As filed with the Securities and Exchange Commission on April 12, 2018
Registration No. 333-223905
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Ceridian HCM Holding Inc.
(Exact name of registrant as specified in its charter)
Delaware | 7372 | 46-3231686 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
3311 East Old Shakopee Road
Minneapolis, Minnesota
55425
(952) 853-8100
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrants Principal Executive Offices)
David D. Ossip
Chief Executive Officer
3311 East Old Shakopee Road
Minneapolis, Minnesota
55425
(952) 853-8100
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
Copies to:
Alexander D. Lynch, Esq. Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 (212) 310-8000 (Phone) (212) 310-8007 (Fax) |
Scott A. Kitching, Esq. Executive Vice President, General Counsel and Assistant Secretary 3311 East Old Shakopee Road Minneapolis, Minnesota 55425 (952) 853-8100 |
Marc D. Jaffe, Esq. Ian D. Schuman, Esq. Latham & Watkins LLP 885 Third Avenue New York, New York 10022 (212) 906-1200 (Phone) (212) 751-4864 (Fax) |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
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, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☐ | |||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities Offered |
Amount to be Registered (1) |
Proposed maximum offering price per share |
Proposed maximum aggregate offering price (2) |
Amount of registration fees (3) |
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Common stock, par value $0.01 per share |
24,150,000 | $21.00 | $507,150,000 | $63,141 | ||||
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(1) | Includes shares of common stock that may be issuable upon exercise of an option to purchase additional shares granted to the underwriters. |
(2) | Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) promulgated under the Securities Act of 1933, as amended. |
(3) | Of this amount, $24,900 of the registration fee has previously been paid. |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, Dated April 12, 2018
PRELIMINARY PROSPECTUS
21,000,000 Shares
Ceridian HCM Holding Inc.
Common Stock
This is an initial public offering of common stock by Ceridian HCM Holding Inc. (the Company). We are offering 21,000,000 shares of our common stock.
Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price per share will be between $19.00 and $21.00. We have applied to have our common stock listed on the New York Stock Exchange (NYSE) and on the Toronto Stock Exchange (TSX) under the symbol CDAY.
We are an emerging growth company as defined in Section 2(a) of the Securities Act of 1933, as amended (the Securities Act) and, as such, will be subject to reduced public company reporting requirements. See Prospectus SummaryImplications of Being an Emerging Growth Company.
Following this offering and the concurrent private placement, funds managed by the Sponsors (as defined on page 10 of this prospectus) are expected to hold approximately 80.4% of the voting power of our outstanding common stock, or 78.6%, if the underwriters option to purchase additional shares is fully exercised. As a result, the Sponsors will be able to exercise significant voting influence over fundamental and significant corporate matters and transactions. Therefore, we will qualify as a controlled company within the meaning of the corporate governance rules of the NYSE. See Risk FactorsRisks Relating to This Offering and Ownership of Our Common Stock, ManagementDirector Independence and Controlled Company Exemption, and Principal Stockholders.
THL / Cannae Investors LLC, one of our existing stockholders controlled by our Sponsors, intends to enter into an agreement with us pursuant to which it will agree to purchase $100.0 million of our common stock in a private placement at a price per share equal to the initial public offering price. This transaction is contingent upon, and is scheduled to close immediately subsequent to, the closing of this offering.
One or more funds affiliated with Dragoneer Investment Group, LLC have indicated an interest in purchasing an aggregate of up to $75.0 million in shares of our common stock in this offering at the initial public offering price. Because this indication of interest is not a binding agreement or commitment to purchase, one or more funds affiliated with Dragoneer Investment Group, LLC could determine to purchase more, less or no shares in this offering or the underwriters could determine to sell more, less or no shares to one or more funds affiliated with Dragoneer Investment Group, LLC. The underwriters will receive the same discount on any of our shares of common stock purchased by one or more funds affiliated with Dragoneer Investment Group, LLC as they will from any other shares of common stock sold to the public in this offering.
See Risk Factors beginning on page 24 to read about factors you should consider before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per
Share |
Total | |||||||
Initial public offering price |
$ | $ | ||||||
Underwriting discounts and commissions (1) |
$ | $ | ||||||
Proceeds to us, before expenses |
$ | $ |
We have agreed to reimburse the underwriters for certain expenses in connection with this offering.
(1) | We refer you to Underwriting , beginning on page 181 of this prospectus, for additional information regarding total underwriter compensation. |
To the extent that the underwriters sell more than 21,000,000 shares of common stock, the underwriters have an option to purchase up to an additional 3,150,000 shares of common stock from us at the initial public offering price less the underwriting discounts and commissions, for 30 days after the date of this prospectus.
Delivery of the shares is expected to be made on or about , 2018.
Goldman Sachs & Co. LLC | J.P. Morgan | |
Credit Suisse | Deutsche Bank Securities |
Barclays | Citigroup | Jefferies | CIBC Capital Markets | Wells Fargo Securities |
Baird | Canaccord Genuity | Piper Jaffray | William Blair | MUFG |
Prospectus dated , 2018.
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
72 | |||
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Material U.S. Federal Income and Estate Tax Considerations for Non-U.S. Holders |
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F-1 |
You should rely only on the information contained in this prospectus or in any free-writing prospectus we may specifically authorize to be delivered or made available to you. Neither we nor the underwriters (or any of our or their respective affiliates) have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we nor the underwriters (or any of our or their respective affiliates) take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters (or any of our or their respective affiliates) are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any free-writing prospectus is only accurate as of its date, regardless of its time of delivery or the time of any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
i
This summary highlights information appearing elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before making a decision to participate in the offering. You should carefully read the entire prospectus, including the information presented under Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements and notes related thereto included elsewhere in this prospectus before making an investment decision. Unless the context requires otherwise, references to our company, we, us, our, and Ceridian refer to Ceridian HCM Holding Inc. and its direct and indirect subsidiaries on a consolidated basis.
Overview
Ceridian is a global human capital management (HCM) software company. Dayforce, our flagship cloud HCM platform, provides human resources (HR), payroll, benefits, workforce management, and talent management functionality. Our platform is used by organizations, regardless of industry or size, to optimize management of the entire employee lifecycle, including attracting, engaging, paying, deploying, and developing their people. Dayforce was built as a single application from the ground up that combines a modern, consumer-grade user experience with proprietary application architecture, including a single employee record and a rules engine spanning all areas of HCM. Our platform is designed to make work life better for our customers and their employees by improving HCM decision-making processes, streamlining workflows, exposing strategic organizational insights, and simplifying legislative compliance. The platform is designed to ease administrative work for both employees and managers, creating opportunities for companies to increase employee engagement. We are a founder-led organization, and our culture combines the agility and innovation of a start-up with a history of deep domain and operational expertise.
The employer-employee relationship has undergone significant change. Employees historically viewed their jobs primarily as a source of income. Now, employees increasingly demand transparency, schedule flexibility, career growth, and better work-life balance with real-time access to their personal HR data anytime, anywhere. As organizations try to respond to these trends to attract and retain talent, they are empowering managers to think more strategically about their people. These challenges require organizations to find more efficient ways to manage employees and HCM functions, while navigating changing global operating and regulatory environments at the same time. However, HCM data in status quo solutions are stored in disparate databases, are difficult to access, and are often inaccurate. These status quo solutions that most organizations rely on were not built to manage a modern workforce, do not allow for real-time decision-making, and are not flexible enough to adapt to a changing global and regulatory environment.
We built Dayforce from the ground up to provide a comprehensive, next-generation platform that can solve complex human capital management problems. We carefully designed Dayforce to meet the needs of a homogeneous market with a common set of requirements and compliance challenges across organization sizes and industries. Our solutions deliver the right data to the right user at the right time for actionable intelligence and a superior employee experience. Our scalable platform is built on modern cloud technologies with a single, flexible rules engine capable of addressing complex global regulatory requirements, combined with a data architecture that can continuously calculate payroll throughout the pay period and a single database that enables advanced insights and predictive analytics. We believe that our architecture enables our customers to continue to benefit from advancements in technology, such as artificial intelligence and big data.
The breadth of benefits that Dayforce provides throughout an organization has been critical to our success. Employees benefit from our user experience and access to real-time data, which enables organizations to better empower employees with more self-service capabilities. The user experience
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and self-service capabilities drive faster adoption and free managers and HR administrators from many administrative burdens. Business-level managers benefit from deeper insights into their employee data, which enables them to better optimize their resources and to use predictive analytics to improve operations, such as scheduling, budgeting, and retention. Executive leadership benefits from better real-time data visibility, allowing them to better understand and to manage risk, to monitor and to track broader strategic initiatives, and to reduce technology and operational costs.
We sell Dayforce through our direct sales force on a subscription per-employee, per-month (PEPM) basis. Our subscriptions are typically structured with an initial fixed term of between three and five years, with evergreen renewal thereafter. Dayforce can serve customers of all sizes ranging from 100 to over 100,000 employees across multiple industries. We have rapidly grown the Dayforce platform to more than 3,000 live Dayforce customers, representing over 2.5 million active global users as of December 31, 2017. In 2017, we added over 650 new live Dayforce customers. We have experienced significant Cloud revenue growth at scale, particularly from Dayforce, which has grown at a compound annual growth rate (CAGR) of more than 60% since 2012. We believe that our intense focus on solving complex problems and our superior customer experience lead to our high retention rates, as evidenced by our annual Cloud revenue retention rate of over 95% in 2017. Our new business sales to Dayforce customers primarily made up 74% and 73% of our increase in Cloud revenue for the years ended December 31, 2017 and 2016, respectively, and the remaining 26% and 27% consisted primarily of customer migration to Dayforce from our Bureau solutions.
Our total revenue increased from $693.9 million in 2015 to $704.2 million in 2016 and to $750.7 million in 2017 and our net loss decreased from $(104.7) million in 2015 to $(9.2) million in 2017. Our total Cloud revenue, which consists primarily of revenues from Dayforce and excludes revenues from our Bureau solutions, increased from $225.2 million in 2015 to $297.8 million in 2016 and to $404.3 million in 2017, representing increases of 32.2% and 35.8%, respectively. We generated HCM operating profit (loss) of $(1.1) million in 2015 compared to $(8.6) million in 2016 and $33.0 million in 2017. We generated HCM Adjusted EBITDA of $99.7 million in 2015 compared to $88.9 million in 2016 and $117.8 million in 2017.
We define HCM Adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, as adjusted to exclude net income and loss from discontinued operations, LifeWorks EBITDA, sponsor management fees, non-cash charges for asset impairments, gains or losses on assets and liabilities held in a foreign currency other than the functional currency of a company subsidiary, non-cash share-based compensation expense, severance charges, restructuring consulting fees, and environmental reserve charges. HCM Adjusted EBITDA is a non-GAAP financial measure. Refer to Summary Historical Consolidated Financial and Other Data for discussion regarding our use of HCM Adjusted EBITDA and a reconciliation of HCM Adjusted EBITDA to HCM operating profit, the most directly comparable measure calculated in accordance with U.S. generally accepted accounting principles (GAAP).
For additional discussion of Cloud and Bureau revenue, please refer to Managements Discussion and Analysis of Financial Condition and Results of OperationsOur Solutions.
Industry Background
There are several important market dynamics that are transforming the way organizations manage and engage their employees. These trends impact organizations regardless of size, industry, and geography, and represent a significant global opportunity for Ceridian.
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The employer-employee relationship has changed
Employees expect modern, intuitive solutions that provide them with self-service access to pay, schedules, benefits, performance reviews, learning opportunities, and other key employee data in real-time and on the device of their choice. Organizations now acknowledge the strategic importance of developing and engaging their employees as a means to increase productivity and, in turn, improve business outcomes in a rapidly changing competitive business environment.
Organizations need better access to their data
Organizations have historically captured large amounts of employee-related data, but have been challenged to leverage these data as assets for decision-making. The data are difficult to use because they are inconsistently collected and therefore inaccurate, stored in multiple systems, and not easily consolidated. Insights from their data are poor; reporting is manual, error-prone, and time-consuming; and options for intelligent analytics are extremely limited.
Predictive technologies are changing the way we work
Organizations are generating large volumes of data that can power predictive models to solve extremely complex business problems. Artificial intelligence and other predictive technologies are playing a larger role in organizations and customers are now demanding these predictive technologies in human capital management, particularly in employee scheduling, hiring, retention, and compensation management.
Regulatory requirements are becoming increasingly complex and a source of organizational risk
The complexity of todays regulatory environment, including labor, tax, and compliance regulations, is a burden on businesses of all sizes. Organizations must comply with complex federal legislation, such as the Affordable Care Act (ACA) and the Fair Labor Standards Act in the United States, and also comply with a growing number of changes at the state and local level. In addition to complex labor and tax legislation, data privacy requirements add to the tangle of shifting and sometimes conflicting rules related to HCM. Non-compliance with applicable laws and regulations can result in significant financial penalties for the organization and damage to employment and company brands when failures occur.
Global markets continue to be underserved by HCM solutions
Globalization has resulted in a more internationally distributed and mobile workforce. This trend increases operational complexity by requiring organizations to understand and to comply with ever-changing regulations with respect to tax and employment laws across multiple countries. Legacy HCM and first-generation cloud solutions often lack the capability to develop localized functionality to meet country-specific requirements, which results in unintegrated and error-prone workflows, isolated employee data by country, and a poor user experience for employees. While core HCM solutions for employee data are more mature, areas such as time and attendance and payroll still remain materially underserved.
Incumbent HCM products are plagued by disparate technologies and struggle to meet todays needs
Many existing solutions have been assembled through a combination of platform acquisitions and vendor partnerships, all of which use different core architectures, multiple databases, and disparate user interfaces. As a result, many of the products offered in the market today spread data across multiple application frameworks and different code bases. These datasets have, in many cases, become liabilities rather than assets for organizations. In world-class products, data must be accessed in real-time, stored in a unified platform, and analyzed to achieve better insights and to drive better decisions.
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The HCM technology market is large and underserved
The HCM technology market is one of the largest in the software industry. According to an International Data Corporation (IDC) market forecast report, titled Worldwide Human Capital Management and Payroll Applications Forecast, 2017-2021, published in June 2017, the global market for HCM Payroll and Applications in 2018 is predicted to be $19.7 billion, of which $4.7 billion is for Payroll Applications, and is expected to grow to $25.4 billion by 2021, representing a 9.0% CAGR. The market includes payroll, HR, talent acquisition, workforce management, document management, performance management, compensation management, and succession planning.
Our Dayforce Solution
Dayforce is built from the ground up to provide businesses with a comprehensive modern cloud HCM platform for managing the entire employee lifecycle. Our award-winning software addresses all key areas of HCM, including HR, payroll, benefits, workforce management, and talent management functionality.
The key benefits of Dayforce include:
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Single employee record, single application architecture: Our platform is designed around our proprietary single application architecture, which includes a cross-domain rules engine, dataset, and complete employee record. With data stored in a single, central location, our platform provides actionable, data-driven insights across all HR functions to enable better decision-making and to address broad strategic operational challenges related to the entire employee lifecycle. In addition, our differentiated approach eliminates the need for fragile and complex data integrations that attempt to unify disparate HR-related applications, such as payroll and time and attendance. Eliminating integrations greatly simplifies workflows, drives |
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more efficient service delivery, reduces errors, and enhances regulatory compliance. For example, when an employee clocks out and hours are added to the system, Dayforce calculates taxes and net pay in real time instead of having to wait until the end of the pay period to batch transfer hours from the time system to the pay system. |
Traditional Payroll Workflow
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Dayforce Workflow
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Data is stuck in the time systems until after the end of the pay period. Once the data are transferred to payroll, there is not enough time to complete audits and adjustments. Payroll gets committed with errors. |
Dayforce enables access to payroll data through the
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| Actionable insights driven by real-time data and predictive technologies: Dayforce delivers the right data to the right people at the right time. Our platform provides actionable, data-driven insights to assist our customers with fast, informed decision-making. Sophisticated predictive technologies align business strategy with daily operations. For example, Dayforce generates optimized schedules in line with company priorities and employee work preferences, and also includes a set of features that predict employee flight risk accompanied by suggested actions to minimize that risk. This actionable data-first approach enables all levels of the organization, from executives and business-line managers to HR and payroll administrators, to make better decisions in real-time and to align organizational strategy with daily operations. |
| Built for complex operating and regulatory environments: Maintaining compliance in an increasingly complex regulatory environment is critical to the success and stability of organizations globally. Dayforce was built with compliance and security at its core and has the flexibility to respond to inevitable changes in the regulatory climate. Our proprietary rules engine is a critical strength of our platform and has led to us becoming a leader in the area of compliance. Through the use of our dynamic and fully configurable rules engine, clients are able to customize the system specifically to their business needs, allowing them to spend less time tracking compliance with complex local, state, federal, and international labor laws and regulations, and freeing up their time to focus on their business. |
| Delivers a better employee experience: Dayforce provides a consumer-grade experience and is built to reflect how users naturally behave. Through our single dataset and native web and mobile applications, users can access our platform on the device of their choice and can enjoy a consistent intuitive user interface across all domains of HCM. Because Dayforce is easy to learn and easy to operate, both managers and employees enthusiastically adopt self-service functionality. Increased self-service usage is designed to drive higher employee and manager engagement, collect more accurate information, and facilitate more efficient operations. |
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Grows as our customers expand globally: Our platform is built to scale globally for organizations regardless of industry or size. Our customers are highly diversified and range |
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from small regional businesses to large, global multi-nationals. With our proprietary architecture, we have the ability to enter new international markets, and to localize Dayforce to address both North American-based organizations with employees around the world and organizations outside of North America that operate primarily in their own local markets or regions. To date, our global HR and workforce management functionality is used in over 50 countries, such as the United Kingdom, Australia, Germany, South Africa, and Mexico. Users outside of North America currently represent approximately 5% of the Dayforce user base. In addition, we provide global 24/7 customer support and we use data hosting centers across North America, Europe, and Australia. Our cloud delivery model enables our customers to easily scale without major capital expenditures and eliminates the need for cumbersome data integration, traditionally associated with legacy solutions. Our delivery model also enables us to innovate rapidly and to implement changes easily to allow customers to stay current with changing regulatory, compliance, and tax environments. |
Our Growth Strategies
We build technology that makes work life better for people around the world. Our growth strategies include:
| Grow market share in existing geographies: The HCM market is massive, and we have a significant opportunity to increase our penetration in North America. Dayforce has been gaining market share relative to both traditional and first-generation software-as-a-service (SaaS) HCM providers as more customers adopt our leading cloud platform. We have experienced significant growth over the last six years and added over 650 live customers in 2017. We intend to capitalize on our market momentum by leveraging our sales and marketing to win new customers. |
| Expand globally: We believe that there is a significant opportunity to provide our HCM platform to organizations with employees based outside our core North American markets. From the onset, Dayforce was intentionally designed to be a global platform with the ability for customers to use it for their global HR and workforce management needs. We have successfully deployed Dayforce around the world, and Dayforce is in use in over 50 countries. We intend to localize Dayforce to provide native payroll functionality in additional countries, and we believe that providing native payroll will enable us to sell to organizations headquartered or with a significant employee presence in those countries. We believe that ease of localization is a key differentiator for the Dayforce platform. |
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| Increase sales from existing customers: We intend to sell additional incremental functionality to existing customers that do not currently utilize the full Dayforce platform. Our revenue also increases as our customers grow their workforces, driven by our subscription PEPM pricing structure. |
| Expand platform functionality: We believe that our leading market position in technology is based on our ability to continuously innovate and to quickly bring new solutions to market. Since 2012, we have developed a full suite of HCM functionality. We intend to continue to extend the functionality and breadth of our Dayforce platform in the future, taking advantage of modern technologies including artificial intelligence and big data. |
| Grow and cultivate our partner ecosystem: Investing in key product and sales partnerships can help us to grow our customer base and to reduce customer acquisition costs. This includes deep relationships with private equity firms and their business partners, other value-added resellers of the Dayforce platform, and third parties that want to offer Dayforce as an extension of their product suites on a referral basis. For example, we recently launched the Dayforce Software Partner Platform, which enables certified third party software vendors to integrate easily with the Dayforce platform. These initiatives expand our distribution reach and provide additional value to our customers. |
| Address the unique changing workforce requirements of the gig economy: The rise of the gig economy has led to the expectation of same-day onboarding and payments for independent freelancers. We believe the on-demand economy, which is part of the broader contingent workforce market, is expected to account for over 40% of the workforce by 2020 in the United States. We believe that our real-time pay and scheduling capabilities and native mobile applications position us well to capitalize on this growing opportunity. |
| Promote our culture as a unique differentiator: Our culture combines the agility and innovation of a start-up with a history of deep domain and operational expertise. We focus on our culture and on employee engagement as we believe it helps us to attract, to engage, and to retain top talent who create successful outcomes for our customers, which we believe results in growth through strong customer retention and new customer referrals. In 2017 alone, we have received over 20 awards recognizing our culture, including Glassdoors Top 100 Best Places to Work (Canada and United States), Great Places to Work (Canada and United States), Canadas Top 100 Employers, and recognition by the Brandon Hall Group as Best Advance in Corporate Culture Transformation. |
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Recent Developments
The following table presents selected preliminary unaudited financial results as of, and for, the three months ended March 31, 2018. Our consolidated financial statements as of, and for, the three months ended March 31, 2018, are not yet available. The following information reflects our preliminary estimates based on currently available information. We have provided ranges, rather than specific amounts, for the preliminary results described below primarily because our financial closing procedures for the three months ended March 31, 2018, are not yet complete and, as a result, our final results upon completion of our closing procedures may vary from the preliminary estimates. These estimates should not be viewed as a substitute for interim financial statements prepared in accordance with U.S. GAAP. Our independent registered public accounting firm has not conducted a review of, and does not express an opinion or any other form of assurance with respect to, these preliminary estimates.
Three Months ended March 31, | ||||||||||||
2018 | 2017 | |||||||||||
Low | High | Actual | ||||||||||
(Unaudited, dollars in millions) | ||||||||||||
Cloud recurring services revenue |
$ | 104.5 | $ | 106.0 | $ | 76.4 | ||||||
Cloud professional services and other revenue |
18.2 | 19.2 | 14.3 | |||||||||
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Cloud revenue |
122.7 | 125.2 | 90.7 | |||||||||
Bureau revenue |
61.0 | 62.0 | 76.7 | |||||||||
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Total HCM revenue |
$ | 183.7 | $ | 187.2 | $ | 167.4 | ||||||
HCM operating profit |
$ | 24.3 | $ | 27.3 | $ | 10.9 | ||||||
HCM Adjusted EBITDA (a) |
$ | 40.5 | $ | 43.6 | $ | 31.2 | ||||||
March 31, 2018 |
December 31,
2017 |
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Low | High | Actual | ||||||||||
(Unaudited, dollars in millions) | ||||||||||||
Cash and equivalents |
$ | 59.2 | $ | 62.2 | $ | 99.6 | ||||||
Long-term debt |
$ | 1,120.5 | $ | 1,120.5 | $ | 1,119.8 |
(a) | HCM Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of HCM Adjusted EBITDA to HCM operating profit, please see below. For information regarding the limitations of using HCM Adjusted EBITDA as a financial measure, please see Prospectus SummarySummary Historical Consolidated Financial and Other Data. |
For the three months ended March 31, 2018, we expect total HCM revenue to be between $183.7 million and $187.2 million, which would be an increase of approximately 10% to 12% as compared to total HCM revenue of $167.4 million for the three months ended March 31, 2017. The increase in total HCM revenue is expected to be primarily driven by a 35% to 38% increase in Cloud revenue, partially offset by a 19% to 20% decline in Bureau revenue as Bureau customers continue to migrate to Dayforce. The increase in Cloud revenue is expected to be driven by a 37% to 39% increase in Cloud recurring services revenue and a 27% to 34% increase in Cloud professional services and other revenue.
For the three months ended March 31, 2018, we expect HCM operating profit to be between $24.3 million and $27.3 million, which would be an increase of approximately 123% to 150% as compared to HCM operating profit of $10.9 million for the three months ended March 31, 2017. The increase in HCM operating profit is expected to be primarily driven by an increase in HCM revenue, partially offset by higher sales and marketing expenses, and higher product development and
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management costs. The increase in HCM operating profit reflects increases in gross margin on cloud recurring services, from 62% for the three months ended March 31, 2017 to 67% to 69%, for the three months ended March 31, 2018, as we continue to scale the business. Professional services and other gross margin also improved, from (117)%, for the three months ended March 31, 2017, to (70)% to (62)% for the three months ended March 31, 2018, driven by implementation efficiencies and increases in post go-live professional services.
For the three months ended March 31, 2018, we expect HCM Adjusted EBITDA to be between $40.5 million and $43.6 million, which would be an increase of approximately 30% to 40% as compared to HCM Adjusted EBITDA of $31.2 million for the three months ended March 31, 2017.
As of March 31, 2018, we expect cash and equivalents to be between $59.2 million and $62.2 million, which would be a decline between $37.4 million and $40.4 million as compared to December 31, 2017. The expected decline in cash from December 31, 2017, was primarily driven by interest payments on our long-term debt and incentive compensation payments related to the 2017 management incentive plan. Because of the timing of interest and management incentive payments, the quarter ended March 31 is typically the low point for our cash and equivalents, and the expected decline is in line with our expectations. For comparison, cash and equivalents declined by $53.7 million in the quarter ended March 31, 2017, as compared to the balance as of December 31, 2016.
The following table reconciles HCM operating profit to HCM Adjusted EBITDA for the periods presented:
Three Months ended
March 31, |
||||||||||||
2018 | 2017 | |||||||||||
Low | High | Actual | ||||||||||
(Unaudited, dollars in
millions) |
||||||||||||
HCM operating profit |
$ | 24.3 | $ | 27.3 | $ | 10.9 | ||||||
Depreciation and amortization |
14.8 | 13.9 | 13.1 | |||||||||
|
|
|
|
|
|
|||||||
HCM EBITDA from continuing operations (1) |
39.1 | 41.2 | 24.0 | |||||||||
Other adjustments (1) |
1.4 | 2.4 | 7.2 | |||||||||
|
|
|
|
|
|
|||||||
HCM Adjusted EBITDA |
$ | 40.5 | $ | 43.6 | $ | 31.2 | ||||||
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|
|
|
|
|
(1) | For information regarding these items, please see Prospectus SummarySummary Historical Consolidated Financial and Other Data. Other adjustments consist of sponsorship management fees, intercompany foreign exchange loss (gain), share-based compensation, severance charges, and restructuring consulting fees. |
The information above is based on preliminary unaudited information and management estimates for the three months ended March 31, 2018, is not a comprehensive statement of our financial results, and is subject to completion of our financial closing procedures. This information should be read in conjunction with our consolidated financial statements and the related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations for prior periods included elsewhere in this prospectus. Our actual results for the three months ended March 31, 2018 are not yet available, may differ materially from our preliminary estimates (including as a result of quarter-end closing and review procedures) and are not necessarily indicative of the results to be expected for the remainder of 2018 or any future period. Accordingly, you should not place undue reliance upon these preliminary estimates. There can be no assurance that these estimates will be realized, and estimates
9
are subject to risks and uncertainties, many of which are not within our control. Please see Risk Factors and Cautionary Note Regarding Forward-Looking Statements. These preliminary estimates have been prepared by and are the responsibility of management. Our independent registered public accounting firm has not conducted a review of, and does not express an opinion or any other form of assurance with respect to, these preliminary estimates. These estimates should not be viewed as a substitute for interim financial statements prepared in accordance with U.S. GAAP.
Our History
Ceridian was acquired in 2007 by affiliates and co-investors of Thomas H. Lee Partners, L.P. (THL) and Cannae Holdings, Inc. (Cannae), which recently split-off from Fidelity National Financial, Inc. (FNF). In April 2012, Ceridian acquired Dayforce Corporation, which had built Dayforce, a Cloud HCM solution. In the months following the acquisition, Dayforce founder, David D. Ossip, was named Chief Executive Officer of Ceridian, and shortly thereafter, we generally stopped actively selling our Bureau solutions to new customers in the United States to focus our resources on expanding the Dayforce platform and growing Cloud HCM solutions. For each quarter since September 30, 2016, our Cloud HCM revenue has surpassed our Bureau HCM revenue. Cloud revenue grew from 39% of total HCM revenue during the quarter ended December 31, 2015 to 64% of total HCM revenue during the quarter ended December 31, 2017.
As part of our strategy to focus on the growth of our Cloud solutions business, we (i) sold our consumer-directed benefit services business in 2013, (ii) merged Comdata, our payment systems business unit, with FleetCor Technologies Inc. (FleetCor Technologies) in 2014, (iii) sold our benefits administration and post-employment compliance business in 2015, and (iv) sold our United Kingdom and Ireland businesses and a portion of our operations that supported such business in the Republic of Mauritius in 2016. Our benefits administration and post-employee compliance business, our United Kingdom and Ireland businesses, and our divested Mauritius operations are presented as discontinued operations in our financial statements. As a result of these transactions, we only actively sell Dayforce and Powerpay in our HCM segment, which we believe simplifies our business model and positions us well for continued growth. In 2016, we contributed our LifeWorks employee assistance program business to a joint venture, LifeWorks Corporation Ltd. (LifeWorks), that provides employee assistance, wellness, recognition, and incentive programs in the United States, Canada, and the United Kingdom.
Our Financial Sponsors
THL is a premier private equity firm investing in middle market growth companies, headquartered in North America, exclusively in four industry sectors: Business & Financial Services, Consumer & Retail, Healthcare, and Media, Information Services & Technology. Using the firms deep domain expertise and the internal operating capabilities of its Strategic Resource Group, THL seeks to create deal sourcing advantages, to accelerate growth, and to improve operations in its portfolio companies in partnership with management teams. Since its founding in 1974, THL has raised over $22.0 billion of equity capital, acquired over 140 portfolio companies, and completed over 360 add-on acquisitions, which collectively represent a combined enterprise value at the time of acquisition of over $200.0 billion.
Cannae, which recently split off from FNF, is a diversified holding company with investments in restaurants, technology enabled healthcare services, and diversified services. Cannaes highly experienced and successful management team looks to prudently monetize existing investments with the primary objective of maximizing returns for its stockholders. As of December 31, 2017, Cannae had over $1.0 billion in net asset value under its management. THL and Cannae together are referred to as the Sponsors.
Following the closing of this offering and the concurrent private placement, funds managed by the Sponsors are expected to own approximately 80.4% of our outstanding common stock, or 78.6%, if the
10
underwriters option to purchase additional shares is fully exercised. Additionally, in connection with this offering, we intend to enter into a voting agreement with the Sponsors. Pursuant to the voting agreement, we will be required to take all necessary action to cause the Board to include individuals designated by the Sponsors pursuant to certain ownership thresholds. For so long as each Sponsor is entitled to designate a director to the Board, the Sponsors will be required to vote all of their shares, and take all other necessary actions, to cause the Board to include the individuals designated as directors by the Sponsors (as applicable). The voting agreement will also require the Sponsors to consult with one another regarding the transfer of their equity securities in us. See ManagementComposition of our Board of Directors. As a result of the Sponsors ownership of our common stock and the voting agreement, the Sponsors will be able to exercise significant voting influence over fundamental and significant corporate matters and transactions. Therefore, we expect to be a controlled company within the meaning of the corporate governance standards of the NYSE on which we have applied to list our shares of common stock. See Risk FactorsRisks Relating to This Offering and Ownership of Our Common Stock and Principal Stockholders.
Stock Split
On April 10, 2018, we effected a 1-for-2 reverse stock split of our common stock. All of the common share and per share information referenced throughout this prospectus have been retroactively adjusted to reflect this reverse stock split.
Concurrent Private Placement
Immediately subsequent to the closing of this offering, THL / Cannae Investors LLC, one of our existing stockholders controlled by our Sponsors, intends to purchase from us in a private placement $100.0 million of our common stock at a price per share equal to the initial public offering price. Based on an assumed initial public offering price of $20.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, this would be 5,000,000 shares. We will receive the full proceeds and will not pay any underwriting discounts or commissions with respect to the shares that are sold in the private placement. The sale of the shares in the private placement is contingent upon the completion of this offering. The sale of these shares to THL / Cannae Investors LLC will not be registered in this offering and will be subject to a market standoff agreement with us and a lock-up agreement with the underwriters for a period of up to 180 days after the date of this prospectus.
Debt Refinancing
Concurrently with closing of this offering and the concurrent private placement, we intend to apply the net proceeds received by us therefrom to redeem the $475.0 million principal amount of our outstanding 11% senior notes due 2021 (the Senior Notes) as well as to pay a portion of the interest on the Senior Notes that will have accrued at the time of the redemption. We also intend to refinance our remaining indebtedness under our (i) $702.0 million (original principal amount) term loan debt facility (the Senior Term Loan) and (ii) $130.0 million revolving credit facility (the Revolving Facility) (the Senior Term Loan and the Revolving Facility are together referred to as the Senior Credit Facilities), accrued interest and related costs and expenses, with new senior credit facilities consisting of a $680.0 million term loan debt facility and a $300.0 million revolving credit facility. We refer to these transactions as the Debt Refinancing. We expect to incur a charge of up to $26.3 million related to the repayment of certain of our indebtedness in connection with the Debt Refinancing. Such charge will be included in other expense, net in the same quarter as the date of the completion of this offering and the concurrent private placement. For an additional description of our Senior Notes and our Senior Credit Facilities, please see Description of Material Indebtedness.
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Internal Reorganization
Prior to this offering, our Sponsors and certain other stockholders hold shares in us through a series of non-operating limited liability companies, including THL / Cannae Investors LLC, the purchaser in the concurrent private placement. Upon completion of this offering and the concurrent private placement, we intend to complete an internal corporate reorganization, pursuant to which these limited liability companies (including THL / Cannae Investors LLC) will be merged with and into Ceridian HCM Holding Inc. At the time of these transactions, these limited liability companies will have no assets other than equity interests in us or the other limited liability companies. As a result of these transactions, our stockholders will hold shares of our common stock (including the shares obtained by THL / Cannae Investors LLC in the concurrent private placement) directly rather than through a series of limited liability companies. In addition, the Exchangeable Shares (as defined on page 19 of this prospectus) will become exchangeable for shares of our common stock. These transactions will not have any impact on our assets, liabilities, or operations. We refer to these transactions as the Internal Reorganization.
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The diagram below summarizes our current organizational structure and our anticipated organizational structure after completion of the Internal Reorganization, the proposed offering and the concurrent private placement.
Current Structure
Structure Following the Internal Reorganization, the Proposed Offering and the
Concurrent Private Placement
13
LifeWorks Disposition
Contemporaneous with this offering and the concurrent private placement, we intend to distribute our interest in LifeWorks to our existing stockholders on a pro rata basis in accordance with their pro rata interests in us (the LifeWorks Disposition). The investors in this offering will not receive any interests in LifeWorks as a result of the Lifeworks Disposition. As a result of the LifeWorks Disposition, we will no longer have any material obligations under the LifeWorks joint venture agreement. In addition, upon completion of the LifeWorks Disposition, LifeWorks will no longer be a separate segment and will be reclassified to discontinued operations in our consolidated financial statements for all periods presented. LifeWorks accounted for $79.9 million in revenue and $0.4 million in operating loss for the year ended December 31, 2017. As a result, our consolidated revenues and operating profit are expected to decline in the near term. Additionally, we will no longer have a non-controlling interest on our consolidated balance sheets or statements of operations. At the time of the distribution, the interests in LifeWorks received by our existing stockholders will be valued at approximately $96.0 million. The stockholders will receive these interests in a taxable distribution. Based on current estimates of the value of our interest in LifeWorks at the time of the distribution, we currently anticipate that we will incur approximately $3.2 million of foreign taxes and use approximately $96.0 million of our U.S. federal net operating losses to offset the tax gain in the U.S. in connection with the distribution. The net operating losses are currently subject to a full valuation allowance, therefore, the tax gain recognition and resulting use of the net operating loss and release of the valuation allowance result in no anticipated U.S. tax expense.
Risks Associated with our Business
Investing in our common stock involves a number of risks. These risks represent challenges to the successful implementation of our strategy and the growth of our business. Some of these risks are:
| We have a history of losses and negative cash flows from operating activities, and we may not be able to attain or to maintain profitability or positive cash flows from operating activities in the future. |
| The markets in which we participate are highly competitive, and if we do not compete effectively, it could have a material adverse effect on our business, financial condition, and results of operations. |
| Our growth strategy has focused on developing our fast growing Cloud solutions revenue, while our Bureau solutions revenue has declined. Our business could be materially adversely affected by a slowdown in the growth of our Cloud solutions or a faster than anticipated decline in our Bureau solutions revenue. |
| If we are not able to provide successful new or enhanced functionality and features, it could affect our ability to retain customers. |
| An information security breach of our systems or the loss of, or unauthorized access to, customer information, could have a material adverse effect on our business, market brand, financial condition, and results of operations. |
| Any failure by us to comply with, or a failure of any of our products to enable our customers to comply with, current and future regulatory requirements, including applicable privacy, security, and data laws, regulations, and standards, could have a material adverse effect on our business, financial condition, and results of operations. |
| If we are unable to develop new solutions, to sell our Cloud solutions into new markets or to further penetrate existing markets, our revenue may not grow as expected. |
| If we fail to manage our technical operations infrastructure, our existing customers may experience service outages, and our new customers may experience delays in the deployment of our applications. |
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For a discussion of these and other risks you should consider before making an investment in our common stock, see the section entitled Risk Factors.
Corporate Information
Ceridian HCM Holding Inc. was incorporated in Delaware on July 3, 2013. Our principal executive offices are located at 3311 East Old Shakopee Road, Minneapolis, Minnesota 55425, and our telephone number is (952) 853-8100. Our corporate website address is www.ceridian.com. Our website and the information contained on, or that can be accessed through, the website is not deemed to be incorporated by reference in, and is not considered part of, this prospectus. You should not rely on any such information in making your decision whether to purchase our common stock.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in gross revenue during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). An emerging growth company may take advantage of specified reduced reporting and other regulatory requirements for up to five years that are otherwise applicable generally to public companies. These provisions include, among other matters:
| requirement to present only two years of audited financial statements and only two years of related Managements Discussion and Analysis of Financial Condition and Results of Operations; |
| exemption from the auditor attestation requirement on the effectiveness of our system of internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended (the Sarbanes-Oxley Act); |
| exemption from the adoption of new or revised financial accounting standards until they would apply to private companies; |
| exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board, requiring mandatory audit firm rotation or a supplement to the auditors report, in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer; |
| an exemption from the requirement to seek non-binding advisory votes on executive compensation and golden parachute arrangements; and |
| reduced disclosure about executive compensation arrangements. |
We will remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering unless, prior to that time, we have more than $1.07 billion in annual gross revenue, have a market value for our common stock held by non-affiliates of more than $700.0 million as of the last day of our second fiscal quarter of the fiscal year and a determination is made that we are deemed to be a large accelerated filer, as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), or issue more than $1.0 billion of non-convertible debt over a three-year period, whether or not issued in a registered offering. We have availed ourselves of the reduced reporting obligations with respect to executive compensation disclosure in this prospectus and expect to continue to avail ourselves of the reduced reporting obligations available to emerging growth companies in future filings.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can, therefore, delay the adoption of certain accounting standards until those standards would otherwise apply to
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private companies. We are choosing to take advantage of that extended transition period and, as a result, we plan to comply with new and revised accounting standards on the relevant dates on which adoption of those standards is required for private companies.
As a result of our decision to avail ourselves of certain provisions of the JOBS Act, the information that we provide may be different than what you may receive from other public companies in which you hold an equity interest. In addition, it is possible that some investors will find our common stock less attractive as a result of our elections, which may cause a less active trading market for our common stock and more volatility in our stock price.
Trademarks and Trade Names
We and our subsidiaries own or have the rights to various trademarks, trade names and service marks, including the following: Ceridian ® , Dayforce ® , Makes Work Life Better , Powerpay ® , LifeWorks ® , and various logos used in association with these terms. Solely for convenience, the trademarks, trade names and service marks and copyrights referred to herein are listed without the © , ® , and , symbols, but such references are not intended to indicate, in any way, that Ceridian, or the applicable owner, will not assert, to the fullest extent under applicable law, Ceridians or their, as applicable, rights to these trademarks, trade names, and service marks. Other trademarks, service marks, or trade names appearing in this prospectus are the property of their respective owners.
Market and Industry Information
Unless otherwise indicated, market data and industry information used throughout this prospectus are based on managements knowledge of the industry and the good faith estimates of management. We also relied, to the extent available, upon managements review of independent industry surveys and publications, other publicly available information prepared by a number of sources, including IDC, Glassdoor, and Brandon Hall Group. All of the market data and industry information used in this prospectus involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Although we believe that these sources are reliable, neither we nor the underwriters can guarantee the accuracy or completeness of this information, and neither we nor the underwriters have independently verified his information. While we believe the estimated market position, market opportunity, and market size information included in this prospectus is generally reliable, such information, which is derived in part from managements estimates and beliefs, is inherently uncertain and imprecise. Projections, assumptions, and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in Risk Factors, Cautionary Note Regarding Forward-Looking Statements, and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in our estimates and beliefs and in the estimates prepared by independent parties.
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Issuer |
Ceridian HCM Holding Inc. |
Common stock offered by us |
21,000,000 shares of common stock (or 24,150,000 shares of common stock if the underwriters exercise their option to purchase additional shares in full). |
Common stock sold by us in the
|
Immediately subsequent to the closing of this offering, THL / Cannae Investors LLC intends to purchase from us in a private placement $100.0 million of our common stock at a price per share equal to the initial public offering price. Based on an assumed initial public offering price of $20.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, this would be 5,000,000 shares. We will receive the full proceeds and will not pay any underwriting discounts or commissions with respect to the shares that are sold in the private placement. The sale of the shares in the private placement is contingent upon the completion of this offering. The sale of these shares to THL / Cannae Investors LLC will not be registered in this offering and will be restricted securities under the Securities Act. In addition, these shares will be subject to a market standoff agreement with us and, to the extent ultimately owned by our directors, officers, Sponsors and certain other significant stockholders, lock-up agreement with the underwriters for a period of up to 180 days after the date of this prospectus. See Shares Eligible for Future SaleLock-Up Arrangements for additional information regarding such restrictions. We refer to the private placement of these shares of common stock as the concurrent private placement. |
Option to purchase additional shares
|
The underwriters have an option to purchase an additional 3,150,000 shares of common stock from us. The underwriters can exercise this option at any time within 30 days from the date of this prospectus. |
Indication of Interest |
One or more funds affiliated with Dragoneer Investment Group, LLC have indicated an interest in purchasing an aggregate of up to $75.0 million in shares of our common stock in this offering at the initial public offering price. Because this indication of interest is not a binding agreement or commitment |
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to purchase, one or more funds affiliated with Dragoneer Investment Group, LLC could determine to purchase more, less or no shares in this offering or the underwriters could determine to sell more, less or no shares to one or more funds affiliated with Dragoneer Investment Group, LLC. The underwriters will receive the same discount on any of our shares of common stock purchased by one or more funds affiliated with Dragoneer Investment Group, LLC as they will from any other shares of common stock sold to the public in this offering. |
Use of proceeds |
We estimate that the net proceeds from the sale of our common stock in this offering and the concurrent private placement, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $483.1 million ($542.7 million if the underwriters exercise their option to purchase additional shares in full) based on an assumed initial public offering price of $20.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus). |
We intend to apply these net proceeds to redeem the $475.0 million principal amount of our outstanding 11% Senior Notes due 2021 as well as to pay a portion of the interest on the Senior Notes that will have accrued at the time of the redemption. See Use of Proceeds. |
Dividend policy |
We do not anticipate paying any dividends on our common stock for the foreseeable future; however, we may change this policy in the future. See Dividend Policy. |
Voting Rights |
Upon completion of this offering and the concurrent private placement, our executive officers, directors, and the Sponsors will hold approximately 84.9% of the combined voting power of our outstanding capital stock and will have the ability to control the outcome of matters submitted to our stockholders for approval. See Principal Stockholders and Description of Capital Stock. |
Risk factors |
Investing in our common stock involves a high degree of risk. See the Risk Factors section of this prospectus beginning on page 24 for a discussion of factors you should carefully consider before investing in our common stock. |
Principal stockholders |
Upon completion of this offering and the concurrent private placement, THL and Cannae will continue to own a controlling interest in us. Accordingly, we may avail ourselves of the controlled company exemption under the corporate governance rules of the NYSE. See ManagementDirector Independence and Controlled Company Exemption and Principal Stockholders. |
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Listing |
We have applied to have our common stock listed on the NYSE and on the TSX under the symbol CDAY. |
Except as otherwise indicated, the number of shares of our common stock outstanding after this offering and the concurrent private placement:
| assumes no exercise of the underwriters option to purchase additional shares; |
| assumes an initial public offering price of $20.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus); |
| includes 43,528,458 shares of common stock issuable upon the automatic conversion of all outstanding shares of our junior and senior preferred stock prior to the completion of this offering and the concurrent private placement (the Preferred Conversion); |
| excludes (i) an aggregate of 5,000 shares of our common stock issuable upon exercise of outstanding stock options at a weighted average of $20.00 per share, which stock options were granted under our 2007 Ceridian LLC Stock Incentive Plan, (ii)(a) an aggregate of 12,137,411 shares of our common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $16.33 per share, and (b) an aggregate of 529,800 shares of our common stock issuable upon the vesting of outstanding restricted stock units, which stock options and restricted stock units were granted under our 2013 Ceridian HCM Holding Inc. Stock Incentive Plan, as amended (the 2013 Plan), and (iii) an aggregate of 13,500,000 shares of our common stock that will be available for future equity awards under our Ceridian HCM Holding Inc. 2018 Equity Incentive Plan (the 2018 Plan), including 4,673,605 shares of common stock issuable upon the exercise of stock options to be granted to 126 current employees in connection with this offering, which includes 2,744,571 shares of common stock issuable to our executive officers under such stock options (the IPO Options); |
| gives effect to the Internal Reorganization; |
| gives effect to the exchange of 5,672,743 outstanding exchangeable shares of our subsidiary, Ceridian AcquisitionCo ULC (the Exchangeable Shares), for 2,855,305 shares of our common stock (the Share Exchange); and |
| gives effect to our third amended and restated certificate of incorporation and our amended and restated bylaws, which will be in effect prior to the consummation of this offering and the concurrent private placement. |
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
We report our financial results in accordance with U.S. GAAP. The following tables set forth our summary historical consolidated financial and other data for the periods as of the dates indicated. We derived the summary consolidated statements of operations data for the years ended December 31, 2017, 2016, and 2015, from the audited consolidated financial statements and related notes thereto included elsewhere in this prospectus. We derived the balance sheet data as of December 31, 2017, from our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in any future period.
You should read the information set forth below together with Selected Historical Consolidated Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, Capitalization, and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.
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Year ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
(Dollars in millions, except share and
per share amounts) |
||||||||||||
Consolidated Statements of Operations Data: |
||||||||||||
Total revenue |
$ | 750.7 | $ | 704.2 | $ | 693.9 | ||||||
Cost of revenue |
457.7 | 445.3 | 413.1 | |||||||||
Selling, general, and administrative expenses |
253.0 | 249.8 | 245.5 | |||||||||
Other expense, net |
7.4 | 13.2 | 27.8 | |||||||||
Interest expense, net |
87.1 | 87.4 | 87.8 | |||||||||
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|
|
|
|
|
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Loss from continuing operations before income taxes |
(54.5 | ) | (91.5 | ) | (80.3 | ) | ||||||
Income tax (benefit) expense |
(44.7 | ) | 17.8 | 8.6 | ||||||||
|
|
|
|
|
|
|||||||
Loss from continuing operations |
(9.8 | ) | (109.3 | ) | (88.9 | ) | ||||||
(Loss) income from discontinued operations |
(0.7 | ) | 16.5 | (15.8 | ) | |||||||
|
|
|
|
|
|
|||||||
Net loss |
(10.5 | ) | (92.8 | ) | (104.7 | ) | ||||||
Net (loss) income attributable to noncontrolling interest |
(1.3 | ) | 0.1 | | ||||||||
|
|
|
|
|
|
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Net loss attributable to Ceridian |
$ | (9.2 | ) | $ | (92.9 | ) | $ | (104.7 | ) | |||
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|
|
|
|
|
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Earnings per share: |
||||||||||||
Basic |
$ | (0.46 | ) | $ | (1.65 | ) | $ | (1.61 | ) | |||
Diluted |
$ | (0.46 | ) | $ | (1.65 | ) | $ | (1.61 | ) | |||
Weighted average shares outstanding: |
||||||||||||
Basic |
65,204,960 | 64,988,338 | 64,924,845 | |||||||||
Diluted |
65,204,960 | 64,988,338 | 64,924,845 | |||||||||
Statements of Cash Flow Data: |
||||||||||||
Net cash provided by (used in): |
||||||||||||
Operating activities |
$ | (39.8 | ) | $ | (75.5 | ) | $ | (18.3 | ) | |||
Investing activities |
(407.4 | ) | 763.0 | 323.9 | ||||||||
Financing activities |
406.8 | (630.7 | ) | (368.2 | ) | |||||||
Other Data: |
||||||||||||
Live Dayforce customers |
3,001 | 2,339 | 1,770 | |||||||||
Annual Cloud revenue retention rate (a) |
97.0 | % | 95.7 | % | 95.0 | % | ||||||
Cloud annualized recurring revenue (ARR) (a) |
$ | 391.0 | $ | 289.7 | $ | 209.6 | ||||||
HCM Adjusted EBITDA (b) |
$ | 117.8 | $ | 88.9 | $ | 99.7 | ||||||
HCM Adjusted EBITDA margin % |
17.6 | % | 14.3 | % | 16.3 | % |
As of December 31, 2017 | ||||||||||||
Actual | Pro Forma (c) |
Pro Forma
As Adjusted (d) |
||||||||||
(Dollars in millions) | ||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||
Cash and equivalents |
$ | 99.6 | $ | 91.1 | $ | 82.8 | ||||||
Total assets |
6,729.9 | 6,570.5 | 6,562.2 | |||||||||
Long-term debt |
1,119.8 | 1,119.8 | 670.5 | |||||||||
Total liabilities |
5,600.9 | 5,581.7 | 5,116.5 | |||||||||
Working capital |
49.9 | 35.2 | 42.8 | |||||||||
Total stockholders equity |
$ | 1,091.2 | $ | 988.8 | $ | 1,445.7 |
(a) | Annual Cloud revenue retention rate and Cloud annualized recurring revenue are calculated on an annual basis, and the disclosure reflects data as of the most recent fiscal year end. See Managements Discussion and Analysis of Financial Condition and Results of OperationsHow We Assess Our Performance. |
(b) |
We report our financial results in accordance with U.S. GAAP. To supplement this information, we also use HCM Adjusted EBITDA and HCM Adjusted EBITDA margin, non-GAAP financial measures, |
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in this prospectus. We define HCM Adjusted EBITDA as net income or loss before interest, taxes, depreciation, and amortization, as adjusted to exclude net income and loss from discontinued operations, LifeWorks EBITDA, sponsor management fees, non-cash charges for asset impairments, gains or losses on assets and liabilities held in a foreign currency other than the functional currency of a company subsidiary, non-cash share-based compensation expense, severance charges, restructuring consulting fees, and environmental reserve charges. HCM Adjusted EBITDA margin is determined by calculating the percentage HCM Adjusted EBITDA is of Total HCM Revenue. Management believes that HCM Adjusted EBITDA and HCM Adjusted EBITDA margin are helpful in highlighting management performance trends because HCM Adjusted EBITDA and HCM Adjusted EBITDA margin exclude the results of decisions that are outside the control of operating management. By providing these non-GAAP financial measures, management believes we are enhancing investors understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives. |
Our presentation of HCM Adjusted EBITDA and HCM Adjusted EBITDA margin are intended as supplemental measures of our performance that is not required by, or presented in accordance with, U.S. GAAP. HCM Adjusted EBITDA and HCM Adjusted EBITDA margin should not be considered as alternatives to operating income (loss), net income (loss), earnings per share, or any other performance measures derived in accordance with U.S. GAAP, or as measures of operating cash flows or liquidity. Our presentation of HCM Adjusted EBITDA should not be construed to imply that our future results will be unaffected by these items. HCM Adjusted EBITDA and HCM Adjusted EBITDA margin are included in this prospectus because it is a key metric used by management to assess our operating performance.
HCM Adjusted EBITDA and HCM Adjusted EBITDA margin are not defined under U.S. GAAP, are not measures of net income, operating income, or any other performance measures derived in accordance with U.S. GAAP, and are subject to important limitations.
Our use of the terms HCM Adjusted EBITDA and HCM Adjusted EBITDA margin may not be comparable to similarly titled measures of other companies in our industry and are not measures of performance calculated in accordance with U.S. GAAP.
HCM Adjusted EBITDA and HCM Adjusted EBITDA margin have important limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
| HCM Adjusted EBITDA and HCM Adjusted EBITDA margin do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
| HCM Adjusted EBITDA and HCM Adjusted EBITDA margin do not reflect changes in, or cash requirements for, our working capital needs; |
| HCM Adjusted EBITDA and HCM Adjusted EBITDA margin do not reflect any charges for the assets being depreciated and amortized that may need to be replaced in the future; |
| HCM Adjusted EBITDA and HCM Adjusted EBITDA margin do not reflect the impact of share-based compensation upon our results of operations; |
| HCM Adjusted EBITDA and HCM Adjusted EBITDA margin do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt; and |
| HCM Adjusted EBITDA and HCM Adjusted EBITDA margin do not reflect our income tax expense or the cash requirements to pay our income taxes. |
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In evaluating HCM Adjusted EBITDA and HCM Adjusted EBITDA margin, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation.
The following table reconciles HCM operating profit to HCM Adjusted EBITDA for the periods presented:
Year ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
(Dollars in millions) | ||||||||||||
HCM operating profit |
$ | 33.0 | $ | (8.6 | ) | $ | (1.1 | ) | ||||
Depreciation and amortization |
53.8 | 53.2 | 52.3 | |||||||||
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HCM EBITDA from continuing operations(1) |
86.8 | 44.6 | 51.2 | |||||||||
Sponsorship management fees (2) |
1.9 | 5.0 | 1.9 | |||||||||
Asset impairments |
| 10.2 | 22.6 | |||||||||
Intercompany foreign exchange loss (gain) |
7.4 | (3.1 | ) | 4.8 | ||||||||
Share-based compensation (3) |
16.1 | 12.5 | 12.8 | |||||||||
Severance charges (4) |
5.6 | 8.9 | 4.7 | |||||||||
Restructuring consulting fees (5) |
| 4.9 | 1.7 | |||||||||
Environmental reserve charges (6) |
| 5.9 | | |||||||||
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HCM Adjusted EBITDA |
$ | 117.8 | $ | 88.9 | $ | 99.7 | ||||||
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(1) | We define HCM EBITDA from continuing operations as HCM net income or loss before interest, taxes, depreciation and amortization, and net income or loss from discontinued operations. |
(2) | Represents expenses related to our management, monitoring, consulting, transaction, and advisory fees and related expenses paid to the affiliates of our Sponsors pursuant to the management agreements with THL Managers VI, LLC (THLM) and Cannae. See Certain Relationship and Related Party TransactionsManagement Agreements. |
(3) | Represents the share-based compensation adjustment only for our HCM segment. |
(4) | Represents costs for severance compensation paid to employees whose positions have been eliminated resulting primarily from the shift of business from our Bureau solutions to our Cloud solutions. |
(5) | Represents consulting fees and expenses incurred during the periods presented in connection with any acquisition, investment, disposition, recapitalization, equity offering, issuance or repayment of indebtedness, issuance of equity interests, or refinancing. |
(6) | Reflects charges to increase the reserves for environmental claims from a predecessor company. See Note 13 to our consolidated financial statements for further information regarding our environmental reserves. |
(c) | We present certain information on a pro forma basis to give effect to (i) the LifeWorks Disposition, (ii) the Preferred Conversion, and (iii) the Share Exchange. |
(d) | We present certain information on a pro forma as adjusted basis to give further effect to (i) the Debt Refinancing, (ii) the sale by us of 26,000,000 shares of our common stock in this offering and the concurrent private placement, assuming no exercise of the underwriters option to purchase additional shares, at an assumed initial public offering price of $20.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), less estimated underwriting discounts and commissions and estimated expenses, and (iii) the application of the net proceeds to be received by us from this offering and the concurrent private placement as described in Use of Proceeds. |
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Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information in this prospectus before purchasing our common stock. If any of the following risks occur, our business, financial condition, and results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.
Risks Related to Our Business and Industry
We have a history of losses and negative cash flows from operating activities, and we may not be able to attain or to maintain profitability or positive cash flows from operating activities in the future.
We have incurred net losses and negative cash flows from operating activities over the last few years as we made substantial investments in developing, launching, and selling our Cloud solutions. In addition, our highly leveraged capital structure has had a negative effect on our profitability. As a result, we have incurred net losses of $104.7 million in the year ended December 31, 2015, $92.9 million in the year ended December 31, 2016, and $9.2 million in the year ended December 31, 2017. As of December 31, 2017, we had an accumulated deficit of $348.2 million. We incurred negative cash flows from operating activities of $18.3 million in the year ended December 31, 2015, $75.5 million in the year ended December 31, 2016, and $39.8 million in the year ended December 31, 2017. To the extent we are successful in increasing our Cloud customer base, we may also incur increased net losses and negative cash flows from operating activities because costs associated with acquiring and implementing new Cloud customers are generally incurred up front, while subscription revenues are generally recognized ratably over the terms of the agreements. You should not consider our recent growth in revenues as indicative of our future performance.
We also expect our expenses to increase in the future due to anticipated increases in sales, general, and administrative expenses, including expenses associated with being a public company, and product development and management expenses, which could impact our ability to achieve or to sustain profitability or positive cash flows from operating activities in the future. Additionally, while the majority of our revenue comes from fees charged for use of the software, we are developing new products and services, which may initially have a lower profit margin than our existing Cloud solutions, which could have a material adverse effect on our business, financial condition, and results of operations. Although we believe we will be able to reach profitability and attain positive cash flows from operating activities in the next few years, we cannot assure you that we will able to do so in the future.
The markets in which we participate are highly competitive, and if we do not compete effectively, it could have a material adverse effect on our business, financial condition, and results of operations.
The markets in which we participate are highly competitive, and competition could intensify in the future. We believe the principal competitive factors in our market include breadth and depth of product functionality, scalability and reliability of applications, robust workforce management, comprehensive tax services, modern and innovative cloud technology platforms combined with an intuitive user experience, multi-country and jurisdiction domain expertise in payroll and HCM, quality of implementation and customer service, integration with a wide variety of third party applications and systems, total cost of ownership and ROI, brand awareness, and reputation, pricing and distribution. We face a variety of competitors, some of which are long-established providers of HCM solutions. Many of our current and potential competitors are larger, have greater name recognition, longer operating histories, larger marketing budgets, and significantly greater resources than we do, and are able to devote greater resources to the development, promotion, and sale of their products and services. Some of our competitors could offer HCM solutions bundled as part of a larger product offering. Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or to withstand substantial price competition. In addition,
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many of our competitors have established marketing relationships, access to larger customer bases, and major distribution agreements with consultants, system integrators, and resellers. Our competitors may also establish cooperative relationships among themselves or with third parties that may further enhance their product offerings or resources.
In order to capitalize on customer demand for cloud applications, legacy vendors are modernizing and expanding their applications through cloud acquisitions and organic development. Legacy vendors may also seek to partner with other leading cloud HCM providers. Ceridian also faces competition from vendors selling custom software and point solutions, some of which offer cloud solutions. Our competitors include, without limitation: Automatic Data Processing (ADP), The Ultimate Software Group, Inc. (Ultimate Software), and Workday, Inc. (Workday) for HCM; Kronos Incorporated (Kronos) for workforce management; and Cornerstone OnDemand Inc. (Cornerstone OnDemand) for talent management. In addition, other companies, such as NetSuite and Microsoft that provide cloud applications in different target markets, may develop applications or acquire companies that operate in our target markets, and some potential customers may elect to develop their own internal applications. Some large businesses may be hesitant to adopt cloud applications such as ours and prefer to upgrade the more familiar applications offered by these vendors that are deployed on-premise, such as Oracle Corporation (Oracle) and SAP SE (SAP). Our competitors could offer HCM solutions on a standalone basis at a low price or bundled as part of a larger product sale. With the introduction of new technologies and market entrants, competition could intensify in the future.
If our competitors products, services, or technologies become more accepted than our applications, if they are successful in bringing their products or services to market earlier than ours, or if their products or services are more technologically capable than ours, it could have a material adverse effect on our business, financial condition, and results of operations. In addition, some of our competitors may offer their products and services at a lower price. If we are unable to achieve our target pricing levels or if we experience significant pricing pressures, it could have a material adverse effect on our business, financial condition, and results of operations.
Our growth strategy has focused on developing our Cloud solutions, which has experienced rapid revenue growth in recent periods that has been offset by revenue declines in our Bureau solutions. If we fail to manage our growth effectively or if our strategy is not successful, we may be unable to execute our business plan, to maintain high levels of service, or to adequately address competitive challenges.
We have recently experienced a period of rapid growth in our operations related to our Cloud solutions. In particular, our recurring services revenue for our Cloud solutions has continued to increase while our recurring services revenue for our Bureau solutions has continued to decline. As we implement our growth strategy for our Cloud solutions, we will continue to migrate employees and resources from our Bureau solutions to our Cloud solutions. Additionally, we are continuing to invest in the infrastructure shared by our Bureau and Cloud solutions, although we are no longer marketing our Bureau solutions to new customers. The growth of our Cloud solutions has placed, and future growth will place, a significant strain on our management, administrative, operational, and financial infrastructure. In order to manage this growth effectively, we will need to continue to improve our operational, financial, and management controls, and our reporting systems and procedures. Failure to effectively manage growth and failure to achieve our growth strategy could result in difficulty or delays in implementing customers, declines in quality or customer satisfaction, increases in costs, difficulties in introducing new features, or other operational difficulties; and any of these difficulties could have a material adverse effect on our business, financial condition, and results of operations.
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Our Bureau solutions, which comprise a significant portion of our revenue, may decline at a rate faster than that which we anticipate, and we may not be able to successfully migrate our Bureau customers to our Cloud solutions or to offset the decline in Bureau revenue with Cloud revenue.
Our growth strategy is focused on the growth and expansion of our Cloud solutions; however, a portion of our revenue continues to be derived from our Bureau customers. We generally ceased marketing our Bureau solutions to new customers in the United States in 2012, and since that time have maintained the Bureau applications for existing customers while migrating customers to our Cloud solutions. Maintenance of our Bureau business requires investment, specifically with respect to compliance updates and security controls. If our investments are not sufficient to adequately update our Bureau solutions, such solutions may lose market acceptance and we may face security vulnerabilities.
In addition, we have marketed our Cloud solutions to our Bureau customers, and some of our Bureau customers have migrated to our Cloud solutions, but there is no guarantee that our remaining Bureau customers will migrate to our Cloud solutions. If such Bureau customers do not migrate, we may lose them in the future or we may be required to make ongoing investments to serve a smaller pool of customers. If our revenue from our Bureau solutions declines at a rate faster than anticipated, we are required to make significant investments in infrastructure shared by our Bureau and Cloud solutions that are not offset by increased revenue, we are not able to successfully convert the remaining Bureau customers to our Cloud solutions, or our Cloud solutions revenue does not grow fast enough to offset the decline in our Bureau solutions revenue, it could have a material adverse effect on our business, financial condition, and results of operations.
If the market for enterprise cloud computing develops slower than we expect or declines, it could have a material adverse effect on our business, financial condition, and results of operations.
The enterprise cloud computing market is not as mature as the market for on-premise enterprise software, and it is uncertain whether cloud computing will achieve and sustain high levels of customer demand and market acceptance. Our success will depend to a substantial extent on the widespread adoption of cloud computing in general, and of HCM solutions in particular. Many enterprises have invested substantial personnel and financial resources to integrate traditional enterprise software into their businesses and therefore may be reluctant or unwilling to migrate to cloud computing. It is difficult to predict customer adoption rates and demand for our applications, the future growth rate and size of the cloud computing market, or the entry of competitive applications. The expansion of the cloud computing market depends on a number of factors, including the cost, performance, and perceived value associated with cloud computing, as well as the ability of cloud computing companies to address security and privacy concerns. If we or other cloud computing providers experience security incidents, loss of customer data, disruptions in delivery, or other problems, the market for cloud computing applications as a whole, including our applications, may be negatively affected. If cloud computing does not achieve widespread adoption or there is a reduction in demand for cloud computing caused by a lack of customer acceptance, technological challenges, weakening economic conditions, security or privacy concerns, competing technologies and products, reductions in corporate spending, or otherwise, it could have a material adverse effect on our business, financial condition, and results of operations.
Our revenues from our Cloud solutions have grown substantially over the last few years. Our efforts to increase use of our Cloud solutions and our other applications may not succeed and may reduce our revenue growth rate.
Our revenues from our Cloud solutions have grown substantially over the last few years. Our total Cloud revenues grew from $225.2 million in 2015 to $297.8 million in 2016 and $404.3 million in 2017, a growth rate of 32.2% and 35.8%, respectively. Any factor adversely affecting sales of our Cloud solutions, including application release cycles, delays, or failures in new product functionality, market
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acceptance, product competition, performance and reliability, reputation, price competition, and economic and market conditions, could have a material adverse effect on our business, financial condition, and results of operations. Our participation in new markets for native payroll, and application expansion in succession management, learning management, and compensation management, is relatively new, and it is uncertain whether these areas will ever result in significant revenues for us. Further, the entry into new markets or the introduction of new features, functionality, or applications beyond our current markets and functionality may not be successful.
Our quarterly results of operations may fluctuate significantly and may not fully reflect the underlying performance of our business.
Our quarterly results of operations, including the levels of our revenues, gross margin, profitability, cash flow, and deferred revenue, may vary significantly in the future, and period-to-period comparisons of our results of operations may not be meaningful. Accordingly, the results of any one quarter should not be relied upon as an indication of future performance. Our quarterly financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result, may not fully reflect the underlying performance of our business. Fluctuation in quarterly results may negatively impact the value of our common stock. Factors that may cause fluctuations in our quarterly financial results include, without limitation, those listed below:
| our ability to attract new Cloud customers; |
| our ability to replace declining Bureau revenue with Cloud revenue; |
| the addition or loss of large Cloud customers, including through acquisitions or consolidations; |
| the addition or loss of employees by our Cloud customers; |
| the timing and number of paydays in a period; |
| the timing of recognition of revenues; |
| the tenure of our Cloud customers during that period; |
| the amount and timing of operating expenses related to the maintenance and expansion of our business, operations, and infrastructure; |
| network outages or security breaches; |
| general economic, industry, and market conditions; |
| customer renewal rates; |
| increases or decreases in the number of elements of our services or pricing changes upon any renewals of customer agreements; |
| changes in our pricing policies or those of our competitors; |
| the mix of applications sold during a period; |
| seasonal variations in sales of our applications, which has historically been highest in the fourth quarter of a calendar year; |
| fluctuation in market interest rates, which impacts debt interest expense as well as float revenue; |
| the timing and success of new application and service introductions by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors, customers, or strategic partners; and |
| the impact of new accounting rules. |
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If we are not able to provide new or enhanced functionality and features, it could have a material adverse effect on our business, financial condition, and results of operations.
We may not be able to successfully provide new or enhanced functionality and features for our existing solutions that achieve market acceptance or that keep pace with rapid technological developments. For example, we are focused on enhancing the features and functionality of our HCM solutions to enhance their utility for larger customers with complex, dynamic, and global operations. The success of new or enhanced functionality and features depends on several factors, including their overall effectiveness and the timely completion, introduction, and market acceptance of the enhancements, new features, or applications. Failure in this regard may significantly impair our revenue growth. In addition, because our solutions are designed to operate on a variety of systems, we will need to continuously modify and to enhance our solutions to keep pace with changes in internet-related hardware, iOS, and other software, and communication, browser, and database technologies. We may not be successful in developing these new or enhanced functionality and features, or in bringing them to market in a timely fashion. If we do not continue to innovate and to deliver high-quality, technologically advanced products and services, we will not remain competitive, which could have a material adverse effect in our business, financial condition, and results of operations. Furthermore, uncertainties about the timing and nature of new functionality, or new functionality to existing platforms or technologies, could increase our research and development expenses. Any failure of our applications to operate effectively with future network platforms and technologies could reduce the demand for our applications, result in customer dissatisfaction, and have a material adverse effect on our business, financial condition, and results of operations.
An information security breach of our systems or the loss of, or unauthorized access to, customer information, the failure to comply with the U.S. Federal Trade Commissions (FTC) ongoing consent order regarding data protection, or a system disruption could have a material adverse effect on our business, market brand, financial condition, and results of operations.
Our business is dependent on our payroll, transaction, financial, accounting, and other data processing systems. We rely on these systems to process, on a daily and time sensitive basis, a large number of complicated transactions. We electronically receive, process, store, and transmit data and personally identifiable information (PII) about our customers and their employees, as well as our vendors and other business partners, including names, social security numbers, and checking account numbers. We keep this information confidential. However, our websites, networks, applications and technologies, and other information systems may be targeted for sabotage, disruption, or data misappropriation. The uninterrupted operation of our information systems and our ability to maintain the confidentiality of PII and other customer and individual information that resides on our systems are critical to the successful operation of our business. While we have information security and business continuity programs, these plans may not be sufficient to ensure the uninterrupted operation of our systems or to prevent unauthorized access to the systems by unauthorized third parties. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. These concerns about information security are increased with the mounting sophistication of social engineering. Our network security hardening may be bypassed by phishing and other social engineering techniques that seek to use end user behaviors to distribute computer viruses and malware into our systems, which might disrupt our delivery of services and make them unavailable, and might also result in the disclosure or misappropriation of PII or other confidential or sensitive information. In addition, a significant cyber security breach could prevent or delay our ability to process payment transactions.
Any information security breach in our business processes or of our processing systems has the potential to impact our customer information and our financial reporting capabilities, which could result in the potential loss of business and our ability to accurately report financial results. If any of these
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systems fail to operate properly or become disabled even for a brief period of time, we could potentially miss a critical filing period, resulting in potential fees and penalties, or lose control of customer data, all of which could result in financial loss, a disruption of our businesses, liability to customers, regulatory intervention, or damage to our reputation. The continued occurrence of high-profile data breaches provides evidence of an external environment increasingly hostile to information security. If our security measures are breached as a result of third party action, employee or subcontractor error, malfeasance or otherwise, and, as a result, someone obtains unauthorized access to customer data, our reputation may be damaged, our business may suffer, and we could incur significant liability. We may also experience security breaches that may remain undetected for an extended period of time. Techniques used to obtain unauthorized access or to sabotage systems change frequently and are growing increasingly sophisticated. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures.
This environment demands that we continuously improve our design and coordination of security controls throughout the company. Despite these efforts, it is possible that our security controls over data, training, and other practices we follow may not prevent the improper disclosure of PII or other confidential information. Any issue of data privacy as it relates to unauthorized access to or loss of customer and/or employee information could result in the potential loss of business, damage to our market reputation, litigation, and regulatory investigation and penalties. For example, in December 2009 a criminal hacked into our discontinued U.S. payroll application. Following receipt of an access letter in May 2010 from the FTC for a non-public review of the matter, we worked with the FTC and entered into a twenty-year consent order which became final in June 2011. We conceded no wrongdoing in the order and we were not subject to any monetary fines or penalties. However, in connection with the order, we are required to, among other things, maintain a comprehensive information security program that is reasonable and appropriate for our size, complexity, and for the type of PII we collect. We are also required to have portions of our security program, which apply to certain segments of our U.S. business, reviewed by an independent third party on a biennial basis. Maintaining, updating, monitoring, and revising an information security program in an effort to ensure that it remains reasonable and appropriate in light of changes in security threats, changes in technology, and security vulnerabilities that arise from legacy systems is time-consuming and complex, and is an ongoing effort.
There may be other such security vulnerabilities that come to our attention. The independent third party that reviews our security program pursuant to the FTC consent order may determine that the existence of vulnerabilities in our security controls or the failure to remedy them in a timeframe they deem appropriate means that our security program does not provide a reasonable level of assurance that the security, confidentiality, and integrity of PII is protected by Ceridian (or that there was a failure to protect at some point in the reporting period). While we have taken and continue to take steps to ensure compliance with the consent order, if we are determined not to be in compliance with the consent order, or if any new breaches of security occur, the FTC may take enforcement actions or other parties may initiate a lawsuit. Any such resulting fines and penalties could have a material adverse effect on our liquidity and financial results, and any reputational damage therefrom could adversely affect our relationships with our existing customers and our ability to attain new customers. Our continued investment in the security of our technology systems, continued efforts to improve the controls within our technology systems, business processes improvements and the enhancements to our culture of information security may not successfully prevent attempts to breach our security or unauthorized access to PII or other confidential, sensitive or proprietary information. In addition, in the event of a catastrophic occurrence, either natural or man-made, our ability to protect our infrastructure, including PII and other customer data, and to maintain ongoing operations could be significantly impaired. Our business continuity and disaster recovery plans and strategies may not be successful in mitigating the effects of a catastrophic occurrence. Insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our insurance policies may not cover all claims made against us, and defending a suit, regardless of its merit, could be costly and divert
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managements attention. If our security is breached, if PII or other confidential information is accessed, if we fail to comply with the consent order or if we experience a catastrophic occurrence, it could have a material adverse effect on our business, financial condition, and results of operations.
Our services present the potential for identity theft, embezzlement, or other similar illegal behavior by our employees with respect to third parties.
The services offered by us generally require or involve collecting PII of our customers and / or their employees, such as their full names, birth dates, addresses, employer records, tax information, social security numbers, and bank account information. This information can be used by criminals to commit identity theft, to impersonate third parties, or to otherwise gain access to the data or funds of an individual. If any of our employees take, convert, or misuse such PII, funds or other documents or data, we could be liable for damages, and our business reputation could be damaged or destroyed. Moreover, if we fail to adequately prevent third parties from accessing PII and/or business information and using that information to commit identity theft, we might face legal liabilities and other losses that could have a material adverse effect on our business, financial condition, and results of operations.
Our solutions and our business are subject to a variety of U.S. and international laws and regulations, including those regarding privacy, data protection, and information security. Any failure by us or our third party service providers, as well as the failure of our platform or services, to comply with applicable laws and regulations could have a material adverse effect on our business, financial condition, and results of operations.
We are subject to a variety of U.S. and international laws and regulations, including regulation by various federal government agencies, including the FTC, and state and local agencies. The United States and various state and foreign governments have adopted or proposed limitations on, or requirements regarding, the collection, distribution, use, security, and storage of PII of individuals; and the FTC and many state attorneys general are applying federal and state consumer protection laws to impose standards on the online collection, use and dissemination of data. Self-regulatory obligations, other industry standards, policies, and other legal obligations may apply to our collection, distribution, use, security, or storage of PII or other data relating to individuals. In addition, most states and some foreign governments have enacted laws requiring companies to notify individuals of data security breaches involving certain types of PII. These obligations may be interpreted and applied in an inconsistent manner from one jurisdiction to another and may conflict with one another, other regulatory requirements, or our internal practices. Any failure or perceived failure by us to comply with U.S., E.U., or other foreign privacy or security laws, regulations, policies, industry standards, or legal obligations, or any security incident that results in the unauthorized access to, or acquisition, release, or transfer of, PII may result in governmental enforcement actions, litigation, fines and penalties, or adverse publicity and could cause our customers to lose trust in us, which could harm our reputation and have a material adverse effect on our business, financial condition, and results of operations.
We expect that there will continue to be new proposed laws, regulations, and industry standards concerning privacy, data protection and information security in the United States, Canada, the European Union, and other jurisdictions, and we cannot yet determine the impact such future laws, regulations, and standards may have on our business. For example, in May 2018, the General Data Protection Regulation will come into force, bringing with it a complete overhaul of E.U. data protection laws: the new rules will supersede current E.U. data protection legislation, impose more stringent E.U. data protection requirements, and provide for greater penalties for non-compliance. Changing definitions of what constitutes PII may also limit or inhibit our ability to operate or to expand our business, including limiting strategic partnerships that may involve the sharing of data. Also, some jurisdictions require that certain types of data be retained on servers within these jurisdictions. Our failure to comply with applicable laws, directives, and regulations may result in enforcement action against us, including fines and imprisonment, and damage to our reputation, any of which may have an adverse effect on our business and operating results. Further, in October 2015, the European Court of Justice issued a ruling invalidating the U.S.-E.U. Safe Harbor Framework, which facilitated transfers of PII to the United States in compliance with
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applicable E.U. data protection laws. In July 2016, the E.U. and the U.S. political authorities adopted the E.U.-U.S. Privacy Shield, or Privacy Shield, replacing the Safe Harbor Framework and providing a new mechanism for companies to transfer E.U. PII to the United States. U.S. organizations wishing to self-certify under the Privacy Shield must pledge their compliance with its seven core and sixteen supplemental principles, which are based on European Data Protection Law.
If our service is perceived to cause, or is otherwise unfavorably associated with, violations of privacy or data security requirements, it may subject us or our customers to public criticism and potential legal liability. Public concerns regarding PII processing, privacy and security may cause some of our customers end users to be less likely to visit their websites or otherwise interact with them. If enough end users choose not to visit our customers websites or otherwise interact with them, our customers could stop using our platform. This, in turn, may reduce the value of our services and slow or eliminate the growth of our business. Existing and potential privacy laws and regulations concerning privacy and data security and increasing sensitivity of consumers to unauthorized processing of PII may create negative public reactions to technologies, products, and services such as ours.
Evolving and changing definitions of what constitutes PII and / or Personal Data within the United States, Canada, the European Union, and elsewhere, especially relating to the classification of internet protocol, or IP addresses, machine or device identification numbers, location data and other information, may limit or inhibit our ability to operate or to expand our business. Future laws, regulations, standards and other obligations could impair our ability to collect or to use information that we utilize to provide email delivery and marketing services to our customers, thereby impairing our ability to maintain and to grow our customer base and to increase revenue. Future restrictions on the collection, use, sharing, or disclosure of our customers data or additional requirements for express or implied consent of customers for the use and disclosure of such information may limit our ability to develop new services and features.
Privacy concerns and laws or other domestic or foreign data protection regulations may reduce the effectiveness of our applications, which could have a material adverse effect on our business, financial condition, and results of operations.
Our customers can use our applications to collect, to use, and to store PII regarding their employees, independent contractors, and job applicants. Federal, state, and foreign government bodies and agencies have adopted, are considering adopting, or may adopt laws and regulations regarding the collection, use, storage and disclosure of PII obtained from individuals. The costs of compliance with, and other burdens imposed by, such laws and regulations that are applicable to the businesses of our customers, or to our business directly, may limit the use and adoption of our applications and reduce overall demand, or lead to significant fines, penalties, or liabilities for any non-compliance with such privacy laws. Furthermore, privacy concerns may cause our customers workers to resist providing PII necessary to allow our customers to use our applications effectively. Even the perception of privacy concerns, whether or not valid, may inhibit market adoption of our applications in certain industries.
All of these domestic and international legislative and regulatory initiatives may adversely affect our customers ability to process, to handle, to store, to use, and to transmit demographic information and PII from their employees, independent contractors, job applicants, customers, and suppliers, which could reduce demand for our applications. The European Union and many countries in Europe have stringent privacy laws and regulations, which may impact our ability to profitably operate in certain European countries.
Further, international data protection regulations trending toward increased localized data residency rules make transfers from outside the regulations jurisdiction increasingly complex and may impact our ability to deliver solutions that meet all customers needs. If the processing of PII were to be further curtailed in this manner, our solutions could be less effective, which may reduce demand for our applications, which could have a material adverse effect on our business, financial condition, and results of operations.
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In addition to government activity, privacy advocacy groups and the technology and other industries are considering various new, additional, or different self-regulatory standards that may place additional burdens on us. If the processing of PII were to be curtailed in this manner, our solutions would be less effective, which may reduce demand for our applications, which could have a material adverse effect on our business, financial condition, and results of operations.
We rely on third party service providers for many aspects of our business, including, but not limited to, the operation of data centers; the execution of Automated Clearing House, or ACH, and wire transfers to support our customer payroll and tax services; the monitoring of applicable laws; and the printing and delivery of checks. If any third party service providers on which we rely experience a disruption, go out of business, experience a decline in quality, or terminate their relationship with us, we could experience a material adverse effect on our business, financial condition, and results of operation.
We rely on third party service providers for many integral aspects of our business. A failure on the part of any of our third party service providers to fulfill their contracts with us could result in a material adverse effect on our business, financial condition, and results of operation. We depend on our third parties for many services, including, but not limited to:
Upkeep of data centers
We host our applications and serve all of our customers from data centers operated by third party providers, primarily NaviSite, in Boston, Massachusetts; Redhill, England; Santa Clara, California; Toronto, Canada; Vancouver, Canada; and Woking, England. While we control and have access to our servers and all of the components of our network that are located in our external data centers, we do not control the operation of these facilities. The owners of our data center facilities have no obligation to renew their agreements with us on commercially reasonable terms, or at all. These parties may also seek to cap their maximum contractual liability resulting in Ceridian being financially responsible for losses caused by their actions or omissions. Additionally, we host our internal systems through data centers that we operate and lease or own in Atlanta, Georgia; Fountain Valley, California; Louisville, Kentucky; St. Petersburg, Florida; and Winnipeg, Canada. If we are unable to renew our agreements with our third party providers or to renew our leases on commercially reasonable terms, or if one of our data center operators is acquired, we may be required to transfer our servers and other infrastructure to new data center facilities, and we may incur significant costs and possible service interruption in connection with any such transfer. Both our third party data centers and data centers that we lease and operate are subject to break-ins, sabotage, intentional acts of vandalism, and other misconduct. Any such acts could result in a breach of the security of our or our customers data.
Problems faced by our third party data center locations, with the telecommunications network providers with whom we or they contract, or with the systems by which our telecommunications providers allocate capacity among their customers, including us, could adversely affect the experience of our customers. Our third party data centers operators could decide to close their facilities without adequate notice. In addition, any financial difficulties, such as bankruptcy, faced by our third party data centers operators or any of the service providers with whom we or they contract may have negative effects on our business, the nature and extent of which are difficult to predict. Additionally, if our data centers are unable to keep up with our growing needs for capacity, this could adversely affect the growth of our business. Any changes in third party service levels at our data centers or any security breaches, errors, defects, disruptions, or other performance problems with our applications could adversely affect our reputation, damage our customers stored files, result in lengthy interruptions in our services, or otherwise result in damage or losses to our customers for which they may seek compensation from us. Interruptions in our services might reduce our revenues, cause us to issue refunds to customers for prepaid and unused subscription services, subject us to potential liability, or adversely affect our renewal rates.
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Processing of electronic funds transfers
We currently have agreements with three banks in the United States, two banks in Canada, and one financial payments company in the United Kingdom to execute electronic funds transfers to support our customer payroll and tax services in the United States, Canada, and the United Kingdom. If one or more of these parties fails to process electronic funds transfers on a timely basis, or at all, then our relationship with our customers could be harmed and we could be subject to claims by a customer with respect to the failed transfers, with little or no recourse to the banks. In addition, these parties have no obligation to renew their agreements with us on commercially reasonable terms, if at all, and transferring to alternative providers could prove time-consuming and costly. If these parties terminate their relationships with us, restrict or fail to increase the dollar amounts of funds that they will process on behalf of our customers, their doing so may impede our ability to process funds and could have a material adverse effect on our business, financial condition, and results of operations.
Check printing and delivery
In Canada, we rely on a third party vendor to print payroll checks, and in Canada and the United States we rely on third party couriers, such as Federal Express and Purolator, to ship printed reports, year-end slips, and pay checks to our customers. Relying on third party check printers and couriers puts us at risk from disruptions in their operations, such as employee strikes, inclement weather, and their ability to perform tasks on our behalf. If these vendors fail to perform their tasks, we could incur liability or suffer damages to our reputation, or both. If we are forced to use other third party couriers, transferring to these competitor couriers could prove time-consuming, our costs could increase and we may not be able to meet shipment deadlines. Moreover, we may not be able to obtain terms as favorable as those we currently use, which could further increase our costs.
Monitoring of changes to applicable laws
We and our third party providers must monitor for any changes or updates in laws that are applicable to the solutions that we or our third party providers provide to our customers. In addition, we are reliant on our third party providers to modify the solutions that they provide to our customers to enable our clients to comply with changes to such laws and regulations. If our third party providers fail to reflect changes or updates in applicable laws in the solutions that they provide to our customers, we could be subject to negative customer experiences, harm to our reputation, loss of customers, claims for any fines, penalties or other damages suffered by our customers, and other financial harm.
A failure on the part of any of our third party service providers could result in a material adverse effect on our business, financial condition, and results of operations.
If we are unable to develop or to sell our existing Cloud solutions into new markets or to further penetrate existing markets, our revenue may not grow as expected.
Our ability to increase revenue will depend, in large part, on our ability to sell our existing Cloud solutions into new markets around the world, to further penetrate our existing markets, and to increase sales from existing customers who do not utilize the full Dayforce suite. The success of any enhancement or new solution or service depends on several factors, including the timely completion, introduction and market acceptance of enhanced or new solutions, the ability to maintain and to develop relationships with third parties, and the ability to attract, to retain and to effectively train sales and marketing personnel. Any new solutions we develop or acquire may not be introduced in a timely or cost-effective manner and may not achieve the market acceptance necessary to generate significant revenue. Any new markets in which we attempt to sell our platform and solutions, including new countries or regions, may not be receptive. Additionally, any expansion into new markets will require commensurate ongoing expansion of our monitoring of local laws and regulations, which increases our costs as well as the risk of the product not incorporating in a timely fashion or at all the necessary changes to enable a customer to be compliant with such laws. Our ability to further penetrate our
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existing markets depends on the quality of our platform and solutions, and our ability to design our Cloud solutions to meet consumer demand; and our ability to increase sales from existing customers depends on our customers satisfaction with our product and need for additional solutions. If we are unable to sell our Cloud solutions into new markets or to further penetrate existing markets, or to increase sales from existing customers, our revenue may not grow as expected, which could have a material adverse effect on our business, financial condition, and results of operations.
Because a growing part of our business consists of sales of applications to manage complex operating environments for our customers, we may experience longer sales cycles and longer deployments. Some customers demand more configuration and integration services, and require increased compliance and initial support costs, which could have a material adverse effect on our business, financial condition, and results of operations in a given period.
A growing portion of our customer base requires applications that manage complex operating environments. Our ability to increase revenues and to maintain profitability depends, in large part, on widespread acceptance of our applications by businesses and other organizations. As we target our sales efforts at these customers, we face greater costs, longer sales cycles, and less predictability in completing some of our sales. For some of our customers, the customers decision to use our applications may be an enterprise-wide decision and, therefore, these types of sales require us to provide greater levels of education regarding the use and benefits of our applications. Our typical sales cycles for Dayforce range from three to twelve months, and we expect that this lengthy sales cycle may continue or increase as customers adopt our applications. Longer sales cycles could have a material adverse effect on our business, financial condition, and results of operations in a given period.
It typically takes approximately three to nine months to implement a new customer on Dayforce, depending on the number and type of applications, the complexity and scale of the customers business, the configuration requirements, and other factors, many of which are beyond our control. Although our contracts are generally non-cancellable by the customer, at any given time, a significant percentage of our customers may be still in the process of deploying our applications, particularly during periods of rapid growth. Some customers may opt for phased roll outs, which further lengthens the time for Ceridian to see profits from such contracts.
Some of our customers may demand more configuration and integration services, which increase our upfront investment in sales and deployment efforts. Additionally, customers may require increased compliance and initial support costs during the onboarding process. As a result of these factors, we must devote a significant amount of sales support and professional services resources to individual customers, increasing the cost and time required to complete sales. The increased costs associates with completing sales and the implementation process for these customers could have a material adverse effect on our business, financial condition, and results of operations
If our customers are not satisfied with the implementation and professional services provided by us or our partners, it could have a material adverse effect on our business, financial condition, and results of operations.
Our business depends on our ability to implement our solutions on a timely, accurate, and cost-efficient basis and to provide professional services demanded by our customers. Implementation and other professional services may be performed by our own staff, by a third party, or by a combination of the two. Although we perform the majority of our implementations and other professional services with our staff, in some instances we work with third parties to increase the breadth of capability and depth of capacity for delivery of certain services to our customers. In 2017, we used third parties to assist us in approximately 20% of our implementation services. If a customer is not satisfied with the quality of work performed by us or a third party or with the implementation or type of professional services or applications delivered, or there are inaccuracies or errors in the work delivered by the third party, then we could incur additional costs to address the situation, the profitability of that work might be impaired, and the customers dissatisfaction with such services could damage our ability to expand the number
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of applications subscribed to by that customer or we could be liable for loss or damage suffered by the customer as a result of such third partys actions or omissions, any of which could have a material adverse effect on our business, financial condition, and results of operations. If a new customer is dissatisfied with professional service, either performed by us or a third party, the customer could refuse to go-live, which could result in a delay in our collection of revenue or could result in a customer seeking repayment of its implementation fees or suing us for damages, or could force us to enforce the termination provisions in our customer contracts in order to collect revenue. In addition, negative publicity related to our customer relationships, regardless of its accuracy, may affect our ability to compete for new business with current and prospective customers, which could also have a material adverse effect on our business, financial condition, and results of operations.
The loss of a significant portion of our customers, or a failure to renew our subscription agreements with a significant portion of our customers, could have a material adverse effect on our business, financial condition, and results of operations.
The loss of a significant portion of our customers, or a failure of some of them to renew their contracts with us, could have a significant impact on our revenues, reputation, and our ability to obtain new customers. Our agreements with our Dayforce customers are typically structured as having an initial fixed term of between three and five years, with evergreen renewal thereafter; consequently, our customers may choose to terminate their agreements with us at any time after the expiration of the initial term by providing us with the amount of written notice stipulated in the contract. Moreover, acquisitions of our customers could lead to cancellation of our contracts with them or by the acquiring companies, thereby reducing the number of our existing and potential customers. Acquisitions of our partners involved in referring or reselling our solutions could also result in a reduction in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our applications. A failure to retain a significant portion of our customers, or a failure to renew our subscription agreements with a significant portion of customers, could have a material adverse effect on our business, financial condition, and results of operations.
We often provide service level commitments under our customer contracts. If we fail to meet these contractual commitments, we could be considered to have breached our contractual obligations, obligated to provide credits, refund prepaid amounts related to unused subscription services or face contract terminations, which could have a material adverse effect on our business, financial condition, and results of operations.
Our customer agreements typically provide service level commitments which are measured on a monthly or other periodic basis. If we are unable to meet the stated service level commitments or suffer extended periods of unavailability for our applications, we may be contractually obligated to provide these customers with service credits or refunds for prepaid amounts related to unused subscription services, or we could face contract claims for damages or terminations, which could have a material adverse effect on our business, financial condition, and results of operations. In addition, our revenues could be significantly affected if we suffer unscheduled downtime that exceeds the allowed downtimes under our agreements with our customers. Any extended service outages could have a material adverse effect on our business, financial condition, and results of operations.
Any failure to offer high-quality technical support services may adversely affect our relationships with our customers and could have a material adverse effect on our business, financial condition, and results of operations.
Once our applications are deployed, our customers depend on our support organization to resolve technical issues relating to our applications. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by our competitors. Increased customer demand for these services, without corresponding revenues, could increase costs and have an adverse effect on our results of operations. In addition, our sales
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process is highly dependent on our applications and business reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could adversely affect our reputation and our ability to sell our applications to existing and prospective customers, which could have a material adverse effect on our business, financial condition, and results of operations.
Regulatory requirements placed on our software and services could impose increased costs on us, delay or prevent our introduction of new products and services, and impair the function or value of our existing products and services.
Our products and services may become subject to increasing regulatory requirements, and as these requirements proliferate, we may be required to change or adapt our products and services to comply. Changing regulatory requirements might render our products and services obsolete or might block us from developing new products and services. This might in turn impose additional costs upon us to comply or to further develop our products and services. It might also make introduction of new products and services more costly or more time-consuming than we currently anticipate and could even prevent introduction by us of new products or services or cause the continuation of our existing products or services to become more costly. Accordingly, such regulatory requirements could have a material adverse effect on our business, financial condition, and results of operations.
Customers depend on our products and services to enable them to comply with applicable laws, which requires us and our third party providers to constantly monitor applicable laws and to make applicable changes to our solutions. If our solutions have not been updated to enable the customer to comply with applicable laws or we fail to update our solutions on a timely basis, it could have a material adverse effect on our business, financial condition, and results of operations.
Customers rely on our solutions to enable them to comply with payroll, HR, and other applicable laws for which the solutions are intended for use. Changes in tax, benefit, and other laws and regulations could require us to make significant modifications to our products or to delay or to cease sales of certain products, which could result in reduced revenues or revenue growth and our incurring substantial expenses and write-offs. There are thousands of jurisdictions and multiple laws in some or all of such jurisdictions, which may be relevant to the solutions that we or our third party providers provide to our customers. Therefore, we and our third party providers must monitor all applicable laws and as such laws expand, evolve, or are amended in any way, and when new regulations or laws are implemented, we may be required to modify our solutions to enable our customers to comply, which requires an investment of our time and resources. Although we believe that our cloud platform provides us with flexibility to release updates in response to these changes, we cannot be certain that we will be able to make the necessary changes to our solutions and release updates on a timely basis, or at all. In addition, we are reliant on our third party providers to modify the solutions that they provide to our customers as part of our solutions to comply with changes to such laws and regulations. The number of laws and regulations that we are required to monitor will increase as we expand the geographic region in which the solutions are offered. When a law changes, we must then test our solutions to meet the requirements necessary to enable our customers to comply with the new law. If our solutions fail to enable a customer to comply with applicable laws, we could be subject to negative customer experiences, harm to our reputation or loss of customers, claims for any fines, penalties or other damages suffered by our customer, and other financial harm. Additionally, the costs associated with such monitoring implementation of changes are significant. If our solutions do not enable our customers to comply with applicable laws and regulations, it could have a material adverse effect on our business, financial condition, and results of operations.
Additionally, if we fail to make any changes to our products as described herein, which are required as a result of such changes to, or enactment of, any applicable laws in a timely fashion, we could be responsible for fines and penalties implemented by governmental and regulatory bodies. If we fail to provide contracted services, such as processing W-2 tax forms or remitting taxes in accordance
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with deadlines set by law, our customers could incur fines, penalties, interest, or other damages, which we could be responsible for paying. Our payment of fines, penalties, interest, or other damages as a result of our failure to provide compliance services prior to deadlines may have a material adverse effect on our business, financial condition, and results of operations.
Comprehensive changes to U.S. tax law could adversely affect our business and financial condition, and cause our stock price to decline.
The U.S. Congress has passed comprehensive changes to the taxation of business entities. These changes include, among others, (i) a permanent reduction to the corporate income tax rate, (ii) a partial limitation on the deductibility of business interest expense, (iii) a partial shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base), and (iv) a one-time tax on accumulated offshore earnings held in cash and illiquid assets, with the latter taxed at a lower rate. Notwithstanding the reduction in the corporate income tax rate, some of the changes included in the new tax law could have a material adverse effect on our business, financial condition, and results of operations.
We operate and are subject to tax in multiple jurisdictions. Audits, investigations, and tax proceedings could have a material adverse effect on our business, results of operations, and financial condition.
We are subject to income and non-income taxes in multiple jurisdictions. Income tax accounting often involves complex issues, and judgment is required in determining our worldwide provision for income taxes and other tax liabilities. We are subject to ongoing tax audits in certain jurisdictions. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax reserves as well as tax liabilities going forward. In addition, the application of withholding tax, value added tax, goods and services tax, sales taxes, and other non-income taxes is not always clear and we may be subject to tax audits relating to such withholding or non-income taxes. We believe that our tax positions are reasonable and our tax reserves are adequate to cover any potential liability. However, tax authorities in certain jurisdictions may disagree with our position. If any of these tax authorities were successful in challenging our positions, we may be liable for additional income tax and penalties and interest related thereto in excess of any reserves established therefor, which may have a significant impact on our results and operations and future cash flow.
Aging software infrastructure may lead to increased costs and disruptions in operations that could negatively impact our financial results.
We have risks associated with aging software infrastructure assets. The age of certain of our assets may result in a need for replacement, or higher level of maintenance costs. A higher level of expenses associated with our aging software infrastructure may have a material adverse effect on our business, financial condition, and results of operations.
Sales to customers outside the United States or with international operations expose us to risks inherent in international sales.
Over 30% of our revenue for each of the years ended December 31, 2016 and 2017, was obtained from companies headquartered outside of the United States, primarily from Canada, which accounted for 30.2% and 30.3% of our revenue in such periods, respectively. Our Ceridian Canada Ltd. (Ceridian Canada) operations provide certain HCM solutions for our Canadian customers. We are continuing to expand our international Cloud solutions into other countries. As such, our international operations are subject to risks that could adversely affect those operations or our business as a whole, including:
| costs of localizing products and services for foreign customers; |
| difficulties in managing and staffing international operations; |
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| difficulties and increased expenses introducing corporate policies and controls in our international operations; |
| difficulties with or inability to engage global partners; |
| reduced or varied protection of intellectual property and other legal rights in some countries; |
| longer sales and payment cycles; |
| the burdens of complying with a wide variety of foreign laws; |
| compliance with applicable anti-bribery laws, including the Foreign Corrupt Practices Act; |
| additional regulatory compliance requirements; |
| exposure to legal jurisdictions that may not recognize or interpret customer contracts appropriately; |
| potentially adverse tax consequences, including the complexities of foreign value added tax systems, the tax cost on the repatriation of earnings, and changes in tax rates; |
| restrictions on transfer of funds, laws and business practices favoring local competitors; |
| weaker protection for intellectual property and other legal rights than in the United States; |
| practical difficulties in enforcing intellectual property and other rights outside of the United States; |
| exposure to local economic and political conditions; and |
| changes in currency exchange rates, and in particular, changes in the currency exchange rate between U.S. dollars and Canadian dollars. |
In addition, we anticipate that customers and potential customers may increasingly require and demand that a single vendor provide HCM solutions and services for their employees in a number of countries. If we are unable to provide the required services on a multinational basis, there may be a negative impact on our new orders and customer retention, which would negatively impact revenue and earnings. Although we have a multinational strategy, additional investment and efforts may be necessary to implement such strategy. Some of our business partners also have international operations and are subject to the risks described above. Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if our business partners are not able to successfully manage these risks.
If we fail to manage our technical operations infrastructure, our existing customers may experience service outages, and our new customers may experience delays in the deployment of our applications, which could have a material adverse effect on our business, financial condition, and results of operations.
We have experienced significant growth in the number of users, transactions, and data that our operations infrastructure supports. We seek to maintain sufficient excess capacity in our operations infrastructure to meet the needs of all of our customers. We also seek to maintain excess capacity to facilitate the rapid provision of new customer activations and the expansion of existing customer activations. In addition, we need to properly manage our technological operations infrastructure in order to support version control, changes in hardware and software parameters, and the evolution of our applications. However, the provision of new hosting infrastructure requires significant lead time. We have experienced, and may in the future experience, website disruptions, outages and other performance problems. These problems may be caused by a variety of factors, including infrastructure changes, human or software errors, viruses, security attacks, fraud, increased resource consumption from expansion or modification to our Dayforce code, spikes in customer usage, and denial of service issues. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. If we do not accurately predict our infrastructure
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requirements, our existing customers may experience service outages that may subject them to financial penalties, causing us to incur financial liabilities and customer losses, and our operations infrastructure may fail to keep pace with increased sales, causing new customers to experience delays as we seek to obtain additional capacity, which could have a material adverse effect on our business, financial condition, and results of operations.
Our growth depends in part on the success of our strategic relationships with third parties.
In order to grow our business, we anticipate that we will continue to depend on the continuation and expansion of relationships with third parties, such as implementation partners, third party sales channel partners, some of whom have exclusive relationships, and technology and content providers. Identifying partners and negotiating and documenting relationships with them requires significant time and resources. In addition, the third parties we partner with may not perform as expected under our agreements, and we may have disagreements or disputes with such third parties, which could negatively affect our brand and reputation.
Additionally, we rely on the expansion of our relationships with our third party partners as we grow our Cloud solutions. Our agreements with third parties are typically non-exclusive and do not prohibit them from working with our competitors. Our competitors may be effective in providing incentives to these same third parties to favor their products or services. In addition, acquisitions of our partners by our competitors could result in a reduction in the number of our current and potential customers, as our partners may no longer facilitate the adoption of our applications by potential customers after an acquisition by any of our competitors.
If we are unsuccessful in establishing or maintaining our relationships with third parties, our ability to compete in the marketplace or to grow our revenues could be impaired, which could have a material adverse effect on our business, financial condition, and results of operations. Even if we are successful, we cannot assure you that these relationships will result in increased customer usage of our applications or increased revenues.
If our current or future applications fail to perform properly, our reputation could be adversely affected, our market share could decline, and we could be subject to liability claims, which could have a material adverse effect on our business, financial condition, and results of operations.
Our applications are inherently complex and may contain material defects or errors. Any defects in functionality or that cause interruptions in the availability of our applications could result in:
| loss or delayed market acceptance and sales; |
| breach of warranty or other contractual claims for damages incurred by customers; |
| errors in application output and resulting fines or penalties; |
| sales credits or refunds for prepaid amounts related to unused subscription services; |
| loss of customers; |
| diversion of development and customer service resources; and |
| injury to our reputation; |
any of which could have a material adverse effect on our business, financial condition, and results of operations. In addition, the costs incurred in correcting any material defects or errors might be substantial.
Because of the large amount of data that we collect and manage, it is possible that hardware failures or errors in our systems could result in data loss or corruption, or cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. Furthermore,
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the availability or performance of our applications could be adversely affected by a number of factors, including customers inability to access the Internet, the failure of our network or software systems, security breaches, or variability in user traffic for our services. We may be required to issue credits or refunds for prepaid amounts related to unused services or otherwise be liable to our customers for damages they may incur resulting from certain of these events. Because of the nature of our business, our reputation could be harmed as a result of factors beyond our control. For example, because our customers access our applications through their Internet service providers, if a service provider fails to provide sufficient capacity to support our applications or otherwise experiences service outages, such failure could interrupt our customers access to or experience with our applications, which could adversely affect our reputation or our customers perception of our applications reliability or otherwise have a material adverse effect on our business, financial condition, and results of operations.
Our insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our policy may not cover all claims made against us, and defending a suit, regardless of its merit, could be costly and divert managements attention.
We depend on our senior management team, and the loss of one or more key employees or an inability to attract and to retain highly skilled employees could have a material adverse effect on our business, financial condition, and results of operations.
Our success depends largely upon the continued services of our key executive officers. We also rely on our leadership team in the areas of research and development, marketing, sales, services, and general and administrative functions, and on mission-critical individual contributors in all such areas. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives, which could disrupt our business. We do not have employment agreements with our executive officers or other key personnel that require them to continue to work for us for any specified period, and, therefore, they could terminate their employment with us at any time. Additionally, we do not maintain key man insurance on any of our executive officers or key employees. The loss of one or more of our executive officers or key employees could have a material adverse effect on our business, financial condition, and results of operations.
To execute our growth plan, we must attract and retain highly qualified personnel. Competition for personnel is intense, including without limitation for individuals with high levels of experience in designing and developing software and Internet-related services and senior sales executives. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees have or that we have breached their legal obligations, resulting in a diversion of our time and resources. In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If the perceived value of our stock awards declines, it may adversely affect our ability to recruit and to retain highly skilled employees. If we fail to attract new personnel or fail to retain and to motivate our current personnel, it could have a material adverse effect on our business, financial condition, and results of operations.
We have significant operations in the Republic of Mauritius. Changes in the laws and regulations in Mauritius or our non-compliance with applicable laws and regulations could have a material adverse effect on our business, financial condition, and results of operations.
Our Mauritius operations, which employ 567 employees as of December 31, 2017, are subject to the laws and regulations of the Republic of Mauritius. The continuance of these operations depends upon compliance with applicable Mauritius environmental, health, safety, labor, social security, pension, and other laws and regulations. Failure to comply with such laws and regulations could result in fines, penalties, or lawsuits. In addition, there is no assurance that we will be able to comply fully with applicable laws and regulations should there be any amendment to the existing regulatory regime
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or implementation of any new laws and regulations. Changes in the laws and regulations in Mauritius or our non-compliance with applicable laws and regulations could have a material adverse effect on our business, financial condition, and results of operations. Additionally, Mauritius lacks the infrastructure of countries in which we do business, such as the United States, Canada, and the United Kingdom. Any disruption to the electrical grid or catastrophic event in Mauritius could result in a longer response time in our ability to address the issue due to the remote geographic location of Mauritius, which could have a material adverse effect on our business, financial condition, and results of operations. Furthermore, our business and operations in Mauritius entail the procurement of licenses and permits from the relevant authorities. Difficulties or failure in obtaining the required permits, licenses, and certificates could result in our inability to continue our business in Mauritius in a manner consistent with past practice, which could have a material adverse effect on our business, financial condition, and results of operations.
We may acquire other companies or technologies, which could divert our managements attention, result in additional indebtedness or dilution to our stockholders, and otherwise disrupt our operations, which could have a material adverse effect on our business, financial condition, and results of operations.
We may in the future seek to acquire or to invest in businesses, applications or technologies that we believe could complement or expand our applications, enhance our technical capabilities, or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.
In addition, we have limited experience in acquiring other businesses. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations, and technologies successfully, or to effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including the inability to integrate or to benefit from acquired technologies or services in a profitable manner, unanticipated costs or liabilities associated with the acquisition, difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired business, difficulty converting the customers of the acquired business onto our applications and contract terms, and adverse effects to our existing business relationships with business partners and customer as a result of the acquisition.
If an acquired business fails to meet our expectations, it could have a material adverse effect on our business, financial condition, and results of operations. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could increase our interest payments.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the event that the book value of goodwill or other intangible assets is impaired, any such impairment would be charged to earnings in the period of impairment. In the future, if our acquisitions do not yield expected returns, we may be required to record charges based on this impairment assessment process, which could have a material adverse effect on our financial condition and results of operations.
Adverse economic conditions may have a material adverse effect on our business, financial condition, and results of operations.
Our business depends on the overall demand for HCM solutions and on the economic health of our current and prospective customers. Past financial recessions have resulted in a significant weakening of the economy in North America and globally, the reduction in employment levels, the reduction in prevailing interest rates, more limited availability of credit, a reduction in business confidence and activity, and other difficulties that may affect one or more of the industries to which we sell our applications. In addition, there has been pressure to reduce government spending in the United States, and any tax
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increases and spending cuts at the federal level might reduce demand for our applications from organizations that receive funding from the U.S. government and could negatively affect the U.S. economy, which could further reduce demand for our applications. Any of these events could have a material adverse effect on our business, financial condition, and results of operations. In addition, there can be no assurance that spending levels for HCM solutions will increase following any recovery.
If we do not keep pace with rapid technological changes and evolving industry standards, we will not be able to remain competitive, and the demand for our services will likely decline.
The markets in which we operate are in general characterized by the following factors:
| changes due to rapid technological advances; |
| additional qualification requirements related to technological challenges; and |
| evolving industry standards and changes in the regulatory and legislative environment. |
Our future success will depend upon our ability to anticipate and to adapt to changes in technology and industry standards, and to effectively develop, to introduce, to market, and to gain broad acceptance of new product and service enhancements incorporating the latest technological advancements.
Our customers may fail to pay us in accordance with the terms of their agreements, which could have a material adverse effect on our business, financial condition, and results of operations.
Our agreements with our Dayforce customers are typically structured as having an initial fixed term of between three and five years, with evergreen renewal thereafter. If customers fail to pay us under the terms of our agreements, we may be unable to collect amounts due and may be required to incur additional costs enforcing the terms of our contracts, including litigation. The risk of such negative effects increases with the term length of our customer arrangements. Furthermore, some of our customers may seek bankruptcy protection or other similar relief and fail to pay amounts due to us, or to pay those amounts more slowly. If our customers fail to pay us in accordance with the terms of their agreements, it could have a material adverse effect on our business, financial condition, and results of operations.
Catastrophic events may disrupt our business.
Our data centers are located in Atlanta, Georgia; Fountain Valley, California; Louisville, Kentucky; St. Petersburg, Florida; and Winnipeg, Canada. Additionally, our data centers hosted by third parties and our corporate offices are located in Boston, Massachusetts; Melbourne, Australia; Minneapolis, Minnesota; Redhill, England; Santa Clara, California; Sydney, Australia; Toronto, Canada; Vancouver, Canada; and Woking, England. Any location in any part of the world is susceptible to natural disasters or other risks beyond our control and its third party contractors that could impact operations. For example, the west coast of the United States contains active earthquake zones, the Midwest is subject to periodic tornadoes, and the east coast is subject to seasonal hurricanes and snowstorms. Additionally, we employ a substantial number of employees located in the Republic of Mauritius, which is subject to seasonal hurricanes, and the geographic remoteness of the location may create additional delays in recovery from any catastrophic event. Additionally, we rely on our network and third party infrastructure and enterprise applications, internal technology systems, and our website for our development, marketing, operational support, hosted services and sales activities. In the event of a major earthquake, tornado, hurricane, or catastrophic event, such as fire, power loss, telecommunications failure, cyber-attack, war, or terrorist attack in any of our domestic or international locations, we may be unable to continue our operations and may endure system interruptions, reputational harm, delays in our application development, lengthy interruptions in our services, breaches of data security and loss of critical data, all of which could have a material adverse effect on our business, financial condition, and results of operations.
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Any failure to protect our intellectual property rights could impair our ability to protect our proprietary technology and our brand.
Our success and ability to compete depend in part upon our intellectual property. We primarily rely on copyright, trade secret, and trademark laws; trade secret protection; and confidentiality or license agreements with our employees, customers, partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property rights may be ineffective or inadequate.
In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and to protect these rights. Litigation brought to protect and to enforce our intellectual property rights could be costly, time-consuming, and distracting to management, with no guarantee of success, and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights. Our failure to secure, to protect, and to enforce our intellectual property rights could have a material adverse effect on our business, financial condition, and results of operations.
Litigation and regulatory investigations aimed at us or resulting from actions of our predecessor may result in significant financial losses and harm to our reputation.
We face risk of litigation, regulatory investigations, and similar actions in the ordinary course of our business, including the risk of lawsuits and other legal actions relating to breaches of contractual obligations or tortious claims from customers or other third parties, fines, penalties, interest, or other damages as a result of erroneous transactions, breach of data privacy laws, or lawsuits and legal actions related to our predecessors. Any such action may include claims for substantial or unspecified compensatory damages, as well as civil, regulatory, or criminal proceedings against our directors, officers, or employees; and the probability and amount of liability, if any, may remain unknown for significant periods of time. We may be also subject to various regulatory inquiries, such as information requests, and book and records examinations, from regulators and other authorities in the geographical markets in which we operate. A substantial liability arising from a lawsuit judgment or settlement or a significant regulatory action against us or a disruption in our business arising from adverse adjudications in proceedings against our directors, officers, or employees could have a material adverse effect on our business, financial condition, and results or operations.
Additionally, we are subject to claims and investigations as a result of our predecessor, Control Data Corporation (CDC), Ceridian Corporation, and other former entities for whom we are successor-in-interest with respect to assumed liabilities. For example, in September 1989, CDC became party to an environmental matters agreement with Seagate Technology plc (Seagate) related to groundwater contamination on a parcel of real estate in Omaha, Nebraska sold by CDC to Seagate. In February 1988, CDC entered into an arrangement with Northern Engraving Corporation and the Minnesota Pollution Control Agency in relation to groundwater contamination at a site in Spring Grove, Minnesota. In August 2017, we received notice of a mesothelioma claim related to CDC. Although we are fully reserved for the groundwater contamination liabilities, we cannot at this time accurately assess the merits of these claims, and we cannot be certain if additional liabilities related to such predecessor companies will surface. Moreover, even if we ultimately prevail in or settle any litigation, regulatory action, or investigation, we could suffer significant harm to our reputation, which could materially affect our ability to attract new customers, to retain current customers, and to recruit and to retain employees, which could have a material adverse effect on our business, financial condition, and results of operations.
We may be sued by third parties for alleged infringement of their proprietary rights.
There is considerable patent and other intellectual property development activity in our industry. Our success depends upon our not infringing upon the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, including parties commonly referred to as patent
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trolls, may own or claim to own intellectual property relating to our industry. From time to time, third parties may claim that we are infringing upon their intellectual property rights, and we may be found to be infringing upon such rights. In the future, others may claim that our applications and underlying technology infringe or violate their intellectual property rights. However, we may be unaware of the intellectual property rights that others may claim cover some or all of our technology or services. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. We contractually agree to indemnify our customers with respect to claims of intellectual property infringement relating to our products, and may also be obligated to indemnify our customers or business partners or to pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation, and to obtain licenses, to modify applications, or to refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time-consuming and divert the attention of our management and key personnel from our business operations. Any such events could have a material adverse effect on our business, financial condition, and results of operations.
Some of our applications utilize open source software, and any failure to comply with the terms of one or more of these open source licenses could have a material adverse effect on our business, financial condition, and results of operations.
Some of our applications include software covered by open source licenses, which may include, by way of example, GNU General Public License and the Apache License. The terms of various open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our applications. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software and to make our proprietary software available under open source licenses if we combine our proprietary software with open source software in a certain manner. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, to re-engineer all or a portion of our technologies, or otherwise to be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and services. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with usage of open source software cannot be eliminated and could have a material adverse effect on our business, financial condition, and results of operations.
We employ third party software for use in or with both our applications and our internal operations, and the inability to maintain these licenses or errors in the software we license could result in increased costs, or reduced service levels, which could have a material adverse effect on our business, financial condition, and results of operations.
Our applications, including Dayforce, incorporate certain third party software obtained under licenses from other companies. Additionally, we are reliant on third party software licenses for our internal operational applications. We anticipate that we will continue to rely on such third party software and development tools from third parties in the future. Although we believe that there are commercially reasonable alternatives to the third party software we currently license, this may not always be the case, or it may be difficult or costly to replace, and our failure to migrate off end of life software may significantly impact our customers ability to operate. In addition, integration of the software used in our applications and in our operations with new third party software may require significant work and require substantial investment of our time and resources. Also, our use of additional or alternative third party software would require us to enter into license agreements with third parties.
Additionally, if the quality of our third party software declines, the overall quality of our products may be negatively impacted. To the extent that our applications depend upon the successful operation
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of third party software in conjunction with our software, any undetected errors or defects in this third party software could prevent the deployment or impair the functionality of our applications, delay new application introductions, and result in a failure of our applications, which could have a material adverse effect on our business, financial condition, and results of operations.
Changes in laws and regulations related to the Internet or changes in the Internet infrastructure itself may diminish the demand for our applications, and could have a material adverse effect on our business, financial condition, and results of operations.
The future success of our business depends upon the continued use of the Internet as a primary medium for commerce, communication, and business applications. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting the use of the Internet as a commercial medium. Changes in these laws or regulations could require us to modify our applications in order to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees, or other charges for accessing the Internet or commerce conducted via the Internet. These laws or charges could limit the growth of Internet-related commerce or communications generally, resulting in reductions in the demand for Internet-based applications such as ours, any of which could have a material adverse effect on our business, financial condition, and results of operations.
In addition, the use of the Internet as a business tool could be adversely affected due to delays in the development or adoption of new standards and protocols to handle increased demands of Internet activity, security, reliability, cost, ease of use, accessibility, and quality of service. The performance of the Internet and its acceptance as a business tool has been adversely affected by viruses, worms, and similar malicious programs, and the Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure. If the use of the Internet is adversely affected by these issues, demand for our applications could suffer, which could have a material adverse effect on our business, financial condition, and results of operations.
The forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you our business will grow at similar rates, if at all.
Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates which may not prove to be accurate. The forecasts in this prospectus relating to the expected growth in the enterprise software applications, enterprise resource management software and SaaS markets may prove to be inaccurate. Even if these markets experience the forecasted growth described in this prospectus, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as necessarily indicative of our future growth.
We may pay employees and taxing authorities amounts due for a payroll period before a customers electronic funds transfers are settled with finality to our account, or make erroneous payments to employees, taxing authorities, or other entities. If customer payments are rejected by banking institutions or otherwise fail to clear into our accounts, or recovery of erroneous payments are not quickly resolved, we may require additional sources of short-term liquidity which could have a material adverse effect on our business, financial condition, and results of operations.
Our payroll processing business involves the movement of significant funds from the account of a customer to employees and relevant taxing authorities. We debit a customers account prior to any disbursement on its behalf. Due to ACH, banking regulations, funds previously credited could be reversed under certain circumstances and timeframes after our payment of amounts due to employees and taxing and other regulatory authorities. There is, therefore, a risk that the employers funds will be insufficient to
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cover the amounts we have already paid on its behalf. While such funding shortage or erroneous payments and accompanying financial exposure has only occurred in limited instances in the past, should customers default on their payment obligations in the future or erroneous payment recovery be unsuccessful, we might be required to advance substantial amounts of funds to cover such obligations. In such an event, we may be required to seek additional sources of short-term liquidity, which may not be available on reasonable terms, which could have a material adverse effect on our business, financial condition, and results of operations. Further, should a customer whose funds are reversed subsequently have financial difficulty, collection of the funds advanced by us on its behalf may be difficult.
Customer funds that we hold are subject to market, interest rate, credit, and liquidity risks. The loss of these funds could have a material adverse effect on our business, financial condition, and results of operations.
We invest funds held in trust for our customers in liquid, investment-grade marketable securities, money market securities, and other cash equivalents. Nevertheless, our customer fund assets are subject to general market, interest rate, credit, and liquidity risks. These risks may be exacerbated, individually or in unison, during periods of unusual financial market volatility. In the event of a global financial crisis, such as that experienced in 2008, we could be faced with a severe constriction of the availability of liquidity, which could impact our ability to fund payrolls. Any loss of or inability to access customer funds could have an adverse impact on our cash position and results of operations and could require us to obtain additional sources of liquidity, and could have a material adverse effect on our business, financial condition, and results of operations.
If we are required to collect sales and use taxes in additional jurisdictions, we might be subject to liability for past sales, and our future sales may decrease. Adverse tax laws or regulations could be enacted or existing laws could be applied to us or our customers, which could increase the costs of our services and otherwise have a material adverse effect on our business, financial condition, and results of operations.
The application of federal, state, and local tax laws to services provided electronically is evolving. New income, sales, use, or other tax laws, statutes, rules, regulations, or ordinances could be enacted at any time (possibly with retroactive effect), and could be applied solely or disproportionately to services provided over the Internet. These enactments could adversely affect our sales activity due to the inherent cost increase the taxes would represent and ultimately have a material adverse effect on our results of operations and cash flows.
In addition, existing tax laws, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely to us (possibly with retroactive effect), which could require us or our customers to pay additional tax amounts, as well as require us or our customers to pay fines or penalties and interest for past amounts.
For example, we might lose sales or incur significant expenses if states successfully impose broader guidelines on state sales and use taxes. A successful assertion by one or more states requiring us to collect sales or other taxes on the licensing of our software or provision of our services could result in substantial tax liabilities for past transactions and otherwise harm our business. Each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that change over time. We review these rules and regulations periodically and, when we believe we are subject to sales and use taxes in a particular state, we may voluntarily engage state tax authorities in order to determine how to comply with that states rules and regulations. There is no guarantee that we will not be subject to sales and use taxes or related penalties for past sales in states where we currently believe no such taxes are required.
Vendors of services, like us, are typically held responsible by taxing authorities for the collection and payment of any applicable sales and similar taxes. If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our services, we might be liable for past
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taxes in addition to taxes going forward. Liability for past taxes might also include substantial interest and penalty charges. Our customers are typically wholly responsible for applicable sales and similar taxes. Nevertheless, customers might be reluctant to pay back taxes and might refuse responsibility for interest or penalties associated with those taxes. If we are required to collect and to pay back taxes and the associated interest and penalties, and if our customers fail or refuse to reimburse us for all or a portion of these amounts, we will incur unplanned expenses that may be substantial. Moreover, imposition of such taxes on us going forward will effectively increase the cost of our software and services to our customers and might adversely affect our ability to retain existing customers or to gain new customers in the areas in which such taxes are imposed.
We have underfunded pension plan liabilities. We will require current and future operating cash flow to fund these shortfalls. We have no assurance that we will generate sufficient cash flow to satisfy these obligations.
We maintain defined benefit pension plans covering employees who meet age and service requirements. While our U.S. pension plans have been closed and frozen, our net pension liability and cost is materially affected by the discount rate used to measure pension obligations, the longevity and actuarial profile of our plan participants, the level of plan assets available to fund those obligations, and the actual and expected long-term rate of return on plan assets. Significant changes in investment performance or a change in the portfolio mix of invested assets can result in corresponding increases and decreases in the valuation of plan assets, particularly equity securities, or in a change in the expected rate of return on plan assets. Assets available to fund the pension and other postemployment benefit obligations of our plans, as of December 31, 2017, were approximately $438.6 million, or approximately $174.0 million less than the measured pension and post-retirement benefit obligation on a U.S. GAAP basis. In addition, any changes in the discount rate could result in a significant increase or reduction in the valuation of pension obligations, affecting the reported funded status of our pension plans as well as the net periodic pension cost in the following years. Similarly, changes in the expected return on plan assets can result in significant changes in the net periodic pension cost in the following years.
Our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business, financial condition, and results of operations.
We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of this offering and the concurrent private placement, and in each year thereafter. Our auditors will also need to attest to the effectiveness of our internal control over financial reporting in the future to the extent we are no longer an emerging growth company, as defined by the JOBS Act, and are not a smaller reporting company. We recently identified a material weakness related to our assessment of valuation allowance and classification of deferred tax liabilities associated with intangible assets for 2016 and prior periods. We remediated the material weakness and did not have a material weakness in connection with the 2017 audit; however, we cannot guarantee that we will not have additional material weaknesses in the future. If we are unable to maintain adequate internal control over financial reporting or if we identify additional material weaknesses in our internal control over financial reporting, we may be unable to report our financial information accurately on a timely basis, may suffer adverse regulatory consequences or violations of applicable stock exchange listing rules, may breach the covenants under our credit facilities, and incur additional costs. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements, which could have a material adverse effect on our business, financial condition, and results of operations.
We will incur increased costs and obligations as a result of being a public company.
As a publicly traded company, and particularly after we cease to be an emerging growth company (to the extent that we take advantage of certain exceptions from reporting requirements that are
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available under the JOBS Act as an emerging growth company), we will incur additional legal, accounting and other expenses that we were not required to incur in the past. After this offering and the concurrent private placement, we will be required to file with the Securities and Exchange Commission (the Commission) annual and quarterly information and other reports that are specified in Section 13 of the Exchange Act. We will also become subject to other reporting and corporate governance requirements, including the requirements of the NYSE, the TSX, and certain provisions of the Sarbanes-Oxley Act, and the regulations promulgated thereunder, which will impose additional compliance obligations upon us. As a public company, we will, among other things:
| prepare and distribute periodic public reports and other stockholder communications in compliance with our obligations under the federal securities laws and applicable stock exchange rules; |
| create or expand the roles and duties of our board of directors (our Board) and committees of the Board; |
| institute more comprehensive financial reporting and disclosure compliance functions; |
| enhance our investor relations function; and |
| involve and retain to a greater degree outside counsel and accountants in the activities listed above. |
These changes will require a commitment of additional resources, and many of our competitors already comply with these obligations. We may not be successful in implementing these requirements, and the commitment of resources required for implementing them could have a material adverse effect on our business, financial condition, and results of operations.
The changes necessitated by becoming a public company require a significant commitment of resources and management oversight that has increased and may continue to increase our costs and could place a strain on our systems and resources. As a result, our managements attention might be diverted from other business concerns. If we are unable to offset these costs through other savings, then it could have a material adverse effect on our business, financial condition, and results of operations.
We are an emerging growth company and may elect to comply with reduced reporting requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We are an emerging growth company, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to: exemption from compliance with the auditor attestation requirements of Section 404 of Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation, and stockholder approval of any golden parachute payments not previously approved. In addition, even if we comply with the greater obligations of public companies that are not emerging growth companies immediately after the initial public offering, we may avail ourselves of the reduced requirements applicable to emerging growth companies from time to time in the future. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We will remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenue exceeds $1.07 billion, (ii) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period, whether or not issued in a registered offering.
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We may not be able to utilize a significant portion of our net operating loss or research tax credit carryforwards, which could have a material adverse effect on our financial condition and results of operations.
As of December 31, 2017, we had federal and state net operating loss carryforwards due to prior period losses, which, if not utilized, will begin to expire in 2029 and 2018 for federal and state purposes, respectively. These net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could have a material adverse effect on our financial condition and results of operations.
In addition, under Section 382 of the Internal Revenue Code of 1986, as amended (the Code), our ability to utilize net operating loss carryforwards or other tax attributes in any taxable year may be limited if we experience an ownership change. A Section 382 ownership change generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. This offering and the concurrent private placement or future issuances of our stock could cause an ownership change. It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our net operating loss carryforwards or other tax attributes, which could have a material adverse effect on our results of operations and profitability.
Changes in generally accepted accounting principles in the United States could have a material adverse effect on our previously reported results of operations.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (the FASB), the Commission, and various bodies formed to promulgate and to interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our previously reported results of operations and could affect the reporting of transactions completed before the announcement of a change.
In May 2014, the FASB issued new revenue recognition guidance under Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which is effective for our interim and annual periods beginning after December 31, 2017. Under this new guidance, revenue is recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue that is recognized. In order to be able to comply with the requirements of ASU 2014-09 beginning in the first quarter of 2018, we need to update and to enhance our internal accounting systems, processes, and our internal controls over financial reporting. This has required, and will continue to require, additional investments by us, and may require incremental resources and system configurations that could increase our operating costs in future periods. If we are not able to properly implement ASU 2014-09 in a timely manner, the revenue that we recognize and the related disclosures that we provide under ASU 2014-09 may not be complete or accurate, and we could fail to meet our financial reporting obligations in a timely manner.
We may have additional tax liabilities as a result of the LifeWorks Disposition.
Based on current estimates of the value of our interest in LifeWorks at the time of the LifeWorks Disposition, we currently anticipate that we will incur approximately $3.2 million of foreign taxes and use approximately $96.0 million of our U.S. federal net operating losses to offset the U.S. tax gain. In the event that it is determined that the value of our interest in LifeWorks at the time of the LifeWorks Disposition is higher, our U.S. and foreign tax obligations may also be higher which could result in us having to pay additional taxes or use additional U.S. federal net operating losses to offset the increased U.S. tax obligations.
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Risks Related to Our Indebtedness
We are a holding company and rely on dividends, distributions, and other payments, advances, and transfers of funds from our subsidiaries to meet our obligations.
We are a holding company that does not conduct any business operations of our own. As a result, we are largely dependent upon cash transfers in the form of intercompany loans and receivables from our subsidiaries to meet our obligations. The deterioration of the earnings from, or other available assets of, our subsidiaries for any reason also could limit or impair their ability to pay dividends or other distributions to us.
Our outstanding indebtedness could have a material adverse effect on our financial condition and our ability to operate our business, and we may not be able to generate sufficient cash flows to meet our debt service obligations.
Our outstanding indebtedness as of December 31, 2017 consisted of (i) a $702.0 million Senior Term Loan and (ii) a $130.0 million Revolving Facility. In addition, as of December 31, 2017, we had the Senior Notes in the principal amount of $475.0 million outstanding. The Senior Credit Facilities is secured substantially by all of our assets. The Senior Term Loan has a maturity date of September 15, 2020, and the Revolving Facility has a maturity date of September 15, 2019. As of December 31, 2017, we had $657.3 million outstanding principal under our Senior Term Loan and no principal outstanding under our Revolving Facility. The Senior Notes are unsecured and have a maturity date of March 15, 2021.
Our outstanding indebtedness and any additional indebtedness we incur may have important consequences for us, including, without limitation, that:
| we may be required to use a substantial portion of our cash flow to pay the principal of and interest on our indebtedness; |
| our indebtedness and leverage may increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressures; |
| our ability to obtain additional financing for working capital, capital expenditures, acquisitions and for general corporate and other purposes may be limited; |
| our indebtedness may expose us to the risk of increased interest rates because certain of our borrowings, including and most significantly our borrowings under our Senior Credit Facilities, are at variable rates of interest; |
| our indebtedness may prevent us from taking advantage of business opportunities as they arise or successfully carrying out our plans to expand our business; and |
| our flexibility in planning for, or reacting to, changes in our business and our industry may be limited. |
Under the terms of the agreements governing our Senior Credit Facilities, we are required to comply with specified operating covenants and, under certain circumstances, a financial covenant applicable to the Revolving Facility, which may limit our ability to operate our business as we otherwise might operate it. For example, the obligations under the Senior Credit Facilities may be accelerated upon the occurrence of an event of default, including, without limitation, payment defaults, cross-defaults to certain material indebtedness, covenant defaults, material inaccuracy of representations and warranties, bankruptcy events, material judgments, material defects with respect to guarantees and collateral, and change of control. The indenture governing the Senior Notes provides for customary events of default, including, without limitation, payment defaults, covenant defaults, cross acceleration defaults to certain other indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, judgment defaults in excess of specified amounts, and the failure of any
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guaranty by a significant party to be in full force and effect. If any such event of default occurs, it may permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Senior Notes issued under the indenture to be due and payable immediately. If not cured, an event of default could result in any amounts outstanding, including any accrued interest and unpaid fees, becoming immediately due and payable, which would require us, among other things, to seek additional financing in the debt or equity markets, to refinance or restructure all or a portion of our indebtedness, to sell selected assets, and/or to reduce or to delay planned capital or operating expenditures. Such measures might not be sufficient to enable us to service our debt, and any such financing or refinancing might not be available on economically favorable terms or at all. If we are not able to generate sufficient cash flows to meet our debt service obligations or are forced to take additional measures to be able to service our indebtedness, it could have a material adverse effect on our business, financial condition, and results of operations.
Despite our substantial indebtedness, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.
We may incur substantial additional indebtedness in the future. Although the agreements governing our Senior Credit Facilities and Senior Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness we can incur in compliance with these restrictions could be substantial. For example, pursuant to incremental facilities under the Senior Credit Facilities, we may incur up to (i) an aggregate amount of $175.0 million of additional secured or unsecured debt plus (ii) an unlimited additional amount of secured or unsecured debt, subject to compliance with certain leverage-based tests, as described in the agreements governing our Senior Credit Facilities. If we incur additional debt, the risks associated with our substantial leverage would increase.
Restrictive covenants in the agreements governing our Senior Credit Facilities and Senior Notes may restrict our ability to pursue our business strategies.
The agreements governing our Senior Credit Facilities and Senior Notes contain a number of restrictive covenants that impose significant operating and financial restrictions on us, and may limit our ability to engage in acts that may be in our long-term best interests. These include covenants restricting, among other things, our (and our subsidiaries) ability:
| to incur additional indebtedness or other contingent obligations; |
| to grant liens; |
| to enter into burdensome agreements with negative pledge clauses or restrictions on subsidiary distributions; |
| to pay dividends or make other distributions in respect of equity; |
| to make payments in respect of junior lien or subordinated debt; |
| to make investments, including acquisitions, loans, and advances; |
| to consolidate, to merge, to liquidate, or to dissolve; |
| to sell, to transfer, or to otherwise dispose of assets; |
| to engage in transactions with affiliates; |
| to materially alter the business that we conduct; and |
| to amend or to otherwise change the terms of the documentation governing certain restricted debt. |
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The documentation governing Senior Credit Facilities contains a financial covenant applicable only to the Revolving Facility, which requires that Ceridian maintain a ratio of adjusted first lien debt to Adjusted EBITDA (with certain adjustments as set forth in the Companys credit documents) below a specified level on a quarterly basis. However, such requirement is applicable at the end of a fiscal quarter only if more than 35% of the Revolving Facility (with an exclusion for certain letters of credit) is drawn at the end of such fiscal quarter. Our ability to meet that financial ratio can be affected by events beyond our control, and we cannot assure you that we will be able to meet that ratio. The covenant did not apply as of December 31, 2017, but there can be no assurance that we will be in compliance with such covenant in the future. A breach of any covenant or restriction contained in the agreements governing our Senior Credit Facilities could result in a default under those agreements. If any such default occurs, a majority of the lenders under the Senior Credit Facilities (or, in the case of the financial covenant described above, a majority of the lenders under the Revolving Facility), may elect (after the expiration of any applicable notice or grace periods) to declare all outstanding borrowings, together with accrued and unpaid interest and other amounts payable thereunder, to be immediately due and payable. The lenders under the Senior Term Loan and Revolving Facility also have the right upon an event of default thereunder to terminate any commitments they have to provide further borrowings. Further, following an event of default under the agreements governing our Senior Credit Facilities, the administrative agent, on behalf of the secured parties under the Senior Credit Facilities, will have the right to proceed against the collateral granted to them to secure that debt. If the debt under the Senior Term Loan or Revolving Facility was to be accelerated, our assets may not be sufficient to repay in full that debt or any other debt that may become due as a result of that acceleration.
In the future, we may be dependent upon our lenders for financing to execute our business strategy and to meet our liquidity needs. If our lenders are unable to fund borrowings under their credit commitments or we are unable to borrow, it could have a material adverse effect on our business, financial condition, and results of operations.
During periods of volatile credit markets, there is risk that lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to, extending credit up to the maximum amount permitted by the Revolving Facility. If our lenders are unable to fund borrowings under their revolving credit commitments or we are unable to borrow, it could be difficult to obtain sufficient funding to execute our business strategy or to meet our liquidity needs, which could have a material adverse effect on our business, financial condition, and results of operations.
Our debt may be downgraded, which could have a material adverse effect on our business, financial condition, and results of operations.
A reduction in the ratings that rating agencies assign to our short and long-term debt may negatively impact our access to the debt capital markets and increase our cost of borrowing, which could have a material adverse effect on our business, financial condition, and results of operations.
Volatility and weakness in bank and capital markets may adversely affect credit availability and related financing costs for us.
Banking and capital markets can experience periods of volatility and disruption. If the disruption in these markets is prolonged, our ability to refinance, and the related cost of refinancing, some or all of our debt could be adversely affected. Although we currently can access the bank and capital markets, there is no assurance that such markets will continue to be a reliable source of financing for us. These factors, including the tightening of credit markets, could adversely affect our ability to obtain cost-effective financing. Increased volatility and disruptions in the financial markets also could make it more
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difficult and more expensive for us to refinance outstanding indebtedness and to obtain financing. In addition, the adoption of new statutes and regulations, the implementation of recently enacted laws, or new interpretations or the enforcement of older laws and regulations applicable to the financial markets or the financial services industry could result in a reduction in the amount of available credit or an increase in the cost of credit. Disruptions in the financial markets can also adversely affect our lenders, insurers, customers, and other counterparties. Any of these results could have a material adverse effect on our business, financial condition, and results of operations.
Risks Related to Our Initial Public Offering and Ownership of Our Common Stock
There is no existing market for our common stock and an active, liquid trading market for our common stock may not develop.
Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any of our shares that you purchase. The initial public offering price of our common stock will be determined by negotiation between us and the underwriters, and may not be indicative of prices that will prevail after the completion of this offering. The market price of our common stock may decline below the initial public offering price, and you may not be able to resell your shares at, or above, the initial public offering price.
The price of our common stock may be volatile and you could lose all or part of your investment.
Securities markets worldwide have experienced in the past, and are likely to experience in the future, significant price and volume fluctuations. This market volatility, as well as general economic, market, or political conditions could reduce the market price of our common stock regardless of our results of operations. The trading price of our common stock is likely to be highly volatile and could be subject to wide price fluctuations in response to various factors, including, among other things, the risk factors described herein and other factors beyond our control. Factors affecting the trading price of our common stock could include:
| market conditions in the broader stock market; |
| actual or anticipated variations in our quarterly results of operations; |
| developments in our industry in general; |
| variations in operating results of similar companies; |
| introduction of new services by us, our competitors, or our customers; |
| issuance of new, negative, or changed securities analysts reports or recommendations or estimates; |
| investor perceptions of us and the industries in which we or our customers operate; |
| sales, or anticipated sales, of our stock, including sales by our officers, directors, and significant stockholders; |
| additions or departures of key personnel; |
| regulatory or political developments; |
| the publics response to press releases or other public announcements by us or third parties, including our filings with the Commission; |
| announcements, media reports or other public forum comments related to litigation, claims or reputational charges against us; |
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| guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this guidance; |
| the development and sustainability of an active trading market for our common stock; |
| investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives; |
| other events or factors, including those resulting from system failures and disruptions, earthquakes, hurricanes, war, acts of terrorism, other natural disasters or responses to these events; |
| changes in accounting principles; |
| share-based compensation expense under applicable accounting standards; |
| litigation and governmental investigations; and |
| changing economic conditions. |
These and other factors may cause the market price and demand for shares of our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock sometimes have instituted securities class action litigation against the company that issued the stock. Securities litigation against us, regardless of the merits or outcome, could result in substantial costs and divert the time and attention of our management from our business, which could have a material adverse effect on our business, financial condition, and results of operations.
Future sales of our common stock, or the perception in the public markets that these sales may occur, could cause the market price for our common stock to decline.
Upon consummation of this offering and the concurrent private placement, there will be 134,902,769 shares of our common stock outstanding. All shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act. At the time of this offering and the concurrent private placement, we also will have 26,172,211 registered shares of common stock reserved for issuance under our equity incentive plans of which options to purchase 12,672,211 shares of common stock and restricted stock units representing 12,672,211 shares of common stock are outstanding and options to purchase 4,673,605 shares of common stock and restricted stock units representing 4,673,605 shares of common stock will be issued in connection with this offering and the concurrent private placement, which shares may be issued upon issuance and once vested, subject to any applicable lock-up restrictions then in effect. We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales will occur, could cause the market price of our common stock to decline. Of the remaining shares of common stock outstanding, 113,902,769 will be restricted securities within the meaning of Rule 144 under the Securities Act and subject to certain restrictions on resale following the consummation of this offering and the concurrent private placement. Restricted securities may be sold in the public market only if they are registered under the Securities Act, or are sold pursuant to an exemption from registration such as Rule 144 or Rule 701, as described in Shares Eligible for Future Sale.
We, each of our officers and directors, the Sponsors, and significantly all our existing stockholders have agreed that (subject to certain exceptions), for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Goldman Sachs & Co. LLC and
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J.P. Morgan Securities LLC, dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, in their sole discretion, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. See Underwriting. Following the expiration of the applicable lock-up period, all of the issued and outstanding shares of our common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding period, and other limitations of Rule 144. See Shares Eligible for Future Sale for a discussion of the shares of common stock that may be sold into the public market in the future.
If securities or industry analysts publish unfavorable research about our business, or if our competitors stock performance decline, the price of our common stock and our trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently publish research on our company. Once securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our common stock or publish unfavorable research about our business, the price of our common stock likely would decline. Additionally, if one of our competitors stock performance declines, the price of our common stock and our trading volume could decline as well. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, or if one of our competitors stock performance declines, demand for our common stock could decrease, which might cause the price of our common stock and trading volume to decline.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third party claims against us and may reduce the amount of money available to us.
Our third amended and restated certificate of incorporation and amended and restated bylaws that will be in effect prior to the completion of this offering and the concurrent private placement provide that we will indemnify our directors and officers, in each case, to the fullest extent permitted by Delaware law. Pursuant to our charter, our directors will not be liable to the company or any stockholders for monetary damages for any breach of fiduciary duty, except (i) acts that breach his or her duty of loyalty to the company or its stockholders, (ii) acts or omissions without good faith or involving intentional misconduct or knowing violation of the law, (iii) pursuant to Section 174 of the Delaware General Corporation Law (the DGCL) or (iv) for any transaction from which the director derived an improper personal benefit. The bylaws also require us, if so requested, to advance expenses that such director or officer incurred in defending or investigating a threatened or pending action, suit or proceeding, provided that such person will return any such advance if it is ultimately determined that such person is not entitled to indemnification by us. Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third party claims against us and may reduce the amount of money available to us.
We may elect to take advantage of the controlled company exemption to the corporate governance rules for publicly-listed companies, which could make our common stock less attractive to some investors or otherwise harm our stock price.
Because we qualify as a controlled company under the corporate governance rules for publicly-listed companies, we are not required to have a majority of our Board be independent under the applicable rules of the NYSE, nor are we required to have a compensation committee or a corporate governance and nominating committee comprised entirely of independent directors. In light of our status as a controlled company, our Board will establish a compensation committee, and a corporate
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governance and nominating committee that will not be comprised solely of independent members at the time of the offering. In addition, our Board will not be composed of a majority of independent directors. Accordingly, should the interests of our Sponsors differ from those of other stockholders, the other stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules for publicly-listed companies. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.
We intend to enter into a voting agreement with our Sponsors, which provides our Sponsors with rights to nominate a number of designees to our board of directors.
In connection with this offering, we intend to enter into a voting agreement with THL and Cannae. Pursuant to the voting agreement, for so long as THL and Cannae collectively hold 50% or more of the then outstanding voting power, then THL and Cannae shall have the power to designate a total of five directors to the Board. After THL and Cannae cease to collectively hold 50% or more of the then outstanding voting power, then each of THL and Cannae will be able to in their own right designate four directors, for so long as they hold at least 40% of the then outstanding voting power; three directors, for so long as it holds at least 30% of the then outstanding voting power; two directors, for so long as it holds at least 20% of the then outstanding voting power; and one director, for so long as it holds at least 10% of the then outstanding voting power. Because our Board is currently composed of seven directors, THL and Cannae may have a right to designate a majority of our Board under the present Board composition even if they collectively or individually hold less than 50% of our then outstanding voting power. In addition, pursuant to the voting agreement, for so long as each Sponsor is entitled to designate a director to the Board, the Sponsors will be required to vote all of their shares, and take all other necessary actions, to cause the Board to include the individuals designated as directors by the Sponsors (as applicable). See ManagementComposition of our Board of Directors. As a result, it is possible that the interests of THL and Cannae may in some circumstances conflict with our interests and the interests of our other stockholders.
Because we do not intend to pay cash dividends in the foreseeable future, you may not receive any return on investment unless you are able to sell your common stock for a price greater than your purchase price.
We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or to pay any dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. We do not intend in the foreseeable future to pay any dividends to holders of our common stock. We currently intend to retain our future earnings, if any, for the foreseeable future to repay indebtedness and to support our general corporate purposes. Therefore, you are not likely to receive any dividends on your common stock for the foreseeable future, and the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which investors have purchased their shares. However, the payment of future dividends will be at the discretion of our Board, subject to applicable law, and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions that apply to the payment of dividends, and other considerations that our Board deems relevant. See Dividend Policy. As a consequence of these limitations and restrictions, we may not be able to make the payment of dividends on our common stock.
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Participation in this offering by one or more funds affiliated with Dragoneer Investment Group, LLC could reduce the public float for our shares of common stock.
One or more funds affiliated with Dragoneer Investment Group, LLC have indicated an interest in purchasing up to an aggregate of $75.0 million in shares of our common stock in this offering at the initial public offering price. Because this indication of interest is not a binding agreement or commitment to purchase, one or more funds affiliated with Dragoneer Investment Group, LLC could determine to purchase more, less or no shares in this offering or the underwriters could determine to sell more, less or no shares to one or more funds affiliated with Dragoneer Investment Group, LLC. The underwriters will receive the same discount on any of our shares of common stock purchased by one or more funds affiliated with Dragoneer Investment Group, LLC as they will from any other shares of common stock sold to the public in this offering.
If one or more funds affiliated with Dragoneer Investment Group, LLC are allocated all or a portion of the shares in which it has indicated an interest in this offering or more, and purchase any such shares, such purchase could reduce the available public float for our shares if such entities hold these shares long term.
If you purchase shares of our common stock in our initial public offering, you will experience substantial and immediate dilution.
The initial public offering price per share is substantially higher than the pro forma net tangible book value per share immediately after this offering and the concurrent private placement. As a result, you will pay a price per share that substantially exceeds the book value of our assets after subtracting the book value of our liabilities. Based on our net tangible book value as of December 31, 2017, and the initial public offering price of $20.00 per share, you will incur immediate and substantial dilution in the amount of $25.41 per share. See Dilution.
Anti-takeover protections in our third amended and restated certificate of incorporation, our amended and restated bylaws or our contractual obligations may discourage or prevent a takeover of our company, even if an acquisition would be beneficial to our stockholders.
Provisions contained in our third amended and restated certificate of incorporation and amended and restated bylaws, as amended, as well as provisions of the DGCL, could delay or make it more difficult to remove incumbent directors or could impede a merger, takeover or other business combination involving us or the replacement of our management, or discourage a potential investor from making a tender offer for our common stock, which, under certain circumstances, could reduce the market value of our common stock, even if it would benefit our stockholders.
In addition, our Board has the authority to cause us to issue, without any further vote or action by the stockholders, up to 10,000,000 shares of preferred stock, par value $0.01 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges, and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price, or prices and liquidation preferences of such series. The issuance of shares of preferred stock or the adoption of a stockholder rights plan may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders, even where stockholders are offered a premium for their shares. See Description of Capital StockAnti-takeover Provisions.
In addition, under the agreements governing our Senior Credit Facilities, a change of control would cause us to be in default. In the event of a change of control default, the administrative agent under our Senior Credit Facilities would have the right (or, at the direction of lenders holding a majority of the
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loans and commitments under our Senior Credit Facilities, the obligation) to accelerate the outstanding loans and to terminate the commitments under our Senior Credit Facilities, and if so accelerated, we would be required to repay all of our outstanding obligations under our Senior Credit Facilities. In addition, from time to time we may enter into contracts that contain change of control provisions that limit the value of, or even terminate, the contract upon a change of control. These change of control provisions may discourage a takeover of our company, even if an acquisition would be beneficial to our stockholders.
Our third amended and restated certificate of incorporation will provide, subject to certain exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, or stockholders.
Our third amended and restated certificate of incorporation will provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim against us, any director or our officers or employees arising pursuant to any provision of the DGCL, our third amended and restated certificate of incorporation or our amended and restated bylaws; or (iv) any action asserting a claim against us, any director or our officers or employees that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our third amended and restated certificate of incorporation described above. This choice of forum provision may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees, or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision that will be contained in our third amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition, and results of operations.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including, without limitation, statements concerning the conditions of the HCM solutions industry and our operations, performance, and financial condition, including, in particular, statements relating to our business, growth strategies, product development efforts, and future expenses. Forward-looking statements can be identified by words such as anticipates, intends, plans, seeks, believes, estimates, expects, and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national, or global political, economic, business, competitive, market, and regulatory conditions and the following:
| our inability to attain or to maintain profitability; |
| significant competition for our solutions; |
| our inability to continue to develop or to sell our existing Cloud solutions; |
| our inability to manage our growth effectively; |
| the risk that we may not be able to successfully migrate our Bureau customers to our Cloud solutions or to offset the decline in Bureau revenue with Cloud revenue; |
| the market for enterprise cloud computing develops slower than we expect or declines; |
| efforts to increase use of our Cloud solutions and our other applications may not succeed; |
| we fail to provide enhancements and new features and modifications to our solutions; |
| failure to comply with the FTCs ongoing consent order regarding data protection; |
| system interruptions or failures, including cyber-security breaches, identity theft, or other disruptions that could compromise our information; |
| our failure to comply with applicable privacy, security and data laws, regulations and standards; |
| changes in regulations governing privacy concerns and laws or other domestic or foreign data protection regulations; |
| we are unable to successfully expand our current offerings into new markets or further penetrate existing markets; |
| we are unable to meet the more complex configuration and integration demands of our large customers; |
| our customers declining to renew their agreements with us or renewing at lower performance fee levels; |
| we fail to manage our technical operations infrastructure; |
| we are unable to maintain necessary third party licenses or errors; |
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| our inability to protect our intellectual property rights, proprietary technology, information, processes, and know-how; |
| we fail to keep pace with rapid technological changes and evolving industry standards; or |
| changes in laws and regulations related to the Internet or changes in the Internet infrastructure itself. |
See Risk Factors for a further description of these and other factors. Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could cause actual results and developments to differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. If any of these risks materialize, or if any of the above assumptions underlying forward-looking statements prove incorrect, actual results and developments may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this prospectus. Any forward-looking statement made by us in this speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should be viewed as historical data.
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We estimate that the net proceeds to us from this offering and the concurrent private placement will be approximately $483.1 million, or approximately $542.7 million if the underwriters exercise in full their option to purchase additional shares, assuming an initial public offering price of $20.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to apply the net proceeds from this offering and the concurrent private placement to redeem the $475.0 million principal amount of our outstanding 11% Senior Notes due 2021 as well as to pay a portion of the interest on the Senior Notes that will have accrued at the time of the redemption. See Description of Material IndebtednessSenior Unsecured Notes for a fuller description of these notes.
Assuming no exercise of the underwriters option to purchase additional shares, each $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering and the concurrent private placement by $19.3 million, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us. Similarly, an increase (decrease) of one million shares of common stock sold in this offering and the concurrent private placement by us would increase (decrease) our net proceeds by $18.9 million, assuming the initial public offering price of $20.00 (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
The foregoing represents our current intentions with respect to the use and allocation of the net proceeds of this offering and the concurrent private placement based upon our present plans and business conditions, but our management will have significant flexibility and discretion in applying the net proceeds. The occurrence of unforeseen events or changed business conditions could result in application of the net proceeds of this offering and the concurrent private placement in a manner other than as described in this prospectus.
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We do not currently intend to pay cash dividends on our common stock in the foreseeable future. However, in the future, subject to the factors described below and our future liquidity and capitalization, we may change this policy and choose to pay dividends.
Our ability to pay dividends is currently restricted by the terms of our Senior Credit Facilities (as defined on page 11 of this prospectus) and may be further restricted by any future indebtedness we incur.
We are a holding company that does not conduct any business operations of our own. As a result, our ability to pay cash dividends on our common stock is dependent upon cash dividends and distributions and other transfers from our subsidiaries.
In addition, under Delaware law, our Board may declare dividends only to the extent of our surplus (which is defined as total assets at fair market value minus total liabilities, minus statutory capital) or, if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal year.
Any future determination to pay dividends will be at the discretion of our Board and will take into account:
| restrictions in our debt instruments, including our Senior Credit Facilities; |
| general economic business conditions; |
| our earnings, financial condition, and results of operations; |
| our capital requirements; |
| our prospects; |
| legal restrictions; and |
| such other factors as our Board may deem relevant. |
See Risk FactorsRisks Relating to Our Initial Public Offering and Ownership of Our Common StockBecause we do not intend to pay cash dividends in the foreseeable future, you may not receive any return on investment unless you are able to sell your common stock for a price greater than your purchase price, Risk FactorsRisks Related to Our IndebtednessWe are a holding company and rely on dividends, distributions and other payments, advances and transfers of funds from our subsidiaries to meet our obligations, Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources, Description of Material Indebtedness, and Description of Capital Stock.
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The following table sets forth our cash and equivalents and our capitalization as of December 31, 2017:
| on an actual basis; |
| on a pro forma basis to give effect to (i) the LifeWorks Disposition, (ii) the Preferred Conversion, and (iii) the Share Exchange; and |
| on a pro forma as adjusted basis to give further effect to (i) the Debt Refinancing, (ii) our amended and restated certificate of incorporation and amended and restated bylaws as they will be in effect upon the consummation of this offering and the concurrent private placement, and (iii) the sale of 26,000,000 shares of our common stock in this offering and the concurrent private placement at an assumed public offering price of $20.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, and the application of the net proceeds received by us from this offering as described under Use of Proceeds. |
This table should be read in conjunction with Use of Proceeds, Selected Historical Consolidated Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, Description of Capital Stock, and the consolidated financial statements and notes thereto appearing elsewhere in this prospectus.
As of December 31, 2017 | ||||||||||||
Actual | Pro Forma |
Pro Forma
As Adjusted (1) |
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(Dollars in millions) | ||||||||||||
Cash and equivalents |
$ | 99.6 | $ | 91.1 | $ | 82.8 | ||||||
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|
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Debt (2) |
$ | 1,119.8 | $ | 1,119.8 | $ | 670.5 | ||||||
Stockholders equity: |
||||||||||||
Common stock, $0.01 par value per share, 150,000,000 shares authorized, actual and pro forma, and 500,000,000 shares authorized, pro forma as adjusted, 65,374,327 shares issued and outstanding, actual, and 108,902,769 shares issued and outstanding, pro forma and 134,902,769 shares issued and outstanding pro forma as adjusted |
0.7 | 1.1 | 1.3 | |||||||||
Senior preferred stock, $0.01 par value per share, 70,000,000 shares authorized, actual and pro forma, and 0 shares authorized, pro forma as adjusted, 16,802,144 shares issued and outstanding, actual, and 0 shares issued and outstanding, pro forma and 0 shares issued and outstanding pro forma as adjusted. |
184.8 | | | |||||||||
Junior preferred stock, $0.01 par value per share, 70,000,000 shares authorized, actual and pro forma, and 0 shares authorized, pro forma as adjusted, 58,244,308 shares issued and outstanding, actual and 0 shares issued and outstanding pro forma and 0 shares issued and outstanding pro forma as adjusted |
0.6 | | | |||||||||
Preferred stock, $0.01 par value per share, 0 shares authorized actual and pro forma 10,000,000 shares authorized, pro forma as adjusted, and 0 shares outstanding, actual, pro forma and pro forma as adjusted |
| | | |||||||||
Special voting preferred stock, par value $0.01 per share, 0 shares authorized, actual and pro forma, 1 share authorized, pro forma as adjusted, 0 shares issued and outstanding, actual and pro forma, and 1 share issued and outstanding pro forma as adjusted |
| | | |||||||||
Additional paid in capital |
1,565.4 | 1,648.0 | 2,144.7 | |||||||||
Accumulated deficit |
(348.2 | ) | (348.2 | ) | (388.2 | ) | ||||||
Accumulated other comprehensive loss |
(312.1 | ) | (312.1 | ) | (312.1 | ) | ||||||
|
|
|
|
|
|
|||||||
Total stockholders equity |
1,091.2 | 988.8 | 1,445.7 | |||||||||
|
|
|
|
|
|
|||||||
Total capitalization |
$ | 2,211.0 | $ | 2,108.6 | $ | 2,116.2 | ||||||
|
|
|
|
|
|
63
(1) | Each $1.00 increase or decrease in the public offering price per share would increase or decrease, as applicable, our net proceeds, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by $19.3 million (assuming no exercise of the underwriters option to purchase additional shares). Similarly, an increase or decrease of one million shares of common stock sold in this offering by us would increase or decrease, as applicable, our net proceeds, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by $18.9, based on an assumed initial public offering price of $20.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus. |
(2) | For a description of our existing indebtedness, see Description of Material Indebtedness. For a description of our Debt Refinancing, see Prospectus SummaryDebt Refinancing. |
64
If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock upon the consummation of this offering and the concurrent private placement. Dilution results from the fact that the per share offering price of our common stock is in excess of the book value per share attributable to new investors.
Our pro forma net tangible book deficit as of December 31, 2017 was $(1,178.7), or $(10.82) per share of common stock. Pro forma net tangible book deficit represents the amount of total tangible assets less total liabilities after giving effect to (i) the LifeWorks Disposition, (ii) the Preferred Conversion, and (iii) the Share Exchange, and pro forma net tangible book deficit per share represents pro forma net tangible book deficit divided by the number of shares of common stock outstanding.
After giving further effect to (i) the Debt Refinancing, (ii) the sale of 26,000,000 shares of common stock in this offering and the concurrent private placement at the assumed initial public offering price of $20.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), and (iii) the application of the net proceeds from this offering, our pro forma as adjusted net tangible book deficit as of December 31, 2017 would have been $(734.5) million, or $(5.41) per share. This represents an immediate increase in pro forma as adjusted net tangible book deficit of $5.41 per share to our existing investors and an immediate dilution in pro forma as adjusted net tangible book deficit of $25.41 per share to new investors.
The following table illustrates this dilution on a per share of common stock basis:
Assumed initial public offering price per share |
$ | 20.00 | ||||||
Pro forma net tangible book deficit per share as of December 31, 2017 |
(10.82 | ) | ||||||
Increase in pro forma net tangible book deficit per share attributable to new investors |
$ | 5.41 | ||||||
|
|
|||||||
Pro forma as adjusted net tangible book deficit per share after this offering and the concurrent private placement |
(5.41 | ) | ||||||
|
|
|||||||
Dilution in net tangible book deficit per share to new investors in this offering and the concurrent private placement |
$ | 25.41 | ||||||
|
|
Each $1.00 increase (decrease) in the assumed initial public offering price of $20.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), would increase (decrease) our as adjusted net tangible book deficit, after this offering by $21.0 million, or $0.15 per share and the dilution per share to new investors by $0.15, in each case assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
A one million increase (decrease) in the number of shares offered by us would increase (decrease) our as adjusted net tangible book deficit by approximately $20.0 million, or $0.19 per share, and the dilution per share to new investors by approximately $0.19, in each case assuming the initial public offering price of $20.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
The following table summarizes, on a pro forma as adjusted basis as of December 31, 2017, after giving effect to (i) the LifeWorks Disposition, the Preferred Conversion, and the Share Exchange, and
65
(ii) the Debt Refinancing, this offering, and the concurrent private placement, the total number of shares of common stock purchased from us, the total cash consideration paid to us, or to be paid, and the average price per share paid, or to be paid, by new investors purchasing shares in this offering and the concurrent private placement, at an assumed initial public offering price of $20.00 per share, which is the midpoint of the estimated public offering price range set forth on the cover page of this prospectus, before deducting the estimated underwriting discounts and commissions:
Shares Purchased | Total Consideration |
Average
Price per Share |
||||||||||||||||||
Number | % | Amount | % | |||||||||||||||||
Existing stockholders |
113,902,769 | 84.4 | % | $ | 3,823.8 | 90.1 | % | $ | 33.57 | |||||||||||
New investors |
21,000,000 | 15.6 | % | 420.0 | 9.9 | % | $ | 20.00 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total |
134,902,769 | 100.0 | % | $4,243.8 | 100.0 | % | ||||||||||||||
|
|
|
|
|
|
|
|
If the underwriters were to fully exercise their option to purchase 3,150,000 additional shares of our common stock, the percentage of shares of our common stock held by existing investors would be 82.5%, and the percentage of shares of our common stock held by new investors would be 17.5%.
The foregoing tables and calculations exclude (i) 12,672,211 shares of our common stock issuable upon the exercise of options and the vesting of restricted stock units outstanding as of December 31, 2017 under the 2013 Plan and (ii) 13,500,000 shares of our common stock reserved for future issuance under our 2018 Plan as of the date hereof, which will be effective upon the completion of this offering and the concurrent private placement. To the extent the options are exercised, there will be further dilution to new investors. The foregoing tables and calculations also do not give effect to the exchange of the Exchangeable Shares for an indirect equity interest in our common stock.
The above discussion and tables are based on the number of shares outstanding at December 31, 2017. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in further dilution to our stockholders.
66
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth selected historical consolidated financial data for the periods as of the dates indicated. We derived the consolidated statements of operations data for the years ended December 31, 2017, 2016, and 2015, and the consolidated balance sheet data as of December 31, 2017, 2016, and 2015, from our audited consolidated financial statements included elsewhere in this prospectus.
Our historical results are not necessarily indicative of future results of operations. You should read the information set forth below together with Prospectus SummarySummary Historical Consolidated Financial and Other Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, Capitalization and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.
Year ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
(Dollars in millions, except share and per share
amounts) |
||||||||||||
Consolidated Statements of Operations Data: |
||||||||||||
Total revenue |
$ | 750.7 | $ | 704.2 | $ | 693.9 | ||||||
Cost of revenue |
457.7 | 445.3 | 413.1 | |||||||||
Selling, general, and administrative expenses |
253.0 | 249.8 | 245.5 | |||||||||
Other expense, net |
7.4 | 13.2 | 27.8 | |||||||||
Interest expense, net |
87.1 | 87.4 | 87.8 | |||||||||
|
|
|
|
|
|
|||||||
Loss from continuing operations before income taxes |
(54.5 | ) | (91.5 | ) | (80.3 | ) | ||||||
Income tax (benefit) expense |
(44.7 | ) | 17.8 | 8.6 | ||||||||
|
|
|
|
|
|
|||||||
Loss from continuing operations |
(9.8 | ) | (109.3 | ) | (88.9 | ) | ||||||
(Loss) income from discontinued operations |
(0.7 | ) | 16.5 | (15.8 | ) | |||||||
|
|
|
|
|
|
|||||||
Net loss |
(10.5 | ) | (92.8 | ) | (104.7 | ) | ||||||
Net (loss) income attributable to noncontrolling interest |
(1.3 | ) | 0.1 | | ||||||||
|
|
|
|
|
|
|||||||
Net loss attributable to Ceridian |
$ | (9.2 | ) | $ | (92.9 | ) | $ | (104.7 | ) | |||
|
|
|
|
|
|
|||||||
Net loss per share attributable to Ceridian: |
||||||||||||
Basic |
$ | (0.46 | ) | $ | (1.65 | ) | $ | (1.61 | ) | |||
Diluted |
$ | (0.46 | ) | $ | (1.65 | ) | $ | (1.61 | ) | |||
Weighted average shares outstanding: |
||||||||||||
Basic |
65,204,960 | 64,988,338 | 64,924,845 | |||||||||
Diluted |
65,204,960 | 64,988,338 | 64,924,845 |
As of December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
(Dollars in millions) | ||||||||||||
Consolidated Balance Sheet Data: |
||||||||||||
Cash and equivalents |
$ | 99.6 | $ | 131.4 | $ | 63.2 | ||||||
Total assets |
6,729.9 | 6,326.0 | 6,984.9 | |||||||||
Long-term debt (1) |
1,119.8 | 1,139.8 | 1,143.4 | |||||||||
Total liabilities |
5,600.9 | 5,307.4 | 6,030.1 | |||||||||
Working capital |
49.9 | 66.0 | 41.7 | |||||||||
Total stockholders equity |
$ | 1,091.2 | $ | 979.9 | $ | 954.8 |
(1) | Excludes the current portion of our long-term debt of $0.0 million as of December 31, 2017, $2.3 million as of December 31, 2016, and $7.0 million as of December 31, 2015. |
67
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data consists of unaudited pro forma consolidated statement of operations and unaudited pro forma condensed consolidated statement of cash flows for the year ended December 31, 2017 and an unaudited pro forma consolidated balance sheet as of December 31, 2017. You should read the information set forth below together with Prospectus SummarySummary Historical Consolidated Financial and Other Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, the historical consolidated annual financial statements and the corresponding notes included elsewhere in this prospectus. The unaudited pro forma consolidated statement of operations and unaudited pro forma condensed consolidated statement of cash flows for the year ended December 31, 2017 and the unaudited pro forma consolidated balance sheet as of December 31, 2017 have been adjusted to give effect to the distribution of shares of LifeWorks Disposition. The stockholders will receive these interests in a taxable distribution. Based on current estimates of the value of our interest in LifeWorks at the time of the LifeWorks Disposition, we currently anticipate that we will incur approximately $3.2 million of foreign taxes and use approximately $96.0 million of our U.S. federal net operating losses to offset the U.S. tax gain. The net operating losses are currently subject to a full valuation allowance, therefore, the tax gain recognition and resulting use of the net operating loss and release of the valuation allowance result in no anticipated U.S. tax expense.
The following unaudited pro forma consolidated balance sheet, statement of operations, and statement of cash flows have been derived from our historical consolidated financial statements included elsewhere in this prospectus. The statements are for informational purposes only and do not purport to represent what our financial position and results of operations actually would have been had the LifeWorks Disposition occurred on the dates indicated, or to project our financial performance for any future period.
The unaudited pro forma consolidated balance sheet adjustments assume that our distribution of LifeWorks occurred as of December 31, 2017. The pro forma adjustments to the unaudited pro forma consolidated statements of operations and unaudited pro forma condensed consolidated statement of cash flows for the year ended December 31, 2017 assume that the separation occurred as of January 1, 2017.
The adjustment amounts primarily represent the LifeWorks segment amounts as presented in our financial statements with the addition of $3.2 million of foreign tax expense expected to be incurred by the Company as a result of expected gains recognized on the taxable distribution of LifeWorks to our stockholders. The adjustment to the income tax (benefit) expense is comprised of two components: (i) the elimination of the LifeWorks tax expense of $4.9 million, and (ii) the addition of the $3.2 million expected tax expense to be incurred on the distribution. No pro forma adjustments are necessary for the expected use of net operating losses to offset taxable gains expected in the U.S., as they are subject to a full valuation allowance and would not have an impact on our financial statements. No other adjustments were necessary.
68
Ceridian HCM Holding Inc.
Unaudited Pro Forma Consolidated Statement of Operations Year Ended December 31, 2017 |
||||||||||||
Ceridian Historical | Adjustments | Ceridian Pro Forma | ||||||||||
(Dollars in millions) | ||||||||||||
Revenue: |
||||||||||||
Recurring services |
$ | 678.4 | $ | 79.9 | $ | 598.5 | ||||||
Professional services and other |
72.3 | | 72.3 | |||||||||
|
|
|
|
|
|
|||||||
Total revenue |
750.7 | 79.9 | 670.8 | |||||||||
Cost of revenue: |
||||||||||||
Recurring services |
239.6 | 42.8 | 196.8 | |||||||||
Professional services and other |
135.8 | | 135.8 | |||||||||
Product development and management |
50.4 | 6.8 | 43.6 | |||||||||
Depreciation and amortization |
31.9 | 0.6 | 31.3 | |||||||||
|
|
|
|
|
|
|||||||
Total cost of revenue |
457.7 | 50.2 | 407.5 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
293.0 | 29.7 | 263.3 | |||||||||
Costs and expenses: |
||||||||||||
Selling, general, and administrative |
253.0 | 30.0 | 223.0 | |||||||||
Other expense, net |
7.4 | 0.1 | 7.3 | |||||||||
Interest expense, net |
87.1 | | 87.1 | |||||||||
|
|
|
|
|
|
|||||||
Total costs and expenses |
347.5 | 30.1 | 317.4 | |||||||||
|
|
|
|
|
|
|||||||
Loss from continuing operations before income taxes |
(54.5 | ) | (0.4 | ) | (54.1 | ) | ||||||
Income tax (benefit) expense |
(44.7 | ) | 1.7 | (46.4 | ) | |||||||
|
|
|
|
|
|
|||||||
Loss from continuing operations |
(9.8 | ) | (2.1 | ) | (7.7 | ) | ||||||
(Loss) income from discontinued operations |
(0.7 | ) | | (0.7 | ) | |||||||
|
|
|
|
|
|
|||||||
Net loss |
(10.5 | ) | (2.1 | ) | (8.4 | ) | ||||||
Net (loss) income attributable to noncontrolling interest |
(1.3 | ) | (1.3 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net loss attributable to Ceridian |
$ | (9.2 | ) | $ | (0.8 | ) | $ | (8.4 | ) | |||
|
|
|
|
|
|
69
Ceridian HCM Holding Inc.
Unaudited Pro Forma Consolidated Balance Sheet Year Ended December 31, 2017 |
||||||||||||
Ceridian Historical | Adjustments | Ceridian Pro Forma | ||||||||||
(Dollars in millions) | ||||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and equivalents |
$ | 99.6 | $ | 8.5 | $ | 91.1 | ||||||
Trade and other receivables, net |
79.9 | 13.3 | 66.6 | |||||||||
Prepaid expenses |
37.9 | 1.5 | 36.4 | |||||||||
Other current assets |
5.3 | | 5.3 | |||||||||
|
|
|
|
|
|
|||||||
Total current assets before customer trust funds |
222.7 | 23.3 | 199.4 | |||||||||
Customer trust funds |
4,099.7 | | 4,099.7 | |||||||||
|
|
|
|
|
|
|||||||
Total current assets |
4,322.4 | 23.3 | 4,299.1 | |||||||||
Property, plant, and equipment, net |
103.8 | 1.8 | 102.0 | |||||||||
Goodwill |
2,087.3 | 126.3 | 1,961.0 | |||||||||
Other intangible assets, net |
212.4 | 5.9 | 206.5 | |||||||||
Other assets |
4.0 | 2.1 | 1.9 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 6,729.9 | $ | 159.4 | $ | 6,570.5 | ||||||
|
|
|
|
|
|
|||||||
Liabilities and Equity |
||||||||||||
Current liabilities: |
||||||||||||
Current portion of long-term debt |
$ | | $ | | $ | | ||||||
Accounts payable |
48.8 | 4.4 | 44.4 | |||||||||
Accrued interest |
15.9 | | 15.9 | |||||||||
Deferred revenue |
16.8 | 2.8 | 14.0 | |||||||||
Employee compensation and benefits |
70.0 | 1.3 | 68.7 | |||||||||
Other accrued expenses |
15.5 | 0.1 | 15.4 | |||||||||
|
|
|
|
|
|
|||||||
Total current liabilities before customer trust funds obligations |
167.0 | 8.6 | 158.4 | |||||||||
Customer trust funds obligations |
4,105.5 | | 4,105.5 | |||||||||
|
|
|
|
|
|
|||||||
Total current liabilities |
4,272.5 | 8.6 | 4,263.9 | |||||||||
Long-term debt, less current portion |
1,119.8 | | 1,119.8 | |||||||||
Employee benefit plans |
152.4 | | 152.4 | |||||||||
Other liabilities |
56.2 | 10.6 | 45.6 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
5,600.9 | 19.2 | 5,581.7 | |||||||||
Total equity |
1,129.0 | 140.2 | 988.8 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities and equity |
$ | 6,729.9 | $ | 159.4 | $ | 6,570.5 | ||||||
|
|
|
|
|
|
70
Ceridian HCM Holding
Inc.
Unaudited Pro Forma Condensed Consolidated Statement of Cash Flows Year Ended December 31, 2017 |
||||||||||||
Ceridian Historical | Adjustments | Ceridian Pro Forma | ||||||||||
(Dollars in millions) | ||||||||||||
Net loss |
$ | (10.5 | ) | $ | (2.1 | ) | $ | (8.4 | ) | |||
Loss from discontinued operations |
0.7 | | 0.7 | |||||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Deferred income tax benefit |
(65.0 | ) | (2.6 | ) | (62.4 | ) | ||||||
Depreciation and amortization |
57.9 | 4.1 | 53.8 | |||||||||
Share-based compensation |
17.2 | 1.1 | 16.1 | |||||||||
Other |
4.2 | 1.1 | 3.1 | |||||||||
Changes in operating assets and liabilities excluding effects of acquisitions and divestitures |
(43.6 | ) | (5.5 | ) | (38.1 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash used in operating activitiescontinuing operations |
(39.1 | ) | (3.9 | ) | (35.2 | ) | ||||||
Net cash used in operating activitiesdiscontinued operations |
(0.7 | ) | | (0.7 | ) | |||||||
|
|
|
|
|
|
|||||||
Net cash used in operating activities |
(39.8 | ) | (3.9 | ) | (35.9 | ) | ||||||
Cash Flows from Investing Activities |
||||||||||||
Purchase of customer trust funds marketable securities |
(598.5 | ) | | (598.5 | ) | |||||||
Proceeds from sale and maturity of customer trust funds marketable securities |
610.2 | | 610.2 | |||||||||
Net change in restricted cash and other restricted assets held to satisfy customer trust funds obligations |
(367.8 | ) | | (367.8 | ) | |||||||
Expenditures for property, plant, and equipment |
(17.7 | ) | (0.2 | ) | (17.5 | ) | ||||||
Expenditures for software and technology |
(33.1 | ) | | (33.1 | ) | |||||||
Net payments from divestitures |
(0.5 | ) | | (0.5 | ) | |||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(407.4 | ) | (0.2 | ) | (407.2 | ) | ||||||
Cash Flows from Financing Activities |
||||||||||||
Increase in customer trust funds obligations, net |
356.1 | | 356.1 | |||||||||
Proceeds from issuance of stock |
78.4 | | 78.4 | |||||||||
Repurchase of stock |
(1.8 | ) | | (1.8 | ) | |||||||
Repayment of long-term debt obligations |
(25.9 | ) | | (25.9 | ) | |||||||
|
|
|
|
|
|
|||||||
Net cash provided by financing activities |
406.8 | | 406.8 | |||||||||
Effect of Exchange Rate Changes on Cash |
8.6 | 2.0 | 6.6 | |||||||||
|
|
|
|
|
|
|||||||
Net decrease in cash and equivalents |
(31.8 | ) | (2.1 | ) | (29.7 | ) | ||||||
Cash and equivalents at beginning of year |
131.4 | 10.6 | 120.8 | |||||||||
|
|
|
|
|
|
|||||||
Cash and equivalents at end of year |
$ | 99.6 | $ | 8.5 | $ | 91.1 | ||||||
|
|
|
|
|
|
|||||||
Supplemental Cash Flow Information: |
||||||||||||
Cash paid for interest |
$ | 89.7 | $ | | $ | 89.7 | ||||||
Cash paid for income taxes |
$ | 24.6 | $ | 0.1 | $ | 24.5 | ||||||
Cash received from income tax refunds |
$ | 1.9 | $ | | $ | 1.9 |
71
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial condition and results of operations as of, and for, the periods presented. You should read the following discussion and analysis of our financial condition and results of operations together with the sections entitled Prospectus Summary Summary Historical Consolidated Financial and Other Data, Risk Factors, Cautionary Note Regarding Forward-Looking Statements, Selected Historical Consolidated Financial Data, and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. This discussion and analysis contains forward-looking statements, including statements regarding industry outlook, our expectations for the future of our business, and our liquidity and capital resources as well as other non-historical statements. These statements are based on current expectations and are subject to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in Risk Factors and Cautionary Note Regarding Forward-Looking Statements. Our actual results may differ materially from those contained in or implied by these forward-looking statements.
Overview
Ceridian is a global HCM software company. Dayforce, our flagship cloud HCM platform, provides HR, payroll, benefits, workforce management, and talent management functionality. Our platform is used by organizations, regardless of industry or size, to optimize management of the entire employee lifecycle, including attracting, engaging, paying, deploying, and developing their people. Dayforce was built as a single application from the ground up that combines a modern, consumer-grade user experience with proprietary application architecture, including a single employee record and a rules engine spanning all areas of HCM. Our platform is designed to make work life better for our customers and their employees by improving HCM decision-making processes, streamlining workflows, exposing strategic organizational insights, and simplifying legislative compliance. The platform is designed to ease administrative work for both employees and managers, creating opportunities for companies to increase employee engagement. We are a founder-led organization, and our culture combines the agility and innovation of a start-up with a history of deep domain and operational expertise.
We sell Dayforce through our direct sales force on a subscription PEPM basis. Our subscriptions are typically structured with an initial fixed term of between three and five years, with evergreen renewal thereafter. Dayforce can serve customers of all sizes ranging from 100 to over 100,000 employees. We have rapidly grown the Dayforce platform to more than 3,000 live Dayforce customers, representing over 2.5 million active global users as of December 31, 2017. In 2017, we added over 650 new live Dayforce customers. Our customers vary across industries, and no single customer constituted more than 1% of our HCM revenues for the year ended December 31, 2017. We have experienced significant Cloud revenue growth at scale, particularly from Dayforce, which has grown at a CAGR of more than 60% since 2012. We believe that our intense focus on solving complex problems and our superior customer experience lead to our high retention rates, as evidenced by our annual Cloud revenue retention rate of over 95% in 2017.
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The following table presents Dayforce revenue by quarter from 2012 to 2017.
In addition to Dayforce, we sell Powerpay, a cloud HR and payroll solution for the Canadian small business market, through both direct sales and established partner channels. As of December 31, 2017, we had over 38,000 Powerpay accounts. We also continue to support customers using our Bureau solutions, which we generally stopped actively selling to new customers following the acquisition of Dayforce. We invest in maintenance and necessary updates to support our Bureau customers and continue to migrate them to Dayforce. We also own a controlling financial interest in a joint venture, LifeWorks, which offers an employee engagement platform that delivers employee assistance programs, social recognition, exclusive perks and discounts, a private social network, employee and corporate wellness programs, and employee engagement analytics in the United States, Canada, and the United Kingdom.
Our backlog amounts represent estimated Dayforce PEPM revenue on signed contracts that have not yet been taken live. Dayforce PEPM revenues have typically represented approximately 77% of total contract value and exclude such items as implementation, staging, clocks, and training. At December 31, 2017, we had an estimated PEPM revenue backlog of approximately $208.0 million, representing approximately $69.0 million of annualized PEPM revenues with a typical three-year contract term, compared with approximately $189.0 million of backlog as of December 31, 2016, representing approximately $63.0 million of annualized PEPM revenues. We monitor the underlying projects on an account-by-account basis and expect approximately 90% of the Dayforce contract backlog as of December 31, 2017, to be taken live in 2018. In addition, we had an immaterial amount of Powerpay backlog at December 31, 2017. We do not believe that backlog is a meaningful indicator of revenues that can be expected for a particular future period as the amount and timing can be influenced by multiple factors, including the timing of the completion of implementation, the accuracy and success of implementation services provided by us and others, the timing in which new customers go-live, and our ability to meet service level commitments. As a result, there can be no assurance that backlog at any point in time will translate into revenue in any particular subsequent period.
How We Generate Revenue
We generate recurring revenues primarily from recurring fees charged for the use of our Cloud HCM solutions, Dayforce and Powerpay, as well as from our Bureau solutions and LifeWorks joint venture. We also generate professional services and other revenue associated primarily with the work performed to assist customers with the planning, design, implementation, and staging of their cloud-based solution. Our HCM solutions are typically provided through long-term customer relationships that result in a high level of recurring revenue. For Dayforce, we primarily charge monthly recurring fees on
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a PEPM basis, generally one-month in advance of service, based on the number and type of solutions provided to the customer and the number of employees and other users at the customer. Our standard Dayforce contracts are generally for a three to five-year period. The average time it takes to implement Dayforce typically ranges from three months for smaller customers to nine months for larger customers. Once Dayforce is implemented, the customer goes live, and we begin to generate recurring revenue. For Powerpay, we charge customers recurring fees on a per-employee, per-process basis. Powerpay can typically be implemented on a remote basis within one to three days, at which point we start receiving recurring fees, resulting in an immaterial amount of Powerpay backlog. For our Bureau solutions, we primarily charge recurring fees on a per-process basis. We also generate recurring revenue from investment income from funds held in trust on behalf of our customers. Our LifeWorks joint venture also generates recurring revenue, primarily from employee assistance, wellness, recognition, and incentive programs.
Our Solutions
We categorize our solutions into three categories: Cloud HCM, Bureau HCM, and LifeWorks solutions.
Cloud revenue is generated from HCM solutions that are delivered via two cloud offerings: Dayforce and Powerpay. The Dayforce offering is differentiated from our market competition as being a single application that offers a comprehensive range of functionality, including global HR, payroll, benefits, workforce management, and talent management on web and native iOS and Android platforms. Dayforce revenue is primarily generated from monthly recurring fees charged on a PEPM basis, generally one-month in advance of service. Also included within Dayforce revenue is implementation, staging, and other professional services revenue; revenues from the sale, rental, and maintenance of time clocks; and billable travel expenses. The Powerpay offering is our solution designed primarily for small market Canadian customers. The typical Powerpay customer has fewer than 20 employees, and the majority of the revenue is generated from recurring fees charged on a per-employee, per-process basis. Typical processes include the customers payroll runs, year-end tax packages, and delivery of customers remittance advices or checks. In addition to the direct revenue earned from the Dayforce and Powerpay offerings, Cloud revenue also includes investment income generated from holding Cloud customer funds in trust before funds are remitted to taxing authorities, Cloud customer employees, or other third parties; and revenue from the sale of third party services.
Bureau revenue is generated primarily from HCM solutions delivered via a service-bureau model. These solutions are delivered via three primary service lines: payroll, payroll-related tax filing services, and outsourced human resource solutions. Revenue from payroll services is generated from recurring fees charged on a per-process basis. Typical processes include the customers payroll runs, year-end tax packages, and delivery of customers remittance advices or checks. In addition to customers who use our payroll services, certain customers use our tax filing services on a stand-alone basis. Our outsourced human resource solutions are tailored to meet the needs of individual customers, and entail our contracting to perform many of the duties of a customers human resources department, including payroll processing, time and labor management, performance management, and recruiting. We also perform HCM-related individual services for customers, such as check printing, wage attachment and disbursement, and ACA management. Additional items included in Bureau revenue are custom professional services revenue; investment income generated from holding Bureau customer funds in trust before funds are remitted to taxing authorities, Bureau customer employees, or other third parties; consulting services related to Bureau offerings; and revenue from the sale of third party services.
LifeWorks joint venture revenue is primarily generated from employee assistance, wellness, recognition, and incentive programs offered directly by LifeWorks in the United States, Canada, the United Kingdom and various other countries through LifeWorks network of contractors. LifeWorks offers employee engagement services, such as employee assistance programs, social recognition,
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discounts from participating vendors, a private social network, employee and corporate wellness, and employee engagement analytics.
Our History
Ceridian was acquired in 2007 by affiliates and co-investors of the Sponsors. In April 2012, Ceridian acquired Dayforce Corporation, which had built Dayforce, a Cloud HCM solution. In the months following the acquisition, Dayforce founder, David D. Ossip, was named Chief Executive Officer of Ceridian HCM, and shortly thereafter, we generally stopped actively selling our Bureau solutions to new customers in the United States to focus our resources on expanding the Dayforce platform and growing Cloud HCM solutions. For each quarter since September 30, 2016, our Cloud HCM revenue has surpassed our Bureau HCM revenue. Cloud revenue grew from 39% of total HCM revenue during the quarter ended December 31, 2015 to 64% of total HCM revenue during the quarter ended December 31, 2017.
As part of our strategy to focus on the growth of our Cloud HCM solutions business, we (i) sold our consumer-directed benefit services business in 2013, (ii) merged Comdata, our payment systems business unit, with FleetCor Technologies in 2014, (iii) sold our benefits administration and post-employment compliance business in 2015, and (iv) sold our United Kingdom and Ireland businesses and a portion of our operations that supported such businesses in the Republic of Mauritius in 2016. Our benefits administration and post-employee compliance business, our United Kingdom and Ireland businesses, and our divested Mauritius operations are presented as discontinued operations in our financial statements. Our consumer-directed benefits services business and our benefits administration and post-employment compliance business are collectively referred to as our Divested Benefits Businesses. As a result of these transactions, we only actively sell Dayforce and Powerpay in our HCM segment, which we believe simplifies our business model and positions us well for continued growth. In 2016, we contributed our LifeWorks employee assistance program business to a joint venture LifeWorks that provides employee assistance, wellness, recognition, and incentives programs in the United States, Canada, and the United Kingdom. Prior to the formation of the LifeWorks joint venture, employee assistance programs were provided by Ceridian.
LifeWorks Disposition
Contemporaneous with this offering, we intend to distribute our interest in LifeWorks to our existing stockholders on a pro rata basis in accordance with their pro rata interests in us . The investors in this offering will not receive any interests in LifeWorks as a result of the LifeWorks Disposition. As a result of the LifeWorks Disposition, we will no longer have any material obligations under the LifeWorks joint venture agreement. In addition, upon completion of the LifeWorks Disposition, LifeWorks will no longer be a separate segment and will be reclassified to discontinued operations in our consolidated financial statements for all periods presented. LifeWorks accounted for $79.9 million in revenue and $0.4 million in operating loss for the year ended December 31, 2017. As a result, our consolidated revenues and operating profit are expected to decline in the near term. Additionally, we will no longer have a noncontrolling interest on our consolidated balance sheets or statements of operations. At the time of the distribution, the interests in LifeWorks received by our existing stockholders will be valued at approximately $96.0 million. The stockholders will receive these interests in a taxable distribution. Based on current estimates of the value of our interest in LifeWorks at the time of the distribution, we currently anticipate that we will incur approximately $3.2 million of foreign taxes and use approximately $96.0 million of our U.S. federal net operating losses to offset the tax gain in the U.S. in connection with the distribution. The net operating losses are currently subject to a full valuation allowance, therefore, the tax gain recognition and resulting use of the net operating loss and release of the valuation allowance result in no anticipated U.S. tax expense.
Our Business Model
Our business model focuses on supporting the rapid growth of Dayforce and maximizing the lifetime value of our Dayforce customer relationships. Due to our subscription model, where we recognize
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subscription revenues ratably over the term of the subscription period, and high customer retention rates, we have a high level of visibility into our future revenues. The profitability of a customer to our business depends, in large part, on how long they have been a customer. Because in our business model, PEPM subscription fees are not charged until the customer goes live, and because we incur costs in advance of receiving PEPM revenue that are not offset by our implementation fees, we estimate that it takes an average of 2.5 years before we are able to recover our implementation, customer acquisition, and other direct costs on a new Dayforce customer contract. As the proportion of Dayforce customers who have been live for two or more years increases, our related profitability increases. The following sets forth the number of live Dayforce customers at the end of each quarter presented:
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Live Dayforce customers |
3,001 | 2,855 | 2,690 | 2,480 | 2,339 | 2,148 | 2,014 | 1,872 | ||||||||||||||||||||||||
Dayforce customers live for two or more years |
1,770 | 1,628 | 1,524 | 1,377 | 1,276 | 1,116 | 997 | 816 | ||||||||||||||||||||||||
Proportion of Dayforce customers live for two or more years |
59 | % | 57 | % | 57 | % | 56 | % | 55 | % | 52 | % | 50 | % | 44 | % |
Over the lifetime of the customer relationship, we have the opportunity to realize additional PEPM revenue, both as the customer grows or rolls out the Dayforce solution to additional employees, and also by selling additional functionality to existing customers that do not currently utilize our full platform. We also incur costs to manage the account, to retain customers, and to sell additional functionality. These costs, however, are significantly less than the costs initially incurred to acquire and to implement the customer.
Key Factors and Trends Affecting Our Results of Operations
Set forth below is a discussion of some of the key factors and trends affecting our results of operations.
Growing our Dayforce Customer Base
A key part of our strategy is to continue to grow our Dayforce customer base. We have developed sales and marketing efforts that are designed for effective customer acquisition. As of December 31, 2017, we had more than 3,000 live Dayforce customers and over 500 net new Dayforce customers contracted, but not yet live on Dayforce. We expect the majority of these Dayforce customers to be taken live in 2018. We market Dayforce to customers of all sizes, including small (under 500 employees), mid (501 to 2,500 employees), and enterprise (over 2,500 employees). For 2017, our 3,001 live Dayforce customers represented over 2.5 million active employees. Small businesses accounted for 13% of the total number of active customer employees. Mid-sized business accounted for 31% of the total number of active customer employees. Enterprise-sized business accounted for 56% of the total number of active customer employees. Our continued focus on sales execution is important to drive further penetration of the Dayforce platform and to expand our market share. We also believe that there is a significant opportunity for our solution outside of our core North American markets. Dayforce was designed as a global platform. We intend to expand globally through both the expansion of our own proprietary payroll functionality as well as through new and existing partnerships with local vendors, including our existing
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membership in the Payroll Services Alliance. To the extent we are unable to develop new or existing partnerships or such partnerships are not successful in increasing demand for Dayforce, we may not be able to grow our Dayforce customer base as anticipated.
Extending Product Leadership
We are committed to delivering market-leading HCM solutions preferred by employers and employees alike. We believe that maintaining our product leadership is critical to driving further revenue growth. Our leading market position in technology is based on our ability to innovate and to bring new solutions to market. Dayforce is designed around our proprietary single application architecture that includes a single cross-domain rules engine and a complete employee record, which facilitates new innovation. Since 2012, we have developed a full suite of HCM functionality. We intend to continue extending the functionality and breadth of our application in the future, taking advantage of modern technologies including artificial intelligence and big data. We have a roadmap for continued development, which includes adding native payroll capabilities for additional countries. We intend to continue to invest in our product development and innovation to maintain our strong, differentiated technology position.
Retaining and Expanding Revenue from Existing Dayforce Customers
The economic benefits of our business model include persistent, long-lived customer relationships, as well as the opportunity to realize additional revenue from existing customers. Our annual Cloud revenue retention rate was over 95% in 2017, reflecting high retention rates with Dayforce customers, driving strong customer lifetime value. Because our subscription revenue is based on a PEPM charge, as customers grow and add more employees, we realize a corresponding increase in PEPM revenue. Moreover, with the continued launch of new functionality for our Dayforce platform, we have the opportunity to realize incremental revenue by selling additional functionality to existing customers that do not currently utilize our full platform. We believe that this opportunity is particularly strong in the enterprise segment, where customers often start with a subset of our Dayforce platform in conjunction with point solutions from other vendors that we target to replace over time.
Managing the Migration of our Bureau Customers to Dayforce
We generally stopped actively selling our Bureau solutions to new customers in the United States in 2012 and have been marketing our Dayforce platform to new and existing customers since that time. For the year ended December 31, 2017, recurring services revenue from payroll Bureau customers accounted for $210.2 million and tax-only Bureau recurring services revenue accounted for $52.1 million. The payroll Bureau customers consist of approximately 1.9 million active users, of which approximately 1.7 million of these active users are with customers that we believe could be candidates for migration to Dayforce. Some of our customers are not candidates to migrate to Dayforce due to a variety of factors, including the type of functionality that they require and their system configuration. Of the approximately 1.7 million active users, small-sized businesses accounted for 20% of the total number of active users, mid-sized businesses accounted for 30% of the total number of active users, and enterprise-sized businesses accounted for 50% of the total number of active users. In the year ended December 31, 2017, Bureau revenue declined by $59.3 million, or 18.2%, as compared to the year ended December 31, 2016; and for the year ended December 31, 2016, Bureau revenue declined by $61.1 million, or 15.8%, as compared to the year ended December 31, 2015. Of the $59.3 million decline in Bureau revenue in the year ended December 31, 2017, $28.1 million was associated with customers migrating to Dayforce, which represented 26% of the increase in Cloud revenue during this period. Of the $61.1 million decline in Bureau revenue in 2016, $19.5 million was associated with customers migrating to Dayforce, which represented 27% of the increase in Cloud revenue in 2016. Excluding the impact of migrations, our annual Bureau revenue retention rate was 89.7% in 2017, 87.4% in 2016, and 90.5% in 2015. As the number of Bureau customers continues to decline, our results of operations will depend, in part, on replacing the revenue from Bureau customer attrition and on maintaining the profitability of services to our remaining Bureau customers. We believe that our
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cloud Dayforce platform is attractive to many customers that currently use an outsourced service bureau for their payroll and HCM-related needs; and, as a result, that sales to new customers and sales of managed services and additional functionality to our growing Dayforce customer base will continue to more than offset the decline in revenue from Bureau customers. We also believe that we will continue to be able to provide services to our remaining Bureau customers at attractive margins. As we migrate our Bureau customers to Dayforce, we typically experience a revenue increase from such customers driven by increased product density on the Dayforce platform. This revenue increase can vary by customer, but has been 22% on average since 2015, measured at the time of initial migration.
Profitably Managing our Growth
We carefully designed and built Dayforce to meet the needs of a homogeneous market with a common set of requirements and compliance challenges across organization sizes and industries. To support our rapid growth, we have rigorously managed our implementation and customer support operations to maintain consistent, repeatable methods and processes and to take advantage of automation. We believe that our business model enables us to realize significant operating leverage and economies of scale and that we can continue to acquire, to implement, and to support more customers and to generate more revenue without a corresponding increase in expenses. Our profitability depends in part upon our ability to achieve a balance in the timing and magnitude of required investments in sales and marketing, implementation, and customer support.
How We Assess Our Performance
In assessing our performance, we consider a variety of performance indicators in addition to revenue and net income. Set forth below is a description of our key performance measures.
The following table sets forth our key performance indicators for the periods presented.
Year ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Live Dayforce customers |
3,001 | 2,339 | 1,770 | |||||||||
Annual Cloud revenue retention rate (a) |
97.0 | % | 95.7 | % | 95.0 | % | ||||||
Cloud annualized recurring revenue (ARR) (a) (Dollars in millions) |
$ | 391.0 | $ | 289.7 | $ | 209.6 | ||||||
HCM Adjusted EBITDA (b) (Dollars in millions) |
$ | 117.8 | $ | 88.9 | $ | 99.7 | ||||||
HCM Adjusted EBITDA margin |
17.6 | % | 14.3 | % | 16.3 | % |
(a) | Annual Cloud revenue retention rate and Cloud annualized recurring revenue are calculated on an annual basis, and the disclosure reflects data as of the most recent fiscal year end. See below for further explanation. |
(b) | For a reconciliation of HCM Adjusted EBITDA to HCM operating profit, please see Prospectus SummarySummary Historical Consolidated Financial and Other Data. |
Live Dayforce Customers
In our business model, PEPM subscription fees are not charged until the customer goes live on the platform, and we use the number of customers live on Dayforce as an indicator of future revenue and the overall performance of the business and to assess the performance of our implementation services. As shown in the following table, the number of customers live on Dayforce has increased from 482 as of December 31, 2012 to 3,001 as of December 31, 2017. In addition, we had over 500 net new Dayforce customers contracted, but not yet live on Dayforce as of December 31, 2017. We expect the majority of these Dayforce customers to be taken live in 2018. For 2017, our 3,001 live Dayforce customers represented over 2.5 million active users. Small-sized businesses accounted for
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13% of the total number of active customer employees, mid-sized businesses accounted for 31% of the total number of active customer employees, and enterprise-sized businesses accounted for 56% of the total number of active customer employees.
From 2016 to 2017, live Dayforce customers increased from 2,339 to 3,001, an increase of 662, of which 467 represented net new customers to Dayforce and the remainder were migration customers from our Bureau solutions, net of attrition. Of the net new customers to Dayforce, small-sized businesses accounted for 13% of the total number of active customer employees, mid-sized businesses accounted for 33% of the total number of active customer employees, and enterprise-sized businesses accounted for 54% of the total number of active customer employees. Of the migration customers, small-sized businesses accounted for 20% of the total number of active customer employees, mid-sized businesses accounted for 48% of the total number of active customer employees, and enterprise-sized businesses accounted for 32% of the total number of active customer employees.
From 2015 to 2016, live Dayforce customers increased from 1,770 to 2,339, an increase of 569, of which 351 represented net new customers to Dayforce and the remainder were migration customers from our Bureau solutions, net of attrition. Of the net new customers to Dayforce, small-sized businesses accounted for 10% of the total number of active customer employees, mid-sized businesses accounted for 29% of the total number of active customer employees, and enterprise-sized businesses accounted for 61% of the total number of active customer employees. Of the migration customers, small-sized businesses accounted for 12% of the total number of active customer employees, mid-sized businesses accounted for 44% of the total number of active customer employees, and enterprise-sized businesses accounted for 44% of the total number of active customer employees.
The following table sets forth the number of live Dayforce customers at the end of the year presented:
Annual Cloud Revenue Retention Rate
Our annual Cloud revenue retention rate measures the percentage of revenues that we retain from our existing Cloud customers. We use this retention rate as an indicator of customer satisfaction and future revenues. We calculate the annual Cloud revenue retention rate as a percentage, where the numerator is the Cloud annualized recurring revenue for the prior year, less the Cloud annualized recurring revenue from lost Cloud customers during that year; and the denominator is the Cloud annualized recurring revenue for the prior year. Our annual Cloud revenue retention rate has been 95% or above for the years ended December 31, 2017, 2016, and 2015. We set annual targets for Cloud revenue retention rate and monitor progress toward those targets on a quarterly basis by reviewing known customer losses and anticipated future customer losses. Our Cloud revenue retention rate may fluctuate as a result of a number of factors, including the mix of Cloud solutions used by
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customers, the level of customer satisfaction, and changes in the number of users live on our Cloud solutions.
Cloud Annualized Recurring Revenue (ARR)
We derive the majority of our Cloud revenues from recurring fees, primarily PEPM subscription charges. We also derive recurring revenue from fees related to the rental and maintenance of clocks, charges for once-a-year services, such as year-end tax statements, and investment income on our customer funds held in trust before such funds are remitted to taxing authorities, customer employees, or other third parties. To calculate Cloud annualized recurring revenue, we start with recurring revenue at year end, subtract the once-a-year charges, gross up the revenue for customers live for less than a full year to reflect the revenue that would have been realized if the customer had been live for a full year, and add back the once-a-year charges. We set annual targets for Cloud annualized recurring revenue and monitor progress toward those targets on a quarterly basis by reviewing Cloud recurring revenue, specifically as between Dayforce and Powerpay business, investment income on our customer funds held in trust, and live Dayforce customers.
HCM Adjusted EBITDA
We believe that HCM Adjusted EBITDA and HCM Adjusted EBITDA margin, non-GAAP financial measures, are useful to management and investors as supplemental measures to evaluate our overall operating performance. HCM Adjusted EBITDA and HCM Adjusted EBITDA margin are components of our management incentive plan and are used by management to assess performance and to compare our operating performance to our competitors. We define HCM Adjusted EBITDA as net income or loss before interest, taxes, depreciation, and amortization, as adjusted to exclude net income or loss from discontinued operations, LifeWorks EBITDA, sponsor management fees, non-cash charges for asset impairments, gains or losses on assets and liabilities held in a foreign currency other than the functional currency of a company subsidiary, non-cash share-based compensation expense, severance charges, restructuring consulting fees, and environmental reserve charges. HCM Adjusted EBITDA margin is determined by calculating the percentage HCM Adjusted EBITDA is of Total HCM Revenue. Management believes that HCM Adjusted EBITDA and HCM Adjusted EBITDA margin are helpful in highlighting management performance trends because HCM Adjusted EBITDA and HCM Adjusted EBITDA margin exclude the results of decisions that are outside the control of operating management. For a reconciliation of HCM Adjusted EBITDA to HCM operating profit, please see Prospectus SummarySummary Historical Consolidated Financial and Other Data.
Components of Our Results of Operations
We have two operating and reportable segments, HCM and LifeWorks. HCM includes both of our Cloud solutions, Dayforce and Powerpay, as well as our Bureau HCM solutions. Our LifeWorks segment reflects the results of our LifeWorks joint venture.
Revenues
We have two categories of revenues: (i) recurring services and (ii) professional services and other. Recurring services revenues consist of the recurring fees that we charge for our Cloud HCM and Bureau HCM solutions, as well as LifeWorks solutions. For our Dayforce solutions, we primarily charge monthly recurring fees on a PEPM basis, generally one-month in advance of service, based on the number and type of solutions provided to the customer and the number of employees at the customer. We charge Powerpay customers recurring fees on a per-employee, per-process basis. For our Bureau HCM solutions, we typically charge recurring fees on a per-process basis. We also generate recurring services revenue from investment income on our Cloud and Bureau customer funds held in trust before such funds are remitted to taxing authorities, customer employees, or other third parties. We refer to this investment income as float revenue. Professional services and other revenues consist primarily of charges relating to the work performed to assist customers with the implementation of their solutions.
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Also included in professional services and other revenues are any related training services, post-implementation professional services, and purchased time clocks. We also generate professional services and other revenues from other professional services and consulting services that we provide and for certain third party services that we arrange for our Bureau customers.
The following table presents our Cloud HCM revenue for both recurring and professional services and other, for both our Dayforce and Powerpay solutions for the periods presented.
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$ | 319.9 | $ | 219.0 | $ | 145.4 | ||||||
Powerpay |
84.4 | 78.8 | 79.8 | |||||||||
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$ | 404.3 | $ | 297.8 | $ | 225.2 | ||||||
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Cloud revenue was $404.3 million during 2017, an increase of 35.8% when compared to 2016. Dayforce revenue grew 46.1% and Powerpay revenue grew 7.1% during 2017 as compared to 2016. Cloud revenue was $297.8 million during 2016, an increase of 32.2% when compared to 2015. Dayforce revenue grew 50.6% and Powerpay revenue declined 1.3% during 2016 as compared to 2015. Our new business sales to Dayforce customers comprised 74% of our increase in Cloud revenue for the year ended December 31, 2017, and the remaining 26% consisted primarily of customer migration to Dayforce from our Bureau solutions.
As we focused on our Cloud HCM solutions, we generally ceased marketing our Bureau solutions to new customers in the United States in 2012 and in Canada in 2015, and have been actively marketing our Dayforce platform to these customers since that time. In the year ended December 31, 2017, Bureau revenue declined by $59.3 million, or 18.2%, as compared to the year ended December 31, 2016; and for the year ended December 31, 2016, Bureau revenue declined by $61.1 million, or 15.8% from the year ended December 31, 2015. Approximately 50% of the decline in Bureau revenue in 2017, and approximately 35% of the Bureau revenue decline in 2016, were attributable to customers migrating to Dayforce.
Our customer trust funds are invested with safety of principal and liquidity as the primary objectives. As a secondary objective, we also seek to maximize float revenue, which is affected by the balances held in our customer trust funds and the interest rates earned on invested funds. The average float balance for our customer trust funds for the year ended December 31, 2017, was $3,228.2 million, compared to $3,260.4 million for the year ended December 31, 2016. The yield was 1.44% during the year ended December 31, 2017, an increase of 24 basis points compared to the year ended December 31, 2016. The average float balances for the years ended December 31, 2016, and 2015, were $3,260.4 million and $3,369.4 million, respectively. The yield was 1.20% during the year ended December 31, 2016, an increase of 10 basis points compared to the year ended December 31, 2015. Based on current investment practices, an increase in market investment rates of 100 basis points would increase float revenue by approximately $16 million over the course of one year. In addition to interest rate risks, we also have exposure to risks associated with changes in laws and regulations that may affect customer fund balances. For example, a change in regulations, either reducing the amount of taxes to be withheld or allowing less time to remit taxes to government authorities would reduce our average customer trust fund balances and float revenue. There are no incremental costs of revenue associated with increases or declines in float revenue.
Cost of Revenue
Cost of revenue consists of costs to deliver our solutions. Most of these costs are recognized as incurred. Some costs of revenue are recognized in the period that a service is sold and delivered. Other costs of revenue are recognized over the period of use or in proportion to the related revenue.
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The costs recognized as incurred consist primarily of customer service staff costs, customer technical support costs, implementation personnel costs, costs of hosting applications, consulting and purchased services, delivery services, and royalties. Our implementation personnel costs increased as we increased personnel to meet growing demand for our Dayforce solutions. Beginning in 2016, the growth in implementation costs has been held to a slower rate than implementation revenues as our personnel have gained more experience and become more productive and as we continue to take advantage of opportunities to automate certain implementation processes. The costs of revenue recognized over the period of use are depreciation and amortization, rentals of facilities and equipment, and direct and incremental costs associated with deferred implementation service revenue.
Cost of recurring services revenues primarily consists of costs to provide maintenance and technical support to our customers and the costs of hosting our applications. The cost of recurring services revenues also includes compensation and other employee-related expenses for data center staff, payments to outside service providers, data center expenses, and networking expenses.
Cost of professional services and other revenues primarily consists of costs to provide implementation consulting services and training to our customers, as well as the cost of time clocks. Costs to provide implementation consulting services include compensation and other employee-related expenses for professional services staff, costs of subcontractors, and travel. We generally stopped actively selling our Bureau solutions to new customers in the United States in 2012, and implementation consulting services are expected to continue to be primarily associated with the implementation of our Cloud solutions.
Product development and management expense includes costs related to software development activities that do not qualify for capitalization, such as development, quality assurance, testing of new technologies, and enhancements to our existing solutions that do not result in additional functionality. Product development and management expense also includes costs related to the management of our solutions. Research and development expense, which is included within product development and management expense, was $25.8 million, $18.1 million and $11.2 million for the years ended December 31, 2017, 2016, and 2015, respectively.
Depreciation and amortization related to cost of revenue primarily consists of amortization of capitalized software.
Selling, General, and Administrative Expense
Selling expense includes costs related to maintaining a direct marketing infrastructure and sales force and other direct marketing efforts, such as advertising, telemarketing, direct mail, and trade shows. Advertising costs are expensed as incurred. Advertising expense was $6.2 million, $6.4 million and $5.7 million for the years ended December 31, 2017, 2016, and 2015, respectively. We generally stopped actively selling our Bureau solutions to new customers in the United States in 2012 and have been marketing our Dayforce platform to new and existing customers since that time. As a result, our sales and marketing expenses are expected to continue to be primarily associated with selling and marketing our Cloud solutions.
General and administrative expense includes costs that are not directly related to delivery of services, selling efforts, or product development and management, primarily consisting of corporate-level costs, such as administration, finance, legal, and human resources, as well as management fees payable to affiliates of our Sponsors, FNF and THLM. Also included in this category are the provision for doubtful accounts receivable, net periodic pension costs, depreciation, and amortization of other intangible assets not reflected in cost of revenue. Upon the consummation of this offering, our management agreements will terminate and we will pay a termination fee of approximately $11.6 million, which amount will be recorded as general and administrative expense in the quarter in which we consummate this offering.
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Other Expense, net
Other expense, net includes the results of transactions that are not appropriately classified in another category. These items include certain foreign currency translation gains and losses, environmental reserve charges, and charges related to the impairment of asset values.
Income Tax Provision
Our income tax provision represents federal, state, and international taxes on our income recognized for financial statement purposes and includes the effects of temporary differences between financial statement income and income recognized for tax return purposes. Our income tax provision is negatively affected by the need for a valuation allowance against our deferred tax assets. We record a valuation allowance to reduce our deferred tax assets when it is more likely than not that all or a portion of the deferred tax assets will not be realized. In determining the requirement for a valuation allowance, we assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize our deferred tax assets not already identified as requiring a valuation allowance. As of December 31, 2017, we continue to record a full valuation allowance against our domestic deferred tax assets that are not offset by the reversal of deferred tax liabilities. In the future, if it is determined that we no longer have a requirement to record a valuation allowance against all or a portion of our deferred tax assets, the release of the valuation allowance would have a positive impact on our income tax provision.
On December 22, 2017, the Tax Cut and Jobs Act legislation (the Act) was enacted. The Act amends the Code to reduce tax rates and modify policies, credits, and deductions for businesses. For businesses, the Act reduces the corporate federal tax rate from a maximum of 35% to a flat 21% rate. We are required to assess the impact of the Act on our business and consolidated financial statements as of the enactment date.
We have re-valued our deferred tax assets and liabilities as of the enactment date for the reduction in the corporate tax rate from 35% to 21%. This revaluation resulted in a tax benefit of $26.4 million in the current period.
The Act makes a significant change related to the carryover treatment of net operating losses. The Act provides for an indefinite carryover period for net operating losses incurred after 2017. We have evaluated the need for a valuation allowance against our deferred tax assets based on the indefinite carryover period for future net operating losses. This evaluation resulted in the decrease of the required valuation allowance currently recorded against our deferred tax assets. This decrease resulted in a tax benefit of $33.0 million.
Share-Based Compensation Expense
We grant share-based compensation awards to certain employees, officers and non-employee directors as long-term incentive compensation. We recognize the related expense for time-based awards ratably over the applicable vesting period. We recognize the related expense for performance-based awards upon the achievement of the performance criteria. Such expense is recognized as either cost of revenue or selling, general, and administrative expense. The following table shows the allocation of share-based compensation expense among our expense line items for the periods presented:
Year ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
(Dollars in millions) | ||||||||||||
Cost of revenue |
$ | 3.0 | $ | 2.8 | $ | 2.9 | ||||||
Selling, general, and administrative |
14.2 | 12.5 | 9.9 | |||||||||
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Total share-based compensation expense |
$ | 17.2 | $ | 15.3 | $ | 12.8 | ||||||
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In addition, based on an assumed initial public offering price of $20.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, we expect to record share-based compensation expense of approximately $30.5 million resulting from the issuance of the IPO Options. Such expense will be recorded as either cost of revenue or selling, general and administrative expense over the life of such awards as they vest, which is expected to be four years. We will incur additional share-based compensation expense in the future related to additional equity grants.
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Results of Operations
Year Ended December 31, 2017 Compared With Year Ended December 31, 2016
The following table sets forth our results of operations for the periods presented.
Year ended
December 31, |
Increase/
(Decrease) |
% of Revenue | ||||||||||||||||||||||
2017 | 2016 | Amount | % | 2017 | 2016 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Revenue: |
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Recurring services |
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Cloud |
$ | 336.2 | $ | 239.5 | $ | 96.7 | 40.4 | % | 44.8 | % | 34.0 | % | ||||||||||||
Bureau |
262.3 | 319.2 | (56.9 | ) | (17.8 | )% | 34.9 | % | 45.3 | % | ||||||||||||||
LifeWorks |
79.9 | 80.6 | (0.7 | ) | (0.9 | )% | 10.6 | % | 11.4 | % | ||||||||||||||
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Total recurring services |
678.4 | 639.3 | 39.1 | 6.1 | % | 90.4 | % | 90.8 | % | |||||||||||||||
Professional services and other |
72.3 | 64.9 | 7.4 | 11.4 | % | 9.6 | % | 9.2 | % | |||||||||||||||
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Total revenue |
750.7 | 704.2 | 46.5 | 6.6 | % | 100.0 | % | 100.0 | % | |||||||||||||||
Cost of revenue: |
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Recurring services |
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Cloud |
125.1 | 85.8 | 39.3 | 45.8 | % | 16.7 | % | 12.2 | % | |||||||||||||||
Bureau |
71.7 | 127.3 | (55.6 | ) | (43.7 | )% | 9.6 | % | 18.1 | % | ||||||||||||||
LifeWorks |
42.8 | 43.2 | (0.4 | ) | (0.9 | )% | 5.7 | % | 6.1 | % | ||||||||||||||
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Total recurring services |
239.6 | 256.3 | (16.7 | ) | (6.5 | )% | 31.9 | % | 36.4 | % | ||||||||||||||
Professional services and other |
135.8 | 115.8 | 20.0 | 17.3 | % | 18.1 | % | 16.4 | % | |||||||||||||||
Product development and management |
50.4 | 49.2 | 1.2 | 2.4 | % | 6.7 | % | 7.0 | % | |||||||||||||||
Depreciation and amortization |
31.9 | 24.0 | 7.9 | 32.9 | % | 4.2 | % | 3.4 | % | |||||||||||||||
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Total cost of revenue |
457.7 | 445.3 | 12.4 | 2.8 | % | 61.0 | % | 63.2 | % | |||||||||||||||
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Gross profit |
293.0 | 258.9 | 34.1 | 13.2 | % | 39.0 | % | 36.8 | % | |||||||||||||||
Costs and expenses: |
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Selling, general, and administrative |
253.0 | 249.8 | 3.2 | 1.3 | % | 33.7 | % | 35.5 | % | |||||||||||||||
Other expense, net |
7.4 | 13.2 | (5.8 | ) | (43.9 | )% | 1.0 | % | 1.9 | % | ||||||||||||||
Interest expense, net |
87.1 | 87.4 | (0.3 | ) | (0.3 | )% | 11.6 | % | 12.4 | % | ||||||||||||||
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Total costs and expenses |
347.5 | 350.4 | (2.9 | ) | (0.8 | )% | 46.3 | % | 49.8 | % | ||||||||||||||
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Loss from continuing operations before income taxes |
(54.5 | ) | (91.5 | ) | 37.0 | 40.4 | % | (7.3 | )% | (13.0 | )% | |||||||||||||
Income tax (benefit) expense |
(44.7 | ) | 17.8 | (62.5 | ) | (351.1 | )% | (6.0 | )% | 2.5 | % | |||||||||||||
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Loss from continuing operations |
(9.8 | ) | (109.3 | ) | 99.5 | 91.0 | % | (1.3 | )% | (15.5 | )% | |||||||||||||
(Loss) income from discontinued operations |
(0.7 | ) | 16.5 | (17.2 | ) | (104.2 | )% | (0.1 | )% | 2.3 | % | |||||||||||||
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Net loss |
(10.5 | ) | (92.8 | ) | 82.3 | 88.7 | % | (1.4 | )% | (13.2 | )% | |||||||||||||
Net (loss) income attributable to noncontrolling interest |
(1.3 | ) | 0.1 | (1.4 | ) | (1,400.0 | )% | (0.2 | )% | | % | |||||||||||||
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Net loss attributable to Ceridian |
$ | (9.2 | ) | $ | (92.9 | ) | $ | 83.7 | 90.1 | % | (1.2 | )% | (13.2 | )% | ||||||||||
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Revenue. The following table sets forth certain information regarding our consolidated revenues for the year ended December 31, 2017, compared with the year ended December 31, 2016.
Percentage change in
revenue as reported |
Impact of
changes in foreign currency (a) |
Percentage change
in revenue on constant currency basis (a) |
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Revenue |
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Cloud |
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Recurring services |
40.4 | % | 1.4 | % | 39.0 | % | ||||||
Professional services and other |
16.8 | % | 0.9 | % | 15.9 | % | ||||||
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Total Cloud revenue |
35.8 | % | 1.3 | % | 34.5 | % | ||||||
Bureau (b) |
(18.2 | )% | 0.4 | % | (18.6 | )% | ||||||
LifeWorks |
(0.9 | )% | 0.1 | % | (1.0 | )% | ||||||
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Total revenue |
6.6 | % | 0.7 | % | 5.9 | % |
(a) | We present revenue growth in a constant currency to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. We calculate percentage change in revenue on a constant currency basis by applying a fixed 1.30 Canadian dollar to 1 U.S. dollar foreign exchange rate to revenues originally booked in Canadian dollars and 0.625 British pound sterling to 1 U.S. dollar foreign exchange rate to revenues originally booked in British pound sterling for all applicable periods. |
(b) | Consists of Recurring services revenue and Professional services and other revenue related to Bureau. |
Total revenue increased $46.5 million, or 6.6%, to $750.7 million for the year ended December 31, 2017, compared to $704.2 million for the year ended December 31, 2016. This increase was primarily driven by an increase in Cloud revenue of $106.5 million, or 35.8%, from $297.8 million for the year ended December 31, 2016 to $404.3 million for the year ended December 31, 2017. The Cloud revenue increase was driven by an increase of $96.7 million, or 40.4%, in Cloud recurring services revenue, and $9.8 million, or 16.8%, in Cloud professional services and other revenue. The increase in Cloud recurring services revenue of $96.7 million was due to $68.0 million from new customers, add-ons, and revenue uplift from migrations of Bureau customers; $28.1 million from the migration of Bureau customers; $10.0 million from increased float revenue related to Cloud recurring services revenue; partially offset by customer losses of $9.4 million. The increase in Cloud revenue was partially offset by a decline in Bureau recurring services revenue of $56.9 million, or 17.8%; and a decline in LifeWorks revenue of $0.7 million, or 0.9%. On a constant currency basis, total revenue grew 5.9%. This adjusted revenue growth was driven by an increase of 34.5% in Cloud revenue, partially offset by a decline of 18.6% in Bureau revenue and a decline of 1.0% in LifeWorks revenue. On a constant currency basis, Cloud revenue growth for the year ended December 31, 2017, compared to the year ended December 31, 2016, was driven by Cloud recurring services revenue, which increased by 39.0%, and professional services and other revenue, which increased by 15.9%, as we continued to sign and to activate new customers. Of the decline in Bureau revenue, approximately 50% was driven by customer attrition and approximately 50% was driven by customer migrations to Dayforce.
Cost of revenue. Total cost of revenue for the year ended December 31, 2017, was $457.7 million, an increase of $12.4 million, or 2.8%, compared to the year ended December 31, 2016. During 2017, we changed the presentation and classification of certain expenses within our statements of operations to better facilitate comparisons with revenue and expenses of similar businesses, to better align our income statement presentation with the way management and reporting of our business has evolved internally, and to enhance our overall disclosure and understanding of the business for external users.
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We reallocated certain expenses between cost of recurring services revenue, cost of professional services and other revenue, and selling, general, and administrative expense. The net impact of these reallocations was to increase total cost of revenue by $1.5 million and to reduce selling, general, and administrative expense by $1.5 million. These changes in presentation and classification represent a change in estimate and have been accounted for on a prospective basis. Therefore, to facilitate the discussion in this section, the following table presents the actual reported costs and expenses as well as the costs and expenses on a pro forma basis as if the changes to allocation methodologies in 2017 had been in effect in 2016:
Year ended December 31, |
Pro Forma
increase (decrease) |
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2017 | 2016 |
2016
Pro Forma |
Amount | % | ||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Cost of revenue: |
||||||||||||||||||||
Recurring services |
$ | 239.6 | $ | 256.3 | $ | 222.5 | $ | 17.1 | 7.7 | % | ||||||||||
Professional services and other |
135.8 | 115.8 | 138.9 | (3.1 | ) | (2.2 | )% | |||||||||||||
Product development and management |
50.4 | 49.2 | 53.6 | (3.2 | ) | (6.0 | )% | |||||||||||||
Depreciation and amortization |
31.9 | 24.0 | 31.8 | 0.1 | 0.3 | % | ||||||||||||||
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Total cost of revenue |
$ | 457.7 | $ | 445.3 | $ | 446.8 | $ | 10.9 | 2.4 | % | ||||||||||
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Selling, general, and administrative |
$ | 253.0 | $ | 249.8 | $ | 248.3 | $ | 4.7 | 1.9 | % |
The increase in total cost of revenue for the year ended December 31, 2017, compared to the year ended December 31, 2016, included a net reallocation of $1.5 million from selling, general, and administrative expense due to a change in estimate of expense allocations. Excluding the effect of these reallocations, total cost of revenue would have increased by $10.9 million, or 2.4%. Recurring services cost of revenue was reduced by $16.7 million for the year ended December 31, 2017, compared to the year ended December 31, 2016. This reduction included a reallocation of $33.8 million of costs from recurring services cost of revenue, consisting primarily of $13.4 million in technology and facilities expenses, $10.9 million in finance related expenses, and $9.3 million of corporate function expenses. Excluding the effect of these reallocations, recurring services cost of revenue would have increased by $17.1 million due to additional costs incurred to support the growing Dayforce customer base, partially offset by reductions in Bureau costs. The increase in cost of revenue for professional services and other of $20.0 million for the year ended December 31, 2017, compared to the year ended December 31, 2016, included a net reallocation of $23.1 million of costs to professional services and other cost of revenue, primarily $23.2 million of technology and facilities expenses. Excluding the effect of these reallocations, professional services and other cost of revenue would have been reduced by $3.1 million, as we achieved productivity improvements in implementing new customers. The increase in product development and management expense of $1.2 million for the year ended December 31, 2017, compared to the year ended December 31, 2016, included the reallocation of $4.4 million of costs to product development and management, primarily $7.9 million in technology and facilities expenses, offset by $2.8 million in corporate function expenses. Excluding the effect of these reallocations, product development and management expense would have been reduced by $3.2 million, due to reductions in product management costs associated with our Bureau solution and technology expenses, partially offset by higher headcount to support the continued development of the Dayforce platform. Depreciation and amortization expense associated with cost of revenue increased by $7.9 million for the year ended December 31, 2017, compared to the year ended December 31, 2016. Excluding the effect of these reallocations of $7.8 million in depreciation and amortization expense would have increased by $0.1 million.
The overall 6.6% increase in revenue outpaced the 2.8% increase in cost of revenue, and gross profit increased by $34.1 million, or 13.2%. Excluding the impact of changes to allocations of certain costs as discussed above, gross profit would have increased by $36.3 million, or 12.4%, as we continued to leverage our investment in people and processes to realize economies of scale.
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Selling, general, and administrative expense. Selling, general, and administrative expense increased $3.2 million for the year ended December 31, 2017, compared to the year ended December 31, 2016. This increase included the reallocation of $1.5 million of costs. Excluding the effect of these reallocations, selling, general, and administrative expense would have increased by $4.7 million, reflecting increases in sales and marketing expenses, share-based compensation expense, and LifeWorks expenses, partially offset by reductions in restructuring consulting fees, severance expense, sponsor management fees, and other cost reduction measures related to our declining Bureau solutions. Sales and marketing expense was $120.7 million for the year ended December 31, 2017, compared to $111.1 million for the year ended December 31, 2016.
Other expense. For the year ended December 31, 2017, we incurred $7.4 million of other expense, net, compared to $13.2 million for the year ended December 31, 2016. The other expense, net, for the year ended December 31, 2017, was primarily related to foreign currency remeasurement losses on intercompany receivables or payables denominated in foreign currencies. The other expense, net, for the year ended December 31, 2016, was primarily related to an impairment of $10.2 million to our trade name intangible asset and an increase of $5.9 million to our environmental reserve liability to reflect more stringent remediation requirements, partially offset by foreign currency remeasurement gains on intercompany receivable or payable denominated in foreign currencies. Please refer to Note 13, Supplementary Data to Statement of Operations, to our consolidated financial statements for further discussion.
Interest expense. Interest expense for the year ended December 31, 2017, was $87.1 million, compared to $87.4 million for the year ended December 31, 2016.
Income tax expense. For the year ended December 31, 2017, we had an income tax benefit of $44.7 million, compared to income tax expense of $17.8 million for the year ended December 31, 2016. Income tax benefit for the year ended December 31, 2017, was primarily related to a tax benefit of approximately $59.4 million related to the 2017 tax reform legislation, of which $26.4 million was attributable to the revaluation of our deferred tax assets and liabilities and $33.0 million was attributable to the reduction in our valuation allowance.
Discontinued operations. For the year ended December 31, 2017, we had a loss from discontinued operations of $0.7 million, compared to income from discontinued operations of $16.5 million for the year ended December 31, 2016. Income from discontinued operations for the year ended December 31, 2016, was primarily attributable to proceeds of $10.7 million from our Divested Benefits Businesses, net of tax, which were sold in a series of transactions in the third quarter of 2015, and our United Kingdom business, which was sold in the second quarter of 2016, resulting in a gain on sale of $5.9 million.
Net loss attributable to Ceridian. Net loss attributable to Ceridian improved by $83.7 million to $9.2 million for the year ended December 31, 2017, compared to $92.9 million for the year ended December 31, 2016.
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HCM Segment Results
The following table presents certain financial information concerning the HCM segments results of operations for the periods presented.
Year ended
December 31, |
Increase /
(Decrease) |
% of Revenue | ||||||||||||||||||||||
2017 | 2016 | Amount | % | 2017 | 2016 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Cloud revenue |
$ | 404.3 | $ | 297.8 | $ | 106.5 | 35.8 | % | 60.3 | % | 47.8 | % | ||||||||||||
Bureau revenue |
266.5 | 325.8 | (59.3 | ) | (18.2 | )% | 39.7 | % | 52.2 | % | ||||||||||||||
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Total HCM Revenue |
$ | 670.8 | $ | 623.6 | $ | 47.2 | 7.6 | % | 100.0 | % | 100.0 | % | ||||||||||||
Operating profit (loss) |
$ | 33.0 | $ | (8.6 | ) | $ | 41.6 | 483.7 | % | 4.9 | % | (1.4 | )% | |||||||||||
Depreciation and amortization |
53.8 | 53.2 | 0.6 | 1.1 | % | 8.0 | % | 8.5 | % | |||||||||||||||
HCM EBITDA from continuing operations (a) |
86.8 | 44.6 | 42.2 | 94.6 | % | 12.9 | % | 7.2 | % | |||||||||||||||
Other adjustments (b) |
31.0 | 44.3 | (13.3 | ) | (30.0 | )% | 4.6 | % | 7.1 | % | ||||||||||||||
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HCM Adjusted EBITDA (c) |
$ | 117.8 | $ | 88.9 | $ | 28.9 | 32.5 | % | 17.6 | % | 14.3 | % | ||||||||||||
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(a) | We define HCM EBITDA from continuing operations as HCM net loss before interest, taxes, depreciation and amortization, and discontinued operations. |
(b) | Other adjustments include sponsor management fees, non-cash charges for asset impairments, gains or losses on assets and liabilities held in a foreign currency other than the functional currency of a company subsidiary, non-cash share-based compensation expense, severance charges, restructuring charges, and environmental reserves charges. |
(c) | For a reconciliation of HCM Adjusted EBITDA to HCM operating profit, please see Prospectus SummarySummary Historical Consolidated Financial and Other Data. |
HCM revenue increased $47.2 million, or 7.6%, to $670.8 million for the year ended December 31, 2017, compared to $623.6 million for the year ended December 31, 2016. On a constant currency basis, revenue grew 6.8%. This adjusted revenue growth was driven by an increase of 34.5%, in Cloud revenue, which was partially offset by a decline of 18.6%, in Bureau revenue. The increase in Cloud revenue was driven by Cloud recurring services revenue, which increased by 39.0%, and Cloud professional services and other revenue, which increased by 15.9%. The decline in Bureau revenue was primarily attributable to customer attrition and customer migrations to Dayforce.
The table below presents total HCM segment gross margin and HCM solution gross margins for the periods presented, both as presented and on a pro forma basis as if the changes to allocation methodologies of certain costs in 2017 discussed above had been in effect in 2016 and 2015.
Year ended December 31, | ||||||||||||||||||||
2017 | 2016 |
2016
Pro Forma |
2015 |
2015
Pro Forma |
||||||||||||||||
Total HCM segment gross margin |
39.3 | % | 36.6 | % | 35.8 | % | 40.3 | % | 36.4 | % | ||||||||||
Gross margin by HCM solution: |
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Cloud recurring services |
62.8 | % | 64.2 | % | 60.2 | % | 60.1 | % | 58.3 | % | ||||||||||
Bureau recurring services |
72.7 | % | 60.1 | % | 72.5 | % | 64.4 | % | 67.3 | % | ||||||||||
Professional services and other |
(87.8 | )% | (78.4 | )% | (114.0 | )% | (75.7 | )% | (120.1 | )% |
HCM segment gross margin is defined as total HCM gross profit as a percentage of total HCM revenue, inclusive of HCM product development and management costs as well as HCM depreciation and amortization associated with cost of revenue. Gross margin for each HCM solution in the table above is defined as total revenue less cost of revenue for the applicable solution as a percentage of
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total revenue for that related HCM solution, exclusive of any product development and management or depreciation and amortization cost allocations. Cloud recurring services gross margin was 62.8% for the year ended December 31, 2017, compared to 60.2% on a pro forma basis, for the year ended December 31, 2016. Bureau recurring services gross margin was 72.7% for the year ended December 31, 2016, which was relatively unchanged on a comparable pro forma basis for the year ended December 31, 2016. Professional services and other gross margin was (87.8)% for the year ended December 31, 2017, improving from (114.0)% on a comparable pro forma basis for the year ended December 31, 2016, reflecting productivity improvements.
HCM operating profit (loss) and HCM Adjusted EBITDA increased $41.6 million and $28.9 million, respectively, for the year ended December 31, 2017, compared to the year ended December 31, 2016, primarily due to a $47.2 million increase in revenue and gross margin improvement.
LifeWorks Segment Results
The following table presents certain financial information concerning the LifeWorks segments financial results.
Year ended
December 31, |
Increase/
(Decrease) |
% of Revenue | ||||||||||||||||||||||
2017 | 2016 | Amount | % | 2017 | 2016 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Revenue |
$ | 79.9 | $ | 80.6 | $ | (0.7 | ) | (0.9 | )% | 100.0 | % | 100.0 | % | |||||||||||
Operating (loss) profit |
$ | (0.4 | ) | $ | 4.5 | $ | (4.9 | ) | (108.9 | )% | (0.5 | )% | 5.6 | % | ||||||||||
Depreciation and amortization |
4.1 | 4.1 | | | % | 5.1 | % | 5.1 | % | |||||||||||||||
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LifeWorks EBITDA (a) |
3.7 | 8.6 | (4.9 | ) | (57.0 | )% | 4.6. | % | 10.7 | % | ||||||||||||||
Other adjustments (b) |
1.1 | 2.8 | (1.7 | ) | (60.7 | )% | 1.4 | % | 3.5 | % | ||||||||||||||
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LifeWorks Adjusted EBITDA |
$ | 4.8 | $ | 11.4 | $ | (6.6 | ) | (57.9 | )% | 6.0 | % | 14.1 | % | |||||||||||
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(a) | We define LifeWorks EBITDA as LifeWorks net income before taxes, depreciation and amortization. |
(b) | Other adjustments include non-cash share-based compensation expense. |
On a constant currency basis, LifeWorks revenue declined 1.0% for the year ended December 31, 2017, compared to the year ended December 31, 2016.
LifeWorks operating (loss) profit and LifeWorks Adjusted EBITDA declined $4.9 million and $6.6 million, respectively, for the year ended December 31, 2017, compared to the year ended December 31, 2016, primarily driven by an increase of $4.6 million in selling, general, and administrative expense.
90
Year Ended December 31, 2016, Compared With Year Ended December 31, 2015
Consolidated Results
The following table sets forth our results of operations for the periods presented.
Year ended
December 31, |
Increase/
(Decrease) |
% of Revenue | ||||||||||||||||||||||
2016 | 2015 | Amount | % | 2016 | 2015 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Revenue: |
||||||||||||||||||||||||
Recurring services |
||||||||||||||||||||||||
Cloud |
$ | 239.5 | $ | 182.9 | $ | 56.6 | 30.9 | % | 34.0 | % | 26.4 | % | ||||||||||||
Bureau |
319.2 | 376.9 | (57.7 | ) | (15.3 | )% | 45.3 | % | 54.3 | % | ||||||||||||||
LifeWorks |
80.6 | 81.8 | (1.2 | ) | (1.5 | )% | 11.4 | % | 11.8 | % | ||||||||||||||
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Total recurring services |
639.3 | 641.6 | (2.3 | ) | (0.4 | )% | 90.8 | % | 92.5 | % | ||||||||||||||
Professional services and other |
64.9 | 52.3 | 12.6 | 24.1 | % | 9.2 | % | 7.5 | % | |||||||||||||||
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Total revenue |
704.2 | 693.9 | 10.3 | 1.5 | % | 100.0 | % | 100.0 | % | |||||||||||||||
Cost of revenue: |
||||||||||||||||||||||||
Recurring services |
||||||||||||||||||||||||
Cloud |
85.8 | 73.0 | 12.8 | 17.5 | % | 12.2 | % | 10.5 | % | |||||||||||||||
Bureau |
127.3 | 134.0 | (6.7 | ) | (5.0 | )% | 18.1 | % | 19.3 | % | ||||||||||||||
LifeWorks |
43.2 | 49.6 | (6.4 | ) | (12.9 | )% | 6.1 | % | 7.1 | % | ||||||||||||||
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Total recurring services |
256.3 | 256.6 | (0.3 | ) | (0.1 | )% | 36.4 | % | 37.0 | % | ||||||||||||||
Professional services and other |
115.8 | 91.9 | 23.9 | 26.0 | % | 16.4 | % | 13.2 | % | |||||||||||||||
Product development and management |
49.2 | 46.0 | 3.2 | 7.0 | % | 7.0 | % | 6.6 | % | |||||||||||||||
Depreciation and amortization |
24.0 | 18.6 | 5.4 | 29.0 | % | 3.4 | % | 2.7 | % | |||||||||||||||
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Total cost of revenue |
445.3 | 413.1 | 32.2 | 7.8 | % | 63.2 | % | 59.5 | % | |||||||||||||||
Gross profit |
258.9 | 280.8 | (21.9 | ) | (7.8 | )% | 36.8 | % | 40.5 | % | ||||||||||||||
Costs and expenses: |
||||||||||||||||||||||||
Selling, general, and administrative |
249.8 | 245.5 | 4.3 | 1.8 | % | 35.5 | % | 35.4 | % | |||||||||||||||
Other expense, net |
13.2 | 27.8 | (14.6 | ) | (52.5 | )% | 1.9 | % | 4.0 | % | ||||||||||||||
Interest expense, net |
87.4 | 87.8 | (0.4 | ) | (0.5 | )% | 12.4 | % | 12.7 | % | ||||||||||||||
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Total costs and expenses |
350.4 | 361.1 | (10.7 | ) | (3.0 | )% | 49.8 | % | 52.0 | % | ||||||||||||||
Loss from continuing operations before income taxes |
(91.5 | ) | (80.3 | ) | (11.2 | ) | (13.9 | )% | (13.0 | )% | (11.6 | )% | ||||||||||||
Income tax expense |
17.8 | 8.6 | 9.2 | 107.0 | % | 2.5 | % | 1.2 | % | |||||||||||||||
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Loss from continuing operations |
(109.3 | ) | (88.9 | ) | (20.4 | ) | (22.9 | )% | (15.5 | )% | (12.8 | )% | ||||||||||||
Income (loss) from discontinued operations |
16.5 | (15.8 | ) | 32.3 | 204.4 | % | 2.3 | % | (2.3 | )% | ||||||||||||||
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Net loss |
(92.8 | ) | (104.7 | ) | 11.9 | 11.4 | % | (13.2 | )% | (15.1 | )% | |||||||||||||
Net income attributable to noncontrolling interest |
0.1 | | 0.1 | n.m. | | % | | % | ||||||||||||||||
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Net loss attributable to Ceridian |
$ | (92.9 | ) | $ | (104.7 | ) | $ | 11.8 | 11.3 | % | (13.2 | )% | (15.1 | )% | ||||||||||
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n.m. represents comparisons that are not meaningful to this analysis.
91
Revenue . The following table sets forth certain information regarding our consolidated revenues for the year ended December 31, 2016 compared with the year ended December 31, 2015.
Percentage change in
revenue as reported |
Impact of changes in
foreign currency |
Percentage change
in revenue on constant currency basis (a) |
||||||||||
Revenue |
||||||||||||
Cloud |
||||||||||||
Recurring services |
30.9 | % | (2.1 | )% | 33.0 | % | ||||||
Professional services and other |
37.8 | % | (1.4 | )% | 39.2 | % | ||||||
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Total Cloud revenue |
32.2 | % | (2.0 | )% | 34.2 | % | ||||||
Bureau (b) |
(15.8 | )% | (0.7 | )% | (15.1 | )% | ||||||
LifeWorks |
(1.5 | )% | (2.2 | )% | 0.7 | % | ||||||
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Total revenue |
1.5 | % | (1.2 | )% | 2.7 | % |
(a) | We present revenue growth on a constant currency to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. We calculate percentage change in revenue on a constant currency basis by applying a fixed 1.30 Canadian dollar to 1 U.S. dollar foreign exchange rate to revenues originally booked in Canadian dollars and 0.625 British pound sterling to 1 U.S. dollar foreign exchange rate to revenues originally booked in British pound sterling for all applicable periods. |
(b) | Consists of Recurring services revenue and Professional services and other revenue related to Bureau. |
Total revenue increased $10.3 million, or 1.5%, to $704.2 million for the year ended December 31, 2016, compared to $693.9 million for the year ended December 31, 2015. This increase was primarily driven by an increase in Cloud revenue of $72.6 million, or 32.2%, from $225.2 million for the year ended December 31, 2016, to $297.8 million for the year ended December 31, 2017. The Cloud revenue increase was driven by an increase of $56.6 million, or 30.9%, in Cloud recurring services revenue, and $16.0 million, or 37.8%, in Cloud professional services and other revenue. The increase in Cloud recurring services revenue of $56.6 million was due to $43.2 million from new customers, add-ons, and revenue uplift from the migration of Bureau customers; $19.5 million from the migration of Bureau customers; $3.0 million from increase float revenue related to Cloud recurring services; partially offset by customer losses of $9.1 million. The increase in Cloud revenue was partially offset by a decline in Bureau recurring services revenue of $57.7 million, or 15.3%; a decline in Bureau professional services and other revenue of $3.4 million, or 34.0%; and a decline in LifeWorks revenue of $1.2 million, or 1.5%. On a constant currency basis, total revenue grew 2.7%. This adjusted revenue growth was driven by an increase of 34.2% in Cloud revenue and an increase of 0.7% in LifeWorks revenue, which was partially offset by a decline of 15.1% in Bureau revenue. Of the decline in Bureau revenue, approximately 65% was driven by customer attrition and approximately 35% was driven by customer migrations to Dayforce. Cloud revenue growth, on a constant currency basis, of 34.2% for the year ended December 31, 2016, compared to the year ended December 31, 2015, was driven by 39.2% of growth in professional services and other revenue and 33.0% of growth in Cloud recurring services revenue.
Cost of revenue. Total cost of revenue was $445.3 million, an increase of $32.2 million, or 7.8%, compared to the year ended December 31, 2015. This increase was primarily due to a $23.9 million increase in professional services and other cost of revenue, partially offset by a $0.3 million reduction in recurring services cost of revenue. Recurring services cost of revenue was reduced by $0.3 million for the year ended December 31, 2016, compared to the year ended December 31, 2015, primarily due to a reduction in costs associated with a decline in Bureau revenue, as well as foreign currency translation. The increase in cost of revenue for professional services and other of $23.9 million for the year ended December 31, 2016, compared to the year ended December 31, 2015, was driven by significant investments in implementation staffing to support the rapid growth in Cloud customers. Product development and management expenses increase $3.2 million for the year ended December 31, 2016,
92
compared to the year ended December 31, 2015, due to higher headcount to support the continued development of the Dayforce platform, as well as a $4.6 million increase in LifeWorks spending following the formation of the LifeWorks joint venture, partially offset by a reduction in Bureau spending. Depreciation and amortization increased by $5.4 million for the year ended December 31, 2016, compared to the year ended December 31, 2015, as the majority of software development costs for Cloud HCM services are capitalized and included as internally developed software costs within property, plant, and equipment in our consolidated balance sheets.
Selling, general, and administrative expense. Selling, general, and administrative expense increased by $4.3 million for the year ended December 31, 2016, compared to the year ended December 31, 2015, primarily as a result of increased sales and marketing spending and increased share-based compensation expense, partially offset by certain cost reduction measures. Sales and marketing expense was $111.1 million for the year ended December 31, 2016, compared to $100.6 million for the year ended December 31, 2015.
Other expense. During the year ended December 31, 2016, we incurred $13.2 million of other expense, net, compared to $27.8 million of other expense, net, for the year ended December 31, 2015. The other expense, net, for the year ended December 31, 2016, was primarily the result of an impairment of $10.2 million to our trade name intangible asset and an adjustment of $5.9 million to our environmental reserve liability to reflect more stringent remediation requirements, partially offset by foreign currency translation income. The other expense, net, for the year ended December 31, 2015, was primarily the result of an asset impairment of $22.6 million to our trade name intangible asset, as well as foreign currency translation expense.
Interest expense. Interest expense for the years ended December 31, 2016 and 2015 was $87.4 million and $87.8 million, respectively.
Income tax expense. Income tax expense increased to $17.8 million for the year ended December 31, 2016, as compared to $8.6 million for the year ended December 31, 2015. This tax increase was primarily due to the establishment of the LifeWorks joint venture, the tax expense for tax contingencies, and the tax expense attributable to unremitted foreign earnings. This increase was partially offset by a reduction in the valuation allowance, the non-recurring tax expense related to the prior year expiration of foreign tax credits, and other reductions.
Discontinued operations. In the years ended December 31, 2016 and 2015, we had income from discontinued operations of $16.5 million and a loss from discontinued operations of $15.8 million, respectively. In the year ended December 31, 2016, income from discontinued operations was primarily related to proceeds received from the sale of the Divested Benefits Businesses of $10.7 million, net of tax, and the gain on the sale of the United Kingdom business of $5.9 million. In the year ended December 31, 2015, loss from discontinued operations was primarily related to the loss recognized on the sale of the Divested Benefits Businesses of $28.9 million, which included goodwill assigned of $22.5 million, partially offset by net operating income from all discontinued operations. Because the consideration received from the sale of the Divested Benefits Businesses was contingent upon the number and dollar value of successful customer transactions, the proceeds were recorded when earned. Please refer to Note 3, Discontinued Operations, to our consolidated financial statements for further discussion.
Net loss attributable to Ceridian. Net loss attributable to Ceridian improved by $11.8 million to $92.9 million for the year ended December 31, 2016, compared to $104.7 million for the year ended December 31, 2015.
93
HCM Segment Results
The following table presents certain financial information concerning the HCM segments results of operations for the periods presented.
Year ended
December 31, |
Increase/
(Decrease) |
% of Revenue | ||||||||||||||||||||||
2016 | 2015 | Amount | % | 2016 | 2015 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Cloud revenue |
$ | 297.8 | $ | 225.2 | $ | 72.6 | 32.2 | % | 47.8 | % | 36.8 | % | ||||||||||||
Bureau revenue |
325.8 | 386.9 | (61.1 | ) | (15.8 | )% | 52.2 | % | 63.2 | % | ||||||||||||||
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Total HCM revenue |
$ | 623.6 | $ | 612.1 | $ | 11.5 | 1.9 | % | 100.0 | % | 100.0 | % | ||||||||||||
Operating profit (loss) |
(8.6 | ) | (1.1 | ) | (7.5 | ) | (681.8 | )% | (1.9 | )% | (0.2 | )% | ||||||||||||
Depreciation and amortization |
53.2 | 52.3 | 0.9 | 1.7 | % | 8.5 | % | 8.5 | % | |||||||||||||||
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HCM EBITDA from continuing operations (a) |
44.6 | 51.2 | (6.6 | ) | (12.9 | )% | 7.2 | % | 8.4 | % | ||||||||||||||
Other adjustments (b) |
44.3 | 48.5 | (4.2 | ) | (8.7 | )% | 7.1 | % | 7.9 | % | ||||||||||||||
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HCM Adjusted EBITDA (c) |
$ | 88.9 | $ | 99.7 | $ | (10.8 | ) | (10.8 | )% | 14.3 | % | 16.3 | % | |||||||||||
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(a) | We define HCM EBITDA from continuing operations as HCM net loss before interest, taxes, depreciation and amortization, and discontinued operations. |
(b) | Other adjustments include sponsor management fees, non-cash charges for asset impairments, gains or losses on assets and liabilities held in a foreign currency other than the functional currency of a company subsidiary, non-cash share-based compensation expense, severance charges, restructuring charges, and environmental reserve charges. |
(c) | For a reconciliation of HCM Adjusted EBITDA to HCM operating profit, please see Prospectus Summary Summary Historical Consolidated Financial and Other Data. |
HCM revenue increased $11.5 million to $623.6 million for the year ended December 31, 2016, compared to $612.1 million for the year ended December 31, 2015. On a constant currency basis, revenue grew 3.0%. This adjusted revenue growth was driven by an increase of 34.2%, in Cloud revenue, which was partially offset by a decline of 15.1%, in Bureau revenue. The increase in Cloud revenue was driven by a 39.2% increase in professional services and other revenue and a 33.0% increase in Cloud recurring services revenue. The decline in Bureau revenue was attributable to customer attrition and customer migrations to Dayforce.
The following table sets forth gross margin information for the HCM segment for the periods presented.
Cloud recurring services gross margin was 64.2% for the year ended December 31, 2016, compared to 60.1%, for the year ended December 31, 2015. Bureau recurring services gross margin was 60.1% for the year ended December 31, 2016, compared to 64.4% for the year ended December 31, 2015. Professional services and other gross margin was (78.4)% for the year ended December 31, 2016, compared to (75.7)% for the year ended December 31, 2015.
94
HCM operating loss and HCM Adjusted EBITDA declined $7.5 million and $10.8 million, respectively, for the year ended December 31, 2016, compared to the year ended December 31, 2015, as the $29.9 million increase in cost of revenue, primarily associated with increases in implementation resources and product development expense, was only partially offset by the $11.5 million increase in revenue.
LifeWorks Segment Results
The following table presents certain financial information concerning the LifeWorks segments results of operations for the periods presented.
Year ended
December 31, |
Increase /
(Decrease) |
% of Revenue | ||||||||||||||||||||||
2016 | 2015 | Amount | % | 2016 | 2015 | |||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||||||
Revenue |
$ | 80.6 | $ | 81.8 | $ | (1.2 | ) | (1.5 | )% | 100.0 | % | 100.0 | % | |||||||||||
Operating profit |
4.5 | 8.6 | (4.1 | ) | (47.7 | )% | 5.6 | % | 10.5 | % | ||||||||||||||
Depreciation and amortization |
4.1 | 3.7 | 0.4 | 10.8 | % | 5.1 | % | 4.5 | % | |||||||||||||||
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LifeWorks EBITDA (a) |
8.6 | 12.3 | (3.7 | ) | (30.1 | )% | 10.7 | % | 15.0 | % | ||||||||||||||
Other adjustments (b) |
2.8 | | 2.8 | n.m. | 3.5 | % | 0.0 | % | ||||||||||||||||
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LifeWorks Adjusted EBITDA |
$ | 11.4 | $ | 12.3 | $ | (0.9 | ) | (7.3 | )% | 14.1 | % | 15.0 | % | |||||||||||
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(a) | We define LifeWorks EBITDA as LifeWorks net income before taxes, and depreciation and amortization. |
(b) | Other adjustments include non-cash share-based compensation expense for our LifeWorks segment. |
n.m. represents comparisons that are not meaningful to this analysis.
LifeWorks revenue was relatively flat for the year ended December 31, 2016, compared to the year ended December 31, 2015, on a constant currency basis.
LifeWorks operating profit and LifeWorks Adjusted EBITDA declined $4.1 million and $0.9 million, respectively, in 2016, compared to 2015, primarily driven by a $4.6 million increase in product development spending following the formation of the LifeWorks joint venture.
95
Quarterly Results of Operations
The following table sets forth statements of operations data for each of the quarters presented. We have prepared the quarterly statements of operations data on a basis consistent with the audited consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the financial information reflects all adjustments, consisting of normal recurring adjustments, which we consider necessary for a fair presentation of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results for any future period.
Three months ended | ||||||||||||||||||||||||||||||||
December 31,
2017 |
September 30,
2017 |
June 30,
2017 |
March 31,
2017 |
December 31,
2016 |
September 30,
2016 |
June 30,
2016 |
March 31,
2016 |
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(Dollars in millions) | ||||||||||||||||||||||||||||||||
Revenue: |
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Recurring services |
$ | 180.3 | $ | 166.6 | $ | 160.1 | $ | 171.4 | $ | 168.7 | $ | 154.0 | $ | 151.7 | $ | 164.9 | ||||||||||||||||
Professional services and other |
22.1 | 17.9 | 16.7 | 15.6 | 20.5 | 15.9 | 14.8 | 13.7 | ||||||||||||||||||||||||
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Total revenue |
202.4 | 184.5 | 176.8 | 187.0 | 189.2 | 169.9 | 166.5 | 178.6 | ||||||||||||||||||||||||
Cost of revenue: |
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Recurring services |
$ 62.1 | $ | 58.9 | $ | 59.8 | $ | 58.8 | $ | 68.1 | $ | 66.9 | $ | 61.8 | $ | 59.5 | |||||||||||||||||
Professional services and other |
33.0 | 34.8 | 34.1 | 33.9 | 28.8 | 31.0 | 29.4 | 26.6 | ||||||||||||||||||||||||
Product development and management |
13.4 | 12.4 | 11.8 | 12.8 | 11.8 | 12.8 | 12.6 | 12.0 | ||||||||||||||||||||||||
Depreciation and amortization |
8.2 | 8.2 | 7.8 | 7.7 | 6.2 | 6.2 | 5.9 | 5.7 | ||||||||||||||||||||||||
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Total cost of revenue |
116.7 | 114.3 | 113.5 | 113.2 | 114.9 | 116.9 | 109.7 | 103.8 | ||||||||||||||||||||||||
Gross profit |
85.7 | 70.2 | 63.3 | 73.8 | 74.3 | 53.0 | 56.8 | 74.8 | ||||||||||||||||||||||||
Costs and expenses: |
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Selling, general, and administrative |
71.5 | 60.6 | 60.2 | 60.7 | 65.5 | 61.8 | 58.7 | 63.8 | ||||||||||||||||||||||||
Other expense (income), net |
0.4 | 4.1 | 2.0 | 0.9 | (2.1 | ) | 3.7 | 9.9 | 1.7 | |||||||||||||||||||||||
Interest expense, net |
21.8 | 21.9 | 22.0 | 21.4 | 21.9 | 21.8 | 21.8 | 21.9 | ||||||||||||||||||||||||
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Total costs and expenses |
93.7 | 86.6 | 84.2 | 83.0 | 85.3 | 87.3 | 90.4 | 87.4 | ||||||||||||||||||||||||
Loss from continuing operations before income taxes |
(8.0 | ) | (16.4 | ) | (20.9 | ) | (9.2 | ) | (11.0 | ) | (34.3 | ) | (33.6 | ) | (12.6 | ) | ||||||||||||||||
Income tax expense (benefit) |
(52.4 | ) | 3.3 | 1.9 | 2.5 | 9.9 | 7.3 | (0.9 | ) | 1.5 | ||||||||||||||||||||||
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Loss from continuing operations |
44.4 | (19.7 | ) | (22.8 | ) | (11.7 | ) | (20.9 | ) | (41.6 | ) | (32.7 | ) | (14.1 | ) | |||||||||||||||||
(Loss) income from discontinued operations |
(0.3 | ) | (0.9 | ) | | 0.5 | (3.5 | ) | 3.4 | 11.8 | 4.8 | |||||||||||||||||||||
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Net loss |
44.1 | (20.6 | ) | (22.8) | (11.2 | ) | (24.4 | ) | (38.2 | ) | (20.9 | ) | (9.3 | ) | ||||||||||||||||||
Net (loss) income attributable to noncontrolling interest |
(0.9 | ) | (0.5 | ) | 0.1 | | (0.8 | ) | 0.6 | 0.2 | 0.1 | |||||||||||||||||||||
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Net loss attributable to Ceridian |
$ | 45.0 | $ | (20.1 | ) | $ | (22.9 | ) | $ | (11.2 | ) | $ | (23.6 | ) | $ | (38.8 | ) | $ | (21.1 | ) | $ | (9.4 | ) | |||||||||
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96
Liquidity and Capital Resources
Our primary sources of liquidity are our existing cash and equivalents, cash provided by operating activities, borrowings under our credit facilities, and proceeds from equity offerings. As of December 31, 2017, we had cash and equivalents of $99.6 million and availability under our revolving credit facility of $45.0 million. No cash amounts were drawn on the revolving credit facility as of December 31, 2017. Our total indebtedness was $1,132.3 million as of December 31, 2017. See Description of Material Indebtedness. After giving effect to the application of the estimated net proceeds from this offering and the Debt Refinancing, our total indebtedness will be $670.5 million. See Use of Proceeds.
Our primary liquidity needs are related to funding of general business requirements, including the payment of interest and principal on our indebtedness, working capital, capital expenditures, pension contributions, and product development.
Our customer trust funds are held and invested with the primary objectives being to ensure adequate liquidity to meet cash flow requirements and to protect the principal balance. Accordingly, we maintain on average approximately 45% of customer trust funds in liquidity portfolios with maturities ranging from one to 120 days, consisting of high-quality bank deposits, money market mutual funds, commercial paper, or collateralized short-term investments; and we maintain on average approximately 55% of customer trust funds in fixed income portfolios with maturities ranging from 120 days to 10 years, consisting of U.S. Treasury and agency securities, Canada government and provincial securities, as well as highly rated asset-backed, mortgage-backed, municipal, corporate and bank securities. To maintain sufficient liquidity in the trust to meet payment obligations, we also have financing arrangements and may pledge fixed income securities for short-term financing. The assets held in trust are intended for the specific purpose of satisfying client fund obligations and therefore are not freely available for our general business use.
We believe that our cash flow from operations, availability under our revolving credit facility, and available cash and equivalents will be sufficient to meet our liquidity needs for the foreseeable future. We anticipate that to the extent that we require additional liquidity, it will be funded through the issuance of equity, the incurrence of additional indebtedness, or a combination thereof. We cannot assure you that we will be able to obtain this additional liquidity on reasonable terms, or at all. Additionally, our liquidity and our ability to meet our obligations and to fund our capital requirements are also dependent on our future financial performance, which is subject to general economic, financial, and other factors that are beyond our control. Accordingly, we cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available from additional indebtedness or otherwise to meet our liquidity needs. Although we have no specific current plans to do so, if we decide to pursue one or more significant acquisitions, we may incur additional debt or sell additional equity to finance such acquisitions, which would result in additional expenses or dilution.
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Statements of Cash Flows
The following table provides a summary of cash flows from operating, investing, and financing activities for the periods presented.
Year ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
(Dollars in millions) | ||||||||||||
Net cash flows |
||||||||||||
Net cash used in operating activitiescontinuing operations |
$ | (39.1 | ) | $ | (67.4 | ) | $ | (32.3 | ) | |||
Net cash (used in) provided by investing activitiescontinuing operations |
(407.4 | ) | 725.3 | 317.2 | ||||||||
Net cash provided by (used in) financing activitiescontinuing operations |
406.8 | (592.5 | ) | (358.7 | ) | |||||||
Net cash flows (used in) provided by discontinued operations |
(0.7 | ) | (8.6 | ) | 11.2 | |||||||
Effect of exchange rate on cash |
8.6 | 1.3 | (10.4 | ) | ||||||||
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Net cash flows (used) provided |
(31.8 | ) | 58.1 | (73.0 | ) | |||||||
Cash and equivalents at end of period |
$ | 99.6 | $ | 131.4 | $ | 63.2 | ||||||
Net cash flows of customer trust funds |
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Net cash (used in) provided by investing activitiescontinuing operations |
$ | (356.1 | ) | $ | 655.7 | $ | 351.7 | |||||
Net provided by (used in) in financing activitiescontinuing operations |
356.1 | (655.7 | ) | (351.7 | ) | |||||||
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Net cash flows provided by customer trust fundscontinuing operations |
| | |
Changes in cash flows due to purchases of customer trust fund marketable securities, proceeds from the sale or maturity of customer trust fund marketable securities, and the net increase (decrease) of restricted cash held to satisfy customer trust fund obligations are primarily due to the timing of funds collected from customers and payments made to satisfy customer obligations. Customer trust fund cash flows are significantly affected by the period end day of the week relative to customer payment cycles. The customer trust funds are fully segregated from our operating cash accounts and are evaluated and tracked separately by management. Therefore, to provide meaningful information to the readers, the following discussion is regarding the net cash flows excluding customer trust funds.
Operating Activities
Net cash used in operating activities from continuing operations of $39.1 million during the year ended December 31, 2017, was primarily attributable to operating losses of $9.8 million, net changes in working capital of $43.6 million, and a deferred tax benefit of $65.0 million, partially offset by certain non-cash items, primarily $57.9 million of depreciation and amortization and $17.2 million of share-based compensation expense. Net changes in working capital were driven by employee compensation and benefits, primarily pension contributions, accrued taxes, and prepaid expenses.
Net cash used in operating activities from continuing operations of $67.4 million during the year ended December 31, 2016 was primarily attributable to operating losses of $109.3 million with offsetting adjustments for certain non-cash items and net changes in working capital. The adjustments for non-cash items included $57.3 million of depreciation and amortization, $15.3 million of share-based compensation expense, a $10.4 million asset impairment, a $5.9 million adjustment to our environmental reserve liability, and $7.0 million of deferred income tax expense. Net changes in working capital of $60.7 million were primarily driven by pension contributions exceeding pension expense.
Net cash used in operating activities from continuing operations of $32.3 million during the year ended December 31, 2015 was primarily driven by operating losses, partially offset by certain non-cash
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items and changes in working capital. The adjustments for non-cash items primarily included $56.0 million of depreciation and amortization, a $23.0 million asset impairment, primarily to our trade name intangible asset, $12.8 million of share-based compensation expense, and $8.9 million of pension and post-retirement benefit related costs, partially offset by $7.9 million of deferred income tax benefit. Changes in working capital items reduced cash from operating activities by $40.6 million, primarily driven by pension contributions exceeding pension expense.
Investing Activities
During the year ended December 31, 2017, net cash used in investing activities from continuing operations excluding customer trust fund activity was $51.3 million, primarily related to capital expenditures, partially offset by proceeds from divestitures. Our capital expenditures included $33.1 million for software and technology and $17.7 million for property and equipment.
During the year ended December 31, 2016, net cash provided by investing activities from continuing operations excluding customer trust fund activity was $69.6 million, primarily related to the net proceeds from divestitures of $101.6 million, offset by capital expenditures. Our capital expenditures included $25.5 million for software and technology and $7.7 million for property and equipment.
During the year ended December 31, 2015, net cash used in investing activities from continuing operations excluding customer trust fund activity was $34.5 million, entirely related to capital expenditures. Our capital expenditures included $25.3 million for software and technology and $9.2 million for property and equipment.
Financing Activities
Net cash provided by financing activities from continuing operations excluding the change in customer trust fund obligations was $50.7 million during the year ended December 31, 2017, primarily related to the funding of the remaining $75.2 million from the issuance of Senior Preferred Stock, partially offset by a $25.9 million payment made on our term debt.
Net cash provided by financing activities from continuing operations excluding the change in customer trust fund obligation was $63.2 million during the year ended December 31, 2016, related to proceeds received from the issuance of Senior Preferred Stock, partially offset by payments made on our term debt.
Net cash used in financing activities from continuing operations excluding the change in customer trust fund obligation was $7.0 million during the year ended December 31, 2015, consisting of four quarterly principal payments on our term debt.
Cash Flows from Discontinued Operations
During the year ended December 31, 2017, net cash used in discontinued operations was $0.7 million.
During the year ended December 31, 2016, net cash used in discontinued operations was $8.6 million. During the year ended December 31, 2015, net cash provided by discontinued operations was $11.2 million in 2015. The cash flows from discontinued operations for all periods primarily relate to changes in working capital.
LifeWorks Adjusted EBITDA
We report our financial results in accordance with U.S. GAAP. To supplement this information, we also use LifeWorks Adjusted EBITDA, a non-GAAP financial measure, in this prospectus. We define LifeWorks Adjusted EBITDA as net income or loss before interest, taxes, depreciation, and
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amortization, as adjusted to exclude non-cash share-based compensation expense for our LifeWorks segment. Management believes that LifeWorks Adjusted EBITDA is helpful in highlighting management performance trends because LifeWorks Adjusted EBITDA excludes the results of decisions that are outside the control of operating management. By providing this non-GAAP financial measure, management believes we are enhancing investors understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing our strategic initiatives.
Our presentation of LifeWorks Adjusted EBITDA is intended as a supplemental measure of our performance that is not required by, or presented in accordance with, U.S. GAAP. LifeWorks Adjusted EBITDA should not be considered as an alternative to operating income (loss), net income (loss), earnings per share, or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance or operating cash flows or as measures of liquidity. Our presentation of LifeWorks Adjusted EBITDA should not be construed to imply that our future results will be unaffected by these items. LifeWorks Adjusted EBITDA is included in this prospectus because it is a key metric used by management to assess our operating performance.
LifeWorks Adjusted EBITDA is not defined under U.S. GAAP, is not a measure of net income, operating income or any other performance measure derived in accordance with U.S. GAAP, and is subject to important limitations. Our use of the term LifeWorks Adjusted EBITDA may not be comparable to similarly titled measures of other companies in our industry and is not a measure of performance calculated in accordance with U.S. GAAP.
LifeWorks Adjusted EBITDA has important limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:
| LifeWorks Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; |
| LifeWorks Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; |
| LifeWorks Adjusted EBITDA does not reflect any charges for the assets being depreciated and amortized that may have to be replaced in the future; |
| LifeWorks Adjusted EBITDA does not reflect the impact of share-based compensation upon our results of operations; and |
| LifeWorks Adjusted EBITDA does not reflect our income tax expense or the cash requirements to pay our income taxes. |
In evaluating LifeWorks Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to those eliminated in this presentation.
Our Indebtedness
Senior Credit Facilities
On November 14, 2014, Ceridian entered into a credit agreement pursuant to which the lenders thereto agreed to provide Senior Credit Facilities, consisting of the Senior Term Loan in the original principal amount of $702.0 million and a $130.0 million Revolving Facility. Of the Revolving Facility, up to $41.6 million may, at our option, be made available in Canadian Dollars, Euros and/or Pounds Sterling; up to $30.0 million may, at our option, be made available for letters of credit (up to $15.0 million of which may, at our option, be denominated in Canadian Dollars, Euros and/or Pounds Sterling) and $45.0 million may, at our option, be made available for swingline loans (up to $15.0 million of which may, at our option, be denominated in Canadian Dollars, Euros and/or Pounds Sterling).
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The Senior Term Loan will mature on September 15, 2020. We are required to make annual amortization payments in respect of the Senior Term Loan in an amount equal to 1.00% of the original principal amount thereof, payable in equal quarterly installments of 0.25% of the original principal amount of the first lien term loan. As of September 21, 2017, all future required amortization payments in respect to the Senior Term Loan have been met through the mandatory pre-payment of principal related to the sale of the United Kingdom business. The Revolving Facility matures on September 15, 2019 and does not require amortization payments.
The obligations of Ceridian under the Senior Credit Facilities are secured by first priority security interests in substantially all of the assets of Ceridian and the guarantors, subject to permitted liens and other exceptions. All of our subsidiaries are guarantors under the Senior Credit Facilities, subject to certain exceptions (including Dayforce Holdings LLC and its subsidiaries). The Senior Credit Facilities contain financial covenants and certain business covenants, including restrictions on dividend payments, which Ceridian must comply with during the term of the agreement. As of December 31, 2017, Ceridian was in compliance with the Senior Credit Facilities.
Borrowings under the Senior Credit Facilities bear interest at a rate per annum equal to:
1. | in the case of borrowings denominated in U.S. dollars on any day (a) at Ceridians election, either (i) an amount (in the case of the Senior Term Loan, not less than 2.00%) equal to the greater of (A) a base rate determined by reference to the rate of interest per annum announced by Deutsche Bank AG New York Branch (DBNY) as its prime rate on such day, (B) the federal funds effective rate on such date plus 1/2 of 1.00% and (C) the London interbank offered rate (LIBOR) plus 1.00% or (ii) if available, LIBOR for U.S. dollars determined by reference to the applicable Reuters screen page two business days prior to the commencement of the interest period relevant to the subject borrowing, adjusted for certain additional costs, which may not, in the case of borrowings of Senior Term Loan only, be less than 1.00% plus (b) an applicable margin; |
2. | in the case of borrowings under the Revolving Facility denominated in Canadian Dollars on any day, at Ceridians election, either (i) the rate of interest per annum quoted or established as the prime rate of Deutsche Bank AG Canada Branch plus an applicable margin or (ii) (A) by way of the creation of bankers acceptances on the terms specified in the documentation governing the Senior Credit Facilities or (B) if the relevant lender is generally unwilling or unable to create bankers acceptances, by way of the purchase of completed drafts for equivalent notes on the terms specified in the documentation governing the Senior Credit Facilities; |
3. | in the case of borrowings under the Revolving Facility denominated in Euros on any day, (a) The London interbank offered rate in Euros (EURIBOR) determined by reference to the applicable Reuters screen page two business days prior to the commencement of the interest period relevant to the subject borrowing plus (b) an applicable margin; or |
4. | in the case of borrowings under the Revolving Facility denominated in Pounds Sterling, (a) Sterling LIBOR determined by reference to the applicable Reuters screen page one business day prior to the commencement of the interest period relevant to the subject borrowing plus (b) an applicable margin. |
The applicable margin for the Senior Term Loan is (i) 3.50% per annum, in the case of LIBOR loans and (ii) 2.50% per annum, in the case of base rate loans.
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The applicable margin for loans under the Revolving Facility is determined in accordance with the table set forth below:
Adjusted Consolidated First Lien Leverage Ratio |
Applicable Margin for
LIBOR, EURIBOR and Sterling LIBOR Rate Loans |
Applicable Margin
for Base Rate and Canadian Prime Rate Loans |
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Category 1 |
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Greater than 2.75:1.00 |
3.50 | % | 2.50 | % | ||||
Category 2 |
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Less than or equal to 2.75:1.00 and greater than 2.25:1.00 |
3.25 | % | 2.25 | % | ||||
Category 3 |
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Less than or equal to 2.25:1.00 |
3.00 | % | 2.00 | % |
We are also required to pay a customary annual administration fee to the administrative agent under the Senior Credit Facilities.
For an additional description of the Senior Credit Facilities, see Description of Material Indebtedness Senior Credit Facilities.
Senior Unsecured Notes
On October 1, 2013, Ceridian issued $475.0 million aggregate principal amount of 11% Senior Notes. The Senior Notes have a maturity date of March 15, 2021, pay interest semi-annually in cash in arrears on March 15 and September 15 of each year and are guaranteed on a senior unsecured basis by each current and future domestic subsidiary that is an obligor under our senior secured credit facilities.
The Senior Notes may be redeemed at our option, in whole or in part, on specified redemption dates and at the redemption prices specified in the indenture governing the Senior Notes. We may be required to make an offer to purchase the Senior Notes upon the sale of certain assets and upon a change of control. As of December 31, 2017, the aggregate principal amount of the outstanding Senior Notes was $475.0 million. We expect to redeem or otherwise satisfy and discharge all of our outstanding Senior Notes immediately following the closing of this offering in accordance with the terms of the indenture.
Contractual Obligations
The following table sets forth our contractual obligations and other commercial commitments as of December 31, 2017, whether or not they appear on our consolidated balance sheet. Variable interest payments are projected based on an interest rate forecast in effect at the end of 2017. All amounts in the table may reflect rounding.
Payments due by period | ||||||||||||||||||||
(Dollars in millions) | ||||||||||||||||||||
Less than
one year |
1-3
Years |
3-5
Years |
More than
5 Years |
Total | ||||||||||||||||
Long-term debt |
$ | | $ | 657.3 | $ | 475.0 | $ | | $ | 1,132.3 | ||||||||||
Interest payable on long-term debt |
87.6 | 168.2 | 26.3 | | 282.1 | |||||||||||||||
Operating leases |
11.6 | 20.9 | 11.8 | 4.3 | 48.6 | |||||||||||||||
Postretirement plan obligations (a) |
2.4 | 4.1 | 3.7 | 7.0 | 17.2 | |||||||||||||||
Retirement plan obligations (a) |
20.8 | 37.3 | 34.7 | 35.9 | 128.7 | |||||||||||||||
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Total |
$ | 122.4 | $ | 887.8 | $ | 551.5 | $ | 47.2 | $ | 1,608.9 | ||||||||||
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(a) | We have not estimated our pension funding obligations beyond 2026, and thus, any potential future contributions have been excluded from the table. |
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Our long-term debt obligations are described in Description of Material Indebtedness and in Note 10, Debt, to our consolidated financial statements included elsewhere in this prospectus.
The lease payments represent scheduled payments under the terms of the lease agreements. We conduct substantially all of our operations in leased facilities. Most of these leases contain renewal options and require payments for taxes, insurance, and maintenance. We also lease equipment for use in our business.
Payments of retirement plan obligations include employer commitments to fund our defined benefit and postretirement plans and do not include estimated future benefit payments to participants expected to be made from liquidation of the assets in our defined benefit plan trusts. At December 31, 2017, our defined benefit pension plans had a projected benefit obligation that exceeded the fair value of the plans assets by $154.4 million and our postretirement benefit plan had an accumulated benefit obligation that exceeded the fair value of the plans assets by $19.6 million. We expect to satisfy these remaining obligations through investment income from and appreciation in the fair value of plan assets held in trust and from future employer contributions.
The amount of our obligation to vendors for capital expenditures at December 31, 2017 was not material, and no such amount is included in the table above.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and related notes included elsewhere in this prospectus, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements and related notes requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on our historical experience, terms of existing contracts, our evaluation of trends in the industry, information provided by our customers, and information available from other outside sources, as appropriate. We evaluate our estimates and judgments on an on-going basis. Our actual results may differ from these estimates. The accounting policies that we believe to be the most critical to an understanding of our financial condition and results of operations and that require the most complex and subjective management judgments are discussed below.
Revenue Recognition
We recognize revenue from the sale of our services, net of applicable sales taxes, when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the sellers price to the buyer is fixed or determinable; and (4) collectability is reasonably assured. We rely on a signed contract with the customer as the persuasive evidence of a sales arrangement.
We enter into revenue arrangements that may consist of multiple deliverables based on the needs of our customers. For example, our services address a broad range of employment process needs, such as payroll, payroll-related tax filing, human resource information, employee self-service capabilities, time and labor management, employee assistance programs, and recruitment and applicant screening. A customer arrangement may contain any of these elements with different elements delivered across multiple reporting periods.
We have a single unit of accounting for each deliverable in a contract based on the use of estimated selling price (ESP) in those cases where vendor-specific objective evidence of selling price
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(VSOE) or third party evidence (TPE) cannot be established. Our determination of ESP involves the consideration of several factors based on the specific facts and circumstances of each contract. Specifically, we consider the cost to produce or to provide the deliverable, the anticipated margin on that deliverable, the selling price and profit margin for similar services, the value of any enhancements that have been built into the deliverable, and the characteristics of the varying markets in which the deliverable will be sold.
When we are unable to establish a selling price using VSOE or TPE, we use ESP in the allocation of arrangement consideration. The objective of ESP is to determine the price at which we would transact a sale if the service were sold on a standalone basis.
We regularly review VSOE, TPE, and ESP and maintain internal controls over the establishment and updates of these estimates. There were no material impacts during the period, nor do we currently expect a material impact in the near term from changes in VSOE, TPE, or ESP.
Deferred revenue primarily consists of customer billings in advance of revenues being recognized from our contracts. Deferred revenue also includes certain deferred professional services fees that are accounted for as a single unit of accounting with subscription fees and are recognized as revenues over the same period as the related customer contract. Deferred revenue that is anticipated to be recognized during the succeeding twelve-month period is recorded as current deferred revenue, and the remaining portion is recorded as noncurrent.
Goodwill and Intangible Assets
Goodwill, which represents the excess purchase price over the fair value of net assets of businesses acquired, is assigned to reporting units based on the benefits derived from the acquisition. Goodwill and indefinite-lived intangibles are not amortized against earnings but instead are subject to impairment review on at least an annual basis. We perform our annual assessment of goodwill and indefinite-lived intangible balances as of October 1 of each year. There was no indication of impairment at October 1, 2017.
As of January 1, 2017, we elected early adoption of Accounting Standards Update No. 2017-04, Intangibles-Goodwill and Other, which simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. We assess goodwill impairment risk by first performing a qualitative review of entity-specific, industry, market, and general economic factors for each reporting unit. If significant potential goodwill impairment risk exists for a specific reporting unit, we apply a quantitative test. The quantitative test compares the reporting units estimated fair value with its carrying amount. In estimating fair value of our reporting units, we use a combination of the income approach and the market-based approach. A number of significant assumptions and estimates are involved in determining the current fair value of the reporting units, including operating cash flows, markets and market share, sales volumes and prices, and working capital changes. We consider historical experience and all available information at the time the fair values of our reporting units are estimated. However, fair values that could be realized in an actual transaction may differ from those used to evaluate the goodwill for impairment. The evaluation of impairment involves comparing the current fair value of the reporting unit to the carrying amount.
To the extent that the carrying amount of goodwill of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recognized.
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Intangible assets represent amounts assigned to specifically identifiable intangible assets at the time of an acquisition. Definite-lived intangible assets are amortized on a straight-line basis generally over the following periods:
Intangible Asset |
Estimated Life
Range (Years) |
|
Customer lists and relationships |
5-15 | |
Technology |
2-7 |
Indefinite-lived intangible assets, which consist of trademarks, are tested for impairment on an annual basis, or more frequently if certain events or circumstances occur that could indicate impairment. When evaluating whether the indefinite-lived intangible assets are impaired, the carrying amount is compared to its estimated fair value. The estimate of fair value is based on a relief from royalty method which calculates the cost savings associated with owning rather than licensing the trademark. An estimated royalty rate is applied to forecasted revenue and the resulting cash flows are discounted.
Pension and Other Postretirement Benefits Liability
We present information about our pension and postretirement benefit plans in Note 11 to our consolidated financial statements, Employee Benefit Plans. The determination of the liabilities and expenses for pensions and other postretirement benefits are accomplished with the assistance of third-party actuaries using actuarial methodologies and incorporating significant assumptions, including the rate used to discount the future estimated liability, the long-term rate of return on plan assets, and several assumptions relating to the employee workforce (medical costs, retirement age and mortality). The discount rate assumption utilizes a full yield curve approach by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The impact of a change in the discount rate of 25 basis points would be approximately $14 million on the liabilities and $0.2 million on pre-tax earnings in the following year. The long-term rate of return is estimated by considering historical returns and expected returns on current and projected asset allocations and is generally applied to a five-year average market value of assets. A change in the assumption for the long-term rate of return on plan assets of 25 basis points would impact pre-tax earnings by approximately $1 million. At December 31, 2016, we updated our mortality assumptions utilizing an improvement scale issued by the Society of Actuaries in October 2016, which resulted in a $12.0 million reduction in the projected benefit obligation. At December 31, 2017, we updated our mortality assumptions utilizing an improvement scale issued by the Society of Actuaries in October 2017, which resulted in a $6.0 million reduction in the projected benefit obligation.
Share-Based Compensation
Our employees participate in share-based compensation plans. Under the fair value recognition provisions of share-based compensation accounting, we measure share-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is the period during which an employee is required to provide services in exchange for the award.
We use the Black-Scholes standard option pricing model (Black-Scholes model) to determine the fair value of stock options with term-based vesting conditions. The determination of the fair value of the awards on the date of grant using the Black-Scholes model is affected by the value of our common stock as well as other inputs and assumptions described below. The value of our common stock is determined by our Board with assistance from a third-party valuation expert.
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We use an integrated Monte Carlo simulation model and a trinomial lattice model to determine fair value of performance-based options. The Monte Carlo model utilizes multiple input variables that determine the probability of satisfying the market conditions stipulated in the award. This probability is an input into the trinomial lattice model used to fair value the options as well as other inputs and assumptions described below.
If factors change and we employ different assumptions for estimating share-based compensation expense in future periods or if we adopt a different valuation model, our expense in future periods may differ significantly from what we have recorded in the current period and could materially affect our operating results.
To determine fair value of both term- and performance-based stock options, the risk-free interest rate used was based on the implied yield currently available on U.S. Treasury zero coupon issues with remaining term equal to the contractual term of the performance-based options and the expected term of the term-based option. The estimated volatility of our common stock is based on volatility data for selected comparable public companies over the expected term of our stock options. Because we do not anticipate paying any cash dividends in the foreseeable future, we use an expected dividend yield of zero. The amount of share-based compensation expense that we recognize during a period is based on the portion of the awards that are ultimately expected to vest.
We estimate option forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We analyze historical data to estimate pre-vesting forfeitures and record share-based compensation expense for those awards expected to vest. We recognize term-based share-based compensation expense using the straight-line method.
Valuation of Our Common Stock
Prior to this offering and the concurrent private placement, given the absence of an active market for our common stock, our Board determined the fair value of our common stock at the time of each stock-based award based upon several factors, including consideration of input from management and quarterly third-party valuations.
The exercise price for all stock options granted was at or above the estimated fair value of the underlying common stock, as estimated on the date of grant by our Board in accordance with the guidelines outlined in the practice aid issued by the American Institute of Certified Public Accountants, titled Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Each fair value estimate was based on a variety of factors, which included the following:
| quarterly valuations performed by an unrelated third-party valuation firm; |
| the prices, rights, preferences, and privileges of our then-outstanding preferred stock relative to our common stock; |
| the lack of marketability of our common stock; |
| our actual operating and financial performance; |
| current business conditions and projections; |
| the market performance of comparable publicly-traded companies; |
| the likelihood and potential timing of achieving a liquidity event, such as an initial public offering, merger or acquisition of our business given prevailing market conditions; and |
| the United States and global capital market conditions. |
We determined the fair value of our common stock for financial reporting purposes, taking into account the factors described above, using a combination of valuation methodologies with varying weighting applied to each methodology. The assumptions underlying these valuations represent
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managements best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our share-based compensation expense could be materially different. Following this offering and the concurrent private placement, it will not be necessary to independently determine the fair value of our common stock, as the shares will be traded in the public market.
Off-Balance Sheet Arrangements
As of December 31, 2017, we did not have any relationships with any entities or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements.
Seasonality
We have in the past and expect in the future to experience seasonal fluctuations in our revenues and new customer contracts with the fourth quarter historically being our strongest quarter for new customer contracts, renewals, and customer go-lives. The growth of our Cloud HCM solutions and the ratable nature of our fees makes this seasonality less apparent in our overall results of operations.
Quantitative and Qualitative Disclosures Regarding Market Risk
We are exposed to market risks related to foreign currency exchange rates, interest rates, and pension obligations. We seek to minimize or manage these market risks through normal operating and financing activities. We do not trade or use instruments with the objective of earning financial gains on the market fluctuations, nor do we use instruments where there are not underlying exposures.
Foreign Currency Risk . Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Canadian Dollar. Due to the relative size of our international operations to date, we have not instituted an active hedging program. We expect our international operations to continue to grow in the near term, and we are monitoring the foreign currency exposure to determine if we should begin a hedging program.
Interest Rate Risk . In connection with our U.S. and Canadian payroll and tax filing services, we collect funds for payment of payroll and taxes; temporarily hold such funds in trust until payment is due; remit the funds to the customers employees and appropriate taxing authority; file federal, state and local tax returns; and handle related regulatory correspondence and amendments. We invest the U.S. customer trust funds primarily in high- quality bank deposits, money market mutual funds, or collateralized short-term investments. We may also invest these funds in U.S. Treasury and agency securities, as well as highly rated asset-backed, mortgage-backed, municipal, and corporate securities. Our Canadian customer trust funds are invested in securities issued by the government and provinces of Canada, highly rated Canadian banks and corporations, asset-backed trusts, and mortgages.
We do not enter into investments for trading or speculative purposes. Our cash equivalents and our portfolio of marketable securities are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectation due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because we classify our securities as available for sale, no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity or declines in fair value are determined to be other-than-temporary.
We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition. Fluctuations in the value of our
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investment securities caused by a change in interest rates (gains or losses on the carrying value) are recorded in other comprehensive income, and are realized only if we sell the underlying securities.
Pension Obligation Risk . We provide a pension plan for a number of former employees. In applying relevant accounting policies, we have made critical estimates related to actuarial assumptions, including assumptions of expected returns on plan assets, discount rates, and health care cost trends. The cost of pension benefits in future periods will depend on actual returns on plan assets, assumptions for future periods, contributions, and benefit experience. In 2016, we contributed $36.5 million to our pension plan.
The effective discount rate used in accounting for pension and other benefit obligations in 2016 ranged from 3.26% to 3.64%. The expected rate of return on plan assets for qualified pension benefits in 2017 was 6.30%. The following table reflects the estimated sensitivity associated with a change in certain significant actuarial assumptions (each assumption change is presented mutually exclusive of other assumption changes):
Impact on 2017 Pension Expense
Increase (Decrease) |
||||||||||||
Change in Assumption | Pension Benefits | Post Retirement | ||||||||||
(Dollars in millions) | ||||||||||||
Increase in discount rate |
50 basis points | $ | 0.4 | $ | 0.0 | |||||||
Decrease in discount rate |
50 basis points | $ | (0.4 | ) | $ | 0.0 | ||||||
Increase in return on plan asset |
50 basis points | $ | (2.0 | ) | | |||||||
Decrease in return on plan asset |
50 basis points | $ | 2.0 | |
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which replaced all existing revenue guidance and created Accounting Standards Codification (ASC) Topic 606, including prescriptive industry-specific guidance. This standards core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Entities will need to apply more judgment and to make more estimates than under the previous guidance. In July 2015, the FASB deferred the effective date for all entities by one year, making the guidance for non-public companies effective for annual reporting periods beginning after December 15, 2017. Early adoption is permitted to the original effective date of December 15, 2016 (including interim reporting periods within that reporting period). The standard permits the use of either the retrospective or cumulative effect transition method. Management has decided to adopt the new standard using the retrospective method effective first quarter 2019.
In preparation for this planned adoption, we have been evaluating the impact of the new standard to our financial statements and accompanying disclosures in the notes to our consolidated financial statements. Our assessment of the impact includes an evaluation of the five-step process set forth in the new standard along with the enhancement of disclosures that will be required. To date, we have developed our initial plan for implementing the standard, which includes identifying customer contracts within the scope of the new standard, identifying performance obligations within those customer contracts, and evaluating the impact of incremental variable consideration paid to obtain those customer contracts. We have also undertaken a comprehensive review of all contracts that fall under the scope of the new standard.
Based on analysis performed to date, we expect that adoption of the new standard will result in changes to the classification and timing of our revenue recognition. Specifically, we expect an increase
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in revenue classified as professional services and other revenue and a reduction in revenue classified as recurring services revenue, compared to current U.S. GAAP. Further, we expect that the new standard will result in changes to the timing of our revenue recognition compared to current U.S. GAAP. In compliance with the new standard, a contractual asset will be reflected on the consolidated balance sheets and will be amortized over the customers period of benefit, which is generally three years. We also expect changes to the timing of certain selling, general, and administrative expenses, as the new standard will also require capitalizing and amortizing certain selling expenses, such as commissions and bonuses paid to the sales force. These selling expenses will be amortized over the customers period of benefit, generally three years.
In periods of revenue growth, the changes above are expected to result in higher overall earnings before income taxes and net income (loss) when compared to current U.S. GAAP. We have not yet determined the impact of the disclosure requirements.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This standard requires balance sheet recognition for both finance leases and operating leases. This guidance is effective for non-public companies for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The guidance is required to be adopted using a modified retrospective approach. An entity will, in effect, continue to account for leases that commence before the effective date in accordance with previous U.S. GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous U.S. GAAP. We are currently evaluating the impact of the adoption of this standard.
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation, which simplifies several aspects of accounting for share-based payment transactions. This standard requires all excess tax benefits or deficiencies to be recognized within the income statement with the tax benefits classified as an operating activity on the statement of cash flows. This standard also requires cash paid by an employer for tax withholding purposes to be classified as a financing activity on the statement of cash flows. This guidance is effective for non-public companies for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. The guidance relating to the income tax consequences is required to be adopted using a modified retrospective approach. The guidance relating to the classification on the statement of cash flows is required to be adopted using a retrospective approach. We elected early adoption of this standard as of January 1, 2017, which had an immaterial impact on our financial results and presentation.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other, which simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. This standard requires that an entity perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value. The update also eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. This guidance is effective for public business entities for annual or interim goodwill impairment tests in fiscal years beginning December 15, 2020. Early adoption is permitted for any testing date after January 1, 2017. We are currently evaluating the impact of the adoption of this standard.
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Dear Friends and Prospective Investors,
Ceridian builds software that makes work life better.
As a life-long entrepreneur, I have had the opportunity to experience and take advantage of many advancements in technology and have grown several successful businesses. One constant across our everchanging work and technology landscape is that people are at the core of any company. At Ceridian, we believe that great employee experiences translate into great customer experiences, and that in turn, fosters organizational growth and success. Our brand promise is to make work life better for everyone who uses our products and services.
Cloud technology, access to data, and predictive technologies transformed the workplace.
In 2009, I noticed two powerful trends that had changed the workplace: first, the adoption of cloud technology had become the norm for enterprise applications; and second, the availability of data had changed the expectations of both employees and employers alike. Employees came to expect increased flexibility, easy access to their personal and company information, the ability to receive and give feedback, and a much more personalized experience at work. Similarly, organizations knew that they had gained access to a lot of employee information and wanted to take advantage of that data and new predictive technologies to gain a better understanding of their workforce, and to equip their managers to make insightful decisions.
To meet the needs of the modern workplace, Human Capital Management (HCM) technology needed to get the right data to the right people at the right time a goal which required real-time data, unified across the entire employee experience. However, the solutions in the market at that time were fundamentally flawed and unable to address this need. Most providers only offered a collection of separate applications spread across multiple databases, and lacked the ability to support the interrelated processes surrounding the new employee experience.
In response, I founded Dayforce the core of todays Ceridian because I believed that by solving this problem, we could make work life better for our users and disrupt the HCM market.
We built Dayforce to disrupt the HCM market.
I carefully studied the cloud market for HCM solutions and was very excited by what I found. First, the market for HCM and payroll applications was almost $20 billion, with cloud payroll constituting about 25% thereof; second, payroll requirements were fairly consistent regardless of company size or industry; and third, the duration of the relationship between payroll vendor and organization seemed to be above ten years across all vendors. It was our belief that the market was ideal for building a cloud solution, and could be disrupted with a single data source, modern cloud technologies, and new predictive technologies.
Our initial focus was on addressing the disconnect between time and pay. Traditionally, these systems and data were separate, which meant that the payroll team could not start checking the data until the managers had closed out time in the time system, which usually only happened the day after the end of the pay period. Only then could the data be exported from the time system, imported, and batch-processed into the payroll system. This meant that the payroll team would then have a very small window of time to do the necessary auditing and adjustment entry before having to commit and fund the payroll. Most of the payroll teams canvassed admitted that they would often commit pay when they ran out of time, knowing that they would have to clean up the mistakes after people were paid.
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I was confident we could solve this problem by building a single solution that could perform continuous calculations for time and pay. The system could instantly calculate the net earnings every time an employee would clock in or out, or when an employee record or time record would change. This would allow payroll teams to access and audit the data continuously throughout the active pay period, thereby lowering their anxiety and increasing the accuracy of pay. Employees would gain better access to their information and increased confidence in the accuracy of their pay. Managers would benefit from timely and fully-costed workforce information, and the CFO would achieve greater compliance and controls.
We believed that every area of the HCM market could be disrupted. A unified platform with a single source of data and predictive analytics would change the game.
The plan was to enter the market with a differentiated time and payroll solution and then expand the product to broader HCM functionality. The initial unified payroll and time solution would be designed to address the incumbent products flawed workflow challenges and deliver significant benefits to users. These customer benefits made me confident that we would be able to win customers and develop long-term relationships with them. We could then add functionality for talent management to the solution, such as recruiting, performance management, compensation management, and learning management, to the solution. The additional features would give us the opportunity to sell more products to customers over time.
For example:
| Using key performance indicators, Dayforce could combine large volumes of data and predictive methods to help companies determine how and when labor was required. Sophisticated optimization methods would help managers build employee-friendly labor schedules that are compliant, cost-effective, and aligned with organizational goals. |
| With employee performance, HR, and payroll data, Dayforce could help companies align pay-for-performance or identify gender/diversity-bias. Using similar data and optimization technology as in the labor scheduling module, we could build a compensation module that would guide managers to make more insightful merit and bonus decisions. |
| By combining HR, benefits, learning, and talent features in an intuitive onboarding experience, Dayforce could help the employee complete any necessary forms, enroll for benefits, learn about the company, meet their team, understand their short and longer-term goals, and begin their training plan. |
We looked for a partner to accelerate our growth.
To enter the market, we partnered with Ceridian an established payroll provider with a great reputation for service and substantial distribution capabilities. I was impressed with Ceridians deep experience and customer focus, but it was apparent that Ceridian lacked solutions for the modern workforce. Our partnership was very successful and proved Ceridian could sell and manage Dayforces technology. In 2012, Ceridian acquired Dayforce and I became CEO of the combined global organization.
Since the acquisition, we simplified Ceridian to focus on growing our cloud HCM business, and today we continue to execute on our vision for a modern cloud platform that covers the entire employee experience and makes work life better for people.
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Over 3,000 customers are live on Dayforce, and Dayforce revenue has grown at a compounded annual growth rate of greater than 60% since 2012.
A unified platform with a single source of data and predictive analytics has changed the game. We have built a remarkable business at Ceridian. Driven by the belief that engaged employees are the key to great customer experiences, we have created a culture of innovation and performance that has attracted the top talent from across the industry. Our culture combines the innovation, agility, and technical leadership of Dayforce with the domain expertise, customer focus, and experience at scale of Ceridian.
The combination of founder-led start-up and established enterprise with experience at scale has been phenomenally successful.
We live what we do, and we foster an environment where everyone in the organization cares and is passionate about our mission. I am tremendously proud that Ceridian has also been recognized as one of Glassdoors Top 100 Places to Work in both the United States and Canada, and as one of Glassdoors top 15 companies to Recommend to a Friend in the United States.
Wed be delighted for you to be a part of our story.
This initial public offering is an important milestone for Ceridian. I invite you to share in our journey as we continue our mission to innovate and to make work life better. The offering will boost our financial flexibility and provide access to capital, allowing us to accelerate our plans for the future.
We remain dedicated to building and delivering innovative technology that helps companies better engage and manage their employees, because when their employees succeed, our customers succeed and when our customers succeed, we succeed.
I hope our story resonates with you, and that youll join us on our journey.
Yours truly,
David Ossip
Dayforce Founder and Ceridian Chairman and CEO
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Overview
Ceridian is a global HCM software company. Dayforce, our flagship cloud HCM platform, provides HR, payroll, benefits, workforce management, and talent management functionality. Our platform is used by organizations, regardless of industry or size, to optimize management of the entire employee lifecycle, including attracting, engaging, paying, deploying, and developing their people. Dayforce was built as a single application from the ground up that combines a modern, consumer-grade user experience with proprietary application architecture, including a single employee record and a rules engine spanning all areas of HCM. Our platform is designed to make work life better for our customers and their employees by improving HCM decision-making processes, streamlining workflows, exposing strategic organizational insights, and simplifying legislative compliance. The platform is designed to ease administrative work for both employees and managers, creating opportunities for companies to increase employee engagement. We are a founder-led organization, and our culture combines the agility and innovation of a start-up with a history of deep domain and operational expertise.
The employer-employee relationship has undergone significant change. Employees historically viewed their jobs primarily as a source of income. Now, employees increasingly demand transparency, schedule flexibility, career growth, and better work-life balance with real-time access to their personal HR data anytime, anywhere. As organizations try to respond to these trends to attract and retain talent, they are empowering managers to think more strategically about their people. These challenges require organizations to find more efficient ways to manage employees and HCM functions, while navigating changing global operating and regulatory environments at the same time.
Today, most organizations rely on a combination of legacy service bureaus, on-premise software, and first-generation SaaS solutions to meet their HCM requirements. HCM data in status quo solutions are stored in disparate databases, are difficult to access, and are often inaccurate. These status quo solutions that most organization rely on were not built to manage a modern workforce, do not allow for real-time decision-making, and are not flexible enough to adapt to a changing global and regulatory environment. These systems were designed as point solutions around inefficient serial workflows and multiple data, integrated with legacy code.
Solving these challenging problems is core to our culture. We built Dayforce from the ground up to provide a comprehensive, next-generation platform that can solve complex human capital management problems. We carefully designed Dayforce to meet the needs of a homogeneous market with a common set of requirements and compliance challenges across organization sizes and industries. Our solutions deliver the right data to the right user at the right time for actionable intelligence and a superior employee experience. Our scalable platform is built on modern cloud technologies with a single, flexible rules engine capable of addressing complex global regulatory requirements, combined with a data architecture that can continuously calculate payroll throughout the pay period, and a single database that enables advanced insights and predictive analytics. We believe that our architecture enables our customers to continue to benefit from advancements in technology, such as artificial intelligence and big data.
The breadth of benefits that Dayforce provides throughout an organization has been critical to our success. Employees benefit from our user experience and access to real-time data, which enables organizations to better empower employees with more self-service capabilities. The user experience and self-service capabilities drive faster adoption and free managers and HR administrators from many administrative burdens. Business-level managers benefit from deeper insights into their employee data, which enables them to better optimize their resources and to use predictive analytics to improve operations, such as scheduling, budgeting, and retention. Executive leadership benefits from better real-time data visibility, allowing them to better understand and to manage risk, to monitor and to track
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broader strategic initiatives, and to reduce technology and operational costs. In addition, Dayforce is delivered as a single cloud solution, which reduces the burden on internal technology resources.
We sell Dayforce through our direct sales force on a subscription PEPM basis. Our subscriptions are typically structured with an initial fixed term of between three and five years, with evergreen renewal thereafter. Dayforce can serve customers of all sizes ranging from 100 to over 100,000 employees across multiple industries. We have rapidly grown the Dayforce platform to more than 3,000 live Dayforce customers, representing over 2.5 million active global users as of December 31, 2017. In 2017, we added over 650 new live Dayforce customers. Our customers vary across industries, and no single customer constituted more than 1% of our total revenues for the year ended December 31, 2017. We believe that our intense focus on solving complex problems and our superior customer experience lead to our high retention rates, as evidenced by our annual Cloud revenue retention rate of over 95% in 2017. Our new business sales to Dayforce customers primarily made up 74% and 73% of our increase in Cloud revenue for the years ended December 31, 2017 and 2016, respectively, and the remaining 26% and 27% consisted primarily of customer migration to Dayforce from our Bureau solutions.
In addition to Dayforce, we sell Powerpay, a cloud HR and payroll solution for the Canadian small business market, through both direct sales and established partner channels. As of December 31, 2017, we had over 38,000 Powerpay accounts. We also continue to support customers using our Bureau solutions, which we generally stopped actively selling to new customers, following the acquisition of Dayforce. We invest in maintenance and necessary updates to support our Bureau customers and continue to migrate them to Dayforce.
We have experienced significant Cloud revenue growth at scale, particularly from Dayforce, which has grown at a CAGR of more than 60% since 2012. Our total revenue increased from $693.9 million in 2015 to $704.2 million in 2016 and to $750.7 million in 2017. Our total Cloud revenue, which consists primarily of revenues from Dayforce and excludes revenues from our Bureau solutions, increased from $225.2 million in 2015 to $297.8 million in 2016 and to $404.3 million in 2017, representing increases of 32.2% and 35.8%, respectively. We generated HCM Adjusted EBITDA of $99.7 million in 2015 compared to $88.9 million in 2016 and $117.8 million in 2017. We incurred net losses of $(104.7) million, $(92.9) million, and $(9.2) million in 2015, 2016, and 2017, respectively. See Selected Consolidated Financial and Other DataNon-GAAP Financial Measures for more information and for a reconciliation of HCM Adjusted EBITDA to HCM operating profit, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
Industry Background
There are several important market dynamics that are transforming the way organizations manage and engage their employees. These trends impact organizations regardless of size, industry and geography, and represent a significant global opportunity for Ceridian.
The employer-employee relationship has changed
Employees are increasingly demanding more from employers in terms of personal development opportunities and control of their work life. Employees expect modern, intuitive solutions that provide them with self-service access to pay, schedules, benefits, performance reviews, learning opportunities, and other key employee data in real-time and on the device of their choice. Organizations now acknowledge the strategic importance of developing and engaging their employees as a means to increase productivity and, in turn, improve business outcomes in a rapidly changing competitive business environment. Unfortunately, managers and administrators are often overwhelmed with time-consuming data entry tasks, manual paper-based processes, clunky serial workflows, and
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reconciliation challenges among disparate systems. Organizations require automation of administrative tasks, flexible workflows, and greater employee self-service to enable managers and HR and payroll administrators to focus on higher value activities.
Organizations need better access to their data
Organizations have historically captured large amounts of employee-related data, but have been challenged to leverage these data as assets for decision-making. Unfortunately, data are difficult to use because they are inconsistently collected and therefore inaccurate, stored in multiple systems, and not easily consolidated. Many organizations resort to building complicated customizations to existing software with limited analytical functionality or to relying on manual reporting. Insights from their data are poor; reporting is manual, error-prone, and time-consuming; and options for intelligent analytics are extremely limited. Senior executives, managers, and HR and payroll administrators are left with an incomplete view of their workforce and operations, and they lack the ability to access data in real-time for decision-making.
Predictive technologies are changing the way we work
Organizations are generating large volumes of data that can power predictive models to solve extremely complex business problems. Artificial intelligence and other predictive technologies are playing a larger role in organizations, such as machine learning in customer support applications and natural language processing in connected internet devices. Customers are now demanding these predictive technologies in human capital management, particularly in employee scheduling, hiring, retention, and compensation management. In addition, businesses want to combine the massive amount of employee data with other business data to create a complete picture to better drive their corporate strategies and to manage daily operations. We believe that the ability to leverage human capital data with predictive technologies can be a source of competitive advantage and is increasingly a competitive necessity.
Regulatory requirements are becoming increasingly complex and a source of organizational risk
The complexity of todays regulatory environment, including labor, tax, and compliance regulations, is a burden on businesses of all sizes. Organizations must comply with complex federal legislation, such as the ACA and the Fair Labor Standards Act in the United States. Also, organizations must comply with a growing number of changes at the state and local level, such as the Retail Workers Bill of Rights in San Francisco, or Pennsylvania Act 32, which created more than six thousand new tax jurisdictions. In addition to complex labor and tax legislation, data privacy requirements add to the tangle of shifting and sometimes conflicting rules related to HCM. Non-compliance with applicable laws and regulations can result in significant financial penalties for the organization and damage to employment and company brands when failures occur. The aggregate complexity is challenging organizations to maintain and to prove compliance in the face of significant financial penalties for non-compliance. In many cases, compliance requires complicated, time-consuming, and error-prone manual steps to coordinate between multiple systems, introducing cost and significant risk to organizations. Organizations are increasingly demanding a single flexible platform to help manage these growing complexities, to reduce costs, and to lower risk.
Global markets continue to be underserved by HCM solutions
Globalization has resulted in a more internationally distributed and mobile workforce. This trend increases operational complexity by requiring organizations to understand and to comply with ever-changing regulations with respect to tax and employment laws across multiple countries. Legacy HCM
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and first-generation cloud solutions often lack the capability to develop localized functionality to meet country-specific requirements, which results in unintegrated and error-prone workflows, isolated employee data by country, and a poor user experience for employees. While core HCM solutions for employee data are more mature, areas such as time and attendance and payroll still remain materially underserved. To address these issues, organizations are turning to global HCM solutions with fully integrated localized functionality. In addition to payroll, where this need is particularly acute, employers demand solutions that enable them to manage international employees throughout the employee lifecycle, including attracting, onboarding, deploying, and training their people.
Incumbent HCM products are plagued by disparate technologies and struggle to meet todays needs
Existing solutions include bureau services, on-premise and cloud-enabled client-server providers, and web-enabled point solutions. Many existing solutions have been assembled through a combination of platform acquisitions and vendor partnerships, all of which use different core architectures, multiple databases, and disparate user interfaces. Web-enabled point solutions can often solve specific problems but are not able to address the complete employee lifecycle. As a result, many of the products offered in the market today spread data across multiple application frameworks and different code bases. These datasets have, in many cases, become liabilities rather than assets for organizations. In world-class products, data must be accessed in real-time, stored in a unified platform, and analyzed to achieve better insights and to drive better decisions. We believe the market requires a true unified single platform that is built from the ground up, where data are assets that can simplify and automate workflows, maximize accuracy and efficiency, and empower both employers and employees. We see increasing market demand for a single HCM application.
The HCM technology market is large and underserved
The HCM technology market is one of the largest in the software industry. According to an IDC market forecast report, titled Worldwide Human Capital Management and Payroll Applications Forecast, 2017-2021, published in June 2017, the global market for HCM Payroll and Applications in 2018 is predicted to be $19.7 billion, of which $4.7 billion is for Payroll Applications, and is expected to grow to $25.4 billion by 2021, representing a 9.0% CAGR. The market includes payroll, HR, talent acquisition, workforce management, document management, performance management, compensation management, and succession planning. The size and stability of this market is attributable to the critical nature of payroll and the strategic need for data-driven HCM. We believe that a global, agile, data-driven, and platform-designed single HCM solution will gain market share and create an opportunity for continued growth.
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Our Dayforce Solution
Dayforce is built from the ground up to provide businesses with a comprehensive modern cloud HCM platform for managing the entire employee lifecycle. Our award-winning software addresses all key areas of HCM, including HR, payroll, benefits, workforce management, and talent management functionality. Our proprietary architecture provides our customers with a complete view of their workforce though an intuitive, consumer-grade user experience, with native accessibility that enables users to connect on their preferred devices. Predictive analytics and dashboard visualizations are embedded in our interface, enabling users at all levels to make better real-time strategic decisions. Our technology leadership differentiates us and positions us for continued growth.
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The key benefits of Dayforce include:
| Single employee record, single application architecture: Our platform is designed around our proprietary single application architecture, which includes a cross-domain rules engine, dataset, and complete employee record. With data stored in a single, central location, our platform provides actionable data-driven insights across all HR functions to enable better decision-making and to address broad strategic operational challenges related to the entire employee lifecycle. In addition, our differentiated approach eliminates the need for fragile and complex data integrations that attempt to unify disparate HR-related applications, such as payroll and time and attendance. Eliminating integrations greatly simplifies workflows, drives more efficient service delivery, reduces errors, and enhances regulatory compliance. For example, when an employee clocks out and hours are added to the system, Dayforce calculates taxes and net pay in real time instead of having to wait until the end of the pay period to batch transfer hours from the time system to the pay system. |
Traditional Payroll Workflow
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Dayforce Workflow
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Data is stuck in the time systems until after the end of the pay period. Once the data are transferred to payroll, there is not enough time to complete audits and adjustments. Payroll gets committed with errors. |
Dayforce enables access to payroll data through the
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| Actionable insights driven by real-time data and predictive technologies: Dayforce delivers the right data to the right people at the right time. Our platform provides actionable, data-driven insights to assist our customers with fast, informed decision-making. Sophisticated predictive technologies align business strategy with daily operations. For example, Dayforce generates optimized schedules in line with company priorities and employee work preferences and also includes a set of features that predict employee flight risk accompanied by suggested actions to minimize that risk. This actionable data-first approach enables all levels of the organization, from executives and business-line managers to HR and payroll administrators, to make better decisions in real-time and to align organizational strategy with daily operations. |
| Built for complex operating and regulatory environments: Maintaining compliance in an increasingly complex regulatory environment is critical to the success and stability of organizations globally. Dayforce was built with compliance and security at its core and has the flexibility to respond to inevitable changes in the regulatory climate. Our proprietary rules engine is a critical strength of our platform and has led to us becoming a leader in the area of compliance. Through the use of our dynamic and fully configurable rules engine, clients are able to customize the system specifically to their business needs, allowing them to spend less time tracking compliance with complex local, state, federal, and international labor laws and regulations, and freeing up their time to focus on their business. |
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| Delivers a better employee experience: Dayforce provides a consumer-grade experience and is built to reflect how users naturally behave. Through our single dataset and native web and mobile applications, users can access our platform on the device of their choice and can enjoy a consistent intuitive user interface across all domains of HCM. Because Dayforce is easy to learn and easy to operate, both managers and employees enthusiastically adopt self-service functionality. Increased self-service usage is designed to drive higher employee and manager engagement, collect more accurate information, and facilitate more efficient operations. |
| Grows as our customers expand globally: Our platform is built to scale globally for organizations regardless of industry or size. Our customers are highly diversified and range from small regional businesses to large, global multi-nationals. With our proprietary architecture, we have the ability to enter new international markets, and to localize Dayforce to address both North American-based organizations with employees around the world and organizations outside of North America that operate primarily in their own local markets or regions. To date, our global HR and workforce management functionality is used in over 50 countries, such as the United Kingdom, Australia, Germany, South Africa, and Mexico. Users outside of North America currently represent approximately 5% of the Dayforce user base. In addition, we provide global 24/7 customer support and we use data hosting centers across North America, Europe, and Australia. Our cloud delivery model enables our customers to easily scale without major capital expenditures and eliminates the need for cumbersome data integration, traditionally associated with legacy solutions. Our delivery model also enables us to innovate rapidly and to implement changes easily to allow customers to stay current with changing regulatory, compliance, and tax environments. |
Our Growth Strategies
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We build technology that makes work life better for people around the world. Our growth strategies include:
| Grow market share in existing geographies: The HCM market is massive, and we have a significant opportunity to increase our penetration in North America. Dayforce has been gaining market share relative to both traditional and first-generation SaaS HCM providers as more customers adopt our leading cloud platform. We have experienced significant growth over the last six years and added over 650 live customers in 2017. We intend to capitalize on our market momentum by leveraging our sales and marketing to win new customers. |
| Expand globally: We believe that there is a significant opportunity to provide our HCM platform to organizations with employees based outside our core North American markets. From the onset, Dayforce was intentionally designed to be a global platform with the ability for customers to use it for their global HR and workforce management needs. We have successfully deployed Dayforce around the world, and Dayforce is in use in over 50 countries. In 2017, we established Dayforce Europe and began work to further differentiated Dayforce by extending the payroll engine for the United Kingdom payroll calculations. We intend to localize Dayforce to provide native payroll functionality in additional countries, and we believe that providing native payroll will enable us to sell to organizations headquartered or with a significant employee presence in those countries. We believe that ease of localization is a key differentiator for the Dayforce platform. |
| Increase sales from existing customers: We intend to sell additional incremental functionality to existing customers that do not currently utilize the full Dayforce platform. Our revenue also increases as our customers grow their workforces, driven by our subscription PEPM pricing structure. |
| Expand platform functionality: We believe that our leading market position in technology is based on our ability to continuously innovate and to quickly bring new solutions to market. Since 2012, we have developed a full suite of HCM functionality. We intend to continue to extend the functionality and breadth of our Dayforce platform in the future, taking advantage of modern technologies including artificial intelligence and big data. |
| Grow and cultivate our partner ecosystem: Investing in key product and sales partnerships can help us to grow our customer base and to reduce customer acquisition costs. This includes deep relationships with private equity firms and their business partners, other value-added resellers of the Dayforce platform, and third parties that want to offer Dayforce as an extension of their product suites on a referral basis. For example, we recently launched the Dayforce Software Partner Platform, which enables certified third party software vendors to integrate easily with the Dayforce platform. These initiatives expand our distribution reach and provide additional value to our customers. |
| Address the unique changing workforce requirements of the gig economy: The rise of the gig economy has led to the expectation of same-day onboarding and payments for independent freelancers. We believe the on-demand economy, which is part of the broader contingent workforce market, is expected to account for over 40% of the workforce by 2020 in the United States. We believe that our real-time pay and scheduling capabilities and native mobile applications position us well to capitalize on this growing opportunity. |
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Promote our culture as a unique differentiator: Our culture combines the agility and innovation of a start-up with a history of deep domain and operational expertise. We focus on our culture and on employee engagement as we believe it helps us to attract, to engage, and to retain top talent who create successful outcomes for our customers, which we believe results in growth through strong customer retention and new customer referrals. In 2017 alone, we have received over 20 awards recognizing our culture, including Glassdoors Top |
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100 Best Places to Work (Canada and United States), Great Places to Work (Canada and United States), Canadas Top 100 Employers, and recognition by the Brandon Hall Group as Best Advance in Corporate Culture Transformation. |
The Dayforce Platform
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Dayforce, our flagship cloud HCM platform, is a single application that offers a comprehensive range of functionality, including global HR, payroll, benefits, workforce management, and talent management on web and native iOS and Android platforms. We designed Dayforce to solve fundamental HCM challenges by enabling logical, unified workflows across domains, unencumbered by the constraints of individual modules. Key functionality of our Dayforce platform includes Human Resources, Payroll and Tax, Benefits, Workforce Management, and Talent Management.
Dayforce Home Screen
Dayforce Mobile Home Screen
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Human Resources: Dayforce Human Resources functionality provides customers with a single, complete record for all employees. Our HR functionality is centered on a comprehensive, flexible workflow engine that streamlines and automates administrative tasks, resulting in lower overhead costs and increased productivity. Employees are empowered to update their own information, subject to configurable approval processes, enabling HR departments to operate more efficiently. In addition, the wealth of demographic data collected as part of the HR record, combined with transactional data from our platform, enable us to provide business-level managers, HR and payroll administrators, and executive leadership with timely, relevant, and reliable information in easy-to-access dashboards and with predictive analytics that help guide strategy and decision-making.
Dayforce Organizational Chart View
Global Compliance: Dayforce enables customers to better maintain compliant HR processes for their global workforce. In addition to supporting data tracking requirements for personnel records globally, Dayforce includes functionality to meet complex employment eligibility requirements. Dayforce also facilitates the automated generation of required government reports, such as Occupational Safety and Health Administration and Equal Employment Opportunity reporting.
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Payroll and Tax: Our payroll capabilities provide customers with the tools needed to accurately and compliantly manage their payroll processes. Dayforce Payroll replaces traditional batch-driven payroll systems with a real-time cloud solution that significantly reduces payroll processing times through automation and flexible workflows. Customer references observe that Dayforce has completely transformed the way they process payroll because of the elimination of batch and serial processes as a result of our continuous calculation of net pay as time data are captured.
Dayforce Payroll Summary View
Pay Run Management : Through our platform, users in the United States, Canada, and the United Kingdom are able to make updates to time and pay in real-time. Dayforce does not require data interfaces between time and attendance to payroll. As a result, Dayforce enables users to make updates to time and pay at any point during the pay period and to provide immediate access to audits that validate the quality of payroll before it is processed. Additionally, since Dayforce does not rely on any serial or batch processes, users can manage payroll and make edits across countries and pay periods simultaneously on a single screen, resulting in further efficiency.
ConnectedPay: In countries where we do not currently offer localized payroll, Dayforce ConnectedPay provides payroll aggregation features that allow an organization to have a centralized view of their global payroll. ConnectedPay automates the data exchange with in-country payroll providers and provides a consistent self-service experience for employees to view earnings statements and associated payroll documentation.
Tax Management: Dayforce calculates, withholds, and files payroll related taxes in the United States and Canada as part of our localized payroll offering. Tax rates are automatically updated in Dayforce as changes take effect, and tax calculations for employees and employers are updated in
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real-time with the appropriate effective date for employee records. We believe that Dayforces capability to seamlessly address the complex multi-jurisdictional tax needs of frequent business travelers is a significant competitive advantage.
Benefits: Dayforce Benefits provides a seamless user experience from enrollment to ongoing administration. With data connections to over 200 coverage providers, Dayforce solves one of the complex challenges of benefits management by ensuring that the data contained in an organizations HCM platform are always in sync with the coverage providers data.
Dayforce Benefits Enrollment View
Enrollments : Dayforce provides a guided process with rich decision support tools for employee benefit enrollment. As enrollments are completed, Dayforce automatically sends the updated information to the carriers, ensuring that employees and their dependents coverage is accurate and up-to-date. Additionally, the corresponding payroll elections are automatically updated in real-time based on the effective dates of the enrollment.
Life Events: Dayforce automatically triggers benefit enrollments based on employee life events, such as getting married, having a child, or moving to a new address. For example, when new dependents are added to an employees profile, Dayforce automatically distributes a new benefit enrollment, allowing the employee to update her relevant benefit plans.
Administration: Dayforce enables organizations to configure their benefit plan setup to meet the specific needs of their organization. For example, organizations can dynamically change the eligibility criteria for a given benefits enrollment option, new hire waiting periods for enrollment, and organization-wide enrollment dates. Moreover, customers are provided with detailed reporting that helps them to understand benefit plan adoption and projected costs.
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ACA Administration : Dayforce manages the eligibility, affordability, and reporting requirements of ACA and streamlines the processes to auto-populate COBRA details for export, reducing effort and improving accuracy. The ACA year end functionality produces and files federal forms and provides metrics and visibility to the appropriate users.
Workforce Management: Dayforce Workforce Management provides functionality to help organizations manage their workforces, improve operational efficiency, and enhance compliance by configuring the system to meet complex labor and employment rules and policies.
Dayforce Schedule Builder View showing Schedule Efficiency Score and Curve
Time & Attendance: Dayforce empowers organizations to quickly and accurately track time and attendance and to calculate gross pay while complying with complex Federal, State/Provincial, local, and union regulations globally. We offer multiple options for time collection, including mobile and web-based time clocks, physical time clocks, and online timesheets.
Scheduling: Dayforce provides front-line managers with a tool to schedule employees based on the organizations labor requirements, labor availability, and budget constraints in compliance with laws, regulations, and organizational policies. Managers have visibility into employee preferences and availability as they build and edit schedules; and real-time warnings are triggered if a schedule violates any organizational or compliance rules applicable and configured for the client, such as shift duration or rest requirements. Our automated scheduling functionality includes an optimization engine that leverages data from a wide-range of sources, while adhering to client applicable and configured compliance rules and employee availability.
Absence Management: Self-service capabilities enable employees to request time away and managers to review and to approve requests. Absences are validated against organizational policies,
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such as balances and black-out periods, and approved time off is automatically reflected in schedules and time cards.
Dayforce Touch: Dayforce Touch is a touch-enabled time clock developed and maintained in-house. In addition to supporting traditional biometric, RFID, bar code, and magnetic stripe identifiers, Dayforce Touch supports facial recognition. Dayforce Touch includes built-in self-service capabilities that enable employees without access to a personal computer or mobile device to perform common functions, such as viewing their schedules, requesting time off, approving their time cards, and viewing their messages.
Labor Planning: Our labor planning engine uses large volumes of historical data, such as sales, transactions, and shipments to generate labor forecasts, expressed in both dollars and hours, based on a customers defined business model for allocating human resources. Labor planning data tie directly into the scheduling tool, enabling managers to align schedules with corporate financial targets to improve efficiency and employee productivity.
Task Management: Task Management enables organizations to easily create and to assign tasks to specific business units, locations, departments, or individuals.
Talent Management: Dayforce Talent Management enables organizations to attract, to engage, to develop, and to motivate their workforce. Our approach to Talent Management is to drive employee engagement by providing a holistic talent experience centered on the individual.
Dayforce Compensation ManagementMerit Increase View
Recruiting: Dayforce creates a simplified, streamlined, and user-friendly recruiting process for candidates, hiring managers, and recruiters, enabling organizations to find and to hire best-fit candidates. Dayforce includes a configurable candidate portal that integrates with the employment
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search engine, Indeed, to ensure that the job search experience is seamless for both the employee and the employer. Dayforce also integrates with background screening services to enable recruiters to perform all candidate screening and management activities within Dayforce.
Onboarding: Dayforce enables organizations to manage onboarding for both new hires and existing employees that move to new roles. Our onboarding functionality manages critical compliance requirements, provides an engaging experience to align employees to an organizations culture and values, and helps to foster an immediate sense of belonging for new employees.
Performance Management: Our performance management capabilities enable customers to effectively manage and to reward the performance of their employees. Our user experience is centered on conversations, which enable all members of the organization to provide feedback on goals, competencies, or daily activities. All feedback received throughout an evaluation period is clearly visible to employees, managers, and peers as they complete their performance reviews to align performance reviews and coaching with the relevant feedback.
Compensation Management: Dayforce provides front line managers with information, guidelines, and tools to make better compensation decisions by combining data across all domains of HCM. Dayforce includes prescriptive tools to automate the allocation of compensation based on a combination of factors, including employee performance levels, gender pay equality, and budgetary guidelines.
Learning Management: Dayforce provides a comprehensive tool for managing employee development, while also enabling clients to easily track compliance requirements for certification and recertification. Our learning platform includes e-learning, classroom, and virtual training and reporting capabilities to provide managers visibility into the skills acquired by their team members.
TeamRelate: Dayforce includes a tool for managers that proposes situational, prescriptive actions based on the specific communication needs of each employee. With TeamRelate, managers are empowered to be more effective coaches, fostering greater employee engagement and more rapid development.
Other Dayforce Functionality:
Document Management: Dayforce includes Human Resources-specific document management capabilities which aid our customers with a significant area of compliance risk. Document visibility is controlled by our robust security model for employee personnel data to protect PII and other sensitive information.
Messaging: Dayforce includes built-in messaging capabilities for the entire enterprise. Dayforce messaging provides every user with access to an organization-wide message center, which fosters improved collaboration, communication, and overall employee engagement throughout the organization.
Third Party Functionality:
To augment and complement the application, Dayforce uses ancillary services for functions such as displaying the location of a job, background check services, playing and tracking learning materials, and posting jobs to job boards.
Additional Products and Services
Powerpay
We offer Powerpay for Canadian organizations with fewer than 100 employees. Powerpay is a cloud platform that provides scalable and straightforward payroll and HR solutions. Specifically designed for small businesses, Powerpay enables clients to pay their employees accurately and on-time. Powerpay is a market leader in Canada, and as of December 31, 2017, Powerpay had over 38,000 accounts and processed over 25.9 million payments, totaling over $31.5 billion in 2017.
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Bureau
Our Bureau solutions offer payroll and payroll-related services using legacy technology. We invest in maintenance and necessary updates to support our Bureau customers. We generally ceased marketing our Bureau solutions to new customers in the United States in 2012 and in Canada in 2015, and continue to convert Bureau customers to our Dayforce platform.
LifeWorks
We also offer an employee engagement platform that delivers employee assistance programs, social recognition, exclusive perks and discounts, a private social network, employee and corporate wellness programs, and employee engagement analytics in the United States, Canada, and the United Kingdom directly by the LifeWorks joint venture, and in many other countries around the world through LifeWorks network of providers.
Our Customers
Dayforce is designed to serve organizations with 100 to over 100,000 employees across multiple industries. The Dayforce customer base has increased from 482 as of December 31, 2012 to 3,001 customers live on the platform in 2017. In addition, we had over 500 net new Dayforce customers contracted, but not yet live on Dayforce as of December 31, 2017. We expect the majority of these Dayforce customers to be taken live in 2018. For 2017, our 3,001 live Dayforce customers represented over 2.5 million active users. Small-sized businesses accounted for 13% of the total number of active customer employees, mid-sized businesses accounted for 31% of the total number of active customer employees, and enterprise-sized businesses accounted for 56% of the total number of active customer employees. We define a customer as a single organization, such as a company, a non-profit association, an educational institution, or government entity. We also have over 38,000 Powerpay accounts. No single customer accounts for more than 1% of our HCM revenues. The following table sets forth the number of live Dayforce customers at the end of the year presented:
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The customers listed below highlight how Dayforce is used across organizations of different sizes and industries.
99 Cents Only Stores LLC | Longo Brothers Fruit Markets Inc. | |
BlackRock, Inc. | Molson Coors Brewing Company | |
Blue Man Productions, LLC |
Morneau Shepell Limited |
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Buehlers Fresh Foods |
OMERS Administration Corporation | |
Canada Mortgage and Housing Corporation (CMHC) |
Petco Animal Supplies Stores, Inc. | |
Creative Solutions in Healthcare, Inc. |
Red Bull North America, Inc. | |
Cushman & Wakefield, Inc. |
Reliance Steel and Aluminum Co. | |
DPI Specialty Foods, Inc. |
Rubios Restaurants Inc. | |
Farm Credit Foundations |
Springbrook NY, Inc. | |
Guardian Industries Holdings LLC |
The Hanover Insurance Group, Inc. | |
Guitar Center, Inc. |
The Houston Texans | |
Hawaiian National Bank |
The Peninsula Metropolitan YMCA | |
Hibbett Sporting Goods Inc. |
Trader Joes Company | |
Kern Health Systems, Inc. |
Wieden + Kennedy, Inc. | |
Lindamood-Bell Learning Processes |
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Customers Case Studies
These case studies describe some of the benefits that different organizations have realized from Dayforce across different industries, including, but not limited to, entertainment, retail, healthcare, hospitality, and non-profit.
Situation: Blue Man Group, a world-famous performance art organization that has entertained more than 35 million people in over 25 countries worldwide, was using an outdated legacy HCM system and manual HR processes that placed undue burden on their company members. They knew they needed to streamline their HR and payroll processes so staff could focus on whats important: putting on a performance that connects with the audience and inspires people.
Solution and benefits: Blue Man Group began using Dayforce in 2016 for staff scheduling, timesheets, and payroll. Dayforce is now used to manage schedules for much of the companys hourly staff. Key benefits include:
| Improved scheduling. Dayforce ensures Blue Man Group can build a schedule that addresses the dynamic nature of the entertainment industry and the companys staffing, while ensuring there is always adequate coverage not only in total number of people required, but also at the departmental level. |
| Improved user experience. The Dayforce mobile app puts the power of HCM in the hands of Blue Man Group staff members to access schedule details. That easy-to-use, hands-on user experience has helped with system adoption, especially in terms of time sheets and scheduling. |
| Reduced payroll processing time. Dayforce allowed Blue Man Group to eliminate many redundant processes. Company payroll administrators also saw an improvement in the time it took to process payroll. |
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Situation: In 2014, E&H Family Group (E&H), the parent company for E&H Ace Hardware and Buehlers 13 full-service grocery stores*, was notified that its on-premise platform would no longer be supported and would require an expensive hardware and software upgrade to achieve functionality. The company elected to find a more efficient cloud-based solution for HCM that would automate HR processes and overcome limitations of their aging system. As the parent company of two uniquely different retail operations, E&H needed a solution with a robust platform that would accommodate both lines of business and scale to the complexities of a growing organization.
Solution and benefits: The company began its search for a new vendor in March 2014. After an in-depth analysis, E&H selected Dayforce in December 2014, with installation scheduled for mid-April and full deployment in July of 2015. Dayforce allowed E&H to move from a legacy system to a more efficient single-source cloud application with improved reporting and analytics. Key benefits included:
| Cost savings. Upgrade costs of nearly $500,000 to bring E&Hs legacy system up-to-date were eliminated, and annual fees were reduced by 20% with the implementation of Dayforce. The position of project manager for the legacy system was eliminated, saving $130,000 per year. External IT support was also dispensed with, along with the costs of two full-time staff needed to support the legacy system. Additionally, the company could offer more employee benefits because of the costs saved with the Dayforce application. |
| Return on investment. The company saw a ROI of 216%, with a payback of only four months and an average annual benefit of $1.8 million. |
| Improved strategic decision making . Actionable data analytics and enhanced reporting capabilities across the organization allow senior executives and managers to make decisions based on accurate data, in real time. |
| Increased efficiencies. The reduction of manual processes, shortened payroll processing times, decreased payroll errors, and boosted employee confidence and satisfaction. |
* | In October 2017, E&H Family Group sold its 13-store Buehlers supermarket chain to its employees, which now operate as Buehlers Fresh Foods. |
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Situation: In early 2012, Creative Solutions in Healthcare, Texass largest owner-operated long-term health care company, determined that it needed a more efficient payroll application to support the growth of the company, standardize reporting, and ease compliance with multiple federal and state agencies. Since each of the companys facilities operate as an individual legal entity with proprietary coding, consolidated reporting was difficult. Furthermore, rapid growth meant accurate reporting and compliance were increasingly becoming a challenge.
Solution and benefits: Creative Solutions in Healthcare began the implementation of Dayforce Time and Attendance, HR, Payroll, and Benefits in the third quarter of 2012. Ceridian offered support throughout the deployment, especially as the employer scrubbed and migrated the necessary data from existing legacy systems. Key benefits of the project include:
| Increased productivity. Dayforce has enabled Creative Solutions in Healthcare to reduce time spent by staff on clerical issues. The ability to access real-time data increased productivity for accounting and direct care staff, allowing them to focus on the delivery of quality resident care. |
| Cost savings. Creative Solutions in Healthcare eliminated the license maintenance fees and cost of staff time that was previously spent supporting the legacy accounting and payroll applications. |
| Control. The management team now has control over scheduling and payroll, which are essential in a labor-intensive operation such as Creative Solutions in Healthcare. Management now receives accurate data in real-time and can now make more informed decisions. |
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Situation: Rubios Coastal Grill, a coastal-inspired casual dining restaurant chain specializing in Mexican-inspired seafood, sought to overcome the limitations of its previous HCM application. It needed to seamlessly migrate from a manual, paper-based HR system to an efficient cloud-based application, with minimal disruption to their operations. In addition to eliminating the existing paperbased system, Rubios needed a solution that would provide self-service portals for employees, deliver accurate and actionable analytics, and manage the complexity of hourly team members in many different locations.
Solution and benefits: Rubios determined that Dayforce was the most robust and efficient solution for their environment. The company started the deployment in 2016, taking approximately 11 months from start to finish. The automated and streamlined Dayforce solution enabled Rubios to eliminate manual processing and speed information flow. Key benefits of the project include:
| Cost savings. By eliminating manual processing and the associated paper costs, the company markedly reduced the incidence of redundant information and misfiled documents. The single source solution has also reduced data entry times and the risk of human error while entering information. |
| Employee self-service. The Dayforce application has improved employee access to: personal data, scheduling, shift swapping, and payroll information. |
| Improved productivity. Managers can now focus their time on value-added activities such as customer service and increasing sales with the time saved with the automation of HR services. |
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Situation: Springbrook, a non-profit state-certified organization dedicated to helping people with intellectual and developmental disabilities, was using a legacy HR system that lacked core functionality. Processes were not streamlined, there was significant manual data integration required, and data was not always recorded properly. This resulted in duplicate or missing forms, lost productivity, and challenges in meeting compliance regulations and reporting requirements.
Solution and benefits: Springbrook implemented Dayforce in 2015, including modules for HR, Workforce Management, Document Management, Dashboards, Onboarding, and Recruiting. The Dayforce solution provides Springbrook with a single application and one user record, offering the organization a one-stop-shop for managing the complete lifecycle of an employee, for time capture, check printing, and W2s. Key benefits include:
| Improved payroll processing time. Springbrook has reduced the workload of its payroll and management departments, decreasing payroll processing time from two days to two hours. |
| Improved decision-making. Better access to data has allowed for faster, more informed decision-making. For example, Dayforce was invaluable in enabling Springbrook to implement an across-the-board pay raise for its direct support professionals, positioning the organization as a leader in compensation for its industry in the state of New York. |
| Reduced manual processes. Springbrook has eliminated paper and manual processes, going from paper-based to digital. There is now one record and one user experience across all processes. |
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Sales and Marketing
We sell our Cloud solutions through a direct sales force and a variety of third party channels, organized by customer size and geography. We market Dayforce to organizations with more than 100 employees. We market Powerpay to organizations with fewer than 100 employees in Canada. The majority of our revenue growth comes from new customers, but we also have a small, dedicated account management team focused on serving the needs of our Bureau customers and helping them to migrate to our Dayforce platform.
We generate customer leads, accelerate sales opportunities, and build brand awareness through our marketing programs, outbound business development efforts, and partner network. We believe that much of our sales success is attributable to our differentiated Dayforce platform, our ability to generate high customer return on investment, and our reputation for an above-average level of customer satisfaction.
Our principal sales and marketing efforts include:
| Our website, which provides application and company information, as well as educational opportunities for potential customers; |
| Territory development representatives, who make cold calls and respond to incoming leads to convert them into new sales opportunities and to develop relationships with targeted accounts in each territory; |
| Customer programs and events, including regional user group meetings, HCM summits, and our online customer community; and |
| Integrated marketing campaigns, including direct e-mail, online web advertising, blogs, and webinars. |
Customer Experience
We believe that our growth and success as an organization is tied to the success of our customers. We build deep relationships with our customers to understand their needs, to help them create value for their businesses. Success in our industry is characterized by long-term customer relationships, and the experience customers have with us extends well beyond our innovative products and services.
The following sections describe our customer experience offerings for Dayforce:
Implementation and Professional Services
Our internal implementation team leverages proprietary onboarding technology for new customer activation and professional services work. Our internal team is supplemented by a small number of third party services partners. Our implementation services include solution configuration and activation for new customers. Professional services include add-on implementation services for existing customers, ongoing product configuration changes when the customer does not have the resources to do it themselves, product usage consulting and a variety of additional services, such as report writing, usage audits, and process improvement. We have developed proprietary tools to help us to deliver consistent, high-quality services to our customers. For example, Activate, an implementation toolset, uses robotic process automation and data analytics to guide customers through their implementation, with a focus on training and testing. We see significant benefits from the Activate technology, including 50% reduction in implementation effort and cycle times, 30% faster ticket resolution times, along improved customer satisfaction scores. We believe that our technology-driven approach to implementation and professional services differentiates us in the marketplace and will help drive future margin expansion.
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Activate Implementation Dashboard
We also offer our customers a variety of training programs and tools, including organizational readiness tools, instructor-led training, custom training, and e-learning courses, to help our customers maximize the value of their Dayforce investment.
Customer Support
Our global customer support organization provides 24/7 application support from offices across North America and in the United Kingdom and Mauritius. Our support function is organized into specialized pods of approximately 18 representatives with deep domain expertise across our platform. These pods are grouped by customer and product type to provide a combination of deep product knowledge, consistent relationships, and high availability. Consistent with our technology-driven approach, we also equip the support team with proprietary tools to provide more effective support services. For example, our Configuration Validation Tool runs more than 400 tests on customer configurations to identify potential issues, and our Payroll Commit Dashboard identifies upstream payroll processing issues and enables our support representatives to proactively reach out to customers before issues arise.
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Customer Success
The customer success team helps customers maximize the value of their Dayforce solution and their overall relationship with us. Our award-winning XOXO Customer Success Program includes a customer success manager who is dedicated to engaging customers from contract signing through go-live, and providing ongoing support. Additionally, the XOXO Customer Success Program is a global customer community which provides an online portal and a wide variety of events and opportunities for customers to network with one another, share best practices, and build relationships with Ceridian experts.
Technology, Hosting, and R&D
Technology and innovation are at the core of Ceridian. Our ability to innovate is critical to our success, and every member of our senior leadership team is actively involved in technology discussions. Our innovation and development process is customer-driven. We work directly with customers to understand their needs and to deliver solutions that address their challenges through the lens of the entire user experience, without being constrained by individual modules or applications.
Our research and development team is responsible for the design, development, and testing of our applications. Our modern cloud technology stack, agile design and development methodology, and efficient software deployment process enable us to innovate quickly in response to industry trends. We believe that our research and development function is a competitive advantage that enables us to innovate faster and more efficiently than our competitors, while simultaneously delivering better solutions for our customers. For the years ended December 31, 2017 and December 31, 2016, our investment in software development was $51.8 million and $39.5 million respectively, including $26.0 million and $21.4 million in capitalized software development and $25.8 million and $18.1 million in research and development.
We host our applications and serve all of our customers from data centers operated by third party providers, primarily NaviSite, in Boston, Massachusetts; Redhill, England; Santa Clara, California; Toronto, Canada; Vancouver, Canada; and Woking, England. While we control and have access to our servers and all of the components of our network that are located in our external data centers, we do not control the operation of these facilities. Additionally, we host our internal systems through data centers that we operate and lease or own in Atlanta, Georgia; Fountain Valley, California; Louisville, Kentucky; St. Petersburg, Florida; and Winnipeg, Canada.
Our global cloud hosting model is an internationally portable model based on industry standard technology. Our modern deployment model enables a common code base to be shared across all customers. Reflecting our deployment capabilities, 99% of our Dayforce customers are on the most recent version of Dayforce. In addition, Dayforce is architected for elastic capacity and can scale with the virtual provision of resources on demand.
Competition
The market for HCM technology solutions is rapidly changing, with legacy service bureau and on-premise software providers facing increased competition from emerging cloud players. We currently compete with firms that provide both integrated and point solutions for HCM. Legacy payroll service providers, such as ADP, provide HCM solutions primarily through service bureau models. These vendors often have more in-house resources, greater name recognition, and longer operating histories than Dayforce and may seek to expand their cloud offerings through acquisition or organic product development. We also compete with cloud-enabled client-server HCM providers, such as Ultimate Software. These companies, whose products were developed over 20 years ago as on-premise solutions, have modified and redeployed their platforms as hybrid SaaS offerings. This has allowed
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them to transition their business model to offer hosted and cloud solutions, resulting in significantly larger customer bases. More recently, we face competition from modern HCM providers, such as Workday, whose solutions have been specifically built as single application platforms in the cloud. In addition, we also face competition from large, long-established enterprise application software vendors, such as Oracle and SAP SE. These companies are seeking to expand their cloud offerings through both acquisition and internal development efforts. We also compete with point solutions, such as Kronos for workforce management and Cornerstone OnDemand for talent management.
We believe the principal competitive factors in our market include the following:
| Breadth and depth of product functionality; |
| Scalability and reliability of applications; |
| Robust workforce management; |
| Comprehensive tax services; |
| Modern and intuitive technology and user experience; |
| Multi-country and jurisdiction domain expertise in payroll and HCM; |
| Quality of implementation and customer service; |
| Integration with a wide variety of third party applications and systems; |
| Total cost of ownership and ROI; |
| Brand awareness and reputation; |
| Pricing; and |
| Distribution. |
We believe that we compete favorably across these factors. Our ability to remain competitive will largely depend on the success of our continued and disciplined investments in research and development, implementation, and customer success, coupled with a consistent commitment to go-to-market excellence.
Employees and Culture
Highly Engaged Workforce
As of December 31, 2017, we had 4,212 active employees, including 3,645 in North America, Europe, and Australia, and 567 in Mauritius. We also engage temporary employees and consultants when needed to enhance our workforce. None of our employees are represented by a labor union, and we have never experienced any work stoppages. We consider the relationships we have with our employees to be excellent. We place tremendous strategic emphasis on our people and our engagement levels. Our fundamental belief is that, when employees are engaged, they produce great products and provide world-class service that delights our customers. We believe that our highly engaged workforce is a competitive advantage and we will continue to focus on employee engagement as a core driver of our business success.
Values and our Promise to Customers
Ceridians brand promise is Makes Work Life Better. We deliver on our brand promise by living our values, which are customer focus, transparency, diligence, optimism, and agility. These values reflect who we are and serve as a roadmap for how we plan to achieve our goals as an organization:
| Customer Focus: We listen to our customers with empathy, and we care about them. We win when our customers win. We focus on delivering employee engagement, satisfaction, and productivity to our customers. We celebrate success as a team. |
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| Transparency: We are open in the way we communicate and the way we do things. Integrity and accountability drive our behavior. |
| Diligence: Preparation and planning is vital to our success. We establish goals and standards to measure our success against them. We focus on repeatability and reliability. |
| Optimism: Optimism is planned behavior that leads to success. It begins with preparation. Preparation leads to knowledge, knowledge leads to confidence, and confidence creates success. |
| Agility: We are flexible and innovative. We confront all challenges with enthusiasm. We encourage change in order to achieve success. |
Culture
Ceridian believes in diversity and equality for all people and fosters a culture that engages and celebrates our employees. In 2017, we were recognized with over 20 awards related to our company culture and workplace experiences, including Glassdoors Top 100 Best Places to Work (Canada and United States), Great Places to Work (Canada and United States) and Brandon Halls award for Best Advance in Corporate Culture Transformation.
Ceridian combines the agility and innovation of a start-up with a history of deep domain and operational expertise. As a founder-led organization, we focus on agility, innovation, strong technical leadership, and thoughtful, scalable processes. This culture of excellence fosters creativity and ownership at the grassroots level, with many of our most transformational solutions originating with frontline employee ideas. These are key factors in our emphasis of the selection, development, and retention of top talent in all roles.
Ceridian Cares
At Ceridian we have always given back to our communities. In 2013, we made a commitment to do that in a very direct and meaningful way, through establishing our own charity, Ceridian Cares. Ceridian Cares provides grants from employee-raised funds directly to families and individuals in need in our communities. 100% of employee donations go towards grants, and we cover the programs operational and administrative costs. In addition to donating to Ceridian Cares, employee volunteers also operate the various local chapters, reviewing grant applications, distributing grants, and engaging staff in fundraising and awareness activities. Presently, there are over 20 Ceridian Cares chapters, staffed by over 200 employee volunteers across the company.
Intellectual Property
Our success depends, in part, on our ability to protect our proprietary technology and intellectual property. We rely on a combination of copyrights, trade secrets, and trademarks, as well as confidentiality and nondisclosure agreements and other contractual protections, to establish and to safeguard our intellectual property rights. We require our employees, consultants, and other third parties to enter into written confidentiality agreements. Further, we require certain employees, consultants and other third parties to execute intellectual property agreements. We also have various processes and systems that control access to software, documentation, and other proprietary information. Although we rely on intellectual property rights, including copyrights, trade secrets, and trademarks, as well as contractual protections, to establish and to safeguard our proprietary rights, we believe that factors such as the technological and creative skills of our personnel, creation of new functionality and features; and frequent enhancements to our applications are more critical to establishing and to maintaining our technology leadership position.
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Facilities
Our corporate headquarters is located in Minneapolis, Minnesota, and consists of approximately 195,000 square feet of space.
We have major North American offices in: Atlanta, Georgia; Fountain Valley, California; Honolulu, Hawaii; Montreal, Canada; Ottawa, Canada; St. Petersburg, Florida; Toronto, Canada; and Winnipeg, Canada. In addition, we have offices in Glasgow, Scotland, and in Ebene, Mauritius. We lease all facilities, except for our St. Petersburg, Florida, facility, which we own. We believe that our current facilities meet our needs, and we are confident that we will be able to obtain additional space on commercially reasonable terms to accommodate future growth.
Legal & Regulatory
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, we believe would individually or taken together have a material adverse effect on our business, financial condition or liquidity.
In September 1989, CDC became party to an environmental matters agreement with Seagate related to groundwater contamination on a parcel of real estate in Omaha, Nebraska, sold by CDC to Seagate. In February 1988, CDC entered into an arrangement with Northern Engraving Corporation and the Minnesota Pollution Control Agency in relation to groundwater contamination at a site in Spring Grove, Minnesota. In August 2017, we received notice of a mesothelioma claim related to CDC. See Risk FactorsRisks Related to Our Business and IndustryLitigation and regulatory investigations aimed at us or resulting from actions of our predecessor may result in significant financial losses and harm to our reputation.
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Directors and Executive Officers
The following table sets forth the names and ages, as of March 31, 2018, and titles of the individuals who will serve as our executive officers and members of our Board at the time of the offering. Certain biographical information with respect to those executive officers and directors follows the table.
Name |
Age |
Position |
||||
David D. Ossip |
51 | Chairman and Chief Executive Officer | ||||
Paul D. Elliott |
52 | President and Chief Operating Officer | ||||
Arthur Gitajn |
65 | Executive Vice President and Chief Financial Officer | ||||
Scott A. Kitching |
48 | Executive Vice President, General Counsel and Assistant Secretary | ||||
Ted P. Malley |
51 | Executive Vice President and Chief Revenue Officer | ||||
Lisa M. Sterling |
45 | Executive Vice President and Chief People and Culture Officer | ||||
Ozzie J. Goldschmied |
40 | Executive Vice President and Chief Technology Officer | ||||
Brent B. Bickett |
53 | Director | ||||
William P. Foley, II |
73 | Director | ||||
Thomas M. Hagerty |
55 | Director | ||||
Soren L. Oberg |
47 | Director | ||||
Ganesh B. Rao |
41 | Director | ||||
Gerald C. Throop |
60 | Director Nominee |
David D. Ossip
Mr. Ossip is our Chairman and Chief Executive Officer, positions he has held since August 2015 and July 2013, respectively. Mr. Ossip joined the Company following of the Companys acquisition of Dayforce Corporation in 2012, where he held the position of chief executive officer. Mr. Ossip is currently a director for Ossip Consulting Inc. and OSDAC Corp.
We believe that Mr. Ossips managerial and strategic expertise along with his deep knowledge of our industry make him well qualified to serve as a director.
Paul D. Elliott
Mr. Elliott is our President and Chief Operating Officer, positions he has held since April 2016. Prior to that, Mr. Elliott held the position of chief operating officer at two of our affiliate companies, first at Ceridian Canada where Mr. Elliott held the position from August 2009 to February 2013, and then at Ceridian HCM, Inc., where Mr. Elliott held the position from March 2013 to March 2016.
Arthur Gitajn
Mr. Gitajn is our Executive Vice President and Chief Financial Officer, positions he has held since October 2016. Prior to joining us, Mr. Gitajn held the position of chief financial officer for SAP Canada Inc. from July 2007 to January 2012 and from January 2015 to September 2016, and the position of chief financial officer of SAPs Europe, Middle East, and Africa region from February 2012 to December 2014.
Scott A. Kitching
Mr. Kitching is our Executive Vice President, a position he has held since February 2016, and General Counsel and Assistant Secretary, positions he has held since December 2013. Prior to that
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time, Mr. Kitching held the position of executive vice president and general counsel at our affiliate subsidiary Ceridian Canada from May 2003 to December 2013.
Ted P. Malley
Mr. Malley is our Executive Vice President and Chief Revenue Officer, positions he has held since January 2018. Mr. Malley previously served as our executive vice president and chief customer officer from April 2016 to January 2018, and our senior vice president of customer success from October 2015 to April 2016. In addition, Mr. Malley served as our senior vice president of products from March 2015 to October 2015. Prior to joining the Company, Mr. Malley held the position of chief executive officer and chief technology officer of RelatedMatters, Inc. from March 2014 to March 2015. Prior to that, Mr. Malley served as vice president general manager for Ultimate Software from August 2001 to March 2014.
Lisa M. Sterling
Ms. Sterling is our Executive Vice President and Chief People and Culture Officer, positions she has held since March 2016. Ms. Sterling previously served as our vice president of product strategy from June 2015 to March 2016. Prior to joining us, Ms. Sterling was a partner and talent technology solutions leader at Mercer LLC from March 2013 to May 2015. Prior to that, Ms. Sterling served as the head of people engagement for Ultimate Software from February 2010 to March 2013.
Ozzie J. Goldschmied
Mr. Goldschmied is our Executive Vice President and Chief Technology Officer, positions he has held since October 2014. Mr. Goldschmied previously served as our senior vice president of research and development from February 2012 to September 2014. Mr. Goldschmied joined the Company following the Companys acquisition of Dayforce Corporation in 2012, where he held the position of senior vice president of engineering.
Brent B. Bickett
Mr. Bickett has served as a director since November 2007. Mr. Bickett is currently the president of Cannae, a position he has held since June 2012. Mr. Bickett also holds the position of executive vice president of corporate strategy at FNF, which he joined in January 1999. Mr. Bickett currently serves as a director of American Blue Ribbon Holdings, LLC, and Colt Holdings, LLC. Mr. Bickett previously served as a director for Digital Insurance, Inc., J. Alexanders Holdings, Inc., Old Remco Holdings, L.L.C., and Remy International, Inc.
We believe that Mr. Bicketts extensive investment, management, transaction, and corporate strategy expertise make him well qualified to serve as a director.
William P. Foley, II
Mr. Foley has served as a director since September 2013. Mr. Foley currently holds the position of executive chairman at Black Knight, Inc., a position he has held since December 2014. Mr. Foley is also the managing partner at both RC Phase II Development, Ltd. and Rock Creek Cattle Company, LLC. In addition, Mr. Foley also serves as a director for Fidelity Information Services, Inc., Fidelity Newport Holdings, LLC, FNF, Foley Family Charitable Foundation, Foley Family Wine Holdings, Inc., Glacier Restaurant Group, LLC, Winter Sports, Inc., Epic Wines & Spirits, Inc., CF Capital Partners, and Black Knight Sports and Entertainment LLC. Mr. Foley previously served as a director for Cascade Timberlands, LLC and Remy International, Inc.
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We believe that Mr. Foleys depth and expertise in managing and, as a member of the board of directors, leading a variety of businesses across many industries make him well qualified to serve as a director.
Thomas M. Hagerty
Mr. Hagerty has served as a director since November 2007. Mr. Hagerty has also served as a director of FNF since 2005. In addition, Mr. Hagerty is a managing director of THL, which he joined in 1988. Mr. Hagerty also serves as a director of Black Knight, Inc., FleetCor Technologies Inc., Fidelity National Information Services, Inc., and ServiceLink Holdings, LLC. Mr. Hagerty previously served as a director for MoneyGram International, Inc., and First Bancorp.
We believe that Mr. Hagertys managerial and strategic expertise working with large growth-oriented companies as a managing director of THL, and his experience in enhancing value at such companies, along with his expertise in corporate finance make him well qualified to serve as a director.
Soren L. Oberg
Mr. Oberg has served as a director since November 2007. Mr. Oberg has also served as a managing director of THL since 1998. Additionally, Mr. Oberg currently serves as director for Prime Risk Partners Inc., System One Holdings LLC., and Hightower Advisors, LLC. Mr. Oberg previously served as a director for Grupo Corporativo Ono, S.A., Systems Maintenance Services, Inc., West Corporation, and CompuCom Inc.
We believe that Mr. Obergs experience addressing financial, strategic, and operating issues as a managing director of THL make him well-qualified to serve as a director.
Ganesh B. Rao
Mr. Rao has served as a director since November 2007. Mr. Rao is a managing director of THL, which he joined in 2000. Prior to joining THL, Mr. Rao worked at Morgan Stanley & Co. Incorporated in the mergers & acquisitions department. Mr. Rao is currently a director of Black Knight, Inc., MoneyGram International, Inc., Prime Risk Partners Inc., Ten-X, LLC, ServiceLink Holdings, LLC., and Hightower Advisors, LLC. Mr. Rao formerly served as a director for Nielsen Holdings N.V.
We believe that Mr. Raos managerial and strategic expertise working with large growth-oriented companies as a managing director of THL and his experience enhancing value at such companies make him well-qualified to serve as a director.
Gerald C. Throop
Mr. Throop currently serves as a director of NASDAQ Canada Inc., a wholly-owned subsidiary of NASDAQ Stock Market Inc.. Since 2011, Mr. Throop has worked independently as a private equity investor, director, and advisor to early stage companies. Prior to 2011, he spent 17 years in executive leadership positions in the securities and banking industry, including the position of executive vice president, managing director, and head of equities for both National Bank of Canada and Merrill Lynch Canada. Mr. Throop has served as either a member of the Board of Directors or the Chief Financial Officer of several companies that were Toronto Stock Exchange listed at the time of his service, including Workbrain Corporation, Toronto Stock Exchange, Call-Net Enterprises/Sprint Canada Inc., and Tie Telecommunications Canada Limited. Mr. Throop is a Chartered Public Accountant.
We believe that Mr. Throops financial, managerial, and investment experience make him well-qualified to serve as a director.
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Composition of our Board of Directors
Our business and affairs are managed under the direction of our Board. Our third amended and restated certificate of incorporation will provide that our Board will consist of between one and 14 directors. Pursuant to the voting agreement, the authorized number of directors has been established at nine directors. During the term of the voting agreement, THL and Cannae have the right to determine the total number of directors. Contemporaneously with this offering, our Board will be composed of seven directors and two vacancies.
Pursuant to the voting agreement, for so long as THL and Cannae collectively hold 50% or more of the then outstanding voting power, then THL and Cannae shall have the power to designate a total of five (5) directors to the Board. The allocation of the power to designate the five directors shall be determined by reference to the outstanding voting power held by Cannae. If THL and Cannae collectively hold 50% or more of the then outstanding voting power, then:
| for so long as Cannae holds at least 12.5% of the then outstanding voting power, THL and Cannae shall have the power to designate (by mutual agreement) five (5) directors to the Board; and |
| for so long as Cannae holds at least 7.5% but less than 12.5% of the then outstanding voting power, THL shall be entitled to designate in its own right four (4) directors and Cannae shall be entitled to designate in its own right one (1) director; and |
| if Cannae holds less than 7.5% of the then outstanding voting power, THL shall be entitled to designate in its own right all five (5) directors and Cannae shall not be entitled to designate any directors. |
Once THL and Cannae cease to collectively hold 50% or more of the then outstanding voting power, then each of THL and Cannae will be able to in their own right designate:
| four (4) directors, for so long as it holds at least 40% of the then outstanding voting power; |
| three (3) directors, for so long as it holds at least 30% of the then outstanding voting power; |
| two (2) directors, for so long as it holds at least 20% of the then outstanding voting power; and |
| one (1) director, for so long as it holds at least 10% of the then outstanding voting power. |
Our third amended and restated certificate of incorporation will provide that our Board will be divided into three classes, with one class being elected at each annual meeting of stockholders. Each director will serve a three-year term, with termination staggered according to class. Class I will initially consist of three directors, Class II will initially consist of two directors, and Class III will initially consist of two directors. The Class I directors, whose terms will expire at the first annual meeting of our stockholders following the filing of our third amended and restated certificate of incorporation, will be Messrs. Rao, Oberg, and Bickett. The Class II directors, whose terms will expire at the second annual meeting of our stockholders following the filing of our third amended and restated certificate of incorporation, will be Messrs. Hagerty and Foley. The Class III directors, whose terms will expire at the third annual meeting of our stockholders following the filing of our third amended and restated certificate of incorporation, will be Messrs. Ossip and Throop. See Description of Capital StockAnti-takeover Provisions.
Director Independence and Controlled Company Exemption
Following the completion of this offering and the concurrent private placement, the Sponsors will continue to beneficially own more than 50% of the voting power of our common stock. As a result, we are considered a controlled company under the NYSE listing standards. Controlled companies
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under those rules are companies of which more than 50% of the voting power is held by an individual, a group or another company. On this basis, we may avail ourselves of the controlled company exemption under the corporate governance rules of the NYSE. Accordingly, we will not have a majority of independent directors on our Board as defined under the rules of the NYSE; nor will we have a compensation committee and a corporate governance and nominating committee composed entirely of independent directors. The controlled company exemption does not modify the independence requirements for the audit committee, and we intend to comply with the requirements of Commissions Rule 10A-3 and the NYSE, which require that our audit committee be composed of at least three members, one of whom will be independent upon the listing of our common stock, a majority of whom will be independent within 90 days of listing, and each of whom will be independent within one year of listing.
Our Board has affirmatively determined that Messrs. Bickett, Foley, and Throop are independent directors under the applicable rules of the NYSE.
If at any time we cease to be a controlled company under the rules of the NYSE, our Board will take all action necessary to comply with the NYSE corporate governance rules, including as applicable, appointing a majority of independent directors to the Board and establishing certain committees composed entirely of independent directors, subject to a permitted phase-in period.
Board Committees
Our Board has established an audit committee and will establish a compensation committee and a corporate governance and nominating committee prior to our shares being listed on the NYSE and TSX. Each committee will operate under a charter that has been approved by our Board and will have the composition and responsibilities described below. Members serve on these committees until their resignations or until otherwise determined by our Board. Following the completion of this offering and the concurrent private placement, the charter of each committee will be available on our website, www.ceridian.com.
Audit Committee. The primary purposes of our audit committee are to assist the Boards oversight of, among other things:
| audits of our financial statements; |
| the integrity of our financial statements; |
| our process relating to risk management and the conduct and systems of internal control over financial reporting and disclosure controls and procedures; |
| the qualifications, engagement, compensation, independence, and performance of our independent auditor; and |
| the performance of our internal audit function. |
The audit committee is currently composed of Messrs. Bickett and Rao. Upon the consummation of this offering, and prior to the listing of our common stock, our audit committee will be composed of Messrs. Throop, Bickett, and Rao. Mr. Throop will serve as chair of the audit committee and Messrs. Throop and Bickett qualify as an audit committee financial expert as such term has been defined by the Commission in Item 407(d) of Regulation S-K. Our Board has affirmatively determined that Mr. Throop meets the definition of an independent director for the purposes of serving on the audit committee under applicable NYSE rules and Rule 10A-3 under the Exchange Act. We intend to comply with these independence requirements for all members of the audit committee within the time periods specified under such rules. The audit committee will be governed by a charter that complies with the rules of the NYSE.
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Compensation Committee . The primary purposes of our compensation committee will be to assist the Board in overseeing our management compensation policies and practices, including, among other things:
| determining and approving the compensation of our executive officers; and |
| reviewing and approving incentive compensation awards to executive officers; and |
| make recommendations to the Board with respect to all equity-based compensation plans. |
Upon the consummation of this offering, and prior to the listing of our common stock, our compensation committee will be composed of Messrs. Foley, Hagerty, and Rao. Mr. Hagerty will serve as chair of the compensation committee. We may avail ourselves of the controlled company exemption under the rules of the NYSE, which exempts us from the requirement that we have a compensation committee composed entirely of independent directors. The compensation committee will be governed by a charter that complies with the rules of the NYSE.
Corporate Governance and Nominating Committee. The primary purposes of our corporate governance and nominating committee will be to, among other things:
| subject to the director designation rights of THL and Cannae under the voting agreement, make recommendations to the Board regarding nomination of individuals as members of the Board and its committees; |
| assist the Board with identifying individuals qualified to become Board members; and |
| determine corporate governance practices and related matters. |
Upon the consummation of this offering, and prior to the listing of our common stock, we will establish a corporate governance and nominating committee comprised of Messrs. Bickett, Throop, and Oberg. Mr. Bickett will serve as chair of the corporate governance and nominating committee. We may avail ourselves of the controlled company exemption under the rules of the NYSE, which exempts us from the requirement that we have a corporate governance and nominating committee composed entirely of independent directors. The corporate governance and nominating committee will be governed by a charter that complies with the rules of the NYSE.
Indemnification of Directors and Officers
Our third amended and restated certificate of incorporation will provide that we will indemnify our directors and officers to the fullest extent permitted by the DGCL.
We intend to enter into indemnification agreements with each of our executive officers and directors prior to the completion of this offering. The indemnification agreements will provide the executive officers and directors with contractual rights to indemnification, expense advancement and reimbursement, to the fullest extent permitted under the DGCL, subject to certain exceptions contained in those agreements.
Code of Conduct
Prior to the completion of this offering, we will adopt a Code of Conduct that applies to all of our employees, officers and directors. A copy of the Code of Conduct will be available on our website located at www.ceridian.com. Any amendments or waivers from our Code of Conduct granted to directors or executive officers will be disclosed on our Internet website promptly following the date of such amendment or waiver.
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Corporate Governance Guidelines
Our Board will adopt corporate governance guidelines in accordance with the corporate governance rules of the NYSE and TSX, which serve as a flexible framework within which our Board and its committees operate. These guidelines will cover a number of areas, including Board composition, roles of the Chairman and lead independent director, director nominations and Board criteria, Board meetings and executive sessions, Board committees, management succession, Board compensation, expectations of directors, Board performance evaluations, and access to management and outside advisors. A copy of our corporate governance guidelines will be posted on our website.
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EXECUTIVE AND DIRECTOR COMPENSATION
The following discussion and analysis of compensation arrangements should be read with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current plans and expectations regarding future compensation programs. See Cautionary Note Regarding Forward-Looking Statements. Actual compensation programs that we adopt may differ materially from the programs summarized in this discussion.
Overview
The discussion below includes a review of our compensation decisions with respect to 2017 for our named executive officers, or NEOs, namely our principal executive officer and our two other most highly compensated executive officers. Our NEOs for 2017 were:
| David D. Ossip, our Chief Executive Officer; |
| Paul D. Elliott, our President and Chief Operating Officer; and |
| Arthur Gitajn, our Executive Vice President and Chief Financial Officer. |
In 2017, we compensated our NEOs through a combination of base salary and annual cash bonuses as well as grants of stock options and restricted stock units under the terms of our 2013 Plan. Our executive officers are also eligible to receive certain benefits, which include defined contribution retirement plan contributions, life insurance and group health insurance (including medical, dental, long-term disability and critical illness), parking and fitness reimbursement.
Summary Compensation Table
The following table sets forth certain information for the fiscal year 2017 concerning the total compensation awarded to, earned by or paid to our NEOs.
Name and Principal Position |
Salary
(1)(2) |
Bonus
(1)(2) |
Option
Awards (3) |
Share
Awards (3) |
All Other
Compensation (2)(4) |
Total
(2) |
||||||||||||||||||
David D. Ossip
|
$ | 517,063 | $ | 700,000 | $ | 7,875,000 | $ | 8,600,000 | $ | 31,941 | $ | 17,724,004 | ||||||||||||
Paul D. Elliott
|
$ | 367,910 | $ | 538,271 | $ | | $ | | $ | 26,320 | $ | 932,501 | ||||||||||||
Arthur Gitajn
|
$ | 318,193 | $ | 652,295 | $ | 145,111 | $ | | $ | 22,986 | $ | 1,138,585 |
(1) | Represents annual salary and bonus amounts earned by each NEO in 2017 pursuant to the terms of the NEOs employment agreement. See Employment Agreements. |
(2) | Amounts in the Summary Compensation Table were converted to U.S. dollars from Canadian dollars, only if such amounts were paid to NEOs in Canadian dollars, based on the exchange rate as of December 31, 2017 of $1.2571 Canadian dollars per U.S. dollar. |
(3) | Represents the aggregate grant date fair value of the share awards and option awards granted in 2017, computed in accordance with FASB ASC Topic 718. These values have been determined based on the assumptions set forth in Note 2 to our consolidated financial statements included elsewhere in this prospectus. |
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(4) | Includes the following compensation for 2017: |
Name |
Retirement
Plan Contribution |
Health
Benefits |
Life Insurance
Benefits |
Parking
Benefit |
Fitness
Subsidy |
|||||||||||||||
David D. Ossip
|
$ | 20,682 | $ | 8,606 | $ | 1,190 | $ | 1,463 | $ | | ||||||||||
Paul D. Elliott
|
$ | 14,716 | $ | 10,128 | $ | 1,190 | $ | 286 | $ | | ||||||||||
Arthur Gitajn
|
$ | 12,728 | $ | 8,819 | $ | 772 | $ | 508 | $ | 159 |
Outstanding Equity Awards as of December 31, 2017
The following table sets forth certain information about outstanding equity awards held by our NEOs as of December 31, 2017 .
Name |
Grant date | Option Awards | Share Awards | |||||||||||||||||||||||||||||
Number of
securities underlying unexercised options exercisable (#) |
Number of
securities underlying unexercised options unexercisable (#) |
Equity incentive
plan awards: number of securities underlying unexercised unearned options (#) |
Option
exercise price ($) |
Option
expiration date |
Number of
share awards that have not vested (#) |
Market
value of share awards that have not vested ($) |
||||||||||||||||||||||||||
David D. Ossip Chief Executive Officer |
11/01/2013 | 2,000,000 | | (1) | | $ | 16.8000 | 11/01/2023 | ||||||||||||||||||||||||
03/30/2016 | 1,748 | 5,243 | (2) | | $ | 17.8800 | 03/30/2026 | |||||||||||||||||||||||||
03/20/2017 | | 1,250,000 | (3) | | $ | 17.2000 | 03/20/2027 | |||||||||||||||||||||||||
03/20/2017 | 500,000 | (4) | $ | 10,480,000 | (5) | |||||||||||||||||||||||||||
Paul D. Elliott President and Chief Operating Officer |
10/21/2008 | 9,289 | | (6) | 9,289 | $ | 13.4568 | 10/21/2018 | ||||||||||||||||||||||||
10/13/2009 | 1,857 | | (7) | 1,857 | $ | 13.4568 | 10/13/2019 | |||||||||||||||||||||||||
06/06/2012 | 16,720 | | (8) | 16,720 | $ | 13.4568 | 06/06/2022 | |||||||||||||||||||||||||
11/01/2013 | 124,000 | | (9) | | $ | 16.8000 | 11/01/2023 | |||||||||||||||||||||||||
06/01/2016 | 125,000 | 375,000 | (10) | | $ | 16.7400 | 06/01/2026 | |||||||||||||||||||||||||
Arthur Gitajn |
12/31/2016 | 112,500 | 337,500 | (11) | | $ | 16.8200 | 12/31/2026 | ||||||||||||||||||||||||
Executive Vice President and Chief Financial Officer |
04/27/2017 | | 23,255 | (12) | | $ | 17.2000 | 04/27/2027 | ||||||||||||||||||||||||
(1) | Represents options to purchase 2,000,000 shares of common stock, which have vested over four years, with 25% vesting each year beginning November 1, 2014. |
(2) | Represents options to purchase 6,991 shares of common stock, which will (i) vest over four years, with 25% vesting each year beginning March 30, 2017, provided that on each applicable vesting date, Mr. Ossip is still then employed by us, and (ii) immediately vest in full upon the occurrence of a change of control of our Company (the Change of Control), provided that at the time of the Change of Control, Mr. Ossip is still then employed by us. |
(3) | Represents options to purchase 1,250,000 shares of common stock, which will (i) vest over four years, with 25% vesting each year beginning March 20, 2018, provided that on each applicable vesting date, Mr. Ossip is still then employed by us, and (ii) immediately vest in full upon the occurrence of the Change of Control, provided that at the time of, or in the previous ninety (90) days prior to, the Change of Control, Mr. Ossip is still then employed by us. |
(4) | Represents restricted stock units, which will (i) vest over four years, with 25% vesting each year beginning March 20, 2018, provided that on each applicable vesting date, Mr. Ossip is still then employed by us, and (ii) immediately vest in full upon the occurrence of the Change of Control, provided that at the time of, or in the previous ninety (90) days prior to, the Change of Control, Mr. Ossip is still then employed by us. |
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(5) | There is no public market for the restricted stock units. For purposes of this disclosure, we have valued the restricted stock units as of December 31, 2017 based on the then-fair market value of the Companys common stock of $20.96 per share. |
(6) | Represents options to purchase (i) 9,289 shares of common stock, which will become fully vested upon the earlier to occur of the Change of Control or following the consummation of this offering, provided that (a) at the time of the Change of Control or at any time after this offering, the average price (calculated as the average of the high and the low trading prices for such day) (the Average Price) of our common stock over a consecutive 30 day period equals at least $26.92, and (b) at the time of the Change of Control or at the time of this offering, Mr. Elliott is still then employed by us, and (ii) 9,289 shares of common stock, which have vested over five years, with 20% vesting each year beginning October 21, 2009. |
(7) | Represents options to purchase (i) 1,857 shares of common stock, which will become fully vested upon the earlier to occur of the Change of Control or following the consummation of this offering, provided that (a) at the time of the Change of Control or at any time after this offering, the Average Price of our common stock over a consecutive 30 day period equals at least $26.92, and (b) at the time of the Change of Control or at the time of this offering, Mr. Elliott is still then employed by us, and (ii) 1,857 shares of common stock, which have vested over five years, with 20% vesting each year beginning October 13, 2010. |
(8) | Represents options to purchase (i) 16,720 shares of common stock, which will become fully vested upon the earlier to occur of the Change of Control or following the consummation of this offering, provided that (a) at the time of the Change of Control or at any time after this offering, the Average Price of our common stock over a consecutive 30 day period equals at least $26.92, and (b) at the time of the Change of Control or at the time of this offering, Mr. Elliott is still then employed by us, and (ii) 16,720 shares of common stock, which have vested over five years, with 20% vesting each year beginning June 6, 2013. |
(9) | Represents options to purchase 124,000 shares of common stock, which have vested over four years, with 25% vesting each year beginning November 1, 2014. |
(10) | Represents options to purchase 500,000 shares of common stock, which will (i) vest over four years, with 25% vesting each year beginning June 1, 2017, provided that on each applicable vesting date, Mr. Elliott is still then employed by us, and (ii) immediately vest in full upon the Change of Control, provided that at the time of the Change of Control, Mr. Elliott is still then employed by us. |
(11) | Represents option to purchase 450,000 shares of common stock, which will (i) vest over four years, with 25% vesting each year beginning December 31, 2017, provided that on each applicable vesting date, Mr. Gitajn is still then employed by us, and (ii) immediately vest in full upon the Change of Control, provided that at the time of the Change of Control, Mr. Gitajn is still then employed by us. |
(12) | Represents option to purchase 23,255 shares of common stock, which will (i) vest over four years, with 25% vesting each year beginning April 27, 2018, provided that on each applicable vesting date, Mr. Gitajn is still then employed by us, and (ii) immediately vest in full upon the Change of Control or following the consummation of this offering, provided that at the time of the Change of Control or at the time of this offering, Mr. Gitajn is still then employed by us. |
Employment Agreements
We are currently party to employment agreements with each of our NEOs. The material provisions of each such agreement are described below.
David D. Ossip
In April 2012, we entered into an employment agreement with David D. Ossip, our Chief Executive Officer. The agreement provides for an indefinite term beginning on January 1, 2012. The agreement provides that Mr. Ossip would receive an annualized base salary, subject to annual compensation reviews by our Board. In 2017, Mr. Ossips base salary was $650,000 CAD (or $517,063 USD as of December 31, 2017). The agreement also provides that Mr. Ossip is eligible to receive an annual performance-based cash bonus based on Mr. Ossips performance. For the year ended December 31, 2017, Mr. Ossip earned $879,970 CAD (or $700,000 USD as of December 31, 2017) for his annual performance-based cash bonus, which represented 135% of his base salary.
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In addition to the above, Mr. Ossip participates in the employee health and welfare, retirement and other employee benefits programs offered generally from time to time by the Company to its senior executive employees.
Either we or Mr. Ossip may terminate the agreement any time upon written notice or any time with 90 days prior written notice, respectively. We may terminate Mr. Ossips employment for death, disability, or cause, as defined in the employment agreement, by written notice to Mr. Ossip. Mr. Ossip may resign with prior written notice for good reason.
If we terminate Mr. Ossips employment without cause or Mr. Ossip terminates his employment for good reason, then we must provide Mr. Ossip with (i) an amount equal to 24 months of his annual base salary, (ii) an amount equal to two times the average bonus payment paid to Mr. Ossip for the immediately preceding two years, (iii) reasonable executive-level outplacement services for a period of up to 12 months, not to exceed $12,000 CAD (or $9,546 USD as of December 31, 2017) and (iv) continuation of certain employment related benefits for the period prescribed under the Employment Standards Act (Ontario).
In the event that Mr. Ossips employment is terminated due to his death, we must provide Mr. Ossips beneficiaries with (i) an amount equal to 12 months of his annual base salary, and (ii) a pro-rated bonus, if any, to which Mr. Ossip would have become entitled for the fiscal year in which his termination occurs based on actual performance. In the event that Mr. Ossips employment is terminated due to disability, we must provide Mr. Ossip with a pro-rated bonus, if any, to which Mr. Ossip would have become entitled for the fiscal year in which his termination occurs based on actual performance.
For purposes of the agreement, good reason means any act, or failure to act, or omission by the Company that would constitute at law in the Province of Ontario constructive dismissal of Mr. Ossip, including without limitation the occurrence of one or more of the following conditions, without Mr. Ossips consent: (i) any material adverse change in his duties, roles and responsibilities, (ii) any adverse change to Mr. Ossips line of reporting or (iii) the relocation of his principal place of employment by more than 40 kilometers; provided that any such condition will only constitute good reason if Mr. Ossip provides us with a prior written notice of his intent to resign for good reason (which notice must reference the definition of good reason in his employment agreement and include a description of the factors constituting the alleged good reason) and we have not remedied the alleged violations within 30 days of such notice.
For purposes of the agreement, cause means any event, act, or failure to act, or omission by Mr. Ossip which would constitute at law in the Province of Ontario cause for dismissal, including without limitation (i) conduct involving material theft or misappropriation of assets of the Company and its affiliates, (ii) fraud or embezzlement of a material nature against the Company and its affiliates, (iii) any material act of dishonesty, financial or otherwise, against the Company and its affiliates or (iv) any conviction of an indictable offense under the Canadian Criminal Code.
The agreement includes perpetual confidentiality provisions as well as provisions relating to assignment of inventions.
In addition, in March 2017, Mr. Ossip was granted options to purchase 1.25 million shares of the Companys common stock and was granted restricted stock units relating to 0.5 million shares of the Companys common stock (collectively, the Equity Awards). Such Equity Awards served as consideration for Mr. Ossip to enter into an Amended and Restated Restrictive Covenants Agreement with Ceridian Holding LLC, Ceridian LLC, Ceridian Canada Ltd. and Ceridian Dayforce Corporation, which became effective as of March 20, 2017 (the Restrictive Covenants Agreement). Under the Restrictive Covenants Agreement, Mr. Ossip has agreed, among other things, that subsequent to any termination, he will not engage in, consult for, or own more than 5% of any business that is similar to that of the Companys business in any country that the Company does business for a period of 24
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months subsequent to such termination. The Company may elect to extend such restriction period by a total of either 12 months or 24 months, so long as they pay Mr. Ossip a lump sum equal to his prior years base salary, plus $800,000 USD, for each year the restriction period is extended.
Paul D. Elliott
In April 2016, we entered into an employment agreement with Paul D. Elliott, our President and Chief Operating Officer. The agreement provides for an indefinite term beginning on April 20, 2016. The agreement provides that Mr. Elliott would receive an annualized base salary, subject to annual compensation reviews by our Board. In 2017, Mr. Elliotts base salary was $475,000 CAD (or $377,854 USD as of December 31, 2017). The agreement also provides that Mr. Elliott is eligible to receive an annual performance-based cash bonus with a target amount of 80% of his annual base salary. During the year ended December 31, 2017, Mr. Elliott earned $475,000 CAD (or $377,854 USD as of December 31, 2017) for his annual performance-based cash bonus, which represented 100% of his base salary.
In addition, on October 1, 2013, the Company entered into a Success Bonus Plan with key employees of the Company as of that date, including Mr. Elliott. Under the terms of Mr. Elliotts Success Bonus Plan, he is entitled to receive a cash bonus of $600,000 USD, fifty percent of which was paid upon signing his employment agreement in May 2016, twenty-five percent was paid on April 28, 2017, and the remaining twenty-five percent will be payable on April 30, 2018, subject to his continuous employment with the Company through April 20, 2018 (except as otherwise noted below).
In addition to the above, Mr. Elliott participates in the employee health and welfare, retirement and other employee benefits programs offered generally from time to time by the Company to its senior executive employees.
Either we or Mr. Elliott may terminate the agreement any time upon written notice or any time with 60 days prior written notice, respectively. We may terminate Mr. Elliotts employment for death, disability, or cause by written notice to Mr. Elliott. Mr. Elliott may resign with prior written notice for good reason.
If we terminate Mr. Elliotts employment without cause or Mr. Elliott terminates his employment for good reason, then we must provide Mr. Elliott with (i) an amount equal to 24 months of his annual base salary, (ii) a pro-rated bonus (at target level) for the fiscal year in which his termination occurs, (iii) reasonable executive-level outplacement services for a period of up to 12 months, not to exceed $12,000 CAD (or $9,546 USD as of December 31, 2017), (iv) continuation of certain employment related benefits for the period prescribed under the Employment Standards Act (Ontario) and (v) the remaining twenty-five percent of his cash bonus under the Success Bonus Plan which would have otherwise been payable to him on April 20, 2018.
In the event that Mr. Elliotts employment is terminated due to his death, we must provide Mr. Elliotts beneficiaries with (i) an amount equal to 12 months of his annual base salary, and (ii) a pro-rated bonus, if any, to which Mr. Elliott would have become entitled for the fiscal year in which his termination occurs based on actual performance. In the event that Mr. Elliotts employment is terminated due to disability, we must provide Mr. Elliott with a pro-rated bonus, if any, to which Mr. Elliott would have become entitled for the fiscal year in which his termination occurs based on actual performance.
For purposes of the agreement, good reason means any act, or failure to act, or omission by the Company that would constitute at law in the Province of Ontario constructive dismissal of Mr. Elliott, including without limitation the occurrence of one or more of the following conditions, without Mr. Elliotts consent: (i) any material adverse change in his duties, roles and responsibilities, (ii) any adverse change to Mr. Elliotts line of reporting or (iii) the relocation of his principal place of employment by more than 50 kilometers; provided that any such condition will only constitute good
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reason if Mr. Elliott provides us with a prior written notice of his intent to resign for good reason (which notice must reference the definition of good reason in his employment agreement and include a description of the factors constituting the alleged good reason) and we have not remedied the alleged violations within 30 days of such notice.
For purposes of the agreement, cause means any event, act or failure to act, or omission by Mr. Elliott which would constitute at law in the Province of Ontario cause for dismissal, including without limitation (i) conduct involving theft or misappropriation of assets of the Company and its affiliates, (ii) fraud, embezzlement or an indictable offense under the Canadian Criminal Code, (iii) any material act of dishonesty, financial or otherwise, against the Company and its affiliates, (iv) intentional violations of law involving moral turpitude, (v) any material violation of the Companys Code of Conduct and ethics policies, (vi) breach of Mr. Elliotts obligations under any non-competition, non-solicitation or other similar agreement made with any member of the Company and its affiliates, or (vii) the continued failure by Mr. Elliott to attempt in good faith to perform his duties after receiving a written notice and a demand to rectify such failure within 60 days.
The agreement includes perpetual confidentiality provisions, a non-disparagement provision as well as provisions relating to assignment of inventions and non-competition and non-solicitation that apply during employment and two years thereafter.
Arthur Gitajn
In September 2016, we entered into an employment agreement with Arthur Gitajn, our Executive Vice President and Chief Financial Officer. The agreement provides for an indefinite term beginning on October 3, 2016. The agreement provides that Mr. Gitajn will receive an annualized base salary, subject to annual compensation reviews by our Board. In 2017, Mr. Gitajns base salary was $400,000 CAD (or $318,193 USD as of December 31, 2017). The agreement also provides that Mr. Gitajn is eligible to receive an annual performance-based cash bonus with a target amount of 80% of his annual base salary. During the year ended December 31, 2017, Mr. Gitajn earned $320,000 CAD (or $254,554 USD as of December 31, 2017) for his annual performance-based cash bonus, which represented 80% of his base salary. In addition, Mr. Gitajn received a signing bonus of $500,000 CAD (or $397,741 USD as of December 31, 2017) on June 30, 2017.
In addition to the above, Mr. Gitajn participates in the employee health and welfare, retirement and other employee benefits programs offered generally from time to time by the Company to its senior executive employees.
Either we or Mr. Gitajn may terminate the agreement any time upon written notice or any time with 90 days prior written notice, respectively. We may terminate Mr. Gitajns employment for death, disability, or cause by written notice to Mr. Gitajn. Mr. Gitajn may resign with prior written notice for good reason.
If we terminate Mr. Gitajns employment without cause or Mr. Gitajn terminates his employment for good reason, then we must provide Mr. Gitajn with (i) an amount equal to the sum of (a) 12 months of his annual base salary plus (b) his annual performance-based cash bonus (at target level), (ii) a pro-rated bonus (at target level) for the fiscal year in which his termination occurs, (iii) reasonable executive-level outplacement services for a period of up to 12 months, not to exceed $12,000 CAD (or $9,546 USD as of December 31, 2017), and (iv) continuation of medical, dental, and prescription healthcare coverage for up to 12 months.
In the event that Mr. Gitajns employment is terminated due to his death, we must provide Mr. Gitajns beneficiaries with (i) an amount equal to 12 months of his annual base salary, and (ii) a pro-rated bonus, if any, to which Mr. Gitajn would have become entitled for the fiscal year in which his
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termination occurs based on actual performance. In the event that Mr. Gitajns employment is terminated due to disability, we must provide Mr. Gitajn with a pro-rated bonus, if any, to which Mr. Gitajn would have become entitled for the fiscal year in which his termination occurs based on actual performance.
For purposes of the agreement, good reason means any act, or failure to act, or omission by the Company that would constitute at law in the Province of Ontario constructive dismissal of Mr. Gitajn, including without limitation the occurrence of one or more of the following conditions, without Mr. Gitajns consent: (i) a reduction of Mr. Gitajns base salary or bonus where certain exclusions apply, (ii) a material reduction in title, position, responsibilities or authority, or (iii) the relocation of his principal place of employment by more than 50 kilometers; provided that any such condition will only constitute good reason if Mr. Gitajn provides us with a prior written notice of his intent to resign for good reason (which notice must reference the definition of good reason in his employment agreement and include a description of the factors constituting the alleged good reason) and we have not remedied the alleged violations within 30 days of such notice.
For purposes of the agreement, cause means any event, act or failure to act, or omission by Mr. Gitajn which would constitute at law in the Province of Ontario cause for dismissal, including without limitation (i) conduct involving theft or misappropriation of assets of the Company and its affiliates, (ii) fraud, embezzlement or an indictable offense, (iii) any material act of dishonesty, financial or otherwise, against the Company and its affiliates, (iv) intentional violation of law involving moral turpitude, (v) any material violation of the Companys Code of Conduct and ethics policies, (vi) breach of Mr. Gitajns obligations under any non-competition, non-solicitation, or other similar agreement made with any member of the Company and its affiliates, or (vii) the continued failure by Mr. Gitajn to attempt in good faith to perform his duties after receiving a written notice and a demand to rectify such failure within 60 days.
The agreement includes perpetual confidentiality provisions, a non-disparagement provision as well as provisions relating to assignment of inventions and non-competition and non-solicitation that apply during employment and two years thereafter.
Potential Payments Upon Termination Of Employment Or Change Of Control
Our NEOs are entitled to receive severance payments upon termination of employment or change of control as provided in Employment Agreements.
Director Compensation
Prior to this offering, our non-employee directors did not receive compensation for their services on our Board. Following this offering, we expect to pay our independent non-employee directors, who are not employees of our Sponsors, an annual retention fee of $200,000. The annual retention fee will be comprised of restricted stock units valued at $150,000 and $50,000 in cash, which the independent non-employee director may also elect to be paid in whole or in part in the form of additional restricted stock units. The chair of the audit committee will receive an additional annual cash fee of $20,000, the chair of the compensation committee will receive an additional annual cash fee of $12,500, and the chair of the corporate governance and nominating committee will receive an additional annual cash fee of $7,500, unless they are employees of our Sponsors, in which case they will not receive such compensation. Any cash fees will be paid in quarterly installments. In addition, all of our independent non-employee directors may be reimbursed for approved director education courses. Directors will also be reimbursed for reasonable out-of-pocket travel expenses incurred in connection with attendance at board and committee meetings and other board-related activities.
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Equity Incentive Plans
Our Board adopted, and our stockholders approved, the 2013 Plan. Our Board adopted amendments to the 2013 Plan in March 2016, August 2016, December 2016 and March 2017. In connection with this offering, our Board expects to adopt, and our stockholders expect to approve, the 2018 Plan prior to the completion of this offering. The 2018 Plan will authorize us to grant incentive awards to our employees, directors and consultants. The 2018 Plan will become effective prior to the consummation of this offering and a total of 13,500,000 shares of our common stock will be reserved for issuance. We intend to file a registration statement on Form S-8 covering the shares issuable under the 2013 Plan and the 2018 Plan. The following is a summary of the material features of the 2013 Plan and the 2018 Plan.
2013 Plan
The 2013 Plan provides for the grant of options, share awards and other share-based awards to directors, employees, and consultants of the Company as well as any subsidiary or any affiliate of the Company.
The 2013 Plan is administered by our Board. Our Board has the authority to construe and to interpret the provisions of the 2013 Plan, to provide for any omission in the 2013 Plan, to resolve any ambiguity or conflict under the 2013 Plan, to accelerate vesting of or otherwise waive any requirements applicable to any award, to extend the term or any period of exercisability of any award, to modify the purchase price or exercise price under any award, and to establish terms or conditions applicable to any award. All actions taken and all interpretations and determinations made by our Board shall be final and binding upon all 2013 Plan participants, us, and all other interested parties.
A total of 15,000,000 shares of our common stock are reserved for issuance under the 2013 Plan. The number of shares available for grants or subject to outstanding awards shall be, or could be, as applicable, adjusted in the event of any corporate event or transaction affecting our capital structure. We do not intend to grant any awards under the 2013 Plan following the offering.
Our Board may amend, suspend, terminate, modify, or extend the 2013 Plan or any award under the 2013 Plan at any time, provided such action will not adversely affect the rights granted to any participant under any outstanding award without the participants consent.
2018 Plan
Purpose
The purpose of the 2018 Plan is to further align the interests of eligible participants with those of the stockholders of the Company by providing long-term incentive compensation opportunities tied to the performance of the Company and its common stock. The 2018 Plan is intended to advance the interests of the Company and to increase stockholder value by attracting, retaining, and motivating key personnel upon whose judgment, initiative, and effort the successful conduct of the Companys business is largely dependent. Our Board and management believe that equity awards are necessary to remain competitive in our industry and are essential to recruiting and retaining the highly qualified employees who help the Company meet its goals.
Eligibility and Administration
Any officer, employee, non-employee director, consultant or any natural person who is a consultant or advisor of the Company or any of its subsidiaries is eligible to receive Awards (as defined below) under the 2018 Plan. The selection of participants is within the sole discretion of the Committee (as defined below). Incentive stock options may be granted only to employees of the Company and certain of its subsidiaries. As of the date of this filing, there are approximately 4,385 employees (including 7 officers and 6 non-employee directors) who are expected to be eligible to participate in the 2018 Plan on the basis of their services provided to the Company.
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The 2018 Plan will be administered by the Compensation Committee of our Board, such other committee of the Board appointed by our Board to administer the 2018 Plan, or the Board, as determined by our Board (in each case, the Committee). To the extent deemed necessary by our Board, each Committee member will satisfy the requirements for (i) an independent director under rules adopted by the NYSE or other principal exchange on which the Companys common stock is then listed and (ii) a nonemployee director for purposes of such Rule 16b-3 under the Exchange Act.
Awards
The 2018 Plan permits the grant of (a) nonqualified stock options, (b) incentive stock options, (c) stock appreciation rights, (d) restricted stock awards, (e) restricted stock units, (f) cash incentive awards, and (g) stock awards (collectively, Awards). Awards may be granted singly or in combination. Awards will be evidenced by award agreements (which need not be identical) in a written or electronic form that will provide additional terms and conditions associated with such Awards, as determined by the Committee in its sole discretion (the Award Agreements). A brief description of each award type follows:
| Stock Options . A stock option gives the holder the right to purchase a specified number of shares of the Companys common stock during a specified term at a fixed price (the Exercise Price), which is payable to the Company at the time the stock option is exercised. Options are either incentive stock options or nonqualified stock options. Incentive stock options are designed to meet the requirements of Section 422 of the Code. The per-share Exercise Price of a stock option granted under the 2018 Plan will not be less than 100% of the fair market value of a share of the Companys common stock on the date the stock option is granted. |
| Stock Appreciation Rights (SARs) . A stock appreciation right gives the holder the right to receive an amount equal to the excess of the fair market value of a share of the Companys common stock on the date of exercise over a fixed value (the Base Price) of the stock appreciation right. A stock appreciation right may be settled in shares of the Companys common stock, cash, or any combination thereof as specified by the Committee. The Base Price of a stock appreciation right granted under the 2018 Plan will not be less than the fair market value of the shares of the Companys common stock subject to the stock appreciation right on the date the stock appreciation right is granted (unless granted in tandem with a stock option). |
| Restricted Stock . A restricted stock award is a grant of shares of the Companys common stock that, until the shares of the Companys common stock are vested: (i) is forfeitable by the holder of such restricted stock either because the holders service with the Company (or any of its subsidiaries) terminates or because of the failure of another condition prescribed in the Award Agreement; and (ii) generally may not be transferred to any person, except back to the Company in connection with the forfeiture provision. |
| Restricted Stock Units . A restricted stock unit award is a contractual right representing notational unit interests equal in value to a specified number of shares of the Companys common stock, determined at the date the Award is made, payable in cash or in shares of the Companys common stock or in a combination thereof. |
| Cash Incentive Awards . A cash incentive award is an Award that is denominated by a cash amount and is payable based upon the attainment of pre-established business and/or individual performance goals over a specified performance period. |
| Stock Awards . A stock award is a grant of shares of the Companys common stock that may not be subject to vesting and may require a purchase price. |
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Shares Available for Awards
A total of 13,500,000 shares of the Companys common stock will be reserved for issuance under the 2018 Plan (the Share Reserve). To the extent that an Award granted under the 2018 Plan is canceled, expired, forfeited, surrendered, settled by delivery of fewer shares of the Companys common stock than the number underlying such Award, as applicable, or otherwise terminated without delivery of the shares of the Companys common stock or payment of consideration to the participant under the 2018 Plan, the shares of the Companys common stock retained by or returned to the Company will (i) not be deemed to have been delivered under the 2018 Plan, (ii) be available for future Awards under the 2018 Plan, and (iii) increase the Share Reserve by one share for each share that is retained by or returned to the Company. Notwithstanding the foregoing, shares of the Companys common stock that are (a) withheld from an Award in payment of the exercise, base or purchase price or taxes relating to such Award or (b) not issued or delivered as a result of the net settlement of an outstanding stock option or stock appreciation right under the 2018 Plan, as applicable, will be deemed to have been delivered under the 2018 Plan and will not be available for future Awards under the 2018 Plan.
The Share Reserve will be increased on March 31 of each of the first ten (10) calendar years during the term of the Plan, by the lesser of (i) three percent (3%) of the sum of the number of shares of the Companys common stock outstanding on each January 31 immediately prior to the date of increase or (ii) such number of shares of the Companys common stock determined by the Board or Committee.
No non-employee director may be granted, during any calendar year, Awards having a fair value (determined on the date of grant) that, when added to all other compensation paid to the non-employee director during the same calendar year for service as a member of our Board, exceeds $600,000, or for the Non-Executive Chairman of the Board, $750,000.
Corporate Reorganization
In the event of any change with respect to the outstanding shares of the Companys common stock by reason of any recapitalization, reclassification, stock dividend, extraordinary dividend, stock split, reverse stock split, or other distribution with respect to the shares of the Companys common stock or any merger, reorganization, consolidation, combination, spin-off or other similar corporate change or any other change affecting the Companys common stock (other than regular cash dividends to stockholders of the Company), the Committee will, in the manner and to the extent it considers appropriate and equitable to the participants and consistent with the terms of the 2018 Plan, cause an adjustment to be made to (i) the maximum number and kind of shares of the Companys common stock that may be issued under the 2018 Plan, (ii) the number and kind of shares of the Companys common stock, units or other rights subject to then outstanding Awards, (iii) the exercise, base, or purchase price for each share or unit or other right subject to then outstanding Awards, (iv) other value determinations applicable to the 2018 Plan and/or outstanding Awards, and/or (v) any other terms of an Award that are affected by the event.
Change of Control
Upon the occurrence of a Change of Control (as defined in the 2018 Plan) of the Company, unless otherwise provided in the Award Agreement, the Committee is authorized to make adjustments in the terms and conditions of outstanding Awards, including without limitation the following: (a) continuation or assumption of such outstanding Awards under the 2018 Plan by the Company or by the surviving company or corporation or its parent; (b) substitution by the surviving company or corporation or its parent of awards with substantially the same terms for outstanding Awards; (c) acceleration of exercisability, vesting and/or payment under outstanding Awards immediately prior to the occurrence of such event or upon a termination of service following such event; (d) upon written notice, provision that
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any outstanding stock options and stock appreciation rights are exercisable during a reasonable period of time immediately prior to the scheduled consummation of the event or such other reasonable period as determined by the Committee, and at the end of such period, such stock options and stock appreciation rights shall terminate to the extent not so exercised within the relevant period; and (e) cancellation of all or any portion of outstanding Awards for fair value as determined in the sole discretion of the Committee.
Plan Amendment and Termination
Our Board may from time to time and in any respect, amend, modify, suspend, or terminate the 2018 Plan. However, no such amendment, modification, suspension, or termination of the 2018 Plan may materially and adversely affect any Award previously granted without the consent of the participant or the permitted transferee of the Award. Our Board may seek the approval of any amendment, modification, suspension, or termination by the Companys stockholders to the extent it deems necessary in its discretion for purposes of compliance with Section 422 of the Code or for any other purpose, and shall seek such approval to the extent it deems necessary in its discretion to comply with applicable law or listing requirements of the NYSE, the TSX, or other exchange or securities market. Notwithstanding the foregoing, our Board shall have broad authority to amend the 2018 Plan or any Award under the 2018 Plan without the consent of a participant to the extent it deems necessary or desirable in its discretion to comply with, take into account changes in, or interpretations of, applicable tax laws, securities laws, employment laws, accounting rules and other applicable laws, rules and regulations. Unless terminated earlier, the 2018 Plan is scheduled to terminate on the tenth anniversary of stockholder approval of the 2018 Plan.
Forfeiture of Awards
Unless otherwise provided by the Committee and set forth in an Award Agreement, if (i) a 2018 Plan participants service is terminated for Cause (as defined in the 2018 Plan), (ii) the Committee determines in its discretion that the participant is subject to any recoupment of benefits pursuant to the Companys compensation recovery, clawback or similar policy, as may be in effect from time to time or (iii) after termination of service for any other reason, the Committee determines in its discretion either that, (1) during the participants period of service the participant engaged in an act which would have warranted termination from service for Cause or (2) that after termination, the participant engaged in conduct that violates any continuing obligation or duty in respect of the Company or any subsidiary, the participants rights, payments and benefits with respect to an Award shall be subject to cancellation, forfeiture and/or recoupment as provided in the 2018 Plan. In addition, at the sole discretion of the Committee, in such case, any gain the participant realized from the exercise, vesting, payment or other realization of income by the participant in connection with an Award, shall be paid by the participant to the Company upon notice from the Company, subject to applicable law.
IPO Options
In connection with this offering, we intend to grant stock options with respect to 4,673,605 shares of common stock to 126 current employees under the 2018 Plan, which includes 1,358,697 shares of common stock issuable to David D. Ossip, 489,132 shares of common stock issuable to Paul D. Elliott, and 244,565 shares of common stock issuable to Arthur Gitajn. The exercise price for such stock options will be the initial public offering price. These options will vest over four years.
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The following table shows information as of April 12, 2018 regarding the beneficial ownership of our common stock as adjusted to give effect to this offering and the concurrent private placement by:
| each person or group who is known by us to own beneficially more than 5% of our common stock; |
| each member of our Board, each director nominee, and each of our named executive officers; and |
| all members of our Board, director nominees, and our executive officers as a group. |
The table is adjusted to account for the ownership in us after Internal Reorganization.
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Beneficial ownership of shares is determined under rules of the Commission and generally includes any shares over which a person exercises sole or shared voting or investment power. Except as noted by footnote, and subject to community property laws where applicable, we believe based on the information provided to us that the persons and entities named in the table below have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by them. Percentage of beneficial ownership is based on (i) 108,902,769 shares of common stock outstanding as of April 12, 2018 and (ii) 134,902,769 shares of common stock outstanding after giving effect to this offering and the concurrent private placement, assuming no exercise of the underwriters option to purchase additional shares, or 138,052,769 shares of common stock, assuming the underwriters exercise their option to purchase additional shares in full. Shares of common stock (i) issuable upon exchange of the Exchangeable Shares and (ii) subject to options currently exercisable or exercisable within 60 days of the date of this prospectus are deemed to be outstanding and beneficially owned by the person holding the Exchangeable Shares or options for the purposes of computing the percentage of beneficial ownership of that person and any group of which that person is a member, but are not deemed outstanding for the purpose of computing the percentage of beneficial ownership for any other person. Except as otherwise indicated, the persons named in the table below have sole voting and investment power with respect to all shares of capital stock held by them. Unless otherwise indicated, the address for each stockholder listed below is 3311 East Old Shakopee Road, Minneapolis, Minnesota 55425.
Shares of common
stock beneficially owned before this offering |
Shares of common
stock beneficially owned after this offering and the concurrent private placement (assuming no exercise of the option to purchase additional shares) |
Shares of common
stock beneficially owned after this offering and the concurrent private placement (assuming full exercise of the option to purchase additional shares) |
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Name and address of beneficial owner |
Number
of shares |
Percentage
of shares |
Number
of shares |
Percentage
of shares |
Number
of shares |
Percentage
of shares |
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5% stockholders: |
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Affiliates of Thomas H. Lee Partners, L.P. (1) |
67,674,740 | 62.1 | % | 70,794,299 | 52.5 | % | 70,794,299 | 51.3 | % | |||||||||||||||
Cannae Holdings, Inc. (2) |
36,019,643 | 33.1 | % | 37,692,775 | 27.9 | % | 37,692,775 | 27.3 | % | |||||||||||||||
Named executive officers and directors: |
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David D. Ossip (3) |
4,497,812 | 4.1 | % | 4,592,607 | 3.4 | % | 4,592,607 | 3.3 | % | |||||||||||||||
Paul D. Elliott (4) |
401,866 | * | 401,866 | * | 401,866 | * | ||||||||||||||||||
Arthur Gitajn (5) |
129,940 | * | 129,940 | * | 129,940 | * | ||||||||||||||||||
Brent B. Bickett (6) |
95,907 | * | 95,907 | * | 95,907 | * | ||||||||||||||||||
William P. Foley, II (7) |
55,734 | * | 55,734 | * | 55,734 | * | ||||||||||||||||||
Thomas M. Hagerty |
| * | | * | | * | ||||||||||||||||||
Soren L. Oberg |
| * | | * | | * | ||||||||||||||||||
Ganesh B. Rao |
| * | | * | | * | ||||||||||||||||||
Gerald C. Throop (8), (9) |
31,705 | * | 32,880 | * | 32,880 | * | ||||||||||||||||||
All Board members, director nominees, and executive officers as a group (13 persons) (3), (4), (5), (6), (7), (8), (9), (10) |
5,887,040 | 5.4 | % | 5,984,398 | 4.4 | % | 5,984,398 | 4.3 | % |
* | Represents beneficial ownership of less than 1% of our outstanding common stock. |
(1) |
Includes 19,524,535 shares of common stock indirectly held by Thomas H. Lee Equity Fund VI, L.P., 13,220,976 shares of common stock indirectly held by Thomas H. Lee Parallel Fund VI, L.P., 2,309,438 shares of common stock indirectly held by Thomas H. Lee Parallel (DT) Fund VI, L.P., 99,956 shares of common stock indirectly held by Great-West Investors LP, 99,868 shares of common stock indirectly held by Putnam Investments Employees Securities Company III LLC, 142,508 shares of common |
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stock indirectly held by THL Coinvestment Partners, L.P., 41,633 shares of common stock indirectly held by THL Operating Partners, LP, 19,353,137 shares of common stock indirectly held by THL Equity Fund VI Investors (Ceridian), L.P., 8,656,675 shares of common stock indirectly held by THL Equity Fund VI Investors (Ceridian) II, L.P., 339,237 shares of common stock indirectly held by THL Equity Fund VI Investors (Ceridian) III, LLC, 484,581 shares of common stock indirectly held by THL Equity Fund VI Investors (Ceridian) IV, LLC, 103,324 shares of common stock indirectly held by THL Equity Fund VI Investors (Ceridian) V, LLC and 3,298,872 shares of common stock indirectly held by THL Equity Fund VI Investors (Ceridian) VI, L.P., THL Equity Advisors VI, LLC is the general partner of Thomas H. Lee Equity Fund VI, L.P., Thomas H. Lee Parallel Fund VI, L.P., and Thomas H. Lee Parallel (DT) Fund VI, L.P. Thomas H. Lee Partners, L.P. is the general partner of THL Coinvestment Partners, L.P. and THL Operating Partners, L.P. Thomas H. Lee Advisors, LLC is attorney in fact for Great-West Investors LP and Putnam Investments LLC, which is the managing member of Putnam Investments Employees Securities Company III LLC, with respect to the shares of common stock they hold. THL Equity Advisors VI, LLC is the general partner of THL Equity Fund VI Investors (Ceridian), L.P., THL Equity Fund VI Investors (Ceridian) II, L.P. and THL Equity Fund VI Investors (Ceridian) VI, L.P. THL Equity Advisors VI, LLC is the manager of THL Equity Fund VI Investors (Ceridian) III, LLC, THL Equity Fund VI Investors (Ceridian) IV, LLC and THL Equity Fund VI Investors (Ceridian) V, LLC. The address of Great-West Investors LP is 8515 East Orchard Road, Greenwood Village, Colorado 80111; the address of Putnam Investments Employees Securities Company III LLC is c/o Putnam Investment, Inc., 1 Post Office Square, Boston, Massachusetts 02109; the address of all other entities referred to above is c/o Thomas H. Lee Partners, L.P., 100 Federal Street, 35th Floor, Boston, Massachusetts 02110. |
(2) | Includes 36,019,643 shares of common stock indirectly held by Cannae Holdings, LLC, formerly known as Fidelity National Financial Ventures, LLC. Cannae Holdings, LLC is a wholly-owned subsidiary of Cannae Holdings, Inc., a publicly traded company listed on the NYSE. The Chairman and CEO and the President of Cannae Holdings, Inc. have voting and investment power over such shares. The address of Cannae Holdings, Inc. is 1701 Village Center Circle, Las Vegas, Nevada, 89134. |
(3) | Consists of 273,768 shares of common stock held by Mr. Ossip and OsFund Inc., of which Mr. Ossip is a beneficial owner, 2,315,995 shares of common stock that are issuable upon exercise of stock options that are currently exercisable or are exercisable within 60 days of April 12, 2018, 125,000 shares that are issuable pursuant to RSUs that are currently vested or will vest within 60 days of April 12, 2018, and 1,783,049 shares that are issuable upon the exchange of Exchangeable Shares held by Mr. Ossip and Osscer Inc., of which Mr. Ossip is a beneficial owner. |
(4) | Consists of 401,866 shares of common stock held by Mr. Elliott that are issuable upon exercise of stock options that are currently exercisable or are exercisable within 60 days of April 12, 2018. |
(5) | Consists of 11,627 shares of common stock held by Mr. Gitajn and 118,313 shares of common stock that are issuable upon exercise of stock options that are currently exercisable or are exercisable within 60 days of April 12, 2018. |
(6) | Consists of 95,907 shares of common stock held by Bickett of Ponte Vedra Beach Limited Partnership, of which Mr. Bickett is a beneficial owner. |
(7) | Consists of 55,734 shares of common stock held by Mr. Foley that are issuable upon exercise of stock options that are currently exercisable or are exercisable within 60 days of April 12, 2018. |
(8) | Consists of 9,589 shares of common stock held by Mr. Throop and 22,116 shares that are issuable upon the exchange of Exchangeable Shares. |
(9) | Gerald C. Throop is a director nominee who we expect to join our Board in connection with this offering. |
(10) | Consists of (i) 6,488 shares that are held by Mr. Kitching and 135,629 shares of common stock that are issuable upon exercise of stock options that are currently exercisable or are exercisable within 60 days of April 12, 2018; (ii) 5,232 shares of common stock that are held by Ms. Sterling and 46,366 shares of common stock that are issuable upon exercise of stock options that are currently exercisable or are exercisable within 60 days of April 12, 2018; (iii) 125,912 shares of common stock that are held by Mr. Malley and IRA Resources, Inc. FBO Ted Malley, IRA, of which Mr. Malley is a beneficial owner, and Ted Malley Investments, LLC, of which Mr. Malley is a beneficial owner and 43,312 shares of common stock that are issuable upon exercise of stock options that are currently exercisable or are exercisable within 60 days of April 12, 2018; and (iv) 24,325 shares of common stock that are held by Mr. Goldschmied, 286,812 shares of common stock that are issuable upon exercise of stock options that are currently exercisable or are exercisable within 60 days of April 12, 2018. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Set forth below is a description of certain relationships and related person transactions between us or our subsidiaries and our directors, executive officers or holders of more than 5% of our voting securities.
Internal Reorganization
Upon completion of this offering and the concurrent private placement, we intend to complete the transactions relating to the Internal Reorganization described under SummaryInternal Reorganization.
Registration Rights Agreement
In connection with this offering and the concurrent private placement, we expect to enter into a registration rights agreement with the Sponsors, David D. Ossip, Alon Ossip, and entities controlled by each of David D. Ossip and Alon Ossip in respect of the shares of common stock and Exchangeable Shares held by such holder immediately following this offering and the concurrent private placement. This agreement will provide these holders (and their permitted transferees) with the right to require us, at our expense, to register shares of our common stock that they hold. The agreement will also provide that we will pay certain expenses of these electing holders relating to such registrations and indemnify them against certain liabilities that may arise under the Securities Act. For a detailed description of the registration rights agreement, see Shares Eligible for Future SaleRegistration Rights Agreement.
Voting Agreement
In connection with this offering, we intend to enter into a voting agreement with the Sponsors, pursuant to which we will be required to take all necessary action to cause the Board to include individuals designated by the Sponsors. These designation rights are described in this prospectus in the sections titled ManagementComposition of Our Board of Directors. The voting agreement will also require the Sponsors to consult with one another regarding the transfer of their equity securities in us.
Management Agreements
Ceridian is party to management agreements with affiliates of our Sponsors, FNF and THLM. FNF assigned its management agreement to Cannae in November 2017. Pursuant to these management agreements, Cannae and THLM each, respectively, agree to provide the Company with financial advisory, strategic, and general oversight services. These management agreements provide that the Company will pay annual management fees to each of Cannae and THLM in an amount equal to the greater of (a) $0.9 million, or (b) 0.5 percent of Adjusted EBITDA. Adjusted EBITDA, for purposes of the management agreements, is EBITDA as defined in the Senior Credit Facilities, further adjusted to exclude the payments made pursuant to the management agreements and certain stock options or other equity compensation. We recorded a management fee expense in selling, general, and administrative expense of $1.9 million, $5.0 million, and $1.9 million for the years ended December 31, 2017, 2016, and 2015, respectively, related to these management agreements.
The management agreements will terminate upon consummation of this offering. The management agreements provide that we will pay a termination fee equal to the net present value of the management fee for a seven (7) year period (based upon the Fee (as defined in the management agreements) for the immediately preceding year) calculated using a discount rate equal to the ten-year treasury rate on the date of such termination, or approximately $11.6 million, upon such termination.
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Indebtedness
Prior to its spin-off from FNF, Cannae was an affiliate of FNF. FNF and its subsidiaries owned $24.0 million, $24.0 million, and $24.0 million of the Senior Notes as of December 31, 2017, 2016, and 2015, respectively. Based on this ownership, $3.2 million, $3.2 million, and $3.2 million in interest payments were made to FNF and its subsidiaries during the years ended December 31, 2017, 2016, and 2015, respectively. FNF and its subsidiaries conducted the debt transactions through third parties in the ordinary course of their business and not directly with us. Following Cannaes split-off from FNF, FNF retained ownership of the Senior Notes.
Service and Vendor Related Agreements
The Company is a party to a service agreement with CompuCom Systems, Inc. (CompuCom), an investment portfolio company of THLM. Pursuant to the service agreement, CompuCom agrees to provide the Company with service desk and desk side support services. Pursuant to this arrangement, we made payments to CompuCom totaling $3.1 million, $5.0 million, and $2.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Other Transactions
We provide Dayforce and related services to The Stronach Group, for which we recorded revenue of $0.2 million for the year ended December 31, 2016. Alon Ossip, the brother of David Ossip, is the chief executive officer of The Stronach Group.
We provide Dayforce and related services to FNF for which we recorded revenue of $0.4 million, $0.3 million, and $0.5 million for the years ended December 31, 2015, 2016, and 2017, respectively. We are a party to management agreements with FNF. See Management Agreements.
On April 27, 2017, the Company sold 11,627 unregistered shares of our common stock for $199,993 in an exempt offering to Arthur Gitajn.
On March 30, 2016, the Company sold 16,802,143.963 shares of its senior preferred stock, par value $0.01 per share, to Ceridian Holding II LLC at a price of $8.94 per share for an aggregate purchase price of $150,211,167. In connection therewith, Ceridian Holding II LLC sold 16,802,143.963 shares of its common stock to the existing stockholders of Ceridian Holding LLC on a pro rata basis, including 5,305,499.441 shares to Cannae Holdings, LLC, formerly known as Fidelity National Financial Ventures, LLC, for $47,431,165; 3,701,844.855 shares to THL Fund VI Bridge Corp for $33,094,493; 2,506,692.282 shares to THL Parallel Fund VI Bridge Corp. for $22,409,829; 437,868.792 shares to THL DT Fund VI Bridge Corp for $3,914,547; 3,847,452.908 shares to THL Equity Fund VI Investors (Ceridian) VI, L.P. for $34,396,229; 111,856.823 shares to Brent Bickett for $1,000,000; 291,331.096 shares to OsFund, Inc. (of which David Ossip is a beneficial owner) for $2,604,500; and 27,964.206 shares to David Ossip for $250,000.
Board Compensation
Our directors do not receive compensation for their service as members of our Board, except as limited to expense reimbursement. See Executive and Director CompensationDirector Compensation.
Employment Agreements
We have entered into an employment agreement with each of our named executive officers. See Executive and Director CompensationEmployment Agreements.
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Indemnification Agreements
We intend to enter into indemnification agreements with each of our executive officers and directors prior to the completion of this offering and the concurrent private placement. The indemnification agreements will provide the executive officers and directors with contractual rights to indemnification, expense advancement, and reimbursement, to the fullest extent permitted under the DGCL, subject to certain exceptions contained in those agreements.
Policies for Approval of Related Person Transactions
In connection with this offering, we will adopt a Code of Conduct which will contain a written policy relating to the approval of related person transactions. A related person transaction is a transaction or arrangement or series of transactions or arrangements in which we participate (whether or not we are a party) and a related person has a direct or indirect material interest in such transaction. Our audit committee will review and approve or ratify all relationships and related person transactions between us and (i) our directors, director nominees, or executive officers, (ii) any 5% record or beneficial owner of our common stock, or (iii) any immediate family member of any person specified in (i) and (ii) above. The audit committee will review all related person transactions and, where the audit committee determines that such transactions are in our best interests, approve such transactions in advance of such transaction being given effect or ratified.
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DESCRIPTION OF MATERIAL INDEBTEDNESS
Senior Credit Facilities
On November 14, 2014, the Company entered into a Credit Agreement pursuant to which the lenders party thereto agreed to provide Senior Credit Facilities arranged by Deutsche Bank Securities Inc. and Credit Suisse Securities (USA) LLC. The Senior Credit Facilities consist of (i) the Senior Term Loan in the original principal amount of $702.0 million and (ii) a $130.0 million Revolving Facility. Up to $41.6 million of the Revolving Facility is available in Canadian Dollars, Euros and/or Pounds Sterling, and the entire Revolving Facility is available in U.S. dollars. $30.0 million of the Revolving Facility is available for the issuance of letters of credit, up to $15.0 million of which may be denominated in Canadian Dollars, Euros and/or Pounds Sterling, and $45.0 million of the Revolving Facility is available for swingline loans, $15.0 million of which may be denominated in Canadian Dollars, Euros and/or Pounds Sterling. DBNY is the administrative agent under the Senior Credit Facilities. Concurrently with the closing of this offering, the concurrent private placement, and the repayment of a portion of our outstanding debt using a portion of the net proceeds received by us therefrom, we intend to refinance the Senior Credit Facilities with new senior credit facilities. See Prospectus SummaryDebt Refinancing.
Interest Rate and Fees
Borrowings under the Senior Credit Facilities bear interest at a rate per annum equal to:
| in the case of borrowings denominated in U.S. dollars on any day (a) at our election, either (i) an amount (in the case of the Senior Term Loan, not less than 2.00%) equal to the greater of (A) a base rate determined by reference to the rate of interest per annum announced by DBNY as its prime rate on such day, (B) the federal funds effective rate on such day plus 1/2 of 1.00% and (C) LIBOR plus 1.00% or (ii) if available, LIBOR for U.S. dollars determined by reference to the applicable Reuters screen page two business days prior to the commencement of the interest period relevant to the subject borrowing, adjusted for certain additional costs, which may not, with respect to the Senior Term Loan only, be less than 1.00%, plus (b) an applicable margin; |
| in the case of borrowings under the Revolving Facility denominated in Canadian Dollars on any day, at our election, either (i) the rate of interest per annum quoted or established as the prime rate of Deutsche Bank AG Canada Branch plus an applicable margin or (ii) (A) by way of the creation of bankers acceptances on the terms specified in the documentation governing the Senior Credit Facilities or (B) if the relevant lender is generally unwilling or unable to create bankers acceptances, by way of the purchase of completed drafts for equivalent notes on the terms specified in the documentation governing the Senior Credit Facilities; |
| in the case of borrowings under the Revolving Facility denominated in Euros on any day, (a) EURIBOR determined by reference to the applicable Reuters screen page two business days prior to the commencement of the interest period relevant to the subject borrowing plus (b) an applicable margin; or |
| in the case of borrowings under the Revolving Facility denominated in Pounds Sterling, (a) Sterling LIBOR determined by reference to the applicable Reuters screen page one business day prior to the commencement of the interest period relevant to the subject borrowing plus (b) an applicable margin. |
The applicable margin for the Senior Term Loan is (i) 3.50% per annum, in the case of LIBOR loans and (ii) 2.50% per annum, in the case of base rate loans.
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The applicable margin for the loans under the Revolving Facility is determined in accordance with the table set forth below:
Adjusted Consolidated First Lien Leverage Ratio |
Applicable Margin
for LIBOR, EURIBOR and Sterling LIBOR Rate Loans |
Applicable Margin
for Base Rate and Canadian Prime Rate Loans |
||||||
Category 1 |
||||||||
Greater than 2.75:1.00 |
3.50 | % | 2.50 | % | ||||
Category 2 |
||||||||
Less than or equal to 2.75:1.00 and greater than 2.25:1.00 |
3.25 | % | 2.25 | % | ||||
Category 3 |
||||||||
Less than or equal to 2.25:1.00 |
3.00 | % | 2.00 | % |
The following fees are required to be paid under the Senior Credit Facilities:
| a commitment fee to each revolving lender on the daily unused portion of such revolving lenders revolving credit commitment of (i) 0.50% per annum when the adjusted first lien leverage ratio is greater than 2.75:1.00, (ii) 0.375% per annum when the adjusted first lien leverage ratio is less than or equal to 2.75:1.00 and greater than 2.25:1.00, and (iii) 0.25% per annum when the adjusted first lien leverage ratio is less than or equal to 2.25:1.00; |
| a participation fee to each revolving lender on the daily face amount of such revolving lenders letter of credit exposure at a rate equal to (a) in the case of any letter of credit issued under the U.S. dollar commitment, (i) the applicable margin for LIBOR loans denominated in U.S. dollars minus (ii) the amount of fees payable to the relevant issuing bank in respect of the applicable letter of credit or (b) in the case of any letter of credit issued under the multicurrency commitment, (i) the applicable margin for LIBOR, EURIBOR or Sterling LIBOR, as applicable, loans under the Revolving Facility (determined on the basis of the currency in which the relevant letter of credit is denominated) minus (ii) the amount of fees payable to the relevant multicurrency issuing bank in respect of the applicable letter of credit; |
| to each issuing bank (i) a fronting fee on the daily face amount of each letter of credit issued by such issuing bank at a rate agreed by the Company and such issuing bank (which may not exceed 0.125%), and (ii) such issuing banks standard issuance, processing, and similar fees with respect to letters of credit; and |
| a customary annual administration fee to the Senior Credit Facilities administrative agent. |
Voluntary Prepayments
Subject to certain notice requirements, we may voluntarily prepay outstanding loans under the Senior Credit Facilities in whole or in part without premium or penalty other than customary breakage costs with respect to LIBOR, EURIBOR, or Sterling LIBOR loans.
Mandatory Prepayments
The documentation governing the Senior Credit Facilities requires us to prepay the Senior Term Loan with:
|
50% of excess cash flow (determined in accordance with the terms of the documentation governing the Senior Credit Facilities) for each fiscal year, minus, at the option of the Company, the amount of any voluntary prepayment under the Senior Credit Facilities (in the |
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case of any voluntary prepayment of Revolving Facility, to the extent accompanied by a permanent reduction of the related commitment) and certain other cash payments that reduce the outstanding amount of any loan under the Senior Credit Facilities, subject to a stepdown to 25% if the adjusted first lien leverage ratio is less than or equal to 2.75:1.00 and greater than 2.25:1.00 and an additional stepdown to 0% if the adjusted first lien leverage ratio is less than or equal to 2.25:1.00; |
| 100% of the net cash proceeds of certain asset sales and/or insurance/condemnation events above a threshold amount, subject to reinvestment rights and other exceptions; and |
| 100% of the net cash proceeds of any issuance or incurrence of debt that is not permitted by the terms of the documentation governing the Senior Credit Facilities. |
Final Maturity and Amortization
The Senior Term Loan will mature on September 15, 2020. We are required to make annual amortization payments in respect of the Senior Term Loan in an amount equal to 1.00% of the original principal amount thereof, payable in equal quarterly installments of 0.25% of the original principal amount of the Senior Term Loan. As of September 21, 2017, all future required amortization payments in respect to the Senior Term Loan have been met through the mandatory pre-payment of principal related to the sale of the United Kingdom business.
The Revolving Facility will mature on September 15, 2019 and does not require amortization payments.
Guarantors
The obligations of the Company under the Senior Credit Facilities are guaranteed by each wholly-owned domestic subsidiary of the Company, subject to certain exceptions (which exceptions include Dayforce Holdings LLC and its subsidiaries).
Security
The obligations under the Senior Credit Facilities are secured by first priority security interests in substantially all of the assets of the Company and the guarantors, subject to permitted liens and other exceptions.
Certain Covenants, Representations and Warranties
The credit agreement governing the Senior Credit Facilities contains customary representations and warranties, affirmative covenants (including reporting obligations) and negative covenants. With respect to the negative covenants, these restrictions include, among other things and subject to certain exceptions, restrictions on the ability of the Company and its subsidiaries ability to:
| incur additional indebtedness or other contingent obligations; |
| grant liens; |
| enter into burdensome agreements with negative pledge clauses or restrictions on subsidiary distributions; |
| pay dividends or make other distributions in respect of equity; |
| make payments in respect of junior lien or subordinated debt; |
| make investments, including acquisitions, loans, and advances; |
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| consolidate, merge, liquidate, or dissolve; |
| sell, transfer, or otherwise dispose of assets; |
| engage in transactions with affiliates; |
| materially alter the business that we conduct; and |
| amend or otherwise change the terms of the documentation governing certain restricted debt. |
Financial Covenant
The documentation governing the Senior Credit Facilities contains a financial covenant applicable only to the Revolving Facility, which requires that the Company maintain a ratio of adjusted first lien debt to Adjusted EBITDA (with certain adjustments as set forth in the documentation governing the Senior Credit Facilities) below 4.75:1.00 on a quarterly basis only if more than 35% of the Revolving Facility (with an exclusion for certain letters of credit) is drawn at the end of the relevant fiscal quarter.
Only the consent of a majority of the lenders holding the Revolving Facility is required for a waiver or amendment of the financial covenant, and in the event that the Company fails to comply with the financial covenant, the Company may issue equity or stockholders of the Company may contribute cash equity to the Company in order to increase Adjusted EBITDA for purposes of calculating and determining compliance with the financial covenant, subject to certain limitations.
Events of Default
The lenders under the Senior Credit Facilities are permitted under certain circumstances to accelerate the loans and terminate commitments thereunder and to exercise other remedies upon the occurrence of certain customary events of default, subject to specified grace periods, thresholds, and exceptions. These events of default include, among others, payment defaults, cross-defaults to certain material indebtedness, covenant defaults, material inaccuracy of representations and warranties, bankruptcy events, material judgments, material defects with respect to guarantees and collateral, and change of control.
Senior Unsecured Notes
On October 1, 2013, the Company issued $475.0 million aggregate principal amount of 11% Senior Notes. The Senior Notes have a maturity date of March 15, 2021, pay interest semi-annually in cash in arrears on March 15 and September 15 of each year and are guaranteed on a senior unsecured basis by each current and future domestic subsidiary that is an obligor under our senior secured credit facilities.
The Senior Notes may be redeemed at our option, in whole or in part, on specified redemption dates and at the redemption prices specified in the indenture governing the Senior Notes. We may be required to make an offer to purchase the Senior Notes upon the sale of certain assets and upon a change of control. As of December 31, 2017, the aggregate principal amount of the outstanding Senior Notes was $475.0 million. We expect to redeem all of our outstanding Senior Notes immediately following the closing of this offering in accordance with the terms of the indenture.
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The following is a description of (i) the material terms of our third amended and restated certificate of incorporation and amended and restated bylaws as they will be in effect upon the consummation of this offering and the concurrent private placement and (ii) certain applicable provisions of Delaware law. We refer you to our third amended and restated certificate of incorporation and amended and restated bylaws, copies of which will be filed as exhibits to the registration statement of which this prospectus is a part.
Authorized Capitalization
Our authorized capital stock shall consist of 500,000,000 shares of common stock, par value $0.01 per share and 10,000,000 shares of preferred stock, par value $0.01 per share. Following the consummation of this offering and the concurrent private placement, 132,047,464 shares of common stock, and an additional 2,855,305 shares of common stock issuable upon exchange of the Exchangeable Shares and no shares of preferred stock shall be issued and outstanding, other than the Special Voting Share described below. Additionally, following the consummation of this offering and the concurrent private placement, we also will have 26,172,211 registered shares of common stock reserved for issuance under our equity incentive plans of which options to purchase 12,142,411 shares of common stock and 529,800 restricted stock units representing 12,672,211 shares of common stock are outstanding and an additional 4,673,605 shares of common stock issuable upon exercise of the IPO Options will be granted in connection with this offering.
Common Stock
Holders of our common stock are entitled to the rights set forth below.
Voting Rights
Directors will be elected by a plurality of the votes entitled to be cast except as set forth below with respect to directors to be elected by the holders of common stock. Our stockholders will not have cumulative voting rights. Except as otherwise provided in our third amended and restated certificate of incorporation or as required by law, all matters to be voted on by our stockholders other than matters relating to the election and removal of directors must be approved by a majority of the shares present in person or by proxy at the meeting and entitled to vote on the subject matter or by a written resolution of the stockholders representing the number of affirmative votes required for such matter at a meeting.
Dividend Rights
Holders of common stock will share equally in any dividend declared by our Board, subject to the rights of the holders of any outstanding preferred stock.
Liquidation Rights
In the event of any voluntary or involuntary liquidation, dissolution, distribution of assets, or winding up of our affairs, holders of our common stock would be entitled to share ratably in our assets that are legally available for distribution to stockholders after payment of liabilities. If we have any preferred stock outstanding at such time, holders of the preferred stock may be entitled to distribution and/or liquidation preferences. In either such case, we must pay the applicable distribution to the holders of our preferred stock before we may pay distributions to the holders of our common stock.
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Other Rights
Our stockholders have no preemptive or other rights to subscribe for additional shares. All holders of our common stock are entitled to share equally on a share-for-share basis in any assets available for distribution to common stockholders upon our liquidation, dissolution or winding up. All outstanding shares are, and all shares offered by this prospectus will be, when sold, validly issued, fully paid and nonassessable.
Registration Rights Agreement
In connection with this offering and the concurrent private placement, we expect to enter into a registration rights agreement with the Sponsors, David D. Ossip, Alon Ossip, and entities controlled by each of David D. Ossip and Alon Ossip in respect of the shares of common stock and Exchangeable Shares held by such holder immediately following this offering and the concurrent private placement. This agreement will provide these holders (and their permitted transferees) with the right to require us, at our expense, to register shares of our common stock that they hold. The agreement will also provide that we will pay certain expenses of these electing holders relating to such registrations and indemnify them against certain liabilities that may arise under the Securities Act. For a detailed description of the registration rights agreement, see Shares Eligible for Future SaleRegistration Rights Agreement.
Voting Agreement
In connection with this offering, we intend to enter into a voting agreement with the Sponsors, pursuant to which we will be required to take all necessary action to cause the Board to include individuals designated by the Sponsors. These designation rights are described in this prospectus in the sections titled ManagementComposition of our Board of Directors. The voting agreement will also require the Sponsors to consult with one another regarding the transfer of their equity securities in us.
Preferred Stock
Our Board is authorized to provide for the issuance of preferred stock in one or more series and to fix the preferences, powers, and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, including the dividend rate, conversion rights, voting rights, redemption rights and liquidation preference and to fix the number of shares to be included in any such series without any further vote or action by our stockholders. Any preferred stock so issued may rank senior to our common stock with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up, or both. In addition, any such shares of preferred stock may have class or series voting rights. The issuance of preferred stock may have the effect of delaying, deferring, or preventing a change in control of our company without further action by the stockholders and may adversely affect the voting and other rights of the holders of our common stock. Our Board has not authorized the issuance of any shares of preferred stock, and we have no agreements or plans for the issuance of any shares of preferred stock.
Our Board has authorized the issuance of one share of special voting preferred stock, par value $0.01 per share (the Special Voting Share) in our amended and restated certificate of incorporation. The holder of the Special Voting Share is entitled to vote on all matters that a holder of our common stock is entitled to vote on and is generally entitled to cast a number of votes equal to the number of shares of common stock issuable upon exchange of the Exchangeable Shares then outstanding. The holder of the Special Voting Share is not entitled to receive dividends.
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Anti-takeover Provisions
Our third amended and restated certificate of incorporation and amended and restated bylaws will contain provisions that delay, defer, or discourage transactions involving an actual or potential change in control of us or change in our management. We expect that these provisions, which are summarized below, will discourage coercive takeover practices or inadequate takeover bids. These provisions will be designed to encourage persons seeking to acquire control of us to first negotiate with our Board, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they will also give our Board the power to discourage transactions that some stockholders may favor, including transactions in which stockholders might otherwise receive a premium for their shares or transactions that our stockholders might otherwise deem to be in their best interests. Accordingly, these provisions could adversely affect the price of our common stock.
Requirements for Advance Notification of Stockholder Meetings, Nominations, and Proposals
Our amended and restated bylaws will provide that special meetings of the stockholders may be called only upon the request of a majority of our Board or upon the request of the Chief Executive Officer. Our amended and restated bylaws will prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting. These provisions may have the effect of deferring, delaying or discouraging hostile takeovers or changes in control or management of our company.
Our amended and restated bylaws will establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our Board or a committee of our Board. In order for any matter to be properly brought before a meeting, a stockholder will have to comply with the advance notice requirements of directors, which may be filled only by a vote of a majority of directors then in office, even though less than a quorum, and not by the stockholders. Our amended and restated bylaws will allow the presiding officer at a meeting of the stockholders to adopt rules and regulations for the conduct of meetings, which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions may also defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of our company.
No Stockholder Action by Written Consent
Our third amended and restated certificate of incorporation will provide that, subject to the rights of any holders of preferred stock to act by written consent instead of a meeting, stockholder action may be taken only at an annual meeting or special meeting of stockholders and may not be taken by written consent instead of a meeting. Failure to satisfy any of the requirements for a stockholder meeting could delay, prevent or invalidate stockholder action.
Section 203 of the DGCL
Our third amended and restated certificate of incorporation will provide that the provisions of Section 203 of the DGCL, which relate to business combinations with interested stockholders, do not apply to us. Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a business combination transaction with an interested stockholder (a stockholder who owns more than 15% of our common stock) for a period of three years after the interested stockholder became such unless the transaction fits within an applicable exemption, such as Board approval of the business combination or the transaction that resulted in such stockholder becoming an interested stockholder. These provisions will apply even if the business combination could be considered beneficial by some
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stockholders. Our third amended and restated certificate of incorporation will contain provisions that have the same effect as Section 203 of the DGCL. Although we have elected to opt out of the statutes provisions, we could elect to be subject to Section 203 in the future.
Amendment to Bylaws and Certificate of Incorporation
Any amendment to our third amended and restated certificate of incorporation must first be approved by a majority of our Board and (i) if required by law, thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment or (ii) if related to provisions regarding the classification of the Board, the removal of directors, director vacancies, forum selection for certain lawsuits, indemnification, corporate opportunities, business combinations, severability, the provision opting-out of Section 203 of the DGCL or the amendment of certain provisions of our amended and restated bylaws or third amended and restated certificate of incorporation, thereafter be approved by at least 66 2 ⁄ 3 % of the outstanding shares entitled to vote on the amendment. For so long as our Sponsors beneficially own 50% or more of our issued and outstanding common stock entitled to vote generally in the election of directors, any amendment to provisions regarding Section 203 of the DGCL or corporate opportunities must also receive the prior written consent of our Sponsors. Our amended and restated bylaws may be amended (x) by the affirmative vote of a majority of the directors then in office, subject to any limitations set forth in the bylaws, without further stockholder action or (y) by the affirmative vote of at least 50.1% of the outstanding shares entitled to vote on the amendment, without further action by our Board.
Exclusive Forum
Our third amended and restated certificate of incorporation will provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders; (iii) any action asserting a claim against us, any director or our officers or employees arising pursuant to any provision of the DGCL, our third amended and restated certificate of incorporation or our amended and restated bylaws; or (iv) any action asserting a claim against us, any director or our officers or employees that is governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our third amended and restated certificate of incorporation described above.
Listing
We have applied to have our common stock listed on the NYSE and on the TSX under the symbol CDAY.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. Future sales of our common stock in the public market, or the perception that sales may occur, could materially adversely affect the prevailing market price of our common stock at such time and our ability to raise equity capital in the future.
Sale of Restricted Securities
Upon consummation of this offering and the concurrent private placement, we will have 134,902,769 shares of our common stock outstanding (or 138,052,769 shares, if the underwriters exercise their option to purchase additional shares in full). Of these shares, all shares sold in this offering will be freely tradable without further restriction or registration under the Securities Act, except that any shares purchased by our affiliates may generally only be sold in compliance with Rule 144, which is described below. Of the remaining outstanding shares, 113,902,769 shares will be deemed restricted securities under the Securities Act.
Lock-Up Arrangements
In connection with this offering, we, each of our directors, executive officers and certain other stockholders, will enter into lock-up agreements that restrict the sale of our securities for up to 180 days after the date of this prospectus, subject to certain exceptions or an extension in certain circumstances.
Following the lock-up periods described above, all of the shares of our common stock that are restricted securities or are held by our affiliates as of the date of this prospectus will be eligible for sale in the public market in compliance with Rule 144 under the Securities Act.
Rule 144
The shares of our common stock sold in this offering will generally be freely transferable without restriction or further registration under the Securities Act, except that any shares of our common stock held by an affiliate of ours may not be resold publicly except in compliance with the registration requirements of the Securities Act or under an exemption under Rule 144 or otherwise. Rule 144 permits our common stock that has been acquired by a person who is an affiliate of ours, or has been an affiliate of ours within the past three months, to be sold into the market in an amount that does not exceed, during any three-month period, the greater of:
| one percent of the total number of shares of our common stock outstanding; or |
| the average weekly reported trading volume of our common stock for the four calendar weeks prior to the sale. |
Such sales are also subject to specific manner of sale provisions, a six-month holding period requirement, notice requirements and the availability of current public information about us.
Approximately 306,695 shares of our common stock that are not subject to lock-up arrangements described above will be eligible for sale under Rule 144 immediately upon the closing.
Rule 144 also provides that a person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has for at least six months beneficially owned shares of our common stock that are restricted securities, will be entitled to freely sell such shares of our common stock subject only to the availability of current public information regarding us. A person
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who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned for at least one year shares of our common stock that are restricted securities, will be entitled to freely sell such shares of our common stock under Rule 144 without regard to the current public information requirements of Rule 144.
Rule 701
Rule 701 generally allows a stockholder who purchased shares of our capital stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.
Additional Registration Statements
We intend to file a registration statement on Form S-8 under the Securities Act to register 26,172,211 shares of our common stock to be issued or reserved for issuance under our equity incentive plans. Such registration statement is expected to be filed soon after the date of this prospectus and will automatically become effective upon filing with the Commission. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless such shares are subject to vesting restrictions with us or the lock-up restrictions described above.
Registration Rights Agreement
Concurrent with the closing of this offering and the concurrent private placement, we expect to enter into a registration rights agreement with the Sponsors, David D. Ossip, Alon Ossip, and entities controlled by each of David D. Ossip and Alon Ossip in respect of the shares of common stock and Exchangeable Shares held by such holders immediately following this offering and the concurrent private placement. This agreement will provide these holders (and their permitted transferees) with the right to require us, at our expense, to register shares of our common stock that they hold. The agreement will also provide that we will pay certain expenses of these electing holders relating to such registrations and indemnify them against certain liabilities that may arise under the Securities Act. The following description summarizes such rights and circumstances.
Demand Rights
Subject to certain limitations, the Sponsors, for so long as they hold 5% of our registrable shares of common stock, will have the right, by delivering written notice to us, to require us to register the number of our shares of common stock requested to be so registered in accordance with the registration rights agreement. Within five days following receipt of notice of a demand registration, we will be required to give written notice to all other beneficial holders of our registrable shares of common stock that have joined the registration rights agreement. Subject to certain limitations as described below, we will include in the registration all securities with respect to which we receive a written request for inclusion in the registration within ten days after we give our notice. Following the demand request, we are required to use our reasonable best efforts to have the applicable registration statement filed with the Commission within a specified period following the demand and are required to use our best efforts to cause the registration statement to be declared effective. Any demand registration must include registrable securities having an aggregate market value of at least $50 million, and holders of our registrable securities are limited to one demand registration within any nine month period.
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Shelf Registration Rights on Form S-3
If we are eligible to file a shelf registration statement on Form S-3, holders of registrable securities with registration rights under the registration rights agreement can request that we register their shares for resale. Within five days following receipt of notice of a Form S-3 registration request, we will be required to give written notice to all other beneficial holders of registrable shares of common stock that have joined the registration rights agreement. Subject to certain limitations as described below, we will include in the Form S-3 registration all securities with respect to which we receive a written request for inclusion in the registration within seven days after we give our notice. Following such request, we are required to use our reasonable efforts to have the shelf registration statement declared effective. No Form S-3 registration request may be made within nine months following a prior demand or request.
In addition, once a shelf registration statement has been declared effective by the Commission pursuant to the forgoing, thereafter, from time to time, any holder of registrable securities that has joined the registration rights agreement may, by notice to us, require us to register such holders registrable securities pursuant to the shelf registration statement.
Piggyback Rights
Holders of registrable shares of common stock under the registration rights agreement will be entitled to request to participate in, or piggyback on, registrations of certain securities for sale by us at any time after this offering and the concurrent private placement. This piggyback right will apply to any registration following this offering and the concurrent private placement other than registration statements relating to any employee benefit plans, registration statements related to the issuance or resale of securities issued in connection with transactions or corporate reorganizations under Rule 145 of the Securities Act, or registration statements related to stock issued upon conversion of debt securities.
Conditions and Limitations
The registration rights outlined above will be subject to conditions and limitations, including the right of the underwriters to limit the number of shares to be included in a registration statement and our right to delay, suspend or withdraw a registration statement under specified circumstances. For example, our Board may in its good faith judgment delay the filing or effectiveness of any registration statement for periods not to exceed 45 days. Additionally, in certain circumstances we may withdraw a registration upon request by the holder of registrable securities.
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MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS
The following is a general discussion of the material U.S. federal income tax consequences to non-U.S. holders (as defined below) of the purchase, ownership, and disposition of our common stock. This discussion does not provide a complete analysis of all potential U.S. federal income tax considerations relating thereto. This description is based on the Code, existing and proposed U.S. Treasury regulations promulgated thereunder, administrative pronouncements, judicial decisions, and interpretations of the foregoing, all as of the date hereof and all of which are subject to change, possibly with retroactive effect. This discussion is limited to non-U.S. Holders who hold shares of our common stock as capital assets within the meaning of Section 1221 of the Code. Moreover, this discussion is for general information only and does not address all of the tax consequences that may be relevant to you in light of your particular circumstances, nor does it discuss special tax provisions, which may apply to you if you are subject to special treatment under U.S. federal income tax laws, such as for certain financial institutions or financial services entities, insurance companies, tax-exempt entities, dealers in securities or currencies, entities that are treated as partnerships for U.S. federal income tax purposes, controlled foreign corporations, passive foreign investment companies, former U.S. citizens or long-term residents, persons deemed to sell common stock under the constructive sale provisions of the Code, and persons that hold common stock as part of a straddle, hedge, conversion transaction, or other integrated investment. In addition, this summary does not address the Medicare tax on certain investment income or any state, local or foreign taxes or any U.S. federal tax laws other than U.S. federal income tax laws.
You are urged to consult with your own tax advisor concerning the U.S. federal income tax consequences of acquiring, owning, and disposing of our common stock, as well as the application of any state, local, foreign income, and other tax laws.
As used in this section, a non-U.S. holder is a beneficial owner of our common stock that is not, for U.S. federal income tax purposes:
| an individual who is a citizen or resident of the United States; |
| a corporation (or other entity taxable as a corporation) that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
| a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a domestic trust. |
If you are an individual, you are a resident alien if you are a lawful permanent resident of the United States (e.g., a green card holder) and you may, in many cases, be deemed to be a resident alien, as opposed to a nonresident alien, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in and including the current calendar year. For these purposes, all the days present in the United States in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year are counted. Resident aliens are subject to U.S. federal income tax as if they are U.S. citizens. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the purchase, ownership or disposition of our common stock.
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If a partnership or other entity treated as a pass-through entity for U.S. federal income tax purposes is a beneficial owner of our common stock, the tax treatment of a partner in the partnership or an owner of the other pass-through entity will depend upon the status of the partner or owner and the activities of the partnership or other pass-through entity. Any partnership, partner in such a partnership or owner of another pass-through entity holding shares of our common stock should consult its own tax advisor as to the particular U.S. federal income tax consequences applicable to it.
INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AND THE CONSEQUENCES OF OTHER FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND APPLICABLE TAX TREATIES.
Distributions on Common Stock
Although we do not currently anticipate doing so in the foreseeable future (as discussed in the section entitled Dividend Policy), if we do pay distributions on shares of our common stock, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of our current and accumulated earnings and profits will constitute a return of capital that is applied against and reduces, but not below zero, a non-U.S. holders adjusted tax basis in shares of our common stock. Any remaining excess will be treated as gain realized on the sale or other disposition of our common stock. See Dispositions of Common Stock.
Any dividend paid to a non-U.S. holder on our common stock will generally be subject to U.S. federal withholding tax at a 30% rate. The withholding tax might not apply, however, or might apply at a reduced rate, under the terms of an applicable income tax treaty between the United States and the non-U.S. holders country of residence. You should consult your own tax advisors regarding your entitlement to benefits under a relevant income tax treaty. Generally, in order for us or our paying agent to withhold tax at a lower treaty rate, a non-U.S. holder must certify its entitlement to treaty benefits. A non-U.S. holder generally can meet this certification requirement by providing an Internal Revenue Service (IRS) Form W-8BEN or IRS Form W-8BEN-E (or other applicable form), as applicable, to us or our paying agent. If the non-U.S. holder holds the stock through a financial institution or other agent acting on the holders behalf, the holder will be required to provide appropriate documentation to the agent. The holders agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. A non-U.S. holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
Dividends received by a non-U.S. holder that are effectively connected with a U.S. trade or business conducted by the non-U.S. holder and, if required by an applicable income tax treaty between the United States and the non-U.S. holders country of residence, are attributable to a permanent establishment (or, in certain cases involving individual holders, a fixed base) maintained by the non-U.S. holder in the United States, are generally not subject to such withholding tax. To obtain this exemption, a non-U.S. holder must provide us with an IRS Form W-8ECI properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition to the graduated tax described above, such effectively connected dividends received by corporate non-U.S. holders may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty.
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Dispositions of Common Stock
Subject to the discussion below on backup withholding and other withholding requirements, gain realized by a non-U.S. holder on a sale, exchange or other disposition of our common stock generally will not be subject to U.S. federal income or withholding tax, unless:
| the gain (i) is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business and (ii) if required by an applicable income tax treaty between the United States and the non-U.S. holders country of residence, is attributable to a permanent establishment (or, in certain cases involving individual holders, a fixed base) maintained by the non-U.S. holder in the United States (in which case the special rules described below apply); |
| the non-U.S. holder is an individual who is present in the United States for 183 or more days in the taxable year of such disposition and certain other conditions are met (in which case the gain would be subject to a flat 30% tax, or such reduced rate as may be specified by an applicable income tax treaty, which may be offset by certain U.S. source capital losses, provided the non-U.S holder has timely filed U.S. federal income tax returns with respect to such losses); or |
| we are, or have been, a U.S. real property holding corporation, or a USRPHC, for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition of our common stock and the non-U.S. holders holding period for our common stock. |
Generally, a corporation is a USRPHC if the fair market value of its United States real property interests equals 50% or more of the sum of the fair market value of (a) its worldwide real property interests and (b) its other assets used or held for use in a trade or business. The tax relating to stock in a USRPHC does not apply to a non-U.S. holder whose holdings, actual and constructive, amount to 5% or less of our common stock at all times during the applicable period, provided that our common stock is regularly traded on an established securities market. We believe we have not been and are not currently a USRPHC, and do not anticipate being a USRPHC in the future.
If any gain from the sale, exchange or other disposition of our common stock, (1) is effectively connected with a U.S. trade or business conducted by a non-U.S. holder and (2) if required by an applicable income tax treaty between the United States and the non-U.S. holders country of residence, is attributable to a permanent establishment (or, in certain cases involving individuals, a fixed base) maintained by such non-U.S. holder in the United States, then the gain generally will be subject to U.S. federal income tax at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. If the non-U.S. holder is a corporation, under certain circumstances, that portion of its earnings and profits that is effectively connected with its U.S. trade or business, subject to certain adjustments, generally would also be subject to a branch profits tax. The branch profits tax rate is generally 30%, although an applicable income tax treaty between the United States and the non-U.S. holders country of residence might provide for a lower rate.
Backup Withholding and Information Reporting
Any dividends that are paid to a non-U.S. holder must be reported annually to the IRS and to the non-U.S. holder. Copies of these information returns also may be made available to the tax authorities of the country in which the non-U.S. holder resides under the provisions of various treaties or agreements for the exchange of information. Dividends paid on our common stock and the gross proceeds from a taxable disposition of our common stock may be subject to additional information reporting and may also be subject to U.S. federal backup withholding if such non-U.S. holder fails to comply with applicable U.S. information reporting and certification requirements. Provision of any IRS Form W-8 appropriate to the non-U.S. holders circumstances will generally satisfy the certification requirements necessary to avoid the additional information reporting and backup withholding.
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Backup withholding is not an additional tax. Any amounts so withheld under the backup withholding rules will be refunded by the IRS or credited against the non-U.S. holders U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.
Other Withholding Taxes
Provisions commonly referred to as FATCA impose withholding of 30% on payments of U.S.-source dividends (including our dividends) and, beginning January 1, 2019, on sales or other proceeds from the disposition of domestic corporate stock (including our stock), paid to foreign financial institutions (which is broadly defined for this purpose and in general includes investment vehicles) and certain other non-U.S. entities unless various U.S. information reporting and due diligence requirements (generally relating to ownership by U.S. persons of interests in or accounts with those entities) have been satisfied, or an exemption applies. An intergovernmental agreement between the United States and the entitys jurisdiction may modify these requirements. If FATCA withholding is imposed, a beneficial owner that is not a foreign financial institution generally will be entitled to a refund of any amounts withheld by filing a U.S. federal income tax return containing the required information (which may entail significant administrative burden). Non-U.S. holders should consult their own tax advisors regarding the effects of FATCA on their investment in our common stock.
THE PRECEDING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
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We are offering the shares of common stock described in this prospectus through a number of underwriters. Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC are acting as representatives of the underwriters. We have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
Name |
Number of
Shares |
|||
Goldman Sachs & Co. LLC |
||||
J.P. Morgan Securities LLC |
||||
Credit Suisse Securities (USA) LLC |
||||
Deutsche Bank Securities Inc.* |
||||
Barclays Capital Inc. |
||||
Citigroup Global Markets Inc. |
||||
Jefferies LLC |
||||
CIBC World Markets Corp. |
||||
Wells Fargo Securities, LLC |
||||
Robert W. Baird & Co. Incorporated* |
||||
Canaccord Genuity LLC |
||||
Piper Jaffray & Co.* |
||||
William Blair & Company, L.L.C.* |
||||
MUFG Securities Americas Inc. |
||||
|
|
|||
Total |
21,000,000 | |||
|
|
* | Deutsche Bank Securities Inc., Robert W. Baird & Co. Incorporated, Piper Jaffray & Co., and William Blair & Company, L.L.C. and their respective affiliates are not registered to sell securities in any Canadian jurisdiction and, accordingly, will only sell shares of common stock outside of Canada. |
The offering is being made concurrently in the United States and in each of the provinces and territories of Canada , other than Quebec. The common shares will be offered in the United States through certain of the underwriters listed above, either directly or indirectly, through their respective U.S. broker-dealer affiliates or agents. The common shares will be offered in Canada through certain of the underwriters or their Canadian affiliates who are registered to offer the common shares for sale, or through such other registered dealers as may be designated by the underwriters. Sales of shares made outside of the United States or Canada may be made by affiliates of the underwriters.
The underwriters are committed to purchase all the common shares offered by us if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.
The underwriters propose to offer the common shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial offering of the shares to the public, the offering price and other selling terms may be changed by the underwriters. The offering of the shares by the underwriters is subject to receipt and acceptance and subject to the underwriters right to reject any order in whole or in part.
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The underwriters have an option to buy up to 3,150,000 additional shares of common stock from us to cover sales of shares by the underwriters which exceed the number of shares specified in the
table above. The underwriters have 30 days from the date of this prospectus to exercise this option to purchase additional shares. If any shares are purchased with this option to purchase additional shares, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us assuming both no exercise and full exercise of the underwriters option to purchase additional shares. We have agreed to reimburse the underwriters for certain of their expenses in an amount up to $25,000 as set forth in the underwriting agreement. The underwriters have also agreed to reimburse us for certain expenses incurred by us in connection with this offering.
Paid by the Company
Without
option to purchase additional shares exercise |
With full
option to purchase additional shares exercise |
|||||||
Per Share |
$ | $ | ||||||
Total |
$ | $ |
We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $5.6 million.
One or more funds affiliated with Dragoneer Investment Group, LLC have indicated an interest in purchasing an aggregate of up to $75.0 million in shares of our common stock in this offering at the initial public offering price. Because this indication of interest is not a binding agreement or commitment to purchase, one or more funds affiliated with Dragoneer Investment Group, LLC could determine to purchase more, less or no shares in this offering or the underwriters could determine to sell more, less or no shares to one or more funds affiliated with Dragoneer Investment Group, LLC. The underwriters will receive the same discount on any of our shares of common stock purchased by one or more funds affiliated with Dragoneer Investment Group, LLC as they will from any other shares of common stock sold to the public in this offering.
A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
We have agreed that we will not (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any
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swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any shares of common stock or any such other securities (regardless of whether any of these transactions are to be settled by the delivery of shares of common stock or such other securities, in cash or otherwise), in each case without the prior written consent of Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC for a period of 180 days after the date of this prospectus, other than the shares of our common stock to be sold hereunder and any shares of our common stock issued upon the exercise of options granted under our existing stock option plans.
Our directors and executive officers, and certain of our significant stockholders have entered into lock-up agreements with the underwriters prior to the commencement of this offering and the concurrent private placement pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the Commission and securities which may be issued upon exercise of a stock option or warrant) or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock.
We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933. We have also agreed to reimburse the underwriters for certain of their expenses.
We have applied have our common stock approved for listing/quotation on the NYSE and on the TSX under the symbol CDAY.
In connection with this offering and the concurrent private placement, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering and the concurrent private placement is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be covered shorts, which are short positions in an amount not greater than the underwriters option to purchase additional shares referred to above, or may be naked shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering and the concurrent private placement. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
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The underwriters have advised us that, pursuant to Regulation M of the Securities Act of 1933, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the NYSE, the TSX, in the over-the-counter market or otherwise.
Prior to this offering and the concurrent private placement, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:
| the information set forth in this prospectus and otherwise available to the representatives; |
| our prospects and the history and prospects for the industry in which we compete; |
| an assessment of our management; |
| our prospects for future earnings; |
| the general condition of the securities markets at the time of this offering and the concurrent private placement; |
| the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and |
| other factors deemed relevant by the underwriters and us. |
Neither we nor the underwriters can assure investors that an active trading market will develop for our common shares, or that the shares will trade in the public market at or above the initial public offering price.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage, and other financial and non-financial activities and services. Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans, and may do so in the future. An affiliate of Deutsche Bank Securities Inc. acts as the administrative agent, collateral agent and Canadian sub-agent, and affiliates of J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. act as lenders under our Senior Credit Facilities. Additionally, Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. act as the joint lead arrangers and joint bookrunners for our Senior Credit Facilities. In addition, certain affiliates of the underwriters will be acting as lenders, lead arrangers and bookrunners in respect of our new senior credit facilities.
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In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of the issuer (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with us. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
Selling Restrictions
Other than in the United States and each of the provinces and territories of Canada, other than Quebec, no action has been taken by us or the underwriters that would permit a public offering of the shares offered by this prospectus in any jurisdiction where action for that purpose is required. The shares offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such shares be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any shares offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Notice to Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, no offer of shares may be made to the public in that Relevant Member State other than:
A. to any legal entity which is a qualified investor as defined in the Prospectus Directive;
B. to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), subject to obtaining the prior consent of the underwriters; or
C. in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of shares shall require the Company or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive and each person who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with each of the underwriters and the Company that it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive.
In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged, and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
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For the purposes of this provision, the expression an offer of shares to the public in relation to any shares in any Relevant Member State means the communication in any form and by means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State, the expression Prospectus Directive means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU), and includes any relevant implementing measure in the Relevant Member State.
Notice to Prospective Investors in the United Kingdom
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are qualified investors (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Order) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons) or otherwise in circumstances which have not resulted and will not result in an offer to the public of the shares in the United Kingdom within the meaning of the Financial Services and Markets Act 2000.
Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons.
Notice to Prospective Investors in Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document does not constitute a prospectus within the meaning of, and has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to Prospective Investors in the Dubai International Financial Centre (DIFC)
This document relates to an Exempt Offer in accordance with the Markets Rules 2012 of the Dubai Financial Services Authority (DFSA). This document is intended for distribution only to persons of a type specified in the Markets Rules 2012 of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement nor taken steps to verify the information set forth herein and has no responsibility for this document. The securities to which this
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document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this document you should consult an authorized financial advisor.
In relation to its use in the DIFC, this document is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. The interests in the securities may not be offered or sold directly or indirectly to the public in the DIFC.
Notice to Prospective Investors in the United Arab Emirates
The shares have not been, and are not being, publicly offered, sold, promoted or advertised in the United Arab Emirates (including the Dubai International Financial Centre) other than in compliance with the laws of the United Arab Emirates (and the Dubai International Financial Centre) governing the issue, offering, and sale of securities. Further, this prospectus does not constitute a public offer of securities in the United Arab Emirates (including the Dubai International Financial Centre) and is not intended to be a public offer. This prospectus has not been approved by or filed with the Central Bank of the United Arab Emirates, the Securities and Commodities Authority or the Dubai Financial Services Authority.
Notice to Prospective Investors in Australia
This prospectus:
| does not constitute a product disclosure document or a prospectus under Chapter 6D.2 of the Corporations Act 2001 (Cth) (the Corporations Act); |
| has not been, and will not be, lodged with the Australian Securities and Investments Commission (ASIC), as a disclosure document for the purposes of the Corporations Act and does not purport to include the information required of a disclosure document under Chapter 6D.2 of the Corporations Act; |
| does not constitute or involve a recommendation to acquire, an offer or invitation for issue or sale, an offer or invitation to arrange the issue or sale, or an issue or sale, of interests to a retail client (as defined in section 761G of the Corporations Act and applicable regulations) in Australia; and |
| may only be provided in Australia to select investors who are able to demonstrate that they fall within one or more of the categories of investors, or Exempt Investors, available under section 708 of the Corporations Act. |
The shares may not be directly or indirectly offered for subscription or purchased or sold, and no invitations to subscribe for or buy the shares may be issued, and no draft or definitive offering memorandum, advertisement or other offering material relating to any shares may be distributed in Australia, except where disclosure to investors is not required under Chapter 6D of the Corporations Act or is otherwise in compliance with all applicable Australian laws and regulations. By submitting an application for the shares, you represent and warrant to us that you are an Exempt Investor.
As any offer of shares under this document will be made without disclosure in Australia under Chapter 6D.2 of the Corporations Act, the offer of those securities for resale in Australia within 12 months may, under section 707 of the Corporations Act, require disclosure to investors under Chapter 6D.2 if none of the exemptions in section 708 applies to that resale. By applying for the shares you undertake to us that you will not, for a period of 12 months from the date of issue of the shares, offer, transfer, assign or otherwise alienate those securities to investors in Australia except in circumstances where disclosure to investors is not required under Chapter 6D.2 of the Corporations Act or where a compliant disclosure document is prepared and lodged with ASIC.
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Notice to Prospective Investors in Japan
The shares have not been and will not be registered pursuant to Article 4, Paragraph 1 of the Financial Instruments and Exchange Act. Accordingly, none of the shares nor any interest therein may be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to or for the benefit of a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Act and any other applicable laws, regulations and ministerial guidelines of Japan in effect at the relevant time.
Notice to Prospective Investors in Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
The contents of this document have not been reviewed by any regulatory authority in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,
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securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
(a) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
(b) where no consideration is or will be given for the transfer;
(c) where the transfer is by operation of law;
(d) as specified in Section 276(7) of the SFA; or
(e) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore
Notice to Prospective Investors in Bermuda
Shares may be offered or sold in Bermuda only in compliance with the provisions of the Investment Business Act of 2003 of Bermuda which regulates the sale of securities in Bermuda. Additionally, non-Bermudian persons (including companies) may not carry on or engage in any trade or business in Bermuda unless such persons are permitted to do so under applicable Bermuda legislation.
Notice to Prospective Investors in Saudi Arabia
This document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Offers of Securities Regulations as issued by the board of the Saudi Arabian Capital Market Authority (CMA) pursuant to resolution number 2-11-2004 dated 4 October 2004 as amended by resolution number 1-28-2008, as amended. The CMA does not make any representation as to the accuracy or completeness of this document and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this document. Prospective purchasers of the securities offered hereby should conduct their own due diligence on the accuracy of the information relating to the securities. If you do not understand the contents of this document, you should consult an authorised financial adviser.
Notice to Prospective Investors in the British Virgin Islands
The shares may be offered to persons located in the British Virgin Islands who are qualified investors for the purposes of SIBA. Qualified investors include (i) certain entities which are regulated by the Financial Services Commission in the British Virgin Islands, including banks, insurance companies, licensees under SIBA and public, professional and private mutual funds; (ii) a company, any securities of which are listed on a recognised exchange; and (iii) persons defined as professional investors under SIBA, which is any person (a) whose ordinary business involves, whether for that persons own account or the account of others, the acquisition or disposal of property of the same kind as the property, or a substantial part of the property of the Issuer; or (b) who has signed a declaration that he, whether individually or jointly with his spouse, has net worth in excess of US$1,000,000 and that he consents to being treated as a professional investor.
Notice to Prospective Investors in China
This prospectus does not constitute a public offer of shares, whether by sale or subscription, in the Peoples Republic of China (the PRC). The shares are not being offered or sold directly or indirectly in the PRC to or for the benefit of, legal or natural persons of the PRC.
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Further, no legal or natural persons of the PRC may directly or indirectly purchase any of the shares or any beneficial interest therein without obtaining all prior PRCs governmental approvals that are required, whether statutorily or otherwise. Persons who come into possession of this document are required by the issuer and its representatives to observe these restrictions.
Notice to Prospective Investors in Korea
The shares have not been and will not be registered under the Financial Investments Services and Capital Markets Act of Korea and the decrees and regulations thereunder (the FSCMA), and the shares have been and will be offered in Korea as a private placement under the FSCMA. None of the shares may be offered, sold or delivered directly or indirectly, or offered or sold to any person for re-offering or resale, directly or indirectly, in Korea or to any resident of Korea except pursuant to the applicable laws and regulations of Korea, including the FSCMA and the Foreign Exchange Transaction Law of Korea and the decrees and regulations thereunder (the FETL). The shares have not been listed on any of securities exchanges in the world including, without limitation, the Korea Exchange in Korea. Furthermore, the purchaser of the shares shall comply with all applicable regulatory requirements (including but not limited to requirements under the FETL) in connection with the purchase of the shares. By the purchase of the shares, the relevant stockholder thereof will be deemed to represent and warrant that if it is in Korea or is a resident of Korea, it purchased the shares pursuant to the applicable laws and regulations of Korea.
Notice to Prospective Investors in Malaysia
No prospectus or other offering material or document in connection with the offer and sale of the shares has been or will be registered with the Securities Commission of Malaysia (Commission) for the Commissions approval pursuant to the Capital Markets and Services Act 2007. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Malaysia other than (i) a closed end fund approved by the Commission; (ii) a holder of a Capital Markets Services Licence; (iii) a person who acquires the shares, as principal, if the offer is on terms that the shares may only be acquired at a consideration of not less than RM250,000 (or its equivalent in foreign currencies) for each transaction; (iv) an individual whose total net personal assets or total net joint assets with his or her spouse exceeds RM3 million (or its equivalent in foreign currencies), excluding the value of the primary residence of the individual; (v) an individual who has a gross annual income exceeding RM300,000 (or its equivalent in foreign currencies) per annum in the preceding twelve months; (vi) an individual who, jointly with his or her spouse, has a gross annual income of RM400,000 (or its equivalent in foreign currencies), per annum in the preceding twelve months; (vii) a corporation with total net assets exceeding RM10 million (or its equivalent in a foreign currencies) based on the last audited accounts; (viii) a partnership with total net assets exceeding RM10 million (or its equivalent in foreign currencies); (ix) a bank licensee or insurance licensee as defined in the Labuan Financial Services and Securities Act 2010; (x) an Islamic bank licensee or takaful licensee as defined in the Labuan Financial Services and Securities Act 2010; and (xi) any other person as may be specified by the Commission; provided that, in the each of the preceding categories (i) to (xi), the distribution of the shares is made by a holder of a Capital Markets Services Licence who carries on the business of dealing in securities. The distribution in Malaysia of this prospectus is subject to Malaysian laws. This prospectus does not constitute and may not be used for the purpose of public offering or an issue, offer for subscription or purchase, invitation to subscribe for or purchase any securities requiring the registration of a prospectus with the Commission under the Capital Markets and Services Act 2007.
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Notice to Prospective Investors in Taiwan
The shares have not been and will not be registered with the Financial Supervisory Commission of Taiwan pursuant to relevant securities laws and regulations and may not be sold, issued or offered within Taiwan through a public offering or in circumstances which constitutes an offer within the meaning of the Securities and Exchange Act of Taiwan that requires a registration or approval of the Financial Supervisory Commission of Taiwan. No person or entity in Taiwan has been authorised to offer, sell, give advice regarding, or otherwise, intermediate the offering and sale of the shares in Taiwan.
Notice to Prospective Investors in South Africa
Due to restrictions under the securities laws of South Africa, the shares are not offered, and the offer shall not be transferred, sold, renounced or delivered, in South Africa or to a person with an address in South Africa, unless one or other of the following exemptions applies:
(i) the offer, transfer, sale, renunciation or delivery is to:
(a) persons whose ordinary business is to deal in securities, as principal or agent;
(b) the South African Public Investment Corporation;
(c) persons or entities regulated by the Reserve Bank of South Africa;
(d) authorized financial service providers under South African law;
(e) financial institutions recognized as such under South African law;
(f) a wholly-owned subsidiary of any person or entity contemplated in (c), (d) or (e), acting as agent in the capacity of an authorized portfolio manager for a pension fund or collective investment scheme (in each case duly registered as such under South African law); or
(g) any combination of the person in (a) to (f); or
(ii) the total contemplated acquisition cost of the securities, for any single addressee acting as principal is equal to or greater than ZAR 1,000,000.
No offer to the public (as such term is defined in the South African Companies Act, No. 71 of 2008 (as amended or re-enacted) (the South African Companies Act)) in South Africa is being made in connection with the issue of the shares. Accordingly, this document does not, nor is it intended to, constitute a registered prospectus (as that term is defined in the South African Companies Act) prepared and registered under the South African Companies Act and has not been approved by, and/or filed with, the South African Companies and Intellectual Property Commission or any other regulatory authority in South Africa. Any issue or offering of the shares in South Africa constitutes an offer of the shares in South Africa for subscription or sale in South Africa only to persons who fall within the exemption from offers to the public set out in section 96(1)(a) of the South African Companies Act. Accordingly, this document must not be acted on or relied on by persons in South Africa who do not fall within section 96(1)(a) of the South African Companies Act (such persons being referred to as SA Relevant Persons). Any investment or investment activity to which this document relates is available in South Africa only to SA Relevant Persons and will be engaged in South Africa only with SA relevant persons.
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Immediately subsequent to the closing of this offering, THL / Cannae Investors LLC intends to purchase from us in a private placement $100.0 million of our common stock at a price per share equal to the initial public offering price. Based on an assumed initial public offering price of $20.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, this would be 5,000,000 shares. We will receive the full proceeds and will not pay any underwriting discounts or commissions with respect to the shares that are sold in the private placement. The sale of the shares in the private placement is contingent upon the completion of this offering. The sale of these shares to THL / Cannae Investors LLC will not be registered in this offering and will be restricted securities under the Securities Act. In addition, these shares will be subject to a market standoff agreement with us and, to the extent ultimately owned by our directors, officers, the Sponsors and certain other significant stockholders, a lock-up agreement with the underwriters for a period of up to 180 days after the date of this prospectus.
Weil, Gotshal & Manges LLP, New York, New York, has passed upon the validity of the common stock offered hereby on behalf of us. Certain legal matters will be passed upon on behalf of the underwriters by Latham & Watkins LLP, New York, New York. Certain legal matters as to Canadian law will be passed upon on behalf of us by Goodmans LLP, Toronto, Canada. Certain legal matters as to Canadian law will be passed upon on behalf of the underwriters by Osler, Hoskin & Harcourt LLP, Toronto, Canada.
The consolidated financial statements of Ceridian HCM Holding Inc. as of December 31, 2017 and 2016 and for each of the years in the three-year period ended December 31, 2017 have been included herein and in the registration statement in reliance upon the report of KPMG LLP, an independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our common stock offered by this prospectus. For purposes of this section, the term registration statement means the original registration statement and any and all amendments including the schedules and exhibits to the original registration statement or any amendment. This prospectus, filed as part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules thereto as permitted by the rules and regulations of the SEC. For further information about us and our common stock, you should refer to the registration statement, including the exhibits. This prospectus summarizes provisions that we consider material of certain contracts and other documents to which we refer you. Because the summaries may not contain all of the information that you may find important, you should review the full text of those documents.
The registration statement, including its exhibits and schedules, may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling
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1-800-SEC-0330. Copies of such materials are also available by mail from the Public Reference Branch of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549 at prescribed rates. In addition, the SEC maintains a website at (http://www.sec.gov) from which interested persons can electronically access the registration statement, including the exhibits and schedules to the registration statement.
We have not authorized anyone to give you any information or to make any representations about us or the transactions we discuss in this prospectus other than those contained in this prospectus. If you are given any information or representations about these matters that is not discussed in this prospectus, you must not rely on that information. This prospectus is not an offer to sell or a solicitation of an offer to buy securities anywhere or to anyone where or to whom we are not permitted to offer or sell securities under applicable law.
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CONSOLIDATED FINANCIAL STATEMENTS OF CERIDIAN HCM HOLDING INC. |
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F-2 | ||||
Consolidated Balance Sheets as of December 31, 2017 and 2016 |
F-3 | |||
Consolidated Statements of Operations for the years ended December 31, 2017, 2016, and 2015 |
F-4 | |||
F-5 | ||||
F-6 | ||||
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015 |
F-7 | |||
F-8 |
F-1
Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors
Ceridian HCM Holding Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ceridian HCM Holding Inc. (a wholly owned subsidiary of Ceridian Holding LLC) and its subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income (loss), stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP |
We have served as the Companys auditor since 1958.
Minneapolis, Minnesota
March 14, 2018, except as to the third paragraph of Note 2, as to which the date is April 12, 2018
F-2
Ceridian HCM Holding Inc.
(Dollars in millions, except share data)
December 31, | ||||||||
2017 | 2016 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and equivalents |
$ | 99.6 | $ | 131.4 | ||||
Trade and other receivables, net |
79.9 | 78.1 | ||||||
Prepaid expenses |
37.9 | 31.7 | ||||||
Other current assets |
5.3 | 1.0 | ||||||
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|
|
|
|||||
Total current assets before customer trust funds |
222.7 | 242.2 | ||||||
Customer trust funds |
4,099.7 | 3,702.8 | ||||||
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|
|||||
Total current assets |
4,322.4 | 3,945.0 | ||||||
Property, plant, and equipment, net |
103.8 | 86.9 | ||||||
Goodwill |
2,087.3 | 2,058.0 | ||||||
Other intangible assets, net |
212.4 | 232.9 | ||||||
Other assets |
4.0 | 3.2 | ||||||
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|
|
|
|||||
Total assets |
$ | 6,729.9 | $ | 6,326.0 | ||||
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|
|||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt |
$ | | $ | 2.3 | ||||
Accounts payable |
48.8 | 46.4 | ||||||
Accrued interest |
15.9 | 20.6 | ||||||
Deferred revenue |
16.8 | 13.1 | ||||||
Employee compensation and benefits |
70.0 | 77.8 | ||||||
Other accrued expenses |
15.5 | 26.5 | ||||||
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|
|
|
|||||
Total current liabilities before customer trust funds obligations |
167.0 | 186.7 | ||||||
Customer trust funds obligations |
4,105.5 | 3,692.3 | ||||||
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|
|
|
|||||
Total current liabilities |
4,272.5 | 3,879.0 | ||||||
Long-term debt, less current portion |
1,119.8 | 1,139.8 | ||||||
Employee benefit plans |
152.4 | 182.1 | ||||||
Other liabilities |
56.2 | 119.2 | ||||||
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|
|
|
|||||
Total liabilities |
5,600.9 | 5,320.1 | ||||||
Commitments and contingencies (Note 16) |
||||||||
Stockholders equity: |
||||||||
Senior preferred stock, $0.01 par, 70,000,000 shares authorized, 16,802,144 shares issued and outstanding as of December 31, 2017 and 2016 |
184.8 | 164.3 | ||||||
Junior preferred stock, $0.01 par, 70,000,000 shares authorized, 58,244,308 shares issued and outstanding as of December 31, 2017 and 2016 |
0.6 | 0.6 | ||||||
Common stock, $0.01 par, 150,000,000 shares authorized, 65,285,962 shares issued and outstanding as of December 31, 2017, and 65,001,037 shares issued and outstanding as of December 31, 2016 |
0.7 | 0.7 | ||||||
Additional paid in capital |
1,565.4 | 1,546.8 | ||||||
Accumulated deficit |
(348.2 | ) | (318.5 | ) | ||||
Accumulated other comprehensive loss |
(312.1 | ) | (351.5 | ) | ||||
Receivable from stockholder |
| (75.2 | ) | |||||
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|
|||||
Total stockholders equity |
1,091.2 | 967.2 | ||||||
Noncontrolling interest |
37.8 | 38.7 | ||||||
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|
|||||
Total equity |
1,129.0 | 1,005.9 | ||||||
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|
|||||
Total liabilities and equity |
$ | 6,729.9 | $ | 6,326.0 | ||||
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|
See accompanying notes to consolidated financial statements.
F-3
Ceridian HCM Holding Inc.
Consolidated Statements of Operations
(Dollars in millions, except share and per share data)
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Revenue: |
||||||||||||
Recurring services |
$ | 678.4 | $ | 639.3 | $ | 641.6 | ||||||
Professional services and other |
72.3 | 64.9 | 52.3 | |||||||||
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|
|||||||
Total revenue |
750.7 | 704.2 | 693.9 | |||||||||
Cost of revenue: |
||||||||||||
Recurring services |
239.6 | 256.3 | 256.6 | |||||||||
Professional services and other |
135.8 | 115.8 | 91.9 | |||||||||
Product development and management |
50.4 | 49.2 | 46.0 | |||||||||
Depreciation and amortization |
31.9 | 24.0 | 18.6 | |||||||||
|
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|
|||||||
Total cost of revenue |
457.7 | 445.3 | 413.1 | |||||||||
|
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|
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|
|||||||
Gross profit |
293.0 | 258.9 | 280.8 | |||||||||
Costs and expenses: |
||||||||||||
Selling, general and administrative |
253.0 | 249.8 | 245.5 | |||||||||
Other expense, net |
7.4 | 13.2 | 27.8 | |||||||||
Interest expense, net |
87.1 | 87.4 | 87.8 | |||||||||
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|
|||||||
Total costs and expenses |
347.5 | 350.4 | 361.1 | |||||||||
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|
|||||||
Loss before income taxes |
(54.5 | ) | (91.5 | ) | (80.3 | ) | ||||||
Income tax (benefit) expense |
(44.7 | ) | 17.8 | 8.6 | ||||||||
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|
|||||||
Loss from continuing operations |
(9.8 | ) | (109.3 | ) | (88.9 | ) | ||||||
Income (loss) from discontinued operations |
(0.7 | ) | 16.5 | (15.8 | ) | |||||||
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|
|||||||
Net loss |
(10.5 | ) | (92.8 | ) | (104.7 | ) | ||||||
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|
|||||||
Net (loss) income attributable to noncontrolling interest |
(1.3 | ) | 0.1 | | ||||||||
|
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|
|||||||
Net loss attributable to Ceridian |
$ | (9.2 | ) | $ | (92.9 | ) | $ | (104.7 | ) | |||
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|
|||||||
Net loss per share attributable to Ceridian - basic and diluted (Note 20) |
$ | (0.46 | ) | $ | (1.65 | ) | $ | (1.61 | ) | |||
Weighted-average shares used to compute net loss per share attributable to Ceridian - basic and diluted (Note 20) |
65,204,960 | 64,988,338 | 64,924,845 |
See accompanying notes to consolidated financial statements.
F-4
Ceridian HCM Holding Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in millions)
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net loss |
$ | (10.5 | ) | $ | (92.8 | ) | $ | (104.7 | ) | |||
Items of other comprehensive income (loss) before income taxes: |
||||||||||||
Change in foreign currency translation adjustment |
39.7 | 24.4 | (94.2 | ) | ||||||||
Change in unrealized gain from marketable securities |
| | 0.6 | |||||||||
Change in unrealized gain from invested customer trust funds |
(17.3 | ) | (10.2 | ) | (4.9 | ) | ||||||
Change in pension liability adjustment (1) |
13.8 | 13.6 | 14.5 | |||||||||
|
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|
|||||||
Other comprehensive income (loss) before income taxes |
36.2 | 27.8 | (84.0 | ) | ||||||||
Income tax expense (benefit), net |
(3.6 | ) | 0.6 | (0.6 | ) | |||||||
|
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|
|||||||
Other comprehensive income (loss) after income taxes |
39.8 | 27.2 | (83.4 | ) | ||||||||
|
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|
|
|
|||||||
Comprehensive income (loss) |
29.3 | (65.6 | ) | (188.1 | ) | |||||||
Comprehensive loss attributable to noncontrolling interest |
(0.9 | ) | (0.5 | ) | | |||||||
|
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|
|
|
|||||||
Comprehensive income (loss) attributable to the Ceridian |
$ | 30.2 | $ | (65.1 | ) | $ | (188.1 | ) | ||||
|
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|
|
|
(1) | The amount of the pension liability adjustment recognized in the Consolidated Statements of Operations within selling, general, and administrative expense and income (loss) from discontinued operations was $10.1, $9.9 and $11.8 during the years ended December 31, 2017, 2016, and 2015, respectively. |
See accompanying notes to consolidated financial statements.
F-5
Ceridian HCM Holding Inc.
Consolidated Statements of Stockholders Equity
(Dollars In millions, except share data)
Senior Preferred
Stock |
Junior Preferred
Stock |
Common Stock |
Additional
Paid In Capital |
Accumu-
lated Deficit |
Accumu-
lated Other Compre- hensive Loss |
Receiv-
able from Stock- holder |
Total
Stock- holders Equity |
Non-control-
ling Interest |
Total
Equity |
|||||||||||||||||||||||||||||||||||||||||||
Shares | $ | Shares | $ | Shares | $ | |||||||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2014 |
| $ | | 58,244,308 | $ | 0.6 | 64,924,845 | $ | 0.7 | $ | 1,518.3 | $ | (106.8 | ) | $ | (295.8 | ) | $ | | $ | 1,117.0 | $ | | $ | 1,117.0 | |||||||||||||||||||||||||||
Net loss |
| | | | | | | (104.7 | ) | | | (104.7 | ) | | (104.7 | ) | ||||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | 13.2 | | | | 13.2 | | 13.2 | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation |
| | | | | | | | (94.2 | ) | | (94.2 | ) | | (94.2 | ) | ||||||||||||||||||||||||||||||||||||
Change in unrealized loss, net of tax of ($0.8) |
| | | | | | | | (3.5 | ) | | (3.5 | ) | | (3.5 | ) | ||||||||||||||||||||||||||||||||||||
Change in minimum pension & postretirement liability, net of tax of $0.2 |
| | | | | | | | 14.3 | | 14.3 | | 14.3 | |||||||||||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||||||||
Balance as of December 31, 2015 |
| $ | | 58,244,308 | $ | 0.6 | 64,924,845 | $ | 0.7 | $ | 1,531.5 | $ | (211.5 | ) | $ | (379.2 | ) | $ | | $ | 942.1 | $ | | $ | 942.1 | |||||||||||||||||||||||||||
Net (loss) income |
| | | | | | | (92.9 | ) | | | (92.9 | ) | 0.1 | (92.8 | ) | ||||||||||||||||||||||||||||||||||||
Issuance of Common Stock upon vesting of restricted stock units |
| | | | 76,192 | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Issuance of Senior Preferred Stock |
16,802,144 | 150.2 | | | | | | | | (75.2 | ) | 75.0 | | 75.0 | ||||||||||||||||||||||||||||||||||||||
Addition of noncontrolling interest |
| | | | | | | | | | | 39.2 | 39.2 | |||||||||||||||||||||||||||||||||||||||
Sale of the UK Business, net of tax $2.5 |
| | | | | | | | 25.9 | | 25.9 | | 25.9 | |||||||||||||||||||||||||||||||||||||||
Senior preferred dividends declared |
| 14.1 | | | | | | (14.1 | ) | | | | | | ||||||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | 15.3 | | | | 15.3 | | 15.3 | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation |
| | | | | | | | 8.0 | | 8.0 | (0.6 | ) | 7.4 | ||||||||||||||||||||||||||||||||||||||
Change in unrealized loss, net of tax of ($2.0) |
| | | | | | | | (8.2 | ) | | (8.2 | ) | | (8.2 | ) | ||||||||||||||||||||||||||||||||||||
Change in minimum pension & postretirement liability, net of tax of $0.1 |
| | | | | | | | 2.0 | | 2.0 | | 2.0 | |||||||||||||||||||||||||||||||||||||||
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Balance as of December 31, 2016 |
16,802,144 | $ | 164.3 | 58,244,308 | $ | 0.6 | 65,001,037 | $ | 0.7 | $ | 1,546.8 | $ | (318.5 | ) | $ | (351.5 | ) | $ | (75.2 | ) | $ | 967.2 | $ | 38.7 | $ | 1,005.9 | ||||||||||||||||||||||||||
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|||||||||||||||||||||||||||
Net loss |
| | | | | | | (9.2 | ) | | | (9.2 | ) | (1.3 | ) | (10.5 | ) | |||||||||||||||||||||||||||||||||||
Issuance of common stock |
| | | | 183,425 | | 3.2 | | | | 3.2 | | 3.2 | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of options |
| | | | 653,214 | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon vesting of restricted stock units |
| | | | 76,190 | | | | | | | | | |||||||||||||||||||||||||||||||||||||||
Share repurchase |
| | | | (627,904 | ) | | (1.8 | ) | | | | (1.8 | ) | | (1.8 | ) | |||||||||||||||||||||||||||||||||||
Payment for Issuance of Senior Preferred Stock |
| | | | | | | | | 75.2 | 75.2 | | 75.2 | |||||||||||||||||||||||||||||||||||||||
Senior preferred dividends declared |
| 20.5 | | | | | | (20.5 | ) | | | | | | ||||||||||||||||||||||||||||||||||||||
Share-based compensation |
| | | | | | 17.2 | | | | 17.2 | | 17.2 | |||||||||||||||||||||||||||||||||||||||
Foreign currency translation |
| | | | | | | | 39.3 | | 39.3 | 0.4 | 39.7 | |||||||||||||||||||||||||||||||||||||||
Change in unrealized loss, net of tax ($3.6) |
| | | | | | | | (13.7 | ) | | (13.7 | ) | | (13.7 | ) | ||||||||||||||||||||||||||||||||||||
Change in minimum pension & postretirement liability, net of tax of $0.0 |
| | | | | | | | 13.8 | | 13.8 | | 13.8 | |||||||||||||||||||||||||||||||||||||||
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|||||||||||||||||||||||||||
Balance as of December 31, 2017 |
16,802,144 | $ | 184.8 | 58,244,308 | $ | 0.6 | 65,285,962 | $ | 0.7 | $ | 1,565.4 | $ | (348.2 | ) | $ | (312.1 | ) | $ | | $ | 1,091.2 | $ | 37.8 | $ | 1,129.0 | |||||||||||||||||||||||||||
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See accompanying notes to consolidated financial statements .
F-6
Ceridian HCM Holding Inc.
Consolidated Statements of Cash Flows
(Dollars in millions)
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net loss |
$ | (10.5 | ) | $ | (92.8 | ) | $ | (104.7 | ) | |||
Loss (income) from discontinued operations |
0.7 | (16.5 | ) | 15.8 | ||||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Deferred income tax expense (benefit) |
(65.0 | ) | 7.0 | (7.9 | ) | |||||||
Depreciation and amortization |
57.9 | 57.3 | 56.0 | |||||||||
Asset impairment |
| 10.4 | 23.0 | |||||||||
Amortization of debt issuance costs and debt discount |
3.7 | 3.5 | 3.2 | |||||||||
Loss on debt extinguishment |
| | ||||||||||
Net periodic pension and postretirement cost |
1.5 | 3.0 | 8.9 | |||||||||
Share-based compensation |
17.2 | 15.3 | 12.8 | |||||||||
Environmental reserve |
| 5.9 | | |||||||||
Other |
(1.0 | ) | 0.2 | 1.2 | ||||||||
Changes in operating assets and liabilities excluding effects of acquisitions and divestitures: |
||||||||||||
Trade and other receivables |
(1.5 | ) | (7.2 | ) | (7.5 | ) | ||||||
Prepaid expenses and other current assets |
(6.7 | ) | | (5.5 | ) | |||||||
Accounts payable and other accrued expenses |
(4.3 | ) | (8.2 | ) | (3.2 | ) | ||||||
Deferred revenue |
3.5 | (0.6 | ) | (1.8 | ) | |||||||
Employee compensation and benefits |
(26.0 | ) | (48.5 | ) | (26.2 | ) | ||||||
Accrued interest |
(4.8 | ) | (0.2 | ) | 1.3 | |||||||
Accrued taxes |
(7.8 | ) | (0.1 | ) | 5.4 | |||||||
Other assets and liabilities |
4.0 | 4.1 | (3.1 | ) | ||||||||
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|
|||||||
Net cash used in operating activitiescontinuing operations |
(39.1 | ) | (67.4 | ) | (32.3 | ) | ||||||
Net cash (used in) provided by operating activitiesdiscontinued operations |
(0.7 | ) | (8.1 | ) | 14.0 | |||||||
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|||||||
Net cash used in operating activities |
(39.8 | ) | (75.5 | ) | (18.3 | ) | ||||||
Cash Flows from Investing Activities |
||||||||||||
Purchase of customer trust funds marketable securities |
(598.5 | ) | (699.7 | ) | (610.6 | ) | ||||||
Proceeds from sale and maturity of customer trust funds marketable securities |
610.2 | 677.6 | 557.0 | |||||||||
Net change in restricted cash and other restricted assets held to satisfy customer trust funds obligations |
(367.8 | ) | 677.8 | 405.3 | ||||||||
Expenditures for property, plant, and equipment |
(17.7 | ) | (7.7 | ) | (9.2 | ) | ||||||
Expenditures for software and technology |
(33.1 | ) | (25.5 | ) | (25.3 | ) | ||||||
Cash acquired in business combination |
| 1.2 | | |||||||||
Net proceeds from divestitures |
(0.5 | ) | 101.6 | | ||||||||
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|||||||
Net cash (used in) provided by investing activitiescontinuing operations |
(407.4 | ) | 725.3 | 317.2 | ||||||||
Net cash provided by investing activitiesdiscontinued operations |
| 37.7 | 6.7 | |||||||||
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|||||||
Net cash (used in) provided by investing activities |
(407.4 | ) | 763.0 | 323.9 | ||||||||
Cash Flows from Financing Activities |
||||||||||||
Decrease in customer trust funds obligations, net |
356.1 | (655.7 | ) | (351.7 | ) | |||||||
Proceeds from issuance of stock |
78.4 | 75.0 | | |||||||||
Repurchase of stock |
(1.8 | ) | | | ||||||||
Repayment of long-term debt obligations |
(25.9 | ) | (11.8 | ) | (7.0 | ) | ||||||
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|||||||
Net cash provided by (used in) financing activitiescontinuing operations |
406.8 | (592.5 | ) | (358.7 | ) | |||||||
Net cash used in financing activitiesdiscontinued operations |
| (38.2 | ) | (9.5 | ) | |||||||
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|||||||
Net cash provided by (used in) financing activities |
406.8 | (630.7 | ) | (368.2 | ) | |||||||
Effect of Exchange Rate Changes on Cash |
8.6 | 1.3 | (10.4 | ) | ||||||||
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|||||||
Net increase (decrease) in cash and equivalents |
(31.8 | ) | 58.1 | (73.0 | ) | |||||||
Elimination of cash from discontinued operations |
| 10.1 | 0.1 | |||||||||
Cash and equivalents at beginning of year |
131.4 | 63.2 | 136.1 | |||||||||
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|||||||
Cash and equivalents at end of year |
$ | 99.6 | $ | 131.4 | $ | 63.2 | ||||||
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|||||||
Supplemental Cash Flow Information: |
||||||||||||
Cash paid for interest |
$ | 89.7 | $ | 84.9 | $ | 83.9 | ||||||
Cash paid for income taxes |
$ | 24.6 | $ | 16.8 | $ | 15.7 | ||||||
Cash received from income tax refunds |
$ | 1.9 | $ | 0.2 | $ | 0.2 |
See accompanying notes to consolidated financial statements.
F-7
Ceridian HCM Holding Inc.
Notes to Consolidated Financial Statements
(Dollars in millions, except share and per share data)
1. Organization
Ceridian HCM Holding Inc. and subsidiaries (also referred to in this report as Ceridian, we, our, and us) offer a broad range of services and software designed to help employers more effectively manage employment processes, such as payroll, payroll-related tax filing, human resource information systems, employee self-service, time and labor management, employee assistance programs, and recruitment and applicant screening. Our technology-based services are typically provided through long-term customer relationships that result in a high level of recurring revenue. Our operations are primarily located in the United States and Canada.
Ceridian owns a controlling financial interest in a joint venture, WorkAngel Organisation Limited (LifeWorks) (the Joint Venture Company), which offers an employee engagement platform that delivers employee assistance programs, social recognition, exclusive perks and discounts, a private social network, employee and corporate wellness, and employee engagement analytics in the United States, Canada, and the United Kingdom. Prior to the formation of the joint venture, employee assistance programs were provided by Ceridian. On January 20, 2017, WorkAngel Organisation Limited changed its name to LifeWorks Corporation Ltd. Please refer to Note 4, Business Combinations and Noncontrolling Interest, for further discussion regarding the formation of this joint venture on March 1, 2016.
Ceridian HCM Holding Inc. is primarily owned by Ceridian LLC (the Parent) and Ceridian Holding II LLC (Ceridian Holding II). The Parent is 100% owned by Foundation Holding LLC, which in turn is 100% owned by Ceridian Holding LLC (Ceridian Holding).
The owners of Ceridian Holding and Ceridian Holding II include (i) affiliates and co-investors of Thomas H. Lee Partners, L.P. (THL Partners) and Cannae Holdings, LLC, formerly known as Fidelity National Financial Ventures, LLC (Cannae) (THL Partners and Cannae are together referred to as the Sponsors), who collectively own approximately 96% of the outstanding interests of both Ceridian Holding and Ceridian Holding II, and (ii) other individuals, who collectively own approximately 4% of the outstanding interests of each holding company. The Sponsors initially acquired their indirect ownership interest in Ceridian Holding on November 9, 2007, when the Sponsors completed the acquisition of all of the outstanding equity of the Ceridian entities (the 2007 Merger). The Sponsors acquired their ownership interest in Ceridian Holding II on March 30, 2016, when the Sponsors and other individuals purchased equity in Ceridian Holding II, which in turn purchased equity in Ceridian HCM Holding Inc. This equity financing transaction with Ceridian Holding II raised $150.2, of which $75.0 was contributed by Ceridian Holding II to Ceridian HCM Holding Inc. on March 30, 2016. The remaining $75.2 was committed to be funded to Ceridian HCM Holding Inc. within the following three years, and was recorded within equity as a receivable from stockholder. During the second quarter of 2017, the board of directors of Ceridian Holding II approved the funding of the remaining $75.2, which was transferred to Ceridian HCM Holding Inc. on June 28, 2017.
Company History
During the quarter ended September 30, 2015, we completed two separate transactions that resulted in the sale of our benefits administration and post-employment health insurance compliance businesses (the Divested Benefits Continuation Businesses). In the third quarter of 2013, we entered into an agreement for the sale of certain of our customer contracts for consumer-directed benefit services, including flexible spending accounts, health reimbursement accounts, health savings accounts, commuter (parking or transit) premium-only plans, and tuition reimbursement plans
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(collectively, the Consumer-Directed Benefit Services). These three transactions represented a strategic shift in our overall business and have had a significant impact on the financial statement results. Accordingly, the Divested Benefits Continuation Businesses, as well as the Consumer-Directed Benefit Services, have been presented as discontinued operations in the consolidated financial statements and accompanying notes for all periods presented. Please refer to Note 3, Discontinued Operations, for further discussion of this transaction.
On June 15, 2016, we completed the stock sale of our United Kingdom and Ireland businesses, along with the portion of our Mauritius operations that supported these businesses (the UK Business). We received cash consideration of $93.2 in connection with this transaction. Concurrent with this transaction, we entered into a strategic partnership with the acquirer, SD Worx, a leading European provider of payroll and HCM, to deliver cloud HCM services across Europe. The UK Business has been presented as discontinued operations in the consolidated financial statements and accompanying notes for all periods presented. Please refer to Note 3, Discontinued Operations, for further discussion of this transaction.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The accompanying consolidated financial statements include the operations and accounts of Ceridian and all subsidiaries, as well as any variable interest entity (VIE) in which we have controlling financial interest. All intercompany balances and transactions have been eliminated from our consolidated financial statements.
We consolidate the grantor trusts that hold funds provided by our payroll and tax filing customers pending remittance to employees of those customers or tax authorities in the United States and Canada. Under consolidation accounting, the enterprise with a controlling financial interest consolidates a VIE. A controlling financial interest in an entity is determined through analysis that identifies the primary beneficiary which has (1) the power to direct the activities of a VIE that most significantly impact the entitys economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. In addition, ongoing reassessments must be performed to confirm whether an enterprise is the primary beneficiary of a VIE. The grantor trusts are VIEs, and we are deemed to have a controlling financial interest as the primary beneficiary. Please refer to Note 6, Customer Trust Funds, for further information on our accounting for these funds.
Stock Split
On April 10, 2018, we effected a 1-for-2 reverse stock split of our common stock. All of the common share and per share information referenced throughout the consolidated financial statements and accompanying notes thereto have been retroactively adjusted to reflect this reverse stock split.
Revision of Prior Period Financial Statements
In connection with the preparation of our consolidated financial statements for the year ended December 31, 2017, we identified a prior period error pertaining to the misclassification of a deferred tax liability attributable to previously amortized tax basis goodwill as a deferred tax liability eligible to offset deferred tax assets when determining the requirement for a valuation allowance. This resulted in a $12.7 understatement of non-cash income tax expense in fiscal years prior to December 31, 2015, impacting accumulated deficit amounts as a component of stockholders equity as of December 31, 2015 and 2016. There was no impact to the consolidated statements of operations for any period presented. In accordance with accounting guidance found in Accounting Standards Codification
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(ASC) Topic 250-10 (Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality, and No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), we assessed the materiality of the error from quantitative and qualitative perspectives and concluded that the error was not material to any of our previously issued financial statements. Since the revision was not material to any prior period, no amendments to previously issued financial statements are required. Consequently, we have adjusted for this error by revising our historical financial statements presented herein. We have recognized the cumulative effect of the error on periods prior to those that are presented herein by increasing accumulated deficit and other liabilities by $12.7 on our consolidated balance sheets as of December 31, 2016, and increasing accumulated deficit by $12.7 on our consolidated statements of stockholders equity as of December 31, 2014, 2015 and 2016.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and our reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that could significantly affect our results of operations or financial condition involve the assignment of fair values to goodwill and other intangible assets and testing for impairment; the testing of impairment of long-lived assets; the determination of our liability for pensions and postretirement benefits; the determination of fair value of stock options granted; and the resolution of tax matters and legal contingencies. Further discussion on these estimates can be found in related disclosures elsewhere in our notes to the consolidated financial statements.
Cash and Equivalents
As of December 31, 2017 and 2016, cash and equivalents were comprised of cash held in bank accounts and investments with an original maturity of three months or less.
Concentrations
Cash deposits of client and corporate funds are maintained primarily in large credit-worthy financial institutions in the countries in which we operate. These deposits may exceed the amount of any deposit insurance that may be available through government agencies. All deliverable securities are held in custody with large credit-worthy financial institutions which bear the risk of custodial loss. Non-deliverable securities, primarily money market securities, are restricted to large, credit-worthy broker-dealers and financial institutions.
Trade and Other Receivables, Net
Trade and other receivables balances are presented on the consolidated balance sheets net of the allowance for doubtful accounts of $2.7 and $2.3 and the reserve for sales adjustment of $4.8 and $4.2 as of December 31, 2017 and 2016, respectively. We experience credit losses on accounts receivable and, accordingly, must make estimates related to the ultimate collection of the receivables. Specifically, management analyzes accounts receivable, historical bad debt experience, customer concentrations, customer creditworthiness, and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. We estimate the reserve for sales adjustment based on historical sales adjustment experience. We write off accounts receivable when we determine that the accounts are uncollectible, generally upon customer bankruptcy or the customers nonresponse to continued collection efforts.
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Property, Plant, and Equipment
Our property, plant, and equipment assets are stated at cost less depreciation. Depreciation is calculated on a straight-line basis over the shorter of the remaining lease term or estimated useful life of the related assets, which are generally as follows:
Buildings |
40 years | |
Building improvements |
5-14 years | |
Machinery and equipment |
3-8 years | |
Computer equipment |
3-6 years |
Repairs and maintenance costs are expensed as incurred. We capitalized interest of $0.6 and $0.4 in property, plant, and equipment during the years ended December 31, 2017 and 2016, respectively. Property, plant, and equipment assets are assessed for impairment as described under the heading Impairment of Long-Lived Assets below.
Assignment of Fair Values Upon Acquisition of Goodwill and Other Intangible Assets
In the event of a business combination where we are the acquiring party, we are required to assign fair values to all identifiable assets and liabilities acquired, including intangible assets, such as customer lists, identifiable intangible trademarks, technology and non-compete agreement. We are also required to determine the useful life for definite-lived identifiable intangible assets acquired. These determinations require significant judgments, estimates, and assumptions, and, when material amounts are involved, we generally utilize the assistance of third-party valuation consultants. The remainder of the purchase price of the acquired business not assigned to identifiable assets or liabilities is then recorded as goodwill.
In conjunction with the 2007 Merger, affiliates of the Sponsors completed the acquisition of all outstanding equity of the Ceridian entities. Although Parent continued as the same legal entity after the 2007 Merger, the application of push down accounting representing the termination of the old accounting entity and the creation of a new one resulted in the adjustment of all net assets to their respective fair values as of the 2007 Merger. Net assets of the Parent were adjusted to their respective fair values, which included goodwill, trademarks, customer lists, and other intangible assets. At the time of the legal separation of Ceridian and Comdata on October 1, 2013 (the Separation Transaction), there was no change in ownership control by the Sponsors and other stockholders of Parent and its ownership structure and accordingly, Ceridians separation from Parent was not accounted for as a business combination. As such, the goodwill and intangibles from the 2007 Merger remain after the Separation Transaction.
Goodwill and Intangible Assets
Goodwill, which represents the excess purchase price over the fair value of net assets of businesses acquired, is assigned to reporting units based on the benefits derived from the acquisition. Goodwill and indefinite-lived intangibles are not amortized against earnings but instead are subject to impairment review on at least an annual basis. We perform our annual assessment of goodwill and indefinite-lived intangible balances as of October 1 of each year. There was no indication of impairment for either reporting unit at October 1, 2017.
As of January 1, 2017, we elected early adoption of Accounting Standards Update No. 2017-04, Intangibles-Goodwill and Other, which simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. We assess goodwill impairment risk by first performing a qualitative review of entity-specific, industry, market, and general economic factors for each reporting unit. If significant potential goodwill impairment risk exists for a specific reporting unit, we apply a quantitative test. The quantitative test compares the reporting units estimated fair value with its carrying amount. In estimating fair value of our reporting units, we use a combination of the income approach and the market-based approach. A number of significant assumptions and estimates are involved in
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determining the current fair value of the reporting units, including operating cash flows, markets and market share, sales volumes and prices, and working capital changes. We consider historical experience and all available information at the time the fair values of our reporting units are estimated. However, fair values that could be realized in an actual transaction may differ from those used to evaluate the goodwill for impairment. The evaluation of impairment involves comparing the current fair value of the reporting unit to the carrying amount. To the extent that the carrying amount of goodwill of the reporting unit exceeds the fair value of the reporting unit, an impairment loss is recognized.
Intangible assets represent amounts assigned to specifically identifiable intangible assets at the time of an acquisition. Definite-lived assets are amortized on a straight-line basis generally over the following periods:
Customer lists and relationships |
5-15 years | |
Technology |
2-7 years |
Indefinite-lived intangible assets, which consist of trademarks, are tested for impairment on an annual basis, or more frequently if certain events or circumstances occur that could indicate impairment. When evaluating whether the indefinite-lived intangible assets are impaired, the carrying amount is compared to its estimated fair value. The estimate of fair value is based on a relief from royalty method which calculates the cost savings associated with owning rather than licensing the trademark. An estimated royalty rate is applied to forecasted revenue and the resulting cash flows are discounted. Definite-lived assets are assessed for impairment as described under the heading Impairment of Long-Lived Assets below.
Internally Developed Software Costs
We capitalize costs associated with software developed or obtained for internal use when both the preliminary project stage is completed and our management has authorized further funding for the project, which it deems probable of completion. Capitalized software costs include only: (1) external direct costs of materials and services consumed in developing or obtaining the software; (2) payroll and payroll-related costs for employees who are directly associated with and who devote time to the project; and (3) interest costs incurred while developing the software. Capitalization of these costs ceases no later than the point at which the project is substantially complete and ready for its intended purpose. We do not include general and administrative costs and overhead costs in capitalizable costs. We charge research and development costs and other software maintenance costs related to software development to earnings as incurred.
We had capitalized software costs, net of accumulated amortization, of $57.8 and $48.7 as of December 31, 2017 and 2016, respectively, included in property, plant, and equipment in the accompanying consolidated balance sheets. We amortize software costs on a straight-line basis over the expected life of the software, generally a range of two to seven years. Amortization of software costs totaled $24.5, $21.7, and $19.9 for the years ended December 31, 2017, 2016, and 2015, respectively.
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant, and equipment, capitalized software, and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. Please refer to Note 13, Supplementary Data to Statements of Operations for further information on the impairment of long-lived assets for the years ended December 31, 2017, 2016, and 2015 .
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Revenue Recognition
We recognize revenue from the sale of our services, net of applicable sales taxes, when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the sellers price to the buyer is fixed or determinable; and (4) collectability is reasonably assured. We rely on a signed contract with the customer as the persuasive evidence of a sales arrangement.
We enter into revenue arrangements that may consist of multiple deliverables based on the needs of our customers. For example, our services address a broad range of employment process needs, such as payroll, payroll-related tax filing, human resource information, employee self-service capabilities, time and labor management, employee assistance, work-life, recognition, and incentive programs, and recruitment and applicant screening. A customer arrangement may contain any of these elements with different elements delivered across multiple reporting periods.
We have a single unit of accounting for each deliverable in a contract based on the use of estimated selling price (ESP) in those cases where vendor-specific objective evidence of selling price (VSOE) or third party evidence (TPE) cannot be established. Our determination of ESP involves the consideration of several factors based on the specific facts and circumstances of each contract. Specifically, we consider the cost to produce or to provide the deliverable, the anticipated margin on that deliverable, the selling price and profit margin for similar services, the value of any enhancements that have been built into the deliverable and the characteristics of the varying markets in which the deliverable will be sold.
When we are unable to establish a selling price using VSOE or TPE, we use ESP in the allocation of arrangement consideration. The objective of ESP is to determine the price at which we would transact a sale if the service were sold on a stand-alone basis.
We regularly review VSOE, TPE, and ESP and maintain internal controls over the establishment and updates of these estimates. There were no material impacts during the period nor do we currently expect a material impact in the near term from changes in VSOE, TPE, or ESP.
Deferred revenue primarily consists of customer billings in advance of revenues being recognized from our contracts. Deferred revenue also includes certain deferred professional services fees that are accounted for as a single unit of accounting with subscription fees and are recognized as revenues over the same period as the related customer contract. Deferred revenue that is anticipated to be recognized during the succeeding twelve-month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent.
Recurring Services Revenues
Revenues are presented within the consolidated statements of operations in two categories: recurring services, and professional services and other. Recurring services revenues consist of monthly fees that we charge for our Cloud and Bureau solutions, as well as for LifeWorks. For our Dayforce solutions, we primarily charge monthly recurring fees on a PEPM basis, generally one-month in advance of service, based on the number and type of solutions provided to the customer and the number of employees at the customer. We charge Powerpay customers monthly recurring fees on a per-employee, per-process basis. For our Bureau solutions, we typically charge monthly recurring fees on a per-process basis. The typical recurring services customer contract has an initial term of three years. The initial recurring services contracts have general acceptance criteria that consist of the completion of user acceptance testing. Any credits related to service level commitments are recognized as incurred as service level failures and are not anticipated at contract signing. Should a customer cancel the initial contract, an early termination fee may be applicable and revenue is recognized upon collection. We also generate recurring services revenue from investment income on
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our Cloud and Bureau customer funds held in trust before such funds are remitted to taxing authorities, customer employees or other third parties. We refer to this investment income as float revenue. Please refer to Note 18, Financial Data by Segment and Geographic Area, for a full description of our sources of revenue.
Professional Services and Other Revenues
Professional services and other revenues consist primarily of charges relating to the work performed to assist customers with the implementation of their solutions. Also included in professional services are any related training services, post-implementation professional services, and purchased time clocks. We also generate professional services and other revenues from custom professional services and consulting services that we provide and for certain third-party services that we arrange for our Bureau customers. Professional services revenue is primarily recognized as hours are incurred.
Costs and Expenses
Cost of Revenue
Cost of revenue consists of costs to deliver our revenue-producing services. Most of these costs are recognized as incurred, that is, as we become obligated to pay for them. Some costs of revenue are recognized in the period that a service is sold and delivered. Other costs of revenue are recognized over the period of use or in proportion to the related revenue.
The costs recognized as incurred consist primarily of customer service staff costs, customer technical support costs, implementation personnel costs, costs of hosting applications, consulting and purchased services, delivery services, and royalties. The costs of revenue recognized over the period of use are depreciation and amortization, rentals of facilities and equipment, and direct and incremental costs associated with deferred implementation service revenue.
Cost of recurring services revenues primarily consists of costs to provide maintenance and technical support to our customers, and the costs of hosting our applications. The cost of recurring services revenues includes compensation and other employee-related expenses for data center staff, payments to outside service providers, data center, and networking expenses.
Cost of professional services and other revenues primarily consists of costs to provide implementation consulting services and training to our customers, as well as the cost of time clocks. Costs to provide implementation consulting services include compensation and other employee-related expenses for professional services staff, costs of subcontractors, and travel.
Product development and management expense includes costs related to software development activities that do not qualify for capitalization, such as development, quality assurance, testing of new technologies, and enhancements to our existing solutions that do not result in additional functionality. Product development and management expense also includes costs related to the management of our service offerings. Research and development expense, which is included within product development and management expense, was $25.8, $18.1, and $11.2 for the years ended December 31, 2017, 2016, and 2015, respectively.
Depreciation and amortization related to cost of revenue primarily consists of amortization of capitalized software.
Selling, General, and Administrative Expense
Selling expense includes costs related to maintaining a direct marketing infrastructure and sales force and other direct marketing efforts, such as advertising, telemarketing, direct mail, and trade shows. Advertising costs are expensed as incurred. Advertising expense was $6.2, $6.4, and $5.7 for the years ended December 31, 2017, 2016, and 2015, respectively.
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General and administrative expense includes costs that are not directly related to delivery of services, selling efforts, or product development, primarily consisting of corporate-level costs, such as administration, finance, legal and human resources. Also included in this category are the provision for doubtful accounts receivable, net periodic pension costs, depreciation, and amortization of other intangible assets not reflected in cost of revenue.
Other Expense, Net
Other expense, net includes the results of transactions that are not appropriately classified in another category. These items are primarily foreign currency translation gains and losses, environmental reserve charges, and charges related to the impairment of asset values.
Income Taxes
Income taxes have been provided for using the liability method. The liability method requires an asset and liability based approach in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the financial reporting basis and the tax basis of assets and liabilities and the expected benefits of utilizing net operating loss carryforwards. The impact on deferred taxes of changes in tax rates and laws, if any, applied to the years during which temporary differences are expected to be settled, are reflected in the consolidated financial statements in the period of enactment.
We classify interest and penalties related to income taxes as a component of the income tax provision.
Fair Value of Financial Instruments
The carrying amounts of cash and equivalents, trade and other receivables, net, customer trust funds, customer trust funds obligations, customer advance payments, and accounts payable approximate fair value because of the short-term nature of these items.
Share-Based Compensation
Our employees participate in share-based compensation plans. Under the fair value recognition provisions of share-based compensation accounting, we measure share-based compensation cost at the grant date based on the fair value of the award and recognize the compensation expense over the requisite service period, which is the period during which an employee is required to provide services in exchange for the award.
We use the Black-Scholes standard option pricing model (Black-Scholes model) to determine the fair value of stock options with term-based vesting conditions. The determination of the fair value of the awards on the date of grant using the Black-Scholes model is affected by the value of our common stock as well as other inputs and assumptions described below. The value of our common stock is determined by the Board of Directors with assistance from a third-party valuation expert.
We use an integrated Monte Carlo simulation model and a trinomial lattice model to determine fair value of performance-based options. The Monte Carlo model utilizes multiple input variables that determine the probability of satisfying the market conditions stipulated in the award. This probability is an input into the trinomial lattice model used to fair value the options as well as other inputs and assumptions described below.
If factors change and we employ different assumptions for estimating share-based compensation expense in future periods or if we adopt a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating results.
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To determine fair value of both term- and performance-based stock options, the risk-free interest rate used was based on the implied yield currently available on U.S. Treasury zero coupon issues with remaining term equal to the contractual term of the performance-based options and the expected term of the term-based option. The estimated volatility of our common stock is based on volatility data for selected comparable public companies over the expected term of our stock options. Because we do not anticipate paying any cash dividends in the foreseeable future, we use an expected dividend yield of zero. The amount of share-based compensation expense we recognize during a period is based on the portion of the awards that are ultimately expected to vest.
We estimate option forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We analyze historical data to estimate pre-vesting forfeitures and record share-based compensation expense for those awards expected to vest. We recognize term-based stock compensation expense using the straight-line method.
Foreign Currency Translation
We have international operations whereby the local currencies serve as functional currencies. We translate foreign currency denominated assets and liabilities at the end-of-period exchange rates and foreign currency denominated statements of operations at the weighted-average exchange rates for each period. We report the effect of changes in the U.S. dollar carrying values of assets and liabilities of our international operations that are due to changes in exchange rates between the U.S. dollar and their functional currency as foreign currency translation within accumulated other comprehensive income (loss) in the accompanying consolidated statements of stockholders equity and comprehensive income (loss). Gains and losses from transactions and translation of assets and liabilities denominated in currencies other than the functional currency of the international operation are recorded in the consolidated statements of operations within other expense, net.
Recently Issued and Adopted Accounting Pronouncements
In May 2014 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which replaced all existing revenue guidance created by ASC Topic 606, including prescriptive industry-specific guidance. This standards core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Entities will need to apply more judgment and make more estimates than under the previous guidance. In July 2015 the FASB deferred the effective date for all entities by one year, making the guidance for non-public companies effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted to the original effective date of December 15, 2016 (including interim reporting periods within that reporting period). The standard permits the use of either the retrospective or cumulative effect transition method. Management has decided to adopt the new standard effective first quarter 2019. Management anticipates using the retrospective method for adoption.
In preparation for this planned adoption, we have been evaluating the impact of the new standard to our financial statements and accompanying disclosures in the notes to our consolidated financial statements. Our assessment of the impact includes an evaluation of the five-step process set forth in the new standard along with the enhancement of disclosures that will be required. To date, we have developed our initial plan for implementing the standard, which includes identifying customer contracts within the scope of the new standard, identifying performance obligations within those customer contracts, and evaluating the impact of incremental variable consideration paid to obtain those customer contracts. We have also undertaken a comprehensive review of all contracts that fall under the scope of the new standard; and, as of the date of this report, we are nearly complete with our review of in-scope contracts.
Based on analysis performed to date, we expect that adoption of the new standard will result in changes to the classification and timing of our revenue recognition. Specifically, we expect an increase
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in revenue classified as professional services and other revenue and a reduction in revenue classified as recurring services revenue, compared to current U.S. GAAP. Further, we expect that the new standard will result in changes to the timing of our revenue recognition compared to current U.S. GAAP. In compliance with the new standard, a contractual asset will be reflected on the consolidated balance sheets and will be amortized over the customers period of benefit, which is generally three years. We also expect changes to the timing of certain selling, general, and administrative expenses, as the new standard will also require capitalizing and amortizing certain selling expenses, such as commissions and bonuses paid to the sales force. These sales expenses will be amortized over the customers period of benefit, generally three years.
In periods of revenue growth, the changes above are expected to result in higher overall earnings before income taxes and net income when compared to current U.S. GAAP. We have not yet determined the impact of the disclosure requirements.
In February 2016 the FASB issued ASU No. 2016-02, Leases, which is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This standard requires balance sheet recognition for both finance leases and operating leases. This guidance is effective for non-public companies for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The guidance is required to be adopted using a modified retrospective approach. An entity will, in effect, continue to account for leases that commence before the effective date in accordance with previous U.S. GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous U.S. GAAP. We are currently evaluating the impact of the adoption of this standard.
In March 2016 the FASB issued ASU No. 2016-09, Compensation-Stock Compensation, which simplifies several aspects of accounting for share-based payment transactions. This standard requires all excess tax benefits or deficiencies to be recognized within the income statement with the tax benefits classified as an operating activity on the statement of cash flows. This standard also requires cash paid by an employer for tax withholding purposes to be classified as a financing activity on the statement of cash flows. This guidance is effective for non-public companies for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. The guidance relating to the income tax consequences is required to be adopted using a modified retrospective approach. The guidance relating to the classification on the statement of cash flows is required to be adopted using a retrospective approach. We elected early adoption of this standard as of January 1, 2017, which had an immaterial impact on our financial results and presentation.
In January 2017 the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other, which simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. This standard requires that an entity perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value. The update also eliminates the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment. This guidance is effective for public business entities that are not an SEC filer for annual or interim goodwill impairment tests in fiscal years beginning December 15, 2020. We elected early adoption of this standard as of our October 1, 2017, our annual testing date, which did not have an impact on our financial results.
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3. Discontinued Operations
Sale of UK Business
On June 15, 2016, we completed the stock sale of our United Kingdom and Ireland businesses, along with the portion of our Mauritius operations that supported these businesses (the UK Business). We received $93.2 in connection with this transaction. Concurrent with this transaction, we entered into a strategic partnership with the acquirer, SD Worx, a leading European provider of payroll and HCM services, to deliver cloud human capital management (HCM) services across Europe.
This transaction represented a strategic shift in our overall business and had a significant impact on our financial statement results. Therefore, the UK Business has been presented as discontinued operations within the HCM segment in the consolidated financial statements and accompanying notes for all periods presented. The sale of the UK Business, which made up the International reporting unit, was considered a sale of a business, and as such, the entire goodwill balance assigned to the International reporting unit of $23.8 was included in the carrying amount used in determining the gain on sale of the UK Business. During the year ended December 31, 2017, there was a settlement payment made to SD Worx.
The amounts in the table below reflect the operating results of the UK Business reported as discontinued operations, as well as supplemental disclosures of the discontinued operations:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net revenues |
$ | | $ | 37.0 | $ | 79.2 | ||||||
Income from operations before income taxes |
| 0.5 | 2.3 | |||||||||
(Loss) gain on sale of business |
(1.0 | ) | 5.9 | | ||||||||
Income tax benefit (expense) |
| 0.2 | (1.4 | ) | ||||||||
(Loss) income from discontinued operations, net of income taxes |
$ | (1.0 | ) | $ | 6.6 | $ | 0.9 | |||||
Depreciation and amortization |
$ | | $ | 1.3 | $ | 3.3 | ||||||
Capital expenditures |
$ | | $ | 0.7 | $ | 2.4 |
Sale of Divested Benefits Continuation Businesses
In the third quarter of 2013, we entered into an agreement for the sale of certain of our customer contracts for consumer-directed benefit services, including flexible spending accounts, health reimbursement accounts, health savings accounts, commuter (parking or transit) premium-only plans, and tuition reimbursement plans (collectively, the Consumer-Directed Benefit Services). During the third quarter of 2015, we completed two separate transactions that resulted in the sale of our benefits administration and post-employment health insurance portability compliance businesses (the Divested Benefits Continuation Businesses).
F-18
These three transactions represented a strategic shift in our overall business and have had a significant impact on the financial statement results. Accordingly, the Divested Benefits Continuation Businesses, as well as the Consumer-Directed Benefit Services, have been presented as discontinued operations within the HCM segment in the consolidated financial statements and accompanying notes for all periods presented. The amounts in the table below reflect the operating results and gain on sale of the Divested Benefits Continuation Businesses reported as discontinued operations, as well as supplemental disclosures of the discontinued operations:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net revenues |
$ | | $ | 4.8 | $ | 40.0 | ||||||
(Loss) income from operations before income taxes |
| (0.8 | ) | 12.2 | ||||||||
Gain (loss) on sale of businesses |
0.5 | 21.0 | (28.9 | ) | ||||||||
Income tax expense |
(0.2 | ) | (10.3 | ) | | |||||||
Income (loss) from discontinued operations, net of income taxes |
$ | 0.3 | $ | 9.9 | $ | (16.7 | ) | |||||
Depreciation and amortization |
$ | | $ | | $ | 0.4 | ||||||
Capital expenditures |
$ | | $ | | $ | 0.5 |
The purchase price of the Consumer-Directed Benefit Services was subject to adjustment, dependent upon which customers transitioned to the acquirer. The proceeds of $15.0 for the Consumer-Directed Benefit Services were received on the sale date in the third quarter of 2013. Since a portion of the customer contracts were assigned to the acquirer on the sale date, that portion of the purchase price was recognized upon the sale date. For the remaining contracts that required transition, the purchase price was deferred and recognized as each contract transferred. The final calculation of the purchase price was determined during the second quarter of 2015, which resulted in the recognition of an additional gain of $1.5.
For both sales of the Divested Benefits Continuation Businesses, consideration received was contingent upon the number and dollar value of successful customer transitions and is recorded when earned. Proceeds of $21.0, and $0.4 were received and earned based on the customers transitioned during the years ended December 31, 2016, and 2015, respectively. The proceeds received during the year ended December 31, 2017, were for a final purchase price true-up related to one of the transactions.
Both sales of the Divested Benefits Continuation Businesses were considered a sale of a business, and as such, a portion of goodwill was assigned to each disposed business based on its relative fair value. This resulted in a combined goodwill assignment of $22.5, which is included in the loss on sale within discontinued operations. Additionally, a write-off of the long-lived assets associated with the disposal group of $8.1 is included in the loss on sale within discontinued operations. These long-lived assets consisted primarily of customer lists and relationships intangible assets, equipment, and software.
F-19
The amounts in the table below reflect the assets and liabilities reported as discontinued operations for the Divested Benefits Continuation Businesses. These amounts are included within other current assets and other accrued expenses, respectively, in our consolidated balance sheets:
December 31, | ||||||||
2017 | 2016 | |||||||
Assets: |
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Other assets |
$ | | $ | 0.1 | ||||
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Assets of discontinued operations |
$ | | $ | 0.1 | ||||
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Liabilities: |
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Accounts payable |
$ | | $ | 0.4 | ||||
Other liabilities |
0.3 | 0.5 | ||||||
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Liabilities of discontinued operations |
$ | 0.3 | $ | 0.9 | ||||
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4. Business Combinations and Noncontrolling Interest
On March 1, 2016, we entered into a strategic joint venture with WorkAngel Technology Limited (WorkAngel) in which we contributed our existing LifeWorks business to a newly formed English limited company (WorkAngel Organisation Limited or the Joint Venture Company). The stockholders of WorkAngel contributed all of the issued and outstanding shares of WorkAngel to the Joint Venture Company. In exchange for consideration contributed, we received 10,063,749 Class A shares and WorkAngel stockholders received 10,063,749 Class B shares. On January 20, 2017, WorkAngel Organisation Limited changed its name to LifeWorks Corporation Ltd.
We have a controlling interest in the Joint Venture Company, including certain preferential distribution rights; therefore, the Joint Venture Company is consolidated within our financial statements, and the other joint venture ownership interest component is presented as a noncontrolling interest. As a result of holding a controlling interest in the Joint Venture Company, this transaction has been accounted for as a business combination, whereby the Joint Venture Company acquired all of the issued and outstanding shares of WorkAngel in exchange for 10,063,749 Class B shares in the Joint Venture Company, valued at $39.2 as of March 1, 2016. Concurrently, we recorded the initial noncontrolling interest of $39.2 on our consolidated balance sheet. At the acquisition date, the net assets of WorkAngel were approximately $2.1, which were comprised of $1.2 of cash and $0.9 of net working capital. As a result, we have recorded $37.1 of goodwill related to the acquisition of WorkAngel. The goodwill recorded principally relates to the assembled workforce of WorkAngel.
Stockholder distributions will occur upon a liquidation event, as defined by the joint venture agreement. Holders of the Class A shares will have rights to 75 percent of the distributions up to $250.0, 25 percent of the distributions between $250.0 and $500.0, and 50 percent thereafter. Holders of Class B shares have rights to the remaining distributions. Income attributable to noncontrolling interest has been calculated by applying the Class B distribution percentages to the joint venture earnings as reported on a stand-alone basis. During the year ended December 31, 2017, the loss attributable to the noncontrolling interest was $1.3. During the year ended December 31, 2016, the income attributable to the noncontrolling interest was $0.1.
5. Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). U.S. GAAP outlines a valuation framework and creates a fair value hierarchy intended to increase the consistency and comparability of fair value measurements and the related disclosures. Certain assets and liabilities must be measured at fair value, and disclosures are required for items measured at fair value.
F-20
We measure our financial instruments using inputs from the following three levels of the fair value hierarchy. The three levels are as follows:
| Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access at the measurement date. |
| Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (that is, interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs). |
| Level 3 inputs include unobservable inputs that reflect our assumptions about the assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including internal data. |
Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis
As of December 31, 2017, our financial assets and liabilities measured at fair value on a recurring basis were categorized as follows:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets |
||||||||||||||||
Available for sale customer trust funds assets |
$ | 1,782.1 | $ | | $ | 1,782.1 | (a) | $ | | |||||||
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Total assets measured at fair value |
$ | 1,782.1 | $ | | $ | 1,782.1 | $ | | ||||||||
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As of December 31, 2016, our financial assets and liabilities measured at fair value on a recurring basis were categorized as follows:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Assets |
||||||||||||||||
Available for sale customer trust funds assets |
$ | 1,755.4 | $ | | $ | 1,755.4 | (a) | $ | | |||||||
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Total assets measured at fair value |
$ | 1,755.4 | $ | | $ | 1,755.4 | $ | | ||||||||
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(a) | Fair value is based on inputs that are observable for the asset or liability, other than quoted prices. |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
During the year ended December 31, 2017, we did not re-measure any financial assets or liabilities at fair value on a nonrecurring basis. During the year ended December 31, 2016, we re-measured our trade name intangible asset to fair value on a nonrecurring basis. Please refer to Note 13, Supplementary Data to Statement of Operations, for further discussion. Fair value was based on the relief from royalty method, which is categorized in Level 3 of the fair value hierarchy.
6. Customer Trust Funds
Overview
In connection with our U.S. and Canadian payroll and tax filing services, we collect funds for payment of payroll and taxes; temporarily hold such funds in trust until payment is due; remit the funds to the clients employees and appropriate taxing authority; file federal, state and local tax returns; and handle related regulatory correspondence and amendments. The assets held in trust are intended for the specific purpose of satisfying client fund obligations and therefore are not freely available for our general business use.
F-21
Our customer trust funds are held and invested with the primary objectives being to ensure adequate liquidity to meet cash flow requirements and to protect the principal balance. Accordingly, we maintain on average approximately 45% of customer trust funds in liquidity portfolios with maturities ranging from one to 120 days, consisting of high-quality bank deposits, money market mutual funds, commercial paper, or collateralized short-term investments; and we maintain on average approximately 55% of customer trust funds in fixed income portfolios with maturities ranging from 120 days to 10 years, consisting of U.S. Treasury and agency securities, Canada government and provincial securities, as well as highly rated asset-backed, mortgage-backed, municipal, corporate and bank securities. To maintain sufficient liquidity in the trust to meet payment obligations, we also have financing arrangements and may pledge fixed income securities for short-term financing.
Financial Statement Presentation
Investment income from invested customer trust funds constitutes a component of our compensation for providing services under agreements with our customers. Investment income from invested customer trust funds included in revenue amounted to $46.5, $39.1, and $36.9 for the years ended December 31, 2017, 2016, and 2015, respectively. Investment income includes interest income, realized gains and losses from sales of customer trust funds investments, and unrealized credit losses determined to be other-than-temporary.
The amortized cost of customer trust funds as of December 31, 2017 and 2016, is comprised of the original cost of assets acquired. The amortized cost and fair values of investments of customer trust funds available for sale at December 31, 2017 and 2016, were as follows:
Investments of Customer Trust Funds at December 31, 2017
Amortized
Cost |
Gross
Unrealized |
Fair
Value |
||||||||||||||
Gain | Loss | |||||||||||||||
Money market securities, investments carried at cost and other cash equivalents |
$ | 2,309.3 | $ | | $ | | $ | 2,309.3 | ||||||||
Available for sale investments: |
||||||||||||||||
U.S. government and agency securities |
584.6 | 0.1 | (7.1 | ) | 577.6 | |||||||||||
Canadian and provincial government securities |
418.2 | 6.6 | (1.5 | ) | 423.3 | |||||||||||
Corporate debt securities |
$ | 472.3 | $ | 0.8 | $ | (2.5 | ) | $ | 470.6 | |||||||
Asset-backed securities |
280.8 | | (1.8 | ) | 279.0 | |||||||||||
Mortgage-backed securities |
15.0 | | (0.2 | ) | 14.8 | |||||||||||
Other securities |
17.0 | | (0.2 | ) | 16.8 | |||||||||||
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|
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Total available for sale investments |
1,787.9 | 7.5 | (13.3 | ) | 1,782.1 | |||||||||||
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Invested customer trust funds |
4,097.2 | $ | 7.5 | $ | (13.3 | ) | 4,091.4 | |||||||||
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Trust receivables |
8.3 | 8.3 | ||||||||||||||
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Total customer trust funds |
$ | 4,105.5 | $ | 4,099.7 | ||||||||||||
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F-22
Investments of Customer Trust Funds at December 31, 2016
Amortized
Cost |
Gross Unrealized |
Fair
Value |
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Gain | Loss | |||||||||||||||
Money market securities, investments carried at cost and other cash equivalents |
$ | 1,941.9 | $ | | $ | | $ | 1,941.9 | ||||||||
Available for sale investments: |
||||||||||||||||
U.S. government and agency securities |
607.7 | 0.9 | (4.7 | ) | 603.9 | |||||||||||
Canadian and provincial government securities |
380.0 | 12.9 | (0.1 | ) | 392.8 | |||||||||||
Corporate debt securities |
511.7 | 3.1 | (1.2 | ) | 513.6 | |||||||||||
Asset-backed securities |
192.2 | 0.4 | (0.3 | ) | 192.3 | |||||||||||
Mortgage-backed securities |
28.7 | | (0.2 | ) | 28.5 | |||||||||||
Other securities |
24.6 | | (0.3 | ) | 24.3 | |||||||||||
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|
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Total available for sale investments |
1,744.9 | 17.3 | (6.8 | ) | 1,755.4 | |||||||||||
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Invested customer trust funds |
3,686.8 | $ | 17.3 | $ | (6.8 | ) | 3,697.3 | |||||||||
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Trust receivables |
5.5 | 5.5 | ||||||||||||||
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Total customer trust funds |
$ | 3,692.3 | $ | 3,702.8 | ||||||||||||
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The following represents the gross unrealized losses and the related fair value of the investments of customer trust funds available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2017.
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized
Losses |
Fair
Value |
Unrealized
Losses |
Fair
Value |
Unrealized
Losses |
Fair
Value |
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U.S. government and agency securities |
$ | (3.6 | ) | $ | 436.7 | $ | (3.5 | ) | $ | 113.5 | $ | (7.1 | ) | $ | 550.2 | |||||||||
Canadian and provincial government securities |
(1.5 | ) | 133.4 | | | (1.5 | ) | 133.4 | ||||||||||||||||
Corporate debt securities |
(2.0 | ) | 264.2 | (0.5 | ) | 41.4 | (2.5 | ) | 305.6 | |||||||||||||||
Asset-backed securities |
(1.7 | ) | 239.6 | (0.1 | ) | 17.0 | (1.8 | ) | 256.6 | |||||||||||||||
Mortgage-backed securities |
(0.1 | ) | 4.1 | (0.2 | ) | 10.4 | (0.3 | ) | 14.5 | |||||||||||||||
Other securities |
(a) | 2.4 | (0.1 | ) | 12.6 | (0.1 | ) | 15.0 | ||||||||||||||||
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Total available for sale investments |
$ | (8.9 | ) | $ | 1,080.4 | $ | (4.4 | ) | $ | 194.9 | $ | (13.3 | ) | $ | 1,275.3 | |||||||||
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(a) | These investments have been in an unrealized loss position; however, the amount of unrealized loss is less than $0.05. |
Management does not believe that any individual unrealized loss as of December 31, 2017, represents an other-than-temporary impairment. The unrealized losses are primarily attributable to changes in interest rates and not to credit deterioration. We currently do not intend to sell or expect to be required to sell the securities before the time required to recover the amortized cost.
F-23
The amortized cost and fair value of investment securities available for sale at December 31, 2017, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or to prepay obligations with or without call or prepayment penalties.
December 31, 2017 | ||||||||
Cost | Fair Value | |||||||
Due in one year or less |
$ | 2,761.6 | $ | 2,762.0 | ||||
Due in one to three years |
518.3 | 648.8 | ||||||
Due in three to five years |
528.8 | 473.9 | ||||||
Due after five years |
288.5 | 206.7 | ||||||
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Invested customer trust funds |
$ | 4,097.2 | $ | 4,091.4 | ||||
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7. Trade and Other Receivables, Net
The balance in trade and other receivables, net, is comprised of the following:
December 31, | ||||||||
2017 | 2016 | |||||||
Trade receivables from customers |
$ | 81.9 | $ | 78.1 | ||||
Interest receivable from invested customer trust funds |
1.7 | 0.5 | ||||||
Other |
3.8 | 6.0 | ||||||
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Total gross receivables |
87.4 | 84.6 | ||||||
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Less: reserve for sales adjustments |
(4.8 | ) | (4.2 | ) | ||||
Less: allowance for doubtful accounts |
(2.7 | ) | (2.3 | ) | ||||
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Trade and other receivables, net |
$ | 79.9 | $ | 78.1 | ||||
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The activity related to the allowance for doubtful accounts is as follows for each of the periods:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Balance at beginning of year |
$ | 2.3 | $ | 1.4 | $ | 1.8 | ||||||
Provision for doubtful accounts |
1.1 | 1.3 | 0.7 | |||||||||
Charge-offs, net of recoveries |
(0.7 | ) | (0.4 | ) | (1.1 | ) | ||||||
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Balance at end of year |
$ | 2.7 | $ | 2.3 | $ | 1.4 | ||||||
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8. Property, Plant, and Equipment
Property, plant, and equipment consist of the following:
December 31, | ||||||||
2017 | 2016 | |||||||
Land |
$ | 7.5 | $ | 7.5 | ||||
Software |
207.2 | 171.7 | ||||||
Machinery and equipment |
122.1 | 103.9 | ||||||
Buildings and improvements |
36.6 | 36.2 | ||||||
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Total property, plant and equipment |
373.4 | 319.3 | ||||||
Accumulated depreciation |
(269.6 | ) | (232.4 | ) | ||||
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Property, plant and equipment, net |
$ | 103.8 | $ | 86.9 | ||||
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Depreciation expense of property, plant, and equipment totaled $36.3, $35.8, and $34.1 for the years ended December 31, 2017, 2016, and 2015, respectively.
F-24
9. Goodwill and Intangible Assets
Goodwill
Goodwill and changes therein were as follows for the years ended December 31, 2017 and 2016:
HCM | LifeWorks | Total | ||||||||||
Balance at December 31, 2015 |
$ | 2,008.5 | $ | | $ | 2,008.5 | ||||||
Formation of Joint Venture Company (See Note 4) |
(87.7 | ) | 87.7 | | ||||||||
Acquisition of WorkAngel (See Note 4) |
| 37.1 | 37.1 | |||||||||
Translation |
12.3 | 0.1 | 12.4 | |||||||||
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Balance at December 31, 2016 |
1,933.1 | 124.9 | 2,058.0 | |||||||||
Translation |
27.9 | 1.4 | 29.3 | |||||||||
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Balance at December 31, 2017 |
$ | 1,961.0 | $ | 126.3 | $ | 2,087.3 | ||||||
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Tax-deductible goodwill at December 31, 2017 |
$ | 12.2 | $ | | $ | 12.2 |
We perform an impairment assessment of our goodwill balances as of October 1 of each year. Goodwill impairment testing is performed at the level below the business segments (referred to as a reporting unit). Our reporting units are HCM and LifeWorks.
As of January 1, 2017, we elected early adoption of ASU No. 2017-04, Intangibles-Goodwill and Other, which simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. We performed the annual impairment quantitative test for both our HCM and LifeWorks reporting units as of October 1, 2017, and concluded that the fair values exceeded its respective carrying amounts. Based on these quantitative assessments, we determined that no goodwill impairment existed for either our HCM or LifeWorks reporting units as of October 1, 2017; however, our quantitative test for LifeWorks resulted in the fair value exceeding its carrying amount, but the excess was less than 10 percent. Because a majority of the LifeWorks goodwill was recently recorded in connection with the creation of the Joint Venture Company and acquisition of WorkAngel, representing fair value as of March 1, 2016, there is not a significant excess of fair value over carrying amount as of October 1, 2017. We have a risk of future impairment to the extent that individual reporting unit performance does not meet our projections. Additionally, if our current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of our control change unfavorably, the estimated fair value of our goodwill could be adversely affected, leading to a potential impairment in the future. No events occurred during the period ended December 31, 2017, that indicated it was more likely than not that our goodwill was impaired.
Intangible Assets
Other intangible assets consist of the following as of December 31, 2017:
Gross Carrying
Amount |
Accumulated
Amortization |
Net |
Estimated Life
Range (Years) |
|||||||||||||
Customer lists and relationships |
$ | 248.4 | $ | (209.3 | ) | $ | 39.1 | 5-15 | ||||||||
Tradename |
174.0 | (2.1 | ) | 171.9 | | |||||||||||
Technology |
155.6 | (154.2 | ) | 1.4 | 2-7 | |||||||||||
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Total other intangible assets |
$ | 578.0 | $ | (365.6 | ) | $ | 212.4 | |||||||||
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We perform an impairment assessment of our trade name intangible assets as of October 1 of each year. We performed the relief from royalty method impairment test as of October 1, 2017, and concluded that the fair value of our trade name intangible assets exceeded its respective carrying amount.
F-25
Other intangible assets consist of the following as of December 31, 2016:
Gross Carrying
Amount |
Accumulated
Amortization |
Net |
Estimated Life
Range (Years) |
|||||||||||||
Customer lists and relationships |
$ | 244.5 | $ | (185.7 | ) | $ | 58.8 | 5-15 | ||||||||
Tradename |
173.6 | (1.9 | ) | 171.7 | | |||||||||||
Technology |
152.5 | (150.1 | ) | 2.4 | 2-7 | |||||||||||
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|
|||||||||||
Total other intangible assets |
$ | 570.6 | $ | (337.7 | ) | $ | 232.9 | |||||||||
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|
The gross carrying amount of the trade name intangibles asset as of December 31, 2016, reflects an impairment of $10.2 recorded during the year ended December 31, 2016. The sale of the UK Business was considered a triggering event to test the trade name intangible asset for impairment. Please refer to Note 13, Supplementary Data to Statement of Operations, for further discussion.
Amortization expense related to definite-lived intangible assets was $21.6, $21.5, and $21.9 for the years ended December 31, 2017, 2016, and 2015, respectively. We estimate the future amortization of other intangible assets held at December 31, 2017, will be:
Years Ending December 31, |
Amount | |||
2018 |
$ | 21.8 | ||
2019 |
18.2 | |||
2020 |
0.1 | |||
2021 |
0.1 | |||
2022 |
|
10. Debt
Overview
Set forth below is a description of certain debt facilities for which Ceridian was obligated during the periods covered by these consolidated financial statements. Generally, Ceridians debt obligations can be described as follows: (i) through the period which ended with the Separation Transaction on October 1, 2013, Ceridian (together with Comdata) was jointly and severally liable for the Parents various debt facilities; (ii) in connection with the Separation Transaction, each of Ceridian and Comdata assumed a portion of such Parent debt facilities; and (iii) thereafter, in connection with the merger of Comdata on November 14, 2014, Ceridian became the sole obligor of its own debt and was released from any liability relating to the Parent indebtedness and from any liability relating to the Comdata indebtedness.
| The Parent entered into a Credit Agreement, originally dated November 9, 2007, as amended on multiple occasions, pursuant to which a revolving credit facility (Parent Revolving Credit Facility) and term debt (Parent Term Debt) (together referred to as the Parent Senior Secured Credit Facility) were made available. Such Parent Senior Secured Credit Facility was secured by all assets of the Parent and was senior to certain other debt of the Parent. During the third quarter of 2012, Parent (i) amended the terms of the original 2007 credit agreement to reduce the principal amount of the Parent Senior Secured Credit Facility and (ii) issued its Senior Secured Notes due 2019 (the Parent Senior Secured Notes) (together, the Amend and Extend Transaction). The Parent Senior Secured Credit Facility and the Parent Senior Secured Notes were both secured by the same collateral and shared the same priority among the Parents various debt obligations. |
|
As part of the Separation Transaction on October 1, 2013, (i) Comdata assumed responsibility for the Parent Senior Secured Notes and (ii) Ceridian and Comdata each assumed repayment |
F-26
responsibility for a portion of the Parent Senior Secured Credit Facility. On August 6, 2014, the Parent Senior Secured Credit Facility was then refinanced and provided for three facilities: |
1. | $673.0 Term Loan B-1 Facility: this tranche named Comdata and Parent as co-borrowers, with Ceridian and other entities as co-guarantors; |
2. | $702.0 Term Loan B-2 Facility (the Ceridian Term Loan B-2 Debt): this tranche named Ceridian and Parent as co-borrowers, with Comdata and other entities as co-guarantors and provided that, upon satisfaction of certain credit conditions, Ceridian could become the sole borrower and the Parent, Comdata and the other Comdata affiliates would be released from their obligations; and |
3. | $130.0 Revolving Credit Facility: this facility provided Parent and Ceridian a revolving credit facility and provided that, upon satisfaction of certain credit conditions, Ceridian could become sole borrower. |
The credit conditions allowing for transition to a stand-alone Ceridian credit facility were measured, in part, upon EBITDA, with certain adjustments as set forth in the credit documents (Credit Facility EBITDA). Ceridian was required to meet (i) a secured debt to Credit Facility EBITDA ratio less than or equal to 4.0 to 1.0 and (ii) a total leverage to Credit Facility EBITDA ratio less than or equal to 6.25 to 1.0.
| The Parent issued its Senior Notes due 2015 (the Parent Senior Notes) pursuant to an Indenture dated November 9, 2007 as amended on multiple occasions. During the first quarter of 2013, Parent issued its Senior Exchangeable Notes due 2021 (the Parent Senior Exchangeable Notes) which were senior unsecured obligations of the Parent, exchangeable at any time at the option of Parent for notes to be issued by Ceridian, although the Parent and Comdata remained obligated as guarantors. The proceeds from the issuance of the Parent Senior Exchangeable Notes were used to prepay a portion of the Parent Senior Notes. As part of the Separation Transaction on October 1, 2013, (i) Ceridian issued its Senior Notes due 2021 (the Ceridian Senior Notes) in exchange for the Parent Senior Exchangeable Notes, with the same credit support as was applicable to the Parent Senior Exchangeable Notes (including guarantees from the Parent and Comdata) and (ii) the portion of the Parent Senior Notes that then remained outstanding were assumed by Comdata. The Ceridian Senior Notes provided that, upon satisfaction of certain credit conditions, Ceridian could become the sole obligor and the Parent, Comdata and the other Comdata affiliates would be released from their obligations. These credit conditions were essentially the same as were applicable to the release described above relating to the Ceridian Term Loan B-2 Debt. |
In connection with the merger of Comdata, the Parents payment systems business, on November 14, 2014, Ceridian met the credit conditions noted above, with the result that (i) Parent and Comdata were released of all guarantees and obligations relating to Ceridians debt and (ii) Parent and Ceridian were released of all guarantees and obligations related to the Parents indebtedness. The debt for which Ceridian became solely obligated on November 14, 2014, and for which it remains obligated through December 31, 2017, consists of the following:
1. | Ceridian entered into a new Credit Agreement dated as of November 14, 2014 pursuant to the terms of which Ceridian became sole borrower of (i) a term loan debt facility (the Ceridian Term Debt) to replace the debt previously known as the Ceridian Term Loan B-2 Debt and (ii) a revolving credit facility (the Ceridian Revolving Credit Facility) (the Ceridian Term Debt and the Ceridian Revolving Credit Facility are together referred to as the Ceridian Senior Secured Credit Facility), which Ceridian Senior Secured Credit Facility is secured by all assets of Ceridian and is senior to Ceridians other debt. |
2. | Ceridian became sole obligor of the Ceridian Senior Notes. |
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Our debt obligations consist of the following:
December 31, | ||||||||
2017 | 2016 | |||||||
Ceridian Term Debt, interest rate of 5.1% and 4.5% as of December 31, 2017 and 2016, respectively |
$ | 657.3 | $ | 683.2 | ||||
Ceridian Senior Notes, interest rate of 11.0% as of December 31, 2017 and 2016 |
475.0 | 475.0 | ||||||
Ceridian Revolving Credit Facility ($130.0 available capacity less amounts reserved for letters of credit, which were $8.4 and $7.7 as of December 31, 2017, and 2016, respectively) |
| | ||||||
|
|
|
|
|||||
Total debt |
1,132.3 | 1,158.2 | ||||||
Less unamortized discount on Ceridian Term Debt |
0.9 | 1.1 | ||||||
Less unamortized debt issuance costs on Ceridian Senior Notes and Ceridian Term Debt |
11.6 | 15.0 | ||||||
Less current portion of long-term debt |
| 2.3 | ||||||
|
|
|
|
|||||
Long-term debt, less current portion |
$ | 1,119.8 | $ | 1,139.8 | ||||
|
|
|
|
Ceridian Senior Secured Credit Facility
Principal Amounts and Maturity Dates
On November 14, 2014, the Ceridian Senior Secured Credit Facility was put into place, consisting of the Ceridian Term Debt in the principal amount of $702.0 and the Ceridian Revolving Credit Facility providing up to $130.0. As of December 31, 2017, the Ceridian Term Debt has a maturity date of September 2020, and the Ceridian Revolving Credit Facility has a maturity date of September 2019. The Ceridian Term Debt requires quarterly principal payments of 0.25% of the original principal amount. Ceridian made mandatory pre-payments towards the principal balance of the Ceridian Term Debt with the proceeds received from the sale of the UK Business during the three months ended June 30, 2016, and September 30, 2017, of $10.0 and $25.9, respectively. These pre-payments were applied against the scheduled quarterly principal payments; and therefore, there are no further scheduled principal payments with respect to the Ceridian Term Debt.
Interest
The effective interest rate on the Ceridian Term Debt at December 31, 2017 and 2016, was 5.1% and 4.5%, respectively. The Ceridian Term Debt bears an interest rate of LIBOR plus 3.5%, subject to a 1.0% LIBOR floor.
Financing Costs and Issuance Discounts
The Ceridian Term Debt had associated unamortized deferred financing costs of $5.4 and $7.3 at December 31, 2017 and 2016, respectively, and are being amortized at the effective interest rate of 4.8%.
Collateral and Guarantees
The Ceridian Senior Secured Credit Facility names Ceridian as the sole borrower and is unconditionally guaranteed by Ceridians domestic, wholly-owned financially material restricted subsidiaries, subject to certain customary exceptions. The Ceridian Senior Secured Credit Facility is secured by a perfected first priority security interest, subject to certain exceptions (including customer
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trust funds), in substantially all of Ceridians and the subsidiary guarantors tangible and intangible assets. The security interest includes a pledge of the capital stock of certain of Ceridians direct and indirect material restricted subsidiaries.
Representations, Warranties and Covenants
The documents governing the Ceridian Senior Secured Credit Facility contain certain customary representations and warranties. In addition, those documents contain customary covenants restricting Ceridians ability and certain of its subsidiaries ability to, among other things: incur additional indebtedness, issue disqualified stock and preferred stock; create liens; declare dividends; redeem capital stock; make investments; engage in a materially different line of business; engage in certain mergers, consolidations, acquisitions, asset sales or other fundamental changes; engage in certain transactions with affiliates; enter into certain restrictive agreements; make prepayments on any subordinated indebtedness; modify junior financing documentation; and make changes to our fiscal year.
The Ceridian Senior Secured Credit Facility documents contain a requirement that Ceridian maintain a ratio of adjusted first lien debt to Credit Facility EBITDA below specified levels on a quarterly basis; however, such requirement is applicable only if more than 35% of the Ceridian Revolving Credit Facility is drawn. As of December 31, 2017, no portion of the Ceridian Revolving Credit Facility was drawn.
Events of Default
Events of default under the Senior Secured Credit Facility documents include, but are not limited to: failure to pay interest, principal and fees or other amounts when due; material breach of any representation or warranty; covenant defaults; cross defaults to other material indebtedness; events of bankruptcy, invalidity of security interests; a change of control, material judgments for payment of money; involuntary acceleration of any debt; and other customary events of default. There were no events of default as of December 31, 2017.
Ceridian Senior Notes
General Description
On October 1, 2013, Ceridian issued the Ceridian Senior Notes due 2021 in the principal amount of $475.0, in exchange for the Parent Senior Exchangeable Notes.
As described above, in connection with the merger of Comdata on November 14, 2014, Ceridian met the credit conditions to allow the Ceridian Senior Notes to transition to stand-alone obligations of Ceridian. The Ceridian Senior Notes are unsecured.
The Ceridian Senior Notes may be redeemed, in whole or in part, at redemption prices decreasing from 108.25% of the principal amount thereof to par on March 15, 2019 (and thereafter), plus accrued and unpaid interest.
Interest
The interest rate on the Ceridian Senior Notes was fixed at 11.0% as of December 31, 2017 and 2016.
Financing Costs and Issuance Discounts
As a result of the issuance of the Parent Senior Exchangeable Notes in the first half of 2013 which partially redeemed the Parent Senior Notes, Ceridian recorded a one-time charge to interest expense which represented the call premium, related unamortized discount and deferred financing fees of the
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partially redeemed Parent Senior Notes. The Parent Senior Exchangeable Notes had unamortized deferred financing costs of $6.2 and $7.7 at December 31, 2017 and 2016, respectively. Deferred financing costs are being amortized at the effective interest rate of 11.45% and will be amortized over the term of the Ceridian Senior Notes since the transaction was deemed to be an exchange of debt.
Other Information Relating to Indebtedness
Future Payments and Maturities of Debt
The future principal payments and maturities of our indebtedness are as follows:
Years Ending December 31, |
Amount | |||
2018 |
$ | | ||
2019 |
| |||
2020 |
657.3 | |||
2021 |
475.0 | |||
2022 |
| |||
Thereafter |
| |||
|
|
|||
$ | 1,132.3 | |||
|
|
Ceridian may be required to make additional payments on the Ceridian Term Debt from various sources, including proceeds of certain indebtedness which may be incurred from time to time, certain asset sales and a certain percentage of cash flow. No mandatory redemption of the Ceridian Senior Notes is required prior to maturity, except in the event of a change in control. There is an excess cash flow calculation associated with the Ceridian Term Debt, and based on this calculation, we are not required to make a prepayment on the Ceridian Term Debt in the first quarter of 2018.
Fair Value of Debt
Our debt does not trade in active markets. Based on the borrowing rates currently available to us for bank loans with similar terms and average maturities and the limited trades of our debt, the fair value of our indebtedness was estimated to be $1,154.1 and $1,166.9 as of December 31, 2017 and 2016, respectively.
Priority of Debt
In the event of liquidation, the Ceridian Senior Secured Credit Facility has priority over the Ceridian Senior Notes with respect to the proceeds of collateral.
Other Debt Financing
Ceridian Canada had available at December 31, 2017 and 2016, a committed bank credit facility that provided up to CDN $7.0 and $7.0, respectively, for issuance of letters of credit, and it is a discretionary line at the option of the bank. The amounts of letters of credit outstanding under this facility were CDN $7.0 (USD $5.6) and CDN $7.0 (USD $5.2) at December 31, 2017 and 2016, respectively.
11. Employee Benefit Plans
Ceridian maintains numerous benefit plans for current and former employees. As of December 31, 2017, our current active benefit plans include defined contributions plans for substantially all employees. All other defined benefit plans have been frozen.
Defined Contribution Plans
Ceridian maintains defined contribution plans that provide retirement benefits to substantially all of our employees. Contributions are based upon the contractual obligations of each respective plan. We recognized expense of $8.1, $7.4, and $7.6 for the years ended December 31, 2017, 2016, and 2015, respectively, with regard to employer contributions to these plans.
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Defined Benefit Plans
Ceridian maintains defined benefit pension plans covering certain of our current and former U.S. employees (the U.S. defined benefit plan and nonqualified defined benefit plan, collectively referred to as our defined benefit plans), as well as other postretirement benefit plans for certain U.S. retired employees that include heath care and life insurance benefits.
Pension Benefits
The largest defined benefit pension plan (the U.S. defined benefit plan) is a defined benefit plan for certain current and former U.S. employees that closed to new participants on January 2, 1995. In 2007, the U.S. defined benefit plan was amended (1) to exclude from further participation any participant or former participant who was not employed by the Parent or another participating employer on January 1, 2008, (2) to discontinue participant contributions, and (3) to freeze the accrual of additional benefits as of December 31, 2007. The measurement date for pension benefit plans is December 31.
Assets of the U.S. defined benefit plan are held in an irrevocable trust and do not include any Ceridian securities. Benefits under this plan are generally calculated on final or career average earnings and years of participation in the plan. Most participating employees were required to permit salary reduction contributions to the plan on their behalf by the employer as a condition of active participation. Retirees and other former employees are inactive participants in this plan and constitute approximately 98% of the plan participants. This plan is funded in accordance with funding requirements under the Employee Retirement Income Security Act of 1974, based on determinations of a third-party consulting actuary. Investment of the U.S. defined benefit plan assets in Ceridian securities is prohibited by the investment policy. We made a contribution amounting to $21.1 in 2017 to the U.S. defined benefit plan. We expect to make contributions to the U.S. benefit plan amounting to $18.5 during 2018. As a result of the Comdata merger on November 14, 2014, Comdata and its subsidiaries are no longer included in the group of companies that are obligated under the U.S. defined benefit plan.
Ceridian also sponsors a nonqualified supplemental defined benefit plan (the nonqualified defined benefit plan), which is unfunded and provides benefits to selected U.S. employees in addition to the U.S. defined benefit plan. We made contributions to the nonqualified defined benefit plan amounting to $1.9 in 2017 and expect to make contributions of $1.8 during 2018.
We account for our defined benefit plans using actuarial models . These models use an attribution approach that generally spreads the effect of individual events over the estimated life expectancy of the employees in such plans. These events include plan amendments and changes in actuarial assumptions such as the expected long-term rate of return on plan assets, discount rate related to the benefit obligation, rate of active participants compensation increases and mortality rates.
One of the principal components of the net periodic pension calculation is the expected long-term rate of return on plan assets. The required use of expected long-term rate of return on plan assets may result in recognized pension income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns that contribute to the settlement of the liability. Differences between actual and expected returns are recognized in the net periodic pension calculation over three years. We use long-term historical actual return information, the mix of investments that comprise plan assets, and future estimates of long-term investment returns by reference to external sources to develop our expected return on plan assets.
The discount rate assumption is used to determine the benefit obligation and the interest portion of the net periodic pension cost (credit) for the following year. We utilize a full yield curve approach for our
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discount rate assumption by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. As of December 31, 2017, a 25 basis point decrease in the discount rate would result in a $0.2 decrease to expense for all pension plans.
At December 31, 2016, we updated our mortality assumptions utilizing an improvement scale issued by the Society of Actuaries in October 2016, which resulted in a $12.0 decrease in the projected benefit obligation. At December 31, 2017, we updated our mortality assumptions utilizing an improvement scale issued by the Society of Actuaries in October 2017, which resulted in a $6.0 reduction in the projected benefit obligation.
The funded status of defined benefit plans represents the difference between the projected benefit obligation and the plan assets at fair value. The projected benefit obligation of defined benefit plans exceeded the fair value of plan assets by $154.4 and $189.5 at December 31, 2017 and 2016, respectively. We are required to record the unfunded status as a liability in our consolidated balance sheets and recognize the change in the funded status in comprehensive income, net of deferred income taxes.
The projected future payments to participants from defined benefit plans are included in the table below.
Years Ending December 31, |
Amount | |||
2018 |
$ | 46.8 | ||
2019 |
46.3 | |||
2020 |
45.4 | |||
2021 |
44.4 | |||
2022 |
43.1 | |||
Next five years |
$ | 193.5 |
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The accompanying tables reflect the combined funded status and net periodic pension cost and combined supporting assumptions for the defined benefit elements of our defined benefit plans.
Year Ended
December 31, |
||||||||
2017 | 2016 | |||||||
Funded Status of Defined Benefit Retirement Plans at Measurement Date |
||||||||
Change in Projected Benefit Obligation During the Year: |
||||||||
Projected benefit obligation at beginning of year |
$ | 605.9 | $ | 636.0 | ||||
Service cost |
| | ||||||
Interest cost |
17.2 | 18.2 | ||||||
Actuarial loss |
20.3 | 4.3 | ||||||
Benefits paid and plan expenses |
(50.4 | ) | (52.6 | ) | ||||
|
|
|
|
|||||
Projected benefit obligation at end of year |
$ | 593.0 | $ | 605.9 | ||||
|
|
|
|
|||||
Change in Fair Value of Plan Assets During the Year: |
||||||||
Plan assets at fair value at beginning of year |
416.4 | 410.1 | ||||||
Actual return on plan assets |
49.6 | 20.5 | ||||||
Employer contributions |
23.0 | 38.4 | ||||||
Benefits paid and plan expenses |
(50.4 | ) | (52.6 | ) | ||||
|
|
|
|
|||||
Plan assets at fair value at end of year |
438.6 | 416.4 | ||||||
|
|
|
|
|||||
Funded status of plans |
$ | (154.4 | ) | $ | (189.5 | ) | ||
|
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|
December 31, | ||||||||
2017 | 2016 | |||||||
Amounts recognized in Consolidated Balance Sheets |
||||||||
Current liability |
$ | 20.3 | $ | 27.1 | ||||
Noncurrent liability |
134.1 | 162.4 | ||||||
Amounts recognized in Accumulated Other Comprehensive Loss |
||||||||
Accumulated other comprehensive loss, net of tax of $91.5 and $91.5, respectively |
$ | 151.4 | $ | 167.2 |
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The other comprehensive (income) loss related to pension benefit plans is as follows:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net actuarial (gain) loss |
$ | (3.0 | ) | $ | 9.5 | $ | 2.2 | |||||
Amortization of net actuarial loss |
(12.8 | ) | (12.5 | ) | (13.3 | ) | ||||||
Tax expense |
| 0.1 | | |||||||||
|
|
|
|
|
|
|||||||
Other comprehensive income, net of tax |
$ | (15.8 | ) | $ | (2.9 | ) | $ | (11.1 | ) | |||
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|
|
|
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Assumption Used in Calculations |
||||||||||||
Discount rate used to determine net benefit cost |
3.63 | % | 3.76 | % | 3.50 | % | ||||||
Expected return on plan assets |
6.30 | % | 6.30 | % | 6.50 | % | ||||||
Discount rate used to determine benefit obligations |
3.25 | % | 3.63 | % | 3.76 | % |
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net Periodic Pension Cost |
||||||||||||
Interest cost |
$ | 17.2 | $ | 18.2 | $ | 23.3 | ||||||
Expected return on plan assets |
(26.3 | ) | (25.7 | ) | (26.6 | ) | ||||||
Actuarial loss amortization |
12.8 | 12.5 | 13.3 | |||||||||
|
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|
|
|
|||||||
Net periodic pension cost |
$ | 3.7 | $ | 5.0 | $ | 10.0 | ||||||
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The accumulated benefit obligation of defined benefit plans was $593.0 and $605.9 as of December 31, 2017 and 2016, respectively.
The amount in accumulated other comprehensive loss that is expected to be recognized as a component of net periodic pension cost during 2018 is a net actuarial loss of $14.2.
Our overall investment strategy for the U.S. defined benefit plan is to achieve a mix of approximately 75% of investments for long term growth, 23% for liability hedging purposes and 2% for near-term benefit payments. Target asset allocations are based upon actuarial and capital market studies performed by experienced outside consultants. The target allocations for the growth assets are 38% fixed income, 27% domestic equities, 25% international equities and 10% hedge funds. Specifically, the target allocation is managed through investments in fixed income securities, equity funds, collective investment funds, partnerships and other investment types. The underlying domestic equity securities include exposure to large/mid-cap companies and small-cap companies. Fixed income securities include corporate debt, mortgage-backed securities, U.S. Treasury and U.S. agency debt, emerging market debt and high yield debt securities. The alternative investment strategy is allocated to investments in hedge funds. The liability hedging portfolio fair value is intended to move in a direction that partially offsets the increase or decrease in the liabilities resulting from changes in interest rates. To achieve this objective, the portfolio will invest in U.S. Treasury strips and various interest rate derivatives contracts. We hire outside managers to manage all assets of the U.S. defined benefit plan.
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In determining the fair values of the defined benefit plans assets, we have elected to evaluate the fair value of certain investments using net asset value per share. These investments do not have any significant unfunded commitments, conditions or restrictions on redemption, or any other significant restriction on their sale. The fair values of the defined benefit plans assets at December 31, 2017, by asset category are as follows:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Investments, at fair value: |
||||||||||||||||
Short-term investments |
$ | 36.8 | $ | 36.8 | $ | | $ | | ||||||||
Derivatives (a) |
14.8 | | 14.8 | |||||||||||||
Government securities |
88.1 | | 88.1 | | ||||||||||||
Corporate debt securities |
18.3 | | 18.3 | | ||||||||||||
Collective investment funds: |
||||||||||||||||
Domestic equity (b) |
144.4 | | 144.4 | | ||||||||||||
Foreign equity (b) |
57.5 | | 57.5 | | ||||||||||||
Foreign bond (c) |
41.8 | | 41.8 | | ||||||||||||
Partnerships (d) |
35.3 | | 35.3 | | ||||||||||||
Hedge fund of funds (e) |
1.6 | | 1.6 | | ||||||||||||
|
|
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|
|
|
|
|
|||||||||
Total investments, at fair value |
$ | 438.6 | $ | 36.8 | $ | 401.8 | $ | | ||||||||
|
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|
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|
|
The fair values of our defined benefit plans assets at December 31, 2016, by asset category are as follows:
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Investments, at fair value: |
||||||||||||||||
Short-term investments |
$ | 34.0 | $ | 34.0 | $ | | $ | | ||||||||
Derivatives (a) |
19.0 | 19.0 | ||||||||||||||
Government securities |
88.9 | | 88.9 | | ||||||||||||
Corporate debt securities |
25.5 | | 25.5 | | ||||||||||||
Collective investment funds: |
||||||||||||||||
Domestic equity (b) |
66.7 | | 66.7 | | ||||||||||||
Foreign equity (b) |
86.0 | | 86.0 | | ||||||||||||
Foreign bond (c) |
33.3 | | 33.3 | | ||||||||||||
Partnerships (d) |
32.7 | | 32.7 | | ||||||||||||
Hedge fund of funds (e) |
30.3 | | 30.3 | | ||||||||||||
|
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|
|||||||||
Total investments, at fair value |
$ | 416.4 | $ | 34.0 | $ | 382.4 | $ | | ||||||||
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(a) | Funds in this category invest in interest rate swaps to reduce exposure to long-term interest rate risk and to achieve overall investment portfolio objectives. |
(b) | Funds in this category invest in a diversified portfolio of domestic and/or foreign stocks to achieve a long-term rate of return. |
(c) | Funds in this category invest in various types of domestic and/or foreign debt securities to achieve a long-term rate of return while preserving capital. |
(d) | Funds within this category invest in a bond fund partnership which holds various types of domestic debt securities to achieve a long-term rate of return while preserving capital. |
(e) | Funds within this category invest in various underlying hedge funds and are designed to provide superior risk adjusted returns as well as portfolio diversification relative to traditional asset classes. |
Postretirement Benefits
Ceridian provides health care and life insurance benefits for eligible retired employees, including individuals who retired from operations we subsequently sold or discontinued. Ceridian sponsors
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several health care plans in the United States for both pre- and post-age 65 retirees. The contributions to these plans differ for various groups of retirees and future retirees. Most retirees outside of the United States are covered by governmental health care programs, and our cost is not significant. The measurement date for postretirement benefit plans is December 31.
The discount rate assumption is used to determine the benefit obligation and the interest portion of the net periodic postretirement cost (credit) for the following year. Historically, we employed a process that analyzed three independently prepared yield curves, taking into consideration the timing of the estimated postretirement payments in arriving at a discount rate. During 2015, we changed our method for determining the postretirement plan accounting discount rate assumption. We utilize a full yield curve approach for our discount rate assumption by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. As of December 31, 2017, a 25 basis point decrease in the discount rate would result in an immaterial impact on expense for the postretirement plan.
The accompanying tables present the amounts and changes in the aggregate benefit obligation and the components of net periodic postretirement benefit cost for U.S. plans. We fund these costs as they become due.
Year Ended
December 31, |
||||||||
2017 | 2016 | |||||||
Funded Status of Postretirement
|
||||||||
Change in Benefit Obligation: |
||||||||
At beginning of year |
$ | 21.0 | $ | 23.2 | ||||
Interest cost |
0.5 | 0.6 | ||||||
Participant contributions |
1.1 | 1.2 | ||||||
Actuarial gain |
(0.7 | ) | (1.4 | ) | ||||
Benefits paid |
(2.3 | ) | (2.6 | ) | ||||
|
|
|
|
|||||
At end of year |
$ | 19.6 | $ | 21.0 | ||||
|
|
|
|
|||||
Change in Plan Assets: |
||||||||
At beginning of year |
$ | | $ | | ||||
Company contributions |
1.2 | 1.5 | ||||||
Participant contributions |
1.1 | 1.1 | ||||||
Benefits paid |
(2.3 | ) | (2.6 | ) | ||||
|
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|
|||||
At end of year |
| | ||||||
|
|
|
|
|||||
Funded Status |
$ | (19.6 | ) | $ | (21.0 | ) | ||
|
|
|
|
December 31, | ||||||||
2017 | 2016 | |||||||
Amounts recognized in Consolidated Balance Sheets |
||||||||
Current liability |
$ | 2.4 | $ | 2.6 | ||||
Noncurrent liability |
17.2 | 18.4 | ||||||
Amounts recognized in Accumulated Other Comprehensive Loss |
||||||||
Accumulated other comprehensive income, net of tax of $(9.9) and $(9.9), respectively |
$ | (8.9 | ) | $ | (10.9 | ) |
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The other comprehensive (income) loss related to postretirement benefits is as follows:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net actuarial gain |
$ | (0.7 | ) | $ | (1.4 | ) | $ | (4.5 | ) | |||
Amortization of net actuarial gain |
2.7 | 2.6 | 2.0 | |||||||||
Tax expense |
| | | |||||||||
|
|
|
|
|
|
|||||||
Other comprehensive loss (income), net of tax |
$ | 2.0 | $ | 1.2 | $ | (2.5 | ) | |||||
|
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|
|
|
|
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net Periodic Postretirement Benefit |
||||||||||||
Service cost |
$ | | $ | | $ | | ||||||
Interest cost |
0.5 | 0.6 | 0.9 | |||||||||
Actuarial gain amortization |
(2.4 | ) | (2.3 | ) | (1.7 | ) | ||||||
Prior service credit amortization |
(0.3 | ) | (0.3 | ) | (0.3 | ) | ||||||
|
|
|
|
|
|
|||||||
Net periodic postretirement benefit gain |
$ | (2.2 | ) | $ | (2.0 | ) | $ | (1.1 | ) | |||
|
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|
|
|
The amount in accumulated other comprehensive loss that is expected to be recognized as a component of net periodic postretirement benefit cost during 2018 is a $2.5 gain, comprised of $2.2 of actuarial gain and $0.3 of prior service credit.
The assumed health care cost trend rate represents the rate at which health care costs are assumed to increase. The assumed health care cost trend rate used in measuring the benefit obligation in 2017 is 6.75% for pre-age 65 retirees and 7.25% for post-age 65 retirees. These rates are assumed to decrease gradually to the ultimate health care cost trend rate of 4.5% in 2028 for both groups. A one percent increase in this rate would increase the benefit obligation at December 31, 2017, by $0.9 million and would have an immaterial impact on the interest cost for 2017. A one percent decrease in this rate would decrease the benefit obligation at December 31, 2017, by $0.8 million and would have an immaterial impact on the interest cost for 2017.
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Assumption Used in Calculations |
||||||||||||
Weighted average discount rate used to determine net periodic postretirement cost (credit) |
3.26 | % | 3.38 | % | 3.25 | % | ||||||
Weighted average discount rate used to determine benefit obligation at measurement date |
3.01 | % | 3.26 | % | 3.38 | % |
The projected future postretirement benefit payments and future receipts from the federal subsidy for each of the next five years and the five-year period following are included in the table below.
Years Ending December 31, |
Payments | Receipts | ||||||
2018 |
$ | 2.5 | $ | 0.1 | ||||
2019 |
2.2 | 0.1 | ||||||
2020 |
2.1 | 0.1 | ||||||
2021 |
2.0 | 0.1 | ||||||
2022 |
1.9 | 0.1 | ||||||
Next five years |
$ | 7.3 | $ | 0.3 |
F-37
12. Share-Based Compensation
HCM Share-Based Compensation Plans
Prior to November 1, 2013, Ceridian employees participated in a share-based compensation plan of the ultimate parent of Ceridian. The 2007 Stock Incentive Plan (2007 SIP) authorized the issuance of up to 10,540,540 shares of common stock of Parent to eligible participants through stock options and stock awards. Eligible participants in the 2007 SIP included the Parents directors, employees and consultants.
Effective November 1, 2013, most participants who held stock options under the 2007 SIP converted their options to a newly created option plan, the 2013 Ceridian HCM Holding Inc. Stock Incentive Plan (2013 HCM SIP). A small number of participants maintained their stock options in the 2007 SIP. As of December 31, 2017, there were 10,000 stock options outstanding under the 2007 SIP.
The 2013 HCM SIP authorized the issuance of up to 12,500,000 shares of common stock of Ceridian to eligible participants through stock options and other stock awards. On March 20, 2017, the Board of Directors approved an increase to the number of authorized shares under the 2013 HCM SIP to 15,000,000. Eligible participants in the 2013 HCM SIP include Ceridians directors, employees, and consultants.
As part of the 2013 HCM SIP, the Board of Directors approved a stock appreciation rights program that authorized the issuance of up to 600,000 stock appreciation rights. As of December 31, 2017, there were 266,350 outstanding stock appreciation rights.
As of December 31, 2017, there were 1,939,403 shares available for future grants of stock options and stock awards under the 2013 HCM SIP.
Stock options awarded under the 2013 HCM SIP vest either annually on a pro rata basis over a four- or five-year period or on a specific date if certain performance criteria are satisfied and certain equity values are attained. In addition, upon termination of employment, all vested options become eligible to be exercised generally within 90 days after termination. The stock option awards have a 10-year contractual term and have an exercise price that is not less than the fair market value of the underlying stock on the date of grant.
Share-based compensation expense for the HCM plans was $16.1, $12.5, and $12.8 for years ended December 31, 2017, 2016, and 2015, respectively.
F-38
Performance-Based Stock Options
Performance-based option activity for the period from December 31, 2014 to December 31, 2017, represents stock options granted under the 2013 HCM SIP.
Shares |
Weighted
Average Exercise Price (per share) |
Weighted
Average Remaining Contractual Term (in years) |
Aggregate
Intrinsic Value (in millions) |
|||||||||||||
Options outstanding at December 31, 2014 |
1,343,100 | $ | 13.46 | 6.3 | $ | | ||||||||||
Granted |
| | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited or expired |
(62,232 | ) | (13.46 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding at December 31, 2015 |
1,280,868 | $ | 13.46 | 5.2 | $ | | ||||||||||
Granted |
| | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited or expired |
(52,942 | ) | (13.46 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding at December 31, 2016 |
1,227,926 | $ | 13.46 | 4.2 | $ | | ||||||||||
Granted |
| | ||||||||||||||
Exercised |
(167,202 | )(a) | (13.46 | ) | ||||||||||||
Forfeited or expired |
(25,077 | ) | (13.46 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding at December 31, 2017 |
1,035,647 | $ | 13.46 | 3.5 | $ | |
(a) | During the year ended December 31, 2017, certain performance-based options were modified and exercised. |
The performance-based options vest on the earlier to occur of a change in control or an initial public offering (IPO) in which the value of Ceridian stock is at least $26.92 per share or higher. If the value of the common stock has not reached $26.92 or higher per share at the time an IPO or change in control event occurs, the options expire unvested, or through the expiration date. Options issued under the 2013 HCM SIP, other than the Replacement Options, do not include performance based-options.
As of December 31, 2017, there was $5.3 of share-based compensation expense related to unvested performance-based stock options not yet recognized.
F-39
Term-Based Stock Options
Term-based option activity for the period from December 31, 2014 to December 31, 2017, represents stock options granted under the 2013 HCM SIP. As of December 31, 2017, there were 6,819,649 vested options.
Shares |
Weighted
Average Exercise Price (per share) |
Weighted
Average Remaining Contractual Term (in years) |
Aggregate
Intrinsic Value (in millions) |
|||||||||||||
Options outstanding at December 31, 2014 |
7,588,078 | $ | 15.98 | 8.2 | $ | 13.3 | ||||||||||
Granted |
187,140 | 17.56 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited or expired |
(168,060 | ) | (16.40 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding at December 31, 2015 |
7,607,158 | $ | 16.02 | 7.3 | $ | 14.1 | ||||||||||
Granted |
2,339,238 | 16.80 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited or expired |
(176,626 | ) | (16.54 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding at December 31, 2016 |
9,769,770 | $ | 16.20 | 7.1 | $ | 9.9 | ||||||||||
Granted |
2,285,981 | 17.46 | ||||||||||||||
Exercised |
(595,464 | ) | (15.14 | ) | ||||||||||||
Forfeited or expired |
(468,606 | ) | (16.10 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding at December 31, 2017 |
10,991,681 | $ | 16.52 | 6.9 | $ | 48.8 | ||||||||||
Options exercisable at December 31, 2017 |
6,819,649 | $ | 16.14 | 5.5 | $ | 32.9 |
Other information pertaining to term-based options is as follows:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Weighted average grant date fair value per share |
$ | 5.88 | $ | 5.74 | $ | 5.68 |
The fair value of the term-based stock options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Expected volatility |
30.0 | % | 30.0 | % | 33.0 | % | ||||||
Expected dividend rate |
| | | |||||||||
Risk-free interest rate |
2.3 | % | 1.9 | % | 2.1 | % |
For stock options granted under the 2007 SIP, we used the simplified method to estimate the expected term of the stock options. For stock options granted under the 2013 HCM SIP, we estimated an expected term of 7.0 years, based on the vesting period and contractual life. As of December 31, 2017, there was $21.7 of share-based compensation expense related to unvested term based awards not yet recognized, which is expected to be recognized over a weighted average period of 1.3 years. As of December 31, 2017, there were 6,819,649 vested term-based stock options.
The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero coupon issues with remaining term equal to the contractual term of the performance-based options and the expected term of the term-based option. The estimated volatility of Ceridian common stock is based on the historical volatility of comparable public companies over a period approximately equal to the expected term.
F-40
Restricted Stock Units
Restricted stock units (RSUs) activity for the period from December 31, 2014 to December 31, 2017, represents restricted stock units granted under the 2013 HCM SIP.
Shares | ||||
RSUs outstanding at December 31, 2014 |
| |||
Granted |
228,572 | |||
Shares issued upon vesting of RSUs |
| |||
Forfeited or canceled |
| |||
|
|
|||
RSUs outstanding at December 31, 2015 |
228,572 | |||
Granted |
29,800 | |||
Shares issued upon vesting of RSUs |
(76,192 | ) | ||
Forfeited or canceled |
| |||
|
|
|||
RSUs outstanding at December 31, 2016 |
182,180 | |||
Granted |
500,000 | |||
Shares issued upon vesting of RSUs |
(76,190 | ) | ||
Forfeited or canceled |
| |||
|
|
|||
RSUs outstanding at December 31, 2017 |
605,990 |
Other information pertaining to restricted stock units is as follows:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Weighted average grant date fair value per share |
$ | 17.26 | $ | 17.40 | $ | 17.50 |
During the year ended December 31, 2017, 76,192 restricted stock units vested, and shares of Ceridian common stock were issued. As of December 31, 2017, there were 605,990 unvested restricted stock units outstanding. Restricted stock units generally vest annually over a three- or four-year period. As of December 31, 2017, there was $7.1 of share-based compensation expense related to unvested restricted stock units not yet recognized, which is expected to be recognized over a weighted average period of 2.2 years.
Joint Venture Company Share-Based Compensation Plan
In connection with the formation of the Joint Venture Company, a share-based compensation scheme under English law (the JV SIP) was created. The JV SIP has authorized the issuance of 3,551,911 options to purchase Class C or Class D shares of the Joint Venture Company. Class C shares are ordinary shares in the Joint Venture Company with rights and liquidation preferences comparable to Class B shares. Class D shares are ordinary shares in the Joint Venture Company with rights and liquidation preferences comparable to Class A shares. Eligible participants in the JV SIP include the Joint Venture Company directors and employees.
Stock options awarded under the JV SIP vest annually on a pro rata basis over a four-year period. The stock option awards have a seven-year contractual term. During 2017, stock options were awarded as a bonus to employees that were fully vested upon grant. Stock options awarded under the JV SIP also include rollover options granted to previous WorkAngel employees that have continued to follow the original vesting period and contractual term granted to the employees prior to the formation of the Joint Venture Company. These stock options have a vesting period that range from one to three years and a 10-year contractual term.
Share-based compensation expense for the JV SIP was $1.1 and $2.8 for the years ended December 31, 2017 and 2016, respectively.
F-41
Class C Stock Options
Joint venture option activity in the table below for the period from formation on March 1, 2016, to December 31, 2017, represents Class C stock options activity under the JV SIP.
Shares |
Weighted
Average Exercise Price (per share) |
Weighted
Average Remaining Contractual Term (in years) |
Aggregate
Intrinsic Value (in millions) |
|||||||||||||
Options outstanding at December 31, 2015 |
| $ | | | $ | | ||||||||||
Granted |
1,166,402 | 2.12 | ||||||||||||||
Exercised |
(45,834 | ) | (0.51 | ) | ||||||||||||
Forfeited or expired |
(29,805 | ) | (3.26 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding at December 31, 2016 |
1,090,763 | $ | 2.15 | 7.9 | $ | 3.3 | ||||||||||
Granted |
212,651 | 3.90 | ||||||||||||||
Exercised |
(46,690 | ) | (0.57 | ) | ||||||||||||
Forfeited or expired |
(152,250 | ) | (3.02 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding at December 31, 2017 |
1,104,474 | $ | 2.44 | 6.9 | $ | 3.0 | ||||||||||
Options exercisable at December 31, 2017 |
570,932 | $ | 1.53 | 6.8 | $ | 2.1 |
Class D Stock Options
Joint venture option activity in the table below for the period from formation on March 1, 2016 to December 31, 2017, represents Class D stock option activity under the JV SIP.
Shares |
Weighted
Average Exercise Price (per share) |
Weighted
Average Remaining Contractual Term (in years) |
Aggregate
Intrinsic Value (in millions) |
|||||||||||||
Options outstanding at December 31, 2015 |
| $ | | | $ | | ||||||||||
Granted |
873,142 | 8.84 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited or expired |
(25,000 | ) | (8.84 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding at December 31, 2016 |
848,142 | $ | 8.84 | 6.4 | $ | 0.7 | ||||||||||
Granted |
253,797 | 7.91 | ||||||||||||||
Exercised |
| | ||||||||||||||
Forfeited or expired |
(115,414 | ) | (8.84 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Options outstanding at December 31, 2017 |
986,525 | $ | 8.60 | 5.8 | $ | 1.0 | ||||||||||
Options exercisable at December 31, 2017 |
241,436 | $ | 8.62 | 5.7 | $ | 0.2 |
Other information pertaining to JV SIP options is as follows:
Year Ended
December 31, 2017 |
Year Ended
December 31, 2016 |
|||||||||||||||
Class C | Class D | Class C | Class D | |||||||||||||
Weighted average grant date fair value per share |
$ | 2.41 | $ | 3.32 | $ | 2.57 | $ | 3.30 |
F-42
The fair value of the term-based stock options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for both Class C and D options:
Year Ended
December 31, |
||||||||
2017 | 2016 | |||||||
Expected volatility |
45.0 | % | 45.0 | % | ||||
Expected dividend rate |
| | ||||||
Risk-free interest rate |
2.0 | % | 1.2 | % |
For stock options granted under the JV SIP, excluding the WorkAngel rollover options, we estimated an expected term of 5.0 years, based on the vesting period and contractual life. For WorkAngel rollover options granted under the JV SIP, we estimated an expected term of 3 or 4 years, based on the vesting period and contractual life. As of December 31, 2017, there was $2.5 of share-based compensation related to unvested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.0 years. As of December 31, 2017, there were 570,932 vested Class C options and 241,436 vested Class D options.
The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero coupon issues with remaining term equal to the contractual term of the performance based options and the expected term of the term based option. The estimated volatility of the Joint Venture Company common stock is based on the historical volatility of comparable public companies.
13. Supplementary Data to Statements of Operations
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Other Expense, Net |
||||||||||||
Asset impairment |
$ | | $ | 10.4 | $ | 23.0 | ||||||
Environmental reserve |
| 5.9 | | |||||||||
Foreign currency translation expense (income) |
7.4 | (3.1 | ) | 4.8 | ||||||||
|
|
|
|
|
|
|||||||
Total other expense, net |
$ | 7.4 | $ | 13.2 | $ | 27.8 | ||||||
|
|
|
|
|
|
Asset Impairment
The sale of the UK Business in 2016 was considered a triggering event to test the trade name intangible asset for impairment. Given the reduction in future revenues of the UK Business previously included in the relief from royalty models used to support the trade name value, we recorded an impairment charge during the year ended December 31, 2016, of $10.2 to the trade name intangible asset. The remaining impairment amount is related to immaterial asset write-offs.
The sales of the Divested Benefits Continuation Businesses in 2015 were considered triggering events to test the trade name intangible asset for impairment. Given the reduction in future revenues from both businesses previously included in the relief from royalty models used to support the trade name value, we recorded an impairment charge during the year ended December 31, 2015, of $22.6 to the trade name intangible asset. The remaining impairment amount is related to immaterial asset write-offs.
Environmental Reserve
In September 1989, Parents predecessor entered into an Environmental Matters Agreement (EMA) with Seagate Technology plc (Seagate) related to groundwater contamination on a parcel of
F-43
real estate sold by Parents predecessor to Seagate. Ceridian is now responsible for the EMA. The EMA requires expense sharing between Ceridian and Seagate for the remediation of groundwater contamination up to a certain limit. Based on additional information obtained with respect to more stringent remediation requirements, we have updated our estimate of the potential liability related to the EMA, resulting in an increase to the environmental reserve of $5.9 for the year ended December 31, 2016, which now represents the limit under the EMA. Please refer to Note 16, Commitments and Contingencies, for further discussion of our environmental liabilities.
Foreign Currency Translation Expense (Income)
We incurred foreign currency translation expense of $7.4 for the year ended December 31, 2017. The foreign currency translation expense for the year ended December 31, 2017, is primarily related to foreign currency remeasurement losses resulting from an intercompany payable of a U.S. operating subsidiary which is repaid in Canadian dollars.
We had foreign currency translation income of $3.1 for the year ended December 31, 2016. The foreign currency translation income for the year ended December 31, 2016, is primarily related to foreign currency remeasurement gains on intercompany receivables and payables between international subsidiaries that were settled in early 2017.
We incurred a foreign currency translation expense of $4.8 for the year ended December 31, 2015. The foreign currency translation expense for the year ended December 31, 2015, is primarily due to foreign currency remeasurement losses related to an intercompany receivable of a U.S. operating subsidiary which is repaid in Canadian dollars.
14. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) were as follows:
Foreign
Currency Translation Adjustment |
Unrealized Gain
(Loss) from Invested Customer Trust Funds |
Pension
Liability Adjustment |
Total | |||||||||||||
Balance as of December 31, 2015 |
$ | (224.8 | ) | $ | 12.9 | $ | (167.3 | ) | $ | (379.2 | ) | |||||
Other comprehensive income (loss) before income taxes and reclassifications |
8.0 | (10.2 | ) | (7.8 | ) | (10.0 | ) | |||||||||
Income tax benefit (expense) |
| 2.0 | (0.1 | ) | 1.9 | |||||||||||
Sale of UK Business, net of tax |
16.9 | | 9.0 | 25.9 | ||||||||||||
Reclassifications to earnings |
| | 9.9 | 9.9 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss) attributable to Ceridian |
24.9 | (8.2 | ) | 11.0 | 27.7 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2016 |
(199.9 | ) | 4.7 | (156.3 | ) | (351.5 | ) | |||||||||
Other comprehensive income (loss) before income taxes and reclassifications |
39.3 | (17.3 | ) | 3.7 | 25.7 | |||||||||||
Income tax benefit |
| 3.6 | | 3.6 | ||||||||||||
Reclassifications to earnings |
| | 10.1 | 10.1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss) attributable to Ceridian |
39.3 | (13.7 | ) | 13.8 | 39.4 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2017 |
$ | (160.6 | ) | $ | (9.0 | ) | $ | (142.5 | ) | $ | (312.1 | ) | ||||
|
|
|
|
|
|
|
|
During the year ended December 31, 2017, other comprehensive income attributable to noncontrolling interest was $0.4, entirely related to foreign currency translation. During the year ended
F-44
December 31, 2016, other comprehensive loss attributable to noncontrolling interest was $0.6, entirely related to foreign currency translation.
15. Income Taxes
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Components of Earnings and Taxes from Operations |
||||||||||||
(Loss) Income Before Income Taxes: |
||||||||||||
U.S. |
$ | (84.8 | ) | $ | (159.1 | ) | $ | (130.7 | ) | |||
International |
30.3 | 67.6 | 50.4 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | (54.5 | ) | $ | (91.5 | ) | $ | (80.3 | ) | |||
|
|
|
|
|
|
|||||||
Income Tax Expense (Benefit): |
||||||||||||
Current: |
||||||||||||
U.S. |
$ | 5.5 | $ | (6.1 | ) | $ | (0.2 | ) | ||||
State and local |
1.7 | 0.9 | 0.1 | |||||||||
International |
13.4 | 16.0 | 16.6 | |||||||||
|
|
|
|
|
|
|||||||
Total current income tax expense |
20.6 | 10.8 | 16.5 | |||||||||
Deferred: |
||||||||||||
U.S. |
(63.3 | ) | (0.7 | ) | (7.9 | ) | ||||||
State and local |
0.8 | (0.1 | ) | (1.8 | ) | |||||||
International |
(2.8 | ) | 7.8 | 1.8 | ||||||||
|
|
|
|
|
|
|||||||
Total deferred income tax (benefit) expense |
(65.3 | ) | 7.0 | (7.9 | ) | |||||||
|
|
|
|
|
|
|||||||
Total income tax (benefit) expense |
$ | (44.7 | ) | $ | 17.8 | $ | 8.6 | |||||
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Effective Rate Reconciliation |
||||||||||||
U.S. statutory rate |
(35.0 | )% | (35.0 | )% | (35.0 | )% | ||||||
Change in valuation allowance |
(114.4 | ) | (0.1 | ) | 14.0 | |||||||
State income taxes, net of federal benefit |
(5.3 | ) | (0.8 | ) | 0.4 | |||||||
Share-based compensation |
8.4 | 2.8 | 3.4 | |||||||||
International tax rate differential |
(6.8 | ) | (7.1 | ) | (7.9 | ) | ||||||
Foreign dividend income |
47.7 | 1.1 | 16.1 | |||||||||
Unremitted foreign earnings |
(35.2 | ) | 23.7 | | ||||||||
Foreign capital gain income |
| | 4.6 | |||||||||
Reserve for tax contingencies |
9.9 | 3.2 | 0.1 | |||||||||
Expiration of un-utilized tax credits |
1.5 | | 13.5 | |||||||||
Unrealized gain on investments |
| 33.1 | | |||||||||
Change in tax rate |
51.4 | | | |||||||||
Other |
(4.0 | ) | (1.5 | ) | 1.6 | |||||||
|
|
|
|
|
|
|||||||
Income tax provision |
(81.8 | )% | 19.4 | % | 10.8 | % | ||||||
|
|
|
|
|
|
On December 22, 2017, the Tax Cut and Jobs Act legislation (the Act) was enacted. The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for businesses. ASC 740, Accounting for Income Taxes, requires a company to record the effects of a tax law change in the period of enactment; however, shortly after the enactment of the Act, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 118, which
F-45
allows a company to record a provisional amount when it does not have the necessary information available, prepared, or analyzed in reasonable detail to complete its accounting for the change in the tax law. The measurement period ends when the company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year. We continue to gather information related to estimates surrounding the re-measurement of deferred tax assets and to unrepatriated earnings from foreign subsidiaries to more precisely compute the re-measurement of deferred taxes and the impact of the transition tax. We have made a reasonable estimate of the impact of the Act on the consolidated financial statements for the period ended December 31, 2017, and have recorded a tax benefit of $59.4.
The Act provides for a reduction in the U.S. corporate tax rate from 35% to 21%. We have re-valued our deferred tax assets and liabilities to reflect the tax rate reduction resulting in a decrease of the net deferred tax asset and the recognition of a tax expense of $28.0. We also re-valued the valuation allowance required to be carried against the net deferred tax asset resulting in the recognition of a tax benefit of $54.4.
The Act provides for a transition of the U.S. tax system from a worldwide system to a territorial system. A current year transition tax is imposed on a taxpayers untaxed foreign earnings. We have includible untaxed foreign earnings of $74.3 resulting in a tax expense of $26.0. We have used our current year net operating loss to offset the includible foreign earnings resulting in a tax benefit of $26.0. Furthermore, we had previously recorded a deferred tax liability on a portion of our untaxed foreign earnings. Since all previously untaxed foreign earnings have now been included in U.S. taxable income, the deferred tax liability has been released resulting in a tax benefit of $20.9. We have also re-evaluated the need for a valuation allowance after considering the change in the deferred tax liability resulting in an increase of the valuation allowance and a tax expense of $20.9.
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The Act changes the current 20-year carryover period for a net operating loss (NOL) to an indefinite carryover period for NOLs incurred after December 31, 2017. This change impacts our evaluation of the requirement for a valuation allowance resulting in a decrease in the required valuation allowance and a tax benefit of $33.0.
December 31, | ||||||||
2017 | 2016 | |||||||
Tax Effect of Items That Comprise a Significant Portion of the Net Deferred Tax Asset and Deferred Tax Liability |
||||||||
Deferred Tax Asset: |
||||||||
Employment related accruals |
$ | 51.3 | $ | 89.8 | ||||
Foreign tax credit carryover and other credit carryovers |
0.3 | 1.1 | ||||||
Net operating loss carryforwards |
101.1 | 133.1 | ||||||
|
|
|
|
|||||
Total gross deferred tax asset |
152.7 | 224.0 | ||||||
Valuation allowance |
(91.7 | ) | (159.9 | ) | ||||
|
|
|
|
|||||
Total deferred tax asset |
$ | 61.0 | $ | 64.1 | ||||
|
|
|
|
|||||
Deferred Tax Liability: |
||||||||
Intangibles |
$ | (67.4 | ) | $ | (105.3 | ) | ||
Unremitted foreign earnings |
| (20.9 | ) | |||||
Unrealized gain on investment |
(22.2 | ) | (33.5 | ) | ||||
Other |
(3.9 | ) | (5.3 | ) | ||||
|
|
|
|
|||||
Total deferred tax liability |
(93.5 | ) | (165.0 | ) | ||||
|
|
|
|
|||||
Net deferred tax liability |
$ | (32.5 | ) | $ | (100.9 | ) | ||
|
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|
|||||
December 31, | ||||||||
2017 | 2016 | |||||||
Net Deferred Tax by Geography |
||||||||
U.S. |
$ | (18.6 | ) | $ | (81.1 | ) | ||
International |
(13.9 | ) | (19.8 | ) | ||||
|
|
|
|
|||||
Total |
$ | (32.5 | ) | $ | (100.9 | ) | ||
|
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|
|
As of December 31, 2017, we had federal, state and foreign net operating loss carryovers which will reduce future taxable income when utilized. Approximately $70.5 in net federal tax benefit is available from the loss carryovers and an additional $0.3 is available in federal tax credit carryovers. The state loss carryovers will result in state tax benefit of approximately $29.7. A small portion of the federal net operating loss tax benefit, $1.0, will expire in 2021 and the remaining amount will begin to expire in 2029 and state net operating loss carryovers will begin to expire in 2018. The federal credit carryovers are composed of foreign tax credits which will begin to expire in 2018, research credits which will begin to expire in 2027, and alternative minimum tax credits which have no expiration date.
As of December 31, 2017, including consideration of the impact of the Act, we carried a full valuation allowance against our domestic net deferred tax asset (DTA) position after excluding a portion of the deferred tax liability for long-lived, non-amortizable taxable temporary differences. We periodically re-assess the likelihood that DTA reported in the accompanying consolidated financial statements will be recovered from future taxable income.
Because we continue to be in a net DTA position, after excluding a portion of the deferred tax liability for long-lived, non-amortizable taxable temporary differences, as of December 31, 2017, our position that it is still more likely than not that the tax benefit associated with a portion of the DTA will not be realized has not changed. We assessed the available positive and negative evidence to
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estimate if sufficient future taxable income will be generated to use the existing net DTAs not already identified as requiring a valuation allowance. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2017. Such objective evidence limits the ability to consider other subjective evidence such as our projections for future growth. As of December 31, 2017, we had a total valuation allowance of $91.7. The amount of the DTA considered realizable could be adjusted in the future if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.
We file income tax returns in the U.S. federal jurisdiction, and various states and foreign jurisdictions. With a few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2013.
The following table summarizes the activity for unrecognized tax benefits:
Year Ended
December 31, |
||||||||
2017 | 2016 | |||||||
Federal, State and Foreign Tax |
||||||||
Beginning unrecognized tax balance |
$ | 4.7 | $ | 1.7 | ||||
Increase prior period positions |
0.4 | 0.1 | ||||||
Increase current period positions |
5.6 | 3.5 | ||||||
Decrease prior period positions |
| (0.3 | ) | |||||
Decrease current period positions |
| (0.1 | ) | |||||
Statutes expiring |
(0.2 | ) | (0.2 | ) | ||||
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|
|
|||||
Ending unrecognized tax benefits |
$ | 10.5 | $ | 4.7 | ||||
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|
|
The total amount of unrecognized tax benefits as of December 31, 2017, was $10.5 including $2.2 of accrued interest and penalty. Of the total amount of unrecognized tax benefits, $10.0 represents the amount that, if recognized, would impact our effective income tax rate as of December 31, 2017. It is expected that the amount of unrecognized tax benefits will change in the next 12 months; however, we cannot reasonably estimate the amount of the change. We do not expect the change to have a significant impact on our results of operations or financial condition.
We consider a portion of the unremitted earnings from international subsidiaries to be indefinitely reinvested; the transition tax imposed by the Act has not changed our position on such earnings. While we were able to make a reasonable estimate of the impact of the Act on the U.S. taxation of such earnings, our estimate may be affected by additional guidance released in the future. In addition, the repatriation of our overseas earnings could result in non-U.S. income taxes, such as withholding taxes. We consider $234.5 of our overseas earnings to be indefinitely reinvested as of December 31, 2017. Because of the multiple avenues in which the foreign earnings could be repatriated to minimize the tax cost, and because a large portion of these earnings are not liquid, it is not practical to determine the tax liability that would be payable if such earnings were not indefinitely reinvested. A portion of our unremitted earnings from international subsidiaries is not considered indefinitely reinvested, and we have provided a deferred tax liability of $5.1 as of December 31, 2017 for the expected tax cost of repatriating such earnings.
16. Commitments and Contingencies
Leasing
We conduct substantially all of our operations in leased facilities. Most of our leases contain renewal options and require payments for taxes, insurance and maintenance. We recognize rent
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holidays, including the time period during which we have access to the property for construction of improvements, construction allowances and escalating rent provisions on a straight-line basis over the term of the lease.
Substantially all of our leasing arrangements for equipment and facilities are operating leases and the rental payments under these leases are charged to operations as incurred. The amounts in the accompanying tables do not include capital lease obligations recorded as liabilities.
Our rental expense and sublease income were as follows:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Rental Expense, Net |
||||||||||||
Rental expense |
$ | 17.5 | $ | 16.8 | $ | 18.6 | ||||||
Sublease rental income |
(4.2 | ) | (3.5 | ) | (2.3 | ) | ||||||
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|
|
|
|
|||||||
Net rental expense |
$ | 13.3 | $ | 13.3 | $ | 16.3 | ||||||
|
|
|
|
|
|
Our future minimum noncancellable lease payments, net, on existing operating leases at December 31, 2017, which have an initial term of more than one year, are as follows:
Years Ending December 31, |
Amount | |||
2018 |
$ | 11.6 | ||
2019 |
11.5 | |||
2020 |
9.4 | |||
2021 |
6.4 | |||
2022 |
5.4 | |||
Thereafter |
4.3 | |||
|
|
|||
Total |
$ | 48.6 | ||
|
|
Environmental Matters
We accrue for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value.
In February 1988, Parents predecessor entered into an arrangement with Northern Engraving Corporation (NEC) and the Minnesota Pollution Control Agency (MPCA) in relation to groundwater contamination on a parcel of real estate sold by Parents predecessor to NEC. Ceridian is now responsible for the arrangement with NEC and the MPCA. The arrangement requires expense sharing between Ceridian and NEC for the remediation of groundwater contamination.
In September 1989, Parents predecessor entered into an EMA with Seagate related to groundwater contamination on a parcel of real estate sold by Parents predecessor to Seagate. Ceridian is now responsible for the EMA. The EMA requires expense sharing between Ceridian and Seagate for the remediation of groundwater contamination up to a certain limit. Based on additional information obtained with respect to more stringent remediation requirements, we have updated our estimate of the potential liability related to the EMA, resulting in an increase to the environmental reserve of $5.9 for the year ended December 31, 2016, which now represents the limit under the EMA.
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We have recognized an undiscounted liability of approximately $5.4 and $6.2 as of December 31, 2017 and 2016, respectively, in our consolidated balance sheets to comply with the NEC arrangement and EMA described above. The ultimate cost, however, will depend on the extent of continued monitoring activities as these projects progress. Please refer to Note 13, Supplementary Data to Statements of Operations, for further discussion of changes in the liability during the year ended December 31, 2016.
Legal Matters
We are subject to claims and a number of judicial and administrative proceedings considered normal in the course of our current and past operations, including employment-related disputes, contract disputes, disputes with our competitors, intellectual property disputes, government audits and proceedings, customer disputes, and tort claims. In some proceedings, the claimant seeks damages as well as other relief, which, if granted, would require substantial expenditures on our part.
Our general terms and conditions in customer contracts frequently include a provision indicating we will indemnify and hold our customers harmless from and against any and all claims alleging that the services and materials furnished by us violate any third partys patent, trade secret, copyright or other intellectual property right. We are not aware of any material pending litigation concerning these indemnifications.
Some of these matters raise difficult and complex factual and legal issues and are subject to many uncertainties, including the facts and circumstances of each particular action, and the jurisdiction, forum, and law under which each action is proceeding. Because of these complexities, final disposition of some of these proceedings may not occur for several years. As such, we are not always able to estimate the amount of our possible future liabilities, if any.
There can be no certainty that we may not ultimately incur charges in excess of presently established or future financial accruals or insurance coverage. Although occasional adverse decisions or settlements may occur, it is managements opinion that the final disposition of these proceedings will not, considering the merits of the claims and available resources or reserves and insurance, and based upon the facts and circumstances currently known, have a material adverse effect on our financial position or results of operations.
17. Related Party Transactions
Management Agreements
Ceridian is party to management agreements with affiliates of our Sponsors, Fidelity National Financial, Inc. (FNF) and THLM. FNF assigned its management agreement to Cannae in November 2017. Pursuant to these management agreements, Cannae and THLM each, respectively, agree to provide the Company with financial advisory, strategic, and general oversight services. These management agreements provide that we will pay annual management fees to each of Cannae and THLM in an amount equal to the greater of (a) $0.9, or (b) 0.5 percent of Adjusted EBITDA. Adjusted EBITDA, for purposes of the management agreements, is EBITDA as defined in the Ceridian Senior Secured Credit Facility, further adjusted to exclude the payments made pursuant to the management agreements and certain stock options or other equity compensation.
We recorded a management fee expense in selling, general, and administrative expense of $1.9, $5.0, and $1.9 for the years ended December 31, 2017, 2016, and 2015, respectively, related to these management agreements. The expense for the year ended December 31, 2016, includes transaction advisory fees of $3.0 related to the issuance of the senior convertible participating preferred stock. Please refer to Note 19, Capital Stock, for further discussion of this transaction.
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Indebtedness
Affiliates of Cannae owned $30.8, $30.3, and $23.1 of the Ceridian Senior Notes as of December 31, 2017, 2016, and 2015, respectively. Based on this ownership, $3.2, $3.2, and $3.2 in interest payments were made to affiliates of Cannae during the years ended December 31, 2017, 2016, and 2015, respectively. The affiliates of Cannae conducted the debt transactions through third parties in the ordinary course of their business and not directly with us.
Service and Vendor Related Agreements
Ceridian is a party to a service agreement with CompuCom Systems, Inc. (CompuCom), an investment portfolio company of THL Partners. Pursuant to the service agreement, CompuCom agrees to provide us with service desk and desk side support services. Pursuant to this arrangement, we made payments to CompuCom totaling $3.1, $5.0, and $2.8 during the years ended December 31, 2017, 2016, and 2015, respectively.
Other Transactions
We provide Dayforce and related services to The Stronach Group, for which we recorded revenue of $0.2 for the year ended December 31, 2016. Alon Ossip, the brother of David Ossip, is the chief executive officer of The Stronach Group.
We provide Dayforce and related services to FNF for which we recorded revenue of $0.4, $0.3, and $0.5 for the years ended December 31, 2015, 2016, and 2017, respectively.
18. Financial Data by Segment and Geographic Area
Segments
Ceridian has two operating and reportable segments, HCM and LifeWorks, based on the separate management teams, solutions, and objectives of the businesses. Our operating and reportable segments align with how management monitors operating performance, allocates resources, and deploys capital. There are currently two chief operating decision makers (CODM), the Chief Executive Officer (CEO) of HCM and the CEO of LifeWorks. Both report directly to their separate Boards of Directors.
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Segment performance is based on revenues and operating income or income (loss) before interest expense and income taxes. Interest expense and income taxes are not indicative of operating performance, and, as a result are not included in the measures that are reviewed by the CODMs. The amounts in the following tables are obtained from reports used by our senior management team. There are no significant non-cash items reported in segment profit or loss other than depreciation and amortization and share-based compensation. Total assets by segment were $6,573.7 for HCM and $156.2 for LifeWorks as of December 31, 2017, and $6,169.4 for HCM and $156.6 for LifeWorks as of December 31, 2016. Please refer to Note 9, Goodwill and Intangible Assets, for goodwill balances by segment.
Year Ended December 31, 2017 | ||||||||||||
HCM | LifeWorks | Total | ||||||||||
Cloud revenue |
$ | 404.3 | $ | | $ | 404.3 | ||||||
Bureau revenue |
266.5 | | 266.5 | |||||||||
LifeWorks revenue |
| 79.9 | 79.9 | |||||||||
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|
|
|
|
|
|||||||
Total revenue |
670.8 | 79.9 | 750.7 | |||||||||
Operating profit (loss) |
33.0 | (0.4 | ) | 32.6 | ||||||||
Depreciation and amortization |
53.8 | 4.1 | 57.9 | |||||||||
Capital expenditures |
$ | 50.6 | $ | 0.2 | $ | 50.8 |
Year Ended December 31, 2016 | ||||||||||||
HCM | LifeWorks | Total | ||||||||||
Cloud revenue |
$ | 297.8 | $ | | $ | 297.8 | ||||||
Bureau revenue |
325.8 | | 325.8 | |||||||||
LifeWorks revenue |
| 80.6 | 80.6 | |||||||||
|
|
|
|
|
|
|||||||
Total revenue |
623.6 | 80.6 | 704.2 | |||||||||
Operating (loss) profit |
(8.6 | ) | 4.5 | (4.1 | ) | |||||||
Depreciation and amortization |
53.2 | 4.1 | 57.3 | |||||||||
Capital expenditures |
$ | 32.9 | $ | 0.3 | $ | 33.2 |
Year Ended December 31, 2015 | ||||||||||||
HCM | LifeWorks | Total | ||||||||||
Cloud revenue |
$ | 225.2 | $ | | $ | 225.2 | ||||||
Bureau revenue |
386.9 | | 386.9 | |||||||||
LifeWorks revenue |
| 81.8 | 81.8 | |||||||||
|
|
|
|
|
|
|||||||
Total revenue |
612.1 | 81.8 | 693.9 | |||||||||
Operating (loss) profit |
(1.1 | ) | 8.6 | 7.5 | ||||||||
Depreciation and amortization |
52.3 | 3.7 | 56.0 | |||||||||
Capital expenditures |
$ | 34.1 | $ | 0.4 | $ | 34.5 |
Our Solutions
We categorize our solutions into three categories: Cloud HCM (Cloud), Bureau HCM (Bureau), and LifeWorks offerings.
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Cloud revenue is generated from HCM solutions that are delivered via two cloud offerings: Dayforce and Powerpay. The Dayforce offering is differentiated from our market competition as being a single application that offers a comprehensive range of functionality, including global HR, payroll, benefits, workforce management, and talent management on web and native iOS and Android platforms. Dayforce revenue is primarily generated from monthly recurring fees charged on a PEPM basis, generally one-month in advance of service. Also included within Dayforce revenue is implementation, staging, and other professional services |
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revenue; revenues from the sale, rental, and maintenance of time clocks; and billable travel expenses. The Powerpay offering is our solution designed primarily for small market Canadian customers. The typical Powerpay customer has fewer than 20 employees, and the majority of the revenue is generated from recurring fees charged on a per-employee, per-process basis. Typical processes include the customers payroll runs, year-end tax packages, and delivery of customers remittance advices or checks. In addition to the direct revenue earned from the Dayforce and Powerpay offerings, Cloud revenue also includes investment income generated from holding Cloud customer funds in trust before funds are remitted to taxing authorities, Cloud customer employees, or other third parties; and revenue from the sale of third party services. |
| Bureau revenue is generated primarily from HCM solutions delivered via a service-bureau model. These solutions are delivered via three primary service lines: payroll, payroll-related tax filing services, and outsourced human resource solutions. Revenue from payroll services is generated from recurring fees charged on a per-process basis. Typical processes include the customers payroll runs, year-end tax packages, and delivery of customers remittance advices or checks. In addition to customers who use our payroll services, certain customers use our tax filing services on a stand-alone basis. Our outsourced human resource solutions are tailored to meet the needs of individual customers, and entail our contracting to perform many of the duties of a customers human resources department, including payroll processing, time and labor management, performance management, and recruiting. We also perform HCM-related individual services for customers, such as check printing, wage attachment and disbursement, and ACA management. Additional items included in Bureau revenue are custom professional services revenue; investment income generated from holding Bureau customer funds in trust before funds are remitted to taxing authorities, Bureau customer employees, or other third parties; consulting services related to Bureau offerings; and revenue from the sale of third party services. |
| LifeWorks joint venture revenue is primarily generated from employee assistance, wellness, recognition, and incentive programs offered directly by LifeWorks in the United States, Canada, the United Kingdom and various other countries through LifeWorks network of contractors. LifeWorks offers employee engagement services, such as employee assistance programs, social recognition, discounts from participating vendors, a private social network, employee and corporate wellness, and employee engagement analytics. |
Revenue by solution is as follows:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Cloud |
$ | 404.3 | $ | 297.8 | $ | 225.2 | ||||||
Bureau |
266.5 | 325.8 | 386.9 | |||||||||
LifeWorks |
79.9 | 80.6 | 81.8 | |||||||||
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|
|
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|
|
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Total revenue |
$ | 750.7 | $ | 704.2 | $ | 693.9 |
Geographic and Customer Information
No single customer accounts for 2% or more of our consolidated revenue for any of the periods presented.
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Revenue by country is as follows:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
United States |
$ | 514.5 | $ | 484.2 | $ | 473.1 | ||||||
Canada |
227.6 | 212.5 | 215.0 | |||||||||
Other |
8.6 | 7.5 | 5.8 | |||||||||
|
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|
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|
|||||||
Total revenue |
$ | 750.7 | $ | 704.2 | $ | 693.9 |
Long-lived assets by country is as follows:
December 31, | ||||||||
2017 | 2016 | |||||||
United States |
$ | 1,859.8 | $ | 1,865.8 | ||||
Canada |
503.0 | 472.0 | ||||||
Other |
40.7 | 40.0 | ||||||
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|
|||||
Total long-lived assets |
$ | 2,403.5 | $ | 2,377.8 |
19. Capital Stock
As of the date of the Separation Transaction, Ceridian was authorized to issue 100,000,000 shares of common stock with a par value of $0.01 per share and 70,000,000 shares of junior convertible participating preferred stock (Junior Preferred Stock) with a par value of $0.01 per share. On March 30, 2016, the Board of Directors increased the number of authorized shares of common stock to 150,000,000 and authorized 70,000,000 shares of senior convertible participating preferred stock (Senior Preferred Stock) with a par value of $0.01 per share. As of December 31, 2017, there were 65,285,962 shares of common stock issued and outstanding, 16,802,144 shares of Senior Preferred Stock issued and outstanding, and 58,244,308 shares of Junior Preferred Stock issued and outstanding. As of December 31, 2016, there were 65,001,037 shares of common stock issued and outstanding, 16,802,144 shares of Senior Preferred Stock issued and outstanding, and 58,244,308 shares of Junior Preferred Stock issued and outstanding.
The common stock provides holders with one vote on all matters submitted to a vote of stockholders. Common stock is eligible to receive dividends declared by the board of directors so long as the preferred stockholders are also receiving dividends on an if converted basis. Holders of common stock receive a pro-rata share of liquidation proceeds after holders of convertible participating preferred stock are paid their required amounts in liquidation.
The Junior Preferred Stock provides holders with the equivalent number of votes on an as converted basis. The Board of Directors may provide shares of preferred stock with other rights, preferences or provisions without approval of the holders of common stock. The Junior Preferred Stock may be converted to common stock at the option of the holder for a number of shares based on the conversion price. The initial conversion price is equal to the original issuance price adjusted for certain events of dilution other than shares issued to employees and directors pursuant to the 2013 HCM SIP and certain other instances of issuances of shares of common stock. In the event of an initial public offering, the Junior Preferred Stock is automatically converted to common stock. Junior Preferred Stock receives dividends on an if converted basis in the event that common stock dividends are declared. As discussed in Note 10, Debt, dividend declarations are restricted by certain debt covenants. Shares of Junior Preferred Stock are also adjusted for events such as common stock dividends, stock splits, mergers and reorganizations. In the event of liquidation, Junior Preferred Stock receives the greater of up to $6.75 per share of preferred stock (adjusted for dividend, stock split, combination or other similar recapitalization with respect to the convertible participating preferred stock) or a pro rate price per share of all common stock if converted in a liquidation event, subject to the total amount of net assets available in liquidation.
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On March 30, 2016, we entered into an equity financing transaction with Ceridian Holding II. Ceridian Holding II raised $150.2 from our Sponsors, certain of their co-investors, and certain other existing stockholders of Ceridian Holding. Of such amount, $75.0 was contributed by Ceridian Holding II to Ceridian on March 30, 2016. The remaining $75.2 was committed to be funded to Ceridian HCM Holding Inc. within the following three years, and was recorded within equity as a receivable from stockholder. During the second quarter of 2017, the board of directors of Ceridian Holding II approved the funding of the remaining $75.2, which was transferred to Ceridian HCM Holding Inc. on June 28, 2017.
In connection therewith, Ceridian issued $150.2 of the Senior Preferred Stock to Ceridian Holding II. The Senior Preferred Stock is senior in priority to all outstanding equity securities of Ceridian and may be converted to common stock at the option of the stockholder for a number of shares based on the conversion price. The initial conversion price is equal to the original issuance price and is subject to adjustment for certain events of dilution, including common stock dividends, stock splits, mergers and reorganizations, and the initial public offering price upon such event. In the event of an initial public offering, the Senior Preferred Stock is automatically converted to common stock. The Senior Preferred Stock receives a 12.5% annual dividend (not cash paying). In the event of liquidation, the Senior Preferred Stock has a liquidation preference equal to 1.5 times the initial face amount plus any accrued but unpaid dividends. The Senior Preferred Stock is not considered disqualified stock under our debt covenants, and is thereby not prohibited by our debt covenants, because it does not mature and is not mandatorily redeemable at the option of the stockholder prior to 91 days after the maturity of the Ceridian Senior Secured Credit Facility.
20. Net Loss per Share
We compute net loss per share of common stock using the treasury stock method.
Basic net loss per share is computed by dividing net loss attributable to Ceridian available to common stockholders by the weighted-average number of shares of common stock outstanding during the period.
For the calculation of diluted net loss per share, net loss per share is adjusted by the effect of dilutive securities, including awards under our share-based compensation plans. Diluted net loss per share is computed by dividing the resulting net loss attributable to Ceridian available to common stockholders by the weighted-average number of fully diluted common shares outstanding. In the years ended December 31, 2017, 2016, and 2015, our potential dilutive shares, such as stock options, RSUs, and shares of senior and junior convertible preferred stock were not included in the computation of diluted net loss per share as the effect of including these shares in the calculation would have been anti-dilutive.
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The numerators and denominators of the basic and diluted net loss per share computations are calculated as follows:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Numerator: |
||||||||||||
Net loss attributable to Ceridian |
$ | (9.2 | ) | $ | (92.9 | ) | $ | (104.7 | ) | |||
Less: Income (loss) from discontinued operations |
(0.7 | ) | 16.5 | (15.8 | ) | |||||||
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|
|
|
|
|
|||||||
Net loss from continuing operations attributable to Ceridian |
(8.5 | ) | (109.4 | ) | (88.9 | ) | ||||||
Less: Senior Preferred Stock dividends declared |
20.5 | 14.1 | | |||||||||
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|
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|
|||||||
Net loss from continuing operations attributable to Ceridian available to common stockholders |
$ | (29.0 | ) | $ | (123.5 | ) | $ | (88.9 | ) | |||
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|
|
|||||||
Denominator: |
||||||||||||
Weighted-average shares outstandingbasic |
65,204,960 | 64,988,338 | 64,924,845 | |||||||||
Weighted-average shares outstandingdiluted |
65,204,960 | 64,988,338 | 64,924,845 | |||||||||
Net loss per share from continuing operations attributable to Ceridianbasic and diluted |
$ | (0.45 | ) | $ | (1.90 | ) | $ | (1.37 | ) | |||
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|
|
|||||||
Net (loss) income per share from discontinued operationsbasic and diluted |
$ | (0.01 | ) | $ | 0.25 | $ | (0.24 | ) | ||||
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|
|
|
|
|
|||||||
Net loss per share attributable to Ceridianbasic and diluted |
$ | (0.46 | ) | $ | (1.65 | ) | $ | (1.61 | ) | |||
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|
|
The following potentially dilutive shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive:
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Senior convertible preferred stock |
16,802,144 | 12,601,608 | | |||||||||
Junior convertible preferred stock |
58,244,308 | 58,244,308 | 58,244,308 | |||||||||
Stock options |
10,201,105 | 8,423,124 | 7,468,081 | |||||||||
Unvested RSUs |
451,190 | 155,692 | 190,477 |
21. Subsequent Events
Subsequent events have been evaluated through March 14, 2018, the original issuance date of this report.
On January 17, 2018, we announced the confidential submission of a draft registration statement on Form S-1 to the SEC relating to the proposed initial public offering of our common stock. The number of shares of common stock to be sold and the price range for the proposed offering have not yet been determined.
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21,000,000 Shares
Common Stock
Prospectus
Goldman Sachs & Co. LLC
J.P. Morgan
Credit Suisse
Deutsche Bank Securities
Barclays
Citigroup
Jefferies
CIBC Capital Markets
Wells Fargo Securities
Baird
Canaccord Genuity
Piper Jaffray
William Blair
MUFG
, 2018
Until , 2018 (25 days after the date of this prospectus), all dealers that buy, sell or trade in shares of these securities, whether or not participating in this offering and the concurrent private placement, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART IIINFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all costs and expenses, other than the underwriting discount, paid or payable by us in connection with the sale of the common stock being registered. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee and the listing fees for the NYSE and TSX.
Amount Paid
or to be Paid |
||||
SEC registration fee |
$ | 63,141 | ||
FINRA filing fee |
76,573 | |||
NYSE listing fee |
396,440 | |||
TSX listing fee |
125,000 | |||
Blue sky qualification fees and expenses |
5,000 | |||
Printing and engraving expenses |
421,000 | |||
Legal fees and expenses |
3,620,000 | |||
Accounting fees and expenses |
900,000 | |||
Transfer agent and registrar fees and expenses |
5,500 | |||
Miscellaneous expenses |
7,346 | |||
|
|
|||
Total |
$ | 5,620,000 | ||
|
|
Item 14. Indemnification of Officers and Directors.
The Registrant is governed by the Delaware General Corporation Law, or DGCL. Section 145 of the DGCL provides that a corporation may indemnify any person, including an officer or director, who was or is, or is threatened to be made, a party to any threatened, pending or completed legal action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person was or is an officer, director, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such officer, director, employee or agent acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the corporations best interest and, for criminal proceedings, had no reasonable cause to believe that such persons conduct was unlawful. A Delaware corporation may indemnify any person, including an officer or director, who was or is, or is threatened to be made, a party to any threatened, pending or contemplated action or suit by or in the right of such corporation, under the same conditions, except that such indemnification is limited to expenses (including attorneys fees) actually and reasonably incurred by such person, and except that no indemnification is permitted without judicial approval if such person is adjudged to be liable to such corporation. Where an officer or director of a corporation is successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to above, or any claim, issue or matter therein, the corporation must indemnify that person against the expenses (including attorneys fees) which such officer or director actually and reasonably incurred in connection therewith.
The Registrants amended and restated bylaws will authorize the indemnification of its officers and directors, consistent with Section 145 of the DGCL, as amended. The Registrant intends to enter into indemnification agreements with each of its directors and executive officers. These agreements, among other things, will require the Registrant to indemnify each director and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys fees,
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judgments, fines and settlement amounts incurred by the director or executive officer in any action or proceeding, including any action or proceeding by or in right of the Registrant, arising out of the persons services as a director or executive officer.
Reference is made to Section 102(b)(7) of the DGCL, which enables a corporation in its original certificate of incorporation or an amendment thereto to eliminate or limit the personal liability of a director for violations of the directors fiduciary duty, except (i) for any breach of the directors duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL, which provides for liability of directors for unlawful payments of dividends of unlawful stock purchase or redemptions or (iv) for any transaction from which a director derived an improper personal benefit.
The Registrant expects to maintain standard policies of insurance that provide coverage (i) to its directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act and (ii) to the Registrant with respect to indemnification payments that it may make to such directors and officers.
The proposed form of Underwriting Agreement to be filed as Exhibit 1.1 to this Registration Statement provides for indemnification to the Registrants directors and officers by the underwriters against certain liabilities.
Item 15. Recent Sales of Unregistered Securities
The following sets forth information regarding all unregistered securities sold by the Registrant in transactions that were exempt from the requirements of the Securities Act in the last three years :
| From January 1, 2015 to March 2, 2018, the Registrant granted options to 418 employees to purchase an aggregate of 4,993,859 shares of its common stock under the 2013 Plan with exercise prices ranging from $16.58 to $20.96 per share. |
| From January 1, 2015 to March 9, 2018, the Registrant granted an aggregate of 758,372 restricted stock units to four employees under the 2013 Plan at prices ranging from $16.58 to $17.50 per share. |
| From January 1, 2015 to March 30, 2018, the Registrant issued 37,484 shares of its common stock to a total of 39 employees or former employees upon the exercise of options previously granted under the 2013 Plan at strike prices ranging from $13.46 to $17.90 per share. |
| From January 1, 2015 to March 9, 2018, the Registrant issued 228,572 shares of its common stock to two employees upon the vesting of restricted stock units granted under the 2013 Plan with a fair market value of $17.20 to $20.96 per share. |
| In March, 2016, the Registrant sold 16,802,143.963 shares of its senior preferred stock, par value $0.01 per share, to Ceridian Holding II LLC at a price of $8.94 per share for an aggregate purchase price of $150,211,167. In connection therewith, Ceridian Holding II LLC sold 16,802,143.963 shares of its common stock to its Sponsors, certain of their co-investors, and certain other existing stockholders of Ceridian Holding LLC. Further, for each two shares of common stock of Ceridian Holding II LLC purchased by members of management, such individual received an option to acquire one share of common stock, par value $0.01 per share, under the 2013 Plan. |
| In April, 2017, the Registrant sold 183,425 shares of common stock to 40 members of management at a price of $17.20 per share for an aggregate purchase price of $3,155,080. In connection therewith, for each share of common stock purchased, such individual also received an option to acquire two shares of common stock under the 2013 Plan. |
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The shares of common stock in all of the transactions listed above were issued or will be issued in reliance upon Section 4(a)(2) of the Securities Act or Rule 701 promulgated under Section 3(b) of the Securities Act as the sale of such securities did not or will not involve a public offering. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with the Registrant, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
No. |
Description |
|
1.1 | Form of Underwriting Agreement. | |
3.1 | Form of Third Amended and Restated Certificate of Incorporation of Ceridian HCM Holding Inc. to be in effect prior to the consummation of the offering made under this Registration Statement. | |
3.2 | Form of Amended and Restated Bylaws of Ceridian HCM Holding Inc. to be in effect prior to the consummation of the offering made under this Registration Statement. | |
4.1** | Form of Certificate of Common Stock. | |
4.2** | Indenture, dated October 1, 2013, among Ceridian HCM Holding Inc., the guarantors party thereto, and Wells Fargo Bank, National Association, as trustee. | |
4.3** | First Supplemental Indenture, dated August 8, 2014, between Ceridian HCM Holding Inc. and Wells Fargo Bank, National Association, as trustee. | |
4.4 | Form of Registration Rights Agreement by and among Ceridian HCM Holding Inc. and the other parties thereto to be in effect upon consummation of the offering made under this Registration Statement. | |
5.1** | Opinion of Weil, Gotshal & Manges LLP. | |
10.1** | Senior Secured Credit Agreement, dated November 14, 2014, between Ceridian HCM Holding Inc., as borrowers, the lenders party thereto, Deutsche Bank AG New York Branch (as administrative agent and collateral agent) and Deutsche Bank AG Canadian branch (as Canadian subagent). | |
10.2** | Employment Agreement, dated April 2, 2012, by and between Ceridian Dayforce Corporation and David D. Ossip. | |
10.3** |
Amended and Restated Restrictive Covenant Agreement, effective as of March 20, 2017, by and among Ceridian Holding LLC, Ceridian LLC, Ceridian Canada Ltd., Ceridian Dayforce Corporation and David D. Ossip. |
|
10.4** | Employment Agreement, dated April 20, 2016, by and between Ceridian Canada Ltd. and Paul D. Elliott. | |
10.5** | Employment Agreement, dated September 14, 2016, by and between Ceridian Canada Ltd. and Arthur Gitajn. | |
10.6** |
Employment Agreement, dated December 7, 2017, by and between Ceridian Canada Ltd. and Scott A. Kitching. |
|
10.7** |
Employment Agreement, dated January 26, 2018, by and between Ceridian HCM, Inc. and Ted P. Malley. |
II-3
Exhibit
No. |
Description |
|
10.8** |
Employment Agreement, dated January 4, 2018, by and between Ceridian HCM, Inc. and Lisa Sterling. |
|
10.9** | Employment Agreement, dated April 3, 2012, by and between Ceridian Dayforce Corporation and Ozzie J. Goldschmied. | |
10.10** | 2013 Ceridian HCM Holding Inc. Stock Incentive Plan, dated October 1, 2013, and as amended on March 30, 2016, August 11, 2016, December 30, 2016, and March 20, 2017. | |
10.11 | Form of Indemnification Agreement for Ceridian HCM Holding Inc. | |
10.12** | Form of Ceridian HCM Holding Inc. 2018 Equity Incentive Plan. | |
10.13 | Form of Director Restricted Stock Unit Award Agreement. | |
10.14 | Form of Employee Restricted Stock Unit Award Agreement. | |
10.15 | Form of Employee Stock Option Award Agreement. | |
10.16 | Form of Voting Agreement by and among Ceridian HCM Holding Inc. and the other parties thereto to be in effect upon consummation of the offering made under this Registration Statement. | |
10.17 | Form of Common Stock Purchase Agreement by and between Ceridian HCM Holding Inc. and THL / Cannae Investors LLC. | |
21.1** | List of subsidiaries of Ceridian HCM Holding Inc. | |
23.1 | Consent of KPMG LLP, Independent Registered Public Accounting Firm. | |
23.2** | Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1). | |
24.1** | Power of Attorney (included on signature page). | |
99.1** | Consent to be Named as a Director Nominee for Gerald C. Throop. |
** | Previously filed. |
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) |
For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A |
II-4
and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. |
(2) | For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
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EXHIBIT INDEX
** | Previously filed. |
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Minneapolis, State of Minnesota, on April 12, 2018.
CERIDIAN HCM HOLDING INC. | ||||
By: |
/s/ David D. Ossip |
|||
Name: | David D. Ossip | |||
Title: | Chief Executive Officer |
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on April 12, 2018.
Signature |
Title |
|
/s/ David D. Ossip David D. Ossip |
Chairman and Chief Executive Officer
|
|
/s/ Arthur Gitajn Arthur Gitajn |
Executive Vice President and Chief Financial
|
|
* Brent B. Bickett |
Director |
|
* William P. Foley, II |
Director |
|
* Thomas M. Hagerty |
Director |
|
* Soren L. Oberg |
Director |
|
* Ganesh B. Rao |
Director |
*By: | /s/ Scott A. Kitching | |
Attorney-in-fact |
Exhibit 1.1
FORM OF
CERIDIAN HCM HOLDING INC.
21,000,000 Shares of Common Stock
Underwriting Agreement
April [ 🌑 ], 2018
Goldman Sachs & Co. LLC
200 West Street
29 th Floor
New York, New York 10282
J.P. Morgan Securities LLC
383 Madison Avenue
New York, New York 10179
As Representatives of the
several Underwriters listed
in Schedule 1 hereto
Ladies and Gentlemen:
Ceridian HCM Holding Inc., a Delaware corporation (the Company), proposes to issue and sell to the several underwriters listed in Schedule 1 hereto (the Underwriters), for whom you are acting as representatives (the Representatives), an aggregate of 21,000,000 shares of common stock, par value $0.01 per share, of the Company (collectively, the Underwritten Shares). In addition, the Company proposes to issue and sell, at the option of the Underwriters, up to an additional 3,150,000 shares of common stock of the Company (the Option Shares). The Underwritten Shares and the Option Shares are herein referred to as the Shares. The shares of common stock of the Company to be outstanding after giving effect to the sale of the Shares are referred to herein as the Stock.
The Company hereby confirms its agreement with the several Underwriters concerning the purchase and sale of the Shares, as follows:
1. Registration Statement . The Company has prepared and filed with the Securities and Exchange Commission (the Commission) under the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the Securities Act), a registration statement (File No. 333-223905 ), including a prospectus, relating to the Shares. Such registration statement, as amended at the time it became effective, including the information, if any, deemed pursuant to Rule 430A, 430B or 430C under the Securities Act to be part of the registration statement at the time of its effectiveness (Rule 430 Information), is referred to herein as the Registration Statement; and as used herein, the term Preliminary Prospectus
means each prospectus included in such registration statement (and any amendments thereto) before effectiveness, any prospectus filed with the Commission pursuant to Rule 424(a) under the Securities Act and the prospectus included in the Registration Statement at the time of its effectiveness that omits Rule 430 Information, and the term Prospectus means the prospectus in the form first used (or made available upon request of purchasers pursuant to Rule 173 under the Securities Act) in connection with confirmation of sales of the Shares. If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the Rule 462 Registration Statement), then any reference herein to the term Registration Statement shall be deemed to include such Rule 462 Registration Statement. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Registration Statement and the Prospectus.
Pursuant to the Securities Act (Ontario) and the rules, regulations and national, multilateral or local instruments and published policy statements applicable in Ontario, including the rules and procedures established pursuant to National Instrument 41-101 General Prospectus Requirements (Ontario Securities Laws), the Company (i) has prepared and filed with the Ontario Securities Commission (the OSC) a preliminary non-offering prospectus (the Canadian Preliminary Non-Offering Prospectus) and (ii) will prepare and file with the OSC a final non-offering prospectus (the Canadian Final Non-Offering Prospectus and, together with the Canadian Preliminary Prospectus, the Canadian Non-Offering Prospectus), to become a reporting issuer in Ontario under Ontario Securities Laws, each of which include the Preliminary Prospectus or the Prospectus, as applicable; and the Preliminary Canadian Non-Offering Prospectus, at the time of filing thereof, complied, and the Final Canadian Non-Offering Prospectus, at the time of filing thereof, will comply, in all material respects with, or will be exempt from, in certain respects, the applicable requirements of the Ontario Securities Laws.
At or prior to the Applicable Time (as defined below), the Company had prepared the following information (collectively with the pricing information set forth on Annex A, the Pricing Disclosure Package): a Preliminary Prospectus dated April [12], 2018 and each free-writing prospectus (as defined pursuant to Rule 405 under the Securities Act) listed on Annex A hereto.
Applicable Time means [ 🌑 ] [A/P].M., New York City time, on April [ 🌑 ], 2018.
2. Purchase of the Shares . (a) Subject to the terms and conditions herein set forth, the Company agrees to issue and sell the Underwritten Shares to the several Underwriters as provided in this underwriting agreement (this Agreement), and each Underwriter, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, agrees, severally and not jointly, to purchase at a price per share (the Purchase Price) of $[ 🌑 ] from the Company the respective number of Underwritten Shares set forth opposite such Underwriters name in Schedule 1 hereto.
In addition, subject to the terms and conditions herein set forth, the Company agrees to issue and sell the Option Shares to the several Underwriters as provided in this Agreement, and the Underwriters, on the basis of the representations, warranties and agreements set forth herein and subject to the conditions set forth herein, shall have the option to purchase, severally and not jointly, from the Company the Option Shares at the Purchase Price less an amount per share equal to any dividends or distributions declared by the Company and payable on the Underwritten
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Shares but not payable on the Option Shares. If any Option Shares are to be purchased, the number of Option Shares to be purchased by each Underwriter shall be the number of Option Shares which bears the same ratio to the aggregate number of Option Shares being purchased as the number of Underwritten Shares set forth opposite the name of such Underwriter in Schedule 1 hereto (or such number increased as set forth in Section 12 hereof) bears to the aggregate number of Underwritten Shares being purchased from the Company by the several Underwriters, subject, however, to such adjustments to eliminate any fractional Shares as the Representatives in their sole discretion shall make. Any such election to purchase Option Shares shall be made in proportion to the maximum number of Option Shares to be sold by the Company.
The Underwriters may exercise the option to purchase Option Shares at any time in whole, or from time to time in part, on or before the thirtieth (30th) day following the date of the Prospectus, by written notice from the Representatives to the Company. Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for, which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date nor later than the tenth (10th) full business day (as hereinafter defined) after the date of such notice (unless such time and date are postponed in accordance with the provisions of Section 12 hereof). Any such notice shall be given at least two business days prior to the date and time of delivery specified therein.
(b) The Company understands that the Underwriters intend to make a public offering of the Shares as soon after the effectiveness of this Agreement as in the judgment of the Representatives is advisable, and initially to offer the Shares on the terms set forth in the Pricing Disclosure Package. The Company acknowledges and agrees that the Underwriters may offer and sell Shares to or through any affiliate of an Underwriter.
(c) Payment for the Shares shall be made by wire transfer in immediately available funds to the accounts specified by the Company to the Representatives in the case of the Underwritten Shares, at the offices of Latham & Watkins LLP at 10:00 A.M., New York City time, on April [ 🌑 ], 2018, or at such other time or place on the same or such other date, not later than the fifth business day thereafter, as the Representatives and the Company may agree upon in writing or, in the case of the Option Shares, on the date and at the time and place specified by the Representatives in the written notice of the Underwriters election to purchase such Option Shares. The time and date of such payment for the Underwritten Shares is referred to herein as the Closing Date and the time and date for such payment for the Option Shares, if other than the Closing Date, is herein referred to as the Additional Closing Date.
Payment for the Shares to be purchased on the Closing Date or the Additional Closing Date, as the case may be, shall be made against delivery to the Representatives for the respective accounts of the several Underwriters of the Shares to be purchased on such date or the Additional Closing Date, as the case may be, with any transfer taxes payable in connection with the sale of such Shares duly paid by the Company. Delivery of the Shares shall be made through the facilities of The Depository Trust Company (DTC) unless the Representatives shall otherwise instruct. The certificates for the Shares will be made available for inspection and packaging by the Representatives at the office of DTC or its designated custodian not later than 1:00 P.M., New York City time, on the business day prior to the Closing Date or the Additional Closing Date, as the case may be.
-3-
(d) The Company acknowledges and agrees that the Underwriters are acting solely in the capacity of an arms length contractual counterparty to the Company with respect to the offering of Shares contemplated hereby (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company or any other person. Additionally, neither the Representatives nor any other Underwriter are advising the Company or any other person as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction. The Company shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated hereby, and the Underwriters shall have no responsibility or liability to the Company with respect thereto. Any review by the Underwriters of the Company, the transactions contemplated hereby or other matters relating to such transactions will be performed solely for the benefit of the Underwriters and shall not be on behalf of the Company
3. Representations and Warranties of the Company . The Company represents and warrants to each Underwriter that:
(a) Preliminary Prospectus. No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus included in the Pricing Disclosure Package, at the time of filing thereof, complied in all material respects with the Securities Act, and no Preliminary Prospectus, at the time of filing thereof, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in any Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 9(c) hereof.
(b) Pricing Disclosure Package . The Pricing Disclosure Package as of the Applicable Time did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Pricing Disclosure Package, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 9(c) hereof.
-4-
(c) Issuer Free Writing Prospectus. Other than the Registration Statement, the Preliminary Prospectus and the Prospectus, the Company (including its agents and representatives, other than the Underwriters in their capacity as such) has not prepared, made, used, authorized, approved or referred to and will not prepare, make, use, authorize, approve or refer to any written communication (as defined in Rule 405 under the Securities Act) that constitutes an offer to sell or solicitation of an offer to buy the Shares (each such communication by the Company or its agents and representatives (other than a communication referred to in clause (i) below) an Issuer Free Writing Prospectus) other than (i) any document not constituting a prospectus pursuant to Section 2(a)(10)(a) of the Securities Act or Rule 134 under the Securities Act or (ii) the documents listed on Annex A hereto, each electronic road show and any other written communications approved in writing in advance by the Representatives. Each such Issuer Free Writing Prospectus complies in all material respects with the Securities Act, has been or will be (within the time period specified in Rule 433) filed in accordance with the Securities Act (to the extent required thereby) and does not conflict with the information contained in the Registration Statement or the Pricing Disclosure Package, and, when taken together with the Preliminary Prospectus accompanying, or delivered prior to delivery of, such Issuer Free Writing Prospectus, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in each such Issuer Free Writing Prospectus or Preliminary Prospectus in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in such Issuer Free Writing Prospectus or Preliminary Prospectus, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 9(c) hereof.
(d) Emerging Growth Company . From the time of initial confidential submission of the Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an emerging growth company, as defined in Section 2(a) of the Securities Act (an Emerging Growth Company). Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Securities Act.
(e) Testing-the-Waters Materials. The Company (i) has not alone engaged in any Testing-the-Waters Communications other than Testing-the-Waters Communications with the consent of the Representatives with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act, (ii) has not used any written Testing-the-Waters Communications that have not been approved by the Representatives and (iii) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives
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have been authorized to act on its behalf in undertaking Testing-the-Waters Communications by virtue of a writing substantially in the form of Exhibit A hereto. The Company has not distributed or approved for distribution any Written Testing-the-Waters Communications other than those listed on Annex B hereto. Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act. Any individual Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement or the Pricing Disclosure Package, complied in all material respects with the Securities Act, and when taken together with the Pricing Disclosure Package as of the Applicable Time, did not, and as of the Closing Date and as of the Additional Closing Date, as the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(f) Registration Statement and Prospectus. The Registration Statement has been declared effective by the Commission. No order suspending the effectiveness of the Registration Statement has been issued by the Commission, and no proceeding for that purpose or pursuant to Section 8A of the Securities Act against the Company or related to the offering of the Shares has been initiated or, to the Companys knowledge, threatened by the Commission; as of the applicable effective date of the Registration Statement and any post-effective amendment thereto, the Registration Statement and any such post-effective amendment complied and will comply in all material respects with the Securities Act, and did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading; and as of the date of the Prospectus and any amendment or supplement thereto and as of the Closing Date and as of the Additional Closing Date, as the case may be, the Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement and the Prospectus and any amendment or supplement thereto, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 9(c) hereof.
(g) Canadian Offering Memorandum. No order, ruling or decision of any court or any securities regulatory authority (collectively, the Canadian Securities Authorities) in any province or territory of Canada in which Shares will be offered and sold (the Canadian Offering Jurisdictions) is in effect that restricts or ceases trades in securities of the Company or suspends or restricts the use of the preliminary Canadian offering memorandum dated April [ 🌑 ], 2018 (the Preliminary Canadian Offering Memorandum) or the final Canadian offering memorandum to be dated April [ 🌑 ], 2018 (the Final Canadian Offering Memorandum and, together with the Preliminary Canadian Offering Memorandum, the Canadian Offering Memorandum) and no proceeding for that purpose
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has been initiated or, to the Companys knowledge, threatened by any Canadian Securities Authority; the Preliminary Canadian Offering Memorandum did not, at the date thereof, and the Final Canadian Offering Memorandum will not, as of the date thereof and as of the Closing Date and as of the Additional Closing Date, as the case may be, contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the Company makes no representation or warranty with respect to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Preliminary Canadian Offering Memorandum or the Final Canadian Offering Memorandum and any amendment or supplement thereto, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 9(c) hereof; and the Preliminary Canadian Offering Memorandum conforms, and the Final Canadian Offering Memorandum will conform, in all material respects, to the requirements of all applicable securities laws, regulations, rules, instruments, rulings and orders in the Canadian Offering Jurisdictions and the applicable policy statements issued by any Canadian Securities Authority (collectively, Canadian Securities Laws).
(h) Financial Statements. The financial statements (including the related notes thereto) of the Company and its consolidated subsidiaries included in the Registration Statement, the Pricing Disclosure Package and the Prospectus comply in all material respects with the applicable requirements of the Securities Act and present fairly in all material respects the financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and the changes in their cash flows for the periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) in the United States applied on a consistent basis throughout the periods covered thereby, and any supporting schedules included in the Registration Statement present fairly in all material respects the information required to be stated therein; the other financial information included in the Registration Statement, the Pricing Disclosure Package and the Prospectus has been derived from the accounting records of the Company and its consolidated subsidiaries and presents fairly in all material respects the information shown thereby; and the pro forma financial information and the related notes thereto included in the Registration Statement, the Pricing Disclosure Package and the Prospectus have been prepared in accordance with the applicable requirements of the Securities Act and the assumptions underlying such pro forma financial information are reasonable and are set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(i) No Material Adverse Change. Since the date of the most recent financial statements of the Company included in the Registration Statement, the Pricing Disclosure Package and the Prospectus, and except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) there has not been any change in the capital stock (other than the issuance of shares of Common Stock upon exercise of stock options and warrants described as outstanding in, and the grant of options and awards under existing equity incentive plans described in the Registration Statement, the Pricing
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Disclosure Package and the Prospectus), the short-term debt or long-term debt of the Company or any of its subsidiaries (other than immaterial changes in short- or long-term debt in the ordinary course of business), or any dividend or distribution of any kind declared, set aside for payment, paid or made by the Company on any class of capital stock, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the business, properties, management, financial position, stockholders equity or results of operations of the Company and its subsidiaries taken as a whole; (ii) neither the Company nor any of its subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) that is material to the Company and its subsidiaries taken as a whole or incurred any liability or obligation, direct or contingent, that is material to the Company and its subsidiaries taken as a whole; and (iii) neither the Company nor any of its subsidiaries has sustained any loss or interference with its business that is material to the Company and its subsidiaries taken as a whole and that is either from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or any action, order or decree of any court or arbitrator or governmental or regulatory authority, except in each case as otherwise disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(j) Organization and Good Standing. The Company and each of its subsidiaries have been duly organized and are validly existing and in good standing under the laws of their respective jurisdictions of organization, are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, and have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, except where the failure to be so qualified or in good standing or have such power or authority would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the business, properties, management, financial position, stockholders equity, results of operations or prospects of the Company and its subsidiaries taken as a whole or on the performance by the Company of its obligations under this Agreement (a Material Adverse Effect). The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 21 to the Registration Statement.
(k) Capitalization. The Company has an authorized capitalization as set forth in the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading Description of Capital Stock; all the outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable and are not subject to any pre-emptive or similar rights; except as described in or expressly contemplated by the Pricing Disclosure Package and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of its subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any such subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options; the capital stock of
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the Company conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and all the outstanding shares of capital stock or other equity interests of each subsidiary owned, directly or indirectly, by the Company have been duly and validly authorized and issued, are fully paid and non-assessable (except as otherwise described in the Registration Statement, the Pricing Disclosure Package and the Prospectus) and are owned directly or indirectly by the Company, free and clear of any lien, charge, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party.
(l) Stock Options. With respect to the stock options (the Stock Options) granted pursuant to the stock-based compensation plans of the Company and its subsidiaries (the Company Stock Plans), (i) each Stock Option intended to qualify as an incentive stock option under Section 422 of the Code so qualifies, (ii) each grant of a Stock Option was duly authorized no later than the date on which the grant of such Stock Option was by its terms to be effective (the Grant Date) by all necessary corporate action, including, as applicable, approval by the board of directors of the Company (or a duly constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (iii) each such grant was made in accordance with the terms of the Company Stock Plans and all other applicable laws and regulatory rules or requirements, including the rules of the Exchange Act and New York Stock Exchange (the Exchange) and any other exchange on which Company securities are traded, and (iv) each such grant was properly accounted for in accordance with GAAP in the financial statements (including the related notes) of the Company. The Company has not knowingly granted, and there is no and has been no policy or practice of the Company of granting, Stock Options prior to, or otherwise coordinating the grant of Stock Options with, the release or other public announcement of material information regarding the Company or its subsidiaries or their results of operations or prospects.
(m) Due Authorization. The Company has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder; and all action required to be taken for the due and proper authorization, execution and delivery by it of this Agreement and the consummation by it of the transactions contemplated hereby has been duly and validly taken.
(n) Underwriting Agreement. This Agreement has been duly authorized, executed and delivered by the Company.
(o) The Shares. The Shares to be issued and sold by the Company hereunder have been duly authorized by the Company and, when issued and delivered and paid for as provided herein, will be duly and validly issued, will be fully paid and nonassessable and will conform to the descriptions thereof in the Registration Statement, the Pricing Disclosure Package and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights.
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(p) Description of the Underwriting Agreement. This Agreement conforms in all material respects to the description thereof contained in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(q) No Violation or Default. Neither the Company nor any of its subsidiaries is (i) in violation of its charter or by-laws or similar organizational documents; (ii) in default, and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any property or asset of the Company or any of its subsidiaries is subject; or (iii) in violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority having jurisdiction over the Company or any of its subsidiaries, except, in the case of clauses (i) (if such entity is not the Company or a significant subsidiary), (ii) and (iii) above, for any such default or violation that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(r) No Conflicts. The execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares by the Company, the issuance by the Company of the Shares to be issued upon the exercise of the Options (as hereinafter defined) and the consummation by the Company of the transactions contemplated by this Agreement will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or asset of the Company or any of its significant subsidiaries pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its significant subsidiaries is a party or by which the Company or any of its significant subsidiaries is bound or to which any property or asset of the Company or any of its significant subsidiaries is subject, (ii) result in any violation of the provisions of the charter or by-laws or similar organizational documents of the Company or any of its significant subsidiaries or (iii) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority having jurisdiction over the Company or any of its significant subsidiaries, except, in the case of clauses (i) and (iii) above, for any such conflict, breach, violation, default, lien, charge or encumbrance that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(s) No Consents Required. No consent, approval, authorization, order, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance by the Company of this Agreement, the issuance and sale of the Shares and the consummation of the transactions contemplated by this Agreement, except (i) as may be required by the Financial Industry Regulatory Authority, Inc. (FINRA), (ii) as may be required under the rules and regulations of the Exchange in connection with the listing of the Shares and (iii) for the registration of the Shares under the Securities Act and such consents, approvals, authorizations, orders and registrations or qualifications under applicable state securities laws in connection with the purchase and distribution of the Shares by the Underwriters.
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(t) Legal Proceedings. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no legal, governmental or regulatory investigations, actions, suits, or proceedings (Actions) pending to which the Company or any of its subsidiaries is or may be a party or to which any property of the Company or any of its subsidiaries is or may be the subject that, individually or in the aggregate, if determined adversely to the Company or any of its subsidiaries, would reasonably be expected to have a Material Adverse Effect; no such Actions are threatened or, to the knowledge of the Company, contemplated by any governmental or regulatory authority or threatened by others; and (i) there are no current or pending Actions that are required under the Securities Act to be described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so described in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (ii) there are no statutes, regulations or contracts or other documents that are required under the Securities Act to be filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package or the Prospectus that are not so filed as exhibits to the Registration Statement or described in the Registration Statement, the Pricing Disclosure Package and the Prospectus.
(u) Independent Accountants . KPMG LLP, who has certified certain financial statements of the Company and its subsidiaries, is an independent registered public accounting firm with respect to the Company and its subsidiaries within the applicable rules and regulations adopted by the Commission and the Public Company Accounting Oversight Board (United States) and as required by the Securities Act.
(v) Title to Real and Personal Property. Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, the Company and its subsidiaries have good and marketable title in fee simple (in the case of real property) to, or have valid rights to lease or otherwise use, all items of real and personal property that are material to the respective businesses of the Company and its subsidiaries, in each case free and clear of all liens, encumbrances, claims and defects and imperfections of title except those that (i) do not materially interfere with the use made and proposed to be made of such property by the Company and its subsidiaries or (ii) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(w) Intellectual Property. (i) The Company and its subsidiaries own or have the right to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, domain names and other source indicators, copyrights and copyrightable works, know-how, trade secrets, systems, procedures, proprietary or confidential information and all other worldwide intellectual property, industrial property and proprietary rights (collectively, Intellectual Property) used in the conduct of their respective businesses; (ii) the Company and its subsidiaries conduct of their respective businesses does not infringe, misappropriate or otherwise violate any Intellectual Property of any person in any material respect; and (ii) the Company and its subsidiaries have not received any written notice of any material claim relating to Intellectual Property.
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(x) No Undisclosed Relationships. No relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, stockholders, customers, suppliers or other affiliates of the Company or any of its subsidiaries, on the other, that is required by the Securities Act to be described in each of the Registration Statement and the Prospectus and that is not so described in such documents and in the Pricing Disclosure Package.
(y) Investment Company Act. The Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof received by the Company as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, will not be required to register as an investment company or an entity controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder (collectively, the Investment Company Act).
(z) Taxes. Other than any taxes the payment of which by the Company or its applicable subsidiary is the subject of a good faith dispute by the Company or its applicable subsidiary and with respect to which reserves in conformity with GAAP have been provided on the books of the relevant entity, (i) the Company and its subsidiaries have paid all material federal, state, local and foreign taxes and filed all material tax returns required to be paid or filed through the date hereof; and (ii) except as otherwise disclosed in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, there is no tax deficiency that has been, or could reasonably be expected to be, asserted against the Company or any of its subsidiaries or any of their respective properties or assets that could reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
(aa) Licenses and Permits. The Company and its subsidiaries possess all licenses, sub-licenses, certificates, permits and other authorizations issued by, and have made all declarations and filings with, the appropriate federal, state, local or foreign governmental or regulatory authorities that are necessary for the ownership or lease of their respective properties or the conduct of their respective businesses as described in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, except where the failure to possess or make the same would not, individually or in the aggregate, have a Material Adverse Effect; and except as described in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus, neither the Company nor any of its subsidiaries has received notice of any revocation or modification of any such license, sub-license, certificate, permit or authorization or has any reason to believe that any such license, sub-license, certificate, permit or authorization will not be renewed in the ordinary course, except where the failure to pay or file or where such revocation, modification or non-renewal has not and would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(bb) No Labor Disputes. No labor disturbance by or dispute with employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is contemplated or threatened, and the Company is not aware of any existing or imminent labor disturbance by, or dispute with, the employees of any of its or its subsidiaries principal suppliers, contractors or customers, except as would not reasonably be expected to have a Material Adverse Effect.
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(cc) Certain Environmental Matters . Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (i) The Company and its subsidiaries (x) are in compliance with all, and have not violated any, applicable federal, state, local and foreign laws (including common law), rules, regulations, requirements, decisions, judgments, decrees, orders and other legally enforceable requirements relating to pollution or the protection of human health or safety, the environment, natural resources, hazardous or toxic substances or wastes, pollutants or contaminants (collectively, Environmental Laws); (y) have received and are in compliance with all, and have not violated any, permits, licenses, certificates or other authorizations or approvals required of them under any Environmental Laws to conduct their respective businesses; and (z) have not received written notice of any actual or potential liability or obligation under or relating to, or any actual or potential violation of, any Environmental Laws, including for the investigation or remediation of any disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants, and have no knowledge of any event or condition that would reasonably be expected to result in any such notice, and (ii) there are no costs or liabilities associated with Environmental Laws of or relating to the Company or its subsidiaries, except in the case of each of (i) and (ii) above, for any such matter as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and (iii) except as described in each of the Pricing Disclosure Package and the Prospectus, (x) there is no proceeding that is pending, or that is known to be contemplated, against the Company or any of its subsidiaries under any Environmental Laws in which a governmental entity is also a party, other than such proceeding regarding which it is reasonably believed no monetary sanctions of $100,000 or more will be imposed, (y) the Company and its subsidiaries are not aware of any facts or issues regarding compliance with Environmental Laws, or liabilities or other obligations under Environmental Laws or concerning hazardous or toxic substances or wastes, pollutants or contaminants, that could reasonably be expected to have a material effect on the capital expenditures, earnings or competitive position of the Company and its subsidiaries, and (z) none of the Company or its subsidiaries anticipates material capital expenditures relating to any Environmental Laws.
(dd) Compliance with ERISA . (i) Each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), for which the Company or any member of its Controlled Group (defined as any entity, whether or not incorporated, that is under common control with the Company within the meaning of Section 4001(a)(14) of ERISA or any entity that would be regarded as a single employer with the Company under Section 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended (the Code)) would have any liability (each, a Plan) has been maintained in compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Code; (ii) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan, excluding transactions effected pursuant to a statutory or administrative exemption; (iii) for each
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Plan that is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no Plan has failed (whether or not waived), or is reasonably expected to fail, to satisfy the minimum funding standards (within the meaning of Section 302 of ERISA or Section 412 of the Code) applicable to such Plan; (iv) no Plan is, or is reasonably expected to be, in at risk status (within the meaning of Section 303(i) of ERISA) and no Plan that is a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA is in endangered status or critical status (within the meaning of Sections 304 and 305 of ERISA) (v) no reportable event (within the meaning of Section 4043(c) of ERISA and the regulations promulgated thereunder) has occurred or is reasonably expected to occur; (vi) each Plan that is intended to be qualified under Section 401(a) of the Code is so qualified, and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification; (vii) neither the Company nor any member of the Controlled Group has incurred, nor reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the Pension Benefit Guarantee Corporation, in the ordinary course and without default) in respect of a Plan (including a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA); and (viii) none of the following events has occurred or is reasonably likely to occur: (A) a material increase in the aggregate amount of contributions required to be made to all Plans by the Company or its Controlled Group affiliates in the current fiscal year of the Company and its Controlled Group affiliates compared to the amount of such contributions made in the Companys and its Controlled Group affiliates most recently completed fiscal year; or (B) a material increase in the Company and its subsidiaries accumulated post-retirement benefit obligations (within the meaning of Accounting Standards Codification Topic 715-60) compared to the amount of such obligations in the Company and its subsidiaries most recently completed fiscal year, except in each case with respect to the events or conditions set forth in (i) through (viii) hereof, as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(ee) Disclosure Controls . The Company maintains an effective system of disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) that complies with the requirements of the Exchange Act and that has been designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commissions rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Companys management as appropriate to allow timely decisions regarding required disclosure.
(ff) Accounting Controls. The Company and its subsidiaries maintain systems of internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that have been designed to comply with the requirements of the Exchange Act and have been designed by, or under the supervision of, their respective principal executive and principal financial officers, or persons performing similar functions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company and its subsidiaries maintain internal accounting controls sufficient to provide reasonable
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assurance that (i) transactions are executed in accordance with managements general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with managements general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Based on the Companys most recent evaluation of its internal controls over financial reporting pursuant to Rule 13a-15(c) of the Exchange Act, except as disclosed in the Registration Statement, the Pricing Disclosure Package and the Prospectus, there are no material weaknesses in the Companys internal controls over financial reporting. The Companys auditors and the Audit Committee of the Board of Directors of the Company have been advised of: (i) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which have adversely affected or are reasonably likely to adversely affect the Companys ability to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal controls over financial reporting.
(gg) Insurance. The Company and its subsidiaries have insurance covering their respective properties, operations, personnel and businesses, including business interruption insurance, which insurance is in amounts and insures against such losses and risks as the Company believes are adequate to protect the Company and its subsidiaries and their respective businesses; and neither the Company nor any of its subsidiaries has (i) received notice from any insurer or agent of such insurer that capital improvements or other expenditures are required or necessary to be made in order to continue such insurance or (ii) any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage at reasonable cost that would not result in a Material Adverse Effect from similar insurers as may be necessary to continue its business in all material respects.
(hh) No Unlawful Payments. Neither the Company nor any of its subsidiaries, nor any director or officer of the Company or any of its subsidiaries nor, to the knowledge of the Company, any employee, agent, controlled affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made or taken an act in furtherance of an offer, promise or authorization of any direct or indirect unlawful payment or benefit to any foreign or domestic government official or employee, including of any government-owned or controlled entity or of a public international organization, or any person acting in an official capacity for or on behalf of any of the foregoing, or any political party or party official or candidate for political office; (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended, or the Corruption of Foreign Public Officials Act of Canada, as amended, or any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, or committed an offence under the Bribery Act 2010 of the United Kingdom, or any other applicable anti-bribery or anti-corruption law; or
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(iv) made, offered, agreed, requested or taken an act in furtherance of any unlawful bribe or other unlawful benefit, including, without limitation, any rebate, payoff, influence payment, kickback or other unlawful or improper payment or benefit. The Company and its subsidiaries have instituted, maintain and enforce, and will continue to maintain and enforce policies and procedures designed to promote and ensure compliance with all applicable anti-bribery and anti-corruption laws.
(ii) Compliance with Anti-Money Laundering Laws . The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements, including those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the applicable money laundering statutes of all jurisdictions where the Company or any of its subsidiaries conducts business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the Anti-Money Laundering Laws), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
(jj) No Conflicts with Sanctions Laws. Neither the Company nor any of its subsidiaries, directors or officers, nor, to the knowledge of the Company, any employee, agent, controlled affiliate or other person associated with or acting on behalf of the Company or any of its subsidiaries is currently the subject or the target of any sanctions administered or enforced by the U.S. government (including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC) or the U.S. Department of State and including, without limitation, the designation as a specially designated national or blocked person), the United Nations Security Council (UNSC), the European Union, Her Majestys Treasury (HMT) or other relevant sanctions authority (collectively, Sanctions), nor is the Company or any of its subsidiaries located, organized or resident in a country or territory that is the subject or target of comprehensive Sanctions, which countries or territories currently consist of Cuba, Iran, North Korea, Syria and the Crimea Region of Ukraine (each, a Sanctioned Country); and the Company will not directly or indirectly use the proceeds of the offering of the Shares hereunder, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity (i) to fund or facilitate any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions, (ii) to fund or facilitate any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any person (including any person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions. For the past five years, the Company and its subsidiaries have not knowingly engaged in and are not now knowingly engaged in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions or with any Sanctioned Country.
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(kk) No Restrictions on Subsidiaries . Except as described in the Registration Statement, the Pricing Disclosure Package and the Prospectus, no subsidiary of the Company is currently prohibited, directly or indirectly, under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company, from making any other distribution on such subsidiarys capital stock or similar ownership interest, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiarys properties or assets to the Company or any other subsidiary of the Company.
(ll) No Brokers Fees. Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that would give rise to a valid claim against any of them or any Underwriter for a brokerage commission, finders fee or like payment in connection with the offering and sale of the Shares.
(mm) No Registration Rights . No person has the right to require the Company or any of its subsidiaries to register any securities for sale under the Securities Act by reason of the filing of the Registration Statement with the Commission or the issuance and sale of the Shares by the Company.
(nn) No Stabilization. The Company has not taken, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Shares.
(oo) Margin Rules . Neither the issuance, sale and delivery of the Shares nor the application of the proceeds thereof by the Company as described in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus will not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System or any other regulation of such Board of Governors.
(pp) Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act) included in any of the Registration Statement, the Pricing Disclosure Package or the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
(qq) Statistical and Market Data. Nothing has come to the attention of the Company that has caused the Company to believe that the statistical and market-related data included in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus is not based on or derived from sources that are reliable and accurate in all material respects.
(rr) Sarbanes-Oxley Act . There is and has been no failure on the part of the Company or, to the knowledge of the Company, any of the Companys directors or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act of 2002, as amended and the rules and regulations promulgated in connection therewith (the Sarbanes-Oxley Act), including Section 402 related to loans, to the extent compliance is required as of the date of the Agreement.
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(ss) Status under the Securities Act . At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or any offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) under the Securities Act) of the Shares and at the date hereof, the Company was not and is not an ineligible issuer, as defined in Rule 405 under the Securities Act.
5. Further Agreements of the Company . The Company covenants and agrees with each Underwriter that:
(a) Required Filings. The Company will file the final Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A, 430B or 430C under the Securities Act, will file any Issuer Free Writing Prospectus to the extent required by Rule 433 under the Securities Act; the Company will furnish copies of the Prospectus, each Issuer Free Writing Prospectus, and the Canadian Offering Memorandum (to the extent not previously delivered) to the Underwriters in New York City prior to 10:00 A.M., New York City time, on the business day next succeeding the date of this Agreement or for such later time as may be agreed by the Company and the Representatives in such quantities as the Representatives may reasonably request; the Company will file the Final Canadian Non-Offering Prospectus with the OSC and furnish a copy thereof to the Underwriters prior to 10:00 A.M., New York City time on the second business day next succeeding the date of this Agreement or such later time as may be agreed by the Company and the Representatives; and the Company shall also file or cause to be filed with the Canadian Securities Authorities in the Canadian Offering Jurisdictions the Final Canadian Offering Memorandum and the reports on Form 45-106F1 (together with the applicable fees) within the time periods and otherwise as required under applicable Canadian Securities Laws.
(b) Delivery of Copies. Upon request from the Representatives, the Company will deliver, without charge, (i) to the Representatives, two signed copies of the Registration Statement as originally filed and each amendment thereto, in each case including all exhibits and consents filed therewith; and (ii) to each Underwriter (A) a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) and (B) during the Prospectus Delivery Period (as defined below), as many copies of the Prospectus (including all amendments and supplements thereto and each Issuer Free Writing Prospectus) as the Representatives may reasonably request. As used herein, the term Prospectus Delivery Period means such period of time after the first date of the public offering of the Shares as in the opinion of counsel for the Underwriters a prospectus relating to the Shares is required by law to be delivered (or required to be delivered but for Rule 172 under the Securities Act) in connection with sales of the Shares by any Underwriter or dealer.
(c) Amendments or Supplements, Issuer Free Writing Prospectuses. Before using, authorizing, approving, referring to or filing any Issuer Free Writing Prospectus, and before filing any amendment or supplement to the Registration Statement or the Prospectus, the Company will furnish to the Representatives and counsel for the Underwriters a copy of the proposed Issuer Free Writing Prospectus, amendment or supplement for review and will not use, authorize, approve, refer to or file any such Issuer Free Writing Prospectus or file any such proposed amendment or supplement to which the Representatives reasonably objects in a timely manner.
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(d) Notice to the Representatives. The Company will advise the Representatives promptly, and confirm such advice in writing (which may be by electronic mail), (i) when the Registration Statement has become effective; (ii) when any amendment to the Registration Statement has been filed or becomes effective; (iii) when any supplement to the Prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, the Canadian Offering Memorandum or the Canadian Non-Offering Prospectus or any amendment to the Prospectus has been filed or distributed; (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or of any request by the OSC for any amendment or supplement to the Canadian Non-Offering Prospectus, or the receipt of any comments from the Commission relating to the Registration Statement or any other request by the Commission for any additional information including, but not limited to, any request for information concerning any Testing-the-Waters Communication, or the receipt of any comments from the OSC relating to the Canadian Non-Offering Prospectus; (v) of the issuance by the Commission or any other governmental or regulatory authority of any order suspending the effectiveness of the Registration Statement or preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package, the Prospectus or any Written Testing-the-Waters Communication or the initiation or threatening of any proceeding for that purpose or pursuant to Section 8A of the Securities Act, and of the issuance by the OSC or any other Canadian governmental or regulatory authority of any order preventing or suspending the use of the Canadian Non-Offering Prospectus; (vi) of the occurrence of any event or development within the Prospectus Delivery Period as a result of which the Prospectus, any of the Pricing Disclosure Package, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, the Canadian Offering Memorandum or the Canadian Non-Offering Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus, the Pricing Disclosure Package, any such Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, the Canadian Offering Memorandum or the Canadian Non-Offering Prospectus is delivered to a purchaser, not misleading; and (vii) of the receipt by the Company of any notice with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and the Company will use its reasonable best efforts to prevent the issuance of any such order suspending the effectiveness of the Registration Statement, preventing or suspending the use of any Preliminary Prospectus, any of the Pricing Disclosure Package or the Prospectus, any Written Testing-the-Waters Communication, the Canadian Non-Offering Prospectus or suspending any such qualification of the Shares and, if any such order is issued, will obtain as soon as possible the withdrawal thereof.
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(e) Ongoing Compliance. (1) If during the Prospectus Delivery Period (i) any event or development shall occur or condition shall exist as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Prospectus to comply with the Securities Act, the Company will as soon as reasonably practicable notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission and furnish to the Underwriters and to such dealers as the Representatives may designate such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances existing when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with the Securities Act and (2) if at any time prior to the Closing Date (i) any event or development shall occur or condition shall exist as a result of which the Pricing Disclosure Package as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, not misleading or (ii) it is necessary to amend or supplement the Pricing Disclosure Package to comply with law, the Company will as soon as is reasonably practicable notify the Underwriters thereof and forthwith prepare and, subject to paragraph (c) above, file with the Commission (to the extent required) and furnish to the Underwriters and to such dealers as the Representatives may designate, such amendments or supplements to the Pricing Disclosure Package as may be necessary so that the statements in the Pricing Disclosure Package as so amended or supplemented will not, in the light of the circumstances existing when the Pricing Disclosure Package is delivered to a purchaser, be misleading or so that the Pricing Disclosure Package will comply with law.
(f) Blue Sky Compliance. The Company will qualify the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives shall reasonably request and will use its commercially reasonable efforts to continue such qualifications in effect so long as required for distribution of the Shares; provided that the Company shall not be required to (i) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (ii) file any general consent to service of process in any such jurisdiction or (iii) subject itself to taxation in any such jurisdiction if it is not otherwise so subject.
(g) Earning Statement. The Company will make generally available (electronically or otherwise) to its security holders and the Representatives as soon as practicable an earning statement that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder covering a period of at least twelve (12) months beginning with the first fiscal quarter of the Company occurring after the effective date (as defined in Rule 158) of the Registration Statement; provided that the Company will be deemed to have furnished such statement to its security holders to the extent it is filed on the Commissions Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).
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(h) Clear Market. For a period of 180 days after the date of the Prospectus, the Company will not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or file with or confidentially submit to the Commission a registration statement under the Securities Act, relating to, any shares of Stock or any securities convertible into or exercisable or exchangeable for Stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Stock or any such other securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Stock or such other securities, in cash or otherwise, without the prior written consent of the Representatives, other than (A) to the Underwriters pursuant to this Agreement, (B) upon the exercise of an option or warrant, the vesting of restricted stock units or the conversion or exchange of a security outstanding on the date hereof as referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (C) pursuant to the stock-based compensation plans of the Company and its subsidiaries as referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus, (D) the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act, provided that such plan does not provide for the transfer of shares of common stock during the 180-day restricted period and the establishment of such plan does not require or otherwise result in any public filing or other public announcement of such plan during the 180-day restricted period, (E) the issuance of up to 5% of the outstanding shares of Stock in connection with the acquisition of the assets of, or a majority or controlling portion of the equity of, or a joint venture with another entity in connection with the acquisition by the Company or any of its subsidiaries of such entity; provided in the case of this clause (E) the transferee of such shares agrees to be bound in writing to the restrictions set forth in this clause, (F) the filing of any registration statement on Form S-8 or a successor form thereto relating to the shares of common stock granted pursuant to or reserved for issuance under the stock-based compensation plans of the Company and its subsidiaries referred to in clause (C), (G) shares of Stock issued pursuant to a plan of reorganization, (H) shares of Stock issued in connection with a private placement transaction occurring as referred to in the Registration Statement, the Pricing Disclosure Package and the Prospectus and (I) pursuant to the effectiveness of a registration statement registering shares of Stock issuable upon exchange of the exchangeable shares of Ceridian AcquisitionCo ULC.
If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in Section 6(a) or a lock-up letter described in Section 8(m) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver substantially in the form of Exhibit B hereto at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.
(i) Use of Proceeds. The Company will apply the net proceeds from the sale of the Shares as described in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus under the heading Use of Proceeds.
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(j) No Stabilization. The Company will not take, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Stock.
(k) Exchange Listing. The Company will use its reasonable best efforts to list, subject to notice of issuance, the Shares on the Exchange and the Toronto Stock Exchange.
(l) Reports. Until the third anniversary of the date hereof, the Company will furnish to the Representatives, as soon as they are available, copies of all reports or other communications (financial or other) furnished to holders of the Shares, and copies of any reports and financial statements furnished to or filed with the Commission, the OSC, any national securities exchange or automatic quotation system; provided the Company will be deemed to have furnished such reports and financial statements to the Representatives to the extent they are filed on the Commissions Electronic Data Gathering, Analysis, and Retrieval system, or, in the case of any such reports and financial statements furnished or filed with any Canadian Securities Authority, to the extent that any such report or financial statements are publicly available on such Canadian Securities Authoritys website or the System for Electronic Document Analysis and Retrieval (SEDAR).
(m) Record Retention . The Company will, pursuant to reasonable procedures developed in good faith, retain copies of each Issuer Free Writing Prospectus that is not filed with the Commission in accordance with Rule 433 under the Securities Act.
(n) Filings. The Company will file with the Commission such reports as may be required by Rule 463 under the Securities Act and at the Companys expense, any exempt distribution reports or private placement filings required in connection with sales of Shares to Canadian purchasers.
(p) Emerging Growth Company . The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of Shares within the meaning of the Securities Act and (ii) completion of the 180-day restricted period referred to in Section 5(h) hereof.
7. Certain Agreements of the Underwriters . Each Underwriter hereby represents and agrees that:
(a) It has not and will not use, authorize use of, refer to or participate in the planning for use of, any free writing prospectus, as defined in Rule 405 under the Securities Act (which term includes use of any written information furnished to the Commission by the Company and not incorporated by reference into the Registration Statement and any press release issued by the Company) other than (i) a free writing prospectus that contains no issuer information (as defined in Rule 433(h)(2) under the Securities Act) that was not included (including through incorporation by reference) in the Preliminary Prospectus or a previously filed Issuer Free Writing Prospectus, (ii) any Issuer Free Writing Prospectus listed on Annex A or prepared pursuant to Section 3(c) or Section 4(c)
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above (including any electronic road show), or (iii) any free writing prospectus prepared by such underwriter and approved by the Company in advance in writing (each such free writing prospectus referred to in clauses (i) or (iii), an Underwriter Free Writing Prospectus).
(b) It has not and will not, without the prior written consent of the Company, use any free writing prospectus that contains the final terms of the Shares unless such terms have previously been included in a free writing prospectus filed with the Commission; provided that Underwriters may use a term sheet substantially in the form of Annex C hereto without the consent of the Company; provided further that any Underwriter using such term sheet shall notify the Company, and provide a copy of such term sheet to the Company, prior to, or substantially concurrently with, the first use of such term sheet.
(c) It shall only conduct sales to residents in the Province of Ontario, the Province of Quebec, the Province of Alberta, and/or the Province of British Columbia of Shares at each Time of Delivery in such manner that such sales are exempt from the prospectus requirements of Canadian Securities Laws applicable in such provinces.
(d) The Representatives, on behalf of the Underwriters, agree that they will confirm to the Company, in writing, following each Time of Delivery of the Shares that, to the best of their knowledge, no Shares were distributed to residents in the Province of Ontario, the Province of Quebec, the Province of Alberta or the Province of British Columbia, except Shares that were distributed to an accredited investor (as defined in section 1.1 of National Instrument 45-106 Prospectus Exemptions of the Canadian Securities Administrators or in section 73.3 of the Securities Act (Ontario), as the case may be) who is a permitted client (as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations of the Canadian Securities Administrators) or as may otherwise be exempt from the prospectus requirements of Canadian Securities Laws applicable in such provinces.
(e) The Representatives confirm to the Company that a notice has been sent to the Underwriters informing the Underwriters not to take any action in the Province of Ontario, the Province of Quebec, the Province of Alberta or the Province of British Columbia to prepare the Ontario, Quebec, Alberta or British Columbia market or create a demand in the Province of Ontario, the Province of Quebec, the Province of Alberta or the Province of British Columbia for the Shares, other than activities permitted in connection with a private placement of Shares under prospectus exemptions, in compliance with Canadian Securities Laws applicable in such provinces.
8. Conditions of Underwriters Obligations. The obligation of each Underwriter to purchase the Underwritten Shares on the Closing Date or the Option Shares on the Additional Closing Date, as the case may be, as provided herein is subject to the performance by the Company of its covenants and other obligations hereunder and to the following additional conditions:
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(a) Registration Compliance; No Stop Order. No order suspending the effectiveness of the Registration Statement shall be in effect, and no proceeding for such purpose pursuant to Section 8A under the Securities Act shall be pending before or threatened by the Commission; no order, ruling or decision of any court or Canadian Securities Authority restricting or ceasing trading in any of the securities of the Company or suspending or preventing the use of the Canadian Offering Memorandum or the Canadian Non-Offering Prospectus shall be in effect or threatened by any Canadian Securities Authority; the Prospectus and each Issuer Free Writing Prospectus shall have been timely filed with the Commission under the Securities Act (in the case of an Issuer Free Writing Prospectus, to the extent required by Rule 433 under the Securities Act) and the Canadian Non-Offering Prospectus shall have been timely filed with the OSC under the Securities Act (Ontario) and in accordance with Section 5(a) hereof; and all requests by the Commission and the OSC for additional information related to or otherwise affecting the offer and sale of the Shares shall have been complied with to the reasonable satisfaction of the Representatives.
(b) Representations and Warranties. The representations and warranties of the Company contained herein shall be true and correct on the date hereof and on and as of the Closing Date or the Additional Closing Date, as the case may be; and the statements of the Company and its officers made in any certificates delivered pursuant to this Agreement shall be true and correct on and as of the Closing Date or the Additional Closing Date, as the case may be.
(c) No Downgrade. Subsequent to the earlier of (A) the Applicable Time and (B) the execution and delivery of this Agreement, (i) no downgrading shall have occurred in the rating accorded any debt securities or preferred stock issued or guaranteed by the Company or any of its subsidiaries by any nationally recognized statistical rating organization, as such term is defined under Section 3(a)(62) under the Exchange Act and (ii) no such organization shall have publicly announced that it has under surveillance or review, or has changed its outlook with respect to, its rating of any such debt securities or preferred stock issued or guaranteed by the Company or any of its subsidiaries (other than an announcement with positive implications of a possible upgrading).
(d) No Material Adverse Change. No event or condition of a type described in Section 3(h) hereof shall have occurred or shall exist, which event or condition is not described in the Pricing Disclosure Package (excluding any amendment or supplement thereto) and the Prospectus (excluding any amendment or supplement thereto) and the effect of which in the judgment of the Representatives is so material and adverse as to make it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.
(e) Officers Certificate. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, (x) a certificate of the chief financial officer or chief accounting officer of the Company and one additional senior executive officer of the Company who is satisfactory to the Representatives (i) confirming that such officers have carefully reviewed the Registration Statement, the Pricing Disclosure Package and the Prospectus and, to the knowledge of such officers, the representations of the Company set forth in Sections 3(b) and 3(d) hereof are true and
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correct and (ii) confirming that the other representations and warranties of the Company in this Agreement are true and correct and that the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date or the Additional Closing Date, as the case may be.
(f) Comfort Letters. On the date of this Agreement and on the Closing Date or the Additional Closing Date, as the case may be, KPMG LLP shall have furnished to the Representatives, at the request of the Company, letters, dated the respective dates of delivery thereof and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, containing statements and information of the type customarily included in accountants comfort letters to underwriters with respect to the financial statements and certain financial information contained in each of the Registration Statement, the Pricing Disclosure Package and the Prospectus; provided, that the letter delivered on the Closing Date or the Additional Closing Date, as the case may be, shall use a cut-off date no more than three business days prior to such Closing Date or such Additional Closing Date, as the case may be.
(g) Opinion and 10b-5 Statement of Counsel for the Company. Weil, Gotshal & Manges LLP, counsel for the Company, shall have furnished to the Representatives, at the request of the Company, their written opinion and 10b-5 statement, dated the Closing Date or the Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives, to the effect set forth in Annex D-1 hereto.
(h) Opinion of Counsel for the Company related to Canadian matters. Goodmans LLP, counsel for the Company, shall have furnished to the Representatives, at the request of the Company, their written opinion, dated the Closing Date or the Additional Closing Date, as the case may be, and addressed to the Underwriters, in form and substance reasonably satisfactory to the Representatives.
(i) Opinion and 10b-5 Statement of Counsel for the Underwriters. The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, an opinion and 10b-5 statement of Latham & Watkins LLP, counsel for the Underwriters, with respect to such matters as the Representatives may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
(j) Opinion of Counsel for the Underwriters related to Canadian matters . The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, an opinion of Osler, Hoskin & Harcourt LLP, Canadian counsel for the Underwriters, with respect to such matters as the Representatives may reasonably request, and such counsel shall have received such documents and information as they may reasonably request to enable them to pass upon such matters.
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(k) No Legal Impediment to Issuance and/or Sale. No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued by any federal, state or foreign governmental or regulatory authority that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares by the Company; and no injunction or order of any federal, state or foreign court shall have been issued that would, as of the Closing Date or the Additional Closing Date, as the case may be, prevent the issuance or sale of the Shares by the Company.
(l) Receipt of the Canadian Final Non-Offering Prospectus . On or prior to the First Time of Delivery, the OSC shall have issued a receipt in respect of the Canadian Final Non-Offering Prospectus.
(m) Good Standing . The Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, satisfactory evidence of the good standing of the Company and its subsidiaries in their respective jurisdictions of organization and their good standing in such other jurisdictions as the Representatives may reasonably request, in each case in writing or any standard form of telecommunication from the appropriate governmental authorities of such jurisdictions.
(o) Exchange Listing. The Shares to be delivered on the Closing Date or the Additional Closing Date, as the case may be, shall have been approved for listing on the New York Stock Exchange, subject to official notice of issuance and shall have been conditionally approved for listing on the Toronto Stock Exchange, subject to fulfilling the requirements of the Toronto Stock Exchange.
(p) Lock-up Agreements . The lock-up agreements, each substantially in the form of Exhibit D hereto, between the Representatives and certain shareholders, officers and directors of the Company relating to sales and certain other dispositions of shares of Stock or certain other securities, delivered to the Representatives on or before the date hereof, shall be full force and effect on the Closing Date or the Additional Closing Date, as the case may be.
(q) Chief Financial Officers Certificate . On the date of this Agreement and on the Closing Date, the Company shall have furnished to the Underwriters a certificate, dated the respective dates of delivery thereof and addressed to the Underwriters, of its chief financial officer with respect to certain financial data contained in the Pricing Disclosure Package and the Prospectus, in form and substance reasonably satisfactory to the Underwriters.
(r) Additional Documents. On or prior to the Closing Date or the Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives such further certificates and documents as the Representatives may reasonably request.
All opinions, letters, certificates and evidence mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriters.
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9. Indemnification and Contribution .
(a) Indemnification of the Underwriters by the Company. The Company agrees to indemnify and hold harmless each Underwriter, its affiliates, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses reasonably incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, not misleading, or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus, the Canadian Offering Memorandum or the Canadian Non-Offering Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any issuer information filed or required to be filed pursuant to Rule 433(d) under the Securities Act, any Written Testing-the-Waters Communication, any road show as defined in Rule 433(h) under the Securities Act (a road show), or any Pricing Disclosure Package (including any Pricing Disclosure Package that has subsequently been amended), or caused by any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (c) below.
(b) Indemnification of the Company. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, but only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission from any such documents made in reliance upon and in conformity with any information relating to such Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus, the Canadian Offering Memorandum or the Canadian Non-Offering Prospectus, or any amendment or supplement thereto, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, any road show or any Pricing Disclosure Package, it being understood and agreed upon that the only such information furnished by any Underwriter consists of the following information in the Prospectus, the Canadian Offering Memorandum or the Canadian Non-Offering Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the third paragraph under the caption Underwriting, the information contained in the first, third and fourth sentences of the third paragraph, the first sentence of the twelfth paragraph, and the first sentence of the thirteenth paragraph under the caption Underwriting, and the following information in the Prospectus furnished on behalf of Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC.
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(c) Notice and Procedures. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnification may be sought pursuant to the preceding paragraphs of this Section 9, such person (the Indemnified Person) shall promptly notify the person against whom such indemnification may be sought (the Indemnifying Person) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under the preceding paragraphs of this Section 9 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under the preceding paragraphs of this Section 9. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person (who shall not, without the consent of the Indemnified Person, be counsel to the Indemnifying Person) to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section that the Indemnifying Person may designate in such proceeding and shall pay the reasonable and documented fees and expenses in such proceeding and shall pay the reasonable and documented fees and expenses of such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person (iii) the Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the reasonable and documented fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be paid or reimbursed as they are incurred. Any such separate firm for any Underwriter, its affiliates, directors and officers and any control persons of such Underwriter shall be designated in writing by J.P. Morgan Securities LLC and any such separate firm for the Company, its directors, its officers who signed the Registration Statement and any control persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person,
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effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (x) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (y) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.
(d) Contribution. If the indemnification provided for in paragraphs (a) and (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters on the other, from the offering of the Shares or (ii) if the allocation provided by clause (i) is not permitted by applicable law in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company, on the one hand, and the Underwriters on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters on the other, shall be deemed to be in the same respective proportions as the net proceeds (before deducting expenses) received by the Company from the sale of the Shares and the total underwriting discounts and commissions received by the Underwriters in connection therewith, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate offering price of the Shares. The relative fault of the Company, on the one hand, and the Underwriters on the other, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(e) Limitation on Liability. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to paragraph (d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of paragraphs (d) and (e), in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total underwriting discounts and commissions received by such Underwriter with respect to the offering of the Shares exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters obligations to contribute pursuant to paragraphs (d) and (e) are several in proportion to their respective purchase obligations hereunder and not joint.
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(f) Non-Exclusive Remedies. The remedies provided for in this Section 9 paragraphs (a) through (e) are not exclusive and shall not limit any rights or remedies which may otherwise be available to any Indemnified Person at law or in equity.
10. Effectiveness of Agreement . This Agreement shall become effective as of the date first written above.
11. Termination . This Agreement may be terminated in the absolute discretion of the Representatives, by notice to the Company, if after the execution and delivery of this Agreement and on or prior to the Closing Date or, in the case of the Option Shares, prior to the Additional Closing Date (i) trading generally shall have been suspended or materially limited on or by any of the New York Stock Exchange or The Nasdaq Stock Market; (ii) trading of any securities issued or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market; (iii) a general moratorium on commercial banking activities shall have been declared by federal or New York State authorities; or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis, either within or outside the United States, that, in the judgment of the Representatives, is material and adverse and makes it impracticable or inadvisable to proceed with the offering, sale or delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated by this Agreement, the Pricing Disclosure Package and the Prospectus.
12. Defaulting Underwriter .
(a) If, on the Closing Date or the Additional Closing Date, as the case may be, any Underwriter defaults on its obligation to purchase the Shares that it has agreed to purchase hereunder on such date, the non-defaulting Underwriters may in their discretion arrange for the purchase of such Shares by other persons satisfactory to the Company on the terms contained in this Agreement. If, within thirty-six (36) hours after any such default by any Underwriter, the non-defaulting Underwriters do not arrange for the purchase of such Shares, then the Company and shall be entitled to a further period of 36 hours within which to procure other persons satisfactory to the non-defaulting Underwriters to purchase such Shares on such terms. If other persons become obligated or agree to purchase the Shares of a defaulting Underwriter, either the non-defaulting Underwriters or the Company may postpone the Closing Date or the Additional Closing Date, as the case may be, for up to five full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Underwriters may be necessary in the Registration Statement and the Prospectus, the Canadian Offering Memorandum or the Canadian Non-Offering Prospectus or in any other document or arrangement, and the Company agrees to promptly prepare any amendment or supplement to the Registration Statement, the Prospectus, the Canadian Offering Memorandum or the Canadian Non-Offering Prospectus that effects any such changes. As used in this Agreement, the term Underwriter includes, for all purposes of this Agreement unless the context otherwise requires, any person not listed in Schedule 1 hereto that, pursuant to this Section 12, purchases Shares that a defaulting Underwriter agreed but failed to purchase.
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(b) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters and the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, does not exceed one-eleventh of the aggregate number of Shares to be purchased on such date, then the Company shall have the right to require each non-defaulting Underwriter to purchase the number of Shares that such Underwriter agreed to purchase hereunder on such date plus such Underwriters pro rata share (based on the number of Shares that such Underwriter agreed to purchase on such date) of the Shares of such defaulting Underwriter or Underwriters for which such arrangements have not been made.
(c) If, after giving effect to any arrangements for the purchase of the Shares of a defaulting Underwriter or Underwriters by the non-defaulting Underwriters, the Company as provided in paragraph (a) above, the aggregate number of Shares that remain unpurchased on the Closing Date or the Additional Closing Date, as the case may be, exceeds one-eleventh of the aggregate amount of Shares to be purchased on such date, or if the Company shall not exercise the right described in paragraph (b) above, then this Agreement or, with respect to any Additional Closing Date, the obligation of the Underwriters to purchase Shares on the Additional Closing Date, as the case may be, shall terminate without liability on the part of the non-defaulting Underwriters. Any termination of this Agreement pursuant to this Section 12 shall be without liability on the part of the Company, except that the Company will continue to be liable for the payment of expenses as set forth in Section 13 hereof and except that the provisions of Section 9 hereof shall not terminate and shall remain in effect.
(d) Nothing contained in paragraphs (a), (b) and (c) above herein shall relieve a defaulting Underwriter of any liability it may have to the Company or any non-defaulting Underwriter for damages caused by its default.
13. Payment of Expenses .
(a) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company will pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder, including without limitation, (i) the costs incident to the authorization, issuance, sale, preparation and delivery of the Shares and any taxes payable in connection therewith; (ii) the costs incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Preliminary Prospectus, any Issuer Free Writing Prospectus, any Pricing Disclosure Package, the Prospectus and each Canadian Offering Memorandum (including all exhibits, amendments and supplements thereto) and the distribution thereof; (iii) the fees and expenses of the Companys counsel and independent accountants; (iv) the fees and expenses incurred in connection with the registration or qualification and determination of eligibility for investment of the Shares under the laws of such jurisdictions as the Representatives may designate and the preparation, printing and distribution of a Blue Sky Memorandum (including the related fees and expenses of counsel for the Underwriters up to an aggregate of $5,000); (v) the cost of preparing stock certificates; (vi) the costs and charges of any transfer agent and any registrar; (vii) all expenses and application fees incurred in connection with any filing with, and clearance of the offering by, FINRA (provided that the reimbursement obligation for such fees and expenses of counsel for the Underwriters shall not exceed, in the aggregate,
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$20,000)); (viii) all expenses incurred by the Company in connection with any road show presentation to potential investors; it being understood that except as provided in this Section 13 or Section 9 hereof, the Underwriters will pay all of the travel, lodging and other expenses of the Underwriters or any of their employees incurred by them in connection with any roadshow presentation to potential investors and 50% of the costs of any aircraft chartered in connection with the road show presentation; (ix) all fees and expenses in connection with each Canadian Non-Offering Prospectus and amendments and supplements thereto; (x) all fees and expenses of any exempt distribution reports or private placement filings required to be filed by the Company and the Underwriters, as applicable, in connection with sales of Shares to Canadian purchasers and (xi) all expenses and application fees related to the listing of the Shares on the Exchange.
(b) If (i) this Agreement is terminated pursuant to Section 11, (ii) the Company for any reason fails to tender the Shares for delivery to the Underwriters or (iii) the Underwriters decline to purchase the Shares for any reason permitted under this Agreement, the Company agrees to reimburse the Underwriters for all out-of-pocket costs and expenses (including the reasonable and documented fees and expenses of their counsel) reasonably incurred by the Underwriters in connection with this Agreement and the offering contemplated hereby. For the avoidance of doubt, if this Agreement is terminated pursuant to Section 12, the Company shall have no obligation to reimburse a defaulting Underwriter for out-of-pocket costs and expenses (including the fees and expenses of their counsel) incurred by such defaulting Underwriter in connection with this Agreement and the offering contemplated hereby.
14. Persons Entitled to Benefit of Agreement . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and, to the extent provided in Section 9 and 15 hereof, the officers and directors of the Company and any Underwriter, any affiliates of the Underwriters and any controlling persons of the Company or any Underwriter. Nothing in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. No purchaser of Shares from any Underwriter shall be deemed to be a successor merely by reason of such purchase.
15. Survival . The respective indemnities, rights of contribution, representations, warranties and agreements of the Company and the Underwriters contained in this Agreement or made by or on behalf of the Company or the Underwriters pursuant to this Agreement or any certificate delivered pursuant hereto shall survive the delivery of and payment for the Shares and shall remain in full force and effect, regardless of any termination of this Agreement or any investigation made by or on behalf of the Company or the Underwriters.
16. Certain Defined Terms . For purposes of this Agreement, (a) except where otherwise expressly provided, the term affiliate has the meaning set forth in Rule 405 under the Securities Act; (b) the term business day means any day other than a day on which banks are permitted or required to be closed in New York City; (c) the term subsidiary has the meaning set forth in Rule 405 under the Securities Act ; and (d) the term significant subsidiary has the meaning set forth in Rule 1-02 of Regulation S-X under the Exchange Act.
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17. Compliance with USA Patriot Act . In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.
18. Miscellaneous .
(a) Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted and confirmed by any standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives c/o Goldman Sachs & Co. LLC, 200 West Street, New York, New York 10282-2198, Attention: Registration Department and c/o J.P. Morgan Securities LLC, 383 Madison Avenue, New York, New York 10179 (fax: (212) 622-8358), Attention: Equity Syndicate Desk. Notices to the Company shall be given to it at Ceridian HCM Holding Inc., 3311 East Old Shakopee Road, Minneapolis, Minnesota 55425, (fax: (952) 853-3413); Attention: General Counsel.
(b) Governing Law. This Agreement and any claim, controversy or dispute arising under or related to this Agreement shall be governed by and construed in accordance with the laws of the State of New York.
(f) Waiver of Jury Trial. Each of the parties hereto hereby waives any right to trial by jury in any suit or proceeding arising out of or relating to this Agreement.
(g) Counterparts. This Agreement may be signed in counterparts (which may include counterparts delivered by any standard form of telecommunication), each of which shall be an original and all of which together shall constitute one and the same instrument.
(h) Amendments or Waivers. No amendment or waiver of any provision of this Agreement, nor any consent or approval to any departure therefrom, shall in any event be effective unless the same shall be in writing and signed by the parties hereto.
(i) Headings. The headings herein are included for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement.
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If the foregoing is in accordance with your understanding, please indicate your acceptance of this Agreement by signing in the space provided below.
Very truly yours, | ||
CERIDIAN HCM HOLDING INC. | ||
By: |
|
|
Title: |
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Accepted: As of the date first written above
GOLDMAN SACHS & CO. LLC
By: |
Authorized Signatory |
J.P. MORGAN SECURITIES LLC
By: |
Authorized Signatory |
For themselves and on behalf of the
several Underwriters listed
in Schedule 1 hereto.
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Schedule 1
Underwriter |
Number of Shares |
|
Goldman Sachs & Co. LLC | [ 🌑 ] | |
J.P. Morgan Securities LLC | [ 🌑 ] | |
Credit Suisse Securities (USA) LLC | [ 🌑 ] | |
Deutsche Bank Securities Inc. | [ 🌑 ] | |
Barclays Capital Inc. | [ 🌑 ] | |
Citigroup Global Markets Inc. | [ 🌑 ] | |
Jefferies LLC | [ 🌑 ] | |
CIBC World Markets Corp. | [ 🌑 ] | |
Wells Fargo Securities, LLC | [ 🌑 ] | |
Robert W. Baird & Co. Incorporated | [ 🌑 ] | |
Cannacord Geniuty LLC | [ 🌑 ] | |
Piper Jaffray & Co. | [ 🌑 ] | |
William Blair & Company, L.L.C. | [ 🌑 ] | |
MUFG Securities Americas Inc. | [ 🌑 ] | |
Total | [ 🌑 ] |
Sch. 1-1
Annex A
a. | Free Writing Prospectuses |
[ 🌑 ].
b. | Pricing Information Provided Orally by Underwriters |
Public offering price per Share: [ 🌑 ]
Number of Underwritten Shares: [ 🌑 ]
Number of Option Shares: [ 🌑 ]
Annex A-2-1
Annex B
Written Testing-the-Waters Communications
Reference is made to the materials used in the testing the waters presentation made to potential investors by the Company, to the extent such materials are deemed to be a written communication within the meaning of Rule 405 under the Securities Act.
Annex B
Annex C
Ceridian HCM Holding Inc.
Pricing Term Sheet
[TO COME]
Annex C
Annex D
Form of Opinion of Counsel for the Company
[TO COME]
Annex D
Exhibit A
EGC Testing the waters authorization
In reliance on Section 5(d) of the Securities Act of 1933 (the Act), Ceridian HCM Holding Inc. (the Issuer) hereby authorizes Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC and their affiliates and respective employees (Authorized Persons) to engage on behalf of the Issuer in oral and written communications with potential investors that are qualified institutional buyers, as defined in Rule 144A under the Act, or institutions that are accredited investors, as defined in Rule 501 of Regulation D under the Act, to determine whether such investors might have an interest in the Issuers contemplated initial public offering (Testing the Waters Communications).
As previously discussed, it is our and your expectation that, unless otherwise approved by the Issuer, Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, neither the Issuer nor any Authorized Person will send or give to any potential investor any Testing the Waters Communication that is a written communication as defined in Rule 405 of the Act, other than such Testing the Waters Communications that are limited to any one or more statements described in Rule 134 under the Act (whether or not reliance on Rule 134 would otherwise be permitted or available under the Act for such Testing the Waters Communication) and/or any customary legal or regulatory legends or disclaimers. The Issuer represents that it is an emerging growth company as defined in Section 2(a)(19) of the Act (Emerging Growth Company) and agrees to promptly notify Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC in writing if the Issuer hereafter ceases to be an Emerging Growth Company while this authorization is in effect.
Nothing in this authorization is intended to limit or otherwise affect the ability of Authorized Persons to engage in communications in which they could otherwise lawfully engage in the absence of this authorization. This authorization shall remain in effect until the Issuer has provided to Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC a written notice revoking this authorization. All notices as described herein shall be sent by email to the attention of [ 🌑 ] at [ 🌑 ], with copies to [ 🌑 ].
Exhibit B
Form of Waiver of Lock-up
CERIDIAN HCM HOLDING INC.
Public Offering of Common Stock
[ 🌑 ]
[Name and Address of
Officer or Director
Requesting Waiver]
Dear Mr./Ms. [Name]:
This letter is being delivered to you in connection with the offering by Ceridian HCM Holding Inc. (the Company) of [ 🌑 ] shares of common stock, $[ 🌑 ] par value (the Common Stock), of the Company and the lock-up letter dated April [ 🌑 ], 2018 (the Lock-up Letter), executed by you in connection with such offering, and your request for a [waiver] [release] dated [ 🌑 ], with respect to [ 🌑 ] shares of Common Stock (the Shares).
Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC hereby agree to [waive] [release] the transfer restrictions set forth in the Lock-up Letter, but only with respect to the Shares, effective [ 🌑 ]; provided , however , that such [waiver] [release] is conditioned on the Company announcing the impending [waiver] [release] by press release through a major news service at least two business days before effectiveness of such [waiver] [release]. This letter will serve as notice to the Company of the impending [waiver] [release].
Except as expressly [waived] [released] hereby, the Lock-up Letter shall remain in full force and effect.
Yours very truly,
[Signature of Representatives]
[Name of Representatives]
cc: Company
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Exhibit C
Form of Press Release
Ceridian HCM Holding Inc.
[ 🌑 ]
Ceridian HCM Holding Inc. (Company) announced today that Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, the lead book-running managers in the Companys recent public sale of [ 🌑 ] shares of common stock, is [waiving] [releasing] a lock-up restriction with respect to [ 🌑 ] shares of the Companys common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on [ 🌑 ], and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
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Exhibit D
FORM OF LOCK-UP AGREEMENT
April [ 🌑 ], 2018
GOLDMAN SACHS & CO. LLC
J.P. MORGAN SECURITIES LLC
As Representatives of
the several Underwriters listed in
Schedule 1 to the Underwriting
Agreement referred to below
c/o Goldman Sachs & Co. LLC
200 West Street
29 th Floor
New York, New York 10282
c/o J.P. Morgan Securities LLC
383 Madison Avenue
New York, NY 10179
Re: | Ceridian HCM Holding Inc. Public Offering |
Ladies and Gentlemen:
The undersigned understands that you, as Representatives of the several Underwriters, propose to enter into an underwriting agreement (the Underwriting Agreement) with Ceridian HCM Holding Inc., a Delaware corporation (the Company), providing for the public offering (the Public Offering) by the several Underwriters named in Schedule 1 to the Underwriting Agreement (the Underwriters), of common stock, of the Company (the Securities). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Underwriting Agreement.
In consideration of the Underwriters agreement to purchase and make the Public Offering of the Securities, and for other good and valuable consideration receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC on behalf of the Underwriters, the undersigned will not, during the period beginning on the date of this letter agreement (this Letter Agreement) and ending 180 days after the date of the prospectus relating to the Public Offering (the Prospectus) (such period, the Restricted Period) , (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares
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of Common Stock, $0.01 per share par value, of the Company (the Common Stock) or any securities convertible into or exercisable or exchangeable for Common Stock (including without limitation, Common Stock or such other securities which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any offer, sale, pledge or disposition, (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Common Stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise or (3) make any demand for or exercise any right with respect to the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock.
The foregoing paragraph shall not apply to:
(A) transfers of shares of Common Stock as a bona fide gift or gifts,
(B) transfers of shares of Common Stock to a trust or limited family partnership for the direct or indirect benefit of the undersigned or the immediate family of the undersigned,
(C) transfers of shares of Common Stock by will, other testamentary document or intestate succession to the legal representative, heir, beneficiary or a member of the immediate family of the undersigned,
(D) if the undersigned is a corporation, partnership, limited liability company, trust or other business entity (1) transfers to another corporation, partnership, limited liability company, trust or other business entity that is an affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned or (2) distributions of shares of Common Stock to limited partners, limited liability company members or stockholders of the undersigned, or holders of similar equity interests in the undersigned,
(E) by operation of law pursuant to a qualified domestic order or in connection with a divorce settlement;
(F) to any immediate family member or any investment fund or other entity controlled or managed by the undersigned,
(G) to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (A) through (F),
(H) to the Company pursuant to any contractual arrangement that provides for the repurchase of the undersigneds securities by the Company in connection with the termination of the undersigneds employment or other service relationship with the Company or the undersigneds failure to meet certain conditions set out upon receipt of such securities,
(I) shares of Common Stock acquired by the undersigned in open market transactions after completion of the Offering,
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(J) pursuant to an order of a court or regulatory agency having jurisdiction over the undersigned and
(K) in response to a bona fide third party takeover bid made to all holders of Common Stock or any other acquisition transaction whereby all or substantially all of the Common Stock are acquired by a third party, provided that if such transaction is not completed, any Securities in the Company subject to this Letter Agreement shall remain subject to the restrictions contained in this Letter Agreement;
provided that (a) in the case of any transfer or distribution pursuant to clauses (A) through (G), (1) each transferee shall execute and deliver to the Representatives a lock-up letter substantially in the form of this Agreement and (2) no filing by the undersigned under the Securities Exchange Act of 1934, as amended (the Exchange Act), or other public announcement reporting a reduction in beneficial ownership of any Securities shall be required or shall be made voluntarily in connection with such transfer or distribution (other than a filing on Form 5 required by applicable law or regulation, provided that with respect to this clause (2), any required filing under the Exchange Act shall include a footnote disclosure explaining the nature of, and reason for, such disposition); and provided , further , that in the case of any transfer or distribution pursuant to clauses (A) through (F), there shall be no disposition for value; and (b) in the case of clause (I), no filing under Section 16(a) of the Exchange Act shall be required or shall be made voluntarily in connection with such transfer. For purposes of this Agreement, immediate family shall mean any relationship by blood, marriage or adoption, not more remote than first cousin.
In addition, the foregoing restrictions shall not apply to (A) in the case of the exercise of stock options or similar rights granted pursuant to the Companys equity incentive plans, transfers to the Company in connection with (1) the net or cashless exercise of such options in accordance with their terms, (2) the surrender to the Company of Common Stock in lieu of payment in cash of the exercise price thereof or (3) the satisfaction of the payment to the Company of the exercise price thereof, provided , that following any such transfers, the foregoing restrictions shall apply to any securities issued to and retained by the undersigned upon such exercise, (B) the establishment of any contract, instruction or plan (a Plan) that satisfies all of the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act, provided that no sales of the undersigneds securities shall be made pursuant to such a Plan prior to the expiration of the Restricted Period, and such a Plan may only be established if no public announcement of the establishment or existence thereof and no filing with the SEC or other regulatory authority in respect thereof or transactions thereunder or contemplated thereby, by the undersigned, the Company or any other person, shall be required, and no such announcement or filing is made voluntarily, by the undersigned, the Company or any other person, prior to the expiration of the Restricted Period or (C) dispositions or other transfers pursuant to the plan of reorganization as contemplated in the Registration Statement, the Pricing Disclosure Package and the Prospectus, including any related disposition and/or transfer of Securities acquired in the private placement transaction occurring concurrently with the Public Offering; provided , the foregoing restrictions shall apply to any securities retained by the undersigned following the completion of all transactions related to such plan of reorganization or private placement; provided that no filing by the undersigned under the Exchange Act or other public announcement shall be required or shall be made voluntarily
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in connection with such transfer or distribution pursuant to this clause (C) (other than a filing on Form 4 or Form 5 required by applicable law or regulation); provided, further, that with respect to this clause (C), any required filing under the Exchange Act shall include a footnote disclosure explaining the nature of, and reason for, such disposition.
If the undersigned is an officer or director of the Company, (i) Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC on behalf of the Underwriters agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC on behalf of the Underwriters will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC on behalf of the Underwriters hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
In furtherance of the foregoing, the Company, and any duly appointed transfer agent for the registration or transfer of the securities described herein, are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this Letter Agreement.
The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Letter Agreement. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.
The undersigned understands that, if (1) the Company files an application to withdraw the Registration Statement related to the Public Offering (2) the Underwriting Agreement does not become effective by September 30, 2018, (3) if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Common Stock to be sold thereunder, or (4) Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC on behalf of the Underwriters advise the Company, or the Company advises Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC, in writing, prior to the execution of the Underwriting Agreement, that they have determined not to proceed with the Public Offering, the undersigned shall be released from all obligations under this Letter Agreement. The undersigned understands that the Underwriters are entering into the Underwriting Agreement and proceeding with the Public Offering in reliance upon this Letter Agreement.
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This Letter Agreement and any claim, controversy or dispute arising under or related to this Letter Agreement shall be governed by and construed in accordance with the laws of the State of New York.
Very truly yours, | ||
[NAME OF STOCKHOLDER] | ||
By: |
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Name: | ||
Title: |
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Exhibit 3.1
FORM OF THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
CERIDIAN HCM HOLDING INC.
Ceridian HCM Holding Inc., a corporation organized and existing under the laws of the State of Delaware (the Corporation), does hereby certify as follows:
First: The Corporations original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on July 3, 2013. The First Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on October 1, 2013 and the Second Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on March 30, 2016 (as amended to date, the Previous Certificate of Incorporation).
Second: This Third Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware.
Third: This Third Amended and Restated Certificate of Incorporation amends, restates and integrates the provisions of the Corporations Previous Certificate of Incorporation.
Fourth: The text of this Third Amended and Restated Certificate of Incorporation is hereby amended and restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation (the Corporation) is Ceridian HCM Holding Inc.
ARTICLE II
REGISTERED AGENT
The address of the registered office of the Corporation in the State of Delaware is Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808, County of New Castle. The name of the Corporations registered agent at that address is Corporation Service Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may now or hereafter be organized under the General Corporation Law of the State of Delaware (the DGCL).
ARTICLE IV
CAPITAL STOCK
Section 4.1. Authorized Shares . The total number of shares of all classes of capital stock that the Corporation shall have authority to issue is 510,000,000 shares, of which (i) 500,000,000 shares shall be designated shares of common stock, par value $0.01 per share (Common Stock) and (ii) 10,000,000 shares shall be designated shares of preferred stock, par value $0.01 per share (the Preferred Stock). Notwithstanding anything to the contrary contained herein, the rights and preferences of the Common Stock shall at all times be subject to the rights and preferences of the Preferred Stock as may be set forth in one or more certificates of designations filed with the Secretary of State of the State of Delaware from time to time in accordance with the DGCL and this Certificate. The number of authorized shares of Preferred Stock and Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) from time to time by the affirmative vote of the holders of at least a majority of the voting power of the Corporations then outstanding shares of stock entitled to vote thereon, voting together as a single class, irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto) (including, with respect to the Preferred Stock, the vote attaching to the Special Voting Share), and no vote of the holders of any of the Common Stock or the Preferred Stock voting separately as a class or series shall be required therefor.
Section 4.2. Common Stock . The Common Stock shall have the following powers, designations, preferences and rights and qualifications, limitations and restrictions:
(a) Voting . Each holder of record of shares of Common Stock shall be entitled to vote at all meetings of the stockholders of the Corporation and shall have one vote for each share of Common Stock held of record by such holder of record as of the applicable record date on any matter that is submitted to a vote of the stockholders of the Corporation; provided , however , that to the fullest extent permitted by law, holders of Common Stock, as such, shall have no voting power with respect to, and shall not be entitled to vote on, any amendment to this Certificate (including any certificate of designations relating to any series or class of Preferred Stock) that relates solely to the terms of one or more outstanding series or class(es) of Preferred Stock if the holders of such affected series or class(es) of Preferred Stock are entitled, either separately or together with the holders of one or more other such series or class(es), to vote thereon pursuant to applicable law or this Certificate (including any certificate of designations relating to any series or class of Preferred Stock); and provided further that the Board of Directors may issue or grant shares of Common Stock that are subject to vesting or forfeiture and that restrict or eliminate voting rights with respect to such shares until any such vesting criteria is satisfied or such forfeiture provisions lapse.
(b) Dividends and Distributions . Subject to the prior rights of all classes or series of stock at the time outstanding having prior rights as to dividends or other distributions, the holders of shares of Common Stock shall be entitled to receive such dividends and other distributions in cash, property, or stock as may be declared on the Common Stock by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor and shall share equally on a per share basis in all such dividends and other distributions.
(c) Liquidation, etc . Subject to the prior rights of creditors of the Corporation and the holders of all classes or series of stock at the time outstanding having prior rights as to distributions upon liquidation, dissolution or winding up of the Corporation, in the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of shares of Common Stock shall be entitled to receive their ratable and proportionate share of the remaining assets of the Corporation.
(d) No holder of shares of Common Stock shall have cumulative voting rights.
(e) No holder of shares of Common Stock shall be entitled to preemptive or subscription rights pursuant to this Certificate.
Section 4.3. Preferred Stock . The Board of Directors is hereby expressly authorized, to the fullest extent as may now or hereafter be permitted by the DGCL, by resolution or resolutions, at any time and from time to time, to provide for the issuance of a share or shares of Preferred Stock in one or more series or classes and to fix for each such series or class (i) the number of shares constituting such series or class and the designation of such series or class, (ii) the voting powers (if any), whether full or limited, of the shares of such series or class, (iii) the powers, preferences, and relative, participating, optional or other special rights of the shares of each such series or class, and (iv) the qualifications, limitations, and restrictions thereof, and to cause to be filed with the Secretary of State of the State of Delaware a certificate of designation with respect thereto. Without limiting the generality of the foregoing, to the fullest extent as may now or hereafter be permitted by the DGCL, the authority of the Board of Directors with respect to the Preferred Stock and any series or class thereof shall include, but not be limited to, determination of the following:
(a) the number of shares constituting any series or class, which number the Board of Directors may thereafter increase or decrease (but not below the number of shares thereof then outstanding) and the distinctive designation of that series or class;
(b) the dividend rate or rates on the shares of any series or class, the terms and conditions upon which and the periods in respect of which dividends shall be payable, whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series or class;
(c) whether any series or class shall have voting rights, in addition to the voting rights provided by applicable law, and, if so, the number of votes per share and the terms and conditions of such voting rights;
(d) whether any series or class shall have conversion privileges and, if so, the terms and conditions of conversion, including provision for adjustment of the conversion rate upon such events as the Board of Directors shall determine;
(e) whether the shares of any series or class shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(f) whether any series or class shall have a sinking fund for the redemption or purchase of shares of that series or class, and, if so, the terms and amount of such sinking fund;
(g) the rights of the shares of any series or class in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series or class; and
(h) any other powers, preferences, rights, qualifications, limitations, and restrictions of any series or class.
The powers, preferences and relative, participating, optional and other special rights of the shares of each series or class of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series or classes at any time outstanding. Unless otherwise provided in the resolution or resolutions providing for the issuance of such series or class of Preferred Stock, shares of Preferred Stock, regardless of series or class, which shall be issued and thereafter acquired by the Corporation through purchase, redemption, exchange, conversion or otherwise shall return to the status of authorized but unissued Preferred Stock, without designation as to series or class of Preferred Stock, and the Corporation shall have the right to reissue such shares.
Section 4.4. Special Voting Preferred Stock . One (1) share of the authorized Preferred Stock of the Corporation is designated Special Voting Preferred Stock and shall have the rights, preferences, powers, privileges and restrictions, qualifications and limitations set forth herein. Unless otherwise indicated, references to Sections or Subsections in this Section 4.4 refer to sections and subsections of this Section 4.4 . The one (1) share of Special Voting Preferred Stock is referred to herein as the Special Voting Share ).
(a) | Dividends . The holder of the Special Voting Share shall not be entitled to receive any portion of any dividend or distribution at any time. |
(b) | Voting Rights . The holder of the Special Voting Share shall have the following voting rights: |
(1) In accordance with the terms contained herein and in that certain Voting and Exchange Trust Agreement dated as of [], 2018 (the Trust Agreement), among the Corporation, Ceridian Canada Ltd., Ceridian Acquisitionco ULC (Exchangeco), and the Trustee (as defined therein), the holder of the Special Voting Share shall, with respect to all meetings of stockholders of the Corporation at which holders of shares of Common Stock are entitled to vote (each, a Ceridian Holding Meeting) and with respect to all written consents sought from the holders of shares of Common Stock (a Ceridian Holding Consent), be entitled to cast a number of votes for each exchangeable share of Exchangeco (the Exchangeable Shares) owned of record at the close of business on the record date established by the Corporation or by applicable law for such Ceridian Holding Meeting or Ceridian Holding Consent, as the case may be, by registered holders of such Exchangeable Shares (excluding any such Exchangeable Shares owned by the Corporation or its subsidiaries) and for which the Trustee (as defined in Trust Agreement) has received voting instructions from the Beneficiaries (as defined in Trust Agreement), equal to the number of votes to which a holder of one share of Common Stock is entitled, in respect of each matter, question, proposal or proposition to be voted on at such Ceridian Holding Meeting or to be consented to in connection with such Ceridian Holding Consent.
(2) Except as otherwise provided herein or by law, the holder of the Special Voting Share and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation.
(3) Except as set forth herein, the holder of the Special Voting Share shall have no special voting rights, and its consent shall not be required (except to the extent it is entitled to vote with the holders of shares of Common Stock and Common Stock as set forth herein) for taking any corporate action.
(c) | Additional Provisions . |
(1) The holder of the Special Voting Share is entitled to exercise the voting rights attendant thereto in such manner as such holder desires.
(2) At such time as (A) there are no Exchangeable Shares of Exchangeco issued and outstanding that are not owned by the Corporation or any subsidiary of the Corporation, and (B) there is no share of stock, debt, option or other agreement, obligation or commitment of Exchangeco which could by its terms require Exchangeco to issue any Exchangeable Shares to any person other than the Corporation or any subsidiary of the Corporation, then the Special Voting Share shall thereupon be retired and cancelled promptly thereafter for no consideration and not be reissued.
(d) | Reacquired Share . If the Special Voting Share is purchased or otherwise acquired by the Corporation in accordance with the terms of Section 4.4(c)(2) or Section 4.4(e), then the Special Voting Share shall be retired and cancelled promptly after the acquisition thereof. |
(e) | Redemption . The Special Voting Share is not redeemable, except as at such time as contemplated by Section 4.4(c)(2). |
(f) | Dissolution, Liquidation or Winding Up . Upon any liquidation, dissolution or winding up of the Corporation, the holder of the Special Voting Share shall not be entitled to any portion of any related distribution. |
ARTICLE V
DIRECTORS
Section 5.1. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, consisting of not less than one (1) nor more than fourteen (14) members with the exact number of directors to be set forth in the Corporations Bylaws or determined from time to time by resolution adopted by the Board of Directors. The directors, other than those who may be elected by the holders of any class or series of Preferred Stock as set forth in this Certificate of Incorporation, shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At each annual meeting of stockholders, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. The term of the initial Class I directors shall terminate on the date of the 2019 annual meeting of stockholders; the term of the initial Class II directors shall terminate on the date of the 2020 annual meeting of stockholders and the term of the initial Class III directors shall terminate on the date of the 2021 annual meeting of stockholders. At each annual meeting of stockholders beginning in 2019, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term.
Section 5.2. If the number of directors on the Board of Directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify for office, subject, however, to prior death, resignation, retirement, disqualification or removal from office.
Section 5.3. Subject to the terms of any one or more series or classes of Preferred Stock, any vacancy on the Board of Directors, however resulting, may be filled only by an affirmative vote of the majority of the directors then in office, even if less than a quorum, or by an affirmative vote of the sole remaining director. Any director elected to fill a vacancy shall hold office for a term that shall coincide with the term of the class to which such director shall have been elected.
Section 5.4. Notwithstanding any of the foregoing provisions, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation, or the resolution or resolutions adopted by the Board of Directors pursuant to Section 4.4 of this Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article V unless expressly provided by such terms.
ARTICLE VI
CORPORATE OPPORTUNITIES
Section 6.1. In anticipation of the possibility (a) that the officers and/or directors of the Corporation may also serve as officers and/or directors of Cannae (as defined below) or THL (as defined below) and (b) that the Corporation on one hand, and Cannae or THL on the other hand, may engage in the same or similar activities or lines of business and have an interest in the same corporate opportunities, and in recognition of the benefits to be derived by the Corporation through its continued contractual, corporate and business relations with Cannae and THL, the provisions of this Article VI are set forth to regulate, to the fullest extent permitted by law, the conduct of certain affairs of the Corporation as they relate to Cannae and THL and their respective officers and directors, and the powers, rights, duties and liabilities of the Corporation and its officers, directors and stockholders in connection therewith.
Section 6.2. (a) Except as may be otherwise provided in a written agreement between the Corporation on one hand, and Cannae or THL on the other hand, Cannae and THL shall have no duty to refrain from engaging in the same or similar activities or lines of business as the Corporation, and, to the fullest extent permitted by law, neither Cannae nor THL nor any officer or director thereof (except in the event of any violation of Section 6.3 hereof, to the extent such violation would create liability under applicable law) shall be liable to the Corporation or its stockholders for breach of any fiduciary duty by reason of any such activities of Cannae or THL.
(b) The Corporation may from time to time be or become a party to and perform, and may cause or permit any subsidiary of the Corporation to be or become a party to and perform, one or more agreements (or modifications or supplements to pre-existing agreements) with Cannae and/or THL. Subject to Section 6.3 hereof, to the fullest extent permitted by law, no such agreement, nor the performance thereof in accordance with its terms by the Corporation or
any of its subsidiaries, Cannae or THL, shall be considered contrary to any fiduciary duty to the Corporation or to its stockholders of any director or officer of the Corporation who is also a director, officer or employee of Cannae or THL. Subject to Section 6.3 hereof, to the fullest extent permitted by law, no director or officer of the Corporation who is also a director, officer or employee of Cannae or THL shall have or be under any fiduciary duty to the Corporation or its stockholders to refrain from acting on behalf of the Corporation or any of its subsidiaries, Cannae or THL in respect of any such agreement or performing any such agreement in accordance with its terms.
Section 6.3. In the event that a director or officer of the Corporation who is also a director or officer of Cannae or THL acquires knowledge of a potential transaction or matter which may be a corporate opportunity of both the Corporation on one hand, and Cannae or THL on the other hand, such director or officer of the Corporation shall, to the fullest extent permitted by law, have fully satisfied and fulfilled the fiduciary duty of such director or officer to the Corporation and its stockholders with respect to such corporate opportunity, if such director or officer acts in a manner consistent with the following policy:
(a) a corporate opportunity offered to any person who is an officer of the Corporation, and who is also a director but not an officer of Cannae or THL, shall belong to the Corporation, unless such opportunity is expressly offered to such person in a capacity other than such persons capacity as an officer of the Corporation, in which case it shall not belong to the Corporation;
(b) a corporate opportunity offered to any person who is a director but not an officer of the Corporation, and who is also a director or officer of Cannae or THL, shall belong to the Corporation only if such opportunity is expressly offered to such person in such persons capacity as a director of the Corporation; and
(c) a corporate opportunity offered to any person who is an officer of both the Corporation on one hand, and Cannae or THL on the other hand, shall belong to the Corporation only if such opportunity is expressly offered to such person in such persons capacity as an officer of the Corporation.
Notwithstanding the foregoing, the Corporation shall not be prohibited from pursuing any corporate opportunity of which the Corporation becomes aware.
Section 6.4. Any person purchasing or otherwise acquiring any interest in shares of the capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article VI.
Section 6.5. (a) For purposes of this Article VI, a director of any company who is the chair of the board of directors of that company shall not be deemed to be an officer of the company solely by reason of holding such position.
(b) The term Corporation shall mean, for purposes of this Article VI, the Corporation and all corporations, partnerships, joint ventures, associations and other entities in which the Corporation beneficially owns (directly or indirectly) fifty percent or more of the outstanding voting stock, voting power, partnership interests or similar voting interests. The term Cannae shall mean, for purposes of this Article VI, Cannae Holdings, Inc., a Delaware corporation, and any successor thereof, and all corporations, partnerships, joint ventures,
associations and other entities in which it beneficially owns (directly or indirectly) fifty percent or more of the outstanding voting stock, voting power, partnership interests or similar voting interests other than the Corporation. The term THL shall mean, for purposes of this Article VI, Thomas H. Lee Partners, L.P., a Delaware limited partnership, and any successor thereof, and all corporations, partnerships, joint ventures, associations and other entities in which it or one or more of its affiliates beneficially owns (directly or indirectly) fifty percent or more of the outstanding voting stock, voting power, partnership interests or similar voting interests other than the Corporation and its subsidiaries.
Section 6.6. Anything in this Certificate of Incorporation to the contrary notwithstanding, the foregoing provisions of this Article VI shall not apply at any time that no person who is a director or officer of the Corporation is also a director or officer of Cannae or THL. Neither the alteration, amendment, termination, expiration or repeal of this Article VI nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VI shall eliminate or reduce the effect of this Article VI in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article VI, would accrue or arise, prior to such alteration, amendment, termination, expiration, repeal or adoption.
ARTICLE VII
REMOVAL OF DIRECTORS
Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any or all of the directors of the Corporation may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of a majority of the outstanding capital stock of the Corporation then entitled to vote generally in the election of directors, considered for purposes of this Article VII as one class. For purposes of this Article VII, cause shall mean, with respect to any director, (x) the willful failure by such director to perform, or the gross negligence of such director in performing, the duties of a director, (y) the engaging by such director in willful or serious misconduct that is injurious to the Corporation or (z) the conviction of such director of, or the entering by such director of a plea of nolo contendere to, a crime that constitutes a felony.
ARTICLE VIII
ELECTION OF DIRECTORS
Elections of directors at an annual or special meeting of stockholders shall be by written ballot unless the bylaws of the Corporation (as in effect from time to time, the Bylaws) shall otherwise provide.
ARTICLE IX
WRITTEN CONSENT OF STOCKHOLDERS
Except as otherwise provided for or fixed by or pursuant to the provisions of this Certificate of Incorporation or any resolution or resolutions of the Board of Directors providing for the issuance of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation may be effected only at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders; provided , however , that at any time when the THL and Cannae beneficially own (determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended), in the aggregate, more than fifty percent (50%) in voting power of the stock of
the Corporation entitled to vote generally in the election of directors, any action required or permitted to be taken by the stockholders of the Corporation at any meeting of stockholders may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by stockholders holding not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
ARTICLE X
SPECIAL MEETINGS
Special meetings of the stockholders of the Corporation for any purposes may be called at any time by a majority vote of the Board of Directors or the Chair of the Board or Chief Executive Officer of the Corporation. Except as required by law or provided by resolutions adopted by the Board of Directors designating the rights, powers and preferences of any Preferred Stock, special meetings of the stockholders of the Corporation may not be called by any other person or persons.
ARTICLE XI
OFFICERS
The officers of the Corporation shall be chosen in such manner, shall hold their offices for such terms and shall carry out such duties as are determined solely by the Board of Directors, subject to the right of the Board of Directors to remove any officer or officers at any time with or without cause.
ARTICLE XII
INDEMNITY
The Corporation shall indemnify to the full extent authorized or permitted by law any person made, or threatened to be made, a party to any action or proceeding (whether civil or criminal or otherwise) by reason of the fact that such person is or was a director or officer of the Corporation or by reason of the fact that such director or officer, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. Nothing contained herein shall affect any rights to indemnification to which employees other than directors and officers may be entitled by law. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such a director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law (a) for any breach of the directors duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) pursuant to Section 174 of the DGCL or (d) for any transaction from which such director derived an improper personal benefit. No amendment to or repeal of this Article XII shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.
ARTICLE XIII
BUSINESS COMBINATIONS
The Corporation shall not be governed by Section 203 of the DGCL.
ARTICLE XIV
AMENDMENT
The Corporation reserves the right at any time from time to time to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and any other provisions authorized by the laws of the State of Delaware at any time may be added or inserted, in the manner now or hereafter prescribed by law. All rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article XIV. In addition to any affirmative vote of the holders of any series of Preferred Stock required by law, by this Certificate of Incorporation or by the resolution or resolutions adopted by the Board of Directors designating the rights, powers and preferences of such Preferred Stock, the provisions (a) of the Bylaws may be adopted, amended or repealed if approved by a majority of the Board of Directors then in office or approved by holders of the Common Stock in accordance with applicable law and this Certificate of Incorporation and (b) of this Certificate of Incorporation may be adopted, amended or repealed as provided by applicable law.
ARTICLE XV
SEVERABILITY
If any provision (or any part thereof) of this Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Certificate of Incorporation including, without limitation, each portion of any section of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (ii) to the fullest extent possible, the provisions of this Certificate of Incorporation (including, without limitation, each such containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability in respect of their good faith service or for the benefit of the Corporation to the fullest extent permitted by law.
IN WITNESS WHEREOF, the undersigned officer of the Corporation has executed this Amended and Restated Certificate of Incorporation on behalf of the Corporation this [] day of April, 2018.
CERIDIAN HCM HOLDING INC. | ||
By: | ||
Name: | William E. McDonald | |
Title: | Senior Vice President, Deputy General Counsel and Corporate Secretary |
Exhibit 3.2
FORM OF AMENDED AND RESTATED BYLAWS OF
CERIDIAN HCM CORPORATION INC.
AS ADOPTED ON APRIL [], 2018
ARTICLE I
OFFICES
Section 1.1 Registered Office . The registered office of Ceridian HCM Holding Inc. (the Corporation) shall be 2711 Centerville Road, Suite 400, Wilmington, DE 19808, County of New Castle and the name and address of its registered agent is Corporation Service Company.
Section 1.2 Other Offices . The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors of the Corporation (the Board of Directors) may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 Place of Meetings . Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.
Section 2.2 Annual Meetings . The annual meetings of stockholders (the Annual Meeting) shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which meetings the stockholders, subject to the provisions of the Third Amended and Restated Certificate of Incorporation of the Corporation (the Certificate of Incorporation), shall elect by a plurality vote a Board of Directors, and transact such other business as may properly be brought before the meeting. Written notice of the Annual Meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten days nor more than sixty days before the date of the meeting.
(a) No business may be transacted at an Annual Meeting, other than business that is either (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (ii) otherwise properly brought before the Annual Meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (iii) otherwise properly brought before the Annual Meeting by any stockholder of the Corporation (A) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.2 and on the record date for the determination of stockholders entitled to vote at such Annual Meeting and (B) who complies with the notice procedures set forth in this Section 2.2.
(b) In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholders notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one-hundred and twenty days prior to the anniversary date of the date of the proxy statement for the immediately preceding Annual Meeting; provided, however, that in the event that the Annual Meeting is called for a date that is not within thirty days before or after the anniversary date of the immediately preceding Annual Meeting, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which public disclosure of the date of the Annual Meeting was first made. To be in proper written form, a stockholders notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the Annual Meeting (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the Annual Meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the Annual Meeting to bring such business before the meeting.
(c) No business shall be conducted at the Annual Meeting except business brought before the Annual Meeting in accordance with the procedures set forth in this Section 2.2, provided, however, that, once business has been properly brought before the Annual Meeting in accordance with such procedures, nothing in this Section 2.2 shall be deemed to preclude discussion by any stockholder of any such business. If the Chair of an Annual Meeting determines that business was not properly brought before the Annual Meeting in accordance with the foregoing procedures, the Chair shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be discussed or transacted.
Section 2.3 Special Meetings . Unless otherwise prescribed by law or by the Certificate of Incorporation, Special Meetings of Stockholders (Special Meetings), for any purpose or purposes, may be called by the majority vote of the Board of Directors or by the Chief Executive Officer. Special Meetings may not be called by any other person or persons, except as required by law or provided by resolutions adopted by the Board of Directors designating the rights, powers and preferences of any shares of one or more series of Preferred Stock of the Corporation, par value $0.01 per share (the Preferred Stock). Written notice of a Special Meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten days nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting.
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Section 2.4 Quorum . Except as otherwise required by law, these Amended and Restated Bylaws (these Bylaws) or by the Certificate of Incorporation, holders of a majority of the capital stock issued and entitled to vote thereat present in person or represented by proxy shall constitute a quorum at all meetings of the stockholders for the transaction of business. For purposes of determining the presence of a quorum, capital stock issued and entitled to vote thereat shall be deemed to include that number of shares of Common Stock in the capital of the Corporation equal to the number of votes that the Trustee is entitled to vote from time to time pursuant to the Special Voting Share in the capital of the Corporation (which Special Voting Share is governed by the terms of the Certificate of Incorporation and the Voting and Exchange Trust Agreement dated [], 2018, between the Corporation, Ceridian Acquisitionco ULC, Ceridian Canada Ltd. and the trustee appointed thereunder from time-to-time (the Trustee)). Where a separate vote by one or more classes or series of the capital stock is required, the presence in person or by proxy of the holders of record of a majority in voting power of the shares entitled to vote shall constitute a quorum entitled to take action with respect to that vote on that matter. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting.
Section 2.5 Voting . Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, any question brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and voting on the subject matter. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot.
Section 2.6 Consent of Stockholders in Lieu of a Meeting . Actions required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting upon the written consent of the stockholders, but only if such action is taken in accordance with the provisions of Article IX of the Certificate of Incorporation.
Section 2.7 List of Stockholders Entitled to Vote . The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.
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Section 2.8 Stock Ledger . The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 2.7 hereof or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
DIRECTORS
Section 3.1 Number and Election of Directors . (a) Subject to the rights, if any, of holders of Preferred Stock to elect directors of the Corporation, the Board of Directors shall consist of not less than one (1) nor more than fourteen (14) members with the exact number of directors to be determined from time to time exclusively by resolution duly adopted by the Board of Directors. Directors shall be elected by a plurality of the votes cast at the Annual Meeting, and, unless otherwise provided by the Certificate of Incorporation, each director so elected shall hold office until the Annual Meeting for the year in which his term expires and until his successor is duly elected and qualified, or until his earlier death, resignation, retirement, disqualification or removal. Any director may resign at any time effective upon giving written notice to the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. Directors need not be stockholders.
(b) Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of Preferred Stock of the Corporation to nominate and elect a specified number of directors in certain circumstances. Nominations of persons for election to the Board of Directors may be made at any Annual Meeting or at any Special Meeting called by a majority vote of the Board of Directors or by the Chief Executive Officer for the purpose of electing directors (i) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (ii) by any stockholder of the Corporation (A) who is a stockholder of record on the date of the giving of the notice provided for in this Section 3.1 and on the record date for the determination of stockholders entitled to vote at such Annual or Special Meeting and (B) who complies with the notice procedures set forth in this Section 3.1.
(c) In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a stockholders notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (i) in the case of an Annual Meeting, not less than one-hundred and twenty days prior to the anniversary date of the date of the proxy statement for the immediately preceding Annual Meeting; provided, however, that in the event that the Annual Meeting is called for a date that is not within thirty days before or after the anniversary date of the immediately preceding Annual Meeting, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which public disclosure of the date of the Annual Meeting was first made; and (ii) in the case of a Special Meeting called for the purpose of electing directors, not later than the close of business on the tenth day following the day on which public disclosure of the date of the Special Meeting was first made.
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(d) To be in proper written form, a stockholders notice to the Secretary must set forth (i) as to each person whom the stockholder proposes to nominate for election as a director (A) the name, age, business address and residence address of the person, (B) the principal occupation or employment of the person, (C) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (D) any other information relating to the person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the Exchange Act), and the rules and regulations promulgated thereunder; and (ii) as to the stockholder giving the notice (A) the name and record address of such stockholder, (B) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (C) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (D) a representation that such stockholder intends to appear in person or by proxy at the Annual Meeting to nominate the persons named in its notice and (E) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
(e) No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.1. If the Chair of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the Chair shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.
Section 3.2 Chair of the Board of Directors . The Board of Directors may appoint from its members a Chair of the Board of Directors, who need not be an employee or officer of the Corporation. The Chair of the Board of Directors, if there is one, shall preside at all meetings of the stockholders and of the Board of Directors and may adopt rules and regulations for the conduct of such meetings. Except where by law the signature of the Chief Executive Officer or the President is required, the Chair of the Board of Directors shall possess the same power as the Chief Executive Officer or the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the Chief Executive Officer or the President, the Chair of the Board of Directors shall exercise all the powers and discharge all the duties of the Chief Executive Officer or the President. The Chair of the Board of Directors shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these Bylaws or by the Board of Directors.
Section 3.3 Vacancies . Subject to the terms of any one or more series or classes of Preferred Stock, any vacancy on the Board of Directors, however created, may be filled only by a majority of the directors then in office, though less than a quorum or by a sole remaining director. Any director elected to fill a newly created directorship resulting from an increase in any class of directors shall hold office for a term that shall coincide with the remaining term of the other directors of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same term as the remaining term of his predecessor.
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Section 3.4 Duties and Powers . The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders.
Section 3.5 Meetings . The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chief Executive Officer, the Chair of the Board of Directors, if there is one, the President, or any directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight hours before the date of the meeting, by telephone or facsimile on twenty-four hours notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.
Section 3.6 Quorum . Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 3.7 Actions of Board . Unless otherwise provided by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.
Section 3.8 Meetings by Means of Conference Telephone . Unless otherwise provided by the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 3.7 shall constitute presence in person at such meeting.
Section 3.9 Committees . The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or
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disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. In the event any person shall cease to be a director of the Corporation, such person shall simultaneously therewith cease to be a member of any committee appointed by the Board of Directors. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, subject to the limitations set forth in applicable Delaware law. Each committee shall keep regular minutes and report to the Board of Directors when required.
Section 3.10 Audit Committee . The Board of Directors, by resolution adopted by a majority of the whole Board of Directors, may designate three or more directors to constitute an Audit Committee, to serve as such until the next annual meeting of the Board of Directors or until their respective successors are designated. The audit committee will carry out its responsibilities as set forth in an audit committee charter to be adopted by the Board of Directors.
Section 3.11 Compensation . At the discretion of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. At the discretion of the Board of Directors, members of special or standing committees may be allowed like compensation for attending committee meetings.
Section 3.12 Interested Directors . No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if: (a) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
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Section 3.13 Entire Board of Directors . As used in these Bylaws generally, the term entire Board of Directors means the total number of directors which the Corporation would have if there were no vacancies.
ARTICLE IV
OFFICERS
Section 4.1 General . The officers of the Corporation shall be chosen by the Board of Directors and shall include a Chief Executive Officer, a President and a Secretary. The Board of Directors, in its discretion, may also appoint a Chief Financial Officer, Assistant Chief Financial Officers, Controller, Treasurer, Assistant Treasurers and one or more Vice Presidents, Assistant Secretaries, and other officers, who shall have such authority and perform such duties as may be prescribed in such appointment. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. The officers of the Corporation need not be stockholders of the Corporation nor need such officers be directors of the Corporation.
Section 4.2 Election . The Board of Directors at its first meeting held after each Annual Meeting of Stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors.
Section 4.3 Voting Securities Owned by the Corporation . Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chief Executive Officer, the President or any Vice President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.
Section 4.4 Duties of Officers . The duties of the officers of the Corporation shall be as follows:
(a) Chief Executive Officer . The Chief Executive Officer shall, subject to the control of the Board of Directors, have general executive charge, management and control of the properties, business and operations of the Corporation with all such powers as may be reasonably incident to such responsibilities; and the Chief Executive Officer may agree upon and execute all leases, contracts, evidences of indebtedness and other obligations in the name of the Corporation
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and may sign all certificates for shares of capital stock of the Corporation. In the absence or disability of the Chair of the Board of Directors, or if there is none, the Chief Executive Officer shall preside at all meetings of the stockholders and the Board of Directors. The Chief Executive Officer shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these Bylaws or by the Board of Directors.
(b) President . The President shall, subject to the control of the Board of Directors, the Chief Executive Officer, and, if there is one, the Chair of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these Bylaws, the Board of Directors, the Chief Executive Officer, the Chair of the Board of Directors or the President. In the absence or disability of the Chief Executive Officer and the Chair of the Board of Directors, or if there is none, the President shall preside at all meetings of the stockholders and the Board of Directors. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these Bylaws or by the Board of Directors.
(c) Secretary . The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chief Executive Officer or the President, under whose supervision he shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there is no Assistant Secretary, then either the Board of Directors, the Chief Executive Officer or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there is one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.
(d) Assistant Secretaries . Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there are any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, the President, any Vice President, if there is one, or the Secretary, and in the absence of the Secretary or in the event of his disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.
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(e) Chief Financial Officer . The Chief Financial Officer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer, the Chair of the Board, the President and the Board of Directors, at its regular meetings or when the Board of Directors so requires, an account of all transactions as Chief Financial Officer and of the financial condition of the Corporation. The Chief Financial Officer shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer, the Chair of the Board or the President.
(f) Assistant Chief Financial Officer . The Assistant Chief Financial Officer, or if there is more than one, the Assistant Chief Financial Officers, in the order determined by the Board of Directors (or if there is no such determination, then in the order of their election), shall, in the absence of the Chief Financial Officer or in the event of the Chief Financial Officers inability or refusal to act, perform the duties and exercise the powers of the Chief Financial Officer and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors, the Chief Executive Officer, the Chair of the Board, the President or the Chief Financial Officer.
(g) Controller . The Board of Directors may elect a Controller who shall be responsible for all accounting and auditing functions of the Corporation and who shall perform such other duties as may from time to time be required of him by the Board of Directors.
(h) Treasurer . The Treasurer, if there is one, shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer, the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation.
(i) Assistant Treasurers . Assistant Treasurers, if there are any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, the President, any Vice President, or the Treasurer, if there is one, and in the absence of the Treasurer or in the event of his disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an
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Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation.
(j) Vice Presidents . At the request of the President or in his absence or in the event of his inability or refusal to act (and if there is no Chief Executive Officer or Chair of the Board of Directors), the Vice President or the Vice Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there is no Chief Executive Officer, no Chair of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.
(k) Other Officers . Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
CAPITAL STOCK
Section 5.1 Form of Certificates . The shares of the Corporation shall be represented by certificates; provided, however, that the Board of Directors may provide by resolution or resolutions that some or all classes or series of the Corporations stock shall be uncertificated shares. Every holder of stock of the Corporation represented by certificates shall be entitled to have a certificate or certificates duly numbered, certifying the number and class of shares in the Corporation owned by him, in such form as may be prescribed by the Board of Directors. Each such certificate shall be signed in the name of the Corporation by the Chair of the Board, the President or a Vice President, and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer.
Section 5.2 Signatures . Where a certificate is countersigned by (a) a transfer agent other than the Corporation or its employee, or (b) a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
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Section 5.3 Lost Certificates . The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 5.4 Transfers . Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued.
Section 5.5 Record Date . In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
Section 5.6 Beneficial Owners . The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.
ARTICLE VI
NOTICES
Section 6.1 Notices . Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or transmitted via facsimile.
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Section 6.2 Waivers of Notice . Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent thereto. The attendance of any person at any meeting shall constitute a waiver of notice of such meeting, except when such person attends the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1 Dividends . Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.
Section 7.2 Disbursements . All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
Section 7.3 Fiscal Year . The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
Section 7.4 Corporate Seal . The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words Corporate Seal, Delaware. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Power to Indemnify in Actions, Suits or Proceedings Other Than Those by or in the Right of the Corporation . Subject to Section 8.3 hereof, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good
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faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 8.2 Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation . Subject to Section 8.3 hereof, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Section 8.3 Authorization of Indemnification . Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 8.1 or Section 8.2 hereof, as the case may be. Such determination shall be made (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (b) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (c) by the stockholders. To the extent, however, that a director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by him in connection therewith, without the necessity of authorization in the specific case.
Section 8.4 Good Faith Defined . For purposes of any determination under Section 8.1 or 8.2 hereof, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel
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for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term another enterprise as used in this Section 8.4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 8.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 8.1 or 8.2 hereof, as the case may be.
Section 8.5 Indemnification by a Court . Notwithstanding any contrary determination made in any specific case under Section 8.3 hereof, and notwithstanding the absence of any determination made thereunder, any director or officer may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 8.1 and 8.2 hereof. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because he has met the applicable standards of conduct set forth in Section 8.1 or 8.2 hereof. Neither a contrary determination in the specific case under Section 8.3 hereof nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 8.5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.
Section 8.6 Expenses Payable in Advance . Expenses incurred by a director or officer in defending or investigating a threatened or pending action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VIII.
Section 8.7 Nonexclusivity of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled under any Bylaw, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 8.1 and 8.2 hereof shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 8.1 or 8.2 but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware (the DGCL) or otherwise.
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Section 8.8 Insurance . The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article VIII.
Section 8.9 Certain Definitions . For purposes of this Article VIII, references to the Corporation shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to fines shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to serving at the request of the Corporation shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the Corporation as referred to in this Article VIII.
Section 8.10 Survival of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 8.11 Limitation on Indemnification . Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 8.5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.
Section 8.12 Indemnification of Employees and Agents . The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation.
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Section 8.13 Secondary Indemnifications . The indemnification and advancement of expenses provided by, or granted pursuant to, the other provisions of this Article 8 shall not be deemed exclusive of any other rights to which those persons provided indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such persons official capacity and as to action in another capacity while holding such office. Notwithstanding the foregoing, it is acknowledged that certain persons may have certain rights to indemnification, advancement of expenses and/or insurance provided by the stockholders of the Corporation or one or more of the affiliates of such stockholders of the Corporation other than the Corporation and its subsidiaries (any of such entities, together with their affiliates (other than the Corporation and its subsidiaries), the Stockholder Sponsors) as an employee of any of such entities (or their respective payroll companies) or pursuant to separate written agreements, which the Company and the Stockholder Sponsors intend to be secondary to the primary obligation of the Corporation to provide indemnification as provided herein. If any Stockholder Sponsor pays or causes to be paid, for any reason, any amounts otherwise indemnifiable hereunder or under any other indemnification agreement or arrangement (whether pursuant to contract, by-laws or charter) to a person indemnifiable hereunder, then (i) the applicable Stockholder Sponsor entity shall be fully subrogated to all of such persons rights with respect to such payment and (ii) the Company shall indemnify, reimburse and hold harmless the applicable Stockholder Sponsor entity for the payments actually made. The Stockholder Sponsors shall be third-party beneficiaries of this Article 8, having the rights to enforce this Article 8.
ARTICLE IX
AMENDMENTS
These Bylaws may be altered, amended or repealed, in whole or in part, or new Bylaws may be adopted by the stockholders or by the Board of Directors, provided, however, that notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of such meeting of stockholders or Board of Directors as the case may be. All such amendments must be approved by either the holders of shares entitled to vote thereon or by a majority of the Board of Directors then in office, in each case, in accordance with the Certificate of Incorporation and applicable law.
ARTICLE X
CONFLICTS
If there is a conflict between the provisions of these Bylaws and the provisions of the Certificate of Incorporation or the mandatory provisions of the DGCL, such provision or provisions of the Certificate of Incorporation and the DGCL, as the case may be, will be controlling.
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Exhibit 4.4
FORM OF REGISTRATION RIGHTS AGREEMENT
by and among
Ceridian HCM Holding Inc.
and
the other parties hereto
April [], 2018
TABLE OF CONTENTS
Section 1. |
Certain Definitions | 1 | ||||||
Section 2. |
Registration Rights | 6 | ||||||
2.1. |
Demand Registrations | 6 | ||||||
2.2. |
Piggyback Registrations | 10 | ||||||
2.3. |
Allocation of Securities Included in Registration Statement | 12 | ||||||
2.4. |
Registration Procedures | 15 | ||||||
2.5. |
Registration Expenses | 21 | ||||||
2.6. |
Certain Limitations on Registration Rights | 22 | ||||||
2.7. |
Limitations on Sale or Distribution of Other Securities | 22 | ||||||
2.8. |
No Required Sale | 23 | ||||||
2.9. |
Indemnification | 23 | ||||||
2.10. |
Limitations on Registration of Other Securities; Representation | 27 | ||||||
2.11. |
No Inconsistent Agreements | 27 | ||||||
Section 3. |
Underwritten Offerings | 27 | ||||||
3.1. |
Requested Underwritten Offerings | 27 | ||||||
3.2. |
Piggyback Underwritten Offerings | 28 | ||||||
Section 4. |
General | 28 | ||||||
4.1. |
Adjustments Affecting Registrable Securities | 28 | ||||||
4.2. |
Rule 144 and Rule 144A | 29 | ||||||
4.3. |
Nominees for Beneficial Owners | 29 | ||||||
4.4. |
Amendments and Waivers | 29 | ||||||
4.5. |
Notices | 30 | ||||||
4.6. |
Successors and Assigns | 31 | ||||||
4.7. |
Entire Agreement | 32 | ||||||
4.8. |
Governing Law; Submission to Jurisdiction; Waiver of Jury Trial | 32 | ||||||
4.9. |
Interpretation; Construction | 33 | ||||||
4.10. |
Counterparts | 33 | ||||||
4.11. |
Severability | 33 | ||||||
4.12. |
Remedies | 33 | ||||||
4.13. |
Further Assurances | 34 | ||||||
4.14. |
Confidentiality | 34 | ||||||
4.15. |
Termination and Effect of Termination | 34 |
Exhibit A - Joinder
i
This REGISTRATION RIGHTS AGREEMENT (this Agreement ), is made as of April [], 2018, by and among (i) Ceridian HCM Holding Inc., a Delaware corporation (the Company ), (ii) the Persons listed on the signature pages hereto as a THL Party (together, the THL Party ), (iii) Cannae Holdings, LLC, a Delaware limited liability company ( Cannae ), (iv) the other Persons listed on the signature pages hereto as an Other Stockholder (each an Other Stockholder , and collectively the Other Stockholders ).
W I T N E S S E T H:
WHEREAS, the Holders own Registrable Securities; and
WHEREAS, as of the date hereof, payment has been made by certain underwriters for the initial public offering of shares of Common Stock ( IPO ).
WHEREAS, in connection with the IPO, the parties desire to set forth certain registration rights applicable to the Registrable Securities.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and obligations hereinafter set forth, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Certain D efinitions . As used herein, the following terms shall have the following meanings:
Additional Piggyback Rights has the meaning ascribed to such term in Section 2.2(d) .
Affiliate means with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person, where control means the possession, directly or indirectly, of the power to direct the management and policies of a Person whether through the ownership of voting securities, contract or otherwise. For the avoidance of doubt, neither the Company nor any Person controlled by the Company shall be deemed to be an Affiliate of any Holder.
Agreement means this Registration Rights Agreement, as this agreement may be amended, modified, supplemented or restated from time to time after the date hereof.
automatic shelf registration statement has the meaning ascribed to such term in Section 2.4(v) .
Beneficial Ownership shall mean, with respect to a specified Person, the ownership of securities as determined in accordance with Rule 13d-3 of the Exchange Act, as such Rule is in effect from time to time. The terms Beneficially Own and Beneficial Owner shall have a correlative meaning.
Block Trade means an offering and/or sale of Registrable Securities by one or more of the Holders on a block trade or underwritten basis (whether firm commitment or otherwise) without substantial marketing efforts prior to pricing, including, without limitation, a same day trade, overnight trade or similar transaction.
Board means the board of directors of the Company.
Business Day shall mean a day other than a Saturday, Sunday, federal or New York State holiday or other day on which commercial banks in the City of New York are authorized or required by law or other governmental action to close.
Cannae has the meaning ascribed to such term in the Preamble.
Claims has the meaning ascribed to such term in Section 2.9(a) .
Common Stock shall mean the shares of Common Stock, $0.01 par value per share, of the Company, and any and all securities of any kind whatsoever which may be issued after the date hereof in respect of, or in exchange for, such shares of common stock of the Company pursuant to a merger, consolidation, stock split, stock dividend or recapitalization of the Company or otherwise.
Common Stock Equivalents means all options, warrants and other securities convertible into, or exchangeable or exercisable for (at any time or upon the occurrence of any event or contingency and without regard to any vesting or other conditions to which such securities may be subject) shares of capital stock or other equity securities of such Person (including, without limitation, any note or debt security convertible into or exchangeable for shares of capital stock or other equity securities of such Person).
Company means Ceridian HCM Holding Inc.
Demand Exercise Notice has the meaning ascribed to such term in Section 2.1(a)(ii) .
Demand Registration has the meaning ascribed to such term in Section 2.1(a)(i) .
Demand Registration Request has the meaning ascribed to such term in Section 2.1(a)(i) .
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC issued under such Act, as they may from time to time be in effect.
Expenses means any and all fees and expenses incident to the Companys performance of or compliance with Section 2 , including, without limitation: (i) SEC, stock exchange or FINRA registration and filing fees and all listing fees and fees with respect to the inclusion of securities on the New York Stock Exchange, Toronto Stock Exchange or on any other securities market on which the Common Stock is listed or quoted, (ii) fees and expenses of compliance with state securities or blue sky laws of any state or jurisdiction of the United States or compliance with the securities laws of foreign jurisdictions and in connection with the preparation of a blue sky survey, including, without limitation, reasonable fees and expenses of outside blue sky counsel and securities counsel in foreign jurisdictions, (iii) printing and copying expenses, (iv) messenger and delivery expenses, (v) expenses incurred in connection with any road show, (vi) fees and disbursements of counsel for the Company, (vii) with respect to each registration or underwritten offering, the fees and disbursements of (a) one counsel for the THL Party, (b) one counsel for Cannae, and (c) one counsel for all other Participating
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Holder(s) collectively (selected by the holders of a majority of the shares held by such other Participating Holder(s), together in each case with any local counsel, (viii) fees and disbursements of all independent public accountants (including the expenses of any audit and/or cold comfort letter and updates thereof) and fees and expenses of other Persons, including special experts, retained by the Company, (ix) fees and expenses payable to a Qualified Independent Underwriter, (x) fees and expenses of any transfer agent or custodian, (xi) any other fees and disbursements of underwriters, if any, customarily paid by issuers or sellers of securities and (xii) expenses for securities law liability insurance and, if any, rating agency fees.
FINRA means the Financial Industry Regulatory Authority, Inc.
Holder or Holders means (1) any Person who is a signatory to this Agreement or (2) any Permitted Transferee to whom any Person who is a signatory to this Agreement shall assign or transfer any rights hereunder, provided that such transferee has executed and delivered a Joinder and has thereby agreed in writing to be bound by this Agreement in respect of such Registrable Securities.
Initiating Holders has the meaning ascribed to such term in Section 2.1(a)(i) .
Inspectors has the meaning ascribed to such term in Section 2.4(k).
Investor Shareholders shall mean (i) Cannae, and (ii) the THL Party and, in each case, their respective Permitted Transferees that are Affiliates (for the avoidance of doubt, other than the Company), in each case, to the extent such Person Beneficially Owns Registrable Securities and becomes a party to this Agreement (pursuant to a Joinder (as applicable)).
IPO has the meaning ascribed to such term in the Preamble.
Joinder means a joinder agreement in the form of Exhibit A hereto.
Litigation means any action, proceeding or investigation in any court or before any governmental authority.
Majority Participating Holders means Participating Holders holding more than 50% of the Registrable Securities proposed to be included in any offering of Registrable Securities by such Participating Holders pursuant to Section 2.1 or Section 2.2 .
Other Stockholders has the meaning ascribed to such term in the Preamble.
Manager has the meaning ascribed to such term in Section 2.1(g) .
Offering Document means a registration statement, any prospectus or preliminary, final or summary prospectus or free writing prospectus, or any other document used in connection with the offering of securities covered thereby, any offering circular, notification, pricing disclosure or similar document, or any amendment or supplement to any of the foregoing.
Other Stockholders has the meaning ascribed to such term in the Preamble.
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Participating Holders means all Holders of Registrable Securities which are proposed to be included in any offering of Registrable Securities pursuant to Section 2.1 or Section 2.2 .
Partner Distribution has the meaning ascribed to such term in Section 2.1(c) .
Permitted Transferee means, in relation to any Person who is a signatory to this Agreement, any Person to whom such Person is permitted to transfer Registrable Securities under the Amended and Restated Certificate of Incorporation of the Company, dated as of the date hereof (as amended from time to time), the Amended and Restated Bylaws of the Company, dated as of the date hereof (as amended from time to time), and the Voting Agreement.
Person means any individual, corporation (including not for profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, joint-stock company, unincorporated organization, governmental entity or agency or other entity of any kind or nature.
Piggyback Registration has the meaning ascribed to such term in Section 2.2(b) .
Piggyback Request has the meaning ascribed to such term in Section 2.2(b) .
Piggyback Shares has the meaning ascribed to such term in Section 2.3(a)(iii) .
Postponement Period has the meaning ascribed to such term in Section 2.1(f) .
Public Offering shall mean, other than the IPO, a bona fide underwritten public offering and sale or other transfer of Common Stock (other equity securities of the Company) pursuant to an effective registration statement under the Securities Act.
Qualified Independent Underwriter means a qualified independent underwriter within the meaning of FINRA Rule 5121.
Records has the meaning ascribed to such term in Section 2.4(k) .
Registrable Securities means (a) any shares of Common Stock held by the Holders at any time (including those held as a result of, or issuable upon, the conversion or exercise of Common Stock Equivalents), whether now owned or acquired by the Holders at a later time, (b) any shares of Common Stock issued or issuable, directly or indirectly, in exchange for or with respect to the Common Stock referenced in clause (a) above by way of stock dividend, stock split or combination of shares in connection with a reclassification, recapitalization, merger, share exchange, consolidation or other reorganization and (c) any securities issued in replacement of or exchange for any securities described in clause (a) or (b) above. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (A) a registration statement with respect to the sale of such securities shall have been declared effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (B) such securities are able to be immediately sold pursuant to Rule 144 without any restrictions on transfer under such rule, or (C) in the case of securities held by the Other Stockholders, if David Ossip ceases to be an employee of the Company.
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Rule 144 and Rule 144A have the meaning ascribed to such term in Section 4.2 .
SEC means the Securities and Exchange Commission or such other federal agency which at such time administers the Securities Act.
Section 2.3(a) Sale Number has the meaning ascribed to such term in Section 2.3(a) .
Section 2.3(b) Sale Number has the meaning ascribed to such term in Section 2.3(b) .
Section 2.3(c) Sale Number has the meaning ascribed to such term in Section 2.3(c) .
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the SEC issued under such Act, as they may from time to time be in effect.
Shelf Registrable Securities has the meaning ascribed to such term in Section 2.1(i) .
Shelf Registration Statement has the meaning ascribed to such term in Section 2.1(i) .
Shelf Underwriting has the meaning ascribed to such term in Section 2.1(j) .
Shelf Underwriting Notice has the meaning ascribed to such term in Section 2.1(j) .
Shelf Underwriting Request has the meaning ascribed to such term in Section 2.1(j) .
Special Registration Statement means: (a) a registration statement relating to any employee benefit plan; (b) with respect to any corporate reorganization or transaction under Rule 145 of the Securities Act, any registration statement related to the issuance or resale of securities issued in connection with such transaction; or (c) a registration statement related to stock issued upon conversion of debt securities.
Subsidiary means any direct or indirect subsidiary of the Company on the date hereof and any direct or indirect subsidiary of the Company organized or acquired after the date hereof.
THL Party has the meaning ascribed to such term in the Preamble.
Valid Business Reason has the meaning ascribed to such term in Section 2.1(f) .
Voting Agreement means that certain Voting Agreement between the Company, the THL Party and Cannae dated [].
WKSI has the meaning ascribed to such term in Section 2.4(v) .
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Section 2. Registration R ights .
2.1. Demand Reg istrations .
(a) (i) Subject to Sections 2.1(b) and 2.3 , at any time and from time to time, for so long as the applicable Investor Shareholder owns at least 5% of the outstanding Registrable Securities, an Investor Shareholder shall have the right to require the Company to file one or more registration statements under the Securities Act covering all or any part of its and its Affiliates Registrable Securities by delivering a written request therefor to the Company specifying the number of Registrable Securities to be included in such registration and the intended method of distribution therefor (a Demand Registration Request ). The registration so requested is referred to herein as a Demand Registration (with respect to any Demand Registration, the Investor Shareholder(s) making such demand for registration being referred to as the Initiating Holders ). Any Demand Registration Request may request that the Company register Registrable Securities on an appropriate form, including a shelf registration statement, and, if the Company is a WKSI, an automatic shelf registration statement.
(ii) The Company shall give written notice (the Demand Exercise Notice) of such Demand Registration Request (A) to each of Cannae and the THL Party no later than five (5) Business Days after receipt of a Demand Registration Request and (B) to all other Holders of record of Registrable Securities no later than five (5) Business Days after the filing of a registration statement pursuant to the Demand Registration Request (or, in the case of a request for the filing of an automatic shelf registration statement, five (5) Business Days after receipt of the Demand Registration Request).
(b) The Company, subject to Sections 2.3 and 2.6 , shall include in a Demand Registration (x) the Registrable Securities of the Initiating Holders and (y) the Registrable Securities of any other Holder of Registrable Securities which shall have made a written request to the Company for inclusion in such registration pursuant to Section 2.2 (which request shall specify the maximum number of Registrable Securities intended to be disposed of by such Participating Holder on the same terms and pursuant to the same intended method or methods of disposition as are set forth in the Demand Registration Request of the Initiating Holder) within ten (10) days after the receipt of the Demand Exercise Notice.
(c) The Company shall, subject to Section 2.1(b) , use its reasonable best efforts to (x) as soon as reasonably practicable, but in no event later than sixty (60) days following receipt of a Demand Registration Request, file with the SEC the form and other necessary documents, and, as soon as reasonably practicable after such filing, use its best efforts to cause to be declared effective such registration under the Securities Act (including, without limitation, by means of a shelf registration pursuant to Rule 415 under the Securities Act if so requested and if the Company is then eligible to use such a registration) of the Registrable Securities which the Company has been so requested to register, for distribution in accordance with such intended method of distribution, including a distribution to, and resale by, the members or partners of a Holder (a Partner Distribution ) and (y) if requested by the Initiating Holders, request acceleration of the effective date of the registration statement relating to such registration.
(d) Notwithstanding anything contained herein to the contrary, the Company shall, at the request of any Holder seeking to effect or considering a Partner Distribution, file any Offering Document and otherwise take any action, deemed necessary or advisable by such Holder to effect such Partner Distribution.
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(e) Any Initiating Holder and any other Holder that has requested its Registrable Securities be included in a Demand Registration may withdraw all or a portion of its Registrable Securities from such Demand Registration at any time prior to the effectiveness of the Demand Registration. Upon receipt of a notice to such effect (A) from the Initiating Holder and all other Holders with respect to all of the Registrable Securities included by such Holders in such Demand Registration; or (B) from one or more Holders with respect to Registrable Securities held by them that would cause the anticipated aggregate offering price (after having subtracted all underwriting discounts and commissions) to fall to $50,000,000 or below, the Company shall cease all effort to secure effectiveness of the applicable Demand Registration.
(f) Notwithstanding anything to the contrary in Section 2.1(a) , the Demand Registration rights granted in Section 2.1(a) are subject to the following limitations: (i) (x) the Company shall not be required to effect more than one (1) Demand Registration delivered by Cannae pursuant to Section 2.1(a)(i) in any nine month period (it being understood that a registration pursuant to a Piggyback Request by Cannae shall not constitute a Demand Registration for the purposes of this Section 2.1(f)(i) ) and (y) the Company shall not be required to effect more than one (1) Demand Registration delivered pursuant to Section 2.1(a)(i) in any nine month period from the THL Party (it being understood that a registration pursuant to a Piggyback Request by the THL Party shall not constitute a Demand Registration for the purposes of this Section 2.1(f)(i) ); (ii) each registration in respect of a Demand Registration Request made by any Initiating Holder must include, in the aggregate (based on the Common Stock included in such registration by all Holders participating in such registration), Registrable Securities having an aggregate market value of at least $50 million; and (iii) if the Board, in its good faith judgment, determines that any registration of Registrable Securities should not be made or continued because it would materially interfere with any material financing, acquisition, corporate reorganization, merger, share exchange or other transaction or event involving the Company or any Subsidiary and, in each case, any successor thereto, or because the Company does not yet have appropriate financial statements of acquired or to be acquired entities available for filing (in each case, a Valid Business Reason ), then (x) the Company may postpone filing a registration statement relating to a Demand Registration Request until five (5) Business Days after such Valid Business Reason no longer exists, but in no event for more than 45 days after the date the Board determines a Valid Business Reason exists and (y) in case a registration statement has been filed relating to a Demand Registration Request, if the Valid Business Reason has not resulted from actions taken by the Company, any Subsidiary, and, in each case, any successor thereto, the Company may, to the extent determined in the good faith judgment of the Board to be reasonably necessary to avoid interference with any of the transactions described above, cause such registration statement to be withdrawn and its effectiveness terminated or may postpone amending or supplementing such registration statement until five (5) Business Days after such Valid Business Reason no longer exists, but in no event for more than 45 days after the date the Board determines a Valid Business Reason exists (such period of postponement or withdrawal under this clause (iv), the Postponement Period ). The Company shall give written notice of its determination to postpone or withdraw a registration statement and of the fact that the Valid Business Reason for such postponement or withdrawal no longer exists, together with a certificate of such determination signed by the Chief Executive Officer or Chief Financial Officer of the Company, in each case, promptly after the occurrence thereof; provided , however , the Company shall not be permitted to postpone or withdraw a registration statement after the expiration of any Postponement Period until twelve (12) months after the expiration of such Postponement Period.
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If the Company shall give any notice of postponement or withdrawal of any registration statement pursuant to clause (x) or (y) above, the Company shall not, during the Postponement Period, register any Common Stock, other than pursuant to a Special Registration Statement. Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company that the Company has determined to withdraw, terminate or postpone amending or supplementing any registration statement pursuant to clause (x) or (y) above, such Holder will discontinue its disposition of Registrable Securities pursuant to such registration statement. If the Company shall have withdrawn or prematurely terminated a registration statement filed under Section 2.1(a)(i) (whether pursuant to clause (iii) above or as a result of any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court), the Company shall not be considered to have effected an effective registration for the purposes of this Agreement until the Company shall have filed a new registration statement covering the Registrable Securities covered by the withdrawn or terminated registration statement and such registration statement shall have been declared effective and shall not have been withdrawn. If the Company shall give any notice of withdrawal or postponement of a registration statement, the Company shall, not later than five (5) Business Days after the Valid Business Reason that caused such withdrawal or postponement no longer exists (but in no event later than 45 days after the date of the postponement or withdrawal), use its reasonable best efforts to effect the registration under the Securities Act of the Registrable Securities covered by the withdrawn or postponed registration statement in accordance with this Section 2.1 (unless the Initiating Holders shall have withdrawn such request, in which case the Company shall not be considered to have effected an effective registration for the purposes of this Agreement), and such registration shall not thereafter be withdrawn or postponed pursuant to clause (x) or (y) of this Section 2.1(f) .
(g) In connection with any Demand Registration, the Majority Participating Holders shall have the right to designate the lead managing underwriter (any lead managing underwriter for the purposes of this Agreement, the Manager ) in connection with any underwritten offering pursuant to such registration and each other managing underwriter for any such underwritten offering; provided , that (i) in the event that Cannae is the Majority Participating Holder, and a THL Party is a Participating Holder, then such managing underwriter must be reasonably satisfactory to such THL Party, and (ii) in the event that the THL Party is the Majority Participating Holder, and Cannae a Participating Holder, then such managing underwriter must be reasonably satisfactory to Cannae; provided , further , that, in each case, such underwriter is reasonably satisfactory to the Company, which approval shall not be unreasonably withheld or delayed.
(h) The obligation to effect a Demand Registration as described in this Section 2.1 shall be deemed satisfied only when a registration statement covering the applicable Registrable Securities shall have become effective (unless, after effectiveness, the registration statement becomes subject to any stop order, injunction or other order of the SEC or other governmental agency, in which case the obligation shall not be deemed satisfied) and, if the method of disposition is a firm commitment underwritten public offering, all such Registrable Securities have been sold pursuant thereto.
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(i) Notwithstanding anything to the contrary herein, at such time as the Company shall have qualified for the use of Form S-3 promulgated under the Securities Act or any successor form thereto and in the event that the Company files a shelf registration statement under Rule 415 of the Securities Act pursuant to a Demand Registration Request and such shelf registration statement on Form S-3 becomes effective (such registration statement, a Shelf Registration Statement ), the Initiating Holders with respect to such Demand Registration Request and the Holders of other Registrable Securities registered on such Shelf Registration Statement shall have the right at any time or from time to time to elect to sell pursuant to an underwritten offering Registrable Securities available for sale pursuant to such registration statement ( Shelf Registrable Securities ), so long as the Shelf Registration Statement remains in effect and only if the method of distribution set forth in the shelf registration allows for sales pursuant to an underwritten offering.
(j) The Initiating Holders and such other Holders shall make such election by delivering to the Company a written request (a Shelf Underwriting Request ) for such underwritten offering to the Company specifying the number of Shelf Registrable Securities that the Holders desire to sell pursuant to such underwritten offering (the Shelf Underwriting ). As promptly as practicable, but no later than five (5) Business Days after receipt of a Shelf Underwriting Request, the Company shall give written notice (the Shelf Underwriting Notice ) of such Shelf Underwriting Request to all other Holders of record of Shelf Registrable Securities. The Company, subject to Sections 2.3 and 2.6 , shall include in such Shelf Underwriting (x) the Registrable Securities of the Initiating Holders and (y) the Shelf Registrable Securities of any other Holder of Shelf Registrable Securities which shall have made a written request to the Company for inclusion in such Shelf Underwriting (which request shall specify the maximum number of Shelf Registrable Securities intended to be disposed of by such Holder) within seven (7) days after the receipt of the Shelf Underwriting Notice. The Company shall, as expeditiously as possible (and in any event within twenty (20) days after the receipt of a Shelf Underwriting Request), but subject to Section 2.1(b) , use its reasonable best efforts to facilitate such Shelf Underwriting. Notwithstanding the foregoing, if an Investor Shareholder wishes to engage in a Block Trade off of a Shelf Registration Statement (either through filing an automatic shelf registration statement or through a take-down from an already existing Shelf Registration Statement), then notwithstanding the foregoing time periods, the Investor Shareholder only needs to notify the Company of the Block Trade on the day such offering is to commence and the Company shall notify the other Investor Shareholder that did not initiate the Block Trade. The Investor Shareholders must elect whether or not to participate in such Block Trade on the day such offering is to commence, and the Company shall as expeditiously as possible use its reasonable best efforts (including co-operating with such Investor Shareholders with respect to the provision of necessary information) to facilitate such shelf offering (which may close as early as three (3) Business Days after the date it commences), provided , that in the case of such Block Trade, only Investor Shareholders shall have a right to notice and to participate, and provided , further , that the Investor Shareholder requesting such Block Trade shall use commercially reasonable efforts to work with the Company and the underwriters prior to making such request in order to facilitate preparation of Offering Documents related to the Block Trade. For the avoidance of doubt, the Other Stockholders shall not be entitled to receive notice of, or to elect to participate in, a Block Trade or any Shelf Registration Statement or prospectus to be used in connection with such Block Trade. The Company shall, at the request of any Initiating Holder or any other Holder of Registrable Securities registered on such Shelf Registration Statement, file any prospectus supplement or, if the applicable Shelf Registration Statement is an automatic shelf registration statement (as defined in Section 2.4 ), any post-effective amendments and
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otherwise take any action necessary to include therein all disclosure and language deemed necessary or advisable by the Company to effect such Shelf Underwriting. Once a Shelf Registration Statement has been declared effective, the Investor Shareholders may request, and the Company shall be required to facilitate, an unlimited number of Shelf Underwritings with respect to such Shelf Registration Statement. Notwithstanding anything to the contrary in this Section 2.1(j) , each Shelf Underwriting must include, in the aggregate (based on the Common Stock included in such Shelf Underwriting by all Holders participating in such Shelf Underwriting), shares of Common Stock having an aggregate market value of at least $50 million. The Company agrees to use commercially reasonable efforts to keep each Shelf Registration Statement continuously effective until the earliest to occur of (i) the date specified by the Initiating Holder, if any, (ii) the day after the date on which all Registrable Securities covered by such Shelf Registration Statement have been sold pursuant to such Shelf Registration Statement, and (iii) the first date on which there shall cease to be any Registrable Securities covered by such Shelf Registration Statement.
2.2. Piggyback R egistrations .
(a) If the Company proposes or is required (pursuant to Section 2.1 or otherwise) to register any of its equity securities for its own account or for the account of any other shareholder under the Securities Act (other than pursuant to a Special Registration Statement), the Company shall give prompt written notice of its intention to do so to each of the Holders of record of Registrable Securities, at least ten (10) Business Days prior to the filing of any registration statement under the Securities Act or earlier as required pursuant to Section 2.1 or otherwise.
(b) Upon the written request of any Holder desiring to have Registrable Securities registered under this Section 2.2 (a Piggyback Request ), made within ten (10) days following the receipt of written notice from the Company pursuant to Section 2.3(a) (which request shall specify the maximum number of Registrable Securities intended to be disposed of by such Holder and the intended method of distribution thereof), the Company shall, subject to Sections 2.2(e) , 2.3 and 2.6 hereof, use its reasonable best efforts to cause all such Registrable Securities, the Holders of which have so requested the registration thereof, to be registered under the Securities Act with the securities which the Company at the time proposes to register to permit the sale or other disposition by the Holders (in accordance with the intended method of distribution thereof) of the Registrable Securities to be so registered, including, if necessary, by filing with the SEC a post-effective amendment or a supplement to the registration statement filed by the Company or the prospectus related thereto (the Piggyback Registration ).
(c) There is no limitation on the number of Piggyback Requests that may be made by Holders pursuant to the preceding sentence which the Company is obligated to effect. No registration of Registrable Securities effected under this Section 2.2(c) shall relieve the Company of its obligations to effect Demand Registrations under Section 2.1 hereof. Notwithstanding the foregoing, if an Investor Shareholder wishes to engage in a Block Trade off of a Shelf Registration Statement (either through filing an automatic shelf registration statement or through a take-down from an already existing Shelf Registration Statement), then notwithstanding the foregoing time periods, the Holder only needs to notify the Company of the Block Trade on the day such offering is to commence and the Company shall notify the other Investor Shareholders,
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and the other Investor Shareholders must elect whether or not to participate on the day such offering is to commence, and the Company shall as expeditiously as possible use its reasonable best efforts (including co-operating with such Investor Shareholders with respect to the provision of necessary information) to facilitate such shelf offering (which may close as early as three (3) Business Days after the date it commences), provided that in the case of such Block Trade, only Investor Shareholder shall have a right to notice and to participate, and provided , further , that the Investor Shareholder requesting such Block Trade shall use commercially reasonable efforts to work with the Company and the underwriters prior to making such request in order to facilitate preparation of Offering Documents related to the Block Trade. For the avoidance of doubt, the Other Stockholders shall not be entitled to receive notice of, or to elect to participate in, a Block Trade or any Shelf Registration Statement and prospectus to be used in connection with such Block Trade.
(d) The Company, subject to Sections 2.3 and 2.6 , may elect to include in any registration statement and offering pursuant to demand registration rights by any Person, (i) authorized but unissued shares of Common Stock and (ii) any other shares of Common Stock which are requested to be included in such registration pursuant to the exercise of piggyback registration rights granted by the Company after the date hereof and which are not inconsistent with the rights granted in, or otherwise conflict with the terms of, this Agreement ( Additional Piggyback Rights ); provided , however , that, with respect to any underwritten offering, such inclusion shall be permitted only to the extent that it is pursuant to, and subject to, the terms of the underwriting agreement or arrangements, if any, entered into by the Majority Participating Holders in such underwritten offering; provided further that no party holding Additional Piggyback Rights shall be entitled to receive notice of, or to elect to participate in, a Block Trade or any Shelf Registration Statement and prospectus to be used in connection with such Block Trade.
(e) If, at any time after giving written notice of its intention to register any equity securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such equity securities, the Company may, at its election, give written notice of such determination to all Holders of record of Registrable Securities and (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such abandoned registration, without prejudice, however, to the rights of Holders under Section 2.1 , and (ii) in the case of a determination to delay such registration of its equity securities, shall be permitted to delay the registration of such Registrable Securities for the same period as the delay in registering such other equity securities.
(f) Any Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any registration statement pursuant to this Section 2.2 by giving written notice to the Company of its request to withdraw; provided, however, that such request must be made in writing prior to the earlier of the execution of the underwriting agreement or the execution of the custody agreement with respect to such registration.
(g) The Company shall use commercially reasonable efforts to maintain the effectiveness of the registration statement relating to any Piggyback Registration for a period of at least 180 days after the effective date thereof or such shorter period in which all Registrable Securities included in such registration statement have actually been sold.
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2.3. Allocation of Securities Included in Registration Statement .
(a) If any requested registration made pursuant to Section 2.1 (including a Shelf Underwriting) involves an underwritten offering and the Manager of such offering shall advise the Company that, in its view, the number of securities requested to be included in such underwritten offering by the Holders of Registrable Securities, the Company, any Subsidiary, and, in each case, any successor thereto, or any other Persons exercising Additional Piggyback Rights exceeds the highest number (the Section 2.3(a) Sale Number ) that can be sold in an orderly manner in such underwritten offering within a price range acceptable to the Majority Participating Holders, the Company shall use its reasonable best efforts to include in such underwritten offering:
(i) first, all Registrable Securities requested to be included in such underwritten offering by the Holders thereof (including pursuant to the exercise of piggyback rights pursuant to Section 2.2 ); provided, however, that if the number of such Registrable Securities exceeds the Section 2.3(a) Sale Number, the number of such Registrable Securities (not to exceed the Section 2.3(a) Sale Number) to be included in such underwritten offering shall be allocated on a pro rata basis among all Holders requesting that Registrable Securities be included in such underwritten offering, based on the number of Registrable Securities then owned by each such Holder requesting inclusion in relation to the aggregate number of Registrable Securities owned by all Holders requesting inclusion;
(ii) second, to the extent that the number of Registrable Securities to be included pursuant to clause (i) of this Section 2.3(a) is less than the Section 2.3(a) Sale Number, any securities that the Company proposes to register; provided that the number of such securities when aggregated with that number of Registrable Securities to be included pursuant to clause (i), totals no more than the Section 2.3(a) Sale Number; and
(iii) third, to the extent that the number of Registrable Securities to be included pursuant to clauses (i) and (ii) of this Section 2.3(a) is less than the Section 2.3(a) Sale Number, the remaining Registrable Securities to be included in such underwritten offering shall be allocated on a pro rata basis among all Persons requesting that securities be included in such underwritten offering pursuant to the exercise of Additional Piggyback Rights ( Piggyback Shares ), based on the number of Piggyback Shares then owned by each Person requesting inclusion in relation to the aggregate number of Piggyback Shares owned by all Persons requesting inclusion; provided that the number of such securities when aggregated with that number of Registrable Securities to be included pursuant to clauses (i) and (ii) totals no more than the Section 2.3(a) Sale Number.
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Notwithstanding anything in this Section 2.3(a) to the contrary, no Other Stockholder will be entitled to include Registrable Securities in an underwritten offering requested by the Initiating Holders pursuant to Section 2.1 to the extent that the Manager of such underwritten offering shall determine in good faith that the participation of such Other Stockholder would adversely affect in any material respect the marketability of the securities being sold by the Initiating Holders in such underwritten offering.
(b) If any registration or offering made pursuant to Section 2.2 involves an underwritten primary offering on behalf of the Company after the date hereof and the Manager shall advise the Company that, in its view, the number of securities requested to be included in such underwritten offering by the Holders of Registrable Securities, the Company or any other Persons exercising Additional Piggyback Rights exceeds the highest number (the Section 2.3(b) Sale Number ) that can be sold in an orderly manner in such underwritten offering within a price range acceptable to the Company, the Company shall include in such underwritten offering:
(i) first, all equity securities that the Company proposes to register for its own account;
(ii) second, to the extent that the number of Registrable Securities to be included pursuant to clause (1) of this Section 2.3(b) is less than the Section 2.3(b) Sale Number, the remaining Registrable Securities to be included in such underwritten offering shall be allocated on a pro rata basis among all Holders requesting that Registrable Securities be included in such underwritten offering pursuant to the exercise of piggyback rights pursuant to Section 2.2 , based on the number of Registrable Securities then owned by each such Holder requesting inclusion in relation to the aggregate number of Registrable Securities owned by all Holders requesting inclusion; provided that the number of such remaining Registrable Securities when aggregated with that number of equity securities to be included pursuant to clause (i), totals no more than the Section 2.3(b) Sale Number; and
(iii) third, to the extent that the number of Registrable Securities to be included pursuant to clauses (i) and (ii) of this Section 2.3(b) is less than the Section 2.3(b) Sale Number, the remaining Registrable Securities to be included in such underwritten offering shall be allocated on a pro rata basis among all Persons requesting that securities be included in such underwritten offering pursuant to the exercise of Additional Piggyback Rights, based on the number of Piggyback Shares then owned by each Person requesting inclusion in relation to the aggregate number of Piggyback Shares owned by all Persons requesting inclusion; provided that the number of such securities when aggregated with that number of Registrable Securities to be included pursuant to clauses (i) and (ii) totals no more than the Section 2.3(b) Sale Number.
Notwithstanding anything in this Section 2.3(b) to the contrary, no Other Stockholder will be entitled to include Registrable Securities in an underwritten offering pursuant to Section 2.2 to the extent that the Manager of such underwritten offering shall determine in good faith that the participation of such Other Stockholder would adversely affect in any material respect the marketability of the securities being sold by the Company or the other Holders in such underwritten offering.
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(c) If any registration pursuant to Section 2.2 involves an underwritten offering that was initially requested by any Person(s) other than a Holder to whom the Company has granted registration rights which are not inconsistent with the rights granted in, or otherwise conflict with the terms of, this Agreement and the Manager shall advise the Company that, in its view, the number of securities requested to be included in such underwritten offering exceeds the number (the Section 2.3(c) Sale Number ) that can be sold in an orderly manner in such underwritten offering within a price range acceptable to the Company, the Company shall include in such underwritten offering:
(i) first, the shares requested to be included in such underwritten offering shall be allocated on a pro rata basis among such Person(s) requesting the registration and all Holders requesting that Registrable Securities be included in such underwritten offering pursuant to the exercise of piggyback rights pursuant to Section 2.2 , based on the aggregate number of securities or Registrable Securities, as applicable, then owned by each of the foregoing requesting inclusion in relation to the aggregate number of securities or Registrable Securities, as applicable, owned by all such Holders and Persons requesting inclusion, up to the Section 2.3(c) Sale Number;
(ii) second, to the extent that the number of Registrable Securities to be included pursuant to clause (i) of this Section 2.3(c) is less than the Section 2.3(c) Sale Number, the remaining Registrable Securities to be included in such underwritten offering shall be allocated on a pro rata basis among all Persons requesting that securities be included in such underwritten offering pursuant to the exercise of Additional Piggyback Rights, based on the number of Piggyback Shares then owned by each Person requesting inclusion in relation to the aggregate number of Piggyback Shares owned by all Persons requesting inclusion; provided that the number of such remaining Registrable Securities when aggregated with that number of shares requested to be included pursuant to clause (i), totals no more than the Section 2.3(c) Sale Number; and
(iii) third, to the extent that the number of Registrable Securities to be included pursuant to clauses (i) and (ii) of this Section 2.3(c) is less than the Section 2.3(c) Sale Number, the remaining Registrable Securities to be included in such underwritten offering shall be allocated to shares the Company proposes to register for its own account; provided that the number of such securities when aggregated with that number of Registrable Securities to be included pursuant to clauses (i) and (ii) totals no more than the Section 2.3(c) Sale Number.
Notwithstanding anything in this Section 2.3(c) to the contrary, no Other Stockholder will be entitled to include Registrable Securities in an underwritten offering pursuant to Section 2.2 to the extent that the Manager of such underwritten offering shall determine in good faith that the participation of such Other Stockholder would adversely affect in any material respect the marketability of the securities being sold by the Person(s) requesting the registration or the other Holders in such underwritten offering.
(d) If, as a result of the proration provisions set forth in clauses (a), (b) or (c) of this Section 2.3 , any Holder shall not be entitled to include all Registrable Securities in an underwritten offering that such Holder has requested be included, such Holder may elect to withdraw such Holders request to include Registrable Securities in the registration to which such underwritten offering relates or may reduce the number requested to be included; provided,
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however, that (x) such request must be made in writing prior to the earlier of the execution of the underwriting agreement or the execution of the custody agreement with respect to such registration and (y) such withdrawal or reduction shall be irrevocable and, after making such withdrawal or reduction, such Holder shall no longer have any right to include Registrable Securities in the registration as to which such withdrawal or reduction was made to the extent of the Registrable Securities so withdrawn or reduced; provided , further , that in the event that a withdrawal or reduction pursuant to this Section 2.3(d) reduces the number of Registrable Securities to be included in an offering to fewer than the Section 2.3(a) Sale Number, the Section 2.3(b) Sale Number or the Section 2.3(c) Sale Number, as applicable, then the priority according to which any additional Registrable Securities shall be included therein shall be as set forth in Section 2.3(a) , Section 2.3(b) or Section 2.3(c) , as applicable.
2.4. Registration P rocedures . If and whenever the Company is required by the provisions of this Agreement to effect or cause the registration of any Registrable Securities under the Securities Act as provided in this Agreement (or use best efforts or reasonable best efforts to accomplish the same), the Company shall, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement on an appropriate registration form of the SEC for the disposition of such Registrable Securities in accordance with the intended method of disposition thereof (including, without limitation, a Partner Distribution), which registration form (i) shall be selected by the Company and (ii) shall, in the case of a shelf registration, be available for the sale of the Registrable Securities by the selling Holders thereof and such registration statement shall comply as to form in all material respects with the requirements of the applicable registration form and include all financial statements required by the SEC to be filed therewith, and the Company shall use its reasonable best efforts to cause such registration statement to become effective and remain continuously effective for such period as any Participating Holder pursuant to such registration statement shall request, and no less than 180 days, provided, however, that as far in advance as reasonably practicable before filing an Offering Document, or before sending a response to an SEC comment letter prior to any such filing, the Company will furnish to one counsel for the Holders participating in the planned offering (selected by the Majority Participating Holders) and to one counsel for the Manager, if any, copies of reasonably complete drafts of all such documents proposed to be filed (including all exhibits thereto and each document incorporated by reference therein to the extent then required by the rules and regulations of the SEC), which documents will be subject to the reasonable review and reasonable comment of such counsel (including any objections to any information pertaining to any Participating Holder and its plan of distribution and otherwise to the extent necessary, if at all, to complete the filing or maintain the effectiveness thereof), and the Company shall make the changes reasonably requested by such counsel and shall not file any Offering Document to which the Majority Participating Holders or the underwriters, if any, shall reasonably object, provided that , notwithstanding the foregoing, in no event shall the Company be required to file any document with the SEC which in the view of the Company or its counsel does not comply with the requirements of the Securities Act or of the rules of regulations thereunder or contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make any statement therein not misleading;
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(b) (i) prepare and file with the SEC such amendments, post-effective amendments and supplements (including, without limitation, any reports required to be filed pursuant to the Exchange Act) to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement continuously effective for such period as any Participating Holder pursuant to such registration statement shall request and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all Registrable Securities covered by such registration statement in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; provided, however, that the Company may discontinue any registration of its securities that cease to be Registrable Securities; and (ii) provide notice to such sellers of Registrable Securities and the Manager, if any, of the Companys reasonable determination that a post-effective amendment to a registration statement would be appropriate;
(c) furnish, without charge, to each Participating Holder and each underwriter, if any, of the securities covered by such registration statement such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits), the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, each free writing prospectus utilized in connection therewith, in each case, in all material respects in conformity with the requirements of the Securities Act or of the rules or regulations thereunder, and other documents, as such seller and underwriter may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such seller (the Company hereby consenting to the use in accordance with all applicable laws of each such Offering Document by each such Participating Holder and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such registration statement or prospectus);
(d) use its reasonable best efforts to register or qualify the Registrable Securities covered by such registration statement under such other securities or state blue sky laws of such jurisdictions as any sellers of Registrable Securities or any managing underwriter, if any, shall reasonably request in writing, and do any and all other acts and things which may be reasonably necessary or advisable to enable such sellers or underwriter, if any, to consummate the disposition of the Registrable Securities in such jurisdictions (including keeping such registration or qualification in effect for so long as such registration statement remains in effect), except that in no event shall the Company be required to qualify to do business as a foreign corporation in any jurisdiction where it would not, but for the requirements of this paragraph (d), be required to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction;
(e) promptly notify each Participating Holder and each managing underwriter, if any and, if requested by any such Person, confirm such notice in writing: (i) when the registration statement or any other Offering Document has been filed with the SEC and, with respect to the Offering Document, when the same has become effective; (ii) of any comment letter or request by the SEC or state securities authority for amendments or supplements to the registration statement or the prospectus related thereto or for additional information; (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or state blue sky laws of any jurisdiction or the initiation of any
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proceeding for such purpose; (v) of the existence of any fact of which the Company becomes aware which results in the Offering Document or the information conveyed to any purchaser at the time of sale to such purchaser containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statement therein not misleading; and (vi) if at any time the representations and warranties contemplated by any underwriting agreement, securities sale agreement, or other similar agreement, relating to the offering shall cease to be true and correct in all material respects; and, if the notification relates to an event described in clause (v), unless the Company has declared that a Postponement Period exists, the Company shall promptly prepare and furnish to each such seller and each underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in the light of the circumstances under which they were made not misleading;
(f) comply (and continue to comply) with all applicable rules and regulations of the SEC (including, without limitation, maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) in accordance with the Exchange Act), and make generally available to its security holders, as soon as reasonably practicable after the effective date of the registration statement (and in any event within forty-five (45) days, or ninety (90) days if it is a fiscal year, after the end of such twelve month period described hereafter), an earnings statement (which need not be audited) covering the period of at least twelve (12) consecutive months beginning with the first day of the Companys first calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(g) (i) (A) cause all such Registrable Securities covered by such registration statement to be listed on the principal securities exchange on which similar securities issued by the Company are then listed (if any), if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (B) if no similar securities are then so listed, to cause all such Registrable Securities to be listed on a national securities exchange and, without limiting the generality of the foregoing, take all actions that may be required by the Company as the issuer of such Registrable Securities in order to facilitate the managing underwriters arranging for the registration of at least two market makers as such with respect to such shares with FINRA, and (ii) comply (and continue to comply) with the requirements of any self-regulatory organization applicable to the Company, including without limitation all corporate governance requirements;
(h) (i) provide and cause to be maintained a transfer agent and registrar for all such Registrable Securities covered by such registration statement not later than the effective date of such registration statement; (ii) instruct such transfer agent (A) to release, on such effective date, any stop transfer order with respect to the certificates with respect to the Registrable Securities being sold, and (B) to furnish certificates without restrictive legends representing ownership of the shares being sold, in such denominations requested by the sellers of the Registrable Securities or any managing underwriter; and (iii) in the case of any secondary equity offering, provide and enter into any reasonable agreements with a custodian for the Registrable Securities;
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(i) enter into such customary agreements (including, if applicable, an underwriting agreement) and take such other actions as the Majority Participating Holders or the underwriters shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (it being understood that the Holders of the Registrable Securities which are to be distributed by any underwriters shall be parties to any such underwriting agreement and may, at their option, require that the Company make to and for the benefit of such Holders the representations, warranties and covenants of the Company which are being made to and for the benefit of such underwriters);
(j) use its reasonable best efforts (i) to obtain an opinion from the Companys counsel and a cold comfort letter and updates thereof from the independent public accountants who have certified the Companys financial statements (and/or any other financial statements) included or incorporated by reference in such registration statement, in each case, in customary form and covering such matters as are customarily covered by such opinions and cold comfort letters (including, in the case of such cold comfort letter, events subsequent to the date of such financial statements) delivered to underwriters in underwritten public offerings, which opinion and letter shall be dated the dates such opinions and cold comfort letters are customarily dated and otherwise reasonably satisfactory to the underwriters, if any, and to the Majority Participating Holders, and (ii) furnish to each Participating Holder upon its request and to each underwriter, if any, a copy of such opinion and letter addressed to such underwriter;
(k) deliver promptly to counsel for each Participating Holder and to each managing underwriter, if any, copies of all correspondence between the SEC and the Company, its counsel or auditors and all memoranda relating to discussions with the SEC or its staff with respect to the registration statement, and, upon receipt of such confidentiality agreements as the Company may reasonably request, make reasonably available for inspection by counsel for each Participating Holder, by counsel for any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any Participating Holder or any such underwriter, (collectively, the Inspectors ), all pertinent financial and other records, pertinent corporate documents and properties of the Company (the Records ), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and to use reasonable best efforts to cause applicable personnel and representatives of the Company to meet with the Inspectors (if so requested) and to supply the information reasonably requested by any such Inspector in connection with such registration statement;
(l) use its reasonable best efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of the registration statement, or the lifting of any suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction, in each case, as promptly as reasonably practicable;
(m) provide a CUSIP number for all Registrable Securities, not later than the effective date of the registration statement;
(n) use its reasonable best efforts to make available its employees and personnel for participation in road shows and other marketing efforts and otherwise provide reasonable assistance to the underwriters (taking into account the needs of the businesses of the Company, any Subsidiary, and, in each case, any successor thereto, and the requirements of the marketing process) in the marketing of Registrable Securities in any underwritten offering;
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(o) promptly prior to the filing of any document which is to be incorporated by reference into the registration statement or the prospectus (after the initial filing of such registration statement), and prior to the filing or use of any free writing prospectus, provide copies of such document to counsel for each Participating Holder and to each managing underwriter, if any, and make the representatives of the Company, any Subsidiary, and, in each case, any successor thereto, reasonably available for discussion of such document and make such changes in such document concerning the Participating Holders prior to the filing thereof as counsel for such Participating Holders or underwriters may reasonably request (provided that, notwithstanding the foregoing, in no event shall the Company be required to file any document with the SEC which in the view of the Company or its counsel contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make any statement therein not misleading);
(p) furnish to counsel for each Participating Holder upon its request and to each managing underwriter, without charge, upon request, at least one conformed copy of the registration statement and any post-effective amendments or supplements thereto, including financial statements and schedules, all documents incorporated therein by reference, the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus), any other prospectus filed under Rule 424 under the Securities Act and all exhibits (including those incorporated by reference) and any free writing prospectus utilized in connection therewith;
(q) cooperate with the Participating Holders and the managing underwriter, if any, to facilitate the timely preparation and delivery of certificates not bearing any restrictive legends representing the Registrable Securities to be sold, and cause such Registrable Securities to be issued in such denominations and registered in such names in accordance with the underwriting agreement at least two (2) Business Days prior to any sale of Registrable Securities to the underwriters or, if not an underwritten offering, in accordance with the instructions of the Participating Holders at least two (2) Business Days prior to any sale of Registrable Securities and instruct any transfer agent and registrar of Registrable Securities to release any stop transfer orders in respect thereof (and, in the case of Registrable Securities registered on a Shelf Registration Statement, at the request of any Holder, prepare and deliver certificates representing such Registrable Securities not bearing any restrictive legends and deliver or cause to be delivered an opinion or instructions to the transfer agent in order to allow such Registrable Securities to be sold from time to time);
(r) take no direct or indirect action prohibited by Regulation M under the Exchange Act; provided, however, that to the extent that any prohibition is applicable to the Company, the Company will use its reasonable best efforts to make any such prohibition inapplicable;
(s) use its reasonable best efforts to cause the Registrable Securities covered by the applicable registration statement to be registered with or approved by such other governmental agencies, authorities or self-regulatory bodies (including any filings as may be required to be made with FINRA) as may be necessary by virtue of the business and operations of the Company, any Subsidiary, and, in each case, any successor thereto, to enable the Participating Holders or the underwriters, if any, to consummate the disposition of such Registrable Securities, in accordance with the intended method or methods of disposition thereof;
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(t) take all such other commercially reasonable actions as are necessary or advisable in order to expedite or facilitate the disposition of such Registrable Securities;
(u) take all reasonable action to ensure that any free writing prospectus utilized in connection with any registration covered by Section 2.1 or 2.2 complies in all material respects with the Securities Act, is filed in accordance with the Securities Act to the extent required thereby, is retained in accordance with the Securities Act to the extent required thereby and, when taken together with the related prospectus, prospectus supplement and related documents, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and
(v) in connection with any underwritten offering, if at any time the information conveyed to a purchaser at the time of sale includes any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, promptly file with the SEC such amendments or supplements to such information as may be necessary so that the statements as so amended or supplemented will not, in light of the circumstances, be misleading.
To the extent the Company is a well-known seasoned issuer (as defined in Rule 405 under the Securities Act) (a WKSI ) at the time any Demand Registration Request is submitted to the Company, and such Demand Registration Request requests that the Company file an automatic shelf registration statement (as defined in Rule 405 under the Securities Act) (an automatic shelf registration statement ) on Form S-3, the Company shall file an automatic shelf registration statement which covers those Registrable Securities which are requested to be registered. The Company shall use its commercially reasonable best efforts to remain a WKSI (and not become an ineligible issuer (as defined in Rule 405 under the Securities Act)) during the period during which such automatic shelf registration statement is required to remain effective.
If the Company does not pay the filing fee covering the Registrable Securities at the time the automatic shelf registration statement is filed, the Company agrees to pay such fee at such time or times as the Registrable Securities are to be sold. If the automatic shelf registration statement has been outstanding for at least three (3) years, at the end of the third year the Company shall refile a new automatic shelf registration statement covering the Registrable Securities. If at any time when the Company is required to re-evaluate its WKSI status the Company determines that it is not a WKSI, the Company shall use its commercially reasonable best efforts to refile the shelf registration statement on Form S-3 and, if such form is not available, Form S-1 and keep such registration statement effective during the period during which such registration statement is required to be kept effective.
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If the Company files any shelf registration statement for the benefit of the holders of any of its securities other than the Holders, and the Holders do not request that their Registrable Securities be included in such Shelf Registration Statement, the Company agrees that it shall include in such registration statement such disclosures as may be required by Rule 430B under the Securities Act (referring to the unnamed selling security holders in a generic manner by identifying the initial offering of the securities to the Holders) in order to ensure that the Holders may be added to such shelf registration statement at a later time through the filing of a prospectus supplement rather than a post-effective amendment.
The Company may require as a condition precedent to the Companys obligations under this Section 2.4 that each Participating Holder as to which any registration is being effected furnish the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request provided that such information is necessary for the Company to consummate such registration and shall be used only in connection with such registration or as shall be required by law in connection with the action taken by the Company.
Each Holder of Registrable Securities agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in clause (v) of paragraph (e) of this Section 2.4 , such Holder will discontinue such Holders disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Holders receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (e) of this Section 2.4 and, if so directed by the Company, will deliver to the Company (at the Companys expense) all copies, other than permanent file copies, then in such Holders possession of the prospectus covering such Registrable Securities that was in effect at the time of receipt of such notice. In the event the Company shall give any such notice, the applicable period mentioned in paragraph (b) of this Section 2.4 shall be extended by the number of days during such period from and including the date of the giving of such notice to and including the date when each Participating Holder covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by paragraph (e) of this Section 2.4 .
If any such registration statement or comparable statement under state blue sky laws refers to any Holder by name or otherwise as the Holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such Holder and the Company, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Companys securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not in the judgment of the Company, as advised by counsel, required by the Securities Act or any similar federal statute or any state blue sky or securities law then in force, the deletion of the reference to such Holder.
2.5. Registration Expenses .
(a) The Company shall pay all Expenses with respect to any registration or offering of Registrable Securities pursuant to Section 2 , whether or not a registration statement becomes effective or the offering is consummated.
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(b) Notwithstanding the foregoing, (x) the provisions of this Section 2.5 shall be deemed amended to the extent necessary to cause these expense provisions to comply with state blue sky laws of each state in which the offering is made and (y) in connection with any underwritten offering hereunder, each Participating Holder shall pay all underwriting discounts and commissions and any transfer taxes, if any, attributable to the sale of such Registrable Securities, pro rata with respect to payments of discounts and commissions in accordance with the number of shares sold in the offering by such Holder.
2.6. Certain Limitations on Registration Rights . In the case of any registration under Section 2.1 involving an underwritten offering, or, in the case of a registration under Section 2.2 , if the Company has determined to enter into an underwriting agreement in connection therewith, all securities to be included in such underwritten offering shall be subject to such underwriting agreement and no Person may participate in such underwritten offering unless such Person (i) agrees to sell such Persons securities on the basis provided therein and completes and executes all reasonable questionnaires, and other customary documents (including custody agreements and powers of attorney) which must be executed in connection therewith; provided, however, that all such documents shall be consistent with the provisions hereof and (ii) provides such other information to the Company or the underwriter as may be necessary to register such Persons securities.
2.7. Limitations on Sale or Distribution of Other Securities .
(a) Each Holder agrees, (i) to the extent requested in writing by a managing underwriter, if any, of any underwritten public offering pursuant to a registration or offering effected pursuant to Section 2.1 not to sell, transfer or otherwise dispose of, including any sale pursuant to Rule 144 under the Securities Act, any Common Stock, or any other equity security of the Company or any security convertible into or exchangeable or exercisable for any equity security of the Company (other than as part of such underwritten public offering) during the time period reasonably requested by the managing underwriter, not to exceed ninety (90) days or such shorter period as the managing underwriter shall agree to (other than in the case of the IPO, which time period shall be 180 days), provided , that (x) such shorter period shall apply to all Holders who are subject to such period and (y) if a managing underwriter of an offering releases any Holder of its obligations under this Section 2.7(a)(i) , all other Holders shall be released from their obligations under this Section 2.7(a)(i) , on a pro rata basis, in accordance with the number of Registrable Securities held by them at such time (and the Company hereby also so agrees (except that the Company may effect any sale or distribution of any such securities pursuant to a Special Registration Statement which is (x) then in effect or (y) shall become effective upon the conversion, exchange or exercise of any then outstanding Common Stock Equivalent), to use its reasonable best efforts to cause each holder of any equity security or any security convertible into or exchangeable or exercisable for any equity security of the Company purchased from the Company at any time other than in a public offering so to agree); and (ii) to the extent requested in writing by a managing underwriter of any underwritten public offering effected by the Company for its own account (including without limitation any offering in which one or more Holders is selling Common Stock pursuant to the exercise of piggyback rights under Section 2.2 hereof), it will not sell any Common Stock (other than as part of such underwritten public offering) during the time period reasonably requested by the managing underwriter, which period shall not exceed ninety (90) days or such shorter period as the managing underwriter shall agree
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to (other than in the case of the IPO, which time period shall be 180 days), provided that (x) such shorter period shall apply to all Holders who are subject to such period and (y) if a managing underwriter of an offering releases any Holder of its obligations under this Section 2.7(a)(ii) , all other Holders shall be released from their obligations under this Section 2.7(a)(ii) , on a pro rata basis, in accordance with the number of Registrable Securities held by them at such time (and the Company hereby also so agrees (except that the Company may effect any sale or distribution of any such securities pursuant to a Special Registration Statement which is (x) then in effect or (y) shall become effective upon the conversion, exchange or exercise of any then outstanding Common Stock Equivalent), to use its reasonable best efforts to cause each holder of any equity security or any security convertible into or exchangeable or exercisable for any equity security of the Company purchased from the Company at any time other than in a public offering so to agree).
(b) The Company hereby agrees that, in connection with an offering pursuant to Section 2.1 or 2.2 , the Company shall not sell, transfer, or otherwise dispose of, any Common Stock, or any other equity security of the Company or any security convertible into or exchangeable or exercisable for any equity security of the Company (other than as part of such Public Offering, or other than pursuant to a Special Registration Statement which is (x) then in effect or (y) shall become effective upon the conversion, exchange or exercise of any then outstanding Common Stock Equivalent), until a period of ninety (90) days (or such shorter period to which the Majority Participating Holders shall agree) shall have elapsed from the pricing date of such offering; and the Company shall (i) so provide in any registration rights agreements hereafter entered into with respect to any of its securities and (ii) use its reasonable best efforts to cause each holder of any equity security or any security convertible into or exchangeable or exercisable for any equity security of the Company purchased from the Company at any time other than in a public offering to so agree.
2.8. No Required S ale . Nothing in this Agreement shall be deemed to create an independent obligation on the part of any Holder to sell any Registrable Securities pursuant to any effective registration statement.
2.9. Indemni fication .
(a) In the event of any registration or offer and sale of any securities of the Company under the Securities Act pursuant to this Section 2 , the Company will, and hereby agrees to, and hereby does, indemnify and hold harmless, to the fullest extent permitted by law, each Participating Holder, its directors, officers, fiduciaries, employees, stockholders, members or general and limited partners (and the directors, officers, fiduciaries, employees, stockholders, members or general and limited partners thereof), each other Person who participates as a seller (and its directors, officers, fiduciaries, employees, stockholders, members or general and limited partners), underwriter or Qualified Independent Underwriter, if any, in the offering or sale of such securities, each officer, director, employee, stockholder, fiduciary, managing director, agent, affiliate, consultant, representative, successor, assign or partner of such underwriter or Qualified Independent Underwriter, and each other Person, if any, who controls such seller or any such underwriter or Qualified Independent Underwriter within the meaning of the Securities Act, from and against any and all losses, claims, damages or liabilities, joint or several, actions or proceedings (whether commenced or threatened) and expenses (including reasonable fees of
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counsel and any amounts paid in any settlement effected with the Companys consent, which consent shall not be unreasonably withheld or delayed) to which each such indemnified party may become subject under the Securities Act or otherwise in respect thereof (collectively, Claims), insofar as such Claims arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such securities were registered under the Securities Act or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any Offering Document, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (iii) any untrue statement or alleged untrue statement of a material fact in the information conveyed by the Company to any purchaser at the time of the sale to such purchaser, or the omission or alleged omission to state therein a material fact required to be stated therein, or (iv) any violation by the Company of any federal, state or common law rule or regulation applicable to the Company and relating to action required of or inaction by the Company in connection with any such registration, and the Company will reimburse any such indemnified party for any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such Claim as such expenses are incurred; provided , however, that the Company shall not be liable to any such indemnified party in any such case to the extent such Claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact made in such Offering Document in reliance upon written information furnished to the Company by or on behalf of such indemnified party for use therein. Such indemnity and reimbursement of expenses shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified party and shall survive the transfer of such securities by such seller.
(b) Each Participating Holder (and, if the Company requires as a condition to including any Registrable Securities in any registration statement filed in accordance with Section 2.1 or 2.2 , any underwriter and Qualified Independent Underwriter, if any) shall, severally and not jointly, indemnify and hold harmless (in the same manner and to the same extent as set forth in paragraph (a) of this Section 2.9 ) to the extent permitted by law the Company, its Subsidiaries (and, in each case, any successor thereto) officers and directors, each Person controlling the Company within the meaning of the Securities Act and all other prospective sellers and their directors, officers, stockholders, fiduciaries, managing directors, agents, affiliates, consultants, representatives, successors, assigns or general and limited partners and respective controlling Persons with respect to any untrue statement or alleged untrue statement of any material fact in, or omission or alleged omission of any material fact from, such Offering Document, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in strict conformity with written information furnished to the Company or its representatives by or on behalf of such Participating Holder or underwriter or Qualified Independent Underwriter, if any, specifically for use therein, and each such Participating Holder, underwriter or Qualified Independent Underwriter, if any, shall reimburse such indemnified party for any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such Claim as such expenses are incurred; provided, however, that the aggregate amount which any such Participating Holder shall be required to pay pursuant to this Section 2.9 (including pursuant to indemnity,
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contribution or otherwise) shall in no case be greater than the amount of the net proceeds received by such Participating Holder upon the sale of the Registrable Securities pursuant to the registration statement giving rise to such Claim; provided further that such Participating Holder shall not be liable in any such case to the extent that prior to the filing of any such Offering Document which corrected or made not misleading information previously furnished to the Company. The Company and each Participating Holder hereby acknowledge and agree that, unless otherwise expressly agreed to in writing by such Participating Holders to the contrary, for all purposes of this Agreement, the only information furnished or to be furnished to the Company for use in any such Offering Document are statements specifically relating to (i) the Beneficial Ownership of shares of Common Stock by such Participating Holder and its Affiliates as disclosed in the section of such document entitled Selling Stockholders or Principal and Selling Stockholders or other documents thereof and (ii) the name and address of such Participating Holder. If any additional information about such Holder or the plan of distribution (other than for an underwritten offering) is required by law to be disclosed in any such document, then such Holder shall not unreasonably withhold its agreement referred to in the immediately preceding sentence. Such indemnity and reimbursement of expenses shall remain in full force and effect regardless of any investigation made by or on behalf of such indemnified party and shall survive the transfer of such securities by such Holder.
(c) Indemnification similar to that specified in the preceding paragraphs (a) and (b) of this Section 2.9 (with appropriate modifications) shall be given by the Company and each Participating Holder with respect to any required registration or other qualification of securities under any applicable securities and state blue sky laws.
(d) Any Person entitled to indemnification under this Agreement shall notify promptly the indemnifying party in writing of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Section 2.9 , but the failure of any indemnified party to provide such notice shall not relieve the indemnifying party of its obligations under the preceding paragraphs of this Section 2.9 , except to the extent the indemnifying party is materially and actually prejudiced thereby and shall not relieve the indemnifying party from any liability which it may have to any indemnified party otherwise than under this Section 2 . In case any action or proceeding is brought against an indemnified party and such indemnified party shall have notified the indemnifying party of the commencement thereof (as required above), the indemnifying party shall be entitled to participate therein and, unless in the reasonable opinion of outside counsel to the indemnified party a conflict of interest between such indemnified and indemnifying parties may exist in respect of such Claim, to assume the defense thereof jointly with any other indemnifying party similarly notified, to the extent that it chooses, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party that it so chooses, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that (i) if the indemnifying party fails to take reasonable steps necessary to defend diligently the action or proceeding within twenty (20) days after receiving notice from such indemnified party that the indemnified party believes it has failed to do so; or (ii) if such indemnified party who is a defendant in any action or proceeding which is also brought against the indemnifying party reasonably shall have concluded that there may be one or more legal or equitable defenses available to such indemnified party
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which are not available to the indemnifying party or which may conflict with those available to another indemnified party with respect to such Claim; or (iii) if representation of both parties by the same counsel is otherwise inappropriate under applicable standards of professional conduct, then, in any such case, the indemnified party shall have the right to assume or continue its own defense as set forth above (but with no more than one firm of counsel for all indemnified parties in each jurisdiction, except to the extent any indemnified party or parties reasonably shall have made a conclusion described in clause (ii) or (iii) above) and the indemnifying party shall be liable for any expenses therefor. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (A) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (B) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party.
(e) If for any reason the foregoing indemnity is unavailable, unenforceable or is insufficient to hold harmless an indemnified party under Sections 2.9(a ), (b) or (c) , then each applicable indemnifying party shall contribute to the amount paid or payable to such indemnified party as a result of any Claim in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and the indemnified party, on the other hand, with respect to such Claim. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. If, however, the allocation provided in the second preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative faults but also the relative benefits of the indemnifying party and the indemnified party as well as any other relevant equitable considerations. The parties hereto agree that it would not be just and equitable if any contribution pursuant to this Section 2.9(e) were to be determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the preceding sentences of this Section 2.9(e) . The amount paid or payable in respect of any Claim shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such Claim. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Notwithstanding anything in this Section 2.9(e) to the contrary, no indemnifying party (other than the Company, any Subsidiary, and, in each case, any successor thereto) shall be required pursuant to this Section 2.9(e) to contribute any amount greater than the amount of the net proceeds received by such indemnifying party from the sale of Registrable Securities pursuant to the registration statement giving rise to such Claim, less the amount of any indemnification payment made by such indemnifying party pursuant to Sections 2.9(b) and (c) . In addition, no Holder of Registrable Securities or any Affiliate thereof shall be required to pay any amount under this Section 2.9(e) unless such Person or entity would have been required to pay an amount pursuant to Section 2.9(b) if it had been applicable in accordance with its terms.
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(f) The indemnity and contribution agreements contained herein shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and shall remain operative and in full force and effect regardless of any investigation made or omitted by or on behalf of any indemnified party and shall survive the transfer of the Registrable Securities by any such party.
(g) The indemnification and contribution required by this Section 2.9 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred; provided, however, that the recipient thereof hereby undertakes to repay such payments if and to the extent it shall be determined by a court of competent jurisdiction that such recipient is not entitled to such payment hereunder.
2.10. Limitations on Registration of Other Securities; R epresentation . From and after the date of this Agreement, the Company shall not, without the prior written consent of (i) Holders holding more than 50% of the Registrable Securities, and (ii) each Investor Shareholder, in each case, to the extent that such Investor Shareholder holds (together with its Permitted Transferees that are Affiliates) twenty-five percent (25%) of the Registrable Securities held by such Investor Shareholder as of the date hereof, enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder any registration rights the terms of which are more favorable taken as a whole than the registration rights granted to the Holders hereunder unless the Company shall also give such rights to such Holders.
2.11. No Inconsistent Agreements . The Company shall not hereafter enter into any agreement with respect to its securities that is inconsistent in any material respects with the rights granted to the Holders in this Agreement.
Section 3. Underwritten Offerings .
3.1. Requested Underwritten Offerings . If requested by the underwriters for any underwritten offering pursuant to a registration requested under Section 2.1 , the Company shall enter into a customary underwriting agreement with the underwriters. Such underwriting agreement shall (i) be satisfactory in form and substance to the Majority Participating Holders, (ii) contain terms not inconsistent with the provisions of this Agreement and (iii) contain such representations and warranties by, and such other agreements on the part of, the Company and such other terms as are generally prevailing in agreements of that type, including, without limitation, indemnities and contribution agreements on substantially the same terms as those contained herein. In connection with a registration requested under Section 2.1 , any Participating Holder shall be a party to such underwriting agreement and may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Participating Holder and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Participating Holder; provided , however , that the Company shall not be required to make any representations or warranties with respect to written information specifically provided by a Participating Holder for inclusion in the registration statement. In
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connection with a registration requested under Section 2.1 , unless otherwise agreed by the respective Participating Holders and the underwriters, each such Participating Holder shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Participating Holder, its ownership of and title to the Registrable Securities, any written information specifically provided by such Participating Holder for inclusion in the registration statement and its intended method of distribution; and any liability of such Participating Holder to any underwriter or other Person under such underwriting agreement for indemnity, contribution or otherwise shall in no case be greater than the amount of the net proceeds received by such Participating Holder upon the sale of Registrable Securities pursuant to such registration statement and in no event shall relate to anything other than information about such Holder specifically provided by such Holder for use in the registration statement and prospectus.
3.2. Piggyback Underwritten Offerings . In the case of a registration pursuant to Section 2.2 , if the Company shall have determined to enter into an underwriting agreement in connection therewith, all of the Participating Holders Registrable Securities to be included in such registration shall be subject to such underwriting agreement. In the case of a registration pursuant to Section 2.2 , any Participating Holder may, at its option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Participating Holder and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Participating Holder; provided that the Company shall not be required to make any representations or warranties with respect to written information specifically provided by a Participating Holder for inclusion in the registration statement. In the case of a registration pursuant to Section 2.2 , unless otherwise agreed by the respective Participating Holders and the underwriters, each such Participating Holder shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such Participating Holder, its ownership of and title to the Registrable Securities, any written information specifically provided by such Participating Holder for inclusion in the registration statement and its intended method of distribution; and any liability of such Participating Holder to any underwriter or other Person under such underwriting agreement shall in no case be greater than the amount of the net proceeds received by such Participating Holder upon the sale of Registrable Securities pursuant to such registration statement and in no event shall relate to anything other than information about such Holder specifically provided by such Holder for use in the registration statement and prospectus.
Section 4. General
4.1. Adjustments Affecting Registrable Securities . The Company agrees that it shall not effect or permit to occur any combination or subdivision of shares of Common Stock which would adversely affect the ability of any Holder of any Registrable Securities to include such Registrable Securities in any registration contemplated by this Agreement or the marketability of such Registrable Securities in any such registration. The Company agrees that it will take all reasonable steps necessary to effect a subdivision of shares of Common Stock if in the reasonable judgment of (a) the Majority Participating Holders or (b) the Manager for the offering in respect of such Demand Registration Request, such subdivision would enhance the
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marketability of the Registrable Securities. Subject to the Amended and Restated Certificate of Incorporation of the Company, dated as of the date hereof (as amended from time to time), the Amended and Restated Bylaws of the Company, dated as of the date hereof (as amended from time to time) and the Voting Agreement (in each case, as in effect at the time and as applicable), each Holder agrees to vote all of its shares of capital stock in a manner, and to take all other actions necessary, to permit the Company to carry out the intent of the preceding sentence including, without limitation, voting in favor of an amendment to the Companys organizational documents in order to increase the number of authorized shares of capital stock of the Company. In any event, the provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Registrable Securities, to any and all shares of capital stock of the Company, any successor or assign of the Company (whether by merger, share exchange, consolidation, sale of assets or otherwise) or any Subsidiary of the Company which may be issued in respect of, in exchange for or in substitution of, Registrable Securities and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof.
4.2. Rule 144 and Rule 144A . If the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the requirements of the Securities Act in respect of the Common Stock or Common Stock Equivalents, the Company covenants that (i) so long as it remains subject to the reporting provisions of the Exchange Act, it will timely file the reports required to be filed by it under the Securities Act or the Exchange Act (including, but not limited to, the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1)(i) of Rule 144 under the Securities Act, as such Rule may be amended ( Rule 144 )) or, if the Company is not required to file such reports, it will, upon the request of any Holder, make publicly available other information so long as necessary to permit sales by such Holder under Rule 144, Rule 144A under the Securities Act, as such Rule may be amended ( Rule 144A ), or any similar rules or regulations hereafter adopted by the SEC, and (ii) it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (A) Rule 144, (B) Rule 144A or (C) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements.
4.3. Nominees for Beneficial Owners . If Registrable Securities are held by a nominee for the Beneficial Owner thereof the Beneficial Owner thereof may, at its option, be treated as the Holder of such Registrable Securities for purposes of any request or other action by any Holder or Holders of Registrable Securities pursuant to this Agreement (or any determination of any number or percentage of shares constituting Registrable Securities held by any Holder or Holders of Registrable Securities contemplated by this Agreement), provided that the Company shall have received assurances reasonably satisfactory to it of such Beneficial Ownership.
4.4. Amendments and Waivers . Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective against the Company or any Holder unless such modification, amendment or waiver is approved in writing by (i) the Company, (ii) the Holders holding more than 50% of the Registrable Securities
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then held by all Holders, and (iii) each Investor Shareholder, in each case, to the extent that such Investor Shareholder (together with its Permitted Transferees that are Affiliates) holds twenty-five percent (25)% of the Registrable Securities held by such Investor Shareholder as of the date hereof; provided that any amendment, modification, supplement or waiver of any of the provisions of this Agreement which disproportionately materially adversely affects any Holder shall not be effective without the written approval of such Holder. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar). No failure or delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof or of any other or future exercise of any such right, power or privilege.
4.5. Notices .
(a) All notices and other communications under this Agreement shall be in writing and shall be deemed given (i) when delivered personally by hand (with written confirmation of receipt), (ii) when sent by e-mail, (iii) when received or rejected by the addressee if sent by registered or certified mail, postage prepaid, return receipt requested, or (iv) one Business Day following the day sent by reputable overnight courier (with written confirmation of receipt), in each case at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision):
(i) | if to the Company, to: |
Ceridian HCM Holding Inc.
3311 East Old Shakopee Road
Minneapolis, MN 55425
Attention: William E. McDonald, Senior Vice President, Deputy General Counsel and Corporate Secretary
E-mail: William.Mcdonald@ceridian.com;
officeofgeneralcounsel@ceridian.com
with a copy, which shall not constitute notice, to:
Weil, Gotshal & Manges, LLP
100 Federal Street, 34th Floor
Boston, MA 02110
Attention: Shayla K. Harlev and Matthew W. Goulding
Email: shayla.harlev@weil.com; Matthew.goulding@weil.com
(ii) | if to Cannae, to: |
Cannae Holdings, LLC
1701 Village Center Circle
Las Vegas, Nevada 89134
Attention: Michael Gravelle
Email: MGravelle@fnf.com
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with a copy, which shall not constitute notice, to:
Weil, Gotshal & Manges, LLP
100 Federal Street, 34th Floor
Boston, MA 02110
Attention: Shayla K. Harlev and Matthew W. Goulding
Email: shayla.harlev@weil.com; Matthew.goulding@weil.com
(iii) | if to a THL Party, to: |
c/o Thomas H. Lee Partners, L.P.
100 Federal Street, 35th Floor
Boston, MA 02110
Attention: Ganesh B. Rao and Shari H. Wolkon
Email: G.Rao@weil.com; SWolkon@weil.com
with a copy, which shall not constitute notice, to:
Weil, Gotshal & Manges, LLP
100 Federal Street, 34th Floor
Boston, MA 02110
Attention: Shayla K. Harlev and Matthew W. Goulding
Email: shayla.harlev@weil.com; Matthew.goulding@weil.com
(iv) | if to the Other Stockholders, to the address indicated in the records of the Company. |
(b) Whenever any notice is required to be given by Law or this Agreement, a written waiver thereof, signed by the Person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.
4.6. Successors and A ssigns . Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and the respective successors, permitted assigns, heirs and personal representatives of the parties hereto, whether so expressed or not. This Agreement may not be assigned by the Company without the prior written consent of Cannae and the THL Party. Each Holder shall have the right to assign all or part of its or his rights and obligations under this Agreement only in accordance with transfers of Registrable Securities to such Holders Permitted Transferees. For the avoidance of doubt, Cannae and the THL Party shall have the right to assign all or part of its rights and obligations under this Agreement to any of its Affiliates in connection with any transfer of Registrable Securities to such Affiliate. Upon any such assignment, such assignee shall have and be able to exercise and enforce all rights of the assigning Holder which are assigned to it and, to the extent such rights are assigned, any reference to the assigning Holder shall be treated as a reference to the assignee. If any Holder shall acquire additional Registrable Securities, such Registrable Securities shall be subject to all of the terms, and entitled to all the benefits, of this Agreement. The parties hereto and their respective successors may assign their rights under this Agreement, in whole or in part, to any purchaser of shares of Registrable Securities held by them.
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4.7. Entire Agreement . This Agreement, the Stockholders Agreement, the Amended and Restated Certificate of Incorporation of the Company, dated as of the date hereof (as amended from time to time) and the Amended and Restated Bylaws of the Company, dated as of the date hereof (as amended from time to time) and the other documents referred to herein or therein or delivered pursuant hereto or thereto which form part hereof constitute the entire agreement and understanding between the parties hereto and supersedes all prior agreements and understandings relating to the subject matter hereof.
4.8. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial .
(a) GOVERNING LAW.THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS AND JUDICIAL DECISIONS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS EXECUTED AND PERFORMED ENTIRELY WITHIN SUCH STATE, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
(b) Jurisdiction . Each of the parties hereto irrevocably submits to the exclusive jurisdiction of (i) the Court of Chancery of the State of Delaware and (ii) the United States District Court located in the State of Delaware for the purposes of any suit, action or other proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement. Each of the parties hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement in (I) the Court of Chancery of the State of Delaware or (II) the United States District Court located in the State of Delaware and waives any claim that such suit or proceeding has been brought in an inconvenient forum. Each of the parties hereto agrees that a final and unappealable judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment in any jurisdiction within or outside the United States or in any other manner provided in law or in equity
(c) WAIVER OF JURY TRIAL . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY 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 DIRECTLY OR INDIRECTLY 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 (I) 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, (II) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (III) IT MAKES SUCH WAIVER VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 4.8 .
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4.9. Interpretation; C onstruction .
(a) The table of contents and headings in this Agreement are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. Where a reference in this Agreement is made to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the words include , includes or including are used in this Agreement, they shall be deemed to be followed by the words without limitation .
(b) The parties have participated jointly in negotiating and drafting this Agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
(c) For purposes of this Agreement, the THL Party shall be treated as a single entity unless the context clearly dictates otherwise.
4.10. C ounterparts . This Agreement may be executed and delivered in any number of separate counterparts (including by facsimile or electronic mail), each of which shall be an original, but all of which together shall constitute one and the same agreement.
4.11. S everability . The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
4.12. Remed ies . The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that each party hereto shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, without the posting of any bond, and, if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. All remedies, either under this Agreement, by law, or otherwise afforded to any party, shall be cumulative and not alternative.
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4.13. Further A ssurances . Each party hereto shall do and perform or cause to be done and performed all such further acts and things and shall execute and deliver all such other agreements, certificates, instruments, and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
4.14. C onfidentiality . Each Other Stockholder agrees that all material non-public information provided pursuant to or in accordance with the terms of this Agreement shall be kept confidential by the person to whom such information is provided, until such time as such information becomes public other than through violation of this provision. Notwithstanding the foregoing, any party may disclose the information if required to do so by any law, rule, regulation, order, decree or subpoena of any governmental agency or authority or court.
4.15. Termination and Effect of Termination . This Agreement shall terminate with respect to each Holder when such Holder no longer holds any Registrable Securities and will terminate in full when no Holder holds any Registrable Securities, except for the provisions of Sections 2.9 and 4.2, which shall survive any such termination. No termination under this Agreement shall relieve any Person of liability for breach or Expenses incurred prior to termination. In the event this Agreement is terminated, each Person entitled to indemnification rights pursuant to Section 2.9 shall retain such indemnification rights with respect to any matter that (i) may be an indemnified liability thereunder and (ii) occurred prior to such termination.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written.
COMPANY: | ||
CERIDIAN HCM HOLDING INC. |
By: |
Name: | ||
Title: |
CANNAE: | ||
CANNAE HOLDINGS, LLC |
By: |
Name: | ||
Title: |
THL PARTY: | ||
THOMAS H. LEE EQUITY FUND VI, LP |
By: |
Name: | ||
Title: | ||
THOMAS H. LEE PARALLEL FUND VI, LP |
By: |
Name: | ||
Title: | ||
THOMAS H. LEE PARALLEL (DT) FUND VI, LP |
By: |
Name: | ||
Title: | ||
GREAT-WEST INVESTORS LP |
By: |
Name: | ||
Title: | ||
PUTNAM INVESTMENTS EMPLOYEES SECURITIES COMPANY III LLC |
By: |
Name: | ||
Title: |
THL COINVESTMENT PARTNERS, LP |
By: |
Name: | ||
Title: | ||
THL OPERATING PARTNERS, LP |
By: |
Name: | ||
Title: | ||
THL EQUITY FUND VI INVESTORS (CERIDIAN), LP |
By: |
Name: | ||
Title: | ||
THL EQUITY FUND VI INVESTORS (CERIDIAN) II, LP |
By: |
Name: | ||
Title: | ||
THL EQUITY FUND VI INVESTORS (CERIDIAN) III, LLC |
By: |
Name: | ||
Title: |
THL EQUITY FUND VI INVESTORS (CERIDIAN) IV, LLC |
By: |
Name: | ||
Title: | ||
THL EQUITY FUND VI INVESTORS (CERIDIAN) V, LLC |
By: |
Name: | ||
Title: |
OTHER STOCKHOLDERS: | ||
DAVID OSSIP |
By: |
ALON OSSIP |
By: |
Name: | ||
Title: | ||
OSFUND INC. |
By: |
Name: | ||
Title: | ||
OSSCER, INC. |
By: |
Name: | ||
Title: |
EXHIBIT A
FORM OF
JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this Joinder ) is made and entered into as of [_________] by the undersigned (the New Holder ) in accordance with the terms and conditions set forth in that certain Registration Rights Agreement by and among Ceridian HCM Holding Inc., a Delaware corporation (including any successor, the Company ), the THL Party, Cannae (each as defined therein), and the Holders party thereto, dated as of [__________] 2018 (as the same may be amended, restated or otherwise modified from time to time, the Registration Rights Agreement ), for the benefit of, and for reliance upon by, the Company, the THL Party, Cannae and the Holders. Capitalized terms used herein but not otherwise defined shall have the meanings given to them in the Registration Rights Agreement.
WHEREAS, the New Holder desires to exercise certain rights granted to it under the Registration Rights Agreement; and
WHEREAS, the execution and delivery to the Company of this Joinder by the New Holder is a condition precedent to the New Holders exercise of any of its rights under the Registration Rights Agreement.
NOW, THEREFORE, in consideration of the premises and covenants herein, and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the New Holder hereby agrees as follows:
1. Joinder . By the execution and delivery of this Joinder, the New Holder hereby agrees to become, and to be deemed to be, and shall become and be deemed to be, for all purposes under the Registration Rights Agreement, a Holder, with the same force and effect as if the New Holder had been an original signatory thereto, and the New Holder agrees to be bound by all of the terms and conditions of, and to assume all of the obligations of, a Holder under, the Registration Rights Agreement. All of the terms, provisions, representations, warranties, covenants and agreements set forth in the Registration Rights Agreement with respect to a Holder are incorporated by reference herein and shall be legally binding upon, and inure to the benefit of, the New Holder.
2. Further Assurances . The New Holder agrees to perform any further acts and execute and deliver any additional documents and instruments that may be necessary or reasonably requested by the Company to carry out the provisions of this Joinder or the Registration Rights Agreement.
3. Binding Effect . This Joinder and the Registration Rights Agreement shall be binding upon, and shall inure to the benefit of, the New Holder and its successors and permitted assigns, subject to the terms and provisions of the Registration Rights Agreement. It shall not be necessary in connection with the New Holders status as a Holder to make reference to this Joinder.
IN WITNESS WHEREOF, the New Holder has executed this Joinder as of the date first above written.
[NEW HOLDER] |
By: |
Name: |
Title: |
Address: | ||
Accepted and agreed:
CERIDIAN HCM HOLDING INC. |
By: |
Name: |
Title: |
2
Exhibit 10.11
FORM OF DIRECTOR INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the Agreement ) is made and entered into as of [●], 20[●] between Ceridian HCM Holding Inc., a Delaware corporation (the Company ), and [●] ( Indemnitee ). Capitalized terms not defined elsewhere in this Agreement are used as defined in Section 13.
WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, the Board of Directors of the Company (the Board ) has determined that, in order to attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations and other business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only at higher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. The certificate of incorporation of the Company (as amended, the Charter ) requires indemnification of the officers and directors of the Company. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware ( DGCL ). The Charter and the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;
WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining such persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Companys stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;
WHEREAS, this Agreement is a supplement to and in furtherance of the Charter of the Company and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee does not regard the protection available under the Companys Charter and insurance as adequate in the present circumstances, and may not be willing to serve as a director without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and
WHEREAS, Indemnitee has certain rights to indemnification and/or insurance provided by [affiliates of Thomas H. Lee Partners, L.P./Cannae Holdings, Inc.] (the Sponsor ) which Indemnitee and the Sponsor intends to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Companys acknowledgement and agreement to the foregoing being a material condition to Indemnitees willingness to serve on the Board.
NOW, THEREFORE, in consideration of Indemnitees agreement to serve as a director from and after the date hereof, the parties hereto agree as follows:
1. Indemnity of Indemnitee . The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time. In furtherance of the foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section l(a) if, by reason of his Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding other than a Proceeding by or in the right of the Company. Pursuant to this Section 1(a) , Indemnitee shall be indemnified against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe Indemnitees conduct was unlawful.
(b) Proceedings by or in the Right of the Company . Indemnitee shall be entitled to the rights of indemnification provided in this Section 1(b) if, by reason of his Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 1(b) , Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee, or on Indemnitees behalf, in connection with such Proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company unless and to the extent that the Court of Chancery of the State of Delaware shall determine that such indemnification may be made.
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(c) Indemnification for Expenses of a Party Who is Wholly or Partly Successful . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified to the maximum extent permitted by law, as such may be amended from time to time, against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section 1(c) and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
2. Additional Indemnity . In addition to, and without regard to any limitations on, the indemnification provided for in Section 1 of this Agreement, the Company shall and hereby does indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf if, by reason of his Corporate Status, he is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company), including, without limitation, all liability arising out of the negligence or active or passive wrongdoing of Indemnitee. The only limitation that shall exist upon the Companys obligations pursuant to this Agreement shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Sections 6 and 7 hereof) to be unlawful.
3. Contribution .
(a) Whether or not the indemnification provided in Sections 1 and 2 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not, without the Indemnitees prior written consent, enter into any such settlement of any action, suit or proceeding (in whole or in part) unless such settlement (i) provides for a full and final release of all claims asserted against Indemnitee and (ii) does not impose any Expense, judgment, fine, penalty or limitation on Indemnitee.
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(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the Law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.
(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.
(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
4. Indemnification for Expenses of a Witness . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness, or is made (or asked to) respond to discovery requests, in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.
5. Advancement of Expenses . Notwithstanding any other provision of this Agreement, the Company shall advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitees Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 5 shall be unsecured and interest free.
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6. Procedures and Presumptions for Determination of Entitlement to Indemnification . It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under the DGCL and public policy of the State of Delaware. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:
(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee unless, and to the extent that, such failure actually and materially prejudices the interests of the Company.
(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 6(a) hereof, a determination with respect to Indemnitees entitlement thereto shall be made in the specific case by one of the following four methods, which shall be at the election of the Board of Directors: (1) by a majority vote of the Disinterested Directors, even though less than a quorum, (2) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum, (3) if there are no Disinterested Directors, or if the Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, or (4) if so directed by the Board of Directors, by the stockholders of the Company; provided, however, that if a Change in Control has occurred, the determination with respect to Indemnitees entitlement to indemnification shall be made by Independent Counsel.
(c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected as provided in this Section 6(c) . If a Change in Control has not occurred, the Independent Counsel shall be selected by the Board of Directors (including a vote of a majority of the Disinterested Directors, if obtainable), and the Company shall give written notice to the Indemnitee advising him of the identity of the Independent Counsel so selected. Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of Independent Counsel as defined in Section 13 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If a Change in Control has occurred, the Independent Counsel shall be selected by the Indemnitee (unless the Indemnitee shall request that such selection be made by the Board of Directors, in which event
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the preceding sentence shall apply), and approved by the Board of Directors (which approval shall not be unreasonably withheld). If (i) an Independent Counsel is to make the determination of entitlement pursuant to this Section 6 , and (ii) within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by Indemnitee to the Companys selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 6(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 6(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 6(c) , regardless of the manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(e) Indemnitee shall be deemed to have acted in good faith if Indemnitees action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 6(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
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(f) If the person, persons or entity empowered or selected under this Section 6 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 6(f) shall not apply if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination, the Board of Directors or the Disinterested Directors, if appropriate, resolve to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat.
(g) Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitees entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel, member of the Board of Directors or stockholder of the Company shall act reasonably and in good faith in making a determination regarding Indemnitees entitlement to indemnification under this Agreement. Any costs or expenses (including attorneys fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitees entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.
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7. Remedies of Indemnitee .
(a) In the event that (i) a determination is made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 5 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 6(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitees entitlement to such indemnification, contribution or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Except as set forth herein, the provisions of Delaware law (without regard to its conflict of law rules) shall apply to any such arbitration. The Company shall not oppose Indemnitees right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 7 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 6(b) . In any judicial proceeding or arbitration commenced pursuant to this Section 7 , Indemnitee shall be presumed to be entitled to indemnification under this Agreement and the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 6(b) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 7 , Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 5 until a final determination is made with respect to Indemnitees entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).
(c) If a determination shall have been made pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 7 , absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to this Section 7 , seeks a judicial adjudication of his rights under, or to recover damages for breach of, this Agreement, or to recover under any directors and officers liability insurance policies maintained by the Company, the Company shall pay on his behalf, in advance, any and all expenses (of the types described in the definition of Expenses in Section 13 of this Agreement) actually and reasonably incurred by him in such judicial adjudication, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of expenses or insurance recovery.
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(e) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 7 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement. The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors and officers liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.
(f) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
8. Non-Exclusivity; Survival of Rights; Insurance; Primacy of Indemnification; Subrogation .
(a) The rights of indemnification and to receive advancement of expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-laws, any agreement, a vote of stockholders, a resolution of directors or otherwise, of the Company. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the DGCL, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under the Certificate of Incorporation, By-laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
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(b) The Company shall obtain and maintain in effect during the entire period for which the Company is obligated to indemnify Indemnitee under this Agreement, one or more policies of insurance with reputable insurance companies to provide the directors of the Company with coverage for losses from wrongful acts and omissions and to ensure the Companys performance of its indemnification obligations under this Agreement. Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such officer or director under such policy or policies. In all such insurance policies, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee with the same rights and benefits as are accorded to the most favorably insured of the Companys directors and officers. At the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(c) [The Company hereby acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by [●] and certain affiliates that, directly or indirectly, (i) are controlled by, (ii) control or (iii) are under common control with, [●] (collectively, the Fund Indemnitors ). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement to the extent legally permitted and as required by the terms of this Agreement and the Certificate of Incorporation or By-laws of the Company (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Fund Indemnitors, and, (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 8(d) .]
(d) Except as provided in Section 8(c) above, in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee (other than against the Fund Indemnitors), who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(e) Except as provided in Section 8(c) above, the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
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(f) Except as provided in Section 8(c) above, the Companys obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.
9. Exception to Right of Indemnification . Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:
(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; provided , that the foregoing shall not affect the rights of Indemnitee or the Fund Indemnitors set forth in Section 8(c) above; or
(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or similar provisions of state statutory law or common law; or
(c) for reimbursement to the Company of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company in each case as required under the Exchange Act; or
(d) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Company has joined in or the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation, (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, or (iii) the Proceeding is one to enforce Indemnitees rights under this Agreement.
10. Non-Disclosure of Payments . Except as expressly required by the securities laws of the United States of America, neither party shall disclose any payments under this Agreement unless prior approval of the other party is obtained. If any payment information must be disclosed, the Company shall afford the Indemnitee an opportunity to review all such disclosures and, if requested, to explain in such statement any mitigating circumstances regarding the events to be reported.
11. Duration of Agreement . All agreements and obligations of the Company contained herein shall continue upon the later of (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director of the Company or a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other Enterprise which Indemnitee served at the request of the Company; or (b) one (1) year after the final termination of any Proceeding (including any rights of appeal thereto) in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Section 7 of this Agreement relating thereto (including any rights of appeal of any Section 7 Proceeding). This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.
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12. Security . To the extent requested by Indemnitee and approved by the Board of Directors of the Company, the Company may at any time and from time to time provide security to Indemnitee for the Companys obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of Indemnitee.
13. Definitions . For purposes of this Agreement:
(a) Change in Control shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
(i) Acquisition of Stock by Third Party . Any Person, other than the Sponsor and its affiliates and other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing fifty (50%) or more of the combined voting power of the Companys then outstanding securities;
(ii) Change in Board of Directors . During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Section 13(a)(i) , 13(a)(iii) or 13(a)(iv) ) whose election by the Board or nomination for election by the Companys stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a least a majority of the members of the Board of Directors;
(iii) Corporate Transactions . The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining
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outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; and
(iv) Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Companys assets, or, if such approval is not required, the decision by the Board of Directors to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions.
(b) Beneficial Owner shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.
(c) Corporate Status describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company, any direct or indirect subsidiary of the Company, or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving at the request of the Company.
(d) Disinterested Director means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(e) Enterprise shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary.
(f) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
(g) Expenses shall include all reasonable attorneys fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, or responding to, or objecting to, a request to provide discovery in any Proceeding. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.
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(h) Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(i) Person shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(j) Proceeding includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director of the Company, by reason of any action taken by him or of any inaction on his part while acting as a director of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other Enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement; including one pending on or before the date of this Agreement, but excluding one initiated by an Indemnitee pursuant to Section 7 of this Agreement to enforce his rights under this Agreement.
14. Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality, and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the fullest extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws.
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15. Enforcement and Binding Effect .
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director of the Company.
(b) Without limiting any of the rights of Indemnitee under the Charter or By-laws of the Company as they may be amended from time to time, this Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.
(c) The indemnification and advancement of expenses provided by, or granted pursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise at the Companys request, and shall inure to the benefit of Indemnitee and his or her spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.
(d) The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company to expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
(e) The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which he may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the Court, and the Company hereby waives any such requirement of such a bond or undertaking.
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16. Modification and Waiver . No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
17. Notice By Indemnitee . Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.
18. Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:
(a) To Indemnitee at the address set forth below Indemnitee signature hereto.
(b) To the Company at:
Ceridian HCM Holding Inc.
[●]
or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.
19. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
20. Headings . The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
21. Usage of Pronouns . Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.
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22. Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the Delaware Court ), and not in any other state or federal court in the United States of America or any court in any other country, (ii) generally and unconditionally consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum. The foregoing consent to jurisdiction shall not constitute general consent to service of process in the state for any purpose except as provided above, and shall not be deemed to confer rights on any person other than the parties to this Agreement.
[SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written.
CERIDIAN HCM HOLDING INC. | ||
By: | ||
[ ● ] |
INDEMNITEE |
[ ● ] |
Address: |
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Exhibit 10.13
CERIDIAN HCM HOLDING INC.
2018 Equity Incentive Plan
Form of Restricted Stock Unit Award Agreement
Participant Name:
Participant ID No.:
(if applicable)
Grant Date:
Number of Restricted Stock Units :
This Restricted Stock Unit Award Agreement (this Agreement ) is made by and between Ceridian HCM Holding, Inc., a Delaware corporation (the Company ), and the above-named participant (the Participant ), effective as of the above-designated grant date (the Grant Date ).
RECITALS
WHEREAS , the Company has adopted the Ceridian HCM Holding, Inc. 2018 Equity Incentive Plan (as the same may be amended from time to time, the Plan ), which Plan is incorporated herein by reference and made a part of this Agreement, and capitalized terms not otherwise defined in this Agreement shall have the meanings ascribed to those terms in the Plan; and
WHEREAS , the Committee has authorized and approved the grant of an Award to the Participant that will provide the Participant the opportunity to acquire shares of Common Stock ( Shares ) upon the settlement of stock units on the terms and conditions set forth in the Plan and this Agreement ( Restricted Stock Units ).
NOW THEREFORE , in consideration of the premises and mutual covenants set forth in this Agreement, the parties agree as follows:
1. | Grant of Restricted Stock Unit Award . The Company hereby grants to the Participant the above-designated number of Restricted Stock Units, on the terms and conditions set forth in the Plan and this Agreement, subject to adjustment as set forth in the Plan. |
2. | Vesting and Forfeiture of Restricted Stock Units . Subject to the terms and conditions set forth in the Plan and this Agreement, the Restricted Stock Units shall vest as follows: |
(a) | General . Except as otherwise provided in Section 2(b), 33.33% of the Restricted Stock Units shall vest on each of the first three (3) anniversaries of the Date of Grant, subject to the Participants continued Service through the applicable vesting date. |
(b) | Accelerated Vesting . The Restricted Stock Units shall fully vest upon a Change of Control or upon the death of the Participant, subject to the Participants continued Service through such date. |
(c) | Termination of Service . All unvested Restricted Stock Units shall be forfeited upon the Participants termination of Service with the Company or its Subsidiaries for any reason. Without limiting the generality of the foregoing, the Shares (and any resulting proceeds) will continue to be subject to Section 12.2 (Termination for Cause) and 12.3 (Right of Recapture) of the Plan. |
3. | Settlement . The Company shall deliver to the Participant within forty-five (45) days following the vesting date of the Restricted Stock Units a number of Shares equal to the aggregate number of Restricted Stock Units that vest as of such date. No fractional Shares shall be delivered; the Company shall pay cash in respect of any fractional Shares. The Company may deliver such shares either through book entry accounts held by, or in the name of, the Participant or cause to be issued a certificate or certificates representing the number of Shares to be issued in respect of the Restricted Stock Units, registered in the name of the Participant. Notwithstanding the foregoing, the Restricted Stock Units may be settled in the form of: (a) cash, to the extent settlement in Shares (i) is prohibited under applicable laws, (ii) would require the Participant, the Company or the Subsidiary that employs the Participant (the Employer ) to obtain the approval of any governmental and/or regulatory body in the Participants country of residence (and country of employment, if different), or (iii) is administratively burdensome; or (b) Shares, but the Company may require the Participant to immediately sell such Shares if necessary to comply with applicable laws (in which case, the Participant hereby expressly authorizes the Company to issue sales instructions in relation to such Shares on the Participants behalf). |
4. | Responsibility for Taxes . |
(a) | Participant shall be solely responsible for the payment and withholding of all income, employment and other taxes attributable to Participant under this Agreement (the Tax-Related Items ), and Participant shall timely remit all taxes to the Internal Revenue Service and any other required governmental agencies. The Participant further acknowledges and agrees that, during and after the Participants termination of Service, Participant will indemnify, defend and hold the Company harmless from all taxes, interest, penalties, fees, damages, liabilities, obligations, losses and expenses arising from a failure or alleged failure to make the required reports and payments for income taxes. |
(b) | Where the Company or the Employer is required by local laws in the Participants country of residence (or country of employment, if different) to deduct or withhold any Tax-Related Items, then prior to the relevant taxable or taxable withholding event, as applicable, the Participant agrees to pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all such Tax-Related Items required to be withheld. In this regard, the Participant authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all such Tax-Related Items required to be withheld by one or a combination of the following: |
(i) | withholding from the Participants wages or other cash compensation, if any, paid to the Participant by the Company or the Employer; |
(ii) | withholding from the proceeds from the sale of Shares acquired upon vesting, either through a voluntary sale or through a mandatory sale arranged by the Company (on the Participants behalf pursuant to this authorization) including pursuant to a broker-assisted settlement; |
(iii) | having the Company withhold Shares that the Participant otherwise would have received upon vesting of the Restricted Stock Units; or |
(iv) | any other arrangement satisfactory to the Company or the Employer regarding payment of such Tax-Related Items. |
Depending on the withholding method, the Company or the Employer may withhold or account for any such Tax-Related Items by considering applicable statutory withholding rates (as determined by the Company or the Employer in good faith and in its sole discretion) or other applicable withholding rates.
(c) | Finally, where and to the extent that Section 4(b) is applicable, the Participant agrees to pay to the Company or the Employer any number of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Participants participation in the Plan that cannot be satisfied by the means previously described. The Company or the Employer may refuse to honor the vesting of the Restricted Stock Units, or refuse to deliver the Shares or the proceeds of the sale of Shares, if the Participant fails to comply with his or her obligations in connection with the Tax-Related Items required to be deducted or withheld by the Company or the Employer. |
5. | Adjustment of Shares . If there shall occur any change with respect to the outstanding shares of Common Stock as provided by Section 4.5 of the Plan, the Restricted Stock Units may be adjusted accordingly. |
6. | Compliance with Laws . If the Participant is resident or employed outside of the United States, as a condition of participation, the Participant agrees to repatriate all payments attributable to the Shares or cash acquired under the Plan (including, but not limited to, dividends and any proceeds derived from the sale of Shares acquired under the Plan) in accordance with local foreign exchange rules and regulations in the Participants country of residence (and country of employment, if different). In addition, the Participant agrees to take any and all actions, and consents to any and all actions taken by the Company and the Employer, as may be required to allow the Company and the Employer to comply with local laws, rules and regulations in the Participants country of residence (and country of employment, if different). Finally, the Participant agrees to take any and all actions as may be required to comply with the Participants personal legal and tax obligations under local laws, rules and regulations in his or her country of residence (and country of employment, if different). |
7. | Private Placement . If the Participant is resident or employed outside of the United States, the Restricted Stock Units are not intended to be a public offering of securities in the Participants country of residence (or country of employment, if different). The Company has not submitted a registration statement, prospectus or other filing with the local securities authorities (unless otherwise required under local law), and the Restricted Stock Units are not subject to the supervision of local securities authorities. |
8. | No Advice Regarding Participation . No employee of the Company or its Subsidiaries is permitted to advise the Participant regarding his or her participation in the Plan. The Participant should consult with his or her own qualified personal tax, legal and financial advisors before taking any action related to the Plan. |
9. | Insider Trading and Market Abuse Laws : By participating in the Plan, the Participant agrees to comply with the Companys policy on insider trading (to the extent that it is applicable to the Participant). The Participant acknowledges that, depending on the Participant or the Participants brokers country of residence or where the Shares are listed, the Participant may be subject to insider trading restrictions and/or market abuse laws that may affect the Participants ability to accept, acquire, sell or otherwise dispose of Shares, rights to Shares or rights linked to the value of Shares during such times the Participant is considered to have inside information regarding the Company as defined in the laws or regulations in the Participants country of residence (and country of employment, if different). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Participant placed before he or she possessed inside information. Furthermore, the Participant could be prohibited from (a) disclosing the inside information to any third party (other than on a need to know basis), and (b) tipping third parties or causing them otherwise to buy or sell securities. Third parties include fellow employees. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under the Company insider trading policy. The Participant acknowledges that it is the Participants responsibility to comply with any restrictions and the Participant should speak to his or her personal advisor on this matter. |
10. | Imposition of Other Requirements : The Company reserves the right to impose other requirements on the Restricted Stock Units, any Shares acquired pursuant to the Restricted Stock Units and the Participants participation in the Plan to the extent the Company determines, in its sole discretion, that such other requirements are necessary or advisable for legal or administrative reasons. Such requirements may include (but are not limited to) requiring the Participant to sign any agreements or undertakings that may be necessary to accomplish the foregoing. |
11. | Data Privacy . The Participant hereby explicitly and unambiguously consents to the collection, use, processing and transfer, in electronic or other form, of the Participants personal data as described in this document by and among, as applicable, the Company and its Subsidiaries and Affiliates for the exclusive purpose of implementing, administering and managing his or her participation in the Plan. |
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The Participant understands that the Company and the Employer hold certain personal information about the Participant, including, but not limited to, the Participants name, home address and telephone number, email address, date of birth, family size, marital status, sex, beneficiary information, emergency contacts, passport/visa information, age, language skills, drivers license information, nationality, C.V. (or resume), wage history, employment references, social insurance number, resident registration number or other identification number, salary, job title, employment or severance contract, current wage and benefit information, personal bank account number, tax-related information, plan or benefit enrollment forms and elections, award or benefit statements, any Shares or directorships in the Company, details of all awards or any other entitlements to Shares awarded, canceled, purchased, vested, unvested or outstanding for purpose of managing and administering the Plan ( Data ).
The Participant understands that Data may be transferred to Morgan Stanley Smith Barney (or any successor Plan Broker) and any third parties assisting in the implementation, administration and management of the Plan including, but not limited to, the Subsidiaries or Affiliates of the Company. These third-party recipients may be located in the Participants country of residence (and country of employment, if different) or elsewhere, and the recipients country may have different data privacy laws and protections than the Participants country. The Participant understands that the Participant may request a list with the names and addresses of any potential recipients of the Data by contacting the Companys People and Culture Organization.
The Participant authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Participants participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Participant may elect to deposit any Shares acquired. The Participant understands that Data only will be held as long as is necessary to implement, administer and manage the Participants participation in the Plan.
The Participant understands that the Participant may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Companys human resources department. If the Participant does not consent, or if the Participant later seeks to revoke his or her consent, the Participants service status and career will not be affected; the only consequence of refusing or withdrawing the Participants consent is that the Company would not be able to grant the Participant purchase rights or administer or maintain such purchase rights. Therefore, the Participant understands that refusing or withdrawing his or her consent may affect the Participants ability to participate in the Plan. For more information on the consequences of the Participants refusal to consent or withdrawal of consent, the Participant understands that the Participant may contact the Companys People and Culture Organization.
Finally, upon request of the Company or the Employer, the Participant agrees to provide an executed data privacy consent form (or any other agreements or consents that may be required by the Company and/or the Employer) that the Company and/or the Employer may deem necessary to obtain from the Participant for the purpose of administering the Participants participation in the Plan in compliance with the data privacy laws in the Participants country of residence (and country of employment, if different), either now or in the future. The Participant understands and agrees that he or she will be unable to participate in the Plan if the Participant fails to provide any such consent or agreement requested by the Company and/or the Employer.
12. | Nature of the Benefit . The Participant understands and agrees that: |
(a) | the Plan is established voluntarily by the Company, it is discretionary in nature and may be amended, modified, suspended or terminated by the Company at any time as provided in the Plan; |
(b) | the grant of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been granted repeatedly in the past; |
(c) | all decisions with respect to future grants, if any, including, but not limited to, the times when the Restricted Stock Units shall be granted and the vesting period will be at the sole discretion of the Company; |
(d) | the grant of Restricted Stock Units and the Participants participation in the Plan shall not create a right to further employment with the Employer, shall not be interpreted as forming an employment or Service contract with the Company and shall not interfere with the ability of the Employer to terminate the Participants employment relationship at any time (as otherwise may be permitted under local law); |
(e) | the Participants participation in the Plan is voluntary; |
(f) | the Restricted Stock Units and any underlying Shares are not intended to replace any pension rights or compensation; |
(g) | the grant of Restricted Stock Units and the underlying Shares are an extraordinary item of compensation outside the scope of the Participants employment (and employment contract, if any) with the Employer and is not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments; |
(h) | the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty; |
(i) | the grant of Restricted Stock Units will not be interpreted to form an employment contract with the Employer; |
(j) | the Company and the Employer are not liable for any exchange rate fluctuation between the Participants local currency and the United States Dollar that may affect the value of the Shares or any amounts due pursuant to settlement or the subsequent sale of any Shares; and |
(k) | no claim or entitlement to compensation or damages shall arise from forfeiture of the Restricted Stock Units under the Plan resulting from termination of the Participants employment by the Employer (for any reason and whether or not in breach of local labor laws and whether or not later found to be invalid). |
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13. | Country Addendum; Interpretation of Terms; General . The term Country Addendum means any document prepared by the Company and which refers to this Agreement and contains additional Restricted Stock Unit terms to address matters pertaining to the Participants then current country of residence (and country of employment, if different). If the Participant relocates to one of the countries included in the Country Addendum, the special terms and conditions for such country will apply to the Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons (or the Company may establish alternative terms as may be necessary or advisable to accommodate the Participants transfer). The Country Addendum constitutes part of this Agreement. The Committee shall interpret the terms of the Restricted Stock Units, this Agreement, the Plan and any Country Addendum, and all determinations by the Committee shall be final and binding. The Company may, without the Participants consent, assign all of their respective rights and obligations under the Restricted Stock Unit to their respective successors and assigns. Following an assignment to the successor of the Company, as applicable, all references herein to the Board of Directors and Committee shall be references to the board of directors and committee, as applicable, of the successor of the Company. This Agreement, the Plan and any Country Addendum contain the complete agreement between the Company and the Participant concerning the Restricted Stock Units, are governed by the laws of the State of Delaware (or the laws stated an applicable Country Addendum), and may be amended only in writing, signed by an authorized officer of the Company. The Participant will take all actions reasonably requested by the Company to enable the administration of the Restricted Stock Units and Plan and/or comply with the local laws and regulations of the Participants then current country of residence. No waiver of any breach or condition of this Agreement, the Plan or a Country Addendum shall be deemed to be a waiver of any other or subsequent breach or condition whether of like or different nature. |
14. | Compensation Recoupment Policy . The Restricted Stock Units and any Shares issued thereunder shall be subject to any compensation recoupment policy of the Company that is applicable by its terms to the Participant and to awards of this type. For purposes of the foregoing, the Participant expressly and explicitly authorizes the Company to issue instructions, on the Participants behalf, to any brokerage firm and/or third-party administrator engaged by the Company to hold Shares and other amounts acquired under the Plan to re-convey, transfer or otherwise return such Shares and/or other amounts to the Company. |
15. | Miscellaneous Provisions |
(a) | Rights of a Shareholder of the Company . Prior to settlement of the Restricted Stock Units in Shares, neither the Participant nor the Participants representative will have any rights as a shareholder of the Company with respect to any Shares underlying the Restricted Stock Units. To the extent the Company pays any regular cash dividends to its shareholders, dividend equivalent rights with respect to the Shares will be accumulated and will be satisfied in additional Restricted Stock Units that are subject to the same terms and conditions of the applicable Restricted Stock Units. |
(b) | Entire Agreement . This Agreement and the Plan constitute the entire agreement between the parties hereto with regard to the subject matter of this Agreement. This Agreement and the Plan supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter of this Agreement. |
(c) | Official Language . The official language of this Agreement, the Plan and any Country Addendum is English. Documents or notices not originally written in English shall have no effect until they have been translated into English, and the English translation shall then be the prevailing form of such documents or notices. Any notices or other documents required to be delivered to Ceridian under this Agreement, shall be translated into English, at the Participants expense, and provided promptly to the Company in English. The Company may also request an untranslated copy of such documents. |
(d) | Successors and Assigns . The provisions of this Agreement will inure to the benefit of, and be binding upon, the Company and its successors and assigns and upon the Participant, the Participants executor, personal representative(s), distributees, administrator, permitted transferees, permitted assignees, beneficiaries, and legatee(s), as applicable, whether or not any such person will have become a party to this Agreement and have agreed in writing to be joined herein and be bound by the terms hereof. |
(e) | Severability . The provisions of this Agreement are severable, and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, then the remaining provisions will nevertheless be binding and enforceable. |
(f) | Amendment . Except as otherwise provided in the Plan, this Agreement will not be amended unless the amendment is agreed to in writing by both the Participant and the Company. |
(g) | Signature in Counterparts . This Agreement may be signed in counterparts, manually or electronically, each of which will be an original, with the same effect as if the signatures to each were upon the same instrument. |
(h) | Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to any Awards granted under the Plan by electronic means or to request the Participants consent to participate in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. |
(i) | Acceptance . The Participant hereby acknowledges receipt of a copy of the Plan and this Agreement. The Participant has read and understands the terms and provisions of the Plan and this Agreement, and accepts the Restricted Stock Units subject to all of the terms and conditions of the Plan and this Agreement. In the event of a conflict between any term or provision contained in this Agreement and a term or provision of the Plan, the applicable term and provision of the Plan will govern and prevail. |
IN WITNESS WHEREOF, the Company and the Participant have executed this Restricted Stock Unit Award Agreement as of the dates set forth below.
PARTICIPANT | CERIDIAN HCM HOLDING, INC. | |||||||||||||
By: | Date: | By: | Date: |
Printed Name: | Printed Name: |
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CERIDIAN HCM HOLDING INC.
2018 Equity Incentive Plan
Form of Restricted Stock Unit Award Agreement
COUNTRY ADDENDUM
This Country Addendum to the Agreement includes additional terms and conditions that govern the Restricted Stock Units ( RSUs ) and the Participants participation in the Plan if the Participant resides and/or works outside of the United States. If the Participant transfers to another country reflected in this Country Addendum, the additional terms and conditions for such country (if any) will apply to the Participant to the extent the Company determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable for legal or administrative reasons (or the Company may establish alternative terms as may be necessary or advisable to accommodate the Participants transfer). Capitalized terms not defined in this Country Addendum but defined in the Agreement or the Plan shall have the same meaning as in the Agreement or the Plan.
AUSTRALIA
1. | Breach of Law . Notwithstanding anything to the contrary in the Agreement or the Plan, the Participant will not be entitled to, and shall not claim any benefit (including without limitation a legal right) under the Plan if the provision of such benefit would give rise to a breach of Part 2D.2 of the Corporations Act 2001 (Cth) (or any successor provision), any other provision of that Act, or any other applicable statute, rule or regulation which limits or restricts the giving of such benefits. |
2. | Tax Information . The Plan is a plan to which Subdivision 83A-C of the Income Tax Assessment Act 1997 (Cth) applies (subject to conditions in the Act). |
CANADA
1. | Securities Law Information . The Participant is permitted to sell Shares acquired through the Plan through the designated broker appointed under the Plan, if any, provided that the resale of such Shares takes place outside of Canada through the facilities of a stock exchange on which the Shares are listed. |
2. | Termination Date . Notwithstanding any provisions in the Agreement or the Plan to the contrary, the effective date of the Participants termination of Service for purposes of the Restricted Stock Units shall be the last day of any statutory notice of termination period required under applicable law. |
If the Participant is a resident of Canada for purposes of the Income Tax Act (Canada), or is subject to taxation in Canada in respect of his or her RSUs, the following provisions apply :
3. | Settlement . Notwithstanding any provisions in the Agreement or the Plan to the contrary, prior to the date that is ten years after the applicable Grant Date (the Expiry Date ), all or any number of vested RSUs held by such Participant may be converted by the Participant to Shares at the option of the Participant after each Vesting Date. This right may be exercised by delivering an electronically executed notice of conversion (a Conversion Notice ) in such form, manner and timeframe required by Ceridian. The Conversion Notice shall state the number of vested RSUs such Participant wishes to convert into Shares. As soon as practical following receipt of the Conversion Notice, the Company shall issue and deliver to such Participant a number of Shares equal to the aggregate number of RSUs so exercised in settlement thereof. Any RSUs in respect of which the Participant has not provided a Conversion Notice prior to the Expiry Date will be forfeited and cancelled for no consideration. |
4. | Settlement in Shares . Notwithstanding any provisions in the Agreement or the Plan to the contrary, no cash or other property (other than newly issued Shares) shall be issuable or deliverable by the Company upon the settlement of such Participants RSUs hereunder. If the aggregate number of Shares issuable to such Participant upon the conversion of the Participants RSUs hereunder would otherwise include a fraction of a Share, such number of Shares shall be rounded down to the nearest whole number of Shares. |
If the Participant is a resident of Quebec, the following provision applies :
5. | English Language Consent . The parties acknowledge that it is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English. |
Les parties reconnaissent avoir expressément souhaité que la convention, ainsi que tous les documents, avis et procédures judiciarise, exécutés, donnés ou intentés en vertu de, ou lié, directement ou indirectement à la présente convention, soient rédigés en langue anglaise.
MAURITIUS
No country-specific provisions.
UNITED KINGDOM
1. | Responsibility for Taxes . The following provision supplements Section 4 of the Agreement: |
The Participant agrees to be liable for any Tax-Related Items and hereby covenants to pay any such Tax-Related Items, as and when requested by Ceridian or the Employer or by Her Majestys Revenue & Customs ( HMRC ) (or any other tax authority or any other relevant authority). The Participant also agrees to indemnify and keep indemnified the Company and the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC (or any other tax authority or any other relevant authority) on the Participants behalf.
Notwithstanding the foregoing, if the Participant is a director or executive officer (within the meaning of Section 13(k) of the Exchange Act), the terms of the immediately foregoing provision may not apply. In such case, the Participant understands that the Participant may not be able to indemnify the Company for the amount of any income tax not collected from or paid by the Participant and, therefore, any such income tax not so collected from or paid by the Participant within 90 days after the end of the U.K. tax year in which the event giving rise to the Tax-Related Items occurs may constitute a benefit to the Participant on which additional income tax and national insurance contributions may be payable. The Participant acknowledges that the Company or the Employer may recover any such additional income tax and national insurance contributions at any time thereafter by any of the means referred to in the Agreement. However, the Participant is primarily responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime.
2. | Exclusion of Claim . The Participant acknowledges and agrees that the Participant will have no entitlement to compensation or damages insofar as such entitlement arises or may arise from the Participant ceasing to have rights under or to be entitled to the Restricted Stock Units under the Plan, whether or not as a result of termination of employment (whether such termination is in breach of contract or otherwise), or from the loss of diminution in value of the Shares underlying the Restricted Stock Units. Upon the grant of the Restricted Stock Units, the Participant shall be deemed to have waived irrevocably such entitlement. |
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Exhibit 10.14
CERIDIAN HCM HOLDING INC.
2018 Equity Incentive Plan
Form of Restricted Stock Unit Award Agreement
Participant Name:
Participant ID No.:
(if applicable)
Grant Date:
Number of Restricted Stock Units :
This Restricted Stock Unit Award Agreement (this Agreement ) is made by and between Ceridian HCM Holding, Inc., a Delaware corporation (the Company ), and the above-named participant (the Participant ), effective as of the above-designated grant date (the Grant Date ).
RECITALS
WHEREAS , the Company has adopted the Ceridian HCM Holding, Inc. 2018 Equity Incentive Plan (as the same may be amended from time to time, the Plan ), which Plan is incorporated herein by reference and made a part of this Agreement, and capitalized terms not otherwise defined in this Agreement shall have the meanings ascribed to those terms in the Plan; and
WHEREAS , the Committee has authorized and approved the grant of an Award to the Participant that will provide the Participant the opportunity to acquire shares of Common Stock ( Shares ) upon the settlement of stock units on the terms and conditions set forth in the Plan and this Agreement ( Restricted Stock Units ).
NOW THEREFORE , in consideration of the premises and mutual covenants set forth in this Agreement, the parties agree as follows:
1. | Grant of Restricted Stock Unit Award . The Company hereby grants to the Participant the above-designated number of Restricted Stock Units, on the terms and conditions set forth in the Plan and this Agreement, subject to adjustment as set forth in the Plan. |
2. | Vesting and Forfeiture of Restricted Stock Units . Subject to the terms and conditions set forth in the Plan and this Agreement, the Restricted Stock Units shall vest as follows: |
(a) | General . Except as otherwise provided in Section 2(b), 25% of the Restricted Stock Units shall vest on each of the first four (4) anniversaries of the Date of Grant, subject to the Participants continued Service through the applicable vesting date. |
(b) | Accelerated Vesting . The Restricted Stock Units shall fully vest upon a Change of Control or upon the death of the Participant, subject to the Participants continued Service through such date. |
(c) | Termination of Service . All unvested Restricted Stock Units shall be forfeited upon the Participants termination of Service with the Company or its Subsidiaries for any reason. Without limiting the generality of the foregoing, the Shares (and any resulting proceeds) will continue to be subject to Section 12.2 (Termination for Cause) and 12.3 (Right of Recapture) of the Plan. |
3. | Settlement . The Company shall deliver to the Participant within forty-five (45) days following the vesting date of the Restricted Stock Units a number of Shares equal to the aggregate number of Restricted Stock Units that vest as of such date. No fractional Shares shall be delivered; the Company shall pay cash in respect of any fractional Shares. The Company may deliver such shares either through book entry accounts held by, or in the name of, the Participant or cause to be issued a certificate or certificates representing the number of Shares to be issued in respect of the Restricted Stock Units, registered in the name of the Participant. Notwithstanding the foregoing, the Restricted Stock Units may be settled in the form of: (a) cash, to the extent settlement in Shares (i) is prohibited under applicable laws, (ii) would require the Participant, the Company or the Subsidiary that employs the Participant (the Employer ) to obtain the approval of any governmental and/or regulatory body in the Participants country of residence (and country of employment, if different), or (iii) is administratively burdensome; or (b) Shares, but the Company may require the Participant to immediately sell such Shares if necessary to comply with applicable laws (in which case, the Participant hereby expressly authorizes the Company to issue sales instructions in relation to such Shares on the Participants behalf). |
4. | Responsibility for Taxes . |
(a) | Regardless of any action the Company or the Employer takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit, payment on account or other tax-related items related to the Participants participation in the Plan and legally applicable to the Participant or deemed by the Company or the Employer to be an appropriate charge to the Participant even if technically due by the Company or the Employer (the Tax-Related Items ), the Participant acknowledges and agrees that the ultimate liability for all Tax-Related Items is and remains the Participants responsibility and may exceed the amount actually withheld by the Company or the Employer, if any. The Participant further acknowledges and agrees that the Company and/or the Employer: |
(i) | make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Participants participation in the Plan, including, but not limited to, the grant of Restricted Stock Units, the vesting of Restricted Stock Units, the subsequent sale of Shares purchased under the Plan and the receipt of any dividends; |
(ii) | do not commit to and are under no obligation to structure the terms of the Restricted Stock Units to reduce or eliminate the Participants liability for Tax-Related Items or achieve any particular tax result; and |
(iii) | if the Participant has become subject to tax in more than one jurisdiction between the date the Restricted Stock Units are granted and the date of any relevant taxable or tax withholding event, the Participant acknowledges that the Company and/or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction. |
(b) | Prior to the relevant taxable or taxable withholding event, as applicable, the Participant agrees to pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Tax-Related Items required to be withheld. In this regard, the Participant authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items required to be withheld by one or a combination of the following: |
(i) | withholding from the Participants wages or other cash compensation paid to the Participant by the Company or the Employer; |
(ii) | withholding from the proceeds from the sale of Shares acquired upon vesting, either through a voluntary sale or through a mandatory sale arranged by the Company (on the Participants behalf pursuant to this authorization) including pursuant to a broker-assisted settlement; |
(iii) | having the Company withhold Shares that the Participant otherwise would have received upon vesting of the Restricted Stock Units; or |
(iv) | any other arrangement satisfactory to the Company or the Employer regarding payment of such Tax-Related Items. |
Depending on the withholding method, the Company or the Employer may withhold or account for Tax-Related Items by considering applicable statutory withholding rates (as determined by the Company or the Employer in good faith and in its sole discretion) or other applicable withholding rates.
(c) | Finally, the Participant agrees to pay to the Company or the Employer any number of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Participants participation in the Plan that cannot be satisfied by the means previously described. The Company or the Employer may refuse to honor the vesting of the Restricted Stock Units, or refuse to deliver the Shares or the proceeds of the sale of Shares, if the Participant fails to comply with his or her obligations in connection with the Tax-Related Items. |
5. | Adjustment of Shares . If there shall occur any change with respect to the outstanding shares of Common Stock as provided by Section 4.5 of the Plan, the Restricted Stock Units may be adjusted accordingly. |
6. | Compliance with Laws . If the Participant is resident or employed outside of the United States, as a condition of participation, the Participant agrees to repatriate all payments attributable to the Shares or cash acquired under the Plan (including, but not limited to, dividends and any proceeds derived from the sale of Shares acquired under the Plan) in accordance with local foreign exchange rules and regulations in the Participants country of residence (and country of employment, if different). In addition, the Participant agrees to take any and all actions, and consents to any and all actions taken by the Company and the Employer, as may be required to allow the Company and the Employer to comply with local laws, rules and regulations in the Participants country of residence (and country of employment, if different). Finally, the Participant agrees to take any and all actions as may be required to comply with the Participants personal legal and tax obligations under local laws, rules and regulations in his or her country of residence (and country of employment, if different). |
7. | Private Placement . If the Participant is resident or employed outside of the United States, the Restricted Stock Units are not intended to be a public offering of securities in the Participants country of residence (or country of employment, if different). The Company has not submitted a registration statement, prospectus or other filing with the local securities authorities (unless otherwise required under local law), and the Restricted Stock Units are not subject to the supervision of local securities authorities. |
8. | No Advice Regarding Participation . No employee of the Company or its Subsidiaries is permitted to advise the Participant regarding his or her participation in the Plan. The Participant should consult with his or her own qualified personal tax, legal and financial advisors before taking any action related to the Plan. |
9. | Insider Trading and Market Abuse Laws : By participating in the Plan, the Participant agrees to comply with the Companys policy on insider trading (to the extent that it is applicable to the Participant). The Participant acknowledges that, depending on the Participant or the Participants brokers country of residence or where the Shares are listed, the Participant may be subject to insider trading restrictions and/or market abuse laws that may affect the Participants ability to accept, acquire, sell or otherwise dispose of Shares, rights to Shares or rights linked to the value of Shares during such times the Participant is considered to have inside information regarding the Company as defined in the laws or regulations in the Participants country of residence (and country of employment, if different). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders the Participant placed before he or she possessed inside information. Furthermore, the Participant could be prohibited from (a) disclosing the inside information to any third party (other than on a need to know basis), and (b) tipping third parties or causing them otherwise to buy or sell securities. Third parties include fellow employees. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under the Company insider trading policy. The Participant acknowledges that it is the Participants responsibility to comply with any restrictions and the Participant should speak to his or her personal advisor on this matter. |
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10. | Imposition of Other Requirements : The Company reserves the right to impose other requirements on the Restricted Stock Units, any Shares acquired pursuant to the Restricted Stock Units and the Participants participation in the Plan to the extent the Company determines, in its sole discretion, that such other requirements are necessary or advisable for legal or administrative reasons. Such requirements may include (but are not limited to) requiring the Participant to sign any agreements or undertakings that may be necessary to accomplish the foregoing. |
11. | Data Privacy . The Participant hereby explicitly and unambiguously consents to the collection, use, processing and transfer, in electronic or other form, of the Participants personal data as described in this document by and among, as applicable, the Company and its Subsidiaries and Affiliates for the exclusive purpose of implementing, administering and managing his or her participation in the Plan. |
The Participant understands that the Company and the Employer hold certain personal information about the Participant, including, but not limited to, the Participants name, home address and telephone number, email address, date of birth, family size, marital status, sex, beneficiary information, emergency contacts, passport/visa information, age, language skills, drivers license information, nationality, C.V. (or resume), wage history, employment references, social insurance number, resident registration number or other identification number, salary, job title, employment or severance contract, current wage and benefit information, personal bank account number, tax-related information, plan or benefit enrollment forms and elections, award or benefit statements, any Shares or directorships in the Company, details of all awards or any other entitlements to Shares awarded, canceled, purchased, vested, unvested or outstanding for purpose of managing and administering the Plan ( Data ).
The Participant understands that Data may be transferred to Morgan Stanley Smith Barney (or any successor Plan Broker) and any third parties assisting in the implementation, administration and management of the Plan including, but not limited to, the Subsidiaries or Affiliates of the Company. These third-party recipients may be located in the Participants country of residence (and country of employment, if different) or elsewhere, and the recipients country may have different data privacy laws and protections than the Participants country. The Participant understands that the Participant may request a list with the names and addresses of any potential recipients of the Data by contacting the Companys People and Culture Organization.
The Participant authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Participants participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Participant may elect to deposit any Shares acquired. The Participant understands that Data only will be held as long as is necessary to implement, administer and manage the Participants participation in the Plan.
The Participant understands that the Participant may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Companys human resources department. If the Participant does not consent, or if the Participant later seeks to revoke his or her consent, the Participants service status and career will not be affected; the only consequence of refusing or withdrawing the Participants consent is that the Company would not be able to grant the Participant purchase rights or administer or maintain such purchase rights. Therefore, the Participant understands that refusing or withdrawing his or her consent may affect the Participants ability to participate in the Plan. For more information on the consequences of the Participants refusal to consent or withdrawal of consent, the Participant understands that the Participant may contact the Companys People and Culture Organization.
Finally, upon request of the Company or the Employer, the Participant agrees to provide an executed data privacy consent form (or any other agreements or consents that may be required by the Company and/or the Employer) that the Company and/or the Employer may deem necessary to obtain from the Participant for the purpose of administering the Participants participation in the Plan in compliance with the data privacy laws in the Participants country of residence (and country of employment, if different), either now or in the future. The Participant understands and agrees that he or she will be unable to participate in the Plan if the Participant fails to provide any such consent or agreement requested by the Company and/or the Employer.
12. | Nature of the Benefit . The Participant understands and agrees that: |
(a) | the Plan is established voluntarily by the Company, it is discretionary in nature and may be amended, modified, suspended or terminated by the Company at any time as provided in the Plan; |
(b) | the grant of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future grants of Restricted Stock Units, or benefits in lieu of Restricted Stock Units, even if Restricted Stock Units have been granted repeatedly in the past; |
(c) | all decisions with respect to future grants, if any, including, but not limited to, the times when the Restricted Stock Units shall be granted and the vesting period will be at the sole discretion of the Company; |
(d) | the grant of Restricted Stock Units and the Participants participation in the Plan shall not create a right to further employment with the Employer, shall not be interpreted as forming an employment or Service contract with the Company and shall not interfere with the ability of the Employer to terminate the Participants employment relationship at any time (as otherwise may be permitted under local law); |
(e) | the Participants participation in the Plan is voluntary; |
(f) | the Restricted Stock Units and any underlying Shares are not intended to replace any pension rights or compensation; |
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(g) | the grant of Restricted Stock Units and the underlying Shares are an extraordinary item of compensation outside the scope of the Participants employment (and employment contract, if any) with the Employer and is not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments; |
(h) | the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty; |
(i) | the grant of Restricted Stock Units will not be interpreted to form an employment contract with the Employer; |
(j) | the Company and the Employer are not liable for any exchange rate fluctuation between the Participants local currency and the United States Dollar that may affect the value of the Shares or any amounts due pursuant to settlement or the subsequent sale of any Shares; and |
(k) | no claim or entitlement to compensation or damages shall arise from forfeiture of the Restricted Stock Units under the Plan resulting from termination of the Participants employment by the Employer (for any reason and whether or not in breach of local labor laws and whether or not later found to be invalid). |
13. | Country Addendum; Interpretation of Terms; General . The term Country Addendum means any document prepared by the Company and which refers to this Agreement and contains additional Restricted Stock Unit terms to address matters pertaining to the Participants then current country of residence (and country of employment, if different). If the Participant relocates to one of the countries included in the Country Addendum, the special terms and conditions for such country will apply to the Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons (or the Company may establish alternative terms as may be necessary or advisable to accommodate the Participants transfer). The Country Addendum constitutes part of this Agreement. The Committee shall interpret the terms of the Restricted Stock Units, this Agreement, the Plan and any Country Addendum, and all determinations by the Committee shall be final and binding. The Company may, without the Participants consent, assign all of their respective rights and obligations under the Restricted Stock Unit to their respective successors and assigns. Following an assignment to the successor of the Company, as applicable, all references herein to the Board of Directors and Committee shall be references to the board of directors and committee, as applicable, of the successor of the Company. This Agreement, the Plan and any Country Addendum contain the complete agreement between the Company and the Participant concerning the Restricted Stock Units, are governed by the laws of the State of Delaware (or the laws stated an applicable Country Addendum), and may be amended only in writing, signed by an authorized officer of the Company. The Participant will take all actions reasonably requested by the Company to enable the administration of the Restricted Stock Units and Plan and/or comply with the local laws and regulations of the Participants then current country of residence. No waiver of any breach or condition of this Agreement, the Plan or a Country Addendum shall be deemed to be a waiver of any other or subsequent breach or condition whether of like or different nature. |
14. | Compensation Recoupment Policy . The Restricted Stock Units and any Shares issued thereunder shall be subject to any compensation recoupment policy of the Company that is applicable by its terms to the Participant and to awards of this type. For purposes of the foregoing, the Participant expressly and explicitly authorizes the Company to issue instructions, on the Participants behalf, to any brokerage firm and/or third-party administrator engaged by the Company to hold Shares and other amounts acquired under the Plan to re-convey, transfer or otherwise return such Shares and/or other amounts to the Company. |
15. | Additional Covenants . To the extent enforceable by applicable law, and in consideration of the receipt of the Restricted Stock Units granted by this Agreement, the Participant by signing below covenants and agrees to the covenants, if any, set out in Exhibit A hereto. |
16. | Miscellaneous Provisions |
(a) | Rights of a Shareholder of the Company . Prior to settlement of the Restricted Stock Units in Shares, neither the Participant nor the Participants representative will have any rights as a shareholder of the Company with respect to any Shares underlying the Restricted Stock Units. To the extent the Company pays any regular cash dividends to its shareholders, dividend equivalent rights with respect to the Shares will be accumulated and will be satisfied in additional Restricted Stock Units that are subject to the same terms and conditions of the applicable Restricted Stock Units. |
(b) | Entire Agreement . This Agreement and the Plan constitute the entire agreement between the parties hereto with regard to the subject matter of this Agreement. This Agreement and the Plan supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter of this Agreement. |
(c) | Official Language . The official language of this Agreement, the Plan and any Country Addendum is English. Documents or notices not originally written in English shall have no effect until they have been translated into English, and the English translation shall then be the prevailing form of such documents or notices. Any notices or other documents required to be delivered to Ceridian under this Agreement, shall be translated into English, at the Participants expense, and provided promptly to the Company in English. The Company may also request an untranslated copy of such documents. |
(d) | Successors and Assigns . The provisions of this Agreement will inure to the benefit of, and be binding upon, the Company and its successors and assigns and upon the Participant, the Participants executor, personal representative(s), distributees, administrator, permitted transferees, permitted assignees, beneficiaries, and legatee(s), as applicable, whether or not any such person will have become a party to this Agreement and have agreed in writing to be joined herein and be bound by the terms hereof. |
(e) | Severability . The provisions of this Agreement are severable, and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, then the remaining provisions will nevertheless be binding and enforceable. |
(f) | Amendment . Except as otherwise provided in the Plan, this Agreement will not be amended unless the amendment is agreed to in writing by both the Participant and the Company. |
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(g) | Signature in Counterparts . This Agreement may be signed in counterparts, manually or electronically, each of which will be an original, with the same effect as if the signatures to each were upon the same instrument. |
(h) | Electronic Delivery . The Company may, in its sole discretion, decide to deliver any documents related to any Awards granted under the Plan by electronic means or to request the Participants consent to participate in the Plan by electronic means. The Participant hereby consents to receive such documents by electronic delivery and to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company. |
(i) | Acceptance . The Participant hereby acknowledges receipt of a copy of the Plan and this Agreement. The Participant has read and understands the terms and provisions of the Plan and this Agreement, and accepts the Restricted Stock Units subject to all of the terms and conditions of the Plan and this Agreement. In the event of a conflict between any term or provision contained in this Agreement and a term or provision of the Plan, the applicable term and provision of the Plan will govern and prevail. |
IN WITNESS WHEREOF, the Company and the Participant have executed this Restricted Stock Unit Award Agreement as of the dates set forth below.
PARTICIPANT | CERIDIAN HCM HOLDING, INC. | |||||||||||||
By: | Date: | By: | Date: |
Printed Name: | Printed Name: |
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CERIDIAN HCM HOLDING INC.
2018 Equity Incentive Plan
Form of Restricted Stock Unit Award Agreement
COUNTRY ADDENDUM
This Country Addendum to the Agreement includes additional terms and conditions that govern the Restricted Stock Units ( RSUs ) and the Participants participation in the Plan if the Participant resides and/or works outside of the United States. If the Participant transfers to another country reflected in this Country Addendum, the additional terms and conditions for such country (if any) will apply to the Participant to the extent the Company determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable for legal or administrative reasons (or the Company may establish alternative terms as may be necessary or advisable to accommodate the Participants transfer). Capitalized terms not defined in this Country Addendum but defined in the Agreement or the Plan shall have the same meaning as in the Agreement or the Plan.
AUSTRALIA
1. | Breach of Law . Notwithstanding anything to the contrary in the Agreement or the Plan, the Participant will not be entitled to, and shall not claim any benefit (including without limitation a legal right) under the Plan if the provision of such benefit would give rise to a breach of Part 2D.2 of the Corporations Act 2001 (Cth) (or any successor provision), any other provision of that Act, or any other applicable statute, rule or regulation which limits or restricts the giving of such benefits. |
2. | Tax Information . The Plan is a plan to which Subdivision 83A-C of the Income Tax Assessment Act 1997 (Cth) applies (subject to conditions in the Act). |
CANADA
1. | Securities Law Information . The Participant is permitted to sell Shares acquired through the Plan through the designated broker appointed under the Plan, if any, provided that the resale of such Shares takes place outside of Canada through the facilities of a stock exchange on which the Shares are listed. |
2. | Termination Date . Notwithstanding any provisions in the Agreement or the Plan to the contrary, the effective date of the Participants termination of Service for purposes of the Restricted Stock Units shall be the last day of any statutory notice of termination period required under applicable law. |
If the Participant is a resident of Canada for purposes of the Income Tax Act (Canada), or is subject to taxation in Canada in respect of his or her RSUs, the following provisions apply :
3. | Settlement . Notwithstanding any provisions in the Agreement or the Plan to the contrary, prior to the date that is ten years after the applicable Grant Date (the Expiry Date ), all or any number of vested RSUs held by such Participant may be converted by the Participant to Shares at the option of the Participant after each Vesting Date. This right may be exercised by delivering an electronically executed notice of conversion (a Conversion Notice ) in such form, manner and timeframe required by Ceridian. The Conversion Notice shall state the number of vested RSUs such Participant wishes to convert into Shares. As soon as practical following receipt of the Conversion Notice, the Company shall issue and deliver to such Participant a number of Shares equal to the aggregate number of RSUs so exercised in settlement thereof. Any RSUs in respect of which the Participant has not provided a Conversion Notice prior to the Expiry Date will be forfeited and cancelled for no consideration. |
4. | Settlement in Shares . Notwithstanding any provisions in the Agreement or the Plan to the contrary, no cash or other property (other than newly issued Shares) shall be issuable or deliverable by the Company upon the settlement of such Participants RSUs hereunder. If the aggregate number of Shares issuable to such Participant upon the conversion of the Participants RSUs hereunder would otherwise include a fraction of a Share, such number of Shares shall be rounded down to the nearest whole number of Shares. |
If the Participant is a resident of Quebec, the following provision applies :
5. | English Language Consent . The parties acknowledge that it is their express wish that the Agreement, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English. |
Les parties reconnaissent avoir expressément souhaité que la convention, ainsi que tous les documents, avis et procédures judiciarise, exécutés, donnés ou intentés en vertu de, ou lié, directement ou indirectement à la présente convention, soient rédigés en langue anglaise.
MAURITIUS
No country-specific provisions.
UNITED KINGDOM
1. | Responsibility for Taxes . The following provision supplements Section 4 of the Agreement: |
The Participant agrees to be liable for any Tax-Related Items and hereby covenants to pay any such Tax-Related Items, as and when requested by Ceridian or the Employer or by Her Majestys Revenue & Customs ( HMRC ) (or any other tax authority or any other relevant authority). The Participant also agrees to indemnify and keep indemnified the Company and the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC (or any other tax authority or any other relevant authority) on the Participants behalf.
Notwithstanding the foregoing, if the Participant is a director or executive officer (within the meaning of Section 13(k) of the Exchange Act), the terms of the immediately foregoing provision may not apply. In such case, the Participant understands that the Participant may not be able to indemnify the Company for the amount of any income tax not collected from or paid by the Participant and, therefore, any such income tax not so collected from or paid by the Participant within 90 days after the end of the U.K. tax year in which the event giving rise to the Tax-Related Items occurs may constitute a benefit to the Participant on which additional income tax and national insurance contributions may be payable. The Participant acknowledges that the Company or the Employer may recover any such additional income tax and national insurance contributions at any time thereafter by any of the means referred to in the Agreement. However, the Participant is primarily responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime.
2. | Exclusion of Claim . The Participant acknowledges and agrees that the Participant will have no entitlement to compensation or damages insofar as such entitlement arises or may arise from the Participant ceasing to have rights under or to be entitled to the Restricted Stock Units under the Plan, whether or not as a result of termination of employment (whether such termination is in breach of contract or otherwise), or from the loss of diminution in value of the Shares underlying the Restricted Stock Units. Upon the grant of the Restricted Stock Units, the Participant shall be deemed to have waived irrevocably such entitlement. |
7
EXHIBIT A
Restrictive Covenants
[The Participant covenants and agrees that while employed by Ceridian or any Subsidiary and for one (1) year following termination of Participants employment (whether initiated by Participant or Ceridian) (the Non-Compete Period ), Participant shall not:
a. | directly or indirectly hire or solicit the employment or services of any then current employee of Ceridian or any Subsidiary (this restriction does not prevent (i) general solicitations to the public or (ii) providing employment references for people who are not seeking employment with Participants then current third-party employer); |
b. | directly or indirectly solicit any then current customer of Ceridian or any Subsidiary for the purpose of selling or providing that customer any products or services that directly compete with the products or services of Ceridian or any Subsidiary; and/or |
c. | work as an employee or consultant for, or beneficially own more than 5% of the equity or voting securities of, any company or entity that directly competes with Ceridians human capital management business. |
During the Non-Compete Period, if Participant intends to seek any employment, consulting or ownership relationship that might violate these covenants, Participant shall provide Ceridian at least 30 days advance written notice of that intended change. Ceridian may in its reasonable and sole discretion determine whether or not that intended change would violate these covenants, and shall promptly notify Participant of that determination. In addition to Ceridians other remedies available under applicable law, the Restricted Stock Units will expire and be forfeited if the Participant breaches the restrictions in these covenants.] [NTD: To be included in certain Restricted Stock Unit Award agreements.]
8
Exhibit 10.15
Form of Option to Purchase Common Stock
of Ceridian HCM Holding Inc.
NON-NEGOTIABLE & NON-TRANSFERABLE
Series (2018-___)
Voidable if Not Fully Signed and Returned
Employee Name:
Employee ID No.:
Grant Date:
Number of Option Shares :
(purchasable under the Option when vested & exercisable)
Exercise Price: _____ per Share (U.S. Dollars)
NOTIFICATION OF OPTION GRANT FOR PURCHASE OF COMMON STOCK OF CERIDIAN HCM HOLDING INC.
pursuant to the Ceridian HCM Holding Inc. 2018 Equity Incentive Plan ( Plan )
1. Option and Exercise Price. When signed and returned by the above-named employee and countersigned by Ceridian HCM Holding Inc.( Ceridian ), this Notice certifies that on the above-designated grant date ( Grant Date ), Ceridian granted to the above-named employee ( Optionee ) the option (the Option ) to purchase, when vested and exercisable as described in this Notice and the Plan, all or any portion of the above-designated number of shares ( Shares ) of common stock, par value $0.01 per share ( Stock ) of Ceridian, for the above-designated exercise price per Share, subject to adjustment as set forth in the Plan (the Exercise Price ). The Exercise Price is equal to the Fair Market Value of a Share on the Grant Date. The Option is governed by this Notice and the Plan (a copy of the Plan has been provided to Optionee). Capitalized terms not defined in this Notice are defined in the Plan. The Option is intended to be a Nonqualified Stock Option. For purposes of this Notice, Employer means, to the extent Optionee is not employed by Ceridian, the Subsidiary that employs Optionee.
2. Time Based Vesting of Option and Acceleration of Vesting . During the Option Period (as defined below), twenty-five percent (25%) of the Option will vest and become exercisable on the first four (4) anniversaries of the Grant Date (each an Option Vesting Date ), subject to Optionees continued Service through the applicable Option Vesting Date. Upon a Change in Control or upon Optionees termination of Service due to death, the Option will become fully vested and exercisable. Upon Optionees termination of Service for any other reason, the unvested portion of the Option immediately and automatically will be forfeited without further consideration.
3. Option Period and Forfeiture. The Option expires ten years after the Grant Date, unless terminated earlier as follows (the Option Period ): (a) if Optionees Service terminates for Cause, the vested portion of the Option expires immediately; and (b) if Optionees Service terminates other than for Cause, the vested portion of the Option expires (a) 12 months following Optionees termination of Service due to death or Disability, (b) 90 days following Optionees termination of Service other than due to death or Disability; provided, the Option shall automatically expire in its entirety (whether or not vested) effective as of the date Optionee breaches the terms and conditions of the Plan or this Notice.
4. Exercise of Option. Before the end of the Option Period, all or a portion of the vested portion of the Option can be exercised to acquire a whole number of Shares under the Plan by Optionee (or in the case of Optionees termination of Service due to death or Disability, by Optionees representative) by delivering an electronically executed notice of exercise (an Exercise Notice ) in such form, manner and timeframe required by Ceridian. The Exercise Notice shall state the whole number of Shares under the Option being exercised and shall be accompanied by full payment of the Exercise Price for each such Option (collectively, the Aggregate Exercise Price ) and any applicable Tax-Related Items (as defined below) required to be withheld (in such form of payment as permitted in Section 5) for each of those Shares, and contain Optionees agreement to comply with the terms of this Notice and the Plan.
5. Payment of Aggregate Exercise Price and Withholdings. Optionee may pay the Aggregate Exercise Price and any applicable Tax-Related Items required to be withheld as follows:
a. | Cash or Check . In cash or by bank certified check. |
b. | Brokered Cashless Exercise . To the extent permitted by applicable law and the Committee, from the proceeds of a sale through a broker on the date of exercise of some or all of the Shares to which the exercise relates. In that case, Optionee will electronically execute an Exercise Notice and provide Ceridians third-party Plan administrator with a copy of irrevocable instructions to a broker to deliver promptly to Ceridian the amount of sale proceeds to pay the Aggregate Exercise Price and/or applicable Tax-Related Items required to be withheld, as applicable. To facilitate the foregoing, Ceridian may, to the extent permitted by applicable law, enter into agreements or coordinate procedures with one or more brokerage firms. |
Option Grant Notice Series (2018-___); Grant Date (__________) | Page 1 |
c. | Net Exercise . Unless otherwise determined by the Committee, by reducing the number of Shares otherwise deliverable upon the exercise of the Option by the number of Shares having a Fair Market Value equal to the Aggregate Exercise Price and any applicable Tax-Related Items required to be withheld. |
d. | Surrender of Stock . In each instance, at the sole discretion of the Committee, by surrendering, or attesting to the ownership of, Shares that are already owned by Optionee free and clear of any restriction or limitation, unless the Committee specifically agrees in writing to accept such Shares subject to such restriction or limitation. Such Shares will be surrendered to Ceridian in good form for transfer and will be valued by Ceridian at their Fair Market Value on the date of the applicable exercise of the Option, or to the extent applicable, on the date any applicable Tax-Related Items required to be withheld are to be determined. Optionee will not surrender, or attest to the ownership of, Shares in payment of the Aggregate Exercise Price (or any applicable Tax-Related Items required to be withheld) if such action would cause Ceridian to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes that otherwise would not have been recognized. |
For the sake of clarity, the Exercise Price is payable in United States dollars.
6. Issuance of Shares. After all requirements with respect to the exercise of all or a portion of the Option have been satisfied, the Committee will cause the Shares as to which the Option or portion thereof has been exercised to be issued (or, in the Committees discretion, in un-certificated form, upon the books of Ceridians transfer agent), registered in the name of the person exercising the Option or portion thereof (or in the names of such person and his or her spouse as community property or as joint tenants with right of survivorship). Neither Ceridian nor the Committee will be liable to Optionee or any other person for damages relating to any delays in issuing the Shares or any mistakes or errors in the issuance of the Shares.
7. Tax Matters and Withholdings . Regardless of any action Ceridian or the Employer takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit, payment on account or other tax-related items related to Optionees participation in the Plan and legally applicable to Optionee or deemed by Ceridian or the Employer to be an appropriate charge to Optionee even if technically due by Ceridian or the Employer (the Tax-Related Items ), Optionee acknowledges and agrees that the ultimate liability for all Tax-Related Items is and remains Optionees responsibility and may exceed the amount actually withheld by Ceridian or the Employer, if any. Optionee further acknowledges and agrees that Ceridian and/or the Employer:
| make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of Optionees participation in the Plan, including, but not limited to, the grant of the Option, the exercise of the Option, the subsequent sale of any Shares acquired pursuant to the Option and the receipt of any dividends; |
| do not commit to and are under no obligation to structure the terms of the Option to reduce or eliminate Optionees liability for Tax-Related Items or achieve any particular tax result; and |
| if Optionee has become subject to tax in more than one jurisdiction between the date the Option is granted and the date of any relevant taxable or tax withholding event, Optionee acknowledges that Ceridian and/or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction. |
Prior to the relevant taxable or taxable withholding event, as applicable, Optionee agrees to pay or make adequate arrangements satisfactory to Ceridian and/or the Employer to satisfy all Tax-Related Items required to be withheld. In this regard, Optionee authorizes Ceridian and/or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Tax-Related Items required to be withheld by one or a combination of the following:
| requiring payment of any Tax-Related Items required to be withheld with payment of the Aggregate Exercise Price; |
| withholding from Optionees wages or other cash compensation paid to Optionee by Ceridian or the Employer; |
| withholding from the proceeds from the sale of Shares acquired upon exercise, either through a voluntary sale or through a mandatory sale arranged by Ceridian (on Optionees behalf pursuant to this authorization); |
| having Ceridian withhold a number of whole Shares that Optionee otherwise would have received upon exercise of the Option; or |
| any other arrangement satisfactory to Ceridian or the Employer regarding payment of such Tax-Related Items. |
Depending on the withholding method, Ceridian or the Employer may withhold or account for Tax-Related Items by considering applicable statutory withholding rates (as determined by Ceridian or the Employer in good faith and in its sole discretion) or other applicable withholding rates.
Finally, Optionee agrees to pay to Ceridian or the Employer any number of Tax-Related Items that Ceridian or the Employer may be required to withhold or account for as a result of Optionees participation in the Plan that cannot be satisfied by the means previously described. Ceridian or the Employer may refuse to honor the exercise of the Option, or refuse to deliver the Shares or the proceeds of the sale of Shares, if Optionee fails to comply with Optionees obligations in connection with the Tax-Related Items.
8. Adjustments . The Option will be subject to adjustments as provided in Section 4.5 of Plan.
9. Securities Law Restrictions. Regardless of whether the offering and sale of Stock under the Plan have been registered under the U.S. Securities Act of 1933, as amended ( Securities Act ) or have been registered or qualified under the securities laws of any state, province or other jurisdiction, the Board of Directors, at its sole discretion, may impose restrictions upon the sale, pledge or other transfer of the Shares (including the placement of appropriate legends on stock certificates and/or the imposition of stop-transfer instructions) if, in the judgment of the Board of Directors, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act or the securities laws or other laws of any state, province or other jurisdiction. Such restrictions may be in addition to the restrictions set forth in the applicable shareholders agreement in effect with any shareholders of Ceridian.
Option Grant Notice Series (2018-___); Grant Date (__________) | Page 2 |
10. Compliance with Laws . If Optionee is resident or employed outside of the United States, Optionee agrees to repatriate all payments attributable to the Shares or cash acquired under the Plan (including, but not limited to, dividends and any proceeds derived from the sale of Shares acquired under the Plan) in accordance with local foreign exchange rules and regulations in Optionees country of residence (and country of employment, if different). In addition, Optionee agrees to take any and all actions, and consents to any and all actions taken by Ceridian and the Employer, as may be required to allow Ceridian and the Employer to comply with local laws, rules and regulations in Optionees country of residence (and country of employment, if different). Finally, Optionee agrees to take any and all actions as may be required to comply with Optionees personal legal and tax obligations under local laws, rules and regulations in Optionees country of residence (and country of employment, if different).
11. Private Placement . If Optionee is resident outside the United States, the Option is not intended to be a public offering of securities in Optionees country of residence (and country of employment, if different). Ceridian has not submitted a registration statement, prospectus or other filing with the local securities authorities (unless otherwise required under local law), and the Option is not subject to the supervision of local securities authorities.
12. No Advice Regarding Participation . No employee of Ceridian or its Subsidiaries is permitted to advise Optionee regarding Optionees participation in the Plan including the exercise or sale of Shares. Optionee should consult with Optionees own qualified personal tax, legal and financial advisors before taking any action related to the Plan.
13. Insider Trading and Market Abuse Laws. By participating in the Plan, Optionee agrees to comply with Ceridians policy on insider trading (to the extent that it is applicable to Optionee). Optionee acknowledges that, depending on Optionee or Optionees brokers country of residence or where the Shares are listed, Optionee may be subject to insider trading restrictions and/or market abuse laws that may affect Optionees ability to accept, acquire, sell or otherwise dispose of Shares, rights to Shares or rights linked to the value of Shares during such times Optionee is considered to have inside information regarding Ceridian as defined in the laws or regulations in Optionees country of residence (and country of employment, if different). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders Optionee placed before he or she possessed inside information. Furthermore, Optionee could be prohibited from (a) disclosing the inside information to any third party (other than on a need to know basis), and (b) tipping third parties or causing them otherwise to buy or sell securities. Third parties include fellow employees. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under the Ceridian insider trading policy. Optionee acknowledges that it is Optionees responsibility to comply with any restrictions and Optionee should consult with Optionees personal advisor on this matter.
14. Imposition of Other Requirements . Ceridian reserves the right to impose other requirements on the Option, any Shares acquired pursuant to the Option and Optionees participation in the Plan to the extent Ceridian determines, in its sole discretion, that such other requirements are necessary or advisable for legal or administrative reasons. Such requirements may include (but are not limited to) requiring Optionee to sign any agreements or undertakings that may be necessary to accomplish the foregoing.
15. Personal Information . Optionee hereby explicitly and unambiguously consents to the collection, use, processing and transfer, in electronic or other form, of Optionees personal data as described in this Notice by and among, as applicable, Ceridian and its Subsidiaries for the exclusive purpose of implementing, administering and managing Optionees participation in the Plan.
Optionee understands that Ceridian and the Employer hold certain personal information about Optionee, including, but not limited to, Optionees name, home address and telephone number, email address, date of birth, family size, marital status, sex, beneficiary information, emergency contacts, passport/visa information, age, language skills, drivers license information, nationality, C.V. (or resume), wage history, employment references, social insurance number, resident registration number or other identification number, salary, job title, employment or severance contract, current wage and benefit information, personal bank account number, tax-related information, plan or benefit enrollment forms and elections, award or benefit statements, any Shares or directorships in Ceridian, details of all awards or any other entitlements to Shares awarded, canceled, purchased, vested, unvested or outstanding for purpose of managing and administering the Plan ( Data ).
Optionee understands that Data may be transferred to E*Trade (or any successor Plan broker) and any third parties assisting in the implementation, administration and management of the Plan including, but not limited to, the Subsidiaries of Ceridian. These third-party recipients may be located in Optionees country of residence (and country of employment, if different) or elsewhere, and the recipients country may have different data privacy laws and protections than Optionees country. Optionee understands that Optionee may request a list with the names and addresses of any potential recipients of the Data by contacting Ceridians People and Culture Organization.
Optionee authorizes the recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing Optionees participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom Optionee may elect to deposit any Shares acquired. Optionee understands that Data only will be held as long as is necessary to implement, administer and manage Optionees participation in the Plan.
Optionee understands that Optionee may, at any time, view Data, request additional information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing Ceridians People and Culture Organization. If Optionee does not consent, or if Optionee later seeks to revoke Optionees consent, Optionees Service status and career will not be affected; the only consequence of refusing or withdrawing Optionees consent is that Ceridian would not be able to grant Optionee Options or administer or maintain such Options. Therefore, Optionee understands that refusing or withdrawing Optionees consent may affect Optionees ability to participate in the Plan. For more information on the consequences of Optionees refusal to consent or withdrawal of consent, Optionee understands that Optionee may contact Ceridians People and Culture Organization.
Finally, upon request of Ceridian or the Employer, Optionee agrees to provide an executed data privacy consent (or any other agreements or consents that may be required by Ceridian and/or the Employer) that Ceridian and/or the Employer may deem necessary to obtain from Optionee for the purpose of administering Optionees participation in the Plan in compliance with the data privacy laws in Optionees country of residence (and country of employment, if different), either now or in the future. Optionee understands and agrees that Optionee will be unable to participate in the Plan if Optionee fails to provide any such consent or agreement requested by Ceridian and/or the Employer.
Option Grant Notice Series (2018-___); Grant Date (__________) | Page 3 |
16. Nature of the Benefit . Optionee understands and agrees that:
a. the Plan is established voluntarily by Ceridian, it is discretionary in nature and may be amended, modified, suspended or terminated by Ceridian at any time as provided in the Plan;
b. the grant of the Option is voluntary and occasional and does not create any contractual or other right to receive any additional Options or equity awards in the future from Ceridian or any Affiliates, or affect in any way the right of Ceridian or any Affiliates to terminate the granting of stock options or other equity awards at any time;
c. all decisions with respect to future grants, if any, including, but not limited to, the times when the Options shall be granted, the Option Period, and the Exercise Price will be at the sole discretion of Ceridian;
d. the grant of the Option and Optionees participation in the Plan shall not create a right to further employment with the Employer, shall not be interpreted as forming an employment or Service contract with Ceridian and shall not interfere with the ability of the Employer to terminate Optionees employment relationship at any time (as otherwise may be permitted under local law);
e. Optionees participation in the Plan is voluntary;
f. the Option and any underlying Shares are not intended to replace any pension rights or compensation;
g. the grant of the Option and the underlying Shares are an extraordinary item of compensation outside the scope of Optionees employment (and employment contract, if any) and is not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
h. the future value of the underlying Shares is unknown, indeterminable and cannot be predicted with certainty;
i. if the Option is exercised, the value of the Shares acquired upon exercise may increase or decrease, even below the Exercise Price;
j. the grant of the Option will not be interpreted to form an employment contract with the Employer;
k. Ceridian and the Employer are not liable for any exchange rate fluctuation between Optionees local currency and the United States Dollar that may affect the value of the Shares or any amounts due pursuant to settlement or the subsequent sale of any Shares; and
l. no claim or entitlement to compensation or damages shall arise from forfeiture of the Option under the Plan resulting from termination of Optionees employment by the Employer (for any reason and whether or not in breach of local labor laws and whether or not later found to be invalid).
17. Electronic Delivery and Participation . Optionee acknowledges that Ceridian may, in its sole discretion, decide to deliver any documents related to Optionees current or future participation in the Plan by electronic means and/or may request Optionees consent to participate in the Plan by electronic means. Optionee hereby consents to receive such documents by electronic delivery and, if requested, agrees to participate in the Plan through an on-line or electronic system established and maintained by Ceridian, the Plan broker or another third party designated by Ceridian.
18. Impact on Service Status or Other Compensation . This Notice and the Plan are not an employment contract. Nothing contained in the Option, this Notice or the Plan shall confer on Optionee any right to continue in the Service of Ceridian or any Subsidiary or other affiliate of Ceridian, or affect in any way the right of Ceridian or any Subsidiary or other affiliate to terminate the Service of Optionee at any time. The Option is not part of normal or expected compensation for purposes of calculating any end of Service payments, retirement benefits or similar payments.
19. Non-Transferability of Option . The Option is non-transferable by Optionee except to the limited extent described in the Plan.
20. Rights as a Shareholder . Optionee and Optionees representative shall have no rights as a shareholder with respect to any Shares subject to the Option unless and until those Shares have been issued by Ceridian pursuant to this Notice and the Plan.
21. Country Addendum; Interpretation of Terms; General . The term Country Addendum means any document prepared by Ceridian and which refers to this Notice and contains additional Option terms to address matters pertaining to Optionees then current country of residence (and country of employment, if different). If Optionee relocates to one of the countries included in the Country Addendum, the special terms and conditions for such country will apply to Optionee, to the extent Ceridian determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons (or Ceridian may establish alternative terms as may be necessary or advisable to accommodate Optionees transfer). The Country Addendum constitutes part of this Notice. The Committee shall interpret the terms of the Option, this Notice, the Plan and any Country Addendum, and all determinations by the Committee shall be final and binding. Ceridian may, without Optionees consent, assign all of their respective rights and obligations under the Option to their respective successors and assigns. Following an assignment to the successor of Ceridian, all references herein to the Board of Directors and Committee shall be references to the board of directors and committee, as applicable, of the successor of Ceridian. This Notice, the Plan and any Country Addendum contain the complete agreement between Ceridian and Optionee concerning the Option, are governed by the laws of the State of Delaware (or the laws stated an applicable Country Addendum), and may be amended only in writing, signed by an authorized officer of Ceridian. Optionee will take all actions reasonably requested by Ceridian to enable the administration of the Option and Plan and/or comply with the local laws and regulations of Optionees then current country of residence. No waiver of any breach or condition of this Notice, the Plan or a Country Addendum shall be deemed to be a waiver of any other or subsequent breach or condition whether of like or different nature.
Option Grant Notice Series (2018-___); Grant Date (__________) | Page 4 |
22. Additional Requirements. Ceridian reserves the right to impose other requirements on the Option to the extent Ceridian determines, in its sole discretion, that such other requirements are necessary or advisable in order to comply with applicable laws, rules and regulations, or to facilitate the operation and administration of the Option and the Plan. Such requirements may include (but are not limited to) requiring Optionee to sign any agreements or undertakings that may be necessary to accomplish the foregoing.
23. Official Language . The official language of this Notice, the Plan and any Country Addendum is English. Documents or notices not originally written in English shall have no effect until they have been translated into English, and the English translation shall then be the prevailing form of such documents or notices. Any notices or other documents required to be delivered to Ceridian under this Notice, shall be translated into English, at Optionees expense, and provided promptly to Ceridian in English. Ceridian may also request an untranslated copy of such documents.
24. Severability . Optionee agrees that the provisions of this Notice are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
25. Successors and Assigns. The provisions of this Notice will inure to the benefit of, and be binding upon, Ceridian and its successors and assigns and upon Optionee, Optionees executor, personal representative(s), distributees, administrator, permitted transferees, permitted assignees, beneficiaries, and legatee(s), as applicable, whether or not any such person will have become a party to this Notice and have agreed in writing to be joined herein and be bound by the terms hereof.
26. Compensation Recoupment Policy. The Option and any Shares issued thereunder shall be subject to any compensation recoupment policy of Ceridian that is applicable by its terms to Optionee and to awards of this type. For purposes of the foregoing, Optionee expressly and explicitly authorizes Ceridian to issue instructions, on Optionees behalf, to any brokerage firm and/or third-party administrator engaged by Ceridian to hold Shares and other amounts acquired under the Plan to re-convey, transfer or otherwise return such Shares and/or other amounts to Ceridian.
27. Additional Covenants To the extent enforceable by applicable law, and in consideration of the receipt of the Option granted by this Notice, Optionee by signing below covenants and agrees to the covenants, if any, set out in Exhibit A hereto.
Dated Effective: | CERIDIAN HCM HOLDING INC. |
By | ||||||||
Authorized Officer |
By signing below, I agree to comply with the requirements of this Notice:
Optionees Printed Name: | Optionees Signature: |
Date signed by Optionee: _________________, 2018
THIS OPTION GRANT NOTICE WILL AUTOMATICALLY BECOME NULL AND VOID IF NOT:
(1) SIGNED BY OPTIONEE AND RETURNED TO CERIDIAN HCM HOLDING INC. BY__________ AND
(2) COUNTER-SIGNED BELOW BY CERIDIAN HCM HOLDING INC. AFTER RECEIPT OF OPTIONEES SIGNATURE
Countersigned by:
CERIDIAN HCM HOLDING INC. |
||
By | ||
Authorized Officer |
This Notice and the Option are valid only to the extent that the number of Option Shares
corresponds to the records of Ceridians Corporate Secretary, and will automatically
become null and void if not signed and returned by Optionee by _________ and
counter-signed by Ceridian HCM Holding Inc.
Option Grant Notice Series (2018-___); Grant Date (__________) | Page 5 |
NOTIFICATION OF OPTION GRANT FOR PURCHASE OF COMMON STOCK OF CERIDIAN HCM HOLDING INC.
pursuant to the Ceridian HCM Holding Inc. 2018 Equity Incentive Plan ( Plan )
COUNTRY ADDENDUM
This Country Addendum to the Notice includes additional terms and conditions that govern the Option and Optionees participation in the Plan if Optionee resides and/or works outside of the United States. If Optionee transfers to another country reflected in this Country Addendum, the additional terms and conditions for such country (if any) will apply to Optionee to the extent Ceridian determines, in its sole discretion, that the application of such terms and conditions is necessary or advisable for legal or administrative reasons (or Ceridian may establish alternative terms as may be necessary or advisable to accommodate Optionees transfer). Capitalized terms not defined in this Country Addendum but defined in the Notice or the Plan shall have the same meaning as in the Notice or the Plan.
AUSTRALIA
1. | Breach of Law . Notwithstanding anything to the contrary in the Notice or the Plan, Optionee will not be entitled to, and shall not claim any benefit (including without limitation a legal right) under the Plan if the provision of such benefit would give rise to a breach of Part 2D.2 of the Corporations Act 2001 (Cth) (or any successor provision), any other provision of that Act, or any other applicable statute, rule or regulation which limits or restricts the giving of such benefits. |
2. | Tax Information . The Plan is a plan to which Subdivision 83A-C of the Income Tax Assessment Act 1997 (Cth) applies (subject to conditions in the Act). |
CANADA
1. | No Exercise by Using Previously Owned Shares . Notwithstanding any terms and conditions in the Notice or the Plan to the contrary and except as otherwise may be permitted by Ceridian, Optionee is prohibited from surrendering Shares that Optionee already owns ( i.e. , using a stock swap exercise method) to pay the Aggregate Exercise Price or any Tax-Related Items required to be withheld in connection with the exercise of the Option. |
2. | Securities Law Information . Optionee is permitted to sell Shares acquired through the Plan through the designated broker appointed under the Plan, if any, provided that the resale of such Shares takes place outside of Canada through the facilities of a stock exchange on which the Shares are listed, or takes place within Canada as may be permitted in accordance with applicable law. |
3. | Termination Date . Notwithstanding any provisions in the Notice or the Plan to the contrary, the effective date of the Optionees termination of Service for purposes of the Option shall be the last day of any statutory notice of termination period required under applicable law. |
If Optionee is a resident of Quebec, the following provision applies :
4. | English Language Consent . The parties acknowledge that it is their express wish that the Notice, as well as all documents, notices and legal proceedings entered into, given or instituted pursuant hereto or relating directly or indirectly hereto, be drawn up in English. |
Les parties reconnaissent quelles souhaitent expressément que lAvis, ainsi que tous les documents, avis et procédures judiciaires conclus, donnés ou institués en vertu des présentes ou se rapportant directement ou indirectement aux présentes, soient rédigés en anglais.
MAURITIUS
No country-specific provisions.
UNITED KINGDOM
1. | Responsibility for Taxes . The following provision supplements Section 7 of the Notice. |
Optionee agrees to be liable for any Tax-Related Items and hereby covenants to pay any such Tax-Related Items, as and when requested by Ceridian or the Employer or by Her Majestys Revenue & Customs ( HMRC ) (or any other tax authority or any other relevant authority). Optionee also agrees to indemnify and keep indemnified Ceridian and the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC (or any other tax authority or any other relevant authority) on Optionees behalf.
Notwithstanding the foregoing, if Optionee is a director or executive officer (within the meaning of Section 13(k) of the Exchange Act), the terms of the immediately foregoing provision may not apply. In such case, Optionee understands that Optionee may not be able to indemnify Ceridian for the amount of any income tax not collected from or paid by Optionee and, therefore, any such income tax not so collected from or paid by Optionee within 90 days after the end of the U.K. tax year in which the event giving rise to the Tax-Related Items occurs may constitute a benefit to Optionee on which additional income tax and national insurance contributions may be payable. The Optionee acknowledges that Ceridian or the Employer may recover any such additional income tax and national insurance contributions at any time thereafter by any of the means referred to in the Notice. However, Optionee is primarily responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime.
2. | Exclusion of Claim . Optionee acknowledges and agrees that Optionee will have no entitlement to compensation or damages insofar as such entitlement arises or may arise from Optionee ceasing to have rights under or to be entitled to the Option under the Plan, whether or not as a result of termination of employment (whether such termination is in breach of contract or otherwise), or from the loss of diminution in value of the Shares underlying the Option. Upon the grant of the Option, Optionee shall be deemed to have waived irrevocably such entitlement. |
Option Grant Notice Series (2018-___); Grant Date (__________) | Page 6 |
EXHIBIT A
Restricted Covenants
[The Optionee covenants and agrees that while employed by Ceridian or any Subsidiary and for one (1) year following termination of Optionees employment (whether initiated by Optionee or Ceridian) (the Non-Compete Period ), Optionee shall not:
a. | directly or indirectly hire or solicit the employment or services of any then current employee of Ceridian or any Subsidiary (this restriction does not prevent (i) general solicitations to the public or (ii) providing employment references for people who are not seeking employment with Optionees then current third-party employer); |
b. | directly or indirectly solicit any then current customer of Ceridian or any Subsidiary for the purpose of selling or providing that customer any products or services that directly compete with the products or services of Ceridian or any Subsidiary; and/or |
c. | work as an employee or consultant for, or beneficially own more than 5% of the equity or voting securities of, any company or entity that directly competes with Ceridians human capital management business. |
During the Non-Compete Period, if Optionee intends to seek any employment, consulting or ownership relationship that might violate these covenants, Optionee shall provide Ceridian at least 30 days advance written notice of that intended change. Ceridian may in its reasonable and sole discretion determine whether or not that intended change would violate these covenants, and shall promptly notify Optionee of that determination. In addition to Ceridians other remedies available under applicable law, the Option will expire and be forfeited if the Optionee breaches the restrictions in these covenants.] [NTD: To be included in certain Option Award agreements.]
Option Grant Notice Series (2018-___); Grant Date (__________) | Page 7 |
Exhibit 10.16
FORM OF VOTING AGREEMENT
THIS VOTING AGREEMENT (this Agreement ) is entered into as of April [], 2018 by and among (i) Ceridian HCM Holding Inc., a Delaware corporation (the Company ), (ii) Thomas H. Lee Equity Fund VI, L.P., a Delaware limited partnership, Thomas H. Lee Parallel Fund VI, L.P., a Delaware limited partnership, Thomas H. Lee Parallel (DT) Fund VI, L.P., a Delaware limited partnership, Great-West Investors, L.P., a Delaware limited partnership, Putnam Investments Employees Securities Company III, LLC, a Delaware limited liability company, THL Coinvestment Partners, L.P., a Delaware limited partnership, THL Operating Partners, L.P., a Delaware limited partnership, THL Equity Fund VI Investors (Ceridian), L.P., a Delaware limited partnership, THL Equity Fund VI Investors (Ceridian) II, L.P., a Delaware limited partnership, THL Equity Fund VI Investors (Ceridian) III, LLC, a Delaware limited liability company, THL Equity Fund VI Investors (Ceridian) IV, LLC, a Delaware limited liability company, THL Equity Fund VI Investors (Ceridian) V, LLC, a Delaware limited liability company (together with the THL Affiliates (as defined below), THL ), and (iii) Cannae Holdings, LLC, a Delaware limited liability company (together with the Cannae Affiliates (as defined below), Cannae ). THL and Cannae are collectively referred to herein as the Sponsor Stockholders .
WHEREAS, the Company is currently contemplating an underwritten initial public offering (the IPO ) of shares of its Common Stock (as defined below);
WHEREAS, as of the closing date of the IPO (the Closing Date ), the Sponsor Stockholders collectively hold at least a majority of the outstanding Voting Securities (as defined below);
WHEREAS, pursuant to this Agreement, the Sponsor Stockholders agree to vote all of their Voting Securities as a group to elect certain members of the Companys board of directors ( Board ) as set forth herein; and
WHEREAS, pursuant to this Agreement, the Sponsor Stockholders agree to coordinate with one another regarding dispositions or distributions of their Stockholder Shares (as defined below), as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
ARTICLE I. DEFINITIONS
Section 1.01. Definitions . Capitalized terms used herein shall have the following meanings:
Affiliate means, with respect to any Person, an affiliate as defined in Rule 405 of the regulations promulgated under the Securities Act.
Agreement shall have the meaning set forth in the Preamble.
beneficially own or beneficial ownership shall have the meaning ascribed to such terms in Rule 13d-3 under the Exchange Act.
Board shall have the meaning set forth in the Recitals.
Bylaws shall have the meaning set forth in Section 2.01(a) .
Cannae shall have the meaning set forth in the Preamble.
Cannae Affiliate means any Affiliate of Cannae holding Voting Securities on or after the date hereof.
Common Stock shall mean shares of Common Stock, par value $0.01 per share, of the Company, or any successor shares into which such shares of Common Stock are exchanged or reclassified.
Closing Date shall have the meaning set forth in the Recitals.
Company shall have the meaning set forth in the Preamble.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated pursuant thereto.
Governmental Authority means any: (i) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (ii) U.S. and other federal, state, local, municipal, foreign or other government; or (iii) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, instrumentality, official, organization, unit, body or entity and any court or other tribunal).
Initial Designations shall have the meaning set forth in Section 2.01(e) .
IPO shall have the meaning set forth in the Recitals.
Law means any applicable constitutional provision, statute, act, code, law, regulation, rule, ordinance, order, decree, ruling, proclamation, resolution, judgment, decision, declaration, or interpretative or advisory opinion or letter of a Governmental Authority and shall include, for the avoidance of any doubt, the General Corporation Law of the State of Delaware and the listing or other standards of any applicable stock exchange, including the New York Stock Exchange, the Toronto Stock Exchange or any successors thereto.
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Person means any natural person, corporation, limited partnership, general partnership, limited liability company, joint stock company, joint venture, association, company, estate, trust, bank trust company, land trust, business trust, or other organization, whether or not a legal entity, custodian, trustee-executor, administrator, nominee or entity in a representative capacity and any government or agency or political subdivision thereof.
Public Sale means any sale of Stockholder Shares or other Company securities, as applicable, to the public pursuant to an offering registered under the Securities Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 adopted under the Securities Act; provided, that the IPO is deemed not to be a Public Sale, for purposes hereof.
Securities Act means the Securities Act of 1933, as amended from time to time, and the rules and regulations promulgated pursuant thereto.
Sponsor Director Designee shall mean a director designated by a Sponsor Stockholder or Sponsor Stockholders (as applicable) in accordance with this Agreement to serve on the Board.
Stockholder Shares means any Voting Securities held by any of the Sponsor Stockholders as of the date hereof or at any time thereafter. As to any particular shares constituting Stockholder Shares, such shares shall cease to be Stockholder Shares when they have been transferred pursuant to a Public Sale. For the avoidance of doubt, all Voting Securities held by Cannae and THL as of the date hereof are Stockholder Shares.
THL shall have the meaning set forth in the Preamble.
THL Affiliate means any (i) Affiliate of Thomas H. Lee Partners. L.P., a Delaware limited partnership, holding Voting Securities on or after the date hereof, and (ii) any Affiliate of Great-West Investors L.P. or Putnam Investments Employees Securities Company III LLC, holding on or after the date hereof any Voting Securities (and any and all securities of any kind whatsoever which may be issued after the date hereof in respect of, or in exchange for, such shares of the Company pursuant to a merger, consolidation, stock split, stock dividend or recapitalization of the Company or otherwise) that are subject to this Agreement as of the date hereof.
Total Number of Directors shall have the meaning set forth in Section 2.01(a) .
Voting Securities means Common Stock and any other securities of the Company entitled to vote generally in the election of directors of the Company.
Section 1.02. Construction . Whenever the context requires, the gender of all words used in this Agreement includes the masculine, feminine and neuter forms and the singular form of words shall include the plural and vice versa. All references to Articles and Sections refer to articles and sections of this Agreement, respectively. Whenever the words include, includes or including are used in this Agreement, they shall be deemed to be followed by the words without limitation (except to the extent the context otherwise provides). This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted.
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ARTICLE II. VOTING AGREEMENT
Section 2.01. Composition of the Board .
(a) On the Closing Date, the authorized number of directors on the Board shall be established at nine (9) directors, with two vacancies, but may be increased or decreased as determined from time to time exclusively by resolution duly adopted by the Board of Directors in accordance with the Amended and Restated Bylaws of the Company, as may be amended from time to time (the Bylaws ) (including as required by applicable Law) (the number of directors authorized at any given time, the Total Number of Directors ).
(b) Notwithstanding the foregoing Section 2.01(a) , during the term of this Agreement, and subject to applicable Law, THL and Cannae shall have the right to (by mutual agreement) determine the Total Number of Directors.
(c) Effective as of the Closing Date, each of THL and Cannae shall vote all of their Voting Securities and shall take all other necessary or desirable actions within their control (whether in the capacity as a stockholder or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary and desirable actions within its control, so that five (5) Sponsor Director Designees designated (by mutual agreement) by THL and Cannae shall initially be elected to the Board (the Initial Designations ).
(d) Following the Initial Designations:
(i) each of THL and Fidelity shall vote all of their Voting Securities and shall take all other necessary or desirable actions within their control (whether in the capacity as a stockholder or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings); and
(ii) the Company shall take all necessary and desirable actions within its control (including, without limitation, including in the slate of nominees nominated by the Board (or an authorized committee thereof) for election as directors of the Company by the stockholders of the Company each Sponsor Director Designee),
to cause the Sponsor Director Designees designated by THL and Cannae in accordance with Section 2.01(e) or Section 2.01(f) , as applicable, to be elected to the Board at any meeting of the stockholders of the Company called for such purpose.
(e) For so long as THL and Cannae collectively hold greater than or equal to 50 percent (50%) in voting power of all the then-outstanding Voting Securities as of such date, then:
(i) for so long as Cannae holds greater than or equal to twelve and one half of a percent (12.5%) in voting power of all the then-outstanding Voting Securities, THL and Cannae shall have the right to designate (by mutual agreement) five (5) Sponsor Director Designees;
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(ii) for so long as Cannae holds greater than or equal to seven and one half of a percent (7.5%) but less than twelve and one half of a percent (12.5%) in voting power of all the then-outstanding Voting Securities, THL shall have the right to individually designate four (4) Sponsor Director Designees and Cannae shall have the right to individually designate one (1) Sponsor Director Designee; and
(iii) if Cannae holds less than seven and one half of a percent (7.5%) in voting power of all the then-outstanding Voting Securities, then THL shall have the right to individually designate five (5) Sponsor Director Designees and Cannae shall not have the right to designate any Sponsor Director Designee.
(f) At such time as THL and Cannae cease to collectively hold greater than or equal to 50 percent (50%) in voting power of all the then-outstanding Voting Securities as of such date, then each of THL and Cannae will have the right to individually designate:
(i) for so long as such party holds at least forty percent (40%) in voting power of all the then-outstanding Voting Securities, a total of four (4) Sponsor Director Designees;
(ii) for so long as such party holds at least thirty percent (30%) but less than forty percent (40%) in voting power of all the then-outstanding Voting Securities, a total of three (3) Sponsor Director Designees;
(iii) for so long as such party holds at least twenty percent (20%) but less than thirty percent (30%) in voting power of all the then-outstanding Voting Securities, a total of two (2) Sponsor Director Designees;
(iv) for so long as such party holds at least ten percent (10%) but less than twenty percent (20%) in voting power of all the then-outstanding Voting Securities, one (1) Sponsor Director Designee.
(g) If the:
(i) Sponsor Stockholders cease to have the right to designate (by mutual agreement) five (5) Sponsor Director Designees to the Board pursuant to Section 2.01(e)(i) , then any Sponsor Director Designee who is not designated by THL or Cannae to remain on the Board as a Sponsor Director Designee of THL or Cannae (as applicable) in accordance with Section 2.01(e)(ii) , Section 2.01(e)(iii) or Section 2.01(f) shall immediately resign from the Board;
(ii) number of Sponsor Director Designees that a Sponsor Stockholder has the right to individually designate to the Board is decreased pursuant to Section 2.01(e)(ii) , Section 2.01(e)(iii) or Section 2.01(f) , then the corresponding number of Sponsor Director Designees of such Sponsor Shareholder shall resign from the Board,
and the Company and the Sponsor Stockholders shall be promptly required to take any and all actions necessary or appropriate to cooperate in ensuring the removal of such Sponsor Director Designee.
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(h) Except as provided in Section 2.01(g) , in the event that any Sponsor Director Designee (the Departing Sponsor Director Designee ) for any reason ceases to serve as a member of the Board during such Persons term of office, the resulting vacancy on the Board shall be filled by a Sponsor Director Designee by the Sponsor Stockholder or Sponsor Stockholders (as applicable) who was entitled to designate the Departing Sponsor Director Designee in accordance with Section 2.01(e) or Section 2.01(f) , as applicable.
(i) In the event that a THL Affiliate that is party hereto or a Cannae Affiliate that is party hereto transfers, directly or indirectly, any Voting Securities to a THL Affiliate or a Cannae Affiliate, respectively, that is not already a party to this Agreement, such transferring party shall, as a condition to any such transfer, require such transferee to enter into a joinder agreement to become party to this Agreement and be deemed to be a party for all purposes herein. Subject to the foregoing, for the avoidance of doubt, the parties hereto acknowledge and agree that this Agreement does not restrict or otherwise impair any rights of THL or Cannae to sell, assign or otherwise transfer their respective shares of Common Stock to any other Person.
(j) The Company shall reimburse the Sponsor Director Designees for all reasonable out-of-pocket expenses incurred in connection with their attendance at meetings of the Board or the board of directors of any of the Companys Subsidiaries, and any committees thereof, including without limitation travel, lodging and meal expenses, in accordance with the Companys reimbursement policies.
(k) The Company shall obtain customary director and officer indemnity insurance on commercially reasonable terms which insurance shall cover each member of the Board and the members of each board of directors of each of the Companys Subsidiaries. The Company and its Subsidiaries shall enter into director and officer indemnification agreements, substantially in the form attached at Exhibit B hereto, with each of the Sponsor Director Designees.
ARTICLE III. COORDINATION REGARDING TRANSFERS
For so long as each Sponsor Stockholder is entitled to designate a Sponsor Director Designee, any Sponsor Stockholder wishing to (i) dispose of or otherwise transfer any Stockholder Shares pursuant to a Public Sale, or (ii) distribute or otherwise transfer any Stockholder Shares to such Sponsor Stockholders investors, stockholders limited partners, stockholders members or equivalent Persons holding an ownership interest in such Sponsor Stockholder, shall use commercially reasonable efforts to consult with (x) the Company, and (y) any other Sponsor Stockholder entitled to designate a Sponsor Director Designee, prior to taking such action or entering into any definitive agreement with respect to such action.
ARTICLE IV. GENERAL PROVISIONS
Section 4.01. Notices .
(a) All notices and other communications under this Agreement shall be in writing and shall be deemed given (i) when delivered personally by hand (with written confirmation of receipt), (ii) when sent by e-mail, (iii) when received or rejected by the addressee if sent by registered or certified mail, postage prepaid, return receipt requested, or (iv) one Business Day following the day sent by reputable overnight courier (with written
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confirmation of receipt), in each case at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision):
(i) | if to the Company, to: |
Ceridian HCM Holding Inc.
3311 East Old Shakopee Road
Minneapolis, MN 55425
Attention: William E. McDonald, Senior Vice President, Deputy General Counsel and Corporate Secretary
E-mail: William.Mcdonald@ceridian.com; officeofgeneralcounsel@ceridian.com
with a copy, which shall not constitute notice, to:
Weil, Gotshal & Manges, LLP
100 Federal Street, 34th Floor
Boston, MA 02110
Attention: Shayla K. Harlev and Matthew W. Goulding
Email: shayla.harlev@weil.com; Matthew.goulding@weil.com
(ii) | if to Cannae, to: |
Cannae Holdings, LLC
1701 Village Center Circle
Las Vegas, Nevada 89134
Attention: Michael Gravelle
Email: MGravelle@fnf.com
with a copy, which shall not constitute notice, to:
Weil, Gotshal & Manges, LLP
100 Federal Street, 34th Floor
Boston, MA 02110
Attention: Shayla K. Harlev and Matthew W. Goulding
Email: shayla.harlev@weil.com; Matthew.goulding@weil.com
(iii) | if to a THL Party, to: |
c/o Thomas H. Lee Partners, L.P.
100 Federal Street, 35th Floor
Boston, MA 02110
Attention: Ganesh B. Rao and Shari H. Wolkon
Email: G.Rao@weil.com; SWolkon@weil.com
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with a copy, which shall not constitute notice, to:
Weil, Gotshal & Manges, LLP
100 Federal Street, 34th Floor
Boston, MA 02110
Attention: Shayla K. Harlev and Matthew W. Goulding
Email: shayla.harlev@weil.com; Matthew.goulding@weil.com
(b) Whenever any notice is required to be given by Law or this Agreement, a written waiver thereof, signed by the Person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.
Section 4.02. Amendment; Waiver . This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by each of the parties hereto. No waiver by any party of any of the provisions hereof will be effective unless explicitly set forth in writing and executed by the party so waiving. The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach.
Section 4.03. Termination; Survival . This Agreement will terminate automatically (x) as to each Sponsor Stockholder, upon the time at which such Sponsor Stockholder ceases to hold the right to designate a Sponsor Designee Director, and (y) as to all parties, upon the time at which no Sponsor Stockholder holds the right to designate a Sponsor Designee Director. Section 2.01(j) and Section 2.01(k) shall survive the termination of this Agreement.
Section 4.04. Further Assurances . The parties hereto will sign such further documents, cause such meetings to be held, resolutions passed, exercise their votes and do and perform and cause to be done such further acts and things necessary, proper or advisable in order to give full effect to this Agreement and every provision hereof.
Section 4.05. Assignment . This Agreement will inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns. Except as specifically provided herein, this Agreement may not be assigned without the express prior written consent of the other parties hereto, and any attempted assignment, without such consents, will be null and void.
Section 4.06. Third Parties . This Agreement does not create any rights, claims or benefits inuring to any Person that is not a party hereto nor create or establish any third party beneficiary hereto.
Section 4.07. Governing Law . This Agreement shall be governed by and construed in accordance with, the Laws of the State of Delaware without giving effect to any choice of Law or conflict of Law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the Law of any jurisdiction other than the State of Delaware.
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Section 4.08. Jurisdiction; WAIVER OF JURY TRIAL . In any judicial proceeding involving any dispute, controversy or claim arising out of or relating to this Agreement, each of the parties hereto unconditionally accepts the non-exclusive jurisdiction and venue of the Court of Chancery located in the State of Delaware or the United States District Court for the District of Delaware, and the appellate courts to which orders and judgments thereof may be appealed. In any such judicial proceeding, the parties hereto agree that in addition to any method for the service of process permitted or required by such courts, to the fullest extent permitted by Law, service of process may be made by delivery provided pursuant to the directions in Section 4.01 . EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR RELATING TO THE COMPANY OR ITS OPERATIONS.
Section 4.09. Specific Performance . Each party hereto acknowledges and agrees that in the event of any breach of this Agreement by any of them, the other parties hereto would be irreparably harmed and could not be made whole by monetary damages. Each party accordingly agrees to waive the defense in any action for specific performance that a remedy at Law would be adequate and that the parties, in addition to any other remedy to which they may be entitled at Law or in equity, shall be entitled to specific performance of this Agreement without the posting of bond.
Section 4.10. Entire Agreement . This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. There are no agreements, representations, warranties, covenants or understandings with respect to the subject matter hereof or thereof other than those expressly set forth herein and therein. This Agreement supersedes all other prior agreements and understandings between the parties with respect to such subject matter.
Section 4.11. Severability . If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future Laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of each such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
Section 4.12. Table of Contents, Heading and Captions . The table of contents, headings, subheadings and captions contained in this Agreement are included for convenience of reference only, and in no way define, limit or describe the scope of this Agreement or the intent of any provision hereof.
Section 4.13. Counterparts . This Agreement and any amendment hereto may be signed in any number of separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one Agreement (or amendment, as applicable). Any signature page delivered electronically or by facsimile (including without limitation transmission by Portable Document Format or other fixed image form) shall be binding to the same extent as an original signature page.
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Section 4.14. Effectiveness . This Agreement shall become effective upon the Closing Date.
Section 4.15. No Recourse . This Agreement may only be enforced against, and any claims or cause of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement may only be made against the entities that are expressly identified as parties hereto and no past, present or future Affiliate, director, officer, employee, incorporator, member, manager, partner, shareholder, agent, attorney or representative of any party hereto shall have any liability for any obligations or liabilities of the parties to this Agreement or for any claim based on, in respect of, or by reason of, the transactions contemplated hereby.
[ Signature Pages Follow ]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written.
THE COMPANY : | ||
CERIDIAN HCM HOLDING INC. |
By: |
Name: | ||
Title: |
[SIGNATURE PAGE TO VOTING AGREEMENT]
CANNAE : | ||
CANNAE HOLDINGS, LLC |
By: |
Name: | ||
Title: |
[SIGNATURE PAGE TO VOTING AGREEMENT]
THL : | ||
THOMAS H. LEE EQUITY FUND VI, LP |
By: |
Name: | ||
Title: | ||
THOMAS H. LEE PARALLEL FUND VI, LP |
By: |
Name: | ||
Title: | ||
THOMAS H. LEE PARALLEL (DT) FUND VI, LP |
By: |
Name: | ||
Title: | ||
GREAT-WEST INVESTORS LP |
By: |
Name: | ||
Title: | ||
PUTNAM INVESTMENTS EMPLOYEES SECURITIES COMPANY III LLC |
By: |
Name: | ||
Title: |
[SIGNATURE PAGE TO VOTING AGREEMENT]
THL COINVESTMENT PARTNERS, LP |
By: |
Name: | ||
Title: | ||
THL OPERATING PARTNERS, LP |
By: |
Name: | ||
Title: | ||
THL EQUITY FUND VI INVESTORS (CERIDIAN), LP |
By: |
Name: | ||
Title: | ||
THL EQUITY FUND VI INVESTORS (CERIDIAN) II, LP |
By: |
Name: | ||
Title: | ||
THL EQUITY FUND VI INVESTORS (CERIDIAN) III, LLC |
By: |
Name: | ||
Title: |
[SIGNATURE PAGE TO VOTING AGREEMENT]
THL EQUITY FUND VI INVESTORS (CERIDIAN) IV, LLC |
By: |
Name: | ||
Title: | ||
THL EQUITY FUND VI INVESTORS (CERIDIAN) V, LLC |
By: |
Name: | ||
Title: |
[SIGNATURE PAGE TO VOTING AGREEMENT]
Exhibit 10.17
FORM OF CERIDIAN HCM HOLDING INC.
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (the Agreement ) is made as of April [], 2018, by and between Ceridian HCM Holding Inc., a Delaware corporation (the Company ), and THL / Cannae Investors LLC, a Delaware limited liability company (the Investor ).
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock .
1.1 Sale and Issuance of Common Stock . Subject to the terms and conditions of this Agreement, the Investor agrees to purchase from the Company, and the Company agrees to sell and issue to the Investor, the Shares (as defined below) at a price per share equal to the per share initial public offering price (before underwriting discounts and expenses) in the Qualified IPO (as defined below) (the IPO Price ). Shares shall mean the number of shares of Common Stock of the Company, par value $0.01 (the Common Stock ), equal to $100,000,000 divided by the IPO Price, rounded up to the nearest whole share. Qualified IPO shall mean the issuance and sale of shares of the Common Stock by the Company, pursuant to an Underwriting Agreement to be entered into by and among the Company and certain underwriters (the Underwriters ), in connection with the Companys initial public offering pursuant to the Companys Registration Statement on Form S-1 (File No. 333-223905) (as amended, the Registration Statement ) and/or any related registration statements (the Underwriting Agreement ).
1.2 Closing . The purchase and sale of the Shares shall take place at the location and at the time immediately subsequent to the closing of the Qualified IPO (which time and place are designated as the Closing ). At the Closing, the Investor shall make payment of the purchase price of the Shares by wire transfer in immediately available funds to the account specified by the Company against delivery to the Investor of the Shares registered in the name of the Investor, which Shares shall be uncertificated shares.
2. Registration Rights . At the Closing, in connection with the Qualified IPO and purchase of the Shares, the Company will enter into a registration rights agreement (the Registration Rights Agreement ) with certain stockholders of the Company, including certain entities and individuals that indirectly own equity interests in the Investor.
3. Representations and Warranties of the Company . The Company hereby represents and warrants to the Investor that as of the date hereof and as of the date of the Closing:
3.1 Organization, Good Standing and Qualification .
(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted.
(b) The Company is duly qualified to transact business and is in good standing in each jurisdiction in which it is required to be so qualified or in good standing.
3.2 Authorization . All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the Registration Rights Agreement, the performance of all obligations of the Company under this Agreement, and the authorization, issuance, sale and delivery of the Shares being sold hereunder has been taken, and this Agreement and the Registration Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors rights generally (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Registration Rights Agreement may be limited by applicable federal or state securities laws.
3.3 Valid Issuance of Common Stock . The Shares being purchased by the Investor hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under applicable state and federal securities laws or as contemplated hereby or by the Registration Rights Agreement.
3.4 Compliance with Other Instruments .
(a) The Company is not in violation or default of any provision of its Second Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws.
(b) The Company is not in violation or default in any material respect of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or, any provision of any federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of this Agreement and the Registration Rights Agreement, and the consummation of the transactions contemplated by this Agreement and the Registration Rights Agreement will not result in any such violation or default or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations or any of its assets or properties.
3.5 Description of Capital Stock . As of the date of the Closing, the statements set forth in the Preliminary Prospectus (as defined in the Underwriting Agreement) that was included in the Registration Statement immediately prior to the Applicable Time (as defined in the Underwriting Agreement) and Prospectus (as defined in the Underwriting Agreement) under the caption Description of Capital Stock, insofar as they purport to constitute a summary of the terms of the Companys capital stock, are accurate, complete and fair in all material respects.
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3.6 Registration Statement . The Registration Statement, and any amendment thereto, including any information deemed to be included therein pursuant to the rules and regulations of the United States Securities and Exchange Commission (the SEC ) promulgated under the Securities Act of 1933, as amended (the Securities Act ), complied (or, in the case of amendments filed after the date of this Agreement, will comply) as of its filing date in all material respects with the requirements of the Securities Act and the rules and regulations of the SEC promulgated thereunder, and did not (or, in the case of amendments filed after the date hereof, will not) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. As of the date it is declared effective by the SEC, the Registration Statement, as so amended, and any related registration statements, will comply in all material respects with the requirements of the Securities Act and the rules and regulations of the SEC promulgated thereunder, and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. Any preliminary prospectus included in the Registration Statement or any amendment thereto, any free writing prospectus related to the Registration Statement and any final prospectus related to the Registration Statement filed pursuant to Rule 424 promulgated under the Securities Act, in each case as of its date, will comply in all material respects with the requirements of the Securities Act and the rules and regulations promulgated thereunder, and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
3.7 Brokers or Finders . The Company has not incurred, and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders fees or agents commissions or any similar charges in connection with the sale of the Shares contemplated by this Agreement.
3.8 Private Placement . Assuming the accuracy of the representations, warranties and covenants of the Investor set forth in Section 4 of this Agreement, no registration under the Securities Act is required for the offer and sale of the Shares by the Company to the Investor under this Agreement.
4. Representations, Warranties and Covenants of the Investor . The Investor hereby represents and warrants that as of the date hereof and as of the date of the Closing:
4.1 Organization, Good Standing and Qualification . The Investor is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware.
4.2 Authorization . The Investor has full power and authority to enter into this Agreement, and such agreement constitutes a valid and legally binding obligation of the Investor, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.
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4.3 Purchase Entirely for Own Account . By the Investors execution of this Agreement, the Investor hereby confirms, that the Shares to be received by the Investor will be acquired for investment for the Investors own account, not as a nominee or agent, and not with a view to the distribution of any part thereof, and that the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same, except as permitted by applicable federal or state securities laws. By executing this Agreement, the Investor further represents that the Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Shares. Notwithstanding the foregoing, the Shares may be distributed to entities and individuals that directly and/or indirectly own equity interests in the Investor (the Interest Holders ) in connection with the internal reorganization that is contemplated in connection with the Qualified IPO (the Internal Reorganization ).
4.4 Disclosure of Information . The Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares. The Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 3 of this Agreement or the right of the Investor to rely thereon.
4.5 Investment Experience . The Investor acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares. Investor also represents it has not been organized for the purpose of acquiring the Shares.
4.6 Accredited Investor . The Investor is an accredited investor within the meaning of Regulation D, Rule 501(a), promulgated by the SEC under the Securities Act, as presently in effect.
4.7 Existing Relationship . As of the date hereof, the Investor owns a majority of the outstanding shares of the Companys Common Stock.
4.8 Brokers or Finders . The Investor has not engaged any brokers, finders or agents, and neither the Company nor the Investor has, nor will, incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders fees or agents commissions or any similar charges in connection with this Agreement.
4.9 Restricted Securities . The Investor understands that the Shares will be characterized as restricted securities under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act, only in certain limited circumstances.
4.10 M arket Stand-Off Agreement; Lock-Up Agreement . The Investor hereby agrees that for 180 days following the effective date of the Registration Statement, it shall not sell or
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otherwise transfer or dispose of the Shares, other than to (a) Interest Holders in connection with the Internal Reorganization or (b) with the consent of the Company. To the extent Interest Holders have executed and delivered to the Underwriters the lock-up agreement provided by the Company (the Lock-Up Agreement), the Shares received by such Interest Holders in the Internal Reorganization will be subject to the terms of the Lock-Up Agreement. In order to enforce this covenant, the Company shall have the right to place restrictive legends on the certificates or book-entry accounts representing the Shares (including the Shares distributed in the Internal Reorganization, to the extent applicable) and to impose stop transfer instructions with respect to such Shares until the end of such period.
4.11 Legends . The Investor understands that the Shares may bear one or all of the following legends:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT ), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTIONS. THESE SECURITIES MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT, APPLICABLE STATE SECURITIES LAWS (PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM).
(b) THESE SHARES ARE SUBJECT TO A 180 DAY MARKET STANDOFF RESTRICTION AS SET FORTH IN A CERTAIN AGREEMENT BETWEEN THE ISSUER AND THE INVESTOR, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. AS A RESULT OF SUCH AGREEMENT, THESE SHARES MAY NOT BE TRADED PRIOR TO 180 DAYS AFTER THE EFFECTIVE DATE OF ANY PUBLIC OFFERING OF THE COMMON STOCK OF THE ISSUER HEREOF. SUCH RESTRICTION IS BINDING ON TRANSFEREES OF THESE SHARES.
(c) Any legend required by applicable state blue sky securities laws, rules and regulations.
5. Conditions of the Investor s Obligations at Closing . The obligations of the Investor under subsection 1.1 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions.
5.1 Representations and Warranties . The representations and warranties of the Company shall be true on and as of the Closing.
5.2 Public Offering Shares . The Underwriters shall have purchased, immediately prior to the purchase of the Shares by the Investor hereunder, the Underwritten Shares (as defined in the Underwriting Agreement) pursuant to the Registration Statement and Underwriting Agreement.
5.3 Absence of Injunctions, Decrees, Etc . During this period from the date of this Agreement to immediately prior to the Closing, no governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any decision, injunction, decree, ruling, law or order permanently enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated at the Closing.
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6. Conditions of the Company s Obligations at Closing . The obligations of the Company under subsection 1.1 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions.
6.1 Representations, Warranties and Covenants . The representations, warranties and covenants of the Investor contained in Section 4 shall be true on and as of the Closing.
6.2 Public Offering Shares . The Underwriters shall have purchased, immediately prior to the purchase of the Shares by the Investor hereunder, the Underwritten Shares pursuant to the Registration Statement and Underwriting Agreement.
6.3 Absence of Injunctions, Decrees, Etc . During this period from the date of this Agreement to immediately prior to the Closing, no governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any decision, injunction, decree, ruling, law or order permanently enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated at the Closing.
7. Termination . This Agreement shall terminate (i) at any time upon the written consent of the Company and the Investor, (ii) upon the withdrawal by the Company of the Registration Statement, or (iii) on June 30, 2018 if the Closing has not occurred.
8. Miscellaneous .
8.1 Survival of Warranties . The warranties, representations and covenants of the Company and the Investor contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investor or the Company.
8.2 Successors and Assigns . This Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by the Investor without the prior written consent of the Company; provided, however, that after the Closing, the Shares and the rights, duties and obligations of the Investor hereunder may be assigned to the Interest Holders in the Internal Reorganization without the prior written consent of the Company. Subject to the foregoing and except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.
8.3 Governing Law . This Agreement shall be governed and construed in accordance with the laws of the State of New York.
8.4 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.
8.5 Notices . All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to the Investor or any other holder of Company securities) or otherwise delivered by hand, messenger or courier service addressed:
(a) if to the Investor, to the attention of the Investor at 100 Federal Street, 35th Floor, Boston, Massachusetts 02110 or [EMAIL] and [EMAIL], with a copy (which shall not constitute notice) to Michael L. Gravelle, c/o Cannae Holdings, Inc., 1701 Village Center Circle, Las Vegas, Nevada 89134 or [EMAIL].
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(b) if to the Company, to the attention of the General Counsel of the Company at 3311 East Old Shakopee Road, Minneapolis, Minnesota 55425 or officeofgeneralcounsel@ceridian.com and [EMAIL], or at such other current address or electronic mail address as the Company shall have furnished to the Investor.
Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given (i) if delivered by hand, messenger or courier service, when delivered (or if sent via a nationally-recognized overnight courier service, freight prepaid, specifying next-business-day delivery, one business day after deposit with the courier), or (ii) if sent via mail, at the earlier of its receipt or five days after the same has been deposited in a regularly-maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid, or (iii) if sent via electronic mail, when directed to the relevant electronic mail address, if sent during normal business hours of the recipient, or if not sent during normal business hours of the recipient, then on the recipients next business day. In the event of any conflict between the Companys books and records and this Agreement or any notice delivered hereunder, the Companys books and records will control absent fraud or error.
8.6 Brokers or Finders . The Company shall indemnify and hold harmless the Investor from any liability for any commission or compensation in the nature of a brokerage or finders fee or agents commission (and the costs and expenses of defending against such liability or asserted liability) for which the Investor or any of its constituent partners, members, officers, directors, employees or representatives is responsible to the extent such liability is attributable to any inaccuracy or breach of the representations and warranties contained in Section 3.7, and the Investor agrees to indemnify and hold harmless the Company and the Investor from any liability for any commission or compensation in the nature of a brokerage or finders fee or agents commission (and the costs and expenses of defending against such liability or asserted liability) for which the Company, the Investor or any of their constituent partners, members, officers, directors, employees or representatives is responsible to the extent such liability is attributable to any inaccuracy or breach of the representations and warranties contained in Section 4.7.
8.7 Amendments and Waivers . Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor.
8.8 Severability . If any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement, and such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable provision. The balance of this Agreement shall be enforceable in accordance with its terms.
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8.9 Entire Agreement . This Agreement and the documents referred to herein constitute the entire agreement among the parties with respect to the subject matter hereof. No party shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein or therein.
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IN WITNESS WHEREOF , the parties have executed this Common Stock Purchase Agreement as of the date first above written.
CERIDIAN HCM HOLDING INC. | ||
By: | ||
Name: | ||
Title: |
IN WITNESS WHEREOF , the parties have executed this Common Stock Purchase Agreement as of the date first above written.
INVESTOR:
THL / CANNAE INVESTORS LLC |
||
By: | ||
Name: | ||
Title: |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Ceridian HCM Holding Inc.:
We consent to the use of our report dated March 14, 2018, except as to the third paragraph of Note 2, as to which the date is April 12, 2018, with respect to the consolidated balance sheets of Ceridian HCM Holding Inc. and its subsidiaries as of December 31, 2017 and 2016 and related consolidated statements of operations, comprehensive income (loss), stockholders equity, and cash flows for each of the years in the three-year period ended December 31, 2017 incorporated herein and to the reference to our firm under the heading Experts in the prospectus.
/s/ KPMG LLP
Minneapolis, Minnesota
April 12, 2018