (y) the stock purchases will be made on the open market and (z) the aggregate amount of stock purchases will be less than 20% of the total value of the outstanding stock of Spinco (determined on the Distribution Date);

(iv) sell or transfer 50% or more of the gross assets of the Active Trade or Business or 50% or more of the consolidated gross assets that Spinco and its Subsidiaries held immediately before the Distribution (provided, however, that the foregoing shall not apply to (w) sales, transfers or dispositions of assets in the Ordinary Course of Business, (x) payments of cash to acquire assets from an unrelated Person in an arm’s length transaction, (y) sales, transfers or dispositions of assets to a Person that is disregarded as an entity separate from the transferor for U.S. Federal income Tax purposes or (z) any mandatory or optional repayments (or prepayments) of any indebtedness of Spinco or any of its Subsidiaries); or

(v) cause or permit Spinco and its Subsidiaries to cease to operate the Active Trade or Business in a manner substantially consistent with the operation of the Active Trade or Business immediately before the Distribution.

(b) (i) For purposes of this Agreement, “Proposed Acquisition Transaction” means any transaction or series of transactions (or any agreement, understanding or arrangement to enter into a transaction or series of transactions) as determined for purposes of Section 355(e) of the Code, in connection with which one or more Persons would (directly or indirectly) acquire, or have the right to acquire (including pursuant to an option, warrant or other conversion right), from any other Person or Persons, Spinco Capital Stock that, when combined with any other acquisitions of Spinco Capital Stock that occur after the Distribution (but excluding any other acquisition described in clause (ii)) comprises 20% or more of the value or the total combined voting power of all interests that are treated as outstanding equity in Spinco for U.S. Federal income Tax purposes immediately after such transaction or, in the case of a series of related transactions, immediately after any transaction in such series. For this purpose, any recapitalization, repurchase or redemption of Spinco Capital Stock and any amendment to the certificate of incorporation (or other organizational documents) of Spinco shall be treated as an indirect acquisition of Spinco Capital Stock by any shareholder to the extent such shareholder’s percentage interest in interests that are treated as outstanding equity in Spinco for U.S. Federal income Tax purposes increases by vote or value.

 

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(ii) Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (y) transfers on an established market of Spinco Capital Stock that are described in Safe Harbor VII of Section 1.355-7(d) of the Regulations or (z) issuances of Spinco Capital Stock that satisfy Safe Harbor VIII (relating to acquisitions in connection with a Person’s performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Section 1.355-7(d) of the Regulations; provided, that such transaction or series of transactions shall constitute a Proposed Acquisition Transaction if meaningful factual diligence is necessary to establish that Section 4.04(b)(ii)(y) or (z) applies.

(c) If Spinco merges or consolidates with another Person to form a new Person, references in this Agreement to Spinco shall be to that new Person and Spinco Capital Stock shall refer to the capital stock or other relevant instruments or rights of that new Person.

(d) The provisions of this Section 4.04, including the definition of “Proposed Acquisition Transaction”, are intended to monitor compliance with Section 355 of the Code and shall be interpreted accordingly. Any clarification of, or change in, Section 355 of the Code or the Regulations thereunder shall be incorporated into this Section 4.04 and its interpretation.

SECTION 4.05. Consent To Take Certain Restricted Actions. (a) Spinco may (and may cause or permit its Subsidiaries to) take an action otherwise prohibited under Section 4.04(a) if, prior to taking such action, Parent provides consent. Parent may not withhold its consent if Spinco has provided it with Satisfactory Guidance.

(b) For purposes of this Agreement, “Satisfactory Guidance” means either a Ruling or an Unqualified Tax Opinion, at the election of Spinco, in either case satisfactory to Parent in both form and substance, including with respect to any underlying assumptions or representations and any legal analysis contained therein, and concluding that the proposed action will not cause any step of the Internal Transactions, the Contribution or the Distribution to fail to qualify for its Intended Tax Treatment for U.S. Federal income Tax purposes.

(c) For purposes of this Agreement, “Unqualified Tax Opinion” means an unqualified “will” opinion of a Tax Advisor that permits reliance by Parent. The Tax Advisor, in issuing its opinion, shall be permitted to rely on the validity and correctness, as of the date given, of any previously issued Tax Opinions/Rulings, unless such reliance would be unreasonable under the circumstances, and shall assume that each step of the Internal Transactions, the Contribution and the Distribution would have qualified for its Intended Tax Treatment for U.S. Federal income Tax purposes if the action in question did not occur.

SECTION 4.06. Procedures Regarding Opinions and Rulings. (a) If Spinco notifies Parent that it desires to take a restricted action described in Section 4.04(a) and seeks Satisfactory Guidance for purposes of Section 4.05, Parent, at the request of Spinco, shall use commercially reasonable efforts to expeditiously obtain, or assist Spinco in obtaining, such Satisfactory Guidance. Notwithstanding the foregoing, Parent shall not be required to take any action pursuant to this Section 4.06(a) if, upon request, Spinco fails to certify that all information and representations relating to Spinco or any Subsidiary of Spinco in the relevant documents are true, correct and

 

16


complete or fails to obtain certification from any counterparty to any Proposed Acquisition Transaction that all information and representations relating to such counterparty in the relevant documents are true, correct and complete. Spinco shall reimburse Parent for all reasonable out-of-pocket costs and expenses incurred by Parent or any Subsidiary of Parent in obtaining Satisfactory Guidance within 30 days after receiving an invoice from Parent therefor.

(b) Parent shall have the right to obtain a Ruling, any other guidance from any Tax Authority or an opinion of Tax counsel or an accounting firm relating to the Spin-Off at any time in Parent’s sole discretion. Spinco, at the request of Parent, shall use commercially reasonable efforts to expeditiously obtain, or assist Parent in obtaining, any such Ruling, other guidance or opinion; provided, however, that Spinco shall not be required to make any representation or covenant that it does not reasonably believe is (and will continue to be) true, accurate and consistent with historical facts. Parent shall reimburse Spinco for all reasonable out-of-pocket costs and expenses incurred by Spinco or any Subsidiary of Spinco in obtaining a Ruling, other guidance or opinion requested by Parent within 30 days after receiving an invoice from Spinco therefor.

(c) Parent shall have exclusive control over the process of obtaining any Ruling or other guidance from any Tax Authority concerning the Spin-Off, and Spinco shall not independently seek any Ruling or other guidance concerning the Spin-Off at any time. In connection with any Ruling requested by Spinco pursuant to Section 4.06(a) or that can reasonably be expected to affect Spinco’s liabilities under this Agreement, Parent shall (i) keep Spinco informed of all material actions taken or proposed to be taken by Parent, (ii) reasonably in advance of the submission of any ruling request provide Spinco with a draft thereof, consider Spinco’s comments on such draft and provide Spinco with a final copy thereof and (iii) provide Spinco with notice reasonably in advance of, and (subject to the approval of the IRS) permit Spinco to attend, any formally scheduled meetings with the IRS that relate to such Ruling.

(d) Notwithstanding anything herein to the contrary, Spinco shall not seek a ruling with respect to a Pre-Distribution Period (whether or not relating to the Spin-Off) if Parent determines that there is a reasonable possibility that such action could have a material adverse impact on Parent or any Subsidiary of Parent.

SECTION 4.07. Notification and Certification Regarding Certain Acquisition Transactions. (a) If Spinco proposes to enter into any 10% Acquisition Transaction or take any affirmative action to permit any 10% Acquisition Transaction to occur at any time during the 30-month period following the Distribution Date, Spinco shall undertake in good faith to provide Parent, no later than 30 days following the signing of any written agreement with respect to such 10% Acquisition Transaction or obtaining knowledge of the occurrence of any such 10% Acquisition Transaction that takes place without written agreement, with a written description of such transaction (including the type and amount of Spinco Capital Stock to be acquired) and a brief explanation as to why Spinco believes that such transaction does not result in the application of Section 355(a)(1)(B) or 355(e) of the Code to the Spin-Off.

 

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(b) For purposes of this Agreement, “10% Acquisition Transaction” means any transaction or series of transactions that would be a Proposed Acquisition Transaction if the percentage specified in the definition of Proposed Acquisition Transaction were 10% instead of 20%.

SECTION 4.08. Tax Reporting of the Spin-Off. The Tax Returns of Parent, Spinco and their respective Affiliates will report the Tax items relating to the Spin-Off consistent with the Intended Tax Treatment and this Agreement, unless otherwise required by applicable Law or a Final Determination.

SECTION 4.09. Actions after the Distribution on the Distribution Date. Spinco will not take any action on the Distribution Date after the Distribution that is outside the ordinary course of business of Spinco.

SECTION 4.10. Actions after the Distribution Date for Remainder of Calendar Year. (a) From and after the Distribution Date, Spinco and its Subsidiaries shall not, without the prior consent of Parent, engage in, enter into, undertake or cause or permit any Non-US Spinco Member to engage in, enter into, or undertake any of the following actions or series of actions having an effective date on or before January 1 of the calendar year immediately following the calendar year in which the Distribution Date occurs:

(i) A distribution, whether in the form of a dividend, return of capital or otherwise;

(ii) A redemption or other repurchase (directly or indirectly) of any shares of capital stock of any Non-US Spinco Member;

(iii) Any loan or series of loans that would reasonably be expected to result in an inclusion under Section 956 of the Code;

(iv) Any merger, consolidation, amalgamation, combination, demerger, liquidation, conversion or other corporate restructuring having similar effect;

(v) A sale of assets to any Subsidiary of Spinco or to any unrelated party;

(vi) A sale of any shares of any Subsidiary of Spinco to any other Subsidiary of Spinco or to any unrelated party;

(vii) The filing of a U.S. Internal Revenue Service Form 8832 with respect to any Non-US Spinco Member or any other action that would reasonably be expected to change the U.S. entity classification of any Non-US Spinco Member; or

(viii) Any similar actions or transactions outside of the Ordinary Course of Business of any Non-US Spinco Member that would reasonably be expected to impact the earnings and profits as determined for U.S. Federal income Tax purposes of any Non-US Spinco Member.

 

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(b) During the Restricted Period, no member of the Spinco Tax Group shall engage in, enter into, undertake or cause or permit any action or series of actions that it knows or reasonably would expect to result in the incurrence of Reorganization Taxes in excess of the amount of Reorganization Taxes allocated to Parent under the first sentence of Section 2.05.

SECTION 4.11. Protective Section 336(e) Election. Parent will make a valid protective election under Section 336(e) of the Code and Section 1.336-2(j) of the Regulations (and any similar provision of U.S. state or local Law) in connection with the Distribution. Accordingly, the Parties agree that this Agreement constitutes a written, binding agreement to make a protective election under Section 336(e) of the Code as contemplated by Section 1.336-2(h)(1)(i) of the Regulations. Spinco will cooperate with Parent to facilitate the making of such election.

ARTICLE V

Procedural Matters

SECTION 5.01. Cooperation. Each Party shall cooperate (and cause their respective Subsidiaries to cooperate) with reasonable requests from the other Party in matters covered by this Agreement, including in connection with the preparation and filing of Tax Returns, the calculation of Taxes, the determination of the proper financial accounting treatment of Tax items and the conduct and settlement of Tax Contests. Such cooperation shall include:

(i) retaining until the expiration of the relevant statute of limitations (including extensions) records, documents, accounting data, computer data and other information (“Records”) necessary for the preparation, filing, review, audit or defense of all Tax Returns relevant to an obligation, right or liability of either Party under this Agreement;

(ii) providing the other Party reasonable access to Records and to its personnel (ensuring their cooperation) and premises during normal business hours to the extent relevant to an obligation, right or liability of the other Party under this Agreement or otherwise reasonably required by the other Party to complete Tax Returns or to compute the amount of any payment contemplated by this Agreement; and

(iii) notifying the other Party prior to disposing of any relevant Records and affording the other Party the opportunity to take possession or make copies of such Records at its discretion.

SECTION 5.02. Indemnification Claims and Payments. (a) An Indemnitee shall be entitled to make a claim for payment with respect to Taxes under this Agreement when the Indemnitee determines that it is entitled to such payment and is able

 

19


to calculate with reasonable accuracy the amount of such payment. Except as otherwise provided in Section 3.05(b), the Indemnitee shall provide to the Indemnifying Party notice of such claim within 60 business days of the first date on which it so becomes entitled to make such claim. Such notice shall include a description of such claim and a detailed calculation of the amount claimed.

(b) Except as otherwise provided in Section 3.05(b), the Indemnifying Party shall make the claimed payment to the Indemnitee within 60 days after receiving such notice, unless the Indemnifying Party reasonably disputes its liability for, or the amount of, such payment.

(c) A failure by an Indemnitee to give notice as provided in Section 3.05(b) or 5.02(a) shall not relieve the Indemnifying Party’s indemnification obligations under this Agreement, except to the extent that the Indemnifying Party shall have been actually prejudiced by such failure.

(d) Nothing in this Section 5.02 shall prejudice a Party’s right to receive payments pursuant to Section 3.05(b).

SECTION 5.03. Tax Disputes. Notwithstanding Section 6.02, this Section 5.03 shall govern the resolution of any dispute arising between the Parties in connection with this Agreement, other than a dispute (i) relating to liability for Transaction Taxes or (ii) in which the amount of liability in dispute exceeds $5 million (a “Tax Dispute”). The Parties shall negotiate in good faith to resolve any Tax Dispute for 45 days (unless earlier resolved). Upon notice of either Party after 45 days, the matter will be referred to a Tax Advisor acceptable to both Parties. The Tax Advisor may, in its discretion, obtain the services of any third party necessary to assist it in resolving the Tax Dispute. The Parties shall instruct the Tax Advisor to furnish notice to each Party of its resolution of the Tax Dispute as soon as practicable, but in any event no later than 60 days after its acceptance of the matter for resolution. Any such resolution by the Tax Advisor will be binding on the Parties and the Parties shall take, or cause to be taken, any action necessary to implement the resolution. All fees and expenses of the Tax Advisor shall be shared equally by the Parties. If, having determined that a Tax Dispute must be referred to a Tax Advisor, after 45 days the Parties are unable to find a Tax Advisor willing to adjudicate the Tax Dispute in question and that the Parties in good faith find acceptable, then this Section 5.03 shall cease to apply to that Tax Dispute.

ARTICLE VI

Miscellaneous

SECTION 6.01. Counterparts; Entire Agreement. (a) This Agreement may be executed in one or more counterparts, all of which counterparts shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each Party and delivered to the other Party. This Agreement may be executed by facsimile or PDF signature and scanned and exchanged by electronic mail, and such facsimile or PDF signature or scanned and exchanged copies shall constitute an original for all purposes.

 

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(b) This Agreement and the Appendices, Exhibits and Schedules hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof and supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties with respect to the subject matter hereof other than those set forth or referred to herein or therein. In the event of any inconsistency between this Agreement and the Separation Agreement or any other agreements relating to the Spin-Off, the provisions of this Agreement will control. For the avoidance of doubt, any Conduent Liability that is a contractual Liability relating to Taxes relating to, arising out of or resulting from any terminated, divested or discontinued business or operation of the BPO Business is governed by the Separation Agreement.

SECTION 6.02. Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York, regardless of the Laws that might otherwise govern under applicable principles of conflicts of Laws thereof. Each Party irrevocably consents to the exclusive jurisdiction, forum and venue of the Commercial Division of the Supreme Court of the State of New York, New York County and the United States District Court for the Southern District of New York over any and all claims, disputes, controversies or disagreements between the Parties or any of their respective Subsidiaries, Affiliates, successors and assigns under or related to this Agreement or any document executed pursuant to this Agreement or any of the transactions contemplated hereby or thereby.

SECTION 6.03. Assignability. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of Law or otherwise by either Party without the prior written consent of the other Party. Any purported assignment without such consent shall be void. Subject to the preceding sentences, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the Parties and their respective successors and assigns. Notwithstanding the foregoing, either Party may assign this Agreement without consent in connection with (a) a merger transaction in which such Party is not the surviving entity and the surviving entity acquires or assumes all or substantially all of such Party’s Assets, or (b) the sale of all or substantially all of such Party’s Assets; provided, however, that the assignee expressly assumes in writing all of the obligations of the assigning Party under this Agreement, and the assigning Party provides written notice and evidence of such assignment and assumption to the non-assigning Party.

SECTION 6.04. Third-Party Beneficiaries. The provisions of this Agreement are solely for the benefit of the Parties hereto and are not intended to confer upon any Person except the Parties hereto any rights or remedies hereunder and there are no third-party beneficiaries of this Agreement and this Agreement shall not provide any third person with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.

 

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SECTION 6.05. Notices. All notices or other communications under this Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person, (b) on the date received, if sent by a nationally recognized delivery or courier service or (c) upon the earlier of confirmed receipt or the fifth business day following the date of mailing if sent by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Parent, to:

Xerox Corporation

P.O. Box 4505, 45 Glover Avenue

Norwalk, CT 06850

Attn:

email:

Facsimile:

with a copy to:

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

  Attn: Robert I. Townsend III
       Lauren Angelilli
       Eric L. Schiele
       O. Keith Hallam III
  email: rtownsend@cravath.com
       langelilli@cravath.com
       eschiele@cravath.com
       khallam@cravath.com

Facsimile: 212-474-3700

If to Spinco, to:

Conduent Incorporated

Attn:

e-mail:

Facsimile:

with a copy to:

Cravath, Swaine & Moore LLP

Worldwide Plaza

825 Eighth Avenue

New York, NY 10019

  Attn: Robert I. Townsend III
       Lauren Angelilli
       Eric L. Schiele
       O. Keith Hallam III
  email: rtownsend@cravath.com
       langelilli@cravath.com
       eschiele@cravath.com
       khallam@cravath.com

Facsimile: 212-474-3700

Either Party may, by notice to the other Party, change the address to which such notices are to be given.

 

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SECTION 6.06. Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to either Party. Upon any such determination, any such provision, to the extent determined to be invalid, void or unenforceable, shall be deemed replaced by a provision that such court determines is valid and enforceable and that comes closest to expressing the intention of the invalid, void or unenforceable provision.

SECTION 6.07. Expenses. Regardless of whether the Spin-Off is consummated, except as otherwise expressly provided in the Transaction Agreements, each of the Parties will pay its own expenses incident to this Agreement.

SECTION 6.08. Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

SECTION 6.09. Survival of Covenants. Except as expressly set forth in this Agreement, the covenants in this Agreement and the Liabilities for the breach of any obligations in this Agreement shall survive the Spin-Off and shall remain in full force and effect.

SECTION 6.10. Waivers of Default. No failure or delay of any Party (or the applicable member of its Group) in exercising any right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. Waiver by any Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default.

 

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SECTION 6.11. Specific Performance. Subject to Section 6.16, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected Party shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at Law or in equity, and all such rights and remedies shall be cumulative. The other Party shall not oppose the granting of such relief on the basis that money damages are an adequate remedy. The Parties agree that the remedies at Law for any breach or threatened breach hereof, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at Law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.

SECTION 6.12. Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by any Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of each Party.

SECTION 6.13. Interpretation. The rules of interpretation set forth in Section 11.14 of the Separation Agreement shall be incorporated by reference to this Agreement, mutatis mutandis. NOTWITHSTANDING THE FOREGOING, THE PURPOSE OF ARTICLE IV IS TO ENSURE THAT EACH STEP OF THE INTERNAL TRANSACTIONS, THE CONTRIBUTION AND THE DISTRIBUTION QUALIFIES FOR ITS INTENDED TAX TREATMENT FOR U.S. FEDERAL INCOME TAX PURPOSES AND, ACCORDINGLY, THE PARTIES AGREE THAT THE LANGUAGE THEREOF SHALL BE INTERPRETED IN A MANNER THAT SERVES THIS PURPOSE TO THE GREATEST EXTENT POSSIBLE.

SECTION 6.14. Late Payments. Any amount owed by one Party to another Party under this Agreement that is not paid when due will bear interest at a rate of 2.0% per annum from the due date of the payment to the date paid.

SECTION 6.15. Further Assurances. The Parties will execute and deliver all documents, provide all information, and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement, including the execution and delivery to the other Party and its Subsidiaries and representatives of such powers of attorney or other authorizing documentation as is reasonably necessary or appropriate in connection with Tax Contests (or portions thereof) under the control of the other Party in accordance with Section 3.07.

SECTION 6.16. Termination. This Agreement will be automatically terminated at any time before the Distribution if the Separation Agreement is terminated. In the event of the termination of this Agreement pursuant to this Section 6.16, this Agreement, except for the provisions of this Section 6.16, will become void and have no effect, without any liability on the part of any Party or its directors, officers or stockholders.

 

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SECTION 6.17. Confidentiality. Each Party hereby acknowledges that confidential Information of such Party or its Subsidiaries may be exposed to employees and agents of the other Party or its Subsidiaries as a result of the activities contemplated by this Agreement. Each Party agrees, on behalf of itself and its Subsidiaries, that such Party’s obligations with respect to Information and data of the other Party or its Subsidiaries shall be governed by Section 7.09 of the Separation Agreement.

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

 

XEROX CORPORATION,
    by    
  Name:
  Title:

 

CONDUENT INCORPORATED,
    by    
  Name:
  Title:
EX-10.14

Exhibit 10.14

EXECUTION VERSION

 

 

 

EXCHANGE AGREEMENT

by and among

XEROX CORPORATION,

CONDUENT INCORPORATED

and

DARWIN A. DEASON

Dated as of October 27, 2016

 

 

 


TABLE OF CONTENTS

 

         PAGE  
ARTICLE I   
DEFINITIONS   
Section 1.01  

Definitions

     2   
ARTICLE II   
THE EXCHANGES   
Section 2.01  

The Exchanges

     6   
Section 2.02  

Closing

     6   
Section 2.03  

Effect on Capital Stock

     6   
ARTICLE III   
REPRESENTATIONS AND WARRANTIES OF XEROX   
Section 3.01  

Organization; Authority; Noncontravention

     7   
Section 3.02  

Capitalization; Indebtedness

     7   
Section 3.03  

Governmental Approvals

     8   
Section 3.04  

Brokers and Other Advisors

     8   
Section 3.05  

Exchange of Securities

     9   
Section 3.06  

Listing and Maintenance Requirements

     9   
Section 3.07  

Status of Securities

     9   
Section 3.08  

Xerox SEC Documents

     9   
Section 3.09  

No Undisclosed Liabilities

     10   
Section 3.10  

Disclaimer

     10   
ARTICLE IV   
REPRESENTATIONS AND WARRANTIES OF CONDUENT   
Section 4.01  

Organization; Authority; Noncontravention

     11   
Section 4.02  

Governmental Approvals

     11   
Section 4.03  

Brokers and Other Advisors

     12   
Section 4.04  

Exchange of Securities

     12   
Section 4.05  

Listing and Maintenance Requirements

     12   
Section 4.06  

Status of Securities

     12   
Section 4.07  

Conduent SEC Documents

     12   
Section 4.08  

No Undisclosed Liabilities

     13   
Section 4.09  

Disclaimer

     14   

 

i


ARTICLE V   
REPRESENTATIONS AND WARRANTIES OF DEASON   
Section 5.01  

Authority; Noncontravention

     14   
Section 5.02  

Ownership; Title to Shares

     15   
Section 5.03  

Governmental Approvals

     15   
Section 5.04  

Brokers and Other Advisors

     15   
Section 5.05  

Acquisition for Investment

     16   
Section 5.06  

Disclaimer

     16   
ARTICLE VI   
ADDITIONAL AGREEMENTS   
Section 6.01  

Reasonable Best Efforts; Filings

     16   
Section 6.02  

Corporate Actions

     17   
Section 6.03  

Prohibition on Transfers; Other Actions

     17   
Section 6.04  

Public Disclosure

     17   
Section 6.05  

Listing of Shares

     18   
Section 6.06  

DEASON RELEASE

     18   
Section 6.07  

Legend

     19   
Section 6.08  

Tax Matters

     20   
ARTICLE VII   
CONDITIONS TO CLOSING   
Section 7.01  

Conditions to the Obligations of Xerox, Conduent and Deason

     21   
Section 7.02  

Conditions to the Obligations of Xerox and Conduent

     21   
Section 7.03  

Conditions to the Obligations of Deason

     22   
ARTICLE VIII   
TERMINATION; SURVIVAL   
Section 8.01  

Termination

     22   
Section 8.02  

Effect of Termination

     24   
Section 8.03  

Survival

     24   
ARTICLE IX   
MISCELLANEOUS   
Section 9.01  

Amendments; Waivers

     24   
Section 9.02  

Extension of Time, Waiver, Etc

     24   
Section 9.03  

Assignment

     24   
Section 9.04  

Counterparts

     24   
Section 9.05  

Entire Agreement; No Third-Party Beneficiaries; No Recourse

     25   
Section 9.06  

Governing Law; Jurisdiction

     25   
Section 9.07  

Specific Enforcement

     26   
Section 9.08  

WAIVER OF JURY TRIAL

     26   
Section 9.09  

Notices

     26   
Section 9.10  

Severability

     28   
Section 9.11  

Expenses

     28   
Section 9.12  

Interpretation

     28   
Section 9.13  

Acknowledgment of Securities Laws

     29   

 

ii


ANNEXES

 

Annex I    Form of Xerox Certificate of Amendment
Annex II    Form of Conduent Certificate of Amendment

 

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EXCHANGE AGREEMENT, dated as of October 27, 2016 (this “Agreement”), by and among XEROX CORPORATION, a New York corporation (“Xerox”), CONDUENT INCORPORATED, a New York corporation (“Conduent”), and Darwin A. Deason (“Deason”).

WHEREAS, Xerox has established Conduent, a wholly-owned Subsidiary of Xerox;

WHEREAS, Xerox and Conduent expect to enter into a Separation and Distribution Agreement whereby, subject to the terms and conditions thereof, Conduent will come to hold Xerox’s business process outsourcing business (the “Separation”) and Xerox will distribute to the holders of record of shares of Xerox Common Stock, on a pro rata basis, all of the outstanding shares of Conduent Common Stock owned by Xerox on the distribution date (such date, the “Distribution Date”; such distribution, the “Distribution” and, together with the Separation, the “Spin-Off”);

WHEREAS, immediately following the completion of the Distribution, Deason desires to transfer to Xerox a certain number of shares of Xerox’s Series A Convertible Preferred Stock, par value $1.00 per share (“Xerox Series A Preferred Stock”), in exchange for a certain number of shares of Xerox’s Series B Convertible Preferred Stock, par value $1.00 per share (“Xerox Series B Preferred Stock”), and for a certain number of shares of Conduent’s Series A Convertible Preferred Stock, par value $0.01 per share (“Conduent Series A Preferred Stock”), in each case having the designation, preferences, privileges and voting powers and the restrictions and qualifications as specified in the form of the Xerox Certificate of Amendment attached as Annex I (the “Xerox Certificate of Amendment”), which forms a part of this Agreement, and the form of the Conduent Certificate of Amendment attached as Annex II (the “Conduent Certificate of Amendment”), which forms a part of this Agreement, respectively; and

WHEREAS, the parties hereto intend that the Xerox Exchange qualifies as a “reorganization” under Section 368 of the Internal Revenue Code of 1986, as amended (the “Code”), and this Agreement constitutes a “plan of reorganization” within the meaning of Section 368 of the Code.

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, the parties to this Agreement, intending to be legally bound, hereby agree as follows:


ARTICLE I

Definitions

Section 1.01 Definitions. (a) For purposes of this Agreement, the following terms shall have the following meanings:

Affiliate” means, as to any Person, any other Person that, directly or indirectly, controls, or is controlled by, or is under common control with, such Person. For this purpose, “control” (including, with its correlative meanings, “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management or policies of a Person, whether through the ownership of securities or partnership or other ownership interests, by contract or otherwise. It is understood that Deason shall not be considered an Affiliate of Xerox, Conduent or any of their respective Subsidiaries for purposes of this Agreement.

Business Day” means any day except a Saturday, a Sunday or other day on which the SEC, the Conduent Stock Exchange, the Xerox Stock Exchange or banks in the City of New York are authorized or required by Law to be closed.

Conduent Charter Documents” means Conduent’s Certificate of Incorporation and by-laws.

Conduent Common Stock” means the shares of common stock, par value $0.01 per share, of Conduent.

Conduent Stock Exchange” means NYSE.

Exchange Act” means the Securities Exchange Act of 1934.

GAAP” means generally accepted accounting principles in the United States.

Governmental Authority” means any government, court, regulatory or administrative agency, commission or authority or other legislative, executive or judicial governmental entity (in each case including any self-regulatory organization), whether federal, state or local, domestic, foreign or multinational.

Judgment” means any outstanding order, judgment, injunction, ruling, writ or decree of any Governmental Authority.

Law” means all state or federal laws, foreign laws, common law, statutes, ordinances, codes, rules or regulations or other similar requirement enacted, adopted, promulgated or applied by any Governmental Authority.

Liabilities” means any and all debts, liabilities and obligations, whether accrued or fixed, absolute or contingent, known or unknown, matured or unmatured, determined or determinable, secured or unsecured, disputed or undisputed, or subordinated or unsubordinated, including those arising under any Law, action, claim, suit, proceeding, arbitration, subpoena, civil investigative demand or Governmental Authority investigation, or any order, writ, judgment, injunction, decree, stipulation, determination or award entered or issued by or with any Governmental Authority, and those arising under any contract, arrangement or undertaking.

Liens” means any mortgage, pledge, lien, charge, encumbrance, security interest or other restriction of any kind or nature, whether based on Law or contract.

 

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New York Department of State” means the Department of State of the State of New York.

NYSE” means the New York Stock Exchange.

Permitted Liens” means any restrictions imposed by (i) the Securities Act and any other applicable securities Laws or (ii) in the case of shares of Xerox Series A Preferred Stock, Xerox Series B Preferred Stock or Conduent Series A Preferred Stock, the Xerox Charter Documents, the Xerox Certificate of Amendment or the Conduent Certificate of Amendment, respectively.

Person” means an individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization or any other entity, including a Governmental Authority.

Representatives” means, with respect to any Person, its officers, directors, principals, partners, managers, members, employees, consultants, agents, financial advisors, investment bankers, attorneys, accountants, other advisors and other representatives.

Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002.

SEC” means the Securities and Exchange Commission.

Securities Act” means the Securities Act of 1933.

Separation and Distribution Agreement” means the agreement between Xerox and Conduent to effect the Spin-Off.

Settlement Agreement” means that certain agreement by and among Xerox, Conduent and Deason dated as of the date hereof, pursuant to which, among other things, the parties thereto agreed to settle certain litigation captioned Darwin Deason v. Xerox Corporation, No. 3:16-cv-02856-L (N.D. Tex.).

Spin-Off Documents” means the Separation and Distribution Agreement and any other contract or arrangement entered into by Xerox or any of its Subsidiaries, on the one hand, and Conduent or any of its Subsidiaries, on the other hand, in furtherance of, or in connection with, the Spin-Off.

Subsidiary”, when used with respect to any Person, means any corporation, limited liability company, partnership, association, trust or other entity of which (x) securities or other ownership interests representing more than 50% of the ordinary voting power (or, in the case of a partnership, more than 50% of the general partnership interests) or (y) sufficient voting rights to elect at least a majority of the board of directors or other governing body are, as of such date, owned by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person.

 

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Tax” means any and all federal, state, local or foreign taxes, fees, levies, duties, tariffs, imposts, and other similar charges, in each case in the nature of a tax, (together with any and all interest, penalties and additions to tax) imposed by any Governmental Authority.

Xerox Charter Documents” means Xerox’s Certificate of Incorporation and by-laws.

Xerox Common Stock” means the shares of common stock, par value $1.00 per share, of Xerox.

Xerox Deferred Stock Unit” means a deferred stock unit in respect of shares of Xerox Common Stock granted under a Xerox Stock Plan.

Xerox Performance Share” means a restricted stock unit in respect of shares of Xerox Common Stock granted under a Xerox Stock Plan that is subject to performance-based vesting or forfeiture conditions.

Xerox RSU” means a restricted stock unit in respect of shares of Xerox Common Stock granted under a Xerox Stock Plan that is solely subject to service-based vesting or forfeiture conditions.

Xerox Savings Plans” means the Xerox Corporation Savings Plan, the Savings Plan of Xerox Corporation and the Xerographic Division, Rochester Regional Joint Board on Behalf of Itself and Other Regional Joint Boards and the Xerox Business Services Savings Plan.

Xerox Stock Exchange” means NYSE.

Xerox Stock Option” means an unexercised option to purchase shares of Xerox Common Stock granted under a Xerox Stock Plan.

Xerox Stock Plans” means the Xerox Corporation 2004 Performance Incentive Plan, the Affiliated Computer Services, Inc. 2007 Equity Incentive Plan, the Affiliated Computer Services, Inc. 1997 Stock Incentive Plan, the Xerox Corporation 2004 Equity Compensation Plan for Non-Employee Directors and the 1996 Non-Employee Director Stock Option Plan, in each case as amended and restated.

(b) In addition to the terms defined in Section 1.01(a), the following terms have the meanings assigned thereto in the Sections set forth below:

 

Term

   Section

Acquired Conduent Shares

   2.01

Acquired Shares

   5.05

Acquired Xerox Shares

   2.01

Action

   9.06(b)

Agreement

   Preamble

Bankruptcy and Equity Exception

   3.01(a)

 

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Closing

   2.02(a)

Closing Date

   2.02(a)

Code

   Recitals

Conduent

   Preamble

Conduent Certificate of Amendment

   Recitals

Conduent Exchange

   2.01

Conduent SEC Documents

   4.07(a)

Conduent Series A Preferred Stock

   Recitals

Deason

   Preamble

Deason Parties

   6.06

Distribution

   Recitals

Distribution Date

   Recitals

Exchanges

   2.01

IRS

   6.08(a)

Released Matter

   6.06

Released Party

   6.06

Restraints

   7.01(a)

Separation

   Recitals

Spin-Off

   Recitals

Termination Date

   8.01(b)

Transfer

   6.03

Xerox

   Preamble

Xerox Certificate of Amendment

   Recitals

Xerox Exchange

   2.01

Xerox SEC Documents

   3.08(a)

Xerox Securities

   3.02(b)

Xerox Series A Preferred Stock

   Recitals

Xerox Series B Preferred Stock

   Recitals

 

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ARTICLE II

The Exchanges

Section 2.01 The Exchanges. On the terms of this Agreement and subject to the satisfaction (or, to the extent permitted by applicable Law, waiver by the party entitled to the benefit thereof) of the conditions set forth in Article VII, at the Closing, Deason will transfer and deliver to Xerox, and Xerox will accept from Deason, an aggregate of 300,000 shares of Xerox Series A Preferred Stock, and Xerox will transfer and deliver to Deason, and Deason will accept from Xerox, in exchange, (i) an aggregate of 120,000 shares of Conduent Series A Preferred Stock (the “Conduent Exchange” and such shares, the “Acquired Conduent Shares”) and (ii) an aggregate of 180,000 shares of Xerox Series B Preferred Stock (the “Xerox Exchange” and such shares, the “Acquired Xerox Shares”). The transfers and deliveries of shares pursuant to this Section 2.01 are referred to collectively as the “Exchanges”.

Section 2.02 Closing. (a) On the terms of this Agreement, the closing of the Exchanges (the “Closing”) shall occur immediately following the completion of the Distribution so long as all of the conditions to the Closing set forth in Article VII of this Agreement have been satisfied or, to the extent permitted by applicable Law, waived by the party entitled to the benefit thereof (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions at such time) at the offices of Cravath, Swaine & Moore LLP, 825 Eighth Avenue, New York, New York 10019, or at such other place, time and date as shall be agreed between Xerox and Deason (the date on which the Closing occurs, the “Closing Date”).

(b) At the Closing:

(i) Deason shall deliver to Xerox an aggregate of 300,000 shares of Xerox Series A Preferred Stock free and clear of all Liens, except Permitted Liens;

(ii) Xerox shall deliver to Deason the Acquired Conduent Shares, which shares will have been previously issued to Xerox by Conduent, and the Acquired Xerox Shares, in each case, free and clear of all Liens, except Permitted Liens.

Section 2.03 Effect on Capital Stock. Upon Closing, by virtue of the Exchanges and without any action on the part of the holders of any capital stock of Xerox, all shares of Xerox Series A Preferred Stock shall no longer be outstanding and shall automatically be canceled and shall cease to exist.

 

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ARTICLE III

Representations and Warranties of Xerox

Xerox represents and warrants to Deason as of the date of this Agreement and as of the Closing (except to the extent made only as of a specified date, in which case such representation and warranty is made as of such date) that:

Section 3.01 Organization; Authority; Noncontravention. (a) Xerox is a corporation duly organized and validly existing under the Laws of the State of New York. Xerox has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution, delivery and performance by Xerox of this Agreement, and the consummation by it of the Exchanges, have been duly authorized and no other corporate action on the part of Xerox or action on the part of its shareholders is necessary to authorize the execution, delivery and performance by Xerox of this Agreement and the consummation by it of the Exchanges. This Agreement has been duly executed and delivered by Xerox and, assuming due authorization, execution and delivery of this Agreement by Deason, constitutes a legal, valid and binding obligation of Xerox, enforceable against Xerox in accordance with its terms, except that such enforceability (i) may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar Laws of general application affecting or relating to the enforcement of creditors’ rights generally and (ii) is subject to general principles of equity, whether considered in a proceeding at law or in equity (the “Bankruptcy and Equity Exception”).

(b) Neither the execution and delivery of this Agreement by Xerox, nor the consummation by Xerox of the Exchanges, nor performance or compliance by Xerox with any of the terms or provisions of this Agreement, will (i) conflict with or violate any provision of Xerox Charter Documents or (ii) assuming that the consents and approvals referred to in Section 3.03 are obtained prior to the Closing Date, violate any Law or Judgment applicable to Xerox or any of its Subsidiaries, except in the case of clause (ii) as would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Xerox to consummate the Exchanges.

Section 3.02 Capitalization; Indebtedness. (a) The authorized capital stock of Xerox consists of 1,750,000,000 shares of Xerox Common Stock, 600,000 shares of Class B Stock, par value $1.00 per share, and 22,043,067 shares of Cumulative Preferred Stock, par value $1.00 per share, of which 300,000 shares of Xerox Series A Preferred Stock are authorized and 180,000 shares of Xerox Series B Preferred Stock will be authorized as of the Closing. As of the close of business on September 30, 2016, (i) 1,013,776,524 shares of Xerox Common Stock were issued and outstanding (and no Xerox Restricted Shares were issued and outstanding), (ii) 101,171,373 shares of Xerox Common Stock were reserved and available for issuance pursuant to the Xerox Stock Plans, (iii) 34,678,712 shares of Xerox Common Stock were subject to outstanding awards under the Xerox Stock Plans, (iv) 300,000 shares of Xerox Series A Preferred Stock were issued and outstanding, (v) 26,966,280 shares of Xerox Common Stock were reserved and available for issuance upon conversion of the Xerox Series A Preferred Stock and (vi) approximately 835,000 shares of Xerox Common Stock were reserved and available for issuance pursuant to the historical convertible indebtedness and other instruments.

 

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(b) Except as described in this Section 3.02, as of the close of business on September 30, 2016, there were (i) no outstanding shares of capital stock of, or other equity or voting interests in, Xerox, (ii) no outstanding securities of Xerox convertible into or exchangeable for shares of capital stock of, or other equity or voting interests in, Xerox, (iii) no outstanding options, warrants, rights or other commitments or agreements to acquire from Xerox, or that obligate Xerox to issue, any capital stock of, or other equity or voting interests (or voting debt) in, or any securities convertible into or exchangeable for shares of capital stock of, or other equity or voting interests in, Xerox other than obligations under Xerox Plans in the ordinary course of business, (iv) no obligations of Xerox to grant, extend or enter into any subscription, warrant, right, convertible or exchangeable security or other similar agreement or commitment relating to any capital stock of, or other equity or voting interests in, Xerox (the items in clauses (i), (ii), (iii) and (iv) being referred to collectively as “Xerox Securities”) and (v) no other obligations by Xerox or any of its Subsidiaries to make any payments based on the price or value of any Xerox Securities.

(c) As of as of the close of business on September 30, 2016, the principal amount of outstanding indebtedness for borrowed money of Xerox and its Subsidiaries (not including intercompany indebtedness or operating leases) was approximately $7,400 million inclusive of net unamortized discounts and fair value adjustments, which do not exceed $25 million in the aggregate.

Section 3.03 Governmental Approvals. No consent or approval of, or filing, license, permit or authorization, declaration or registration with, any Governmental Authority is necessary for the execution and delivery of this Agreement by Xerox, the performance by Xerox of its obligations hereunder and the consummation by Xerox of the Exchanges, except for (a) the filing of the Xerox Certificate of Amendment with the New York Department of State, (b) the filing of the Conduent Certificate of Amendment with the New York Department of State, (c) such consents, approvals, filings, declarations or registrations to be made or obtained under the applicable state securities or blue sky Laws and (d) such consents, approvals, filings, licenses, permits, authorizations, declarations or registrations that, if not obtained, made or given, would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Xerox to consummate the Exchanges.

Section 3.04 Brokers and Other Advisors. No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission, or the reimbursement of expenses in connection therewith, in connection with this Agreement or the Exchanges based upon arrangements made by or on behalf of Xerox or any of its Subsidiaries, other than any arrangements for which Xerox or any of its Subsidiaries are solely responsible.

 

8


Section 3.05 Exchange of Securities. Assuming the accuracy of the representations and warranties set forth in Section 5.05, the Xerox Exchange is exempt from the registration and prospectus delivery requirements of the Securities Act. Without limiting the foregoing, neither Xerox nor, to Xerox’s knowledge, any other Person authorized by Xerox to act on its behalf, has engaged in a general solicitation or general advertising (within the meaning of Regulation D of the Securities Act) of investors with respect to offers or sales of shares of Xerox Series B Preferred Stock, and neither Xerox nor, to Xerox’s knowledge, any Person acting on its behalf has made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the exchange or issuance of the Acquired Xerox Shares to be integrated with prior offerings by Xerox for purposes of the Securities Act that would result in none of Regulation D or any other applicable exemption from registration under the Securities Act being available, nor will Xerox take any action or steps that would cause the exchange or issuance of the Acquired Xerox Shares to be integrated with other offerings by Xerox.

Section 3.06 Listing and Maintenance Requirements. The Xerox Common Stock is registered pursuant to Section 12(b) of the Exchange Act and listed on the Xerox Stock Exchange, and Xerox has taken no action designed to terminate, or which to Xerox’s knowledge is reasonably likely to have the effect of terminating, the registration of the Xerox Common Stock under the Exchange Act or delisting the Xerox Common Stock from the Xerox Stock Exchange.

Section 3.07 Status of Securities. As of the Closing, the Acquired Xerox Shares will be and, upon the conversion, the shares of Xerox Common Stock issuable upon conversion of the Acquired Xerox Shares will be, when issued, duly authorized by all necessary corporate action on the part of Xerox, validly issued, fully paid and nonassessable and issued in compliance with all applicable federal and state securities Laws, and will be free and clear of all Liens, except Permitted Liens. The shares of Xerox Common Stock issuable upon conversion of the Acquired Xerox Shares have been duly reserved for issuance.

Section 3.08 Xerox SEC Documents. (a) Since January 1, 2014, Xerox has filed or furnished with the SEC all material forms, schedules, prospectuses, registration statements, reports and other documents required to be filed or furnished by it with the SEC (the “Xerox SEC Documents”). As of their respective dates, or, if amended or superseded, as of the date of such amendment or superseding filing or document so furnished, (i) the Xerox SEC Documents complied in all material respects with the requirements of the Securities Act, the Exchange Act or the Sarbanes-Oxley Act, as the case may be, and the applicable rules and regulations promulgated thereunder and (ii) none of the Xerox SEC Documents contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading in any material respect. No executive officer of Xerox has failed to make the applicable certifications, if any, required by him or her under Section 302 or 906 of the Sarbanes-Oxley Act, with respect to any Xerox SEC Document, except as disclosed in certifications filed with the Xerox SEC Documents. As of the date hereof, there are no outstanding or unresolved comments in any comment letters of the staff of the SEC received by Xerox relating to the Xerox SEC Documents.

 

9


(b) The consolidated financial statements (including all related notes and schedules) of Xerox included in the Xerox SEC Documents (i) complied as to form, as of their respective dates of filing with the SEC, in all material respects with the published rules and regulations of the SEC with respect thereto, (ii) fairly present in all material respects the consolidated financial position of Xerox and its consolidated Subsidiaries as at the respective dates thereof and their consolidated results of operations and consolidated cash flows for the respective periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments, to the absence of notes and to any other adjustments described therein, including in any notes thereto), (iii) have been prepared in all material respects in accordance with the books and records of Xerox and its consolidated Subsidiaries and (iv) have been prepared in accordance with GAAP applied on a consistent basis during the periods indicated (except as may be indicated therein or in the notes thereto and subject, in the case of unaudited statements, to normal year-end audit adjustments and to the absence of notes).

(c) None of Xerox or its Subsidiaries is a party to, or has any commitment to become a party to, “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the SEC) other than those which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Xerox to consummate the Exchanges or has had or would reasonably be expected to have, a material adverse effect on the business, assets, properties, results of operation or financial condition of Xerox and its Subsidiaries, taken as a whole.

Section 3.09 No Undisclosed Liabilities. Except (a) as reflected or expressly reserved against in Xerox’s financial statements, or the notes thereto, included in the Xerox SEC Documents filed with the SEC and publicly available prior to the date of this Agreement, (b) for Liabilities incurred in the ordinary course of business consistent with past practice since the date of such financial statements and (c) for Liabilities arising out of or in connection with this Agreement, none of Xerox or its Subsidiaries has any Liabilities that would be required to be reflected or reserved against in a consolidated balance sheet of Xerox and its consolidated subsidiaries prepared in accordance with GAAP, as in effect on the date hereof, other than those which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Xerox to consummate the Exchanges or has had or would reasonably be expected to have, a material adverse effect on the business, assets, properties, results of operation or financial condition of Xerox and its Subsidiaries, taken as a whole.

Section 3.10 Disclaimer. Except as set forth in this Article III, neither Xerox nor any other Person acting on its behalf makes any other express or implied representation or warranty with respect to Xerox Series B Preferred Stock, the Xerox Common Stock, Xerox or any of its Subsidiaries or their respective businesses, operations, properties, assets, liabilities, condition (financial or otherwise) or prospects, notwithstanding the delivery or disclosure to Deason or any of his Representatives of any documentation, forecasts or other information with respect to any one or more of the foregoing. Deason acknowledges that he is not executing or authorizing the execution of this Agreement in reliance upon any such representation or warranty not explicitly set forth in this Article III.

 

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ARTICLE IV

Representations and Warranties of Conduent

Conduent represents and warrants to Deason as of the date of this Agreement and as of the Closing (except to the extent made only as of a specified date, in which case such representation and warranty is made as of such date) that:

Section 4.01 Organization; Authority; Noncontravention. (a) Conduent is a corporation duly organized and validly existing under the Laws of the State of New York. Conduent has all necessary corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution, delivery and performance by Conduent of this Agreement, and the consummation by it of the Exchanges, have been duly authorized and no other corporate action on the part of Conduent or action on the part of its sole shareholder is necessary to authorize the execution, delivery and performance by Conduent of this Agreement and the consummation by it of the Exchanges. This Agreement has been duly executed and delivered by Conduent and, assuming due authorization, execution and delivery of this Agreement by Deason, constitutes a legal, valid and binding obligation of Conduent, enforceable against Conduent in accordance with its terms, subject to the Bankruptcy and Equity Exception.

(b) Neither the execution and delivery of this Agreement by Conduent, nor the consummation by Conduent of the Exchanges, nor performance or compliance by Conduent with any of the terms or provisions of this Agreement, will (i) conflict with or violate any provision of the Conduent Charter Documents or (ii) assuming that the consents and approvals referred to in Section 4.02 are obtained prior to the Closing Date, violate any Law or Judgment applicable to Conduent or any of its Subsidiaries, except in the case of clause (ii) as would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Conduent to consummate the Exchanges.

Section 4.02 Governmental Approvals. No consent or approval of, or filing, license, permit or authorization, declaration or registration with, any Governmental Authority is necessary for the execution and delivery of this Agreement by Conduent, the performance by Conduent of its obligations hereunder and the consummation by Conduent of the Exchanges, except for (a) the filing of the Xerox Certificate of Amendment with the New York Department of State, (b) the filing of the Conduent Certificate of Amendment with the New York Department of State, (c) such consents, approvals, filings, declarations or registrations to be made or obtained under the applicable state securities or blue sky Laws and (d) such consents, approvals, filings, licenses, permits, authorizations, declarations or registrations that, if not obtained, made or given, would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Conduent to consummate the Exchanges.

 

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Section 4.03 Brokers and Other Advisors. No broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission, or the reimbursement of expenses in connection therewith, in connection with this Agreement or the Exchanges based upon arrangements made by or on behalf of Conduent or any of its Subsidiaries, other than any arrangements for which Conduent or any of its Subsidiaries are solely responsible.

Section 4.04 Exchange of Securities. Assuming the accuracy of the representations and warranties set forth in Section 5.05, the Conduent Exchange is exempt from the registration and prospectus delivery requirements of the Securities Act. Without limiting the foregoing, neither Conduent nor, to Conduent’s knowledge, any other Person authorized by Conduent to act on its behalf, has engaged in a general solicitation or general advertising (within the meaning of Regulation D of the Securities Act) of investors with respect to offers or sales of shares of Conduent Series A Preferred Stock, and neither Conduent nor, to Conduent’s knowledge, any Person acting on its behalf has made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause the exchange or issuance of the Acquired Conduent Shares to be integrated with prior offerings by Conduent for purposes of the Securities Act that would result in none of Regulation D or any other applicable exemption from registration under the Securities Act being available, nor will Conduent take any action or steps that would cause the exchange or issuance of the Acquired Conduent Shares to be integrated with other offerings by Conduent.

Section 4.05 Listing and Maintenance Requirements. At or prior to the Closing, the shares of Conduent Common Stock will be registered pursuant to Section 12(b) of the Exchange Act and listed on the Conduent Stock Exchange, subject to official notice of issuance.

Section 4.06 Status of Securities. As of the Closing, the Acquired Conduent Shares will be and, upon the conversion, the shares of Conduent Common Stock issuable upon conversion of the Acquired Conduent Shares will be, when issued, duly authorized by all necessary corporate action on the part of Conduent, validly issued, fully paid and nonassessable and issued in compliance with all applicable federal and state securities Laws, and will be free and clear of all Liens, except Permitted Liens. The shares of Conduent Common Stock issuable upon conversion of the Acquired Conduent Shares have been duly reserved for issuance.

Section 4.07 Conduent SEC Documents. (a) Conduent has filed or furnished with the SEC all material forms, schedules, prospectuses, registration statements, reports and other documents required to be filed or furnished by it with the SEC, including, for the avoidance of doubt, Conduent’s registration statement on Form 10, as amended through October 21, 2016, including the exhibits thereto (the “Conduent SEC Documents”). As of their respective dates, or, if amended or superseded, as of the date of such amendment or superseding filing or document so furnished, (i) the Conduent

 

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SEC Documents complied in all material respects with the requirements of the Securities Act, the Exchange Act or the Sarbanes-Oxley Act, as the case may be, and the applicable rules and regulations promulgated thereunder and (ii) none of the Conduent SEC Documents contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading in any material respect. As of the Closing Date, no executive officer of Conduent will have failed to make the certifications required by him or her under Section 302 or 906 of the Sarbanes-Oxley Act, with respect to any Conduent SEC Document, except as disclosed in certifications filed with the Conduent SEC Documents. As of the date hereof, there are no outstanding or unresolved comments in any comment letters of the staff of the SEC received by Conduent relating to the Conduent SEC Documents, except for unresolved comments, if any, relating to Conduent’s registration statement on Form 10.

(b) The consolidated financial statements (including all related notes and schedules) of Conduent included in the Conduent SEC Documents (i) complied as to form, as of their respective dates of filing with the SEC, in all material respects with the published rules and regulations of the SEC with respect thereto, (ii) fairly present in all material respects the consolidated financial position of Conduent and its consolidated Subsidiaries as at the respective dates thereof and their consolidated results of operations and consolidated cash flows for the respective periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments, to the absence of notes and to any other adjustments described therein, including in any notes thereto), (iii) have been prepared in all material respects in accordance with the books and records of Conduent and its consolidated Subsidiaries and (iv) have been prepared in accordance with GAAP applied on a consistent basis during the periods indicated (except as may be indicated therein or in the notes thereto and subject, in the case of unaudited statements, to normal year-end audit adjustments and to the absence of notes).

(c) None of Conduent or its Subsidiaries is a party to, or has any commitment to become a party to, “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the SEC) other than those which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Conduent to consummate the Exchanges or has had or would reasonably be expected to have, a material adverse effect on the business, assets, properties, results of operation or financial condition of Conduent and its Subsidiaries, taken as a whole.

Section 4.08 No Undisclosed Liabilities. Except (a) as reflected or expressly reserved against in Conduent’s financial statements, or the notes thereto, included in the Conduent SEC Documents filed with the SEC and publicly available prior to the date of this Agreement, (b) for Liabilities incurred in the ordinary course of business consistent with past practice since the date of such financial statements and (c) for Liabilities arising out of or in connection with this Agreement, none of Conduent or its Subsidiaries has any Liabilities that would be required to be reflected or reserved against in a consolidated balance sheet of Conduent and its consolidated subsidiaries prepared in accordance with GAAP, as in effect on the date hereof, other than those which would not, individually or in the aggregate, reasonably be expected to have a

 

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material adverse effect on the ability of Conduent to consummate the Exchanges or has had or would reasonably be expected to have, a material adverse effect on the business, assets, properties, results of operation or financial condition of Conduent and its Subsidiaries, taken as a whole.

Section 4.09 Disclaimer. Except as set forth in this Article IV, neither Conduent nor any other Person acting on its behalf makes any other express or implied representation or warranty with respect to Conduent Series A Preferred Stock, the Conduent Common Stock, Conduent or any of its Subsidiaries or their respective businesses, operations, properties, assets, liabilities, condition (financial or otherwise) or prospects, notwithstanding the delivery or disclosure to Deason or any of his Representatives of any documentation, forecasts or other information with respect to any one or more of the foregoing. Deason acknowledges that he is not executing or authorizing the execution of this Agreement in reliance upon any such representation or warranty not explicitly set forth in this Article IV.

ARTICLE V

Representations and Warranties of Deason

Deason represents and warrants to Conduent and Xerox as of the date of this Agreement and as of the Closing (except to the extent made only as of a specified date, in which case such representation and warranty is made as of such date) that:

Section 5.01 Authority; Noncontravention. (a) Deason is competent and has all necessary power and authority to execute and deliver this Agreement, to perform his obligations hereunder and to consummate the Exchanges. The execution, delivery and performance by Deason of this Agreement, and the consummation by Deason of the Exchanges, have been duly authorized and no other action on the part of Deason is necessary to authorize the execution, delivery and performance by Deason of this Agreement and the consummation by Deason of the Exchanges. This Agreement has been duly executed and delivered by Deason and, assuming due authorization, execution and delivery hereof by Xerox and Conduent, constitutes a legal, valid and binding obligation of Deason, enforceable against him in accordance with its terms, subject to the Bankruptcy and Equity Exception. If Deason’s shares of Xerox Series A Preferred Stock constitute community property or spousal or other approval is otherwise required for this Agreement to be legal, valid and binding, the execution, delivery and performance of this Agreement, and the consummation by Deason of the Exchanges, have been duly authorized by, and, assuming the due authorization, execution and delivery by Deason, Xerox and Conduent, as applicable, constitute legal, valid and binding obligations of Deason’s spouse, enforceable against such spouse in accordance with their terms, subject to the Bankruptcy and Equity Exception.

(b) Neither the execution and delivery of this Agreement by Deason, nor the consummation by Deason of the Exchanges, nor performance or compliance by Deason with any of the terms or provisions of this Agreement, will, assuming that the consents and approvals referred to in Section 5.03 are obtained prior to the Closing Date,

 

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violate any Law or Judgment applicable to Deason, except as would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Deason to consummate the Exchanges.

Section 5.02 Ownership; Title to Shares. (a) As of the date of this Agreement, Deason beneficially owns, and has sole voting and dispositive power over, an aggregate of 300,000 shares of Xerox Series A Preferred Stock.

(b) Deason (i) holds and has good and valid title to the shares of Xerox Series A Preferred Stock to be transferred and delivered to Xerox pursuant to the Exchanges and the certificates representing such shares, free and clear of any Liens, except Permitted Liens, and (ii) is the record and beneficial owner thereof. Assuming Xerox has the requisite power and authority to be the lawful owner of such Xerox Series A Preferred Stock, upon delivery to Xerox at the Closing of certificates representing such shares of Xerox Series A Preferred Stock, duly endorsed by Deason for transfer to Xerox, good and valid title to such shares of Xerox Series A Preferred Stock will pass to Xerox, free and clear of any Liens, except Permitted Liens.

(c) Such shares of Xerox Series A Preferred Stock are not subject to any agreement or arrangement restricting the transfer of any such shares, including any investors’ rights agreement, pre-emption agreement, right of first refusal agreement, right to first offer agreement, right of first negotiation agreement, subscription rights agreement, right of co-sale agreement or right of consent agreement. Deason is not a party to any voting agreement or other agreement or arrangement relating to the ownership, voting, dividend right or disposition with respect of such shares of Xerox Series A Preferred Stock and has not granted any proxy that remains in effect with respect to any shares of Xerox Series A Preferred Stock.

Section 5.03 Governmental Approvals. No consent or approval of, or filing, license, permit or authorization, declaration or registration with, any Governmental Authority is necessary for the execution and delivery of this Agreement by Deason, the performance by Deason of his obligations hereunder and the consummation by Deason of the Exchanges, except for (a) the filing of the Xerox Certificate of Amendment with the New York Department of State, (b) the filing of the Conduent Certificate of Amendment with the New York Department of State, (c) such consents, approvals, filings, declarations or registrations to be made or obtained under the applicable state securities or blue sky Laws and (d) such consents, approvals, filings, licenses, permits, authorizations, declarations or registrations that, if not obtained, made or given, would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Deason to consummate the Exchanges.

Section 5.04 Brokers and Other Advisors. Except as provided in Section 9.11, no broker, investment banker, financial advisor or other Person is entitled to any broker’s, finder’s, financial advisor’s or other similar fee or commission, or the reimbursement of expenses in connection therewith, in connection with this Agreement or the Exchanges based upon arrangements made by or on behalf of Deason, other than any arrangements for which Deason is solely responsible.

 

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Section 5.05 Acquisition for Investment. Deason acknowledges that the Acquired Xerox Shares and the Acquired Conduent Shares (together, the “Acquired Shares”) have not been registered under the Securities Act or any other applicable securities Laws. Deason acknowledges that he (a) is acquiring the Acquired Shares in exchange for the shares of Xerox Series A Preferred Stock pursuant to an exemption from registration under the Securities Act solely for investment with no intention to distribute the Acquired Shares to any Person, (b) will not sell, transfer, or otherwise dispose of the Acquired Shares, except in compliance with this Agreement, the Xerox Certificate of Amendment, the Conduent Certificate of Amendment and the registration requirements or exemption provisions of the Securities Act and any other applicable securities Laws, (c) has such knowledge and experience in financial and business matters and in investments of this type that he is capable of evaluating the merits and risks of his investment in the Acquired Shares and of making an informed investment decision, (d) is an “accredited investor” (as that term is defined by Rule 501 of the Securities Act) and (e) (i) has been furnished with or has had full access to all the information that he considers necessary or appropriate to make an informed investment decision with respect to the Acquired Shares, (ii) has had an opportunity to discuss with Xerox, Conduent and their respective Representatives the intended business and financial affairs of Xerox and Conduent and to obtain information necessary to verify any information furnished to him or to which he had access and (iii) can bear the economic risk of (1) an investment in the Acquired Shares indefinitely and (2) a total loss in respect of such investment. Deason has such knowledge and experience in business and financial matters so as to enable him to understand and evaluate the risks of, and form an investment decision with respect to his investment in, the Acquired Shares and to protect his own interest in connection with such investment.

Section 5.06 Disclaimer. Except as set forth in this Article V, neither Deason nor any other Person acting on his behalf makes any other express or implied representation or warranty with respect to himself or the nature of his participation in the Exchanges. Each of Xerox and Conduent acknowledges that it is not executing or authorizing the execution of this Agreement in reliance upon any such representation or warranty not explicitly set forth in this Article V.

ARTICLE VI

Additional Agreements

Section 6.01 Reasonable Best Efforts; Filings. (a) Subject to the terms and conditions of this Agreement, each of Xerox, Conduent and Deason shall cooperate with each other and use (and shall cause their respective Affiliates to use) its reasonable best efforts (unless, with respect to any action, another standard of performance is expressly provided for herein) to promptly (i) take, or cause to be taken, all actions, and do, or cause to be done, and assist and cooperate with each other in doing, all things necessary, proper or advisable to cause the conditions to Closing to be satisfied as promptly as reasonably practicable and to consummate and make effective, in the most expeditious manner reasonably practicable, the Exchanges, including preparing and filing promptly and fully all documentation to effect all necessary filings, notices, petitions,

 

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statements, registrations, submissions of information, applications and other documents, (ii) obtain all approvals, consents, registrations, orders and other confirmations from any Governmental Authority or third party necessary, proper or advisable to consummate the Exchanges and (iii) execute and deliver any additional instruments necessary to consummate the Exchanges.

(b) Notwithstanding the foregoing or anything to the contrary in this Agreement, in no event shall Xerox or Conduent (or any of their respective Affiliates) be obligated by this Agreement to (i) consummate the Spin-Off, (ii) other than providing for the transactions contemplated herein, make any modifications or alterations to the Spin-Off Documents or to the terms of the Separation or the Distribution or (iii) agree to, or proffer to, divest or hold separate, or enter into any licensing or similar agreement with respect to, any assets (whether tangible or intangible) or any portion of any business of Xerox or any of its Affiliates or of Conduent or any of its Affiliates; provided, however that if Xerox elects to consummate the Spin-Off, it shall ensure that the terms of the Spin-Off Documents are consistent with the terms of this Agreement.

(c) Xerox shall promptly (in any event, within (1) Business Day) notify Deason in writing if Xerox determines to abandon the Spin-Off or materially modify the Spin-Off from the manner contemplated by and disclosed in Conduent’s registration statement on Form 10, as amended through October 21, 2016, including the exhibits thereto (other than modifications to give effect to or reflect the transactions contemplated herein).

Section 6.02 Corporate Actions. Prior to or substantially concurrently with the Closing, (a) Xerox shall file with the New York Department of State the Xerox Certificate of Amendment substantially in the form attached hereto as Annex I and (b) Conduent shall file with the New York Department of State the Conduent Certificate of Amendment substantially in the form attached hereto as Annex II, in each case with such changes thereto as the parties may reasonably agree.

Section 6.03 Prohibition on Transfers; Other Actions. Prior to the Closing, Deason shall not (a) directly or indirectly, subject to any Lien, sell, transfer, assign, pledge, encumber, hypothecate or otherwise dispose of or transfer (by the operation of law or otherwise), either voluntarily or involuntarily, or enter into any contract, option or other arrangement with respect to any Lien, the sale, transfer, assignment, pledge, encumbrance, hypothecation or other disposition or transfer (by the operation of law or otherwise) of any interest in any shares of Xerox Series A Preferred Stock (“Transfer”) or (b) convert any shares of Xerox Series A Preferred Stock into shares of Xerox Common Stock. Any Transfer or conversion by Deason in violation of this provision shall be void.

Section 6.04 Public Disclosure. None of Deason, Xerox or Conduent shall make or issue any press release or other public statement with respect to the Exchanges or this Agreement without the prior written consent of the other parties hereto, except (i) as may be required by applicable Law, Judgment, court process or the rules and regulations of any national securities exchange or national securities quotation system

 

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and (ii) each party hereto shall be permitted to disclose that this Agreement and the Settlement Agreement have been executed and delivered. Notwithstanding the foregoing, this Section 6.04 shall not apply to any press release or other public statement made by Xerox, Conduent or Deason which only contains information relating to the Exchanges, this Agreement or the Settlement Agreement that has been previously announced or made public in accordance with the terms of this Agreement and the Settlement Agreement.

Section 6.05 Listing of Shares. (a) At or prior to the Closing, (i) Conduent shall cause the aggregate number of shares of Conduent Common Stock issuable upon the conversion of the Acquired Conduent Shares to be approved for listing on the Conduent Stock Exchange and (ii) Xerox shall cause the aggregate number of shares of Xerox Common Stock issuable upon the conversion of the Acquired Xerox Shares to be approved for listing on the Xerox Stock Exchange, in each case subject to official notice of issuance.

(b) At all times, (i) Xerox shall reserve and keep available out of its authorized but unissued Xerox Common Stock, solely for the purpose of issuance upon conversion of the Xerox Series B Preferred Stock, the maximum number of shares of Xerox Common Stock as shall be issuable upon conversion of all outstanding shares of Xerox Series B Preferred Stock; provided that nothing contained herein shall be construed to preclude Xerox from satisfying its obligations in respect of any such conversion by delivery of purchased shares of Xerox Common Stock (which may or may not be held in the treasury of Xerox) and (ii) Conduent shall reserve and keep available out of its authorized but unissued Conduent Common Stock, solely for the purpose of issuance upon conversion of the Conduent Series A Preferred Stock, the maximum number of shares of Conduent Common Stock as shall be issuable upon conversion of all outstanding shares of Conduent Series A Preferred Stock; provided that nothing contained herein shall be construed to preclude Conduent from satisfying its obligations in respect of any such conversion by delivery of purchased shares of Conduent Common Stock (which may or may not be held in the treasury of Conduent).

Section 6.06 DEASON RELEASE. EFFECTIVE AS OF THE CLOSING, DEASON DOES FOR HIMSELF AND HIS AFFILIATES, PARTNERS, HEIRS, BENEFICIARIES, SUCCESSORS AND ASSIGNS, IF ANY (COLLECTIVELY, THE “DEASON PARTIES”), RELEASE AND ABSOLUTELY FOREVER DISCHARGE XEROX, CONDUENT AND THEIR RESPECTIVE AFFILIATES, AND THE OFFICERS, DIRECTORS, STOCKHOLDERS, EMPLOYEES, ADVISORS AND AGENTS OF XEROX, CONDUENT AND THEIR RESPECTIVE AFFILIATES (EACH, A “RELEASED PARTY”) FROM AND AGAINST ALL RELEASED MATTERS. “RELEASED MATTERS” MEANS ANY AND ALL CLAIMS, DEMANDS, DAMAGES, DEBTS, LIABILITIES, OBLIGATIONS, COSTS, EXPENSES (INCLUDING ATTORNEYS’ AND ACCOUNTANTS’ FEES AND EXPENSES), ACTIONS AND CAUSES OF ACTION OF ANY NATURE WHATSOEVER, WHETHER NOW KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED, THAT THE DEASON PARTIES NOW HAVE, OR AT ANY TIME PREVIOUSLY HAD, OR SHALL OR MAY HAVE IN THE FUTURE, AS A HOLDER OF PREFERRED STOCK OF XEROX OR CONDUENT,

 

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ARISING BY VIRTUE OF OR IN ANY MATTER RELATED TO ANY ACTIONS OR INACTIONS WITH RESPECT TO THE SPIN-OFF; PROVIDED THAT RELEASED MATTERS SHALL NOT INCLUDE ANY RIGHT OF DEASON CONTAINED IN THIS AGREEMENT, THE SETTLEMENT AGREEMENT OR IN THE TERMS OF THE XEROX CERTIFICATE OF AMENDMENT OR THE CONDUENT CERTIFICATE OF AMENDMENT. IT IS THE INTENTION OF DEASON IN EXECUTING THIS RELEASE, AND IN GIVING AND RECEIVING THE CONSIDERATION CALLED FOR HEREIN, THAT THE RELEASE CONTAINED IN THIS SECTION 6.06 SHALL BE EFFECTIVE AS A FULL AND FINAL ACCORD AND SATISFACTION AND GENERAL RELEASE OF AND FROM ALL RELEASED MATTERS AND THE FINAL RESOLUTION BY THE DEASON PARTIES AND THE RELEASED PARTIES OF ALL RELEASED MATTERS. DEASON HEREBY REPRESENTS TO XEROX AND CONDUENT THAT NONE OF THE DEASON PARTIES HAVE VOLUNTARILY OR INVOLUNTARILY ASSIGNED OR TRANSFERRED OR PURPORTED TO ASSIGN OR TRANSFER TO ANY PERSON ANY RELEASED MATTERS AND THAT NO PERSON OTHER THAN DEASON HAS ANY INTEREST IN ANY RELEASED MATTER BY LAW OR CONTRACT BY VIRTUE OF ANY ACTION OR INACTION BY DEASON. THE INVALIDITY OR UNENFORCEABILITY OF ANY PART OF THIS SECTION 6.06 SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF THE REMAINDER OF THIS SECTION 6.06 WHICH SHALL REMAIN IN FULL FORCE AND EFFECT.

Section 6.07 Legend. All certificates or other instruments representing shares of Xerox Series B Preferred Stock (or shares Xerox Common Stock issued upon conversion of shares of Xerox Series B Preferred Stock) will bear a legend substantially to the following effect:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER.

TRANSFERS OF THIS SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE CERTIFICATE OF INCORPORATION OF XEROX.

 

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All certificates or other instruments representing shares of Conduent Series A Preferred Stock (or shares Conduent Common Stock issued upon conversion of the shares of Conduent Series A Preferred Stock) will bear a legend substantially to the following effect:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER.

TRANSFERS OF THIS SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE CERTIFICATE OF INCORPORATION OF CONDUENT.

Section 6.08 Tax Matters. (a) Conduent and its paying agent shall be entitled to withhold Taxes on all payments on the Acquired Conduent Shares (or Conduent Common Stock issued upon conversion of the Acquired Conduent Shares) to the extent required by applicable Law. Prior to the date of any such payment, Deason shall have delivered to Conduent or its paying agent a duly executed, valid, accurate and properly completed Internal Revenue Service (“IRS”) Form W-9.

(b) Xerox and its paying agent shall be entitled to withhold Taxes on all payments under this Agreement and all payments on the Acquired Xerox Shares (or Xerox Common Stock issued upon conversion of the Acquired Xerox Shares) to the extent required by applicable Law. Prior to the date of any such payment, Deason shall have delivered to Xerox or its paying agent a duly executed, valid, accurate and properly completed IRS Form W-9.

(c) No issue or delivery shall be made of (i) the Acquired Conduent Shares, (ii) shares of Conduent Common Stock upon conversion of the Acquired Conduent Shares, (iii) the Acquired Xerox Shares or (iv) shares of Xerox Common Stock upon conversion of the Acquired Xerox Shares, in each case unless and until the person requesting such issue or delivery has paid to Xerox (in the case of the Acquired Conduent Shares, the Acquired Xerox Shares or shares of Xerox Common Stock) or Conduent (in the case of shares of Conduent Common Stock) the amount of any and all documentary, stamp and similar issue or transfer Taxes due on such issue, or has established to the satisfaction of Xerox or Conduent, as applicable, that such Taxes have been paid.

(d) The parties hereto intend that (i) the Distribution (including the Conduent Exchange) qualify as a distribution of Conduent Common Stock and as an exchange of Conduent Series A Preferred Stock for Xerox Series A Preferred Stock pursuant to Section 355 of the Code and (ii) the Xerox Exchange qualify as a “reorganization” under Section 368 of the Code, and in each case, the parties hereto shall not take any position inconsistent with such treatment, unless otherwise required by applicable Law. Consistent with the foregoing, the parties hereto agree that Xerox will transfer to Deason the Xerox Series B Preferred Stock and Conduent Series A Preferred Stock solely in exchange for Xerox Series A Preferred Stock and Deason will receive the Xerox Series B Preferred Stock and Conduent Series A Preferred Stock solely in his capacity as a shareholder of Xerox.

 

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ARTICLE VII

Conditions to Closing

Section 7.01 Conditions to the Obligations of Xerox, Conduent and Deason. The respective obligations of each of Xerox, Conduent and Deason to effect the Closing shall be subject to the satisfaction (or waiver, if permissible under applicable Law) on or prior to the Closing Date of the following conditions:

(a) no temporary or permanent Judgment shall have been enacted, promulgated, issued, entered, amended or enforced by any Governmental Authority nor shall any proceeding brought by a Governmental Authority seeking any of the foregoing be pending, or any applicable Law shall be in effect enjoining or otherwise prohibiting consummation of the Exchanges (collectively, “Restraints”);

(b) the Spin-Off shall have been completed;

(c) any shares of Xerox Common Stock issuable upon conversion of the Acquired Xerox Shares pursuant to the terms of the Xerox Certificate of Amendment shall have been approved for listing on the Xerox Stock Exchange, subject to official notice of issuance; and

(d) any shares of Conduent Common Stock issuable upon conversion of the Acquired Conduent Shares pursuant to the terms of the Conduent Certificate of Amendment shall have been approved for listing on the Conduent Stock Exchange, subject to official notice of issuance.

Section 7.02 Conditions to the Obligations of Xerox and Conduent. The obligations of Xerox and Conduent to effect the Closing shall be further subject to the satisfaction (or waiver, if permissible under applicable Law) on or prior to the Closing Date of the following conditions:

(a) the representations and warranties of Deason set forth in Article V shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date with the same effect as though made as of the date of this Agreement and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date);

(b) Deason shall have complied with or performed in all material respects his obligations required to be complied with or performed by him pursuant to this Agreement at or prior to the Closing; and

(c) Xerox and Conduent shall have received a certificate, signed on behalf of Deason by Deason or his Representatives, certifying that the conditions set forth in Sections 7.02(a) and 7.02(b) have been satisfied.

 

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Section 7.03 Conditions to the Obligations of Deason. The obligations of Deason to effect the Closing shall be further subject to the satisfaction (or waiver, if permissible under applicable Law) on or prior to the Closing Date of the following conditions:

(a) the representations and warranties of Xerox set forth in Article III shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date with the same effect as though made as of the date of this Agreement and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date);

(b) the representations and warranties of Conduent set forth in Article IV shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date with the same effect as though made as of the date of this Agreement and as of the Closing Date (except to the extent expressly made as of an earlier date, in which case as of such earlier date);

(c) each of Xerox and Conduent shall have complied with or performed in all material respects its respective obligations required to be complied with or performed by it pursuant to this Agreement at or prior to the Closing; and

(d) Deason shall have received a certificate, signed on behalf of Xerox and Conduent by an authorized officer of Xerox, certifying that the conditions set forth in Sections 7.03(a), 7.03(b) and 7.03(c) have been satisfied.

ARTICLE VIII

Termination; Survival

Section 8.01 Termination. This Agreement may be terminated and the Exchanges abandoned at any time prior to the Closing:

(a) by the mutual written consent of Xerox and Deason;

(b) by either Xerox or Deason upon written notice to the other(s), if the Closing should not have occurred on or prior to March 31, 2017 (the “Termination Date”); provided that the right to terminate this Agreement under this Section 8.01(b) shall not be available to any party if the breach by such party of its representations and warranties set forth in this Agreement or the failure of such party to perform any of its obligations under this Agreement has been a principal cause of or primarily resulted in the events specified in this Section 8.01(b);

(c) by either Xerox or Deason if any Restraint enjoining or otherwise prohibiting consummation of the Exchanges shall be in effect and shall have become final and nonappealable prior to the Closing Date; provided that the party seeking to terminate this Agreement pursuant to this Section 8.01(c) shall have used the required efforts to cause the conditions to Closing to be satisfied in accordance with Section 6.01;

 

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(d) by either Xerox or Deason if Xerox determines to abandon the Spin-Off;

(e) by Deason if Xerox or Conduent shall have breached any of their respective representations or warranties or failed to perform any of their respective covenants or agreements set forth in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 7.03(a), with respect to Xerox, Section 7.03(b), with respect to Conduent, or Section 7.03(c) and (ii) is incapable of being cured prior to the Termination Date, or if capable of being cured, shall not have been cured within thirty calendar days (but in no event later than the Termination Date) following receipt by Xerox and Conduent of written notice of such breach or failure to perform from Deason stating Deason’s intention to terminate this Agreement pursuant to this Section 8.01(e) and the basis for such termination; provided that Deason shall not have the right to terminate this Agreement pursuant to this Section 8.01(e) if Deason is then in material breach of any of his representations, warranties, covenants or agreements hereunder which breach would give rise to the failure of a condition set forth in Section 7.02(a) or Section 7.02(b);

(f) by Xerox if Deason shall have breached any of his representations or warranties or failed to perform any of his covenants or agreements set forth in this Agreement, which breach or failure to perform (i) would give rise to the failure of a condition set forth in Section 7.02(a) or Section 7.02(b) and (ii) is incapable of being cured prior to the Termination Date, or if capable of being cured, shall not have been cured within thirty calendar days (but in no event later than the Termination Date) following receipt by Deason of written notice of such breach or failure to perform from Xerox and Conduent stating Xerox and Conduent’s intention to terminate this Agreement pursuant to this Section 8.01(f) and the basis for such termination; provided that Xerox and Conduent shall not have the right to terminate this Agreement pursuant to this Section 8.01(f) if Xerox or Conduent are then in material breach of any of their respective representations, warranties, covenants or agreements hereunder which breach would give rise to the failure of a condition set forth in Section 7.03(a), with respect to Xerox, Section 7.03(b), with respect to Conduent, or Section 7.03(c);

(g) by Xerox if any of the Deason Parties shall have, prior to the completion of the Spin-Off, publicly asserted or publicly alleged any claim, demand or cause of action or brought, commenced, filed or threatened any action, suit, proceeding, arbitration or litigation, in each case against any Released Party (other than to enforce this Agreement or the Settlement Agreement); or

(h) by Deason if Xerox determines to materially modify the Spin-Off from the manner contemplated by and disclosed in Conduent’s registration statement on Form 10, as amended through October 21, 2016, including the exhibits thereto (other than modifications or changes to give effect to or reflect the transactions contemplated herein).

 

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Section 8.02 Effect of Termination. In the event of the termination of this Agreement as provided in Section 8.01, written notice thereof shall be given to the other party, specifying the provision hereof pursuant to which such termination is made, and this Agreement shall forthwith become null and void (other than this Section 8.02 and Article IX, all of which shall survive termination of this Agreement), and there shall be no liability on the part of Deason or of Xerox and Conduent or of Xerox and Conduent’s directors, officers and Affiliates in connection with this Agreement, except that no such termination shall relieve any party from liability for damages to another party resulting from a willful and material breach of this Agreement prior to the date of termination or from fraud.

Section 8.03 Survival. The representations and warranties of the parties set forth in this Agreement and in any document delivered in connection herewith shall not survive the Closing. All of the covenants or other agreements of the parties contained in this Agreement shall survive until fully performed or fulfilled, unless and to the extent that non-compliance with such covenants or agreements is waived in writing by the party entitled to such performance.

ARTICLE IX

Miscellaneous

Section 9.01 Amendments; Waivers. Subject to compliance with applicable Law, this Agreement may be amended or supplemented in any and all respects only by written agreement of each of the parties hereto.

Section 9.02 Extension of Time, Waiver, Etc. Xerox and Conduent (for purposes of this Section 9.02 only, prior to the Closing, one “party”) and Deason (for purposes of this Section 9.02 only, prior to the Closing, the other “party”) may, subject to applicable Law and only in writing, (a) waive any inaccuracies in the representations and warranties of another party contained herein or in any document delivered pursuant hereto, (b) extend the time for the performance of any of the obligations or acts of another party or (c) waive compliance by another party with any of the agreements contained herein applicable to such party or, except as otherwise provided herein, waive any of such party’s conditions.

Notwithstanding the foregoing, no failure or delay by Xerox, Conduent or Deason in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.

Section 9.03 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, in whole or in part, by operation of Law or otherwise, by any of the parties hereto without the prior written consent of each of the other parties hereto.

Section 9.04 Counterparts. This Agreement may be executed in one or more counterparts (including by facsimile or electronic mail), each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto.

 

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Section 9.05 Entire Agreement; No Third-Party Beneficiaries; No Recourse. (a) This Agreement, together with the Xerox Certificate of Amendment, the Conduent Certificate of Amendment, the Settlement Agreement and the Stipulation (as defined in the Settlement Agreement) constitute the entire agreement, and supersede all other prior agreements and understandings, both written and oral, among the parties and their Affiliates, or any of them, with respect to the subject matter hereof and thereof.

(b) Except for the Released Parties (who are express third party beneficiaries of Section 6.06), no provision of this Agreement shall confer upon any Person other than the parties hereto and their permitted assigns any rights or remedies hereunder. Following the Closing, Conduent shall have no liability, rights or obligations with respect to the covenants and agreements (or liabilities, rights or obligations) of Xerox contained in this Agreement and Xerox shall have no liability, rights or obligations with respect to the covenants and agreements (or liabilities, rights or obligations) of Conduent contained in this Agreement.

Section 9.06 Governing Law; Jurisdiction. (a) This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York applicable to contracts executed in and to be performed entirely within that State, regardless of the Laws that might otherwise govern under any applicable conflict of Laws principles.

(b) Any legal or administrative proceeding, suit, investigation, arbitration or action (an “Action”) arising out of or based upon this Agreement shall be heard and determined in the U.S. District Court for the Southern District of New York (or, if that court does not have subject matter jurisdiction, in any state court located in the City and County of New York) and the parties hereto hereby irrevocably submit to the exclusive jurisdiction and venue of such courts in any such Action and irrevocably waive the defense of an inconvenient forum or lack of jurisdiction to the maintenance of any such Action. The consents to jurisdiction and venue set forth in this Section 9.06 shall not constitute general consents to service of process in the State of New York and shall have no effect for any purpose except as provided in this paragraph and shall not be deemed to confer rights on any Person other than the parties hereto. Each party hereto agrees that service of process upon such party in any Action arising out of or based upon this Agreement shall be effective if notice is given by overnight courier at the address set forth in Section 9.09 of this Agreement. The parties hereto agree that a final judgment in any such Action shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable Law; provided, however, that nothing in the foregoing shall restrict any party’s rights to seek any post-judgment relief regarding, or any appeal from, a final trial court judgment.

 

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Section 9.07 Specific Enforcement. The parties hereto agree that irreparable damage for which monetary relief, even if available, would not be an adequate remedy, would occur in the event that any provision of this Agreement is not performed in accordance with its specific terms or is otherwise breached, including if the parties hereto fail to take any action required of them hereunder to cause the Closing to occur. The parties acknowledge and agree that (a) the parties shall be entitled to seek an injunction or injunctions, specific performance or other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof (including, for the avoidance of doubt, the right of Xerox, Conduent and Deason to cause the Exchanges to be consummated on the terms and subject to the conditions set forth in this Agreement) in the courts described in Section 9.06 without proof of damages or otherwise (in each case, subject to the terms and conditions of this Section 9.07), this being in addition to any other remedy to which they are entitled under this Agreement and (b) the right of specific enforcement is an integral part of the Exchanges and without that right, neither Xerox, Conduent nor Deason would have entered into this Agreement. The parties hereto agree not to assert that a remedy of specific enforcement is unenforceable, invalid, contrary to Law or inequitable for any reason, and agree not to assert that a remedy of monetary damages would provide an adequate remedy or that the parties otherwise have an adequate remedy at law. The parties hereto acknowledge and agree that any party seeking an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in accordance with this Section 9.07 shall not be required to provide any bond or other security in connection with any such order or injunction.

Section 9.08 WAIVER OF JURY TRIAL. EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (C) IT MAKES SUCH WAIVER VOLUNTARILY AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 9.08.

Section 9.09 Notices. All notices, requests and other communications to any party hereunder shall be in writing and shall be deemed given if delivered personally, by facsimile (which is confirmed), emailed (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses:

 

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(a) If to Xerox, to it at:

 

  Xerox Corporation
  P.O. Box 4505, 45 Glover Avenue
  Norwalk, CT 06850
  Attention: General Counsel
  Facsimile: (203) 849-5152
 

Email: mike.peffer@xerox.com

 

with a copy (which shall not constitute notice) to:

 

  Cravath, Swaine & Moore LLP
  Worldwide Plaza
  825 Eighth Avenue
  New York, NY 10019
  Attention:    Robert I. Townsend, III
     Eric L. Schiele
     O. Keith Hallam, III
  Facsimile:    212-474-3700
  Email:    rtownsend@cravath.com
     eschiele@cravath.com
     khallam@cravath.com

(b) If to Conduent, to:

 

    Xerox Corporation
    P.O. Box 4505, 45 Glover Avenue
    Norwalk, CT 06850
    Attention: General Counsel
    Facsimile: (203) 849-5152
   

Email: mike.peffer@xerox.com

 

with a copy (which shall not constitute notice) to:

 

    Cravath, Swaine & Moore LLP
    Worldwide Plaza
    825 Eighth Avenue
    New York, NY 10019
    Attention:    Robert I. Townsend, III
       Eric L. Schiele
       O. Keith Hallam, III
    Facsimile:    (212) 474-3700
    Email:    rtownsend@cravath.com
       eschiele@cravath.com
       khallam@cravath.com

 

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(c) If to Deason, to:

Darwin A. Deason

5956 Sherry Ln, Suite 800

Dallas, TX 75225

with a copy (which shall not constitute notice) to:

Cadwalader, Wickersham & Taft LLP

200 Liberty Street

New York, NY 10281

Attention: Richard M. Brand

Facsimile: (212) 504-6666

Email: richard.brand@cwt.com

or such other address, email address or facsimile number as such party may hereafter specify by like notice to the other parties hereto. All such notices, requests and other communications shall be deemed received on the date of actual receipt by the recipient thereof if received prior to 5:00 p.m. local time in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt.

Section 9.10 Severability. If any term, condition or other provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other terms, provisions and conditions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term, condition or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable Law.

Section 9.11 Expenses. Subject to Section 3.A of the Settlement Agreement, all costs and expenses incurred in connection with this Agreement and the Exchanges shall be paid by the party incurring such costs and expenses, whether or not the Closing shall have occurred.

Section 9.12 Interpretation. (a) When a reference is made in this Agreement to an Article, a Section, Annex, Exhibit or Schedule, such reference shall be to an Article of, a Section of, or an Annex, Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement unless the context requires otherwise. The words “date

 

28


hereof” when used in this Agreement shall refer to the date of this Agreement. The terms “or”, “any” and “either” are not exclusive. The word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and such phrase shall not mean simply “if”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. All terms defined in this Agreement shall have the defined meanings when used in any document made or delivered pursuant hereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Any reference in this Agreement to any statute shall also be deemed to refer to all rules and regulations promulgated thereunder. Unless otherwise specifically indicated, all references to “dollars” or “$” shall refer to the lawful money of the United States. References to a Person are also to its permitted assigns and successors.

(b) The parties hereto have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any provision of this Agreement.

(c) For the avoidance of doubt, the parties hereto acknowledge and agree that no adjustments to the terms of either the Xerox Series A Preferred Stock, the Xerox Series B Preferred Stock or the Conduent Series A Preferred Stock shall be made as a result of or in connection with the Spin-Off, including with respect to their respective Conversion Rates or Conversion Prices.

Section 9.13 Acknowledgment of Securities Laws. Deason hereby acknowledges that he is aware, and that he will advise his Representatives who are provided material non-public information concerning Xerox, Conduent or their respective securities, that the United States securities Laws prohibit any Person who has received from an issuer material, non-public information from purchasing or selling securities of such issuer or from communication of such information to any other Person under circumstances in which it is reasonably foreseeable that such Person is likely to purchase or sell such securities.

[Remainder of page intentionally left blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written.

 

XEROX CORPORATION
By:  

/s/ Leslie F. Varon

  Name:   Leslie F. Varon
  Title:   Vice President and Chief Financial Officer
CONDUENT INCORPORATED
By:  

/s/ Leslie F. Varon

  Name:   Leslie F. Varon
  Title:   President
DARWIN A. DEASON
By:  

/s/ Darwin A. Deason

  Name:  
  Title:  

[Signature Page to Exchange Agreement]


Annex I

FORM OF XEROX CERTIFICATE OF AMENDMENT


CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

OF

XEROX CORPORATION

(Under Section 805 of the Business Corporation Law)

We, the undersigned, [Insert Name] and [Insert Name], being respectively the [Insert title] and [Insert title] of Xerox Corporation, a New York corporation (the “Corporation”), DO HEREBY CERTIFY that:

FIRST: The name of the Corporation is XEROX CORPORATION. The name under which it was formed is “The Haloid Company”.

SECOND: The original certificate of incorporation was filed in the Office of the Secretary of State of the State of New York on April 18, 1906 (such certificate of incorporation, as amended and restated and in effect thereafter, the “Certificate of Incorporation”).

THIRD: The Certificate of Incorporation is hereby being amended by the addition to Article FOURTH of a provision stating the number, designation, relative rights, preferences and limitations of the Corporation’s Series B Convertible Perpetual Preferred Stock, par value $1.00 per share, under authority granted to the Board of Directors in the Certificate of Incorporation and as permitted by Section 502 of the Business Corporation Law.

FOURTH: To effect the foregoing, Article FOURTH of the Certificate of Incorporation is hereby amended by inserting a Subdivision 14 following Subdivision 13 thereof, and such Subdivision 14 shall read in its entirety as follows:

“SERIES B CONVERTIBLE PERPETUAL PREFERRED STOCK

14. (a) Designation. There is hereby created out of the authorized and unissued shares of Cumulative Preferred Stock of the Corporation a series of preferred stock designated as the “Series B Convertible Perpetual Preferred Stock” (the “Series B Preferred Stock”). The number of shares constituting such series shall be 180,000.

(b) Definitions. As used herein with respect to the Series B Preferred Stock, the following terms shall have the following meanings, whether used in the singular or the plural:

Additional Shares” has the meaning set forth in Subdivision 14(l)(i).


Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

Applicable Conversion Price” at any given time means the price equal to $1,000 divided by the Applicable Conversion Rate in effect at such time.

Applicable Conversion Rate” means the Conversion Rate in effect at any given time.

Board of Directors” means the board of directors of the Corporation or any committee thereof duly authorized to act in the relevant matter on behalf of such board of directors.

Business Day” means any day other than a Saturday, Sunday or any other day on which banks in New York City, New York are generally required or authorized by law to be closed.

Certificate of Incorporation” means the Restated Certificate of Incorporation of Xerox Corporation, as amended.

Close of Business” means 5:00 pm, New York City time, on the date in question.

Closing Price” of the Common Stock or any securities distributed in a Spin-Off, as the case may be, on any date of determination means:

(i) the closing sale price of the Common Stock or such other securities (or, if no closing sale price is reported, the last reported sale price of the Common Stock or such other securities) on the New York Stock Exchange on such date;

(ii) if the Common Stock or such other securities are not traded on the New York Stock Exchange on such date, the closing sale price of the Common Stock or such other securities (or, if no closing sale price is reported, the last reported sale price of the Common Stock or such other securities) as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock or such other securities are traded on such date;

(iii) if the Common Stock or such other securities are not traded on a U.S. national or regional securities exchange on such date, the last quoted bid price for the Common Stock or such other securities on such date in the over-the-counter market as reported by Pink OTC Markets Inc. or similar organization; or

 

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(iv) if the Common Stock or such other securities are not quoted by Pink OTC Markets Inc. or a similar organization on such date, as determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose.

For purposes of this Subdivision 14, all references herein to the “Closing Price” and “last reported sale price” of the Common Stock on the New York Stock Exchange shall be such closing sale price and last reported sale price as reflected on the website of the New York Stock Exchange (http://www.nyse.com).

Common Stock Outstanding” means, at any given time, the number of shares of Common Stock issued and outstanding at such time.

Conversion Date” has the meaning set forth in Subdivision 14(i)(v)(B).

Conversion Rate” means, with respect to each share of Series B Preferred Stock, 149.8127 shares of Common Stock, subject to adjustment in accordance with the provisions of this Subdivision 14.

Cumulative Preferred Stock” means the Cumulative Preferred Stock, par value of $1.00 each, of the Corporation.

Current Market Price” means, in the case of any distribution giving rise to an adjustment to the Conversion Rate pursuant to Subdivision 14(j)(iv), Subdivision 14(j)(v) or Subdivision 14(j)(vi) or a distribution upon conversion pursuant to Subdivision 14(j)(viii), the average Closing Price of the Common Stock during the ten consecutive Trading Day period ending on and including the Trading Day immediately preceding the Ex-Dividend Date for such distribution. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Rate are called for pursuant to Subdivision 14(j), such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of Subdivision 14(j) and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.

Distributed Property” has the meaning set forth in Subdivision 14(j)(v).

Dividend Payment Date” has the meaning set forth in Subdivision 14(d)(ii).

Dividend Period” means each period from, and including, a Dividend Payment Date (or with respect to the initial Dividend Period, the Issue Date) to, but excluding, the following Dividend Payment Date.

Dividend Rate” has the meaning set forth in Subdivision 14(d)(i).

Dividend Record Date” has the meaning set forth in Subdivision 14(d)(iv).

Dividend Threshold Amount” has the meaning set forth in Subdivision 14(j)(vi)(B).

 

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Exchange Act” means the Securities Exchange Act of 1934, as amended.

Exchange Property” has the meaning set forth in Subdivision 14(k)(i).

Ex-Dividend Date” means the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the relevant dividend, distribution or issuance.

Expiration Date” has the meaning set forth in Subdivision 14(j)(vii).

Expiration Time” has the meaning set forth in Subdivision 14(j)(vii).

Fair Market Value” means the amount which a willing buyer would pay a willing seller in an arm’s-length transaction as reasonably determined by the Board of Directors in good faith; provided, however, that with respect to Subdivision 14(o)(ii), Fair Market Value shall mean the value of the Optional Redemption Transferred Shares determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose.

Fiscal Quarter” means, with respect to the Corporation, the fiscal quarter publicly disclosed by the Corporation.

Fundamental Change” means the occurrence of any of the following:

(i) a “person” or “group” within the meaning of Section 13(d) of the Exchange Act files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect ultimate “beneficial owner”, as defined in Rule 13d-3 under the Exchange Act, of common equity of the Corporation representing more than 50% of the voting power of the Common Stock;

(ii) consummation of any consolidation, merger or other business combination of the Corporation with or into another Person or any sale, lease or conveyance in one transaction or a series of transactions of all or substantially all of the consolidated assets of the Corporation and its subsidiaries, taken as a whole, to any Person other than one of the Corporation’s subsidiaries, in each case pursuant to which the Common Stock will be converted into cash, securities or other property, other than:

(A) pursuant to a transaction in which the Persons that “beneficially owned” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, Voting Shares of the Corporation immediately prior to such transaction beneficially own, directly or indirectly, Voting Shares representing a majority of the total voting power of all outstanding classes of Voting Shares of the continuing or surviving Person immediately after the transaction; or

 

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(B) any merger or consolidation primarily for the purpose of changing the jurisdiction of incorporation of the Corporation and resulting in a reclassification, conversion or exchange of outstanding shares of common stock solely into shares of common stock of the surviving entity; or

(iii) the Common Stock ceases to be listed on a U.S. national securities exchange or association (other than as a result of a transaction described in clause (ii) above);

provided, however, that a Fundamental Change with respect to clauses (i) or (ii) above shall not be deemed to have occurred if at least 90% of the consideration received by holders of the Common Stock in the transaction or transactions consists of common stock that is traded on a U.S. national securities exchange or that will be traded on a U.S. national securities exchange when issued or exchanged in connection with such transaction.

Fundamental Change Notice” has the meaning set forth in Subdivision 14(m)(ii).

Fundamental Change Redemption Date” has the meaning set forth in Subdivision 14(m)(i).

Fundamental Change Redemption Price” has the meaning set forth in Subdivision 14(m)(i).

Holder(s)” means the Person(s) in whose name the shares of the Series B Preferred Stock are registered, which may be treated by the Corporation, as the absolute owner of the shares of Series B Preferred Stock for the purpose of making payment and settling the related conversions and for all other purposes. The initial Holder shall be Darwin Deason.

Issue Date” means the date upon which any shares of Series B Preferred Stock are first issued.

Junior Securities” has the meaning set forth in Subdivision 14(c)(i).

Liquidation Preference” means, with respect to each share of Series B Preferred Stock, at any time, $1,000.

Make-Whole Acquisition” means the occurrence of a transaction described under clauses (i) or (ii) of the definition of “Fundamental Change”.

Make-Whole Acquisition Conversion Period” has the meaning set forth in Subdivision 14(l)(i).

Make-Whole Acquisition Effective Date” has the meaning set forth in Subdivision 14(l)(i).

 

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Make-Whole Acquisition Stock Price” means the price paid per share of Common Stock in the event of a Make-Whole Acquisition. If the holders of shares of Common Stock receive only cash in the Make-Whole Acquisition, the Make-Whole Acquisition Stock Price shall be the cash amount paid per share of Common Stock. Otherwise, the Make-Whole Acquisition Stock Price shall be the average of the Closing Price per share of Common Stock on the 10 Trading Days up to, but not including, the Make-Whole Acquisition Effective Date.

Mandatory Conversion Date” has the meaning set forth in Subdivision 14(h)(iii).

Notice of Mandatory Conversion” has the meaning set forth in Subdivision 14(h)(iii).

Optional Redemption Date” has the meaning set forth in Subdivision 14(o)(ii)(B).

Optional Redemption Notice” has the meaning set forth in Subdivision 14(o)(ii)(A).

Optional Redemption Transferred Shares” has the meaning set forth in Subdivision 14(o)(ii).

Parity Securities” has the meaning set forth in Subdivision 14(c)(ii).

Permitted Transferee(s)” means any of (w) the spouse of Darwin Deason, (x) any lineal descendant of Darwin Deason or any brother or sister of Darwin Deason, (y) any brother or sister of Darwin Deason, or (z) any trust for the direct or indirect benefit of exclusively Darwin Deason and/or the spouse of Darwin Deason; any lineal descendant of Darwin Deason or any brother or sister of Darwin Deason; or any brother or sister of Darwin Deason.

Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock corporation, limited liability company or trust.

Record Date” means, with respect to any issuance, dividend or distribution declared, paid or made on or with respect to any capital stock of the Corporation, the date fixed for the determination of the holders of such capital stock entitled to receive such issuance, dividend or distribution.

Registrar” means the Corporation or any other registrar appointed by the Corporation.

Reorganization Event” has the meaning set forth in Subdivision 14(k)(i).

Senior Securities” has the meaning set forth in Subdivision 14(c)(iii).

 

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Series B Preferred Stock” has the meaning set forth in Subdivision 14(a).

Spin-Off” has the meaning set forth in Subdivision 14(j)(v).

Spin-Off Valuation Period” has the meaning set forth in Subdivision 14(j)(v).

Trading Day” means a day on which the shares of Common Stock or any securities distributed in a Spin-Off, as the case may be:

(i) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the Close of Business; and

(ii) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.

Transfer” means, with respect to each share of Series B Preferred Stock, the sale, transfer, pledge, assignment, loan or other disposition or encumbrance of such share of Series B Preferred Stock.

Trigger Event” has the meaning set forth in Subdivision 14(j)(xv).

Voting Shares” of a Person means shares of all classes of Capital Stock of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of the board of directors of such Person.

(c) Ranking. The Series B Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation, rank:

(i) senior to the Corporation’s Common Stock and Class B Stock and each other class or series of capital stock that the Corporation may issue in the future the terms of which do not expressly provide that it ranks on a parity with or senior to the Series B Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively, the “Junior Securities”);

(ii) on a parity with each class or series of Cumulative Preferred Stock established after the Issue Date by the Corporation the terms of which expressly provide that such class or series will rank on a parity with the Series B Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively, the “Parity Securities”); and

(iii) subject to the approval of the holders of the Series B Preferred Stock to the extent required by subdivision 6 of Article FOURTH of the Certificate of Incorporation, junior to any class or series of the Corporation’s capital stock that the Corporation may issue in the future the terms of which expressly provide that such class or series shall rank senior to the Series B Preferred Stock (collectively, the “Senior Securities”).

 

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For the avoidance of doubt, the Corporation has the right to authorize and/or issue additional shares or classes or series of Junior Securities or Parity Securities without notice to or consent of the Holder(s).

(d) Dividends.

(i) The Holder(s) shall be entitled to receive, on each share of Series B Preferred Stock, when, as and if declared by the Board of Directors, out of any funds legally available for the payment of dividends, cumulative cash dividends at a rate per annum equal to 8.0% of the Liquidation Preference (the “Dividend Rate”) in accordance with subdivisions 1, 2 and 3 of Article FOURTH of the Certificate of Incorporation; provided, however, that in the event that on any Dividend Payment Date there shall be accrued and unpaid dividends for any prior Dividend Period, the Dividend Rate shall equal 8.0% per annum of the sum of (x) the Liquidation Preference and (y) the amount of all such accrued and unpaid dividends for any prior Dividend Periods.

(ii) Dividends will accrue and cumulate from the Issue Date and are payable quarterly in arrears on the first day of January, April, July and October (each, a “Dividend Payment Date”), commencing on the first Dividend Payment Date following the Issue Date. If a Dividend Payment Date falls on a day that is not a Business Day, the dividends will be paid on the next Business Day as if it were paid on the Dividend Payment Date and no interest will accrue in connection therewith.

(iii) The amount of dividends payable for each full quarterly Dividend Period will be computed by dividing the Dividend Rate by four. The amount of dividends payable for the initial Dividend Period, or any other Dividend Period shorter or longer than a full quarterly Dividend Period, will be computed on the basis of the actual number of days elapsed during such Dividend Period over a 360-day year.

(iv) Dividends will be paid to the Holder(s) as such Holder(s) appear in the records of the Corporation at the Close of Business on the 15th day of the immediately preceding calendar month in which the applicable Dividend Payment Date falls (the “Dividend Record Date”). The Dividend Record Date shall apply regardless of whether any particular Dividend Record Date is a Business Day.

(v) Dividends on any share of Series B Preferred Stock converted to Common Stock shall cease to accumulate on the Mandatory Conversion Date or any applicable Conversion Date, as applicable.

 

8


(e) Liquidation.

(i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the Holder(s) shall be entitled to receive for each share of Series B Preferred Stock out of the assets of the Corporation or proceeds thereof legally available for distribution to stockholders of the Corporation, after satisfaction of all liabilities, if any, to creditors of the Corporation and subject to the rights of holders of any Senior Securities, and before any distribution of such assets or proceeds is made to or set aside for the holders of Junior Securities, a liquidating distribution in an amount equal to (x) the Liquidation Preference and (y) an amount equal to any accrued and unpaid dividends on such share of Series B Preferred Stock through the date of such liquidating distribution. After payment of the full amount of such liquidating distribution, the Holder(s) will not be entitled to any further participation in any distribution of assets by, and shall have no right or claim to any remaining assets, of the Corporation.

(ii) In the event the assets of the Corporation available for distribution to stockholders upon any liquidation, dissolution or winding-up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to all outstanding shares of the Series B Preferred Stock and the corresponding amounts payable on any Parity Securities, the Holder(s) and the holders of such Parity Securities shall share ratably in any distribution of assets of the Corporation in proportion to the full respective liquidating distributions which would be payable on such shares if all amounts payable thereon were paid in full.

(iii) Neither the consolidation or merger of the Corporation with or into any other entity, nor the consolidation or merger of any other entity with or into the Corporation, nor the sale, lease or other transfer or disposition of all or substantially all of the Corporation’s property or business or other assets shall, in and of itself, constitute a liquidation, dissolution or winding up of the Corporation.

(f) Maturity. The Series B Preferred Stock shall be perpetual, unless converted in accordance with this Certificate of Incorporation or redeemed either at the option of the Holder pursuant to Subdivision 14(m) or at the option of the Corporation pursuant to Subdivision 14(o)(ii).

(g) Conversion at the Holder’s Option. Each Holder shall have the right, at such Holder’s option, at any time and from time to time, to convert all or any portion of such Holder’s Series B Preferred Stock into shares of Common Stock at the Applicable Conversion Rate, plus cash in lieu of fractional shares, plus an amount equal to any accrued and unpaid dividends on the shares of Series B Preferred Stock so converted through the date of such conversion, subject to compliance with the conversion procedures set forth in Subdivision 14(i).

 

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(h) Mandatory Conversion at the Corporation’s Option.

(i) The Corporation shall have the right, at its option, at any time or from time to time to cause some or all of the Series B Preferred Stock to be converted into shares of Common Stock at the then Applicable Conversion Rate, plus cash in lieu of fractional shares, plus an amount equal to any accrued and unpaid dividends on the shares of Series B Preferred Stock so converted through the Mandatory Conversion Date, if, for 20 Trading Days during any period of 30 consecutive Trading Days (including the last Trading Day of such period), ending on the Trading Day preceding the date the Corporation delivers a Notice of Mandatory Conversion, the Closing Price of the Common Stock exceeds 146.07% of the then Applicable Conversion Price.

(ii) If the Corporation elects to cause fewer than all of the shares of Series B Preferred Stock to be converted pursuant to this Subdivision 14(h), the Corporation shall select the Series B Preferred Stock to be converted on a pro rata basis or by another method the Board of Directors, in its sole discretion, considers fair to the Holders. If the Corporation selects a portion of a Holder’s Series B Preferred Stock for partial mandatory conversion and such Holder converts a portion of its shares of Series B Preferred Stock, the converted portion will be deemed to be from the portion selected for mandatory conversion under this Subdivision 14(h).

(iii) If the Corporation elects to exercise the mandatory conversion right pursuant to this Subdivision 14(h), the Corporation shall provide notice of such conversion to each Holder (such notice, a “Notice of Mandatory Conversion”). The conversion date shall be a date selected by the Corporation (the “Mandatory Conversion Date”) and shall be no more than 7 days after the date on which the Corporation provides such Notice of Mandatory Conversion. In addition to any information required by applicable law or regulation, the Notice of Mandatory Conversion shall state, as appropriate:

(A) the Mandatory Conversion Date;

(B) the number of shares of Common Stock to be issued upon conversion of each share of Series B Preferred Stock; and

(C) the number of shares of Series B Preferred Stock to be converted.

(i) Conversion Procedures.

(i) As provided in Subdivision 14(d)(v), dividends on any share of Series B Preferred Stock converted to Common Stock shall cease to accumulate on the Mandatory Conversion Date or any applicable Conversion Date, as applicable, and such shares of Series B Preferred Stock shall cease to be outstanding upon conversion.

 

10


(ii) Prior to the Close of Business on the Mandatory Conversion Date or any applicable Conversion Date, shares of Common Stock (and/or other securities, if applicable) issuable upon conversion of any shares of Series B Preferred Stock shall not be deemed outstanding for any purpose, and the Holder(s) shall have no rights with respect to the Common Stock (and/or other securities, if applicable) issuable upon conversion (including voting rights, rights to respond to tender offers for the Common Stock (and/or other securities, if applicable) issuable upon conversion and rights to receive any dividends or other distributions on the Common Stock (and/or other securities, if applicable) issuable upon conversion) by virtue of holding shares of Series B Preferred Stock.

(iii) The Person(s) entitled to receive the Common Stock (and/or cash, securities or other property, if applicable) issuable upon conversion of Series B Preferred Stock shall be treated for all purposes as the record holder(s) of such shares of Common Stock (and/or other securities, if applicable) as of the Close of Business on the Mandatory Conversion Date or any applicable Conversion Date. In the event that a Holder shall not by written notice designate the name in which shares of Common Stock (and/or cash, securities or other property, if applicable) and payments of cash in lieu of fractional shares, if any, and accrued and unpaid dividends, if any, to be issued or paid upon conversion of shares of Series B Preferred Stock should be registered or paid or the manner in which such shares should be delivered, the Corporation shall be entitled to register and deliver such shares, and make such payments, in the name of the Holder and in the manner shown on the records of the Corporation.

(iv) Shares of Series B Preferred Stock duly converted in accordance with this Certificate of Incorporation, or otherwise reacquired by the Corporation, will resume the status of authorized and unissued Cumulative Preferred Stock, undesignated as to series and available for future issuance. The Corporation may from time-to-time take such appropriate action as may be necessary to reduce the authorized number of shares of Series B Preferred Stock; provided that no decrease shall reduce the authorized number of Series B Preferred Stock to a number less than the number of shares then outstanding.

(v) Conversion into shares of Common Stock will occur on the Mandatory Conversion Date or any applicable Conversion Date as follows:

(A) On the Mandatory Conversion Date, certificates representing shares of Common Stock shall be issued and delivered to the Holder(s) or their designee upon presentation and surrender of the certificate evidencing the Series B Preferred Stock to the Corporation and, if required, the furnishing of appropriate endorsements and transfer documents and the payment of all transfer and similar taxes.

(B) On the date of any conversion at the option of the Holder(s) pursuant to Subdivision 14(g), a Holder must do each of the following in order to convert:

 

11


(1) surrender the shares of Series B Preferred Stock to the Corporation;

(2) if required, furnish appropriate endorsements and transfer documents; and

(3) if required, pay all transfer or similar taxes.

The date on which a Holder complies with the procedures in this Subdivision 14(i)(v) is the “Conversion Date”.

(vi) Fractional Shares.

(A) No fractional shares of Common Stock will be issued as a result of any conversion of shares of Series B Preferred Stock.

(B) In lieu of any fractional share of Common Stock otherwise issuable in respect of any conversion pursuant to Subdivision 14(g) or Subdivision 14(h), the Corporation shall pay an amount in cash (computed to the nearest cent) equal to the same fraction of the Closing Price of the Common Stock determined as of the second Trading Day immediately preceding the Conversion Date.

(C) If more than one share of the Series B Preferred Stock is surrendered for conversion at one time by or for the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Series B Preferred Stock so surrendered.

(j) Anti-Dilution Adjustments.

(i) The Conversion Rate shall be adjusted from time to time by the Corporation in accordance with this Subdivision 14(j).

(ii) If the Corporation shall, at any time or from time to time while any of the Series B Preferred Stock is outstanding, pay a dividend or make a distribution on its Common Stock in shares of its Common Stock to all or substantially all holders of its Common Stock, then the Conversion Rate shall be adjusted based on the following formula:

 

LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Record Date for such dividend or distribution;
CR1    =    the Conversion Rate in effect immediately after the Record Date for such dividend or distribution;

 

12


OS0    =    the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such dividend or distribution; and
OS1    =    the number of shares of Common Stock that would be outstanding immediately after, and solely as a result of, such dividend or distribution.

Any adjustment made pursuant to this Subdivision 14(j)(ii) shall become effective immediately after the Record Date for such dividend or distribution. If any dividend or distribution that is the subject of this Subdivision 14(j)(ii) is declared but not so paid or made, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay or make such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. For the avoidance of doubt, for purposes of this Subdivision 14(j)(ii), the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such dividend or distribution shall not include shares of Common Stock held in treasury, if any.

(iii) If the Corporation shall, at any time or from time to time while any of the Series B Preferred Stock is outstanding, (x) subdivide the then Common Stock Outstanding into a greater number of shares of Common Stock or (y) combine the then Common Stock Outstanding into a smaller number of shares of Common Stock, then the Conversion Rate shall be adjusted based on the following formula:

 

LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the effective date of such subdivision or combination;
CR1    =    the Conversion Rate in effect immediately after the effective date of such subdivision or combination;
OS0    =    the number of shares of Common Stock Outstanding at the Close of Business on the effective date of such subdivision or combination; and
OS1    =    the number of shares of Common Stock that would be outstanding immediately after, and solely as a result of, such subdivision or combination.

Any adjustment made pursuant to this Subdivision 14(j)(iii) shall become effective immediately after the effective date of such subdivision or combination.

(iv) If the Corporation shall, at any time or from time to time while any of the Series B Preferred Stock is outstanding, distribute to holders of all or substantially all of the Common Stock any rights or warrants (other than a distribution of rights issued pursuant to a stockholder’s rights plan, to the extent

 

13


such rights are attached to shares of Common Stock (in which event the provisions of Subdivision 14(j)(xv) shall apply), a dividend reinvestment plan or an issuance in connection with a transaction in which Subdivision 14(k) applies) entitling them to subscribe for or purchase, for a period of not more than 60 calendar days from the issuance date of such distribution, shares of Common Stock at a price per share less than the Current Market Price of the Common Stock, the Conversion Rate shall be adjusted based on the following formula:

 

LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Record Date for such distribution;
CR’    =    the Conversion Rate in effect immediately after the Record Date for such distribution;
OS0    =    the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such distribution;
X    =    the total number of shares of Common Stock issuable pursuant to such rights or warrants; and
Y    =    the number of shares of Common Stock equal to (x) the aggregate price payable to exercise such rights or warrants divided by (y) the Current Market Price of the Common Stock.

Any adjustment made pursuant to this Subdivision 14(j)(iv) shall become effective immediately after the Record Date for such distribution. If such rights or warrants described in this Subdivision 14(j)(iv) are not so distributed, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to distribute such rights or warrants, to the Conversion Rate that would then be in effect if such distribution had not been declared. To the extent that such rights or warrants are not exercised prior to their expiration or shares of Common Stock are otherwise not delivered pursuant to such rights or warrants upon the exercise of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate which would then be in effect had the adjustments made upon the distribution of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock actually delivered. In determining the aggregate price payable to exercise such rights or warrants, there shall be taken into account any consideration received by the Corporation upon exercise of such rights and warrants and the value of such consideration (if other than cash, to be determined in good faith by the Board of Directors). For the avoidance of doubt, for purposes of this Subdivision 14(j)(iv), the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such distribution shall not include shares of Common Stock held in treasury, if any.

 

14


(v) If the Corporation shall, at any time or from time to time while any of the Series B Preferred Stock is outstanding, by dividend or otherwise, distribute to all or substantially all holders of the Common Stock shares of any class of capital stock of the Corporation, evidences of its indebtedness, assets, property or rights or warrants to acquire the Corporation’s capital stock or other securities, but excluding:

(A) any dividends or distributions referred to in Subdivision 14(j)(ii);

(B) any rights or warrants referred to in Subdivision 14(j)(iv);

(C) any dividends or distributions referred to in Subdivision 14(j)(vi);

(D) any dividends and distributions in connection with a transaction to which Subdivision 14(k) shall apply; and

(E) any Spin-Offs to which the provision set forth below in this Subdivision 14(j)(v) shall apply,

(any such shares of capital stock, indebtedness, assets, property or rights or warrants to acquire Common Stock or other securities, hereinafter in this Subdivision 14(j)(v) called the “Distributed Property”), then, in each such case, the Conversion Rate shall be adjusted based on the following formula:

 

LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Record Date for such distribution;
CR’    =    the Conversion Rate in effect immediately after the Record Date for such distribution;
SP0    =    the Current Market Price of the Common Stock; and
FMV    =    the Fair Market Value on the Record Date for such distribution of the Distributed Property, expressed as amount per share of Common Stock.

If the transaction that gives rise to an adjustment pursuant to this Subdivision 14(j)(v) is one pursuant to which the payment of a dividend or other distribution on the Common Stock consists of shares of capital stock of, or similar equity interests in, a Subsidiary or other business unit of the Corporation (a “Spin-Off”) that are, or when issued will be, traded or listed on the New York Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market or any other U.S. national securities exchange or association, the Conversion Rate shall be adjusted based on the following formula:

 

15


LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Record Date for such distribution;
CR’    =    the Conversion Rate in effect immediately after the Record Date for such distribution;
FMV    =    the average of the Closing Prices of the capital stock or similar equity interest distributed to holders of Common Stock applicable to one share of Common Stock over the 10 consecutive Trading Day period beginning on, and including, the effective date of the Spin-Off (the “Spin-Off Valuation Period”); and
MP0    =    the average of the Closing Prices of the Common Stock over the Spin-Off Valuation Period.

Any adjustment made pursuant to this Subdivision 14(j)(v) shall become effective immediately after the Record Date for such distribution. If any dividend or distribution of the type described in this Subdivision 14(j)(v) is declared but not so paid or made, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. If an adjustment to the Conversion Rate is required under this Subdivision 14(j)(v), delivery of any additional shares of Common Stock that may be deliverable upon conversion as a result of an adjustment required under this Subdivision 14(j)(v) shall be delayed to the extent necessary in order to complete the calculations provided for in this Subdivision 14(j)(v).

(vi) If the Corporation shall, at any time or from time to time while any of the Series B Preferred Stock is outstanding, by dividend or otherwise make a distribution to all or substantially all holders of its outstanding shares of Common Stock consisting exclusively of cash, but excluding:

(A) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Corporation (whether voluntary or involuntary), or upon a transaction to which Subdivision 14(k) applies, or

(B) regular cash dividends to the extent that such dividends do not exceed $0.25 per share in any Fiscal Quarter (the “Dividend Threshold Amount”), then the Conversion Rate shall be adjusted based on the following formula:

 

16


LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Record Date for such dividend or distribution;
CR1    =    the Conversion Rate in effect immediately after the Record Date for such dividend or distribution;
SP0    =    the Current Market Price of the Common Stock; and
DIV    =    the amount in cash per share of Common Stock of the dividend or distribution, as determined pursuant to the following sentences. If any adjustment is required to be made as set forth in this Subdivision 14(j)(vi) as a result of a distribution (1) that is a regularly scheduled quarterly dividend, such adjustment would be based on the amount by which such dividend exceeds the Dividend Threshold Amount or (2) that is not a regularly scheduled quarterly dividend, such adjustment would be based on the full amount of such distribution. The Dividend Threshold Amount is subject to adjustment on an inversely proportional basis whenever the Conversion Rate is adjusted; provided that no adjustment shall be made to the Dividend Threshold Amount for any adjustment made to the Conversion Rate as described under this Subdivision 14(j)(vi).

Any adjustment made pursuant to this Subdivision 14(j)(vi) shall become effective immediately after the Record Date for such dividend or distribution. If any dividend or distribution of the type described in this Subdivision 14(j)(vi) is not so paid or made, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared.

(vii) If the Corporation shall, at any time or from time to time while any of the Series B Preferred Stock is outstanding, make a payment in respect of a tender offer or exchange offer for all or any portion of the Common Stock subject to the tender offer rules, to the extent that the cash and value of any other consideration included in the payment per share of Common Stock exceeds the Closing Price of the Common Stock on the trading day immediately succeeding the last date on which tenders or exchanges may be made pursuant to such tender offer or exchange offer (the “Expiration Date”), then the Conversion Rate shall be adjusted based on the following formula:

 

LOGO

 

17


where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Expiration Date;
CR1    =    the Conversion Rate in effect immediately after the Expiration Date;
FMV    =    the Fair Market Value, on the Expiration Date, of the aggregate value of all cash and any other consideration paid or payable for shares of Common Stock validly tendered or exchanged and not withdrawn as of the Expiration Date;
OS1    =    the number of shares of Common Stock outstanding immediately after the last time tenders or exchanges may be made pursuant to such tender offer or exchange offer (the “Expiration Time”);
OS0    =    the number of shares of Common Stock outstanding immediately prior to the Expiration Time; and
SP1    =    the average of the Closing Price of Common Stock during the ten consecutive Trading Day period commencing on the Trading Day immediately after the Expiration Date.

Any adjustment made pursuant to this Subdivision 14(j)(vii) shall become effective immediately prior to 9:00 a.m., New York City time, on the Trading Day immediately following the Expiration Date. If the Corporation, or one of its subsidiaries, is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Corporation or such subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Rate shall be readjusted to be the Conversion Rate that would then be in effect if such tender offer or exchange offer had not been made. Except as set forth in the preceding sentence, if the application of this Subdivision 14(j)(vii) to any tender offer or exchange offer would result in a decrease in the Conversion Rate, no adjustment shall be made for such tender offer or exchange offer under this Subdivision 14(j)(vii). If an adjustment to the Conversion Rate is required under this Subdivision 14(j)(vii), delivery of any additional shares of Common Stock upon conversion of the Series B Preferred Stock shall be delayed to the extent necessary in order to complete the calculations provided for in this Subdivision 14(j)(vii).

(viii) In cases where the Fair Market Value of shares of capital stock, evidences of indebtedness, assets (including cash), or securities or certain rights, warrants or options to purchase securities of the Corporation, or the amount of the cash dividend or distribution applicable to one share of Common Stock, distributed to all or substantially all holders of the Common Stock:

(A) equals or exceeds the Current Market Price of the Common Stock; or

 

18


(B) the Current Market Price of the Common Stock exceeds the Fair Market Value of such assets, debt securities or rights, warrants or options or the amount of cash so distributed by less than $1.00, rather than being entitled to an adjustment in the Conversion Rate, the Holder(s) will be entitled to receive upon conversion, in addition to shares of Common Stock, the kind and amount of shares of capital stock, evidences of indebtedness, assets, or securities or rights, warrants or options comprising the distribution, if any, that such Holder(s) would have received if such Holder(s) had held a number of shares of Common Stock equal to the number of shares of Series B Preferred Stock held multiplied by the Conversion Rate in effect immediately prior to the record date for determining the holders of Common Stock entitled to receive the distribution.

(ix) All calculations under this Subdivision 14(j) shall be made to the nearest 1/100,000 of a share of Common Stock per share of Series B Preferred Stock. No adjustment in the Conversion Rate is required if the amount of such adjustment would be less than 1%; provided, however, that any such adjustment not required to be made pursuant to this Subdivision 14(j)(ix) will be carried forward and taken into account in any subsequent adjustment.

(x) No adjustment to the Conversion Rate shall be made if the Holder(s) may participate in the transaction that would otherwise give rise to an adjustment, as a result of holding the Series B Preferred Stock, without having to convert the Series B Preferred Stock, as if they held the full number of shares of Common Stock into which a share of the Series B Preferred Stock may then be converted.

(xi) The Corporation may, but is not required to, make such increases in the Conversion Rate, in addition to those required by Subdivision 14(j)(ii) through (vii), as the Board of Directors deems advisable to avoid or diminish any income tax to holders of Common Stock resulting from any dividend or distribution of Common Stock (or rights to acquire Common Stock) or from any event treated as such for income tax purposes.

(xii) In addition to the foregoing, to the extent permitted by applicable law and subject to the applicable rules of the New York Stock Exchange, the Corporation from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least 20 Business Days, the increase is irrevocable during the period and the Board of Directors shall have made a determination that such increase would be in the best interests of the Corporation, which determination shall be conclusive. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Corporation shall mail to Holder(s) a notice of the increase, which notice will be given at least 15 calendar days prior to the effectiveness of any such increase, and such notice shall state the increased Conversion Rate and the period during which it will be in effect.

 

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(xiii) If during a period applicable for calculating the Closing Price of Common Stock or any other security, an event occurs that requires an adjustment to the Conversion Rate, the Closing Price of such security shall be calculated for such period in a manner reasonably determined by the Corporation to appropriately reflect the impact of such event on the price of such security during such period. Whenever any provision of this Subdivision 14 requires a calculation of an average of Closing Prices of Common Stock or any other security over multiple days, appropriate adjustments shall be made to account for any adjustment to the Conversion Rate that becomes effective, or any event requiring an adjustment to the Conversion Rate where the Record Date of the event occurs, at any time during the period during which the average is to be calculated.

(xiv) Whenever the Conversion Rate is to be adjusted in accordance with Subdivision 14(j), the Corporation shall compute the Conversion Rate in accordance with Subdivision 14(j), taking into account Subdivision 14(j)(ix), and provide, or cause to be provided, a written notice to the Holder(s) of the occurrence of such event and setting forth the adjusted Conversion Rate.

(xv) Rights Plans. If the Corporation has a rights plan in effect with respect to the Common Stock on the Mandatory Conversion Date or any Conversion Date, upon conversion of any shares of the Series B Preferred Stock, the Holder of such shares will receive, in addition to the shares of Common Stock, the rights under the rights plan relating to such Common Stock, unless, prior to the Mandatory Conversion Date or such Conversion Date, the rights have (x) become exercisable or (y) separated from the shares of Common Stock in accordance with the provisions of such rights plan (the first of events to occur being the “Trigger Event”), in either of which cases the Conversion Rate will be adjusted, effective automatically at the time of such Trigger Event, as if the Corporation had made a distribution of such rights to all holders of the Common Stock as described in Subdivision 14(j)(iv) (without giving effect to the 60-day limit on the exercisability of rights and warrants ordinarily subject to such Subdivision 14(j)(iv)), subject to appropriate readjustment in the event of the expiration, termination or redemption of such rights prior to the exercise, deemed exercise or exchange thereof. Notwithstanding the foregoing, to the extent any such stockholder rights are exchanged by the Corporation for shares of Common Stock, the Conversion Rate shall be appropriately readjusted as if such stockholder rights had not been issued, but the Corporation had instead issued the shares of Common Stock issued upon such exchange as a dividend or distribution of shares of Common Stock subject to Subdivision 14(j)(ii).

(k) Reorganization Events.

(i) In the event that there occurs:

(A) any consolidation, merger or other business combination of the Corporation with or into another Person;

(B) any sale, transfer, lease or conveyance to another Person of all or substantially all of the property and assets of the Corporation;

 

20


(C) any reclassification, recapitalization or reorganization of the Corporation; or

(D) any statutory exchange of the outstanding shares of Common Stock for securities of another Person (other than in connection with a consolidation, merger or other business combination);

and in each case, the holders of the Common Stock receive stock, other securities or other property or assets (including cash or any combination thereof) with respect to or in exchange for the Common Stock (any such event or transaction, a “Reorganization Event”) each share of Series B Preferred Stock outstanding immediately prior to such Reorganization Event shall, without notice to or consent of the Holder(s) and subject to Subdivision 14(k)(v), become convertible (but, for the avoidance of doubt, shall not be automatically converted in connection with such Reorganization Event) into the kind of securities, cash and other property received in such Reorganization Event by the holders of the Common Stock (other than the counterparty to the Reorganization Event or an Affiliate of such counterparty) (such securities, cash and other property, the “Exchange Property”).

(ii) In the event that holders of the shares of Common Stock have the opportunity to elect the form of consideration to be received in such transaction, the consideration that the Holder(s) are entitled to receive upon conversion shall be deemed to be the types and amounts of consideration received by a majority of the holders of the shares of Common Stock that did make an affirmative election.

(iii) The above provisions of this Subdivision 14(k) shall similarly apply to successive Reorganization Events and the provisions of Subdivision 14(j) shall apply to any shares of capital stock received by the holders of Common Stock in any such Reorganization Event.

(iv) The Corporation (or any successor) shall, within 20 days of the consummation of any Reorganization Event, provide written notice to the Holder(s) of such consummation of such event and of the kind and amount of the cash, securities or other property that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Subdivision 14(k).

(v) The Corporation shall not enter into any agreement for a transaction constituting a Reorganization Event unless:

(A) such agreement provides for, or does not interfere with or prevent (as applicable), conversion of the Series B Preferred Stock into the Exchange Property in a manner that is consistent with and gives effect to this Subdivision 14(k); and

 

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(B) to the extent that the Corporation is not the surviving corporation in such Reorganization Event or will be dissolved in connection with such Reorganization Event, proper provision shall be made in the agreements governing such Reorganization Event for the conversion of the Series B Preferred Stock into stock of the Person surviving such Reorganization Event or, in the case of a Reorganization Event described in Subdivision 14(k)(i)(B), an exchange of Series B Preferred Stock for the stock of the Person to whom the Corporation’s assets are conveyed or transferred, and such stock of the Person surviving such Reorganization Event or to whom the Corporation’s assets are conveyed or transferred shall have voting powers, preferences and relative, participating, optional or other special rights as nearly equal as possible to those provided in this Certificate of Incorporation.

(l) Holder’s Right to Convert Upon a Make-Whole Acquisition.

(i) In addition to any other rights of conversion set forth herein, in the event a Make-Whole Acquisition occurs, each Holder shall have the right, at such Holder’s option, to convert all or any portion of such Holder’s shares of Series B Preferred Stock into shares of Common Stock during the period (the “Make-Whole Acquisition Conversion Period”) beginning on the effective date of the Make-Whole Acquisition (the “Make-Whole Acquisition Effective Date”) and ending on the date that is 30 calendar days after the Make-Whole Acquisition Effective Date at the Applicable Conversion Rate, plus a number of additional shares of Common Stock (the “Additional Shares”) determined pursuant to Subdivision 14(l)(ii), plus cash in lieu of fractional shares, plus an amount equal to any accrued and unpaid dividends on the shares of Series B Preferred Stock so converted through the date of such conversion, subject to compliance with the conversion procedures set forth in Subdivision 14(i).

(ii) The number of Additional Shares per share of Series B Preferred Stock shall be determined by reference to the table below for the applicable Make-Whole Acquisition Effective Date and the applicable Make-Whole Acquisition Stock Price:

 

     Make-Whole Acquisition Stock Price  

Make-Whole Acquisition Effective Date

   $ 6.00       $ 6.68       $ 8.00       $ 9.00       $ 9.75   

February 1, 2015 and thereafter

     16.8550         12.6052         6.5538         3.2978         0.0000   

The exact Make-Whole Acquisition Stock Price and Make-Whole Acquisition Effective Date may not be set forth in the table, in which case:

(A) if the Make-Whole Acquisition Stock Price is between two Make-Whole Acquisition Stock Price amounts in the table or the Make-Whole Acquisition Effective Date is between two Make-Whole Acquisition Effective Dates in the table, the number of Additional Shares will be determined by straight-line interpolation between the number of Additional Shares set forth for the higher and lower Make-Whole Acquisition Stock Price amounts and the two Make-Whole Acquisition Effective Dates, as applicable, based on a 365-day year;

 

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(B) if the Make-Whole Acquisition Stock Price is in excess of $9.75 per share (subject to adjustment pursuant to Subdivision 14(j)), no Additional Shares will be issued upon conversion of the Series B Preferred Stock;

(C) if the Make-Whole Acquisition Stock Price is less than $6.00 per share (subject to adjustment pursuant to Subdivision 14(j)), no Additional Shares will be issued upon conversion of the Series B Preferred Stock; and

(D) if the Make-Whole Acquisition Effective Date is after the fifth anniversary of the Issue Date, then the number of Additional Shares will be determined by reference to the last row in the table.

The Make-Whole Acquisition Stock Prices set forth in the table above shall be adjusted pursuant to Subdivision 14(j) as of any date the Conversion Rate is adjusted. The adjusted Make-Whole Acquisition Stock Prices will equal the Make-Whole Acquisition Stock Prices applicable immediately prior to such adjustment multiplied by a fraction, the numerator of which is the Conversion Rate immediately prior to the adjustment and the denominator of which is the Conversion Rate as so adjusted. Each of the number of Additional Shares in the table shall also be subject to adjustment in the same manner as the Conversion Rate pursuant to Subdivision 14(j).

(iii) On or before the 20th calendar day prior to the date the Corporation anticipates the Make-Whole Acquisition being consummated or within two Business Days of becoming aware of a Make-Whole Acquisition of the type set forth in clause (i) of the definition of Make-Whole Acquisition, a written notice shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holder(s) as they appear in the records of the Corporation. Such notice shall contain:

(A) the date as of which the Make-Whole Acquisition is anticipated to be effective or the Make-Whole Acquisition Effective Date, as applicable; and

(B) the date by which a Make-Whole Acquisition conversion pursuant to this Subdivision 14(l) must be exercised.

(iv) On the Make-Whole Acquisition Effective Date or as soon as practicable thereafter, another written notice shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holder(s) as they appear in the records of the Corporation. Such notice shall contain:

 

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(A) the date that shall be 30 calendar days after the Make-Whole Acquisition Effective Date;

(B) the number of Additional Shares;

(C) the amount of cash, securities and other consideration receivable by a Holder upon conversion; and

(D) the instructions a Holder must follow to exercise its Make-Whole Acquisition conversion right pursuant to this Subdivision 14(l).

(v) To exercise its Make-Whole Acquisition conversion right pursuant to this Subdivision 14(l), a Holder must, no later than 5:00 p.m., New York City time, on or before the date specified in the notice sent pursuant to Subdivision 14(l)(iv), comply with the procedures set forth in Subdivision 14(i), and indicate that it is exercising its Make-Whole Acquisition conversion right pursuant to this Subdivision 14(l).

(vi) If a Holder does not elect to exercise its Make-Whole Acquisition conversion right pursuant to this Subdivision 14(l), the shares of Series B Preferred Stock or successor security held by it shall remain outstanding (unless otherwise converted as provided herein), but the Holder will not be eligible to receive Additional Shares.

(vii) Upon a Make-Whole Acquisition conversion, the Conversion Agent shall, except as otherwise provided in the instructions provided by the Holder thereof in the written notice provided to the Corporation or its successor as set forth in Subdivision 14(l)(v), deliver to the Holder such cash, securities or other property as are issuable with respect to the shares of Series B Preferred Stock converted.

(viii) In the event that a Make-Whole Acquisition conversion is effected with respect to shares of Series B Preferred Stock or a successor security representing less than all the shares of Series B Preferred Stock or a successor security held by a Holder, upon such Make-Whole Acquisition conversion, the Corporation or its successor shall execute and the Registrar shall, unless otherwise instructed in writing, countersign and deliver to the Holder thereof, at the expense of the Corporation or its successors, a certificate evidencing the shares of Series B Preferred Stock or such successor security held by the Holder as to which a Make-Whole Acquisition conversion was not effected.

(m) Holder’s Redemption Right Upon a Fundamental Change.

(i) Upon the occurrence of a Fundamental Change, each Holder shall have the option, during the period commencing on the date the applicable Fundamental Change Notice (as defined below) is mailed to Holders of the Series B Preferred Stock and ending at the Close of Business on the 45th Business Day thereafter (the “Fundamental Change Redemption Date”), to require the

 

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Corporation to redeem all, or any portion, of such Holder’s shares of Series B Preferred Stock at the redemption price per share equal to the Liquidation Preference per share of Series B Preferred Stock plus an amount equal to any accrued and unpaid dividends on the shares of Series B Preferred Stock so redeemed to, but not including, the Fundamental Change Redemption Date (the “Fundamental Change Redemption Price”).

(ii) Within 30 days following a Fundamental Change, the Corporation shall mail to each Holder of shares of the Series B Preferred Stock a notice (the “Fundamental Change Notice”) setting forth the details of the Fundamental Change and the special redemption rights occasioned thereby. In addition to any information required by law or by the applicable rules of any exchange upon which the Series B Preferred Stock may be listed or admitted to trading, such notice shall state: (a) the Fundamental Change Redemption Date; (b) the Fundamental Change Redemption Price; (c) the place or places where certificates for shares may be surrendered for payment of the Fundamental Change Redemption Price, including any procedures applicable to redemption to be accomplished through book-entry transfers; (d) the procedures that the Holder of Series B Preferred Stock must follow to exercise such Holder’s rights under this Subdivision 14(m); and (e) that dividends on the shares tendered for redemption will cease to accumulate on the Fundamental Change Redemption Date.

(iii) To exercise such Holder’s special redemption right under this Subdivision 14(m), a Holder must (a) surrender the certificate or certificates evidencing the shares of Series B Preferred Stock to be redeemed, duly endorsed in a form satisfactory to the Corporation, at the office of the Corporation and (b) notify the Corporation at such office that such Holder elects to exercise such Holder’s fundamental change redemption rights and the number of shares such Holder wishes to have redeemed. In the event that a Holder fails to notify the Corporation of the number of shares of Series B Preferred Stock which such Holder wishes to have redeemed, such Holder shall be deemed to have elected to have redeemed all shares represented by the certificate or certificates surrendered for redemption.

(iv) Exercise by a Holder of such Holder’s special redemption right following a Fundamental Change is irrevocable, except that a Holder may withdraw its election to exercise such Holder’s special redemption right at any time on or before the Fundamental Change Redemption Date by delivering a written or facsimile transmission notice to the Corporation at the address or facsimile number specified in the Fundamental Change Notice. Such notice, to be effective, must be received by the Corporation prior to the close of business on the Fundamental Change Redemption Date. All shares of Series B Preferred Stock tendered for redemption pursuant to the Holder’s fundamental change redemption rights as described herein and not withdrawn shall be redeemed at or prior to the Close of Business on the Fundamental Change Redemption Date. From and after the Fundamental Change Redemption Date, unless the Corporation defaults in payment of the Fundamental Change Redemption Price, dividends on the shares

 

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of Series B Preferred Stock tendered for redemption shall cease to accumulate, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Series B Preferred Stock, and all rights of Holders thereof as shareholders of the Corporation (except the right to receive from the Company the Fundamental Change Redemption Price) shall cease. As soon as practical after the Fundamental Change Redemption Date, the Corporation shall deliver a new certificate representing the unredeemed portion, if any, of the shares of Series B Preferred Stock represented by the certificate or certificates surrendered for redemption.

(n) Voting Rights.

(i) Unless the consent of the Holder(s) of a greater number of shares shall then be required by law and except as provided in Subdivisions 14(n)(ii), 14(n)(iii) and 14(n)(iv), the consent of the Holder(s) of at least two-thirds of the shares of Series B Preferred Stock at the time outstanding, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, at which the Series B Preferred Stock shall vote separately as a class, shall be necessary to permit, effect or validate any one or more of the following:

(A) The authorization of, or any increase in the authorized amount of, any class of stock ranking prior to the Series B Preferred Stock;

(B) The amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation, or of the By-Laws of the Corporation (whether, directly or indirectly, by merger, consolidation or otherwise) which would affect adversely any right, preference, privilege or voting power of the Series B Preferred Stock or of the Holder(s) thereof; and

(C) The voluntary liquidation, dissolution or winding up of the Corporation, or the sale, lease or conveyance (other than by mortgage) of all or substantially all of the property or business of the Corporation, or the consolidation, merger or other business combination of the Corporation with or into any other Person, except any such sale, lease or conveyance (other than by mortgage) of all or substantially all of the property or business of the Corporation or consolidation or merger or other business combination wherein none of the rights, preferences, privileges or voting powers of the Series B Preferred Stock or the Holder(s) thereof are adversely affected.

(ii) The Holder(s) shall have no voting rights with respect to any consolidation, merger or other business combination of the Corporation with or into any other Person if:

 

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(A) to the extent the Corporation is not the surviving Person in such transaction, the Holder(s) will receive the stock of the Person surviving such transaction and such stock shall have voting powers, preferences and relative, participating, optional or other special rights as nearly equal as possible to those provided in this Certificate of Incorporation; and

(B) upon conversion of the Series B Preferred Stock or the stock of the Person surviving such transaction issued in accordance with Subdivision 14(k)(v), the Holder(s) will receive Exchange Property in accordance with Subdivision 14(k).

(iii) The Holder(s) shall have no voting rights with respect to any sale, lease or conveyance (other than by mortgage) of all or substantially all of the property or business of the Corporation if:

(A) to the extent the Corporation is not the surviving Person in such transaction, the Holder(s) will receive the stock of the Person to whom all or substantially all of the property or business of the Corporation is sold, leased or conveyed and such stock shall have voting powers, preferences and relative, participating, optional or other special rights as nearly equal as possible to those provided in this Certificate of Incorporation; and

(B) upon conversion of the Series B Preferred Stock or the stock of the Person to whom all or substantially all of the property or business of the Corporation is sold, leased or conveyed issued in accordance with Subdivision 14(k)(v), the Holder(s) will receive Exchange Property in accordance with Subdivision 14(k).

(iv) The Holder(s) shall not have any voting rights if, at or prior to the effective time of the act with respect to which such vote would otherwise be required, all outstanding shares of Series B Preferred Stock shall have been converted into shares of Common Stock.

(v) The last paragraph of Subdivision 6 of Article FOURTH of the Certificate of Incorporation shall not be applicable to the Series B Preferred Stock.

(vi) The Holder(s) will have the right to appoint two members of the Board of Directors in accordance with Subdivision 7 of Article FOURTH of the Certificate of Incorporation.

(o) Transfer; Optional Redemption by the Corporation Upon Transfer.

 

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(i) The Transfer of the Series B Preferred Stock by the Holder(s) thereof shall not be restricted other than pursuant to the requirements of applicable law; provided, however, that, with respect to any such Transfer of shares of Series B Preferred Stock, the shares so Transferred must have an aggregate Liquidation Preference of at least $1 million and, if applicable, any shares owned by the Holder effecting such Transfer following such Transfer must have an aggregate Liquidation Preference of at least $1 million.

(ii) Upon a Transfer of the Series B Preferred Stock pursuant to Subdivision 14(o)(i) to a Person other than a Permitted Transferee, the Corporation shall have the right, at its option, to redeem, in part or in whole, such Transferred shares of Series B Preferred Stock (the “Optional Redemption Transferred Shares”) at any time on or following the fifth anniversary of the date of such Transfer at a redemption price per share of Series B Preferred Stock equal to the then Fair Market Value of such Optional Redemption Transferred Shares and an amount equal to any accrued and unpaid dividends on such Optional Redemption Transferred Shares to, but not including, the Optional Redemption Date.

(A) If the Corporation exercises its optional redemption right to redeem the Optional Redemption Transferred Shares pursuant to Subdivision 14(o)(ii), a written notice (the “Optional Redemption Notice”) shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holder(s) of such Optional Redemption Transferred Shares, which shall contain the number of Optional Redemption Transferred Shares, the name of the nationally recognized independent investment banking firm selected by the Corporation to determine the Fair Market Value of the Optional Redemption Transferred Shares to be redeemed, the Fair Market Value of the Optional Redemption Transferred Shares (on a per share and aggregate basis) and such other information required by applicable law.

(B) The date of the redemption of the Optional Redemption Transferred Shares shall be a date selected by the Corporation that is not less than 30 calendar days and not more than 60 calendar days after the date on which the Corporation provides Optional Redemption Notice (the “Optional Redemption Date”).

(C) If, on or before the Optional Redemption Date specified in the Optional Redemption Notice, the Corporation has set aside all funds necessary for such redemption, separate and apart from its other funds, in trust for the pro rata benefit of the Holder(s) of the Optional Redemption Transferred Shares so called for redemption, so as to be and continue to be available therefor, then, notwithstanding that any certificate for the Optional Redemption Transferred Shares so called for redemption shall not have been surrendered for cancellation, all the Optional Redemption Transferred Shares so called for redemption shall no longer be deemed outstanding on and after such Optional Redemption Date, and the right to receive dividends thereon and all other rights with respect to such shares shall forthwith on such Optional Redemption Date cease and terminate, except only the right of the Holder(s) thereof to receive the amount payable on redemption thereof without interest.

 

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(iii) A Holder effecting a Transfer pursuant to this Subdivision 14(o) must notify the Registrar of the Transfer on the date of the Transfer. Any purported Transfer of shares of Series B Preferred Stock not in accordance with this Subdivision 14(o) shall be void and have no effect; provided, however, that the failure to notify the Registrar of any Transfer shall not cause such Transfer to be void and of no effect.

(p) Reservation of Common Stock.

(i) The Corporation has reserved and shall continue at all times to reserve and keep available out of its authorized and unissued Common Stock or shares acquired by the Corporation, solely for issuance upon the conversion of shares of Series B Preferred Stock as provided in this Subdivision 14, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series B Preferred Stock then outstanding. The Corporation shall take all such corporate and other actions as from time to time may be necessary to ensure that all shares of Common Stock issuable upon conversion of shares of Series B Preferred Stock at the Conversion Rate in effect from time to time will, upon issue, be duly and validly authorized and issued, fully paid and nonassessable and free of any preemptive or similar rights. For purposes of this Subdivision 14(p), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series B Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single Holder.

(ii) Notwithstanding the foregoing, the Corporation shall be entitled to deliver upon conversion of shares of Series B Preferred Stock, as herein provided, shares of Common Stock acquired by the Corporation (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as (x) any such acquired shares are free and clear of all liens, charges, security interests or encumbrances (other than liens, charges, security interests and other encumbrances created by the Holders) and (y) all such acquired shares have all the same attributes as any other share of Common Stock then outstanding, including without limitation any rights that may then be attached to all or substantially all of the Common Stock then outstanding pursuant to any stockholders’ rights plan or similar arrangement.

(iii) All shares of Common Stock delivered upon conversion of the Series B Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests and other encumbrances (other than liens, charges, security interests and other encumbrances created by the Holder(s)).

 

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(iv) Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series B Preferred Stock, the Corporation shall use its reasonable best efforts to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority.

(v) The Corporation hereby covenants and agrees that, if at any time the Common Stock shall be listed on the New York Stock Exchange or any other national securities exchange or automated quotation system, the Corporation will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all the Common Stock issuable upon conversion of the Series B Preferred Stock.

(q) Replacement Certificates. The Corporation shall replace any mutilated Series B Preferred Stock certificate at the Holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the Holder’s expense upon delivery to the Corporation of satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may reasonably be required by the Corporation.

(r) Miscellaneous.

(i) All notices referred to herein shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three Business Days after the mailing thereof if sent by registered or certified mail with postage prepaid, addressed: (x) if to the Corporation, to its office at P.O. Box 4505, 45 Glover Avenue, Norwalk, CT 06856, Attention: General Counsel, or (y) if to any Holder, to such Holder at the address of such Holder as listed in the stock record books of the Corporation or (z) to such other address as the Corporation or any such Holder, as the case may be, shall have designated by notice similarly given.

(ii) No Holder of Series B Preferred Stock shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever, or of any obligations or other securities convertible into, or exchangeable for, any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.

(iii) The shares of Series B Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Certificate of Incorporation or as provided by applicable law.”

 

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FIFTH: The foregoing amendment to the Certificate of Incorporation was authorized by a resolution of the Board of Directors at a meeting thereof duly held on [•], 2016 in accordance with the authority granted to the Board of Directors in the Certificate of Incorporation and Section 502 of the Business Corporation Law.

 

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IN WITNESS WHEREOF, XEROX CORPORATION has caused this Certificate of Amendment to be signed by its authorized corporate officer this [•] day of [•], 2016.

 

XEROX CORPORATION
        by  
 

 

  Name:
  Title:


Annex II

FORM OF CONDUENT CERTIFICATE OF AMENDMENT


CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

OF

CONDUENT INCORPORATED

(Under Section 805 of the Business Corporation Law)

We, the undersigned, [Insert Name] and [Insert Name], being respectively the [Insert title] and [Insert title] of Conduent Incorporated, a New York corporation (the “Corporation”), DO HEREBY CERTIFY that:

FIRST: The name of the Corporation is CONDUENT INCORPORATED.

SECOND: The original certificate of incorporation was filed in the Office of the Secretary of State of the State of New York on June 9, 2016 (such certificate of incorporation, as amended and restated and in effect thereafter, the “Certificate of Incorporation”).

THIRD: The Certificate of Incorporation is hereby being amended by the addition to Article FOURTH of a provision stating the number, designation, relative rights, preferences and limitations of the Corporation’s Series A Convertible Perpetual Preferred Stock, par value $0.01 per share, under authority granted to the Board of Directors in the Certificate of Incorporation and as permitted by Section 502 of the Business Corporation Law.

FOURTH: To effect the foregoing, Article FOURTH of the Certificate of Incorporation is hereby amended by inserting a Subdivision 3 following Subdivision 2 thereof, and such Subdivision 3 shall read in its entirety as follows:

“SERIES A CONVERTIBLE PERPETUAL PREFERRED STOCK

3. (a) Designation. There is hereby created out of the authorized and unissued shares of Preferred Stock of the Corporation a series of preferred stock designated as the “Series A Convertible Perpetual Preferred Stock” (the “Series A Preferred Stock”). The number of shares constituting such series shall be 120,000.

(b) Definitions. As used herein with respect to the Series A Preferred Stock, the following terms shall have the following meanings, whether used in the singular or the plural:

accrued and unpaid dividends” means an amount computed at the annual dividend rate for the shares of the Series A Preferred Stock from the date on which dividends on such share became cumulative to and including the date to which such dividends are to be accrued, less the aggregate amount of all dividends theretofore paid on such share; but no interest shall be payable upon any arrearages.


Additional Shares” has the meaning set forth in Subdivision 3(l)(i).

Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control” when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

Applicable Conversion Price” at any given time means the price equal to $1,000 divided by the Applicable Conversion Rate in effect at such time.

Applicable Conversion Rate” means the Conversion Rate in effect at any given time.

Board of Directors” means the board of directors of the Corporation or any committee thereof duly authorized to act in the relevant matter on behalf of such board of directors.

Business Day” means any day other than a Saturday, Sunday or any other day on which banks in New York City, New York are generally required or authorized by law to be closed.

Certificate of Incorporation” means the Restated Certificate of Incorporation of Conduent Incorporated, as amended.

Close of Business” means 5:00 pm, New York City time, on the date in question.

Closing Price” of the Common Stock or any securities distributed in a Spin-Off, as the case may be, on any date of determination means:

(i) the closing sale price of the Common Stock or such other securities (or, if no closing sale price is reported, the last reported sale price of the Common Stock or such other securities) on the New York Stock Exchange on such date;

(ii) if the Common Stock or such other securities are not traded on the New York Stock Exchange on such date, the closing sale price of the Common Stock or such other securities (or, if no closing sale price is reported, the last reported sale price of the Common Stock or such other securities) as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock or such other securities are traded on such date;

 

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(iii) if the Common Stock or such other securities are not traded on a U.S. national or regional securities exchange on such date, the last quoted bid price for the Common Stock or such other securities on such date in the over-the-counter market as reported by Pink OTC Markets Inc. or similar organization; or

(iv) if the Common Stock or such other securities are not quoted by Pink OTC Markets Inc. or a similar organization on such date, as determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose.

For purposes of this Subdivision 3, all references herein to the “Closing Price” and “last reported sale price” of the Common Stock on the New York Stock Exchange shall be such closing sale price and last reported sale price as reflected on the website of the New York Stock Exchange (http://www.nyse.com).

Common Stock Outstanding” means, at any given time, the number of shares of Common Stock issued and outstanding at such time.

Conversion Date” has the meaning set forth in Subdivision 3(i)(v)(B).

Conversion Rate” means, with respect to each share of Series A Preferred Stock, [•]1 shares of Common Stock, subject to adjustment in accordance with the provisions of this Subdivision 3.

Current Market Price” means, in the case of any distribution giving rise to an adjustment to the Conversion Rate pursuant to Subdivision 3(j)(iv), Subdivision 3(j)(v) or Subdivision 3(j)(vi) or a distribution upon conversion pursuant to Subdivision 3(j)(viii), the average Closing Price of the Common Stock during the ten consecutive Trading Day period ending on and including the Trading Day immediately preceding the Ex-Dividend Date for such distribution. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Rate are called for pursuant to Subdivision 3(j), such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of Subdivision 3(j) and to avoid unjust or inequitable results as determined in good faith by the Board of Directors.

Distributed Property” has the meaning set forth in Subdivision 3(j)(v).

Dividend Payment Date” has the meaning set forth in Subdivision 3(d)(ii).

 

 

1  Shall be an amount equal to (x) $1,000 divided by (y) the Conversion Price. The Conversion Price is an amount equal to (x) 4.45 divided by (y) the number of shares of Conduent common stock to be issued with respect to each share of Xerox common stock in the spin-off (the “Distribution Ratio”).

For example, if the actual Distribution Ratio is 1 for 5 (i.e., one Conduent share for every five Xerox shares), the Conversion Price upon issuance would be $22.25 and the Conversion Rate would be 44.9438. The Conversion Rate will be left blank at signing (with the above explanatory footnote left in the signed document), and the Conversion Rate will be filled in once the Distribution Ratio is set.

 

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Dividend Period” means each period from, and including, a Dividend Payment Date (or with respect to the initial Dividend Period, the Issue Date) to, but excluding, the following Dividend Payment Date.

Dividend Rate” has the meaning set forth in Subdivision 3(d)(i).

Dividend Record Date” has the meaning set forth in Subdivision 3(d)(iv).

Dividend Threshold Amount” has the meaning set forth in Subdivision 3(j)(vi)(B).

Exchange Act” means the Securities Exchange Act of 1934, as amended.

Exchange Property” has the meaning set forth in Subdivision 3(k)(i).

Ex-Dividend Date” means the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the relevant dividend, distribution or issuance.

Expiration Date” has the meaning set forth in Subdivision 3(j)(vii).

Expiration Time” has the meaning set forth in Subdivision 3(j)(vii).

Fair Market Value” means the amount which a willing buyer would pay a willing seller in an arm’s-length transaction as reasonably determined by the Board of Directors in good faith; provided, however, that with respect to Subdivision 3(o)(ii), Fair Market Value shall mean the value of the Optional Redemption Transferred Shares determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose.

Fiscal Quarter” means, with respect to the Corporation, the fiscal quarter publicly disclosed by the Corporation.

Fundamental Change” means the occurrence of any of the following:

(i) a “person” or “group” within the meaning of Section 13(d) of the Exchange Act files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect ultimate “beneficial owner”, as defined in Rule 13d-3 under the Exchange Act, of common equity of the Corporation representing more than 50% of the voting power of the Common Stock;

(ii) consummation of any consolidation, merger or other business combination of the Corporation with or into another Person or any sale, lease or conveyance in one transaction or a series of transactions of all or substantially all of the consolidated assets of the Corporation and its subsidiaries, taken as a whole, to any Person other than one of the Corporation’s subsidiaries, in each case pursuant to which the Common Stock will be converted into cash, securities or other property, other than:

 

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(A) pursuant to a transaction in which the Persons that “beneficially owned” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, Voting Shares of the Corporation immediately prior to such transaction beneficially own, directly or indirectly, Voting Shares representing a majority of the total voting power of all outstanding classes of Voting Shares of the continuing or surviving Person immediately after the transaction; or

(B) any merger or consolidation primarily for the purpose of changing the jurisdiction of incorporation of the Corporation and resulting in a reclassification, conversion or exchange of outstanding shares of common stock solely into shares of common stock of the surviving entity; or

(iii) the Common Stock ceases to be listed on a U.S. national securities exchange or association (other than as a result of a transaction described in clause (ii) above);

provided, however, that a Fundamental Change with respect to clauses (i) or (ii) above shall not be deemed to have occurred if at least 90% of the consideration received by holders of the Common Stock in the transaction or transactions consists of common stock that is traded on a U.S. national securities exchange or that will be traded on a U.S. national securities exchange when issued or exchanged in connection with such transaction.

Fundamental Change Notice” has the meaning set forth in Subdivision 3(m)(ii).

Fundamental Change Redemption Date” has the meaning set forth in Subdivision 3(m)(i).

Fundamental Change Redemption Price” has the meaning set forth in Subdivision 3(m)(i).

Holder(s)” means the Person(s) in whose name the shares of the Series A Preferred Stock are registered, which may be treated by the Corporation, as the absolute owner of the shares of Series A Preferred Stock for the purpose of making payment and settling the related conversions and for all other purposes. The initial Holder shall be Darwin Deason.

Issue Date” means the date upon which any shares of Series A Preferred Stock are first issued.

Junior Securities” has the meaning set forth in Subdivision 3(c)(i).

 

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junior stock” means the Common Stock and any other stock of the Corporation, now or hereafter authorized, over which the Series A Preferred Stock has preference or priority either in the payment of dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation.

Liquidation Preference” means, with respect to each share of Series A Preferred Stock, at any time, $1,000.

Make-Whole Acquisition” means the occurrence of a transaction described under clauses (i) or (ii) of the definition of “Fundamental Change”.

Make-Whole Acquisition Conversion Period” has the meaning set forth in Subdivision 3(l)(i).

Make-Whole Acquisition Effective Date” has the meaning set forth in Subdivision 3(l)(i).

Make-Whole Acquisition Stock Price” means the price paid per share of Common Stock in the event of a Make-Whole Acquisition. If the holders of shares of Common Stock receive only cash in the Make-Whole Acquisition, the Make-Whole Acquisition Stock Price shall be the cash amount paid per share of Common Stock. Otherwise, the Make-Whole Acquisition Stock Price shall be the average of the Closing Price per share of Common Stock on the 10 Trading Days up to, but not including, the Make-Whole Acquisition Effective Date.

Mandatory Conversion Date” has the meaning set forth in Subdivision 3(h)(iii).

Notice of Mandatory Conversion” has the meaning set forth in Subdivision 3(h)(iii).

Optional Redemption Date” has the meaning set forth in Subdivision 3(o)(ii)(B).

Optional Redemption Notice” has the meaning set forth in Subdivision 3(o)(ii)(A).

Optional Redemption Transferred Shares” has the meaning set forth in Subdivision 3(o)(ii).

Parity Securities” has the meaning set forth in Subdivision 3(c)(ii).

Permitted Transferee(s)” means any of (w) the spouse of Darwin Deason, (x) any lineal descendant of Darwin Deason or any brother or sister of Darwin Deason, (y) any brother or sister of Darwin Deason, or (z) any trust for the direct or indirect benefit of exclusively Darwin Deason and/or the spouse of Darwin Deason; any lineal descendant of Darwin Deason or any brother or sister of Darwin Deason; or any brother or sister of Darwin Deason.

 

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Person” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock corporation, limited liability company or trust.

Preferred Stock” means the Preferred Stock, par value of $0.01 each, of the Corporation.

Record Date” means, with respect to any issuance, dividend or distribution declared, paid or made on or with respect to any capital stock of the Corporation, the date fixed for the determination of the holders of such capital stock entitled to receive such issuance, dividend or distribution.

Registrar” means the Corporation or any other registrar appointed by the Corporation.

Reorganization Event” has the meaning set forth in Subdivision 3(k)(i).

Senior Securities” has the meaning set forth in Subdivision 3(c)(iii).

Series A Preferred Stock” has the meaning set forth in Subdivision 3(a).

Spin-Off” has the meaning set forth in Subdivision 3(j)(v).

Spin-Off Valuation Period” has the meaning set forth in Subdivision 3(j)(v).

Trading Day” means a day on which the shares of Common Stock or any securities distributed in a Spin-Off, as the case may be:

(i) are not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the Close of Business; and

(ii) have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.

Transfer” means, with respect to each share of Series A Preferred Stock, the sale, transfer, pledge, assignment, loan or other disposition or encumbrance of such share of Series A Preferred Stock.

Trigger Event” has the meaning set forth in Subdivision 3(j)(xv).

Voting Shares” of a Person means shares of all classes of Capital Stock of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of the board of directors of such Person.

 

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(c) Ranking. The Series A Preferred Stock shall, with respect to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation, rank:

(i) senior to the Corporation’s Common Stock and each other class or series of capital stock that the Corporation may issue in the future the terms of which do not expressly provide that it ranks on a parity with or senior to the Series A Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively, the “Junior Securities”);

(ii) on a parity with each class or series of Preferred Stock established after the Issue Date by the Corporation the terms of which expressly provide that such class or series will rank on a parity with the Series A Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively, the “Parity Securities”); and

(iii) subject to the approval of the holders of the Series A Preferred Stock to the extent required by Subdivision 3(n), junior to any class or series of the Corporation’s capital stock that the Corporation may issue in the future the terms of which expressly provide that such class or series shall rank senior to the Series A Preferred Stock (collectively, the “Senior Securities”).

For the avoidance of doubt, the Corporation has the right to authorize and/or issue additional shares or classes or series of Junior Securities or Parity Securities without notice to or consent of the Holder(s).

(d) Dividends.

(i) The Holder(s) shall be entitled to receive, on each share of Series A Preferred Stock, when, as and if declared by the Board of Directors, out of any funds legally available for the payment of dividends, cumulative cash dividends at a rate per annum equal to 8.0% of the Liquidation Preference (the “Dividend Rate”) in accordance with subdivision 1 of Article FOURTH of the Certificate of Incorporation and this Subdivision 3(d); provided, however, that in the event that on any Dividend Payment Date there shall be accrued and unpaid dividends for any prior Dividend Period, the Dividend Rate shall equal 8.0% per annum of the sum of (x) the Liquidation Preference and (y) the amount of all such accrued and unpaid dividends for any prior Dividend Periods.

(ii) Dividends will accrue and cumulate from the Issue Date and are payable quarterly in arrears on the first day of January, April, July and October (each, a “Dividend Payment Date”), commencing on the first Dividend Payment Date following the Issue Date. If a Dividend Payment Date falls on a day that is not a Business Day, the dividends will be paid on the next Business Day as if it were paid on the Dividend Payment Date and no interest will accrue in connection therewith. If dividends on any shares of the Series A Preferred Stock shall be cumulative from a date less than thirty days prior to the first quarter-yearly dividend payment date in respect of such shares, the dividends accrued on such shares to such date shall not be payable on such date but shall be payable on the next following quarter-yearly dividend payment date.

 

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(iii) The amount of dividends payable for each full quarterly Dividend Period will be computed by dividing the Dividend Rate by four. The amount of dividends payable for the initial Dividend Period, or any other Dividend Period shorter or longer than a full quarterly Dividend Period, will be computed on the basis of the actual number of days elapsed during such Dividend Period over a 360-day year.

(iv) Dividends will be paid to the Holder(s) as such Holder(s) appear in the records of the Corporation at the Close of Business on the 15th day of the immediately preceding calendar month in which the applicable Dividend Payment Date falls (the “Dividend Record Date”). The Dividend Record Date shall apply regardless of whether any particular Dividend Record Date is a Business Day.

(v) Dividends on any share of Series A Preferred Stock converted to Common Stock shall cease to accumulate on the Mandatory Conversion Date or any applicable Conversion Date, as applicable.

(vi) In case the stated dividends and the amounts payable on liquidation are not paid in full, the shares of the Series A Preferred Stock shall share ratably in the payment of dividends (including accumulations, if any) in accordance with the sums which would be payable on said shares if all dividends were declared and paid in full, and in any distribution of assets other than by way of dividends in accordance with the sums which would be payable on such distributions if all sums payable were discharged in full.

(vii) So long as any shares of the Series A Preferred Stock are outstanding, no dividend whatever shall be paid or declared at any time, and no distribution made, on any junior stock (other than in junior stock) nor shall any shares of junior stock be purchased or otherwise acquired for value or redeemed at any time by the Corporation or any subsidiary unless all dividends on the Series A Preferred Stock for all past quarter-yearly dividend periods (other than the first quarter-yearly dividend period for any shares if the dividend on such shares for such period shall not then be payable pursuant to the provisions of Subdivision 3(d)(ii)) shall have been paid and the full dividends thereon for the then current quarter-yearly dividend period shall have been paid or declared and a sum sufficient for the payment thereof set apart; provided, however, that the foregoing restriction in this Subdivision 3(d) shall not apply to the acquisition of any junior stock solely in exchange for, or solely out of the proceeds of sale of, any other junior stock. Subject to the foregoing provisions of this Subdivision 3(d), and to any further limitations prescribed by the Board of Directors in accordance with subdivision 1 of Article FOURTH of the Certificate of Incorporation, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors may be declared and paid on any junior stock from time to time out of any funds of the Corporation legally available therefor, and the Series A Preferred Stock shall not be entitled to participate in any such dividends.

 

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(viii) The holders of shares of the Series A Preferred Stock shall not be entitled to receive any dividends thereon other than the dividends referred to in this Subdivision 3(d).

(e) Liquidation.

(i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the Holder(s) shall be entitled to receive for each share of Series A Preferred Stock out of the assets of the Corporation or proceeds thereof legally available for distribution to stockholders of the Corporation, after satisfaction of all liabilities, if any, to creditors of the Corporation and subject to the rights of holders of any Senior Securities, and before any distribution of such assets or proceeds is made to or set aside for the holders of Junior Securities, a liquidating distribution in an amount equal to (x) the Liquidation Preference and (y) an amount equal to any accrued and unpaid dividends on such share of Series A Preferred Stock through the date of such liquidating distribution. The holders of the Junior Securities shall be entitled, to the exclusion of the holders of the Series A Preferred Stock, to share ratably in all the remaining assets of the Corporation in accordance with their respective rights. After payment of the full amount of such liquidating distribution, the Holder(s) will not be entitled to any further participation in any distribution of assets by, and shall have no right or claim to any remaining assets, of the Corporation.

(ii) In the event the assets of the Corporation available for distribution to stockholders upon any liquidation, dissolution or winding-up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to all outstanding shares of the Series A Preferred Stock and the corresponding amounts payable on any Parity Securities, the Holder(s) and the holders of such Parity Securities shall share ratably in any distribution of assets of the Corporation in proportion to the full respective liquidating distributions which would be payable on such shares if all amounts payable thereon were paid in full.

(iii) Neither the consolidation or merger of the Corporation with or into any other entity, nor the consolidation or merger of any other entity with or into the Corporation, nor the sale, lease or other transfer or disposition of all or substantially all of the Corporation’s property or business or other assets shall, in and of itself, constitute a liquidation, dissolution or winding up of the Corporation.

(f) Maturity. The Series A Preferred Stock shall be perpetual, unless converted in accordance with this Certificate of Incorporation or redeemed either at the option of the Holder pursuant to Subdivision 3(m) or at the option of the Corporation pursuant to Subdivision 3(o)(ii).

 

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(g) Conversion at the Holder’s Option. Each Holder shall have the right, at such Holder’s option, at any time and from time to time, to convert all or any portion of such Holder’s Series A Preferred Stock into shares of Common Stock at the Applicable Conversion Rate, plus cash in lieu of fractional shares, plus an amount equal to any accrued and unpaid dividends on the shares of Series A Preferred Stock so converted through the date of such conversion, subject to compliance with the conversion procedures set forth in Subdivision 3(i).

(h) Mandatory Conversion at the Corporation’s Option.

(i) The Corporation shall have the right, at its option, at any time or from time to time to cause some or all of the Series A Preferred Stock to be converted into shares of Common Stock at the then Applicable Conversion Rate, plus cash in lieu of fractional shares, plus an amount equal to any accrued and unpaid dividends on the shares of Series A Preferred Stock so converted through the Mandatory Conversion Date, if, for 20 Trading Days during any period of 30 consecutive Trading Days (including the last Trading Day of such period), ending on the Trading Day preceding the date the Corporation delivers a Notice of Mandatory Conversion, the Closing Price of the Common Stock exceeds 136.94% of the then Applicable Conversion Price.

(ii) If the Corporation elects to cause fewer than all of the shares of Series A Preferred Stock to be converted pursuant to this Subdivision 3(h), the Corporation shall select the Series A Preferred Stock to be converted on a pro rata basis or by another method the Board of Directors, in its sole discretion, considers fair to the Holders. If the Corporation selects a portion of a Holder’s Series A Preferred Stock for partial mandatory conversion and such Holder converts a portion of its shares of Series A Preferred Stock, the converted portion will be deemed to be from the portion selected for mandatory conversion under this Subdivision 3(h).

(iii) If the Corporation elects to exercise the mandatory conversion right pursuant to this Subdivision 3(h), the Corporation shall provide notice of such conversion to each Holder (such notice, a “Notice of Mandatory Conversion”). The conversion date shall be a date selected by the Corporation (the “Mandatory Conversion Date”) and shall be no more than 7 days after the date on which the Corporation provides such Notice of Mandatory Conversion. In addition to any information required by applicable law or regulation, the Notice of Mandatory Conversion shall state, as appropriate:

(A) the Mandatory Conversion Date;

(B) the number of shares of Common Stock to be issued upon conversion of each share of Series A Preferred Stock; and

 

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(C) the number of shares of Series A Preferred Stock to be converted.

(i) Conversion Procedures.

(i) As provided in Subdivision 3(d)(v), dividends on any share of Series A Preferred Stock converted to Common Stock shall cease to accumulate on the Mandatory Conversion Date or any applicable Conversion Date, as applicable, and such shares of Series A Preferred Stock shall cease to be outstanding upon conversion.

(ii) Prior to the Close of Business on the Mandatory Conversion Date or any applicable Conversion Date, shares of Common Stock (and/or other securities, if applicable) issuable upon conversion of any shares of Series A Preferred Stock shall not be deemed outstanding for any purpose, and the Holder(s) shall have no rights with respect to the Common Stock (and/or other securities, if applicable) issuable upon conversion (including voting rights, rights to respond to tender offers for the Common Stock (and/or other securities, if applicable) issuable upon conversion and rights to receive any dividends or other distributions on the Common Stock (and/or other securities, if applicable) issuable upon conversion) by virtue of holding shares of Series A Preferred Stock.

(iii) The Person(s) entitled to receive the Common Stock (and/or cash, securities or other property, if applicable) issuable upon conversion of Series A Preferred Stock shall be treated for all purposes as the record holder(s) of such shares of Common Stock (and/or other securities, if applicable) as of the Close of Business on the Mandatory Conversion Date or any applicable Conversion Date. In the event that a Holder shall not by written notice designate the name in which shares of Common Stock (and/or cash, securities or other property, if applicable) and payments of cash in lieu of fractional shares, if any, and accrued and unpaid dividends, if any, to be issued or paid upon conversion of shares of Series A Preferred Stock should be registered or paid or the manner in which such shares should be delivered, the Corporation shall be entitled to register and deliver such shares, and make such payments, in the name of the Holder and in the manner shown on the records of the Corporation.

(iv) Shares of Series A Preferred Stock duly converted in accordance with this Certificate of Incorporation, or otherwise reacquired by the Corporation, will resume the status of authorized and unissued Preferred Stock, undesignated as to series and available for future issuance. The Corporation may from time-to-time take such appropriate action as may be necessary to reduce the authorized number of shares of Series A Preferred Stock; provided that no decrease shall reduce the authorized number of Series A Preferred Stock to a number less than the number of shares then outstanding.

 

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(v) Conversion into shares of Common Stock will occur on the Mandatory Conversion Date or any applicable Conversion Date as follows:

(A) On the Mandatory Conversion Date, certificates representing shares of Common Stock shall be issued and delivered to the Holder(s) or their designee upon presentation and surrender of the certificate evidencing the Series A Preferred Stock to the Corporation and, if required, the furnishing of appropriate endorsements and transfer documents and the payment of all transfer and similar taxes.

(B) On the date of any conversion at the option of the Holder(s) pursuant to Subdivision 3(g), a Holder must do each of the following in order to convert:

 

  (1) surrender the shares of Series A Preferred Stock to the Corporation;

 

  (2) if required, furnish appropriate endorsements and transfer documents; and

 

  (3) if required, pay all transfer or similar taxes.

The date on which a Holder complies with the procedures in this Subdivision 3(i)(v) is the “Conversion Date”.

(vi) Fractional Shares.

(A) No fractional shares of Common Stock will be issued as a result of any conversion of shares of Series A Preferred Stock.

(B) In lieu of any fractional share of Common Stock otherwise issuable in respect of any conversion pursuant to Subdivision 3(g) or Subdivision 3(h), the Corporation shall pay an amount in cash (computed to the nearest cent) equal to the same fraction of the Closing Price of the Common Stock determined as of the second Trading Day immediately preceding the Conversion Date.

(C) If more than one share of the Series A Preferred Stock is surrendered for conversion at one time by or for the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Series A Preferred Stock so surrendered.

(j) Anti-Dilution Adjustments.

(i) The Conversion Rate shall be adjusted from time to time by the Corporation in accordance with this Subdivision 3(j).

(ii) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, pay a dividend or make a distribution on its Common Stock in shares of its Common Stock to all or substantially all holders of its Common Stock, then the Conversion Rate shall be adjusted based on the following formula:

 

13


LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Record Date for such dividend or distribution;
CR1    =    the Conversion Rate in effect immediately after the Record Date for such dividend or distribution;
OS0    =    the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such dividend or distribution; and
OS1    =    the number of shares of Common Stock that would be outstanding immediately after, and solely as a result of, such dividend or distribution.

Any adjustment made pursuant to this Subdivision 3(j)(ii) shall become effective immediately after the Record Date for such dividend or distribution. If any dividend or distribution that is the subject of this Subdivision 3(j)(ii) is declared but not so paid or made, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay or make such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. For the avoidance of doubt, for purposes of this Subdivision 3(j)(ii), the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such dividend or distribution shall not include shares of Common Stock held in treasury, if any.

(iii) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, (x) subdivide the then Common Stock Outstanding into a greater number of shares of Common Stock or (y) combine the then Common Stock Outstanding into a smaller number of shares of Common Stock, then the Conversion Rate shall be adjusted based on the following formula:

 

LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the effective date of such subdivision or combination;
CR1    =    the Conversion Rate in effect immediately after the effective date of such subdivision or combination;
OS0    =    the number of shares of Common Stock Outstanding at the Close of Business on the effective date of such subdivision or combination; and
OS1    =    the number of shares of Common Stock that would be outstanding immediately after, and solely as a result of, such subdivision or combination.

 

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Any adjustment made pursuant to this Subdivision 3(j)(iii) shall become effective immediately after the effective date of such subdivision or combination.

(iv) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, distribute to holders of all or substantially all of the Common Stock any rights or warrants (other than a distribution of rights issued pursuant to a stockholder’s rights plan, to the extent such rights are attached to shares of Common Stock (in which event the provisions of Subdivision 3(j)(xv) shall apply), a dividend reinvestment plan or an issuance in connection with a transaction in which Subdivision 3(k) applies) entitling them to subscribe for or purchase, for a period of not more than 60 calendar days from the issuance date of such distribution, shares of Common Stock at a price per share less than the Current Market Price of the Common Stock, the Conversion Rate shall be adjusted based on the following formula:

 

LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Record Date for such distribution;
CR’    =    the Conversion Rate in effect immediately after the Record Date for such distribution;
OS0    =    the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such distribution;
X    =    the total number of shares of Common Stock issuable pursuant to such rights or warrants; and
Y    =    the number of shares of Common Stock equal to (x) the aggregate price payable to exercise such rights or warrants divided by (y) the Current Market Price of the Common Stock.

Any adjustment made pursuant to this Subdivision 3(j)(iv) shall become effective immediately after the Record Date for such distribution. If such rights or warrants described in this Subdivision 3(j)(iv) are not so distributed, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to distribute such rights or warrants, to the Conversion Rate that would then be in effect if such distribution had not been declared. To the extent that such rights or warrants are not exercised prior to their expiration or shares of Common Stock are otherwise not delivered pursuant to such rights or warrants upon the exercise of such rights or warrants, the Conversion Rate shall be readjusted to the Conversion Rate which would then be in effect had the adjustments made upon the distribution of such rights or warrants been made on

 

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the basis of the delivery of only the number of shares of Common Stock actually delivered. In determining the aggregate price payable to exercise such rights or warrants, there shall be taken into account any consideration received by the Corporation upon exercise of such rights and warrants and the value of such consideration (if other than cash, to be determined in good faith by the Board of Directors). For the avoidance of doubt, for purposes of this Subdivision 3(j)(iv), the number of shares of Common Stock Outstanding at the Close of Business on the Record Date for such distribution shall not include shares of Common Stock held in treasury, if any.

(v) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, by dividend or otherwise, distribute to all or substantially all holders of the Common Stock shares of any class of capital stock of the Corporation, evidences of its indebtedness, assets, property or rights or warrants to acquire the Corporation’s capital stock or other securities, but excluding:

(A) any dividends or distributions referred to in Subdivision 3(j)(ii);

(B) any rights or warrants referred to in Subdivision 3(j)(iv);

(C) any dividends or distributions referred to in Subdivision 3(j)(vi);

(D) any dividends and distributions in connection with a transaction to which Subdivision 3(k) shall apply; and

(E) any Spin-Offs to which the provision set forth below in this Subdivision 3(j)(v) shall apply,

(any such shares of capital stock, indebtedness, assets, property or rights or warrants to acquire Common Stock or other securities, hereinafter in this Subdivision 3(j)(v) called the “Distributed Property”), then, in each such case, the Conversion Rate shall be adjusted based on the following formula:

 

LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Record Date for such distribution;
CR’    =    the Conversion Rate in effect immediately after the Record Date for such distribution;
SP0    =    the Current Market Price of the Common Stock; and
FMV    =   

the Fair Market Value on the Record Date for such distribution of the Distributed Property, expressed as amount per

share of Common Stock.

 

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If the transaction that gives rise to an adjustment pursuant to this Subdivision 3(j)(v) is one pursuant to which the payment of a dividend or other distribution on the Common Stock consists of shares of capital stock of, or similar equity interests in, a Subsidiary or other business unit of the Corporation (a “Spin-Off”) that are, or when issued will be, traded or listed on the New York Stock Exchange, The NASDAQ Global Select Market, The NASDAQ Global Market or any other U.S. national securities exchange or association, the Conversion Rate shall be adjusted based on the following formula:

 

LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Record Date for such distribution;
CR’    =    the Conversion Rate in effect immediately after the Record Date for such distribution;
FMV    =    the average of the Closing Prices of the capital stock or similar equity interest distributed to holders of Common Stock applicable to one share of Common Stock over the 10 consecutive Trading Day period beginning on, and including, the effective date of the Spin-Off (the “Spin-Off Valuation Period”); and
MP0    =    the average of the Closing Prices of the Common Stock over the Spin-Off Valuation Period.

Any adjustment made pursuant to this Subdivision 3(j)(v) shall become effective immediately after the Record Date for such distribution. If any dividend or distribution of the type described in this Subdivision 3(j)(v) is declared but not so paid or made, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared. If an adjustment to the Conversion Rate is required under this Subdivision 3(j)(v), delivery of any additional shares of Common Stock that may be deliverable upon conversion as a result of an adjustment required under this Subdivision 3(j)(v) shall be delayed to the extent necessary in order to complete the calculations provided for in this Subdivision 3(j)(v).

(vi) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, by dividend or otherwise make a distribution to all or substantially all holders of its outstanding shares of Common Stock consisting exclusively of cash, but excluding:

 

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(A) any dividend or distribution in connection with the liquidation, dissolution or winding up of the Corporation (whether voluntary or involuntary), or upon a transaction to which Subdivision 3(k) applies, or

(B) regular cash dividends to the extent that such dividends do not exceed $0.25 per share in any Fiscal Quarter (the “Dividend Threshold Amount”),

then the Conversion Rate shall be adjusted based on the following formula:

 

LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Record Date for such dividend or distribution;
CR1    =    the Conversion Rate in effect immediately after the Record Date for such dividend or distribution;
SP0    =    the Current Market Price of the Common Stock; and
DIV    =    the amount in cash per share of Common Stock of the dividend or distribution, as determined pursuant to the following sentences. If any adjustment is required to be made as set forth in this Subdivision 3(j)(vi) as a result of a distribution (1) that is a regularly scheduled quarterly dividend, such adjustment would be based on the amount by which such dividend exceeds the Dividend Threshold Amount or (2) that is not a regularly scheduled quarterly dividend, such adjustment would be based on the full amount of such distribution. The Dividend Threshold Amount is subject to adjustment on an inversely proportional basis whenever the Conversion Rate is adjusted; provided that no adjustment shall be made to the Dividend Threshold Amount for any adjustment made to the Conversion Rate as described under this Subdivision 3(j)(vi).

Any adjustment made pursuant to this Subdivision 3(j)(vi) shall become effective immediately after the Record Date for such dividend or distribution. If any dividend or distribution of the type described in this Subdivision 3(j)(vi) is not so paid or made, the Conversion Rate shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay such dividend or distribution, to the Conversion Rate that would then be in effect if such dividend or distribution had not been declared.

(vii) If the Corporation shall, at any time or from time to time while any of the Series A Preferred Stock is outstanding, make a payment in respect of a tender offer or exchange offer for all or any portion of the Common Stock subject to the tender offer rules, to the extent that the cash and value of any other

 

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consideration included in the payment per share of Common Stock exceeds the Closing Price of the Common Stock on the trading day immediately succeeding the last date on which tenders or exchanges may be made pursuant to such tender offer or exchange offer (the “Expiration Date”), then the Conversion Rate shall be adjusted based on the following formula:

 

LOGO

where,

 

CR0    =    the Conversion Rate in effect at the Close of Business on the Expiration Date;
CR1    =    the Conversion Rate in effect immediately after the Expiration Date;
FMV    =    the Fair Market Value, on the Expiration Date, of the aggregate value of all cash and any other consideration paid or payable for shares of Common Stock validly tendered or exchanged and not withdrawn as of the Expiration Date;
OS1    =    the number of shares of Common Stock outstanding immediately after the last time tenders or exchanges may be made pursuant to such tender offer or exchange offer (the “Expiration Time”);
OS0    =    the number of shares of Common Stock outstanding immediately prior to the Expiration Time; and
SP1    =    the average of the Closing Price of Common Stock during the ten consecutive Trading Day period commencing on the Trading Day immediately after the Expiration Date.

Any adjustment made pursuant to this Subdivision 3(j)(vii) shall become effective immediately prior to 9:00 a.m., New York City time, on the Trading Day immediately following the Expiration Date. If the Corporation, or one of its subsidiaries, is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Corporation or such subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Rate shall be readjusted to be the Conversion Rate that would then be in effect if such tender offer or exchange offer had not been made. Except as set forth in the preceding sentence, if the application of this Subdivision 3(j)(vii) to any tender offer or exchange offer would result in a decrease in the Conversion Rate, no adjustment shall be made for such tender offer or exchange offer under this Subdivision 3(j)(vii). If an adjustment to the Conversion Rate is required under this Subdivision 3(j)(vii), delivery of any additional shares of Common Stock upon conversion of the Series A Preferred Stock shall be delayed to the extent necessary in order to complete the calculations provided for in this Subdivision 3(j)(vii).

(viii) In cases where the Fair Market Value of shares of capital stock, evidences of indebtedness, assets (including cash), or securities or certain rights, warrants or options to purchase securities of the Corporation, or the amount of the cash dividend or distribution applicable to one share of Common Stock, distributed to all or substantially all holders of the Common Stock:

 

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(A) equals or exceeds the Current Market Price of the Common Stock; or

(B) the Current Market Price of the Common Stock exceeds the Fair Market Value of such assets, debt securities or rights, warrants or options or the amount of cash so distributed by less than $1.00,

rather than being entitled to an adjustment in the Conversion Rate, the Holder(s) will be entitled to receive upon conversion, in addition to shares of Common Stock, the kind and amount of shares of capital stock, evidences of indebtedness, assets, or securities or rights, warrants or options comprising the distribution, if any, that such Holder(s) would have received if such Holder(s) had held a number of shares of Common Stock equal to the number of shares of Series A Preferred Stock held multiplied by the Conversion Rate in effect immediately prior to the record date for determining the holders of Common Stock entitled to receive the distribution.

(ix) All calculations under this Subdivision 3(j) shall be made to the nearest 1/100,000 of a share of Common Stock per share of Series A Preferred Stock. No adjustment in the Conversion Rate is required if the amount of such adjustment would be less than 1%; provided, however, that any such adjustment not required to be made pursuant to this Subdivision 3(j)(ix) will be carried forward and taken into account in any subsequent adjustment.

(x) No adjustment to the Conversion Rate shall be made if the Holder(s) may participate in the transaction that would otherwise give rise to an adjustment, as a result of holding the Series A Preferred Stock, without having to convert the Series A Preferred Stock, as if they held the full number of shares of Common Stock into which a share of the Series A Preferred Stock may then be converted.

(xi) The Corporation may, but is not required to, make such increases in the Conversion Rate, in addition to those required by Subdivision 3(j)(ii) through (vii), as the Board of Directors deems advisable to avoid or diminish any income tax to holders of Common Stock resulting from any dividend or distribution of Common Stock (or rights to acquire Common Stock) or from any event treated as such for income tax purposes.

(xii) In addition to the foregoing, to the extent permitted by applicable law and subject to the applicable rules of the New York Stock Exchange, the Corporation from time to time may increase the Conversion Rate by any amount for any period of time if the period is at least 20 Business Days, the increase is irrevocable during the period and the Board of Directors shall have made a determination that such increase would be in the best interests of the Corporation,

 

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which determination shall be conclusive. Whenever the Conversion Rate is increased pursuant to the preceding sentence, the Corporation shall mail to Holder(s) a notice of the increase, which notice will be given at least 15 calendar days prior to the effectiveness of any such increase, and such notice shall state the increased Conversion Rate and the period during which it will be in effect.

(xiii) If during a period applicable for calculating the Closing Price of Common Stock or any other security, an event occurs that requires an adjustment to the Conversion Rate, the Closing Price of such security shall be calculated for such period in a manner reasonably determined by the Corporation to appropriately reflect the impact of such event on the price of such security during such period. Whenever any provision of this Subdivision 3 requires a calculation of an average of Closing Prices of Common Stock or any other security over multiple days, appropriate adjustments shall be made to account for any adjustment to the Conversion Rate that becomes effective, or any event requiring an adjustment to the Conversion Rate where the Record Date of the event occurs, at any time during the period during which the average is to be calculated.

(xiv) Whenever the Conversion Rate is to be adjusted in accordance with Subdivision 3(j), the Corporation shall compute the Conversion Rate in accordance with Subdivision 3(j), taking into account Subdivision 3(j)(ix), and provide, or cause to be provided, a written notice to the Holder(s) of the occurrence of such event and setting forth the adjusted Conversion Rate.

(xv) Rights Plans. If the Corporation has a rights plan in effect with respect to the Common Stock on the Mandatory Conversion Date or any Conversion Date, upon conversion of any shares of the Series A Preferred Stock, the Holder of such shares will receive, in addition to the shares of Common Stock, the rights under the rights plan relating to such Common Stock, unless, prior to the Mandatory Conversion Date or such Conversion Date, the rights have (x) become exercisable or (y) separated from the shares of Common Stock in accordance with the provisions of such rights plan (the first of events to occur being the “Trigger Event”), in either of which cases the Conversion Rate will be adjusted, effective automatically at the time of such Trigger Event, as if the Corporation had made a distribution of such rights to all holders of the Common Stock as described in Subdivision 3(j)(iv) (without giving effect to the 60 day limit on the exercisability of rights and warrants ordinarily subject to such Subdivision 3(j)(iv)), subject to appropriate readjustment in the event of the expiration, termination or redemption of such rights prior to the exercise, deemed exercise or exchange thereof. Notwithstanding the foregoing, to the extent any such stockholder rights are exchanged by the Corporation for shares of Common Stock, the Conversion Rate shall be appropriately readjusted as if such stockholder rights had not been issued, but the Corporation had instead issued the shares of Common Stock issued upon such exchange as a dividend or distribution of shares of Common Stock subject to Subdivision 3(j)(ii).

 

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(k) Reorganization Events.

(i) In the event that there occurs:

(A) any consolidation, merger or other business combination of the Corporation with or into another Person;

(B) any sale, transfer, lease or conveyance to another Person of all or substantially all of the property and assets of the Corporation;

(C) any reclassification, recapitalization or reorganization of the Corporation; or

(D) any statutory exchange of the outstanding shares of Common Stock for securities of another Person (other than in connection with a consolidation, merger or other business combination);

and in each case, the holders of the Common Stock receive stock, other securities or other property or assets (including cash or any combination thereof) with respect to or in exchange for the Common Stock (any such event or transaction, a “Reorganization Event”) each share of Series A Preferred Stock outstanding immediately prior to such Reorganization Event shall, without notice to or consent of the Holder(s) and subject to Subdivision 3(k)(v), become convertible (but, for the avoidance of doubt, shall not be automatically converted in connection with such Reorganization Event) into the kind of securities, cash and other property received in such Reorganization Event by the holders of the Common Stock (other than the counterparty to the Reorganization Event or an Affiliate of such counterparty) (such securities, cash and other property, the “Exchange Property”).

(ii) In the event that holders of the shares of Common Stock have the opportunity to elect the form of consideration to be received in such transaction, the consideration that the Holder(s) are entitled to receive upon conversion shall be deemed to be the types and amounts of consideration received by a majority of the holders of the shares of Common Stock that did make an affirmative election.

(iii) The above provisions of this Subdivision 3(k) shall similarly apply to successive Reorganization Events and the provisions of Subdivision 3(j) shall apply to any shares of capital stock received by the holders of Common Stock in any such Reorganization Event.

(iv) The Corporation (or any successor) shall, within 20 days of the consummation of any Reorganization Event, provide written notice to the Holder(s) of such consummation of such event and of the kind and amount of the cash, securities or other property that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Subdivision 3(k).

(v) The Corporation shall not enter into any agreement for a transaction constituting a Reorganization Event unless:

 

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(A) such agreement provides for, or does not interfere with or prevent (as applicable), conversion of the Series A Preferred Stock into the Exchange Property in a manner that is consistent with and gives effect to this Subdivision 3(k); and

(B) to the extent that the Corporation is not the surviving corporation in such Reorganization Event or will be dissolved in connection with such Reorganization Event, proper provision shall be made in the agreements governing such Reorganization Event for the conversion of the Series A Preferred Stock into stock of the Person surviving such Reorganization Event or, in the case of a Reorganization Event described in Subdivision 3(k)(i)(B), an exchange of Series A Preferred Stock for the stock of the Person to whom the Corporation’s assets are conveyed or transferred, and such stock of the Person surviving such Reorganization Event or to whom the Corporation’s assets are conveyed or transferred shall have voting powers, preferences and relative, participating, optional or other special rights as nearly equal as possible to those provided in this Certificate of Incorporation.

(l) Holder’s Right to Convert Upon a Make-Whole Acquisition.

(i) In addition to any other rights of conversion set forth herein, in the event a Make-Whole Acquisition occurs, each Holder shall have the right, at such Holder’s option, to convert all or any portion of such Holder’s shares of Series A Preferred Stock into shares of Common Stock during the period (the “Make-Whole Acquisition Conversion Period”) beginning on the effective date of the Make-Whole Acquisition (the “Make-Whole Acquisition Effective Date”) and ending on the date that is 30 calendar days after the Make-Whole Acquisition Effective Date at the Applicable Conversion Rate, plus a number of additional shares of Common Stock (the “Additional Shares”) determined pursuant to Subdivision 3(l)(ii), plus cash in lieu of fractional shares, plus an amount equal to any accrued and unpaid dividends on the shares of Series A Preferred Stock so converted through the date of such conversion, subject to compliance with the conversion procedures set forth in Subdivision 3(i).

 

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(ii) The number of Additional Shares per share of Series A Preferred Stock shall be determined by reference to the table below for the applicable Make-Whole Acquisition Effective Date and the applicable Make-Whole Acquisition Stock Price:2

 

     Make-Whole Acquisition Stock Price  

Make-Whole Acquisition Effective Date

   $ 3.75       $ 4.00       $ 4.45       $ 5.00       $ 6.09   

February 1, 2015 and thereafter

     41.9547         35.7525         24.8366         17.0460         0.0000   

The exact Make-Whole Acquisition Stock Price and Make-Whole Acquisition Effective Date may not be set forth in the table, in which case:

(A) if the Make-Whole Acquisition Stock Price is between two Make-Whole Acquisition Stock Price amounts in the table or the Make-Whole Acquisition Effective Date is between two Make-Whole Acquisition Effective Dates in the table, the number of Additional Shares will be determined by straight-line interpolation between the number of Additional Shares set forth for the higher and lower Make-Whole Acquisition Stock Price amounts and the two Make-Whole Acquisition Effective Dates, as applicable, based on a 365-day year;

(B) [if the Make-Whole Acquisition Stock Price is in excess of $[6.09] per share (subject to adjustment pursuant to Subdivision 3(j)), no Additional Shares will be issued upon conversion of the Series A Preferred Stock;

(C) if the Make-Whole Acquisition Stock Price is less than $[3.75] per share (subject to adjustment pursuant to Subdivision 3(j)), no Additional Shares will be issued upon conversion of the Series A Preferred Stock]3; and

 

2 Table is based on a Conversion Price of $4.45 (which assumed a Distribution Ratio of 1 for 1). If the actual Distribution Ratio is not 1 for 1, the make-whole table will be updated to reflect the Distribution Ratio, but otherwise using the same methodology used to produce the make-whole table at signing. For example, if the Distribution Ratio is 1 for 5 (i.e., one Conduent share for every five Xerox shares), then the make-whole table would be:

 

     Make-Whole Acquisition Stock Price  

Make-Whole Acquisition Effective Date

   $ 18.75       $ 20.00       $ 22.26       $ 25.00       $ 30.47   

February 1, 2015 and thereafter

     8.3909         7.1500         5.2565         3.4092         0.0000   

 

3  These values are based on a Conversion Price of $4.45 (which assumed a Distribution Ratio of 1 for 1). If the actual Distribution Ratio is not 1 for 1, these values will be updated to reflect the Distribution Ratio, but otherwise using the same methodology used to produce the values signing. For example, if the Distribution Ratio is 1 for 5 (i.e., one Conduent share for every five Xerox shares), then the value in (B) would be $30.47 and the value in (C) would be $18.75.

 

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(D) if the Make-Whole Acquisition Effective Date is after the fifth anniversary of the Issue Date, then the number of Additional Shares will be determined by reference to the last row in the table.

The Make-Whole Acquisition Stock Prices set forth in the table above shall be adjusted pursuant to Subdivision 3(j) as of any date the Conversion Rate is adjusted. The adjusted Make-Whole Acquisition Stock Prices will equal the Make-Whole Acquisition Stock Prices applicable immediately prior to such adjustment multiplied by a fraction, the numerator of which is the Conversion Rate immediately prior to the adjustment and the denominator of which is the Conversion Rate as so adjusted. Each of the number of Additional Shares in the table shall also be subject to adjustment in the same manner as the Conversion Rate pursuant to Subdivision 3(j).

(iii) On or before the 20th calendar day prior to the date the Corporation anticipates the Make-Whole Acquisition being consummated or within two Business Days of becoming aware of a Make-Whole Acquisition of the type set forth in clause (i) of the definition of Make-Whole Acquisition, a written notice shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holder(s) as they appear in the records of the Corporation. Such notice shall contain:

(A) the date as of which the Make-Whole Acquisition is anticipated to be effective or the Make-Whole Acquisition Effective Date, as applicable; and

(B) the date by which a Make-Whole Acquisition conversion pursuant to this Subdivision 3(l) must be exercised.

(iv) On the Make-Whole Acquisition Effective Date or as soon as practicable thereafter, another written notice shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holder(s) as they appear in the records of the Corporation. Such notice shall contain:

(A) the date that shall be 30 calendar days after the Make-Whole Acquisition Effective Date;

(B) the number of Additional Shares;

(C) the amount of cash, securities and other consideration receivable by a Holder upon conversion; and

(D) the instructions a Holder must follow to exercise its Make-Whole Acquisition conversion right pursuant to this Subdivision 3(l).

 

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(v) To exercise its Make-Whole Acquisition conversion right pursuant to this Subdivision 3(l), a Holder must, no later than 5:00 p.m., New York City time, on or before the date specified in the notice sent pursuant to Subdivision 3(l)(iv), comply with the procedures set forth in Subdivision 3(i), and indicate that it is exercising its Make-Whole Acquisition conversion right pursuant to this Subdivision 3(l).

(vi) If a Holder does not elect to exercise its Make-Whole Acquisition conversion right pursuant to this Subdivision 3(l), the shares of Series A Preferred Stock or successor security held by it shall remain outstanding (unless otherwise converted as provided herein), but the Holder will not be eligible to receive Additional Shares.

(vii) Upon a Make-Whole Acquisition conversion, the Conversion Agent shall, except as otherwise provided in the instructions provided by the Holder thereof in the written notice provided to the Corporation or its successor as set forth in Subdivision 3(l)(v), deliver to the Holder such cash, securities or other property as are issuable with respect to the shares of Series A Preferred Stock converted.

(viii) In the event that a Make-Whole Acquisition conversion is effected with respect to shares of Series A Preferred Stock or a successor security representing less than all the shares of Series A Preferred Stock or a successor security held by a Holder, upon such Make-Whole Acquisition conversion, the Corporation or its successor shall execute and the Registrar shall, unless otherwise instructed in writing, countersign and deliver to the Holder thereof, at the expense of the Corporation or its successors, a certificate evidencing the shares of Series A Preferred Stock or such successor security held by the Holder as to which a Make-Whole Acquisition conversion was not effected.

(m) Holder’s Redemption Right Upon a Fundamental Change.

(i) Upon the occurrence of a Fundamental Change, each Holder shall have the option, during the period commencing on the date the applicable Fundamental Change Notice (as defined below) is mailed to Holders of the Series A Preferred Stock and ending at the Close of Business on the 45th Business Day thereafter (the “Fundamental Change Redemption Date”), to require the Corporation to redeem all, or any portion, of such Holder’s shares of Series A Preferred Stock at the redemption price per share equal to the Liquidation Preference per share of Series A Preferred Stock plus an amount equal to any accrued and unpaid dividends on the shares of Series A Preferred Stock so redeemed to, but not including, the Fundamental Change Redemption Date (the “Fundamental Change Redemption Price”).

(ii) Within 30 days following a Fundamental Change, the Corporation shall mail to each Holder of shares of the Series A Preferred Stock a notice (the “Fundamental Change Notice”) setting forth the details of the Fundamental Change and the special redemption rights occasioned thereby. In addition to any information required by law or by the applicable rules of any exchange upon

 

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which the Series A Preferred Stock may be listed or admitted to trading, such notice shall state: (a) the Fundamental Change Redemption Date; (b) the Fundamental Change Redemption Price; (c) the place or places where certificates for shares may be surrendered for payment of the Fundamental Change Redemption Price, including any procedures applicable to redemption to be accomplished through book-entry transfers; (d) the procedures that the Holder of Series A Preferred Stock must follow to exercise such Holder’s rights under this Subdivision 3(m); and (e) that dividends on the shares tendered for redemption will cease to accumulate on the Fundamental Change Redemption Date.

(iii) To exercise such Holder’s special redemption right under this Subdivision 3(m), a Holder must (a) surrender the certificate or certificates evidencing the shares of Series A Preferred Stock to be redeemed, duly endorsed in a form satisfactory to the Corporation, at the office of the Corporation and (b) notify the Corporation at such office that such Holder elects to exercise such Holder’s fundamental change redemption rights and the number of shares such Holder wishes to have redeemed. In the event that a Holder fails to notify the Corporation of the number of shares of Series A Preferred Stock which such Holder wishes to have redeemed, such Holder shall be deemed to have elected to have redeemed all shares represented by the certificate or certificates surrendered for redemption.

(iv) Exercise by a Holder of such Holder’s special redemption right following a Fundamental Change is irrevocable, except that a Holder may withdraw its election to exercise such Holder’s special redemption right at any time on or before the Fundamental Change Redemption Date by delivering a written or facsimile transmission notice to the Corporation at the address or facsimile number specified in the Fundamental Change Notice. Such notice, to be effective, must be received by the Corporation prior to the close of business on the Fundamental Change Redemption Date. All shares of Series A Preferred Stock tendered for redemption pursuant to the Holder’s fundamental change redemption rights as described herein and not withdrawn shall be redeemed at or prior to the Close of Business on the Fundamental Change Redemption Date. From and after the Fundamental Change Redemption Date, unless the Corporation defaults in payment of the Fundamental Change Redemption Price, dividends on the shares of Series A Preferred Stock tendered for redemption shall cease to accumulate, and said shares shall no longer be deemed to be outstanding and shall not have the status of shares of Series A Preferred Stock, and all rights of Holders thereof as shareholders of the Corporation (except the right to receive from the Company the Fundamental Change Redemption Price) shall cease. As soon as practical after the Fundamental Change Redemption Date, the Corporation shall deliver a new certificate representing the unredeemed portion, if any, of the shares of Series A Preferred Stock represented by the certificate or certificates surrendered for redemption.

 

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(n) Voting Rights.

(i) Unless the consent of the Holder(s) of a greater number of shares shall then be required by law and except as provided in Subdivisions 3(n)(ii), 3(n)(iii) and 3(n)(iv), the consent of the Holder(s) of at least two-thirds of the shares of Series A Preferred Stock at the time outstanding, given in person or by proxy, either in writing or at any special or annual meeting called for the purpose, at which the Series A Preferred Stock shall vote separately as a class, shall be necessary to permit, effect or validate any one or more of the following:

(A) The authorization of, or any increase in the authorized amount of, any class of stock ranking prior to the Series A Preferred Stock;

(B) The amendment, alteration or repeal of any of the provisions of the Certificate of Incorporation, or of the By-Laws of the Corporation (whether, directly or indirectly, by merger, consolidation or otherwise) which would affect adversely any right, preference, privilege or voting power of the Series A Preferred Stock or of the Holder(s) thereof; and

(C) The voluntary liquidation, dissolution or winding up of the Corporation, or the sale, lease or conveyance (other than by mortgage) of all or substantially all of the property or business of the Corporation, or the consolidation, merger or other business combination of the Corporation with or into any other Person, except any such sale, lease or conveyance (other than by mortgage) of all or substantially all of the property or business of the Corporation or consolidation or merger or other business combination wherein none of the rights, preferences, privileges or voting powers of the Series A Preferred Stock or the Holder(s) thereof are adversely affected.

(ii) The Holder(s) shall have no voting rights with respect to any consolidation, merger or other business combination of the Corporation with or into any other Person if:

(A) to the extent the Corporation is not the surviving Person in such transaction, the Holder(s) will receive the stock of the Person surviving such transaction and such stock shall have voting powers, preferences and relative, participating, optional or other special rights as nearly equal as possible to those provided in this Certificate of Incorporation; and

(B) upon conversion of the Series A Preferred Stock or the stock of the Person surviving such transaction issued in accordance with Subdivision 3(k)(v), the Holder(s) will receive Exchange Property in accordance with Subdivision 3(k).

 

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(iii) The Holder(s) shall have no voting rights with respect to any sale, lease or conveyance (other than by mortgage) of all or substantially all of the property or business of the Corporation if:

(A) to the extent the Corporation is not the surviving Person in such transaction, the Holder(s) will receive the stock of the Person to whom all or substantially all of the property or business of the Corporation is sold, leased or conveyed and such stock shall have voting powers, preferences and relative, participating, optional or other special rights as nearly equal as possible to those provided in this Certificate of Incorporation; and

(B) upon conversion of the Series A Preferred Stock or the stock of the Person to whom all or substantially all of the property or business of the Corporation is sold, leased or conveyed issued in accordance with Subdivision 3(k)(v), the Holder(s) will receive Exchange Property in accordance with Subdivision 3(k).

(iv) The Holder(s) shall not have any voting rights if, at or prior to the effective time of the act with respect to which such vote would otherwise be required, all outstanding shares of Series A Preferred Stock shall have been converted into shares of Common Stock.

(v) Except as otherwise expressly provided in the Certificate of Incorporation and except as otherwise provided by law, voting rights upon any and all matters shall be vested exclusively in the holders of the Common Stock.

(vi) Unless and until six quarter-yearly dividends on the Series A Preferred Stock shall be in default, in whole or in part, the entire voting power, except as otherwise provided in the Certificate of Incorporation or By-Laws, shall be vested exclusively in the Common Stock in accordance with the provisions of, and except as otherwise expressly provided in, the Certificate of Incorporation. If and whenever six full quarter-yearly dividends (whether or not consecutive) payable on the Series A Preferred Stock shall be in arrears, in whole or in part, the number of Directors then constituting the Board of Directors shall be increased by two and the holders of the Series A Preferred Stock, voting separately as a class, shall be entitled to elect the two additional directors at any annual meeting of shareholders or special meeting held in place thereof, or at a special meeting of the holders of the Series A Preferred Stock called as hereinafter provided. Whenever all arrears in dividends on the Series A Preferred Stock then outstanding shall have been paid and dividends thereon for the current quarter-yearly dividend period shall have been paid or declared and set apart for payment, then the right of the holders of the Series A Preferred Stock to elect such additional two Directors shall cease (but subject always to the same provisions for the vesting of such voting rights in the case of any similar future arrearages in dividends), and the terms of office of all persons elected as Directors by the holders of the Series A Preferred Stock shall forthwith terminate and the number

 

29


of the Board of Directors shall be reduced accordingly. At any time after such voting power shall have been so vested in the Series A Preferred Stock, the Secretary of the Corporation may, and upon the written request of any holder of the Series A Preferred Stock (addressed to the Secretary at the principal office of the Corporation) shall, call a special meeting of the holders of the Series A Preferred Stock for the election of the two Directors to be elected by them as herein provided, such call to be made by notice similar to that provided in the By-Laws for a special meeting of the shareholders or as required by law. If any such special meeting required to be called as above provided shall not be called by the Secretary within twenty days after receipt of any such request, then any holder of Series A Preferred Stock may call such meeting, upon the notice above provided, and for that purpose shall have access to the stock books of the Corporation. The Directors elected at any such special meeting shall hold office until the next annual meeting of the shareholders or special meeting held in place thereof. In case any vacancy shall occur among the Directors elected by the holders of the Series A Preferred Stock, a successor shall be elected to serve until the next annual meeting of the shareholders or special meeting held in place thereof by the then remaining Director elected by the holders of the Series A Preferred Stock or the successor of such remaining Director.

In any case in which the holders of Series A Preferred Stock shall be entitled to vote pursuant to the provisions of the Certificate of Incorporation or pursuant to law, each holder of Series A Preferred Stock shall be entitled to one vote for each share thereof held.

(o) Transfer; Optional Redemption by the Corporation Upon Transfer.

(i) The Transfer of the Series A Preferred Stock by the Holder(s) thereof shall not be restricted other than pursuant to the requirements of applicable law; provided, however, that, with respect to any such Transfer of shares of Series A Preferred Stock, the shares so Transferred must have an aggregate Liquidation Preference of at least $1 million and, if applicable, any shares owned by the Holder effecting such Transfer following such Transfer must have an aggregate Liquidation Preference of at least $1 million.

(ii) Upon a Transfer of the Series A Preferred Stock pursuant to Subdivision 3(o)(i) to a Person other than a Permitted Transferee, the Corporation shall have the right, at its option, to redeem, in part or in whole, such Transferred shares of Series A Preferred Stock (the “Optional Redemption Transferred Shares”) at any time on or following the fifth anniversary of the date of such Transfer at a redemption price per share of Series A Preferred Stock equal to the then Fair Market Value of such Optional Redemption Transferred Shares and an amount equal to any accrued and unpaid dividends on such Optional Redemption Transferred Shares to, but not including, the Optional Redemption Date.

 

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(A) If the Corporation exercises its optional redemption right to redeem the Optional Redemption Transferred Shares pursuant to Subdivision 3(o)(ii), a written notice (the “Optional Redemption Notice”) shall be sent by or on behalf of the Corporation, by first-class mail, postage prepaid, to the Holder(s) of such Optional Redemption Transferred Shares, which shall contain the number of Optional Redemption Transferred Shares, the name of the nationally recognized independent investment banking firm selected by the Corporation to determine the Fair Market Value of the Optional Redemption Transferred Shares to be redeemed, the Fair Market Value of the Optional Redemption Transferred Shares (on a per share and aggregate basis) and such other information required by applicable law.

(B) The date of the redemption of the Optional Redemption Transferred Shares shall be a date selected by the Corporation that is not less than 30 calendar days and not more than 60 calendar days after the date on which the Corporation provides Optional Redemption Notice (the “Optional Redemption Date”).

(C) If, on or before the Optional Redemption Date specified in the Optional Redemption Notice, the Corporation has set aside all funds necessary for such redemption, separate and apart from its other funds, in trust for the pro rata benefit of the Holder(s) of the Optional Redemption Transferred Shares so called for redemption, so as to be and continue to be available therefor, then, notwithstanding that any certificate for the Optional Redemption Transferred Shares so called for redemption shall not have been surrendered for cancellation, all the Optional Redemption Transferred Shares so called for redemption shall no longer be deemed outstanding on and after such Optional Redemption Date, and the right to receive dividends thereon and all other rights with respect to such shares shall forthwith on such Optional Redemption Date cease and terminate, except only the right of the Holder(s) thereof to receive the amount payable on redemption thereof without interest.

(iii) A Holder effecting a Transfer pursuant to this Subdivision 3(o) must notify the Registrar of the Transfer on the date of the Transfer. Any purported Transfer of shares of Series A Preferred Stock not in accordance with this Subdivision 3(o) shall be void and have no effect; provided, however, that the failure to notify the Registrar of any Transfer shall not cause such Transfer to be void and of no effect.

(p) Reservation of Common Stock.

(i) The Corporation has reserved and shall continue at all times to reserve and keep available out of its authorized and unissued Common Stock or shares acquired by the Corporation, solely for issuance upon the conversion of shares of Series A Preferred Stock as provided in this Subdivision 3, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of

 

31


Series A Preferred Stock then outstanding. The Corporation shall take all such corporate and other actions as from time to time may be necessary to ensure that all shares of Common Stock issuable upon conversion of shares of Series A Preferred Stock at the Conversion Rate in effect from time to time will, upon issue, be duly and validly authorized and issued, fully paid and nonassessable and free of any preemptive or similar rights. For purposes of this Subdivision 3(p), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series A Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single Holder.

(ii) Notwithstanding the foregoing, the Corporation shall be entitled to deliver upon conversion of shares of Series A Preferred Stock, as herein provided, shares of Common Stock acquired by the Corporation (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as (x) any such acquired shares are free and clear of all liens, charges, security interests or encumbrances (other than liens, charges, security interests and other encumbrances created by the Holders) and (y) all such acquired shares have all the same attributes as any other share of Common Stock then outstanding, including without limitation any rights that may then be attached to all or substantially all of the Common Stock then outstanding pursuant to any stockholders’ rights plan or similar arrangement.

(iii) All shares of Common Stock delivered upon conversion of the Series A Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests and other encumbrances (other than liens, charges, security interests and other encumbrances created by the Holder(s)).

(iv) Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series A Preferred Stock, the Corporation shall use its reasonable best efforts to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority.

(v) The Corporation hereby covenants and agrees that, if at any time the Common Stock shall be listed on the New York Stock Exchange or any other national securities exchange or automated quotation system, the Corporation will, if permitted by the rules of such exchange or automated quotation system, list and keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all the Common Stock issuable upon conversion of the Series A Preferred Stock.

(q) Replacement Certificates. The Corporation shall replace any mutilated Series A Preferred Stock certificate at the Holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the Holder’s expense upon delivery to the Corporation of satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may reasonably be required by the Corporation.

 

32


(r) Miscellaneous.

(i) All notices referred to herein shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three Business Days after the mailing thereof if sent by registered or certified mail with postage prepaid, addressed: (x) if to the Corporation, to its office at [•], or (y) if to any Holder, to such Holder at the address of such Holder as listed in the stock record books of the Corporation or (z) to such other address as the Corporation or any such Holder, as the case may be, shall have designated by notice similarly given.

(ii) No Holder of Series A Preferred Stock shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever, or of any obligations or other securities convertible into, or exchangeable for, any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.

(iii) The shares of Series A Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Certificate of Incorporation or as provided by applicable law.”

FIFTH: The foregoing amendment to the Certificate of Incorporation was authorized by a resolution of the Board of Directors at a meeting thereof duly held on [•], 2016 in accordance with the authority granted to the Board of Directors in the Certificate of Incorporation and Section 502 of the Business Corporation Law.

 

33


IN WITNESS WHEREOF, CONDUENT INCORPORATED has caused this Certificate of Amendment to be signed by its authorized corporate officer this [•] day of [•], 2016.

 

CONDUENT INCORPORATED
    by  

 

 

  Name:
  Title:
EX-21.1

Exhibit 21.1

SUBSIDIARIES OF CONDUENT INCORPORATED

 

Name of Subsidiary

   Jurisdiction of Incorporation or
Organization
MidasPlus, Inc.    Arizona
Healthy Communities Institute Corporation    California
Breakaway Healthcare and Life Sciences LLC    Colorado
Education Sales and Marketing, LLC    Colorado
ESM Chaperone, LLC    Colorado
Wagers & Associates, Inc.    Colorado
ACS Asset Management Group, LLC    Delaware
ACS BPO Services, Inc.    Delaware
ACS BRC Holdings, LLC    Delaware
ACS Consultant Holdings Corporation    Delaware
ACS Defense, LLC    Delaware
ACS EDI Gateway, Inc.    Delaware
ACS Education Loan Services LLC    Delaware
ACS Enterprise Solutions, LLC    Delaware
ACS e-Services, LLC    Delaware
ACS Global, Inc.    Delaware
ACS Health Administration, Inc.    Delaware
ACS Healthcare Analytics, Inc.    Delaware
ACS HR Solutions World Services LLC    Delaware
ACS Human Resources Solutions, LLC    Delaware
ACS Lending, Inc.    Delaware
ACS Middle East, Inc.    Delaware
ACS TMC, Inc.    Delaware
ACS TradeOne Marketing, Inc.    Delaware
ACS Trust I    Delaware
ACS Trust II    Delaware
ACS/ECG Holdings, LLC    Delaware
ACS@Xerox LLC    Delaware
Buck Consultants, LLC    Delaware
Buck Kwasha Securities LLC    Delaware
Bunch CareSolutions, LLC    Delaware
CDR Associates, L.L.C.    Delaware
Conduent Finance, Inc.    Delaware
Consilience Software, Inc.    Delaware
Education Services Company, LLC    Delaware
etravelexperts, LLC    Delaware
Government Records Services, Inc.    Delaware

Intellinex LLC

   Delaware

ISG Holdings, Inc

   Delaware

ISG Services, LLC

   Delaware

ParkIndy, LLC

   Delaware

RSA Enterprises LLC

   Delaware

RSA Medical Exams LLC

   Delaware

RSA Medical LLC

   Delaware

Specialty I, LLC

   Delaware

StrataCare, LLC

   Delaware

The National Abandoned Property Processing Corporation

   Delaware

Title Records Corporation

   Delaware

TMS Health LLC

   Delaware

Xerox Audit & Compliance Solutions, LLC

   Delaware

Xerox Business Services, LLC

   Delaware

Xerox Education Services, LLC

   Delaware


Xerox Education Solutions, LLC

   Delaware

Xerox European Funding LLC

   Delaware

Xerox Export LLC

   Delaware

Xerox Federal Solutions, LLC

   Delaware

Xerox Government Systems, LLC

   Delaware

Xerox HR Solutions, LLP

   Delaware

Xerox Mortgage Services, Inc.

   Delaware

Xerox Recovery Services, Inc.

   Delaware

Xerox Relocation & Assignment Services, LLC

   Delaware

Xerox State Healthcare, LLC

   Delaware

LearnSomething, Inc.

   Florida

ACB Airport Solutions, LLC

   Georgia

Digital Information Systems Company, L.L.C.

   Georgia

Xerox Transport Solutions, Inc.

   Georgia

Wireless Data Services (Operations) Inc.

   Idaho

Xerox Card Services, LLC

   Illinois

ACS Human Services, LLC

   Indiana

Health Technology Acquisition Company

   Indiana

Outsourced Administrative Systems, Inc.

   Indiana

ACS Image Solutions, Inc.

   Louisiana

Xerox Consultant Company, Inc.

   Michigan

ACS CompIQ Corporation

   Nevada

Xerox Commercial Solutions, LLC

   Nevada

TMS Health Patient Access Solutions, LLC

   New Jersey

Consultec IPA, Inc.

   New York

Smart Data Consulting Corp

   New York

Xerox State & Local Solutions, Inc.

   New York

LiveBridge, Inc.

   Oregon

Newspaper Services Holding, Inc.

   Oregon

Statit Software, Inc.

   Oregon

Superior Venture Partner, Inc.

   Pennsylvania

Xerox HR Solutions, LLC

   Pennsylvania

CredenceHealth, Inc.

   Tennessee

ACS Protection Services, Inc.

   Texas

ACS Securities Services, Inc.

   Texas

ACS Welfare Benefit Trust

   Texas

Conduent Legal & Compliance Solutions, LLC

   Texas

Mercury Fund II, Ltd.

   Texas

Transaction Processing Specialists, Inc.

   Texas

WDS Global—Texas, Inc.

   Texas

Xerox Heritage, LLC

   Virginia

Intellinex PS-OS, Inc.

   Washington

Wireless Data Services North America Inc.

   Washington

Xerox Care and Quality Solutions, Inc.

   Wisconsin

Eagle Connect Sh.p.k.

   Albania

Voice Star Sh.p.k.

   Albania

Market Line S.A.

   Argentina

Consilience Software Australasia Pty Ltd

   Australia

Xerox Business Services (Australia) Pty. Ltd.

   Australia

Wireless Data Services Pty Limited

   Australia

Affiliated Computer Services Austria GmbH

   Austria

Affiliated Computer Services International (Barbados) Limited

   Barbados

Buck Consultants

   Belgium

ACS Transportation Services Participacoes Ltda

   Brazil

Affiliated Computer Services do Brasil Ltda.

   Brazil

ACS HR Solucoes Servicos de Recursos Humanos do Brasil Ltda

   Brazil

Affiliated Computer Services Call Center Operations do Brasil LTDA

   Brazil

Buck Consultants Limited/Conseilliers Buck Limitee

   Canada


Buck Consultants Insurance Agency Limited

   Canada

CPAS Systems, Inc.

   Canada

Xerox Business Services Canada, Inc.

   Canada

ACS HR Solutions Canada Co

   Canada

ACS Solutions Chile SA

   Chile

ACS Road Technology Services (Beijing) Co. Ltd.

   China

Affiliated Computer Services (Tianjin) Co., Ltd.

   China

ML Colombia S.A.

   Colombia

ACS Czech Republic s.r.o.

   Czech Republic

Xerox Business Services Dominican Republic, SAS

   Dominican Republic

Affiliated Computer Services (Fiji) Limited

   Fiji

Affiliated Computer Services Business Process Solutions SAS

   France

Xerox Business Solutions (France) SAS

   France

Affiliated Computer Services of Germany GmbH

   Germany

ACS Holdings (Germany) GmbH

   Germany

ACS HR Solutions Deutschland GmbH

   Germany

Invoco Holding GmbH

   Germany

GIP Dialog Gesellschaft fur Produktinformation mbH

   Germany

Invoco Business Solutions GmbH

   Germany

Invoco Communication Center GmbH

   Germany

Invoco Customer Service GmbH

   Germany

Invoco Helpline Communication GmbH

   Germany

Invoco Helpline GmbH

   Germany

Invoco Marketing & Vetrieb GmbH

   Germany

Invoco Media Sales GmbH

   Germany

Invoco Multimeida GmbH

   Germany

Invoco Sales GmbH

   Germany

Invoco Service Center GmbH

   Germany

Invoco Service GmbH

   Germany

Invoco Services & Sales GmbH

   Germany

Invoco Technical Service GmbH

   Germany

ACS-BPS (Ghana) Limited

   Ghana

Xerox Business Services de Guatemala, Sociedad Anonima

   Guatemala

ACS HR Solutions Share Plan Services (Guernsey), Limited

   Guernsey

ACS China Solutions Hong Kong Limited

   Hong Kong

Xerox Business Solutions (Hong Kong) Limited

   Hong Kong

Xerox Business Services India Private Limited

   India

Xerox Business Services Italy S.r.l.

   Italy

Nuova Karel Soluzioni S.r.l. unipersonale

   Italy

Xerox Business Solutions Italia, S.p.A.

   Italy

ACS Business Process Solutions (Jamaica) Limited

   Jamaica

e-Services Group International (Jamaica) Limited

   Jamaica

Affiliated Computer Services Holdings (Luxembourg) S.A.R.L.

   Luxembourg

Xerox Business Services Malaysia Sdn. Bhd.

   Malaysia

ACS Malta Limited

   Malta

Xerox Business Services de Mexico, S.A. de C.V.

   Mexico

Xerox Solutions de Mexico, S. de R.L. de C.V.

   Mexico

Phenox Holding B.V.

   Netherlands

Buck Consultants BV

   Netherlands

Phenox Professionals BV

   Netherlands

Affiliated Computer Services International B.V.

   Netherlands

ACS HR Solutions Nederland BV

   Netherlands

Wilhaave Groep BV

   Netherlands

Unamic Holding BV

   Netherlands

Unamic/HCN BV

   Netherlands

Xerox Business Services (Netherlands) B.V.

   Netherlands

Market Line Peru S.A.C.

   Peru

ACS Solutions Peru S.A.

   Peru


Xerox Business Services Philippines, Inc.

   Philippines

ACS Solutions Poland Sp. Z.o.o.

   Poland

Affiliated Computer Services of Poland Sp. z.o.o.

   Poland

ACS Puerto Rico, LLC

   Puerto Rico

Xerox Business Solutions of Puerto Rico, Inc.

   Puerto Rico

Xerox Business Services Romania S.r.l.

   Romania

Xerox Europe Finance Limited Partnership

   Scotland

Wireless Data Services (Asia Pac) PTE Ltd.

   Singapore

Wireless Data Services (Proprietary) Limited

   South Africa

Affiliated Computer Services of Spain, S.L., Sociedad Unipersonal

   Spain

Xerox Business Solutions Spain, S.L.

   Spain

e-Services Group (St. Lucia) Ltd.

   St. Lucia

Telenamic NV

   Suriname

Affiliated Computer Services GmbH

   Switzerland

Xerox Business Services (Switzerland) AG

   Switzerland

Unamic HCN Musteri Hizmetleri Limited Sirketi

   Turkey

ACS Business Process Solutions Limited

   United Kingdom

CVG Ltd

   United Kingdom

Spur Information Solutions Limited

   United Kingdom

Wireless Data Services Limited

   United Kingdom

Buck Consultants Limited

   United Kingdom

Buck Consultants (Healthcare) Limited

   United Kingdom

Buck Consultants (Administration & Investment) Limited

   United Kingdom

ACS HR Solutions UK Ltd

   United Kingdom

Buck Consultants Shareplan Trustees Limited

   United Kingdom

Buckingham Trustees Limited

   United Kingdom

Talking People Limited

   United Kingdom
EX-99.1
Table of Contents

Exhibit 99.1

                        , 2016

Dear Xerox Shareholder,

On January 29, 2016, Xerox announced plans to separate into two independent, publicly traded companies: one consisting of our business process outsourcing business, which will be named Conduent Incorporated, the other comprising our Document Technology and Document Outsourcing businesses and retaining the Xerox Corporation name.

Our decision to separate followed a comprehensive review of the company’s business portfolio and capital structure that was initiated by Xerox’s Board of Directors in October 2015 with the goal of identifying opportunities to enhance shareholder value. We concluded that separating the businesses is the best path forward for Xerox.

The separation will create two Fortune 500-scale companies, each a global leader in its respective market. As standalone companies, Xerox and Conduent will benefit from simplified organizational structures, enhanced strategic focus and financial flexibility. The companies will be established with business strategies, and organizational and capital structures aligned to their distinct goals and growth opportunities. We also expect each will continue to reap the benefits of the three-year strategic transformation program Xerox launched earlier this year to deliver increased cost efficiency, agility and competitiveness for each company.

Conduent will be a leading provider of business process services with expertise in transaction-intensive processing, analytics and automation. The company will deliver industry-specific service offerings in attractive growth markets such as healthcare and transportation and multi-industry service offerings in transaction processing, customer care and payment services, among others. Through sharpened portfolio focus, operational discipline, and investments in its business, we expect Conduent will create sustainable value for shareholders by driving margin expansion and profitable growth in an industry that is growing in the mid-single digits.

Following the separation, Xerox will continue to capitalize on its long-standing industry leadership positions through operational excellence, cost discipline, leading technology and innovation. It will continue to help clients improve productivity, workflow and business performance through its deep understanding of how, why and where people work. Xerox will be well positioned to build on its core businesses and pursue select growth opportunities, supported by its access to capital and strong cash flows.

The separation will provide current Xerox shareholders with equity ownership in both the new Xerox and Conduent and is intended to be tax-free to Xerox shareholders for U.S. Federal income tax purposes. Completion of the separation is subject to customary conditions.

I encourage you to read the attached information statement which has been filed with the U.S. Securities and Exchange Commission. The information statement describes the separation in detail, including information on the distribution of Conduent stock as well as important business and financial information about the new company.

The Xerox board and I believe the separation presents significant value-creation opportunities for Xerox and Conduent shareholders. We thank you for your continued support of our company and remain committed to creating long-term value for shareholders of both companies.

Sincerely,

Ursula M. Burns

Chairman of the Board and Chief Executive Officer

Xerox Corporation


Table of Contents

                        , 2016

Dear Future Conduent Shareholder,

It is my pleasure to welcome you as a future stockholder of our new company, Conduent Incorporated, where I will serve as chief executive officer and a member of the Board of Directors.

Conduent, which will be made up of the business process services division of Xerox, is a long-standing market leader with expertise in automation, analytics, and transaction processing. In 2015, the business generated $6.7 billion in total revenue through an exceptional team of 96,000 employees globally.

During the past several years, Xerox has focused its portfolio on a variety of businesses, geographies and capabilities. As an independent company, we will build on our strengths in priority markets with an intensified focus on operational discipline, cost management and innovation.

The Conduent team is excited to embark on this journey and to create a new company. One that is built on a strong foundation of core values, an unwavering focus on our clients, delivery excellence and differentiated, best-in-class solutions. We’re committed to delivering sustainable, consistent and improving returns to all of our stakeholders—clients, employees, shareholders and society at large.

I encourage you to read the attached information statement to learn more about Conduent, its business and strategy. We look forward to earning your continued support.

Sincerely,

Ashok Vemuri

Chief Executive Officer, Xerox Business Services

Xerox Corporation


Table of Contents

Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

SUBJECT TO COMPLETION, DATED OCTOBER 28, 2016

INFORMATION STATEMENT

Conduent Incorporated

233 Mount Airy Road, Suite 100

Basking Ridge, New Jersey 07920

Common Stock

(par value $0.01)

 

 

We are sending you this Information Statement in connection with the spin-off by Xerox Corporation, or “Xerox,” of its wholly owned subsidiary, Conduent Incorporated, or “Conduent.” To effect the spin-off, Xerox will distribute all of the shares of Conduent common stock on a pro rata basis to the holders of Xerox common stock. We expect that the distribution of Conduent common stock will be tax-free to holders of Xerox common stock for U.S. federal income tax purposes, except for cash that shareholders receive in lieu of fractional shares.

If you are a record holder of Xerox common stock as of the close of business on                    , 2016, which is the record date for the distribution, you will be entitled to receive             shares of Conduent common stock for every            shares of Xerox common stock you hold on that date. Xerox will distribute the shares of Conduent common stock in book-entry form, which means that we will not issue physical stock certificates. The distribution agent will not distribute any fractional shares of Conduent common stock. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to each holder (net of any required withholding for taxes applicable to each holder) who would otherwise have been entitled to receive a fractional share in the distribution.

The distribution will be effective as of                    p.m., New York City time, on                    , 2016. Immediately after the distribution becomes effective, Conduent will be an independent, publicly traded company.

Xerox’s shareholders are not required to vote on or take any other action to approve the spin-off. We are not asking you for a proxy and request that you do not send us a proxy. Xerox shareholders will not be required to pay any consideration for the shares of Conduent common stock they receive in the spin-off, and they will not be required to surrender or exchange their shares of Xerox common stock or take any other action in connection with the spin-off.

Xerox currently owns all of the outstanding shares of Conduent common stock. Accordingly, no trading market for Conduent common stock currently exists. We expect, however, that a limited trading market for Conduent common stock, commonly known as a “when-issued” trading market, will develop as early as two trading days prior to the record date for the distribution, and we expect “regular-way” trading of Conduent common stock will begin on the first trading day after the distribution date. We intend to list Conduent common stock on the New York Stock Exchange under the symbol “CNDT.”

 

 

In reviewing this Information Statement, you should carefully consider the matters described in the section entitled “Risk Factors” beginning on page 15 of this Information Statement.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this Information Statement is truthful or complete. Any representation to the contrary is a criminal offense.

This Information Statement is not an offer to sell, or a solicitation of an offer to buy, any securities.

The date of this Information Statement is                    , 2016.


Table of Contents

TABLE OF CONTENTS

 

     Page  

INDUSTRY AND MARKET DATA

     1   

TRADEMARKS AND COPYRIGHTS

     1   

SUMMARY

     2   

RISK FACTORS

     15   

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     32   

THE SPIN-OFF

     33   

DIVIDEND POLICY

     43   

CAPITALIZATION

     44   

SELECTED HISTORICAL FINANCIAL DATA

     45   

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

     46   

BUSINESS

     55   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     71   

MANAGEMENT

     109   

COMPENSATION DISCUSSION AND ANALYSIS

     119   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     162   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     164   

DESCRIPTION OF OUR CAPITAL STOCK

     169   

WHERE YOU CAN FIND MORE INFORMATION

     176   

INDEX TO FINANCIAL STATEMENTS

     F-1   

 

i


Table of Contents

INDUSTRY AND MARKET DATA

This Information Statement includes information concerning our industry and the markets in which we operate that is based on information from public filings, internal company sources, various third-party sources and management estimates. We have also included information derived from market research and industry modeling that was conducted by third-party research organizations at our request not in connection with this Information Statement. Management estimates are derived from publicly available information released by independent industry and research analysts and third-party sources, as well as data from our internal research and information from commissioned third-party research not in connection with this Information Statement, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets, which we believe to be reasonable. While we are not aware of any misstatements regarding any industry data presented in this Information Statement and believe such data are accurate, we have not independently verified any data obtained from third-party sources and cannot assure you of the accuracy or completeness of such data. Such data involve uncertainties and are subject to change based on various factors.

TRADEMARKS AND COPYRIGHTS

We own or have rights to various trademarks, logos, service marks and trade names that we use in connection with the operation of our business. We also own or have the rights to copyrights that protect the content of our products. Solely for convenience, the trademarks, service marks, trade names and copyrights referred to in this Information Statement are listed without the ™, ® or © symbols, but such references do not constitute a waiver of any rights that might be associated with the respective trademarks, service marks, trade names and copyrights included or referred to in this Information Statement.

 

1


Table of Contents

SUMMARY

This summary highlights selected information from this Information Statement and provides an overview of our company, our separation from Xerox and Xerox’s distribution of our common stock to its shareholders. For a more complete understanding of our business and the Spin-Off (as defined below), you should read this entire Information Statement carefully, particularly the discussion of “Risk Factors” beginning on page 15 of this Information Statement, and our historical and pro forma financial statements and the notes to those financial statements appearing elsewhere in this Information Statement.

Prior to Xerox’s distribution of the shares of our common stock to its shareholders, Xerox will undertake a series of internal transactions, following which Conduent will hold, directly or through its subsidiaries, the businesses constituting Xerox’s business process outsourcing business and related operations, which we refer to as the “BPO Business.” We refer to this series of internal transactions, which is described in more detail under “Certain Relationships and Related Party Transactions—Agreements with Xerox—Separation and Distribution Agreement,” as the “Internal Transactions.”

In this Information Statement, unless the context otherwise requires:

 

    “Conduent,” “we,” “our” and “us” refer to Conduent Incorporated and its consolidated subsidiaries after giving effect to the Spin-Off, and

 

    “Xerox” refers to Xerox Corporation and its consolidated subsidiaries other than, for all periods following the Spin-Off, Conduent.

The transaction in which Xerox will distribute to its shareholders all of the shares of our common stock is referred to in this Information Statement as the “Distribution.” The transaction in which we will be separated from Xerox is sometimes referred to in this Information Statement as the “Spin-Off.”

Our Company

Conduent is a leading provider of business process services with expertise in transaction-intensive processing, analytics and automation. We serve as a trusted business partner in both the front office and back office, enabling personalized, seamless interactions on a massive scale that improve end-user experiences.

We create value for our commercial and government clients by applying our expertise, technology and innovation to help them drive customer and constituent satisfaction and loyalty, increase process efficiency and respond rapidly to changing market dynamics.

Our portfolio includes industry-focused service offerings in attractive growth markets such as healthcare and transportation, as well as multi-industry service offerings such as transaction processing, customer care and payment services.

We believe our addressable market size in the global business process service industry is estimated at nearly $260 billion in 2016, with expected growth rates in the mid-single digits through 2019. We have leadership positions in key market segments, including healthcare and transportation, which are expected to grow at 8% and 5% on a compounded annual basis through 2019, respectively. In addition, we are well positioned to capitalize on key industry trends such as increased demand for productivity, automation, personalization and innovation to capture growth.

Our strategy is to drive portfolio focus, operational discipline, sales and delivery excellence and innovation, complemented by tightly aligned investments. As a result, we aim to generate sustainable value for our shareholders by delivering profitable growth and margin expansion and deploying a disciplined capital allocation strategy.

 



 

2


Table of Contents

With approximately 93,700 employees globally, we provide differentiated services to clients spanning small, medium and large businesses and to governments of all sizes in 42 countries. In 2015, we generated $6,662 million in total revenues, 90% of which was recurring.

Competitive Strengths

Our competitive strengths include the following:

 

    Leadership in business process services driven by deep expertise, strong client relationships and differentiated solutions in attractive growth industries, including healthcare and transportation;

 

    Expertise in managing transaction-intensive, end-user driven processes on a large scale through our differentiated suite of high quality multi-industry service offerings;

 

    Ability to deliver our proprietary technology, differentiated service offerings and service capabilities expertly to clients around the world;

 

    Ability to help clients drive lower costs, higher quality and increased end-user satisfaction through our continuous investment in innovation and development of new technologies and capabilities that improve business processes; and

 

    A loyal, diverse client base that supports our stable recurring revenue model and high renewal rates.

Strategic Overview

Our business strategies include the following:

Expand within attractive industries. The industries in which we operate have attractive revenue growth rates, generally in the mid-single digits. We intend to sharpen our focus and expand our business in industries with strong growth and profitability characteristics. We will employ a disciplined approach to portfolio management to complement our competitive strengths and build depth and breadth in our core businesses.

Optimize and strengthen our services capabilities. We plan to optimize our services capabilities and strengthen several core areas, including transaction processing, customer care and prepaid card services by building out our service offerings and continuing to improve our competitive strengths.

Drive operational and delivery excellence. We intend to improve our margins through an ongoing focus on operational and delivery excellence and cost efficiency. We plan to drive operational excellence through further automation and standardization of internal processes and with a continued focus on providing quality services.

Continue to advance next-generation platforms and capabilities. We intend to maintain our focus on innovation to create next-generation solutions aligned with our clients’ future needs and our growth strategies. We plan to advance our current platforms, further automate and personalize business processes and enhance data analytics capabilities to deliver value-added services for our clients.

Engage, develop and support our people. We intend to continue to develop our employees by investing in training, processes and systems to equip them with modern tools that enable them to perform their jobs more efficiently. Further, we plan to strengthen our sales teams with improved and optimized coverage and effective talent management.

Conduent Debt

In connection with the Spin-Off, we expect to incur additional borrowings in order to redistribute debt between us and Xerox, such that we will have a total principal amount of debt of approximately $2,250 million immediately following the separation (consisting of approximately $2,200 million of new borrowings plus approximately $50 million of existing debt). It is currently anticipated that this indebtedness will consist of secured term loans or senior unsecured notes, or a combination of the foregoing. Approximately $1,905 million of the proceeds of the new borrowings will be transferred to Xerox prior to the consummation of the Spin-Off.

 



 

3


Table of Contents

Other Information

We are a New York corporation. Our principal executive offices are located at 233 Mount Airy Road, Suite 100, Basking Ridge, NJ 07920. Our telephone number is (908) 758-1200. Our website address is www.conduent.com. Information contained on, or connected to, our website or Xerox’s website does not and will not constitute part of this Information Statement or the Registration Statement on Form 10 of which this Information Statement is a part.

 



 

4


Table of Contents

The Spin-Off

Overview

On January 29, 2016, Xerox announced plans for the complete legal and structural separation of Conduent from Xerox.

To effect the separation, first, Xerox will undertake the series of internal transactions described under “Certain Relationships and Related Party Transactions—Agreements with Xerox—Separation and Distribution Agreement,” or the “Internal Transactions.” Xerox will subsequently distribute all of our common stock to Xerox’s shareholders, and Conduent, holding the BPO Business, will become an independent, publicly traded company.

Prior to completion of the Spin-Off, we intend to enter into a Separation and Distribution Agreement and several other agreements with Xerox related to the Spin-Off. These agreements will govern the relationship between Xerox and us up to and after completion of the Spin-Off and allocate between Xerox and us various assets, liabilities and obligations, including employee benefits, intellectual property and tax-related assets and liabilities. See “Certain Relationships and Related Party Transactions” for more detail.

Completion of the Spin-Off is subject to the satisfaction or waiver of a number of conditions. In addition, Xerox has the right not to complete the Spin-Off if, at any time, Xerox’s board of directors, or the “Xerox Board,” determines, in its sole and absolute discretion, that the Spin-Off is not in the best interests of Xerox or its shareholders, or is otherwise not advisable. See “The Spin-Off—Conditions to the Spin-Off” for more detail.

Questions and Answers about the Spin-Off

The following provides only a summary of the terms of the Spin-Off. You should read the section entitled “The Spin-Off” below in this Information Statement for a more detailed description of the matters described below.

 

Q: What is the Spin-Off?

A: The Spin-Off is the method by which we will separate from Xerox. In the Spin-Off, Xerox will distribute to its shareholders all the outstanding shares of our common stock. Following the Spin-Off, we will be an independent, publicly traded company, and Xerox will not retain any ownership interest in us.

 

Q: Will the number of Xerox shares I own change as a result of the Spin-Off?

A: No, the number of shares of Xerox common stock you own will not change as a result of the Spin-Off.

 

Q: What are the reasons for the Spin-Off?

A: The Xerox Board considered the following potential benefits in deciding to pursue the Spin-Off:

 

    Enhanced Strategic and Operational Focus. Following the Spin-Off, Xerox and Conduent will each have a more focused business and be better able to dedicate financial, management and other resources to leverage its areas of strength and differentiation. Each company will pursue appropriate growth opportunities and execute strategic plans best suited to address the distinct market trends and opportunities for its business. Conduent plans to focus on leadership in attractive market segments, invest selectively in growth areas, ensure continued operational discipline and capture transformative productivity.

 

   

Simplified Organizational Structure and Resources. The Spin-Off will allow the management of each of Xerox and Conduent to devote its time and attention to the development and implementation of corporate strategies and policies that are based primarily on the specific business characteristics of their

 



 

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respective companies. Each company will be able to adapt faster to clients’ changing needs, address specific market dynamics, target innovation and investments in select growth areas and accelerate decision-making processes.

 

    Distinct and Clear Financial Profiles and Compelling Investment Cases. Investment in one or the other company may appeal to investors with different goals, interests and concerns. The Spin-Off will allow investors to make independent investment decisions with respect to Xerox and Conduent and may result in greater alignment between the interests of Conduent’s shareholder base and the characteristics of Conduent’s business, capital structure and financial results.

 

    Performance Incentives. The Spin-Off will enable Conduent to create incentives for its management and employees that are more closely tied to its business performance and shareholder expectations. Conduent’s equity-based compensation arrangements will more closely align the interests of Conduent’s management and employees with the interests of its shareholders and should increase Conduent’s ability to attract and retain personnel.

 

    Capital Structure. The Spin-Off will enable each of Xerox and Conduent to leverage its distinct growth profile and cash flow characteristics to optimize its capital structure and capital allocation strategy.

 

Q: Why is the separation of Conduent structured as a spin-off?

 

A: Xerox believes that a distribution of shares in Conduent that is tax-free to Xerox shareholders for federal income tax purposes is the most efficient way to separate our business from Xerox.

 

Q: What will I receive in the Spin-Off in respect of my Xerox common stock?

 

A: As a holder of Xerox common stock, you will receive a dividend of              shares of our common stock for every              shares of Xerox common stock you hold on the Record Date (as defined below). The distribution agent will distribute only whole shares of our common stock in the Spin-Off. See “—How will fractional shares be treated in the Distribution?” for more information on the treatment of the fractional shares you may be entitled to receive in the Distribution. Your proportionate interest in Xerox will not change as a result of the Spin-Off. For a more detailed description, see “The Spin-Off.”

 

Q: What is being distributed in the Spin-Off?

 

A: Xerox will distribute approximately              shares of our common stock in the Spin-Off, based on the approximately              shares of Xerox common stock outstanding as of                     , 2016. The actual number of shares of our common stock that Xerox will distribute will depend on the total number of shares of Xerox common stock outstanding on the Record Date. The shares of our common stock that Xerox distributes will constitute all of the issued and outstanding shares of our common stock immediately prior to the Distribution. For more information on the shares being distributed in the Spin-Off, see “Description of Our Capital Stock—Common Stock.”

 

Q: What is the record date for the Distribution?

 

A: Xerox will determine record ownership as of the close of business on                     , 2016, which we refer to as the “Record Date.”

 

Q: When will the Distribution occur?

 

A: The Distribution will be effective as of              p.m., New York City time, on                     , 2016, which we refer to as the “Distribution Date.” On or shortly after the Distribution Date, the whole shares of our common stock will be credited in book-entry accounts for Xerox shareholders entitled to receive the shares in the Distribution. See “—How will Xerox distribute shares of our common stock?” for more information on how to access your book-entry account or your bank, brokerage or other account holding our common stock you receive in the Distribution on and following the Distribution Date.

 



 

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Q: What do I have to do to participate in the Distribution?

 

A: You are not required to take any action, but we urge you to read this Information Statement carefully. Holders of Xerox common stock on the Record Date will not need to pay any cash or deliver any other consideration, including any shares of Xerox common stock, in order to receive shares of our common stock in the Distribution. In addition, no shareholder approval of the Distribution is required. We are not asking you for a vote and request that you do not send us a proxy card.

 

Q: If I sell my shares of Xerox common stock on or before the Distribution Date, will I still be entitled to receive shares of Conduent common stock in the Distribution?

 

A: If you sell your shares of Xerox common stock before the Record Date, you will not be entitled to receive shares of Conduent common stock in the Distribution. If you hold shares of Xerox common stock on the Record Date and decide to sell them on or before the Distribution Date, you may choose to sell your Xerox common stock with or without your entitlement to our common stock to be distributed in the Spin-Off. You should discuss these options with your bank, broker or other nominee. See “The Spin-Off—Trading Prior to the Distribution Date” for more information.

 

Q: How will Xerox distribute shares of our common stock?

 

A: Registered shareholders: If you are a registered shareholder (meaning you own your shares of Xerox common stock directly through Xerox’s transfer agent, Computershare Trust Company, N.A.), our distribution agent will credit the whole shares of our common stock you receive in the Distribution to a new book-entry account with our transfer agent on or shortly after the Distribution Date. Our distribution agent will mail you a book-entry account statement that reflects the number of whole shares of our common stock you own. You will be able to access information regarding your book-entry account holding the Conduent shares at www.computershare.com/investor or by calling 800-446-2617.

“Street name” or beneficial shareholders: If you own your shares of Xerox common stock beneficially through a bank, broker or other nominee, your bank, broker or other nominee will credit your account with the whole shares of our common stock you receive in the Distribution on or shortly after the Distribution Date. Please contact your bank, broker or other nominee for further information about your account.

We will not issue any physical stock certificates to any shareholders, even if requested. See “The Spin-Off—When and How You Will Receive Conduent Shares” for a more detailed explanation.

 

Q: How will fractional shares be treated in the Distribution?

 

A: The distribution agent will not distribute any fractional shares of our common stock in connection with the Spin-Off. Instead, the distribution agent will aggregate all fractional shares into whole shares and sell the whole shares in the open market at prevailing market prices on behalf of Xerox shareholders entitled to receive a fractional share. The distribution agent will then distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to these holders (net of any required withholding for taxes applicable to each holder). We anticipate that the distribution agent will make these sales in the “when-issued” market, and “when-issued” trades will generally settle within four trading days following the Distribution Date. See “—How will our common stock trade?” for additional information regarding “when-issued” trading and “The Spin-Off—Treatment of Fractional Shares” for a more detailed explanation of the treatment of fractional shares. The distribution agent will, in its sole discretion, without any influence by Xerox or us, determine when, how, through which broker-dealer and at what price to sell the whole shares of our common stock. The distribution agent is not, and any broker-dealer used by the distribution agent will not be, an affiliate of either Xerox or us.

 



 

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Q: What are the U.S. federal income tax consequences to me of the Distribution?

 

A: For U.S. federal income tax purposes, no gain or loss should be recognized by, or be includible in the income of, a U.S. Holder (as defined in “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off”) as a result of the Distribution, except with respect to any cash received by Xerox shareholders in lieu of fractional shares. In addition, the aggregate tax basis of the Xerox common stock and our common stock held by each U.S. Holder immediately after the Distribution will be the same as the aggregate tax basis of the Xerox common stock held by the U.S. Holder immediately before the Distribution, allocated between the Xerox common stock and our common stock in proportion to their relative fair market values on the date of the Distribution (subject to certain adjustments).

See “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off” for more information regarding the potential tax consequences to you of the Spin-Off.

 

Q: Does Conduent intend to pay cash dividends?

 

A: We intend to retain future earnings for use in the operation of our business and to fund future growth. We do not anticipate paying any dividends on our common stock for the foreseeable future. See “Dividend Policy” for more information.

 

Q: Will Conduent incur any debt prior to or at the time of the Distribution?

 

A: In connection with the Spin-Off, we expect to incur additional borrowings in order to redistribute debt between us and Xerox, such that we will have a total principal amount of debt of approximately $2,250 million immediately following the separation (consisting of approximately $2,200 million of new borrowings plus approximately $50 million of existing debt). It is currently anticipated that this indebtedness will consist of secured term loans or senior unsecured notes, or a combination of the foregoing. Approximately $1,905 million of the proceeds of the new borrowings will be transferred to Xerox prior to the consummation of the Spin-Off.

 

Q: How will our common stock trade?

 

A: Currently, there is no public market for our common stock. We intend to list our common stock on the New York Stock Exchange under the symbol “CNDT.”

We anticipate that trading in our common stock will begin on a “when-issued” basis as early as two trading days prior to the Record Date for the Distribution and will continue up to and including the Distribution Date. “When-issued” trading in the context of a spin-off refers to a sale or purchase made conditionally on or before the Distribution Date because the securities of the spun-off entity have not yet been distributed. “When-issued” trades generally settle within four trading days after the Distribution Date. On the first trading day following the Distribution Date, any “when-issued” trading of our common stock will end and “regular-way” trading will begin. “Regular-way” trading refers to trading after the security has been distributed and typically involves a trade that settles on the third full trading day following the date of the trade. See “The Spin-Off—Trading Prior to the Distribution Date” for more information. We cannot predict the trading prices for our common stock before, on or after the Distribution Date.

 

Q: Will the Spin-Off affect the trading price of my Xerox common stock?

 

A: We expect the trading price of shares of Xerox common stock immediately following the Distribution to be lower than the trading price immediately prior to the Distribution because the trading price will no longer reflect the value of the BPO Business. There can be no assurance that, following the Distribution, the combined trading prices of the Xerox common stock and our common stock will equal or exceed what the trading price of Xerox common stock would have been in the absence of the Spin-Off.

It is possible that after the Spin-Off, the combined equity value of Xerox and Conduent will be less than Xerox’s equity value before the Spin-Off.

 



 

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Q: Do I have appraisal rights in connection with the Spin-Off?

 

A: No. Holders of Xerox common stock are not entitled to appraisal rights in connection with the Spin-Off.

 

Q: Who is the transfer agent and registrar for our common stock?

 

A: Computershare Trust Company, N.A.

 

Q: Are there risks associated with owning shares of our common stock?

 

A: Yes. Our business faces both general and specific risks and uncertainties. Our business also faces risks relating to the Spin-Off. Following the Spin-Off, we will also face risks associated with being an independent, publicly traded company. Accordingly, you should read carefully the information set forth under “Risk Factors” in this Information Statement.

 

Q: How will Xerox preferred stock be treated in the Spin-Off?

 

A: As of October 27, 2016, there were 300,000 shares of Series A Convertible Perpetual Preferred Stock of Xerox, which we refer to as the “Xerox Series A Preferred Stock,” outstanding, all of which were held by Mr. Darwin Deason. Xerox and Conduent have entered into an agreement with Mr. Deason, which we refer to as the “Exchange Agreement” and which is filed as an exhibit to the Registration Statement on Form 10 of which this Information Statement is a part, to, subject to the completion of the Spin-Off, among other conditions, exchange all of the outstanding shares of Xerox Series A Preferred Stock for newly-issued shares of Series B Convertible Perpetual Preferred Stock of Xerox, which we refer to as the “Xerox Series B Preferred Stock,” and for newly-issued shares of Series A Convertible Perpetual Preferred Stock of Conduent, which we refer to as the “Conduent Series A Preferred Stock.” For more detail, see “The Spin-Off—Treatment of Xerox Preferred Stock in the Spin-Off.”

 

Q: Where can I get more information?

 

A: If you have any questions relating to the mechanics of the Distribution, you should contact the distribution agent at:

Computershare Trust Company, N.A.

250 Royall Street

Canton, MA 02021

Phone: 800-446-2617 or 781-575-2723

Before the Spin-Off, if you have any questions relating to the Spin-Off, you should contact Xerox at:

Investor Relations

Xerox Corporation

45 Glover Avenue

Mail Stop XWHQ 7052

Norwalk, CT 06856

After the Spin-Off, if you have any questions relating to Conduent, you should contact us at:

Investor Relations

Conduent Incorporated

233 Mount Airy Road, Suite 100

Basking Ridge, NJ 07920

 



 

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Summary of the Spin-Off

 

Distributing Company

Xerox Corporation, a New York corporation that holds all of our common stock issued and outstanding prior to the Distribution. After the Distribution, Xerox will not own any shares of our common stock.

 

Distributed Company

Conduent Incorporated, a New York corporation and a wholly owned subsidiary of Xerox. At the time of the Distribution, we will hold, directly or through our subsidiaries, the assets and liabilities of the BPO Business. After the Spin-Off, we will be an independent, publicly traded company.

 

Distributed Securities

All of the shares of our common stock owned by Xerox, which will be 100% of our common stock issued and outstanding immediately prior to the Distribution. Based on the approximately              shares of Xerox common stock outstanding on                     , 2016, and applying the distribution ratio of            shares of our common stock for every            shares of Xerox common stock, approximately             shares of our common stock will be distributed.

 

Record Date

The Record Date is the close of business on                     , 2016.

 

Distribution Date

The Distribution Date is                     , 2016.

 

Internal Transactions

A portion of the BPO Business is currently held by subsidiaries of Xerox other than Conduent. In connection with the Spin-Off, Xerox will undertake the Internal Transactions so that we hold the entire BPO Business. See “Certain Relationships and Related Party Transactions—Agreements with Xerox—Separation and Distribution Agreement.”

 

Distribution Ratio

Each holder of Xerox common stock will receive            shares of our common stock for every            shares of Xerox common stock it holds on the Record Date. The distribution agent will distribute only whole shares of our common stock in the Spin-Off. See “The Spin-Off—Treatment of Fractional Shares” for more detail. Please note that if you sell your shares of Xerox common stock on or before the Distribution Date, the buyer of those shares may in some circumstances be entitled to receive the shares of our common stock to be distributed in respect of the Xerox shares that you sold. See “The Spin-Off—Trading Prior to the Distribution Date” for more detail.

 

The Distribution

   

On the Distribution Date, Xerox will release the shares of our common stock to the distribution agent to distribute to Xerox shareholders. Xerox will distribute our shares in book-entry form and thus we will not issue any physical stock certificates. We expect that it will take the distribution agent up to two weeks to electronically issue shares of our common stock to you or your bank or brokerage firm on your behalf by way of direct registration in book-entry form.

 



 

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  You will not be required to make any payment, surrender or exchange your shares of Xerox common stock or take any other action to receive your shares of our common stock.

 

Fractional Shares

The distribution agent will not distribute any fractional shares of our common stock to Xerox shareholders. Instead, the distribution agent will first aggregate fractional shares into whole shares, then sell the whole shares in the open market at prevailing market prices on behalf of Xerox shareholders entitled to receive a fractional share, and finally distribute the aggregate cash proceeds of the sales, net of brokerage fees and other costs, pro rata to these holders (net of any required withholding for taxes applicable to each holder). If you receive cash in lieu of fractional shares, you will not be entitled to any interest on the payments. The cash you receive in lieu of fractional shares generally will, for U.S. federal income tax purposes, be taxable as described under “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.”

 

Conditions to the Spin-Off

Completion of the Spin-Off is subject to the satisfaction, or the Xerox Board’s waiver, of the following conditions:

 

    the Xerox Board shall have authorized and approved the Internal Transactions and Distribution and not withdrawn such authorization and approval, and shall have declared the dividend of our common stock to Xerox shareholders;

 

    the ancillary agreements contemplated by the Separation and Distribution Agreement shall have been executed by each party to those agreements;

 

    our common stock shall have been accepted for listing on the New York Stock Exchange or another national securities exchange approved by Xerox, subject to official notice of issuance;

 

    the Securities and Exchange Commission (the “SEC”) shall have declared effective our Registration Statement on Form 10, of which this Information Statement is a part, under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and no stop order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for that purpose shall be pending before or threatened by the SEC;

 

    Xerox shall have received the written opinion of Cravath, Swaine & Moore LLP, which shall remain in full force and effect, that, subject to the accuracy of and compliance with certain representations, warranties and covenants, the Distribution should qualify for non-recognition of gain and loss under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”);

 

    Xerox shall have received a private letter ruling from the U.S. Internal Revenue Service (the “IRS”) regarding certain U.S. federal income tax consequences of the Spin-Off (the “IRS Ruling”), and the IRS Ruling shall continue to be effective and valid;

 



 

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    the Internal Transactions (as described in “Certain Relationships and Related Party Transactions—Agreements with Xerox—Separation and Distribution Agreement”) shall have been completed;

 

    no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the Distribution shall be in effect, and no other event outside the control of Xerox shall have occurred or failed to occur that prevents the consummation of the Distribution;

 

    no other events or developments shall have occurred prior to the Distribution Date that, in the judgment of the Xerox Board, would result in the Distribution having a material adverse effect on Xerox or its shareholders;

 

    prior to the Distribution Date, notice of Internet availability of this Information Statement or this Information Statement shall have been mailed to the holders of Xerox common stock as of the Record Date;

 

    Xerox shall have duly elected the individuals to be listed as members of our post-Distribution board of directors, or our “Board,” in this Information Statement, and such individuals shall be the members of our Board immediately after the Distribution; provided that our current directors shall appoint one independent director prior to the date on which “when-issued” trading of our common stock commences on the New York Stock Exchange and such director shall serve on our Audit Committee, Compensation Committee and Corporate Governance Committee; and

 

    immediately prior to the Distribution Date, our Restated Certificate of Incorporation and Amended and Restated By-Laws, each in substantially the form filed as an exhibit to the Registration Statement on Form 10 of which this Information Statement is a part, shall be in effect.

 

  The fulfillment of the foregoing conditions will not create any obligation on the part of Xerox to complete the Spin-Off. We are not aware of any material federal, foreign or state regulatory requirements with which we must comply, other than SEC rules and regulations, or any material approvals that we must obtain, other than the approval for listing of our common stock and the SEC’s declaration of the effectiveness of the Registration Statement, in connection with the Distribution. Xerox has the right not to complete the Spin-Off if, at any time, the Xerox Board determines, in its sole and absolute discretion, that the Spin-Off is not in the best interests of Xerox or its shareholders or is otherwise not advisable.

 

 

Xerox has entered into a letter agreement with the Icahn Group (as defined in such agreement) and filed as Exhibit 10(s) to Xerox’s Current Report on Form 8-K dated January 29, 2016 (the “Icahn Agreement”). Under the Icahn Agreement, if the Spin-Off has not

 



 

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occurred by December 31, 2016, Xerox must call its 2017 annual shareholders meeting to be held no later than March 31, 2017, at which meeting any shareholder of Xerox that has delivered written notice, which includes the information required by Xerox’s by-laws, to Xerox on or prior to January 31, 2017 shall be permitted to nominate directors of Xerox and/or propose other business. However, if the Spin-Off occurs on or before March 30, 2017 (even if it did not occur by December 31, 2016), then Xerox will not be required to hold its 2017 annual shareholders meeting by March 31, 2017.

 

Preferred Stock

On October 27, 2016, Xerox and Conduent entered into the Exchange Agreement with Mr. Deason. Pursuant to the terms of the Exchange Agreement, subject to the completion of the Spin-Off, among other conditions, Xerox will transfer 180,000 shares of Xerox Series B Preferred Stock and 120,000 shares of Conduent Series A Preferred Stock to Mr. Deason in exchange for all of Mr. Deason’s shares of Xerox Series A Preferred Stock. For more detail, see “The Spin-Off—Treatment of Xerox Preferred Stock in the Spin-Off.”

 

Trading Market and Symbol

    We intend to file an application to list our common stock on the New York Stock Exchange under the symbol “CNDT.” We anticipate that, as early as two trading days prior to the Record Date, trading of shares of our common stock will begin on a “when-issued” basis and will continue up to and including the Distribution Date, and we expect that “regular-way” trading of our common stock will begin the first trading day after the Distribution Date.

 

  We also anticipate that, as early as two trading days prior to the Record Date, there will be two markets in Xerox common stock: (i) a “regular-way” market on which shares of Xerox common stock will trade with an entitlement for the purchaser of Xerox common stock to receive shares of our common stock to be distributed in the Distribution, and (ii) an “ex-distribution” market on which shares of Xerox common stock will trade without an entitlement for the purchaser of Xerox common stock to receive shares of our common stock. See “The Spin-Off—Trading Prior to the Distribution Date.”

 

Tax Consequences to Xerox Shareholders

For U.S. federal income tax purposes, no gain or loss should be recognized by, or be includible in the income of, a U.S. Holder (as defined in “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off”) as a result of the Distribution, except with respect to any cash received in lieu of a fractional share. In addition, the aggregate tax basis of the Xerox common stock and our common stock held by each U.S. Holder immediately after the Distribution will be the same as the aggregate tax basis of the Xerox common stock held by the U.S. Holder immediately before the Distribution, allocated between the Xerox common stock and our common stock in proportion to their relative fair market values on the date of the Distribution (subject to certain adjustments). See “The Spin-Off—Material U.S. Federal Income Tax Consequences of the Spin-Off.”

 



 

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  We urge you to consult your tax advisor as to the specific tax consequences of the Distribution to you, including the effect of any U.S. federal, state, local or foreign tax laws and of changes in applicable tax laws.

 

Relationship with Xerox after the Spin-Off

We intend to enter into several agreements with Xerox related to the Spin-Off, which will govern the relationship between Xerox and us up to and after completion of the Spin-Off and allocate between Xerox and us various assets, liabilities, rights and obligations. These agreements include:

 

    a Separation and Distribution Agreement that will set forth Xerox’s and our agreements regarding the principal actions that both parties will take in connection with the Spin-Off and aspects of our relationship following the Spin-Off;

 

    a Transition Services Agreement pursuant to which Xerox and we will provide each other specified services on a transitional basis to help ensure an orderly transition following the Spin-Off;

 

    a Tax Matters Agreement that will govern the respective rights, responsibilities and obligations of Xerox and us after the Spin-Off with respect to all tax matters and will include restrictions to preserve the tax-free status of the Distribution; and

 

    an Employee Matters Agreement that will address employment, compensation and benefits matters, including the allocation and treatment of assets and liabilities relating to employees and compensation and benefits plans and programs in which our employees participated.

 

  We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions,” and describe some of the risks of these arrangements under “Risk Factors—Risks Relating to the Spin-Off.”

 

Dividend Policy

We intend to retain future earnings for use in the operation of our business and to fund future growth. We do not anticipate paying any dividends on our common stock for the foreseeable future. See “Dividend Policy.”

 

Transfer Agent

Computershare Trust Company, N.A.

 

Risk Factors

Our business faces both general and specific risks and uncertainties. Our business also faces risks relating to the Spin-Off. Following the Spin-Off, we will also face risks associated with being an independent, publicly traded company. Accordingly, you should read carefully the information set forth under “Risk Factors.”

 



 

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RISK FACTORS

You should carefully consider all of the information in this Information Statement and each of the risks described below, which we believe are the principal risks that we face. Some of the risks relate to our business, others to the Spin-Off. Some risks relate principally to the securities markets and ownership of our common stock.

Any of the following risks could materially adversely affect our results of operations and financial condition and the actual outcome of matters as to which forward-looking statements are made in this Information Statement.

Risks Relating to Our Business

Our government contracts are subject to termination rights, audits and investigations, which, if exercised, could negatively impact our reputation and reduce our ability to compete for new contracts.

A significant portion of our revenues is derived from contracts with U.S. federal, state and local governments and their agencies, and some of our revenues are derived from contracts with foreign governments and their agencies. Government entities typically finance projects through appropriated funds. While these projects are often planned and executed as multi-year projects, government entities usually reserve the right to change the scope of or terminate these projects for lack of approved funding and/or at their convenience. Changes in government or political developments, including budget deficits, shortfalls or uncertainties, government spending reductions (e.g., Congressional sequestration of funds under the Budget Control Act of 2011) or other debt or funding constraints, such as those recently experienced in the United States and Europe, could result in lower governmental sales and in our projects being reduced in price or scope or terminated altogether, which also could limit our recovery of incurred costs, reimbursable expenses and profits on work completed prior to the termination. Additionally, if the government discovers improper or illegal activities or contractual non-compliance (including improper billing), we may be subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions or debarment from doing business with the government. Any resulting penalties or sanctions could materially adversely affect our results of operations and financial condition. Moreover, government contracts are generally subject to audits and investigations by government agencies. If the government finds that we inappropriately charged any costs to a contract, the costs are not reimbursable or, if already reimbursed, the cost must be refunded to the government. Further, the negative publicity that could arise from any such penalties, sanctions or findings in such audits or investigations could have an adverse effect on our reputation in the industry and reduce our ability to compete for new contracts and could materially adversely affect our results of operations and financial condition.

We derive significant revenue and profit from commercial and government contracts awarded through competitive bidding processes, including renewals, which can impose substantial costs on us, and we will not achieve revenue and profit objectives if we fail to accurately and effectively bid on such projects.

Many of these contracts are extremely complex and require the investment of significant resources in order to prepare accurate bids and proposals. Competitive bidding imposes substantial costs and presents a number of risks, including: (i) the substantial cost and managerial time and effort that we spend to prepare bids and proposals for contracts that may or may not be awarded to us; (ii) the need to estimate accurately the resources and costs that will be required to implement and service any contracts we are awarded, sometimes in advance of the final determination of their full scope and design; (iii) the expense and delay that may arise if our competitors protest or challenge awards made to us pursuant to competitive bidding and the risk that such protests or challenges could result in the requirement to resubmit bids and in the termination, reduction or modification of the awarded contracts; and (iv) the opportunity cost of not bidding on and winning other contracts we might otherwise pursue. If our competitors protest or challenge an award made to us on a government contract, the costs to defend such an award may be significant and could involve subsequent litigation that could take years to resolve.

 

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We rely to a significant extent on third-party providers, such as subcontractors, a relatively small number of primary software vendors, utility providers and network providers; if they cannot deliver or perform as expected or if our relationships with them are terminated or otherwise change, our results of operations and financial condition could be materially adversely affected.

Our ability to service our customers and clients and deliver and implement solutions depends to a large extent on third-party providers such as subcontractors, a relatively small number of primary software vendors, software application developers, utility providers and network providers meeting their obligations to us and our expectations in a timely, quality manner. Our results of operations and financial condition could be materially adversely affected and we might incur significant additional liabilities if any of our third-party providers do not meet these obligations or our or our clients’ expectations or if they terminate or refuse to renew their relationships with us or were to offer their products to us with less advantageous prices and other terms than we previously had.

Failure to deliver on our contractual obligations properly and on time could materially adversely affect our results of operations and financial condition.

Our business model depends in large part on our ability to retain existing and attract new work from our base of existing clients, as well as on relationships we develop with our clients so that we can understand our clients’ needs and deliver solutions and services that are tailored to meet those needs. In order for our business to grow, we must successfully manage the provision of services under our contracts. If a client is not satisfied with the quality of work performed by us or a subcontractor, or with the type of services or solutions delivered, then we could incur additional costs to address the situation, the profitability of that work might be impaired and the client’s dissatisfaction with our services could damage our ability to obtain additional work from that client or obtain new work from other potential clients. In particular, many of our contracts with non-government clients may be terminated by the client, without cause, upon specified advance notice, so clients who are not satisfied might seek to terminate existing contracts prior to their scheduled expiration date, which may result in our inability to fully recover our up-front investments. In addition, clients could direct future business to our competitors. We could also trigger contractual credits to clients or a contractual default. Failure to properly transition new clients to our systems, properly budget transition costs or accurately estimate contract operational costs could result in delays in our contract performance, trigger service level penalties, impair fixed or intangible assets or result in contract profit margins that do not meet our expectations or our historical profit margins.

In addition, we incur significant expenditures for the development and construction of system software platforms needed to support our clients’ needs. Our failure to fully understand client requirements or implement the appropriate operating systems or databases or solutions which enable the use of other supporting software may delay the project and result in cost overruns or potential impairment of the related software platforms, which could materially adversely affect our results of operations and financial condition.

In May 2015, we entered into a contract with New York for the implementation of a Medicaid Management Information System. Due to a number of factors, development work for our implementation in New York has been elongated beyond the current contractual schedule resulting in, among other things, increased delivery costs, which we have considered in our estimates of revenues and costs under the percentage-of-completion accounting methodology.

We continue to work with New York to address new regulatory requirements, policy changes and enhanced security protocols, which are expected to further lengthen the schedule and may result in material increases in future costs to complete. We are seeking to mitigate these impacts through a combination of operational actions as well as by working with New York to pursue an amendment to the contract that will revise the project schedule and increase the reimbursement we receive from New York. Although we have been in discussions with New York to amend the contract, in the event we are unable to satisfactorily agree to an amendment, this could materially adversely affect our results of operations and financial condition.

 

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We face significant competition and our failure to compete successfully could materially adversely affect our results of operations and financial condition.

We operate in an environment of significant competition, driven by rapid technological developments, changes in industry standards and demands of customers to become more efficient. Our competitors range from large international companies to relatively small firms. Some of the large international companies have significant financial resources and compete with us globally to provide business process services in each of the markets we serve. In addition, we must frequently compete with a client’s own internal business process and information technology capabilities, which may constitute a fixed cost for the client. We compete primarily on the basis of technology, performance, price, quality, reliability, brand, distribution and customer service and support. Our success in future performance is largely dependent upon our ability to compete successfully in the markets we currently serve, to promptly and effectively react to changing technologies and customer expectations and to expand into additional market segments. To remain competitive, we must develop services and applications; periodically enhance our existing offerings; remain cost efficient; and attract and retain key personnel and management. If we are unable to compete successfully, we could lose market share and important customers to our competitors and that could materially adversely affect our results of operations and financial condition.

Our business is dependent on continued interest in outsourcing.

Our business and growth depend in large part on continued interest in outsourced business process services. Outsourcing means that an entity contracts with a third party, such as us, to provide business process services rather than perform such services in-house. There can be no assurance that this interest will continue, as organizations may elect to perform such services themselves and/or the business process outsourcing industry could move to an as-a-Service model, thereby eliminating traditional business process outsourcing tasks. A significant change in this interest in outsourcing could materially adversely affect our results of operations and financial condition. Additionally, there can be no assurance that our cross-selling efforts will cause clients to purchase additional services from us or adopt a single-source outsourcing approach.

Our profitability is dependent upon our ability to obtain adequate pricing for our services and to improve our cost structure.

Our success depends on our ability to obtain adequate pricing for our services that will provide a reasonable return to our shareholders. Depending on competitive market factors, future prices we obtain for our services may decline from previous levels. If we are unable to obtain adequate pricing for our services, it could materially adversely affect our results of operations and financial condition. In addition, our contracts are increasingly requiring tighter timelines for implementation as well as more stringent service level metrics. This makes the bidding process for new contracts much more difficult and requires us to adequately consider these requirements in the pricing of our services.

We regularly review our operations with a view towards reducing our cost structure, including, without limitation, reducing our employee base, exiting certain businesses, improving process and system efficiencies and outsourcing some internal functions. We from time to time engage in restructuring actions to reduce our cost structure. On January 29, 2016, Xerox announced a three-year strategic transformation program targeting cost savings across all segments, including the BPO Business. If we are unable to continue to maintain our cost base at or below the current level and maintain process and systems changes resulting from prior restructuring actions or to realize the expected cost reductions in the ongoing strategic transformation program, it could materially adversely affect our results of operations and financial condition.

In addition, in order to meet the service requirements of our customers, which often includes 24/7 service, and to optimize our employee cost base, including our back-office support, we often locate our delivery service and back-office support centers in lower-cost locations, including several developing countries. Concentrating our centers in these locations presents a number of operational risks, many of which are beyond our control, including the risks of political instability, natural disasters, safety and security risks, labor disruptions, excessive employee turnover and rising labor rates. Additionally, a change in the political environment in the United States

 

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or the adoption and enforcement of legislation and regulations curbing the use of such centers outside of the United States could materially adversely affect our results of operations and financial condition. These risks could impair our ability to effectively provide services to our customers and keep our costs aligned to our associated revenues and market requirements.

Our ability to sustain and improve profit margins is dependent on a number of factors, including our ability to continue to improve the cost efficiency of our operations through such programs as robotic process automation, to absorb the level of pricing pressures on our services through cost improvements and to successfully complete information technology initiatives. If any of these factors adversely materialize or if we are unable to achieve and maintain productivity improvements through restructuring actions or information technology initiatives, our ability to offset labor cost inflation and competitive price pressures would be impaired, each of which could materially adversely affect our results of operations and financial condition.

We may be subject to claims of infringement of third-party intellectual property rights which could adversely affect our results of operation and financial condition.

We rely heavily on the use of intellectual property. We do not own a significant portion of the software that we use to run our business; instead we license this software from a small number of primary vendors. If these vendors assert claims that we or our clients are infringing on their software or related intellectual property, we could incur substantial costs to defend these claims, which could materially adversely affect our results of operations and financial condition. In addition, if any of our vendors’ infringement claims are ultimately successful, our vendors could require us to (i) cease selling or using products or services that incorporate the challenged software or technology, (ii) obtain a license or additional licenses from our vendors or (iii) redesign our services which rely on the challenged software or technology. In addition, we may be exposed to claims for monetary damages. If we are unsuccessful in defending an infringement claim and our vendors require us to initiate any of the above actions, or we are required to pay monetary damages, then such actions could materially adversely affect our results of operations and financial condition.

We are subject to laws of the United States and foreign jurisdictions relating to individually identifiable information and personal health information, and failure to comply with those laws, whether or not inadvertent, could subject us to legal actions and negatively impact our operations.

We receive, process, transmit and store information relating to identifiable individuals, both in our role as a service provider and as an employer. As a result, we are subject to numerous United States (both federal and state) and foreign jurisdiction laws and regulations designed to protect both individually identifiable information as well as personal health information, including the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) and the HIPAA regulations governing, among other things, the privacy, security and electronic transmission of individually identifiable health information, and the European Union Directive on Data Protection (Directive 95/46/EC). Other United States (both federal and state) and foreign jurisdiction laws apply to our processing of individually identifiable information and these laws have been subject to frequent changes, and new legislation in this area may be enacted at any time. For example, the recent invalidation of the U.S.-EU Safe Harbor regime will require us to implement alternative mechanisms in order for some of our data flows from Europe to the United States to comply with applicable law. Changes to existing laws, introduction of new laws in this area or failure to comply with existing laws that are applicable to us may subject us to, among other things, additional costs or changes to our business practices, liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to obtain and process information and allegations by our customers and clients that we have not performed our contractual obligations, any of which could materially adversely affect our results of operations and financial condition.

 

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We are subject to laws of the United States and foreign jurisdictions relating to processing certain financial transactions, including payment card transactions and debit or credit card transactions, and failure to comply with those laws, whether or not inadvertent, could subject us to legal actions and materially adversely affect our results of operations and financial condition.

We receive, process and implement financial transactions, and disburse funds, on behalf of both government and commercial customers. This activity includes receiving debit and credit card information to process payments due to our customers as well as disbursing funds on payment or debit cards to payees of our customers. As a result, we are subject to numerous United States (both federal and state) and foreign jurisdiction laws and regulations, including the Electronic Fund Transfer Act, as amended, the Currency and Foreign Transactions Reporting Act of 1970 (commonly known as the Bank Secrecy Act), as amended, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (including the so-called Durbin Amendment), as amended, the Gramm-Leach-Bliley Act (also known as the Financial Modernization Act of 1999), as amended, and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as amended. Other United States (both federal and state) and foreign jurisdiction laws apply to our processing of certain financial transactions and these laws have been subject to frequent changes, and new legislation in this area may be enacted at any time. Changes to existing laws, introduction of new laws in this area or failure to comply with existing laws that are applicable to us may subject us to, among other things, additional costs or changes to our business practices, liability for monetary damages, fines and/or criminal prosecution, unfavorable publicity, restrictions on our ability to process financial transactions and allegations by our customers and clients that we have not performed our contractual obligations, any of which could materially adversely affect our results of operations and financial condition.

We are subject to breaches of our security systems and service interruptions which could expose us to liability, impair our reputation or temporarily render us unable to fulfill our service obligations under our contracts.

We have implemented security systems, both directly and with third-party subcontractors and service providers, with the intent of maintaining both the physical security of our facilities and the data security of our customers’, clients’ and suppliers’ confidential information and information related to identifiable individuals (including payment card and debit and credit card information and health information) against unauthorized access through our information systems or by other electronic transmission or through the misdirection, theft or loss of physical media. These include, for example, the appropriate encryption of information. Despite such efforts, we are subject to breach of security systems which may result in unauthorized access to our facilities and/or the information we are trying to protect. Because the techniques used to obtain unauthorized access are constantly changing and becoming increasingly more sophisticated and often are not recognized until launched against a target, we or our third-party service providers may be unable to anticipate these techniques or implement sufficient preventative measures. Additionally, with advances in computer capabilities and data protection requirements to address ongoing threats, we may be required to expend significant capital and other resources to protect against potential security breaches or to alleviate problems caused by security breaches. Moreover, employee error or malfeasance, faulty password management or other irregularities may result in a defeat of our or our third-party service providers’ security measures and breach our or our third-party service providers’ information systems (whether digital or otherwise).

If unauthorized parties gain physical access to one of our or one of our third-party service providers’ facilities or electronic access to our or one of our third-party service providers’ information systems or such information is misdirected, lost or stolen during transmission or transport, any theft or misuse of such information could result in, among other things, unfavorable publicity, governmental inquiry and oversight, difficulty in marketing our services, allegations by our customers and clients that we have not performed our contractual obligations, litigation by affected parties and possible financial obligations for damages related to the theft or misuse of such information, any of which could materially adversely affect our results of operations and financial condition. Moreover, a security breach could require us to devote significant management resources to address the problems created by the security breach and to expend significant additional resources to upgrade further the security measures that we employ to guard such important personal information against cyber attacks

 

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and other attempts to access such information and could result in a disruption of our operations. We also maintain various systems and data centers for our customers. Often these systems and data centers must be maintained worldwide and on a 24/7 basis. Although we endeavor to ensure that there is adequate backup and maintenance of these systems and centers, we could experience service interruptions that could result in curtailed operations and loss of customers, which could reduce our revenues and profits in addition to impairing our reputation. If our information systems and our back-up systems are damaged, breached or cease to function properly, we may have to make a significant investment to repair or replace them, and we may suffer interruptions in our operations in the interim, each of which could materially adversely affect our results of operations and financial condition.

Our ability to recover capital and other investments in connection with our contracts is subject to risk.

In order to attract and retain large outsourcing contracts, we sometimes make significant capital and other investments to enable us to perform our services under those contracts, such as purchases of information technology equipment, facility costs, labor resources and costs incurred to develop and implement software. The net book value of certain assets recorded, including a portion of our intangible assets, could be impaired, and our results of operations and financial condition could be materially adversely affected in the event of the early termination of all or a part of such a contract or a reduction in volumes and services thereunder for reasons such as a customer’s or client’s merger or acquisition, divestiture of assets or businesses, business failure or deterioration or a customer’s or client’s exercise of contract termination rights.

If we underestimate the scope of work or the costs of performance in our contracts, or we misperform our contracts, our results of operations and financial condition could be materially adversely affected. </