As filed with the Securities and Exchange Commission on September 28, 2022.
File No. 001-        
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of
the Securities Exchange Act of 1934
RXO, LLC
(Exact name of Registrant as specified in its charter)
Delaware88-2183384
(State or other jurisdiction of
incorporation or organization)
(I.R.S. employer
identification number)
11215 North Community House Road
Charlotte, NC
28277
(Address of principal executive offices)(Zip code)
(855) 976-6951
(Registrant’s telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
to be so Registered
Name of Each Exchange on which
Each Class is to be Registered
Common Stock, $0.01 par value per shareNew York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth 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.
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 transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐


RXO, LLC
INFORMATION REQUIRED IN REGISTRATION STATEMENT CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
Certain information required to be included herein is incorporated by reference to specifically identified portions of the body of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.
Item 1. Business.
The information required by this item is contained under the sections of the information statement entitled “Information Statement Summary,” “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements,” “The Separation and Distribution,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Certain Relationships and Related Party Transactions” and “Where You Can Find More Information.” Those sections are incorporated herein by reference.
Item 1A. Risk Factors.
The information required by this item is contained under the section of the information statement entitled “Risk Factors.” That section is incorporated herein by reference.
Item 2. Financial Information.
The information required by this item is contained under the sections of the information statement entitled “Capitalization,” “Unaudited Pro Forma Condensed Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Index to Financial Statements” and the financial statements referenced therein. Those sections are incorporated herein by reference.
Item 3. Properties.
The information required by this item is contained under the section of the information statement entitled “Business.” That section is incorporated herein by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is contained under the section of the information statement entitled “Security Ownership of Certain Beneficial Owners and Management.” That section is incorporated herein by reference.
Item 5. Directors and Executive Officers.
The information required by this item is contained under the sections of the information statement entitled “Management” and “Directors.” Those sections are incorporated herein by reference.
Item 6. Executive Compensation.
The information required by this item is contained under the sections of the information statement entitled “Executive Compensation” and “Director Compensation.” Those sections are incorporated herein by reference.
Item 7. Certain Relationships and Related Transactions.
The information required by this item is contained under the sections of the information statement entitled “Management,” “Directors” and “Certain Relationships and Related Party Transactions.” Those sections are incorporated herein by reference.
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Item 8. Legal Proceedings.
The information required by this item is contained under the section of the information statement entitled “Business—Legal Proceedings.” That section is incorporated herein by reference.
Item 9. Market Price of, and Dividends on, the Registrant’s Common Equity and Related Stockholder Matters.
The information required by this item is contained under the sections of the information statement entitled “The Separation and Distribution,” “Dividend Policy,” “Capitalization” and “Description of Capital Stock.” Those sections are incorporated herein by reference.
Item 10. Recent Sales of Unregistered Securities.
The information required by this item is contained under the sections of the information statement entitled “Description of Material Indebtedness.” That section is incorporated herein by reference.
Item 11. Description of Registrant’s Securities to be Registered.
The information required by this item is contained under the sections of the information statement entitled “The Separation and Distribution” “Dividend Policy,” and “Description of Capital Stock.” Those sections are incorporated herein by reference.
Item 12. Indemnification of Directors and Officers.
The information required by this item is contained under the section of the information statement entitled “Description of Capital Stock.” That section is incorporated herein by reference.
Item 13. Financial Statements and Supplementary Data.
The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” and the financial statements referenced therein. That section is incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements and Schedule
The information required by this item is contained under the sections of the information statement entitled “Unaudited Pro Forma Condensed Combined Financial Information” and “Index to Financial Statements” and the financial statements referenced therein. Those sections are incorporated herein by reference.
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(b) Exhibits
The following documents are filed as exhibits hereto:
Exhibit NumberExhibit Description
2.1
2.2
2.3
2.4
2.5
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
21.1
99.1
99.2
3

SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
RXO, LLC
By:/s/ Jeff Firestone
Name: Jeff Firestone
Title: Chief Legal Officer
Date: September 28, 2022
Exhibit 2.1

SEPARATION AND DISTRIBUTION AGREEMENT
BY AND BETWEEN
XPO LOGISTICS, INC.
AND
RXO, INC.
DATED AS OF [l], 2022


TABLE OF CONTENTS
ARTICLE I DEFINITIONS
2
ARTICLE II THE SEPARATION
15
2.1
Transfer of Assets and Assumption of Liabilities
15
2.2
SpinCo Assets; Parent Assets
17
2.3
SpinCo Liabilities; Parent Liabilities
20
2.4
Approvals and Notifications
21
2.5
Novation of Liabilities
25
2.6
Release of Guarantees
26
2.7
Termination of Agreements
27
2.8
Treatment of Shared Contracts
28
2.9
Bank Accounts; Cash Balances
29
2.10
Ancillary Agreements
30
2.11
Disclaimer of Representations and Warranties
30
2.12
SpinCo Financing Arrangements; SpinCo Debt Incurrence
31
2.13
Financial Information Certifications
32
ARTICLE III THE DISTRIBUTION
32
3.1
Sole and Absolute Discretion; Cooperation
32
3.2
Actions Prior to the Distribution
33
3.3
Conditions to the Distribution
34
3.4
The Distribution
35
ARTICLE IV MUTUAL RELEASES; INDEMNIFICATION
36
4.1
Release of Pre-Distribution Claims
36
4.2
Indemnification by SpinCo
39
4.3
Indemnification by Parent
39
4.4
Indemnification Obligations Net of Insurance Proceeds and Other Amounts
40
4.5
Procedures for Indemnification of Third-Party Claims
41
4.6
Additional Matters
43
4.7
Right of Contribution
44
4.8
Covenant Not to Sue
45
4.9
Remedies Cumulative
45
4.10
Survival of Indemnities
45
ARTICLE V CERTAIN OTHER MATTERS
46
5.1
Insurance Matters
46
5.2
Late Payments
49
i

5.3
Inducement
49
5.4
Use of Parent Names
49
5.5
Non-Competition
50
ARTICLE VI EXCHANGE OF INFORMATION; CONFIDENTIALITY
51
6.1
Agreement for Exchange of Information
51
6.2
Ownership of Information
52
6.3
Compensation for Providing Information
52
6.4
Record Retention
53
6.5
Limitations of Liability
53
6.6
Other Agreements Providing for Exchange of Information
53
6.7
Production of Witnesses; Records; Cooperation
54
6.8
Privileged Matters
55
6.9
Confidentiality
57
6.10
Conflicts Waiver
59
ARTICLE VII DISPUTE RESOLUTION
59
7.1
Good Faith Officer Negotiation
59
7.2
CEO Negotiation
60
7.3
Arbitration
60
7.4
Emergency Relief
62
7.5
Conduct During Dispute Resolution Process
62
7.6
Dispute Resolution Coordination
62
ARTICLE VIII FURTHER ASSURANCES AND ADDITIONAL COVENANTS
62
8.1
Further Assurances
62
ARTICLE IX TERMINATION
63
9.1
Termination
63
9.2
Effect of Termination
63
ARTICLE X MISCELLANEOUS
64
10.1
Counterparts; Entire Agreement; Corporate Power
64
10.2
Governing Law
65
10.3
Assignability
65
10.4
Third Party Beneficiaries
65
10.5
Notices
65
10.6
Severability
67
10.7
Force Majeure
67
10.8
No Set-Off
67
10.9
Expenses
67
ii

10.10
Headings
68
10.11
Survival of Covenants
68
10.12
Waivers of Default
68
10.13
Specific Performance
68
10.14
Amendments
68
10.15
Interpretation
68
10.16
Limitations of Liability
69
10.17
Performance
69
10.18
Mutual Drafting
69
10.19
Ancillary Agreements
69
iii

SCHEDULES
Schedule 1.1Additional Ancillary Agreements
Schedule 1.2SpinCo Contracts
Schedule 1.3SpinCo Intellectual Property
Schedule 1.4SpinCo Names
Schedule 1.5(a)SpinCo Real Property (Owned)
Schedule 1.5(b)SpinCo Real Property (Leases)
Schedule 1.6SpinCo Software
Schedule 1.7Transferred Entities
Schedule 2.1(a)Plan of Reorganization
Schedule 2.2(a)(xiii)SpinCo Assets
Schedule 2.2(b)(iii)Parent Intellectual Property
Schedule 2.2(b)(iv)Parent Technology and Software
Schedule 2.2(b)(ix)Parent Assets
Schedule 2.3(a)(vii)SpinCo Liabilities
Schedule 2.3(b)(i)Parent Liabilities
Schedule 2.7(b)(ii)Intercompany Agreements
Schedule 2.8Shared Contracts
Schedule 2.12SpinCo Financing Arrangements
Schedule 4.3(e)Specified Parent Information
Schedule 5.1Available Parent Policies
Schedule 10.9Allocation of Certain Costs and Expenses
EXHIBITS
Exhibit AAmended and Restated Certificate of Incorporation of RXO, Inc.
Exhibit BAmended and Restated Bylaws of RXO, Inc.
iv

SEPARATION AND DISTRIBUTION AGREEMENT
This SEPARATION AND DISTRIBUTION AGREEMENT, dated as of [l], 2022 (this “Agreement”), is by and between XPO Logistics, Inc., a Delaware corporation (“Parent”), and RXO, Inc., a Delaware corporation (“SpinCo”). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I.
R E C I T A L S
WHEREAS, the board of directors of Parent (the “Parent Board”) has determined that it is in the best interests of Parent and its stockholders to create a new publicly traded company that shall operate the SpinCo Business;
WHEREAS, in furtherance of the foregoing, the Parent Board has determined that it is appropriate and desirable to separate the SpinCo Business from the Parent Business (the “Separation”) and, following the Separation, make a distribution, on a pro rata basis, to holders of Parent Shares on the Record Date of all of the outstanding SpinCo Shares (the “Distribution”);
WHEREAS, SpinCo has been incorporated solely for these purposes and has not engaged in activities, except in connection with the Separation and the Distribution;
WHEREAS, for U.S. federal income tax purposes, (i) the Contribution and the Distribution, taken together, are intended to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, (ii) the other Separation Transactions are intended to qualify for the applicable intended tax treatment set forth in a Tax Opinion, as applicable, and (iii) this Agreement is intended to be, and is hereby adopted as, a “plan of reorganization” within the meaning of Treasury Regulations Section 1.368-2(g) with respect to the transactions referred to in clause (i) and the applicable transactions referred to in clause (ii);
WHEREAS, SpinCo and Parent have prepared, and SpinCo has filed with the SEC, the Form 10, which includes the Information Statement, and which sets forth disclosures concerning SpinCo, the Separation and the Distribution;
WHEREAS, each of Parent and SpinCo has determined that it is appropriate and desirable to set forth the principal corporate transactions required to effect the Separation and the Distribution and certain other agreements that will govern certain matters relating to the Separation and the Distribution and the relationship of Parent, SpinCo and the members of their respective Groups following the Distribution; and
WHEREAS, the Parties acknowledge that this Agreement and the Ancillary Agreements represent the integrated agreement of Parent and SpinCo relating to the Separation and the Distribution, are being entered into together, and would not have been entered into independently.


NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement, the following terms shall have the following meanings:
“Action” shall mean any demand, action, claim, dispute, suit, countersuit, arbitration, inquiry, subpoena, proceeding or investigation of any nature (whether criminal, civil, legislative, administrative, regulatory, prosecutorial or otherwise) by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal.
“Adversarial Action” shall have the meaning set forth in Section 6.7(a).
“Affiliate” shall mean, when used with respect to a specified Person, a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such specified Person. For the purpose of this definition, “control” (including, with correlative meanings, “controlled by” and “under common control with”), when used with respect to any specified Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by contract, agreement, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment, undertaking or otherwise. It is expressly agreed that, prior to, at and after the Effective Time, solely for purposes of this Agreement and the Ancillary Agreements, (a) no member of the SpinCo Group shall be deemed to be an Affiliate of any member of the Parent Group and (b) no member of the Parent Group shall be deemed to be an Affiliate of any member of the SpinCo Group.
“Agreement” shall have the meaning set forth in the Preamble.
“Ancillary Agreements” shall mean all agreements (other than this Agreement) entered into by the Parties or the members of their respective Groups (but only agreements as to which no Third Party is a party) in connection with the Separation, the Distribution or the other transactions contemplated by this Agreement, including, but not limited to, the Transition Services Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Intellectual Property License Agreement, the Transfer Documents and the agreements set forth on Schedule 1.1.
“Approvals or Notifications” shall mean any consents, waivers, approvals, permits or authorizations to be obtained from, notices, registrations or reports to be submitted to, or other filings to be made with, any Third Party, including any Governmental Authority.
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“Arbitration Request” shall have the meaning set forth in Section 7.3(a).
“Assets” shall mean, with respect to any Person, the assets, properties, claims and rights (including goodwill) of such Person, wherever located (including in the possession of vendors or other Third Parties or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of such Person, including rights and benefits pursuant to any contract, license, permit, indenture, note, bond, mortgage, agreement, concession, franchise, instrument, undertaking, commitment, understanding or other arrangement.
“Available Parent Policies” shall mean the Policies of Parent as in effect as of the Distribution Date and listed on Schedule 5.1.
“Benefit Plan” shall have the meaning set forth in the Employee Matters Agreement.
“Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions are generally authorized or required by law to close in the United States or New York, New York.
“CEO Negotiation Request” shall have the meaning set forth in Section 7.2.
“Cash Transfer” shall have the meaning set forth in Section 2.12(a).
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Confidential Information” shall have the meaning set forth in Section 6.9(a).
“Contribution” shall have the meaning set forth in the Tax Matters Agreement.
“Customer Information” shall mean, with respect to any business, all information to the extent relating to customers of such business, including names, addresses and transaction data (including merchandise or service purchased, purchase price paid, purchase location (such as particular branch or online), date and time of day of purchase, adjustments and related information and means of payment).
“Delayed Parent Asset” shall have the meaning set forth in Section 2.4(h).
“Delayed Parent Liability” shall have the meaning set forth in Section 2.4(h).
“Delayed SpinCo Asset” shall have the meaning set forth in Section 2.4(c).
“Delayed SpinCo Liability” shall have the meaning set forth in Section 2.4(c).
“Disclosure Document” shall mean any registration statement (including the Form 10) filed with the SEC by or on behalf of any Party or any member of its Group, and also includes any information statement (including the Information Statement), prospectus, offering
3

memorandum, offering circular, periodic report or similar disclosure document, whether or not filed with the SEC or any other Governmental Authority, in each case that describes the Separation or the Distribution or the SpinCo Group or primarily relates to the transactions contemplated hereby.
“Dispute” shall have the meaning set forth in Section 7.1.
“Distribution” shall have the meaning set forth in the Recitals.
“Distribution Agent” shall mean the trust company or bank duly appointed by Parent to act as distribution agent, transfer agent and registrar for the SpinCo Shares in connection with the Distribution.
“Distribution Date” shall mean [l], 2022, which is the date of the consummation of the Distribution, which shall be determined by the Parent Board in its sole and absolute discretion.
“Distribution Ratio” shall mean a number equal to [l] ([l]).
“e-mail” shall have the meaning set forth in Section 10.5.
“Effective Time” shall mean 12:01 a.m., Eastern Time, on the Distribution Date.
“Employee Matters Agreement” shall mean the Employee Matters Agreement to be entered into by and between Parent and SpinCo in connection with the Separation, the Distribution or the other transactions contemplated by this Agreement, as it may be amended from time to time.
“Environmental Law” shall mean any Law relating to pollution, protection or restoration of or prevention of harm to the environment or natural resources, including the use, handling, transportation, treatment, storage, disposal, Release or discharge of Hazardous Materials or the protection of or prevention of harm to human health and safety.
“Environmental Liabilities” shall mean all Liabilities to the extent relating to, arising out of or resulting from any Hazardous Materials, Environmental Law or contract or agreement relating to environmental, health or safety matters (including all removal, remediation or cleanup costs, investigatory costs, response costs, natural resources damages, property damages, personal injury damages, costs of compliance with any product take-back requirements or with any settlement, judgment or other determination of Liability and indemnity, contribution or similar obligations) and all costs and expenses, interest, fines, penalties or other monetary sanctions in connection therewith.
“Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.
“Final Determination” shall have the meaning set forth in the Tax Matters Agreement.
4

“Force Majeure” shall mean, with respect to a Party, an event beyond the reasonable control of such Party (or any Person acting on its behalf), which event (a) does not arise or result from the fault or negligence of such Party (or any Person acting on its behalf) and (b) by its nature would not reasonably have been foreseen by such Party (or such Person), or, if it would reasonably have been foreseen, was unavoidable, and includes acts of God, acts of civil or military authority, embargoes, epidemics, pandemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any significant and prolonged failure in electrical or air conditioning equipment. Notwithstanding the foregoing, the receipt by a Party of an unsolicited takeover offer or other acquisition proposal, even if unforeseen or unavoidable, and such Party’s response thereto shall not be deemed an event of Force Majeure.
“Form 10” shall mean the registration statement on Form 10 filed by SpinCo with the SEC to effect the registration of SpinCo Shares pursuant to the Exchange Act in connection with the Distribution, as such registration statement may be amended or supplemented from time to time prior to the Distribution.
“Former Parent Group Employee” shall have the meaning set forth in the Employee Matters Agreement.
“Former SpinCo Group Employee” shall have the meaning set forth in the Employee Matters Agreement.
“Governmental Approvals” shall mean any Approvals or Notifications to be made to, or obtained from, any Governmental Authority.
“Governmental Authority” shall mean any nation or government, any territory, state, municipality or other political subdivision thereof, and any entity, body, agency, commission, department, board, bureau, court, tribunal or other instrumentality, whether federal, state, local, domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory, administrative or other similar functions, or any executive official thereof.
“Group” shall mean either the SpinCo Group or the Parent Group, as the context requires.
“Hazardous Materials” shall mean any chemical, material, substance, waste, pollutant, emission, discharge, release or contaminant that could result in Liability under, or that is prohibited, limited or regulated by or pursuant to, any Environmental Law, and any natural or artificial substance (whether solid, liquid or gas, noise, ion, vapor or electromagnetic) that could cause harm to human health or the environment, including petroleum, petroleum products and byproducts, asbestos and asbestos-containing materials, urea formaldehyde foam insulation, electronic, medical or infectious wastes, polychlorinated biphenyls, radon gas, radioactive substances, chlorofluorocarbons and all other ozone-depleting substances.
“Indemnifying Party” shall have the meaning set forth in Section 4.4(a).
“Indemnitee” shall have the meaning set forth in Section 4.4(a).
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“Indemnity Payment” shall have the meaning set forth in Section 4.4(a).
“Information” shall mean information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, artwork, design, research and development files, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, Customer Information, cost information, sales and pricing data, customer prospect lists, supplier records and vendor data, correspondence and lists, product literature, communications by or to attorneys (including attorney-client privileged communications), memoranda and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data; provided that “Information” shall not include Intellectual Property Rights.
“Information Statement” shall mean the information statement to be made available to the holders of Parent Shares in connection with the Distribution, as such information statement may be amended or supplemented from time to time prior to the Distribution.
“Information Technology” means the computer systems (including computers, screens, servers, middleware, workstations, routers, hubs, switches, networks, data communications lines and hardware), network and telecommunications systems hardware and other information technology equipment, and all associated documentation.
“Insurance Proceeds” shall mean those monies:
(a)received by an insured from an insurance carrier; or
(b)paid by an insurance carrier on behalf of the insured;
in any such case net of (i) applicable premium adjustments (including reserves and retrospectively rated premium adjustments), (ii) any costs or expenses incurred in the collection thereof and (iii) any reimbursement obligations under “fronted” or similar insurance policies; provided that in each case Insurance Proceeds shall not include any monies received or paid from an insurance carrier that is Parent or SpinCo or an Affiliate of either Parent or SpinCo.
“Intellectual Property Rights” means any and all common law or statutory rights anywhere in the world arising under or associated with: (a) patents, statutory invention registrations, certificates of invention, registered designs, utility models and similar or equivalent rights in inventions and designs, and all rights therein provided by international treaties and conventions, and including any applications or registrations for any of the foregoing (“Patents”); (b) trademarks, service marks, slogans, trade dress, trade names, logos, and other designations of origin, and including any applications or registrations for any of the foregoing (“Marks”); (c) rights associated with domain names, uniform resource locators, Internet Protocol addresses, social media handles, and other names, identifiers, and locators associated with Internet addresses, sites, and services, and including any applications or registrations for any of the
6

foregoing (“Internet Properties”); (d) copyrights, any other equivalent rights in works of authorship or copyrightable subject matter (including rights in software as a work of authorship) and any other related rights of authors, and including any applications or registrations for any of the foregoing (“Copyrights”); (e) trade secrets and industrial secret rights, and rights in know-how, inventions, data, and any other confidential or proprietary business or technical information, that derive independent economic value, whether actual or potential, from not being known to other persons (“Trade Secrets”); and (f) other similar or equivalent intellectual property rights anywhere in the world.
“Intellectual Property License Agreement” shall mean the Intellectual Property License Agreement to be entered into by and between Parent and OpCo or members of their respective Groups in connection with the Separation, the Distribution or the other transactions contemplated by this Agreement, as it may be amended from time to time.
“IRS” shall mean the U.S. Internal Revenue Service.
“JAMS Expedited Rules” has the meaning set forth in Section 7.3.
“Known Counsel” has the meaning set forth in Section 6.10.
“Law” shall mean any national, supranational, federal, state, territorial, provincial, local or similar law (including common law), statute, code, order, ordinance, rule, regulation, treaty (including any income tax treaty), license, permit, authorization, approval, consent, decree, injunction, binding judicial or administrative interpretation or other requirement, in each case enacted, promulgated, issued or entered by a Governmental Authority.
“Liabilities” shall mean all debts, guarantees, assurances, commitments, liabilities, responsibilities, Losses, remediations, deficiencies, damages, fines, penalties, settlements, sanctions, costs, expenses, interest and obligations of any nature or kind, whether accrued or fixed, absolute or contingent, matured or unmatured, accrued or not accrued, asserted or unasserted, liquidated or unliquidated, foreseen or unforeseen, known or unknown, reserved or unreserved, or determined or determinable, including those arising under any Law, claim (including any Third-Party Claim), demand, Action, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority or arbitration tribunal, and those arising under any contract, agreement, obligation, indenture, instrument, lease, promise, arrangement, release, warranty, commitment or undertaking, or any fines, damages or equitable relief that is imposed, in each case, including all costs and expenses relating thereto.
“Linked” shall have the meaning set forth in Section 2.9(a).
“Losses” shall mean actual losses (including any diminution in value), costs, damages, penalties and expenses (including legal and accounting fees and expenses and costs of investigation and litigation), whether or not involving a Third-Party Claim.
“NYSE” shall mean the New York Stock Exchange.
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“Officer Negotiation Request” shall have the meaning set forth in Section 7.1.
“Parent” shall have the meaning set forth in the Preamble.
“Parent Accounts” shall have the meaning set forth in Section 2.9(a).
“Parent Assets” shall have the meaning set forth in Section 2.2(b).
“Parent Board” shall have the meaning set forth in the Recitals.
“Parent Business” shall mean all businesses, operations and activities (whether or not such businesses, operations or activities are or have been terminated, divested or discontinued) conducted at any time prior to the Effective Time by either Party or any member of its Group, other than the SpinCo Business.
“Parent Group” shall mean Parent and each Person that is a Subsidiary of Parent (other than SpinCo and any other member of the SpinCo Group).
“Parent Group Employee” shall have the meaning set forth in the Employee Matters Agreement.
“Parent Indemnitees” shall have the meaning set forth in Section 4.2.
“Parent Intellectual Property” shall have the meaning set out in Section 2.2(b)(iii).
“Parent Liabilities” shall have the meaning set forth in Section 2.3(b).
“Parent Names” means the names, Marks or logos of Parent or any of its Affiliates at any time prior to the Effective Time, or any variations or derivatives thereof, either alone or in combination with other words and any names, Marks or logos confusingly similar to or embodying any of the foregoing, in each case other than the SpinCo Names. For the avoidance of doubt and notwithstanding anything herein to the contrary, the “XPO” name, Mark and logo, including any variations or derivatives thereof, either alone or in combination with other words, shall be part of the Parent Names.
“Parent Policies” shall mean the Policies of Parent or any other member of the Parent Group in place immediately or at any time prior to the Effective Time.
“Parent Shares” shall mean the shares of common stock, par value $0.001 per share, of Parent.
“Parties” shall mean the parties to this Agreement.
“Permits” shall mean any permits, approvals, authorizations, consents, licenses or certificates issued by any Governmental Authority.
8

“Person” shall mean an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Authority.
“Plan of Reorganization” shall mean the plan and structure set forth on Schedule 2.1(a).
“Policies” shall mean insurance policies and programs, reinsurance policies and insurance contracts of any kind, including property, cargo, excess and umbrella, commercial general liability, director and officer liability, fiduciary liability, cyber technology, professional liability, libel liability, employment practices liability, automobile, aircraft, marine, workers’ compensation and employers’ liability, employee dishonesty/crime/fidelity, foreign, bonds and self-insurance and captive insurance company arrangements, together with the rights, benefits, privileges and obligations thereunder.
“Prime Rate” shall mean the rate that Bloomberg displays as “Prime Rate by Country United States” or “Prime Rate by Country US-BB Comp” at http://www.bloomberg.com/quote/PRIME:IND or on a Bloomberg terminal at PRIMBB Index.
“Privileged Information” shall mean any information, in written, oral, electronic or other tangible or intangible forms, including any communications by or to attorneys (including attorney-client privileged communications), memoranda and other materials prepared by attorneys or under their direction (including attorney work product), as to which a Party or any member of its Group would be entitled to assert or have asserted a privilege or other protection, including the attorney-client and attorney work product privileges.
“Prohibited Business” shall mean (i) with respect to any member of the Parent Group, the SpinCo Business (excluding any services that are ancillary to the core Parent Business (including any natural extensions thereof)) as conducted as of the Effective Time; and (ii) with respect to any member of the SpinCo Group, the Parent Business (excluding any services that are ancillary to the core SpinCo Business (including any natural extensions thereof)) as conducted as of the Effective Time.
“Real Property” shall mean land together with all easements, rights and interests arising out of the ownership thereof or appurtenant thereto and all buildings, structures, improvements and fixtures located thereon.
“Real Property Leases” shall mean all leases to Real Property and, to the extent covered by such leases, any and all buildings, structures, improvements and fixtures located thereon.
“Record Date” shall mean such date as is determined by the Parent Board in its sole and absolute discretion as the record date for determining holders of Parent Shares entitled to receive SpinCo Shares pursuant to the Distribution.
“Record Holders” shall mean the holders of record of Parent Shares as of the Record Date.
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“Registered IP” shall mean all United States, international or foreign (a) Patents and Patent applications; (b) registered Marks and applications to register Marks; (c) registered Copyrights and applications for Copyright registration; and (d) registered Internet Properties.
“Release” shall mean any release, spill, emission, discharge, leaking, pumping, pouring, dumping, injection, deposit, disposal, dispersal, leaching or migration of Hazardous Materials into the environment (including ambient air, surface water, groundwater and surface or subsurface strata).
“Representatives” shall mean, with respect to any Person, any of such Person’s directors, officers, employees, agents, consultants, advisors, accountants, attorneys or other representatives.
“SEC” shall mean the U.S. Securities and Exchange Commission.
“Security Interest” shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever.
“Separation” shall have the meaning set forth in the Recitals.
“Separation Transactions” means the Contribution, the Distribution and the other transactions contemplated by this Agreement and the Plan of Reorganization.
“Shared Contract” means each Contract of any member of either Group with a Third Party, that relates in any material respect to both the SpinCo Business and the Parent Business, in each case that is set forth on Schedule 2.8.
“Software” shall mean any and all (a) computer programs, including any and all software implementation of algorithms, models and methodologies, whether in source code, object code, human readable form or other form, (b) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (c) descriptions, flow charts and other work products used to design, plan, organize and develop any of the foregoing, (d) screens, user interfaces, report formats, firmware, development tools, templates, menus, buttons and icons and (e) documentation, including user manuals and other training documentation, relating to any of the foregoing.
“SpinCo” shall have the meaning set forth in the Preamble.
“SpinCo Accounts” shall have the meaning set forth in Section 2.9(a).
“SpinCo Assets” shall have the meaning set forth in Section 2.2(a).
“SpinCo Balance Sheet” shall mean the pro forma combined balance sheet of the SpinCo Business, including any notes and subledgers thereto, as of [l], 2022, as presented in the Information Statement made available to the Record Holders.
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“SpinCo Business” shall mean the North American truck brokerage business, as well as the services for managed transportation, last mile and freight forwarding, of Parent and its relevant Subsidiaries, as such businesses and services were conducted at any time prior to the Effective Time by either Party or any of their current or former Subsidiaries, and as described in the Form 10. For the avoidance of doubt, the SpinCo Business shall include only the business and operations described in the immediately prior sentence, and shall not include any other businesses or operations of Parent or any of its Subsidiaries.
“SpinCo Bylaws” shall mean the Amended and Restated Bylaws of SpinCo, substantially in the form of Exhibit B.
“SpinCo Certificate of Incorporation” shall mean the Amended and Restated Certificate of Incorporation of SpinCo, substantially in the form of Exhibit A.
“SpinCo Contracts” shall mean the following contracts and agreements to which either Party or any member of its Group is a party or by which it or any member of its Group or any of their respective Assets is bound, whether or not in writing, in each case, immediately prior to the Distribution (provided, that SpinCo Contracts shall not include any contract or agreement that is contemplated to be retained by Parent or any member of the Parent Group from and after the Effective Time pursuant to any provision of this Agreement or any Ancillary Agreement), including rights to recover any amounts under such contracts and agreements:
(i)any customer, distribution, supply or vendor contract or agreement with a Third Party entered into prior to the Effective Time exclusively related to the SpinCo Business;
(ii)any license agreement entered into prior to the Effective Time exclusively related to the SpinCo Business;
(iii)any proprietary information and inventions agreement or similar agreement assigning or licensing Intellectual Property Rights with any SpinCo Group Employee, Former SpinCo Group Employee, Parent Group Employee, Former Parent Group Employee, current or former consultant of the SpinCo Group or current or former consultant of the Parent Group, in each case entered into prior to the Effective Time that is exclusively related to the SpinCo Business;
(iv)any contract or agreement that is entered into pursuant to this Agreement or any of the Ancillary Agreements to be assigned to SpinCo or any member of the SpinCo Group;
(v)any interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements exclusively related to the SpinCo Business;
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(vi)any credit agreement, indenture, note or other financing agreement or instrument entered into by SpinCo and/or any member of the SpinCo Group in connection with the Separation, including any SpinCo Financing Arrangements;
(vii)any contract or agreement entered into in the name of, or expressly on behalf of, any division, business unit or member of the SpinCo Group, in each case so long as primarily related to the SpinCo Business;
(viii)any other contract or agreement not otherwise set forth herein and exclusively related to the SpinCo Business or SpinCo Assets;
(ix)any employment, change of control, retention, consulting, indemnification, termination, severance or other similar agreements with any SpinCo Group Employee or consultants of the SpinCo Group that are in effect as of the Effective Time;
(x)the SpinCo Leases; and
(xi)any contracts, agreements or settlements set forth on Schedule 1.2.
“SpinCo Debt” shall have the meeting set forth in Section 2.12(a).
“SpinCo Designees” shall mean any and all entities (including corporations, general or limited partnerships, trusts, joint ventures, unincorporated organizations, limited liability entities or other entities) designated by Parent that will be members of the SpinCo Group as of immediately prior to the Effective Time.
“SpinCo Financing Arrangements” shall have the meaning set forth in Section 2.12(a).
“SpinCo Group” shall mean (a) prior to the Effective Time, SpinCo and each Person that will be a Subsidiary of SpinCo as of immediately after the Effective Time, including the Transferred Entities, even if, prior to the Effective Time, such Person is not a Subsidiary of SpinCo; and (b) on and after the Effective Time, SpinCo and each Person that is a Subsidiary of SpinCo.
“SpinCo Group Employee” shall have the meaning set forth in the Employee Matters Agreement.
“SpinCo Indemnitees” shall have the meaning set forth in Section 4.3.
“SpinCo Intellectual Property” shall mean (a) all Intellectual Property Rights (other than Registered IP) owned by either Party or any member of its Group as of the Effective Time and exclusively used or exclusively held for use in the SpinCo Business, (b) any Registered IP set forth on Schedule 1.3, and (c) any other Intellectual Property Rights set forth on Schedule 1.3.
“SpinCo IT” shall mean all Information Technology owned by either Party or any member of its Group as of the Effective Time exclusively used or exclusively held for use in the
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SpinCo Business; provided that SpinCo IT does not include any Software licensed from a third party.
“SpinCo Leases” shall have the meaning set forth in the definition of SpinCo Real Property.
“SpinCo Liabilities” shall have the meaning set forth in Section 2.3(a).
“SpinCo Names” means the names, Marks or logos set forth on Schedule 1.4, or any variations or derivatives thereof, either alone or in combination with other words and any names, Marks or logos confusingly similar to or embodying any of the foregoing, in each case other than the Parent Names.
“SpinCo Permits” shall mean all Permits owned or licensed by either Party or any member of its Group primarily used or held for use in the SpinCo Business as of the Effective Time.
“SpinCo Real Property” shall mean (a) all of the Real Property owned by either Party or member of its Group as of immediately prior to the Effective Time that is listed or described on Schedule 1.5(a), (b) the Real Property Leases to which either Party or member of its Group is party as of immediately prior to the Effective Time that are set forth on Schedule 1.5(b) (“SpinCo Leases”) and (c) all recorded Real Property notices, easements and obligations with respect to the Real Property and/or Real Property Leases described in clauses (a) and (b) of this paragraph.
“SpinCo Shares” shall mean the shares of common stock, par value $0.01 per share, of SpinCo.
“SpinCo Technology” shall mean (a) the copies of Technology with respect to which the Intellectual Property Rights therein are owned by either Party or any member of its Group, to the extent that such Technology is used or held for use in the SpinCo Business as of the Effective Time and capable of being copied (for example, documentation), including the Software set forth on Schedule 1.6 and (b) any Technology that constitutes know-how or knowledge of SpinCo Group Employees, to the extent related to the SpinCo Business, but in each case excluding the Technology and the Software set forth on Schedule 2.2(b)(iv) and Information Technology. For purposes of clarity, SpinCo Technology does not include any Intellectual Property Rights.
“Statement” shall have the meaning set forth in Section 2.9(g).
“Straddle Period” shall have the meaning set forth in Section 2.13.
“Subsidiary” shall mean, with respect to any Person, any corporation, limited liability company, joint venture or partnership of which such Person (a) beneficially owns, either directly or indirectly, more than fifty percent (50%) of (i) the total combined voting power of all classes of voting securities, (ii) the total combined equity interests or (iii) the capital or profit interests,
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in the case of a partnership, or (b) otherwise has the power to vote, either directly or indirectly, sufficient securities to elect a majority of the board of directors or similar governing body.
“Tangible Information” shall mean copies of information that is contained in written, electronic or other tangible forms.
“Target Cash Amount” shall mean [l] ($[l]) U.S. dollars.
“Tax” shall have the meaning set forth in the Tax Matters Agreement.
“Tax Matters Agreement” shall mean the Tax Matters Agreement to be entered into by and between Parent and SpinCo in connection with the Separation, the Distribution or the other transactions contemplated by this Agreement, as it may be amended from time to time.
“Tax Return” shall have the meaning set forth in the Tax Matters Agreement.
“Technology” shall mean embodiments of Intellectual Property Rights, including blueprints, designs, design protocols, documentation, specifications for materials, specifications for parts and devices, and design tools, materials, manuals, data, databases, Software and know-how or knowledge of employees, relating to, embodying, or describing products, articles, apparatus, devices, processes, methods, formulae, recipes or other technical information; provided that Technology shall not include personal property and books and records or any Intellectual Property Rights.
“Third Party” shall mean any Person other than the Parties or any members of their respective Groups.
“Third-Party Claim” shall have the meaning set forth in Section 4.5(a).
“Transfer Documents” shall have the meaning set forth in Section 2.1(b).
“Third-Party Proceeds” shall have the meaning set forth in Section 4.4(a).
“Transferred Entities” shall mean the entities set forth on Schedule 1.7.
“Transition Services Agreement” shall mean the Transition Services Agreement to be entered into by and between Parent and SpinCo in connection with the Separation, the Distribution or the other transactions contemplated by this Agreement, as it may be amended from time to time.
“Unreleased Parent Liability” shall have the meaning set forth in Section 2.5(b)(ii).
“Unreleased SpinCo Liability” shall have the meaning set forth in Section 2.5(a)(ii).
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ARTICLE II
THE SEPARATION
2.1Transfer of Assets and Assumption of Liabilities.
(a)On or prior to the Effective Time, but in any case prior to the Distribution, in accordance with the Plan of Reorganization:
(i)Transfer and Assignment of SpinCo Assets. Parent shall, and shall cause the applicable members of its Group to, contribute, assign, transfer, convey and deliver to SpinCo, or the applicable SpinCo Designees, and SpinCo or such SpinCo Designees shall accept from Parent and the applicable members of the Parent Group, all of Parent’s and such Parent Group member’s respective direct or indirect right, title and interest in and to all of the SpinCo Assets (it being understood that if any SpinCo Asset shall be held by a Transferred Entity, such SpinCo Asset shall be deemed assigned, transferred, conveyed and delivered to SpinCo as a result of the transfer of all of the equity interests in such Transferred Entity from Parent or the applicable members of the Parent Group to SpinCo or the applicable SpinCo Designee);
(ii)Acceptance and Assumption of SpinCo Liabilities. SpinCo and the applicable SpinCo Designees shall accept, assume and agree faithfully to perform, discharge and fulfill all the SpinCo Liabilities in accordance with their respective terms (it being understood that if any SpinCo Liabilities shall be Liabilities of a Transferred Entity, such SpinCo Liabilities shall be deemed assumed by SpinCo as a result of the transfer of all of the equity interests in such Transferred Entity from Parent or the applicable members of the Parent Group to SpinCo or the applicable SpinCo Designee). SpinCo and such SpinCo Designees shall be responsible for all SpinCo Liabilities, regardless of when or where such SpinCo Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Effective Time, regardless of where or against whom such SpinCo Liabilities are asserted or determined (including any SpinCo Liabilities arising out of claims made by Parent’s or SpinCo’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the Parent Group or the SpinCo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the Parent Group or the SpinCo Group, or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates;
(iii)Transfer and Assignment of Parent Assets. Parent and SpinCo shall cause SpinCo and the SpinCo Designees to contribute, assign, transfer, convey and deliver to Parent or certain members of the Parent Group designated by Parent, and Parent or such other members of the Parent Group shall accept from SpinCo and the SpinCo Designees, all of SpinCo’s and such SpinCo Designees’ respective direct or indirect right, title and interest in and to all Parent Assets held by SpinCo or a SpinCo Designee; and
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(iv)Acceptance and Assumption of Parent Liabilities. Parent and certain members of the Parent Group designated by Parent shall accept and assume and agree faithfully to perform, discharge and fulfill all of the Parent Liabilities held by SpinCo or any SpinCo Designee and Parent and the applicable members of the Parent Group shall be responsible for all Parent Liabilities in accordance with their respective terms, regardless of when or where such Parent Liabilities arose or arise, whether the facts on which they are based occurred prior to or subsequent to the Effective Time, where or against whom such Parent Liabilities are asserted or determined (including any such Parent Liabilities arising out of claims made by Parent’s or SpinCo’s respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the Parent Group or the SpinCo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the Parent Group or the SpinCo Group, or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates.
(b)Transfer Documents. In furtherance of the contribution, assignment, transfer, conveyance and delivery of the Assets and the assumption of the Liabilities in accordance with Section 2.1(a), and without modifying the provisions of Section 2.11, (i) each Party shall execute and deliver, and shall cause the applicable members of its Group to execute and deliver, to the other Party, such bills of sale, quitclaim or special warranty deeds, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment, and take such other corporate actions, in each case, as and to the extent Parent determines are necessary to evidence the transfer, conveyance and assignment of all of such Party’s and the applicable members of its Group’s right, title and interest in and to such Assets to the other Party and the applicable members of its Group in accordance with Section 2.1(a), and (ii) each Party shall execute and deliver, and shall cause the applicable members of its Group to execute and deliver, to the other Party, such assumptions of contracts and other instruments of assumption, and take such other corporate actions, in each case, as and to the extent Parent determines are necessary to evidence the valid and effective assumption of the Liabilities by such Party and the applicable members of its Group in accordance with Section 2.1(a). All of the foregoing documents contemplated by this Section 2.1(b) shall be referred to collectively herein as the “Transfer Documents.”
(c)Misallocations. In the event that at any time or from time to time during the 24 months following the Effective Time, one Party (or any member of such Party’s Group) shall receive or otherwise possess any Asset that is allocated to the other Party (or any member of such Party’s Group) pursuant to this Agreement or any Ancillary Agreement, such Party shall use reasonable best efforts to promptly transfer, or cause to be transferred, such Asset to the Party so entitled thereto (or to any member of such Party’s Group), and such Party (or member of such Party’s Group) so entitled thereto shall accept such Asset; provided that, cash and cash equivalents received prior to the Effective Time shall not be subject to the requirements of this sentence. Prior to any such transfer, the Person receiving or possessing such Asset shall hold such Asset in trust for such other Person. In the event that at any time or from time to time during the 24 months following the Effective Time, one Party hereto (or any member of such Party’s
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Group) shall receive or otherwise assume or be liable for any Liability that is allocated to the other Party (or any member of such Party’s Group) pursuant to this Agreement or any Ancillary Agreement, such other Party shall use reasonable best efforts to promptly assume, or cause to be assumed, such Liability and agree to faithfully perform or discharge such Liability in accordance with this Agreement. Any transfer, conveyance, acceptance or assumption made pursuant to this Section 2.1(c) shall be treated by the Parties for all purposes of this Agreement as if it had occurred immediately prior to the Distribution (or such earlier effective date as provided in any Transfer Document), except as otherwise required by applicable Law or a Final Determination.
(d)Waiver of Bulk-Sale and Bulk-Transfer Laws. To the extent permissible under applicable Law, SpinCo hereby waives compliance by each and every member of the Parent Group with the requirements and provisions of any “bulk-sale” or “bulk-transfer” Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the SpinCo Assets to any member of the SpinCo Group. To the extent permissible under applicable Law, Parent hereby waives compliance by each and every member of the SpinCo Group with the requirements and provisions of any “bulk-sale” or “bulk-transfer” Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the Parent Assets to any member of the Parent Group.
(e)Electronic Transfer. All transferred SpinCo Assets and Parent Assets, including transferred Technology, that can be delivered by electronic transmission will be so delivered or made available to SpinCo, Parent or their respective designees (as applicable), in an electronic form to be reasonably determined by the Parties.
2.2SpinCo Assets; Parent Assets.
(a)SpinCo Assets. For the purposes of this Agreement, “SpinCo Assets” shall mean:
(i)all issued and outstanding capital stock or other equity interests of the Transferred Entities that are owned by either Party or any members of its Group as of the Effective Time [and all other equity, partnership, membership, joint venture and similar interests set forth on Schedule 2.2(a)(i)];
(ii)except as otherwise contemplated or set forth in this Section 2.2(a), all Assets of either Party or any members of its Group included or reflected as assets of the SpinCo Group on the SpinCo Balance Sheet, subject to any dispositions of such Assets subsequent to the date of the SpinCo Balance Sheet; provided that the amounts set forth on the SpinCo Balance Sheet with respect to any Assets shall not be treated as minimum amounts or limitations on the amount of such Assets that are included in the definition of SpinCo Assets pursuant to this clause (ii);
(iii)except as otherwise contemplated or set forth in this Section 2.2(a), all Assets of either Party or any of the members of its Group as of the Effective Time that are of a nature or type that would have resulted in such Assets being included as Assets of SpinCo or members of the SpinCo Group on a pro forma combined balance sheet of the
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SpinCo Group or any notes or subledgers thereto as of the Effective Time (were such balance sheet, notes and subledgers to be prepared on a basis consistent with the determination of the Assets included on the SpinCo Balance Sheet), it being understood that (x) the SpinCo Balance Sheet shall be used to determine the types of, and methodologies used to determine, those Assets that are included in the definition of SpinCo Assets pursuant to this clause (iii) and (y) the amounts set forth on the SpinCo Balance Sheet with respect to any Assets shall not be treated as minimum amounts or limitations on the amount of such Assets that are included in the definition of SpinCo Assets pursuant to this clause (iii);
(iv)all Assets of either Party or any of the members of its Group as of the Effective Time that are expressly provided by this Agreement or any Ancillary Agreement as Assets to be transferred to SpinCo or any other member of the SpinCo Group;
(v)all SpinCo Contracts as of the Effective Time and all rights, interests or claims of either Party or any of the members of its Group thereunder as of the Effective Time;
(vi)the SpinCo Intellectual Property as of the Effective Time, including any goodwill appurtenant to any Marks included in the SpinCo Intellectual Property and the right to any damages for the infringement of the SpinCo Intellectual Property following the Effective Time;
(vii)the SpinCo IT and SpinCo Technology as of the Effective Time;
(viii)all SpinCo Permits as of the Effective Time and all rights, interests or claims of either Party or any of the members of its Group thereunder as of the Effective Time;
(ix)all cash and cash equivalents of SpinCo or any of the members of its Group as of the Effective Time (after giving effect to the Cash Transfer) in an amount equal to the Target Cash Amount;
(x)all SpinCo Real Property as of the Effective Time;
(xi)all Assets of either Party or any of the members of its Group as of the Effective Time that are exclusively related to the SpinCo Business;
(xii)all rights, interests and claims of either Party or any of the members of its Group as of the Effective Time with respect to Information exclusively related to the SpinCo Assets, the SpinCo Liabilities, the SpinCo Business or the Transferred Entities and, subject to the provisions of the applicable Ancillary Agreements, a non-exclusive right to all Information to the extent related to, but not exclusively related to, the SpinCo Assets, the SpinCo Liabilities, the SpinCo Business or the Transferred Entities; and
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(xiii)any and all Assets set forth on Schedule 2.2(a)(xiii).
Notwithstanding the foregoing, the SpinCo Assets shall not in any event include any Asset referred to in clauses (i) through (vii) of Section 2.2(b).
(b)Parent Assets. For the purposes of this Agreement, “Parent Assets” shall mean all Assets of either Party or the members of its Group as of the Effective Time, other than the SpinCo Assets, it being understood that, notwithstanding anything herein to the contrary, the Parent Assets shall include:
(i)all Assets that are expressly provided or contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by Parent or any other member of the Parent Group;
(ii)all contracts and agreements of either Party or any of the members of its Group as of the Effective Time (other than the SpinCo Contracts);
(iii)(x) the Intellectual Property Rights set forth on Schedule 2.2(b)(iii), and (y) all Intellectual Property Rights of either Party or any of the members of its Group as of the Effective Time (other than, in the case of this clause (y), the SpinCo Intellectual Property) (collectively, the “Parent Intellectual Property”);
(iv)(x) the Technology set forth on Schedule 2.2(b)(iv), and (y) all Technology of either Party or any of the members of its Group as of the Effective Time, including duplicates of all SpinCo Technology, other than, in the case of this clause (y), the copies of such Technology that are SpinCo Technology;
(v)all Information Technology of either Party or any of the members of its Group as of the Effective Time (other than the SpinCo IT);
(vi)all Permits of either Party or any of the members of its Group as of the Effective Time (other than the SpinCo Permits);
(vii)all cash and cash equivalents of either Party or any of the members of its Group as of the Effective Time (including cash in respect of the Cash Transfer) (other than cash and cash equivalents of SpinCo or any other member of the SpinCo Group as of the Effective Time in an aggregate amount equal to the Target Cash Amount);
(viii)all Real Property of either Party or any of the members of its Group as of the Effective Time (other than the SpinCo Real Property); and
(ix)any and all Assets set forth on Schedule 2.2(b)(ix).
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2.3SpinCo Liabilities; Parent Liabilities.
(a)SpinCo Liabilities. For the purposes of this Agreement, “SpinCo Liabilities” shall mean the following Liabilities of either Party or any of the members of its Group:
(i)all Liabilities included or reflected as liabilities or obligations of SpinCo or the members of the SpinCo Group on the SpinCo Balance Sheet, subject to any discharge of such Liabilities subsequent to the date of the SpinCo Balance Sheet; provided that the amounts set forth on the SpinCo Balance Sheet with respect to any Liabilities shall not be treated as minimum amounts or limitations on the amount of such Liabilities that are included in the definition of SpinCo Liabilities pursuant to this clause (i);
(ii)all Liabilities as of the Effective Time that are of a nature or type that would have resulted in such Liabilities being included or reflected as liabilities or obligations of SpinCo or the members of the SpinCo Group on a pro forma combined balance sheet of the SpinCo Group or any notes or subledgers thereto as of the Effective Time (were such balance sheet, notes and subledgers to be prepared on a basis consistent with the determination of the Liabilities included on the SpinCo Balance Sheet), it being understood that (x) the SpinCo Balance Sheet shall be used to determine the types of, and methodologies used to determine, those Liabilities that are included in the definition of SpinCo Liabilities pursuant to this clause (ii) and (y) the amounts set forth on the SpinCo Balance Sheet with respect to any Liabilities shall not be treated as minimum amounts or limitations on the amount of such Liabilities that are included in the definition of SpinCo Liabilities pursuant to this clause (ii);
(iii)all Liabilities, including any Environmental Liabilities, to the extent relating to, arising out of or resulting from the actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time), in each case to the extent that such Liabilities relate to, arise out of or result from the SpinCo Business or a SpinCo Asset;
(iv)all Liabilities, including any Environmental Liabilities, to the extent relating to, arising out of or resulting from the actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing at or after the Effective Time, in each case to the extent that such Liabilities relate to, arise out of or result from the SpinCo Business or a SpinCo Asset;
(v)any and all Liabilities that are expressly provided by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed or retained by, or allocated to, SpinCo or any other member of the SpinCo Group, and all agreements, obligations and Liabilities of any member of the SpinCo Group under this Agreement or any of the Ancillary Agreements;
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(vi)all Liabilities to the extent relating to, arising out of or resulting from the SpinCo Contracts, the SpinCo Intellectual Property, the SpinCo Technology, the SpinCo Permits, the SpinCo Real Property or the SpinCo Financing Arrangements;
(vii)any and all Liabilities set forth on Schedule 2.3(a)(vii); and
(viii)all Liabilities arising out of claims made by any Third Party (including Parent’s or SpinCo’s respective directors, officers, stockholders, employees and agents) against any member of the Parent Group or the SpinCo Group to the extent relating to, arising out of or resulting from the SpinCo Business or the SpinCo Assets or the other business, operations, activities or Liabilities of SpinCo referred to in clauses (i) through (vii) above.
(b)Parent Liabilities. For the purposes of this Agreement, “Parent Liabilities” shall mean:
(i)all Liabilities to the extent relating to, arising out of or resulting from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time) of any member of the Parent Group and, prior to the Effective Time, any member of the SpinCo Group, in each case that are not SpinCo Liabilities, including any and all Liabilities set forth on Schedule 2.3(b)(i);
(ii)all Liabilities to the extent relating to, arising out of or resulting from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing at or after the Effective Time of any member of the Parent Group, in each case that are not SpinCo Liabilities; and
(iii)all Liabilities arising out of claims made by any Third Party (including Parent’s or SpinCo’s respective directors, officers, stockholders, employees and agents) against any member of the Parent Group or the SpinCo Group to the extent relating to, arising out of or resulting from the Parent Business or the Parent Assets, in each case that are not SpinCo Liabilities.
2.4Approvals and Notifications.
(a)Approvals and Notifications for SpinCo Assets and Liabilities. To the extent that the transfer or assignment of any SpinCo Asset, the assumption of any SpinCo Liability, the Separation or the Distribution requires any Approvals or Notifications, the Parties shall use commercially reasonable efforts to obtain or make such Approvals or Notifications as soon as reasonably practicable; provided, however, that, except to the extent expressly provided in this Agreement or any of the Ancillary Agreements or as otherwise agreed in writing between Parent and SpinCo, neither Parent nor SpinCo shall be obligated to contribute capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Person in order to obtain or make such Approvals or Notifications.
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(b)Delayed SpinCo Transfers. If and to the extent that the valid, complete and perfected transfer or assignment to the SpinCo Group of any SpinCo Asset or assumption by the SpinCo Group of any SpinCo Liability in connection with the Separation or the Distribution would be a violation of applicable Law or require any Approval or Notification that has not been obtained or made by the Effective Time then, unless the Parties shall otherwise mutually determine, the transfer or assignment to the SpinCo Group of such SpinCo Assets or the assumption by the SpinCo Group of such SpinCo Liabilities, as the case may be, shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Approval or Notification has been obtained or made. Notwithstanding the foregoing, any such SpinCo Assets or SpinCo Liabilities shall continue to constitute SpinCo Assets and SpinCo Liabilities for all other purposes of this Agreement.
(c)Treatment of Delayed SpinCo Assets and Delayed SpinCo Liabilities. If any transfer or assignment of any SpinCo Asset (or a portion thereof) or any assumption of any SpinCo Liability (or a portion thereof) intended to be transferred, assigned or assumed hereunder, as the case may be, is not consummated on or prior to the Effective Time, whether as a result of the provisions of Section 2.4(b) or for any other reason (any such SpinCo Asset (or a portion thereof), a “Delayed SpinCo Asset” and any such SpinCo Liability (or a portion thereof), a “Delayed SpinCo Liability”), then, insofar as reasonably possible and subject to applicable Law, the member of the Parent Group retaining such Delayed SpinCo Asset or such Delayed SpinCo Liability, as the case may be, shall thereafter hold such Delayed SpinCo Asset or Delayed SpinCo Liability, as the case may be, for the use and benefit of the member of the SpinCo Group entitled thereto (at the expense of the member of the SpinCo Group entitled thereto). In addition, the member of the Parent Group retaining such Delayed SpinCo Asset or such Delayed SpinCo Liability shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Delayed SpinCo Asset or Delayed SpinCo Liability in the ordinary course of business in accordance with SpinCo Group past practice and take such other actions as may be reasonably requested by the member of the SpinCo Group to whom such Delayed SpinCo Asset is to be transferred or assigned, or which will assume such Delayed SpinCo Liability, as the case may be, in order to place such member of the SpinCo Group in a substantially similar position as if such Delayed SpinCo Asset or Delayed SpinCo Liability had been transferred, assigned or assumed as contemplated hereby and so that all the benefits and burdens relating to such Delayed SpinCo Asset or Delayed SpinCo Liability, as the case may be, including use, risk of loss, potential for gain, and dominion, control and command over such Delayed SpinCo Asset or Delayed SpinCo Liability, as the case may be, and all costs and expenses related thereto, shall inure from and after the Effective Time to the SpinCo Group.
(d)Transfer of Delayed SpinCo Assets and Delayed SpinCo Liabilities. If and when the Approvals or Notifications, the absence of which caused the deferral of transfer or assignment of any Delayed SpinCo Asset or the deferral of assumption of any Delayed SpinCo Liability pursuant to Section 2.4(b), are obtained or made, and, if and when any other legal impediments for the transfer or assignment of any Delayed SpinCo Asset or the assumption of any Delayed SpinCo Liability have been removed, the transfer or assignment of the applicable Delayed SpinCo Asset or the assumption of the applicable Delayed SpinCo Liability, as the case
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may be, shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement. Any transfer, conveyance, acceptance or assumption made pursuant to this Section 2.4(d) shall be treated by the Parties for all purposes of this Agreement as if it had occurred immediately prior to the Distribution (or such earlier effective date as provided in any Transfer Document), except as otherwise required by applicable Law or a Final Determination.
(e)Costs for Delayed SpinCo Assets and Delayed SpinCo Liabilities. Any member of the Parent Group retaining a Delayed SpinCo Asset or Delayed SpinCo Liability due to the deferral of the transfer or assignment of such Delayed SpinCo Asset or the deferral of the assumption of such Delayed SpinCo Liability, as the case may be, shall not be obligated, in connection with the foregoing, to expend any money, unless the necessary funds are advanced (or otherwise made available) by SpinCo or the member of the SpinCo Group entitled to the Delayed SpinCo Asset or Delayed SpinCo Liability, other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees, all of which shall be promptly reimbursed by SpinCo or the member of the SpinCo Group entitled to such Delayed SpinCo Asset or Delayed SpinCo Liability.
(f)Approvals and Notifications for Parent Assets and Liabilities. To the extent that the transfer or assignment of any Parent Asset, the assumption of any Parent Liability, the Separation or the Distribution requires any Approvals or Notifications, the Parties shall use commercially reasonable efforts to obtain or make such Approvals or Notifications as soon as reasonably practicable; provided, however, that, except to the extent expressly provided in this Agreement or any of the Ancillary Agreements or as otherwise agreed in writing between Parent and SpinCo, neither Parent nor SpinCo shall be obligated to contribute capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Person in order to obtain or make such Approvals or Notifications.
(g)Delayed Parent Transfers. If and to the extent that the valid, complete and perfected transfer or assignment to the Parent Group of any Parent Asset or assumption by the Parent Group of any Parent Liability in connection with the Separation or the Distribution would be a violation of applicable Law or require any Approval or Notification that has not been obtained or made by the Effective Time then, unless the Parties shall otherwise mutually determine, the transfer or assignment to the Parent Group of such Parent Assets or the assumption by the Parent Group of such Parent Liabilities, as the case may be, shall be automatically deemed deferred and any such purported transfer, assignment or assumption shall be null and void until such time as all legal impediments are removed or such Approval or Notification has been obtained or made. Notwithstanding the foregoing, any such Parent Assets or Parent Liabilities shall continue to constitute Parent Assets and Parent Liabilities for all other purposes of this Agreement.
(h)Treatment of Delayed Parent Assets and Delayed Parent Liabilities. If any transfer or assignment of any Parent Asset (or a portion thereof) or any assumption of any Parent Liability (or a portion thereof) intended to be transferred, assigned or assumed hereunder, as the case may be, is not consummated on or prior to the Effective Time whether as a result of the provisions of Section 2.4(g) or for any other reason (any such Parent Asset (or a portion thereof),
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a “Delayed Parent Asset” and any such Parent Liability (or a portion thereof), a “Delayed Parent Liability”), then, insofar as reasonably possible and subject to applicable Law, the member of the SpinCo Group retaining such Delayed Parent Asset or such Delayed Parent Liability, as the case may be, shall thereafter hold such Delayed Parent Asset or Delayed Parent Liability, as the case may be, for the use and benefit of the member of the Parent Group entitled thereto (at the expense of the member of the Parent Group entitled thereto). In addition, the member of the SpinCo Group retaining such Delayed Parent Asset or such Delayed Parent Liability shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Delayed Parent Asset or Delayed Parent Liability in the ordinary course of business in accordance with Parent Group past practice and take such other actions as may be reasonably requested by the member of the Parent Group to which such Delayed Parent Asset is to be transferred or assigned, or which will assume such Delayed Parent Liability, as the case may be, in order to place such member of the Parent Group in a substantially similar position as if such Delayed Parent Asset or Delayed Parent Liability had been transferred, assigned or assumed and so that all the benefits and burdens relating to such Delayed Parent Asset or Delayed Parent Liability, as the case may be, including use, risk of loss, potential for gain, and dominion, control and command over such Delayed Parent Asset or Delayed Parent Liability, as the case may be, and all costs and expenses related thereto, shall inure from and after the Effective Time to the Parent Group. Any transfer, conveyance, acceptance or assumption made pursuant to this Section 2.4(h) shall be treated by the Parties for all purposes of this Agreement as if it had occurred immediately prior to the Distribution (or such earlier effective date as provided in any Transfer Document), except as otherwise required by applicable Law or a Final Determination.
(i)Transfer of Delayed Parent Assets and Delayed Parent Liabilities. If and when the Approvals or Notifications, the absence of which caused the deferral of transfer or assignment of any Delayed Parent Asset or the deferral of assumption of any Delayed Parent Liability pursuant to Section 2.4(g), are obtained or made, and, if and when any other legal impediments for the transfer or assignment of any Delayed Parent Asset or the assumption of any Delayed Parent Liability have been removed, the transfer or assignment of the applicable Delayed Parent Asset or the assumption of the applicable Delayed Parent Liability, as the case may be, shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement.
(j)Costs for Delayed Parent Assets and Delayed Parent Liabilities. Any member of the SpinCo Group retaining a Delayed Parent Asset or Delayed Parent Liability due to the deferral of the transfer or assignment of such Delayed Parent Asset or the deferral of the assumption of such Delayed Parent Liability, as the case may be, shall not be obligated, in connection with the foregoing, to expend any money, unless the necessary funds are advanced (or otherwise made available) by Parent or the member of the Parent Group entitled to the Delayed Parent Asset or Delayed Parent Liability, other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees, all of which shall be promptly reimbursed by Parent or the member of the Parent Group entitled to such Delayed Parent Asset or Delayed Parent Liability.
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2.5Novation of Liabilities.
(a)Novation of SpinCo Liabilities.
(i)Each of Parent and SpinCo, at the request of the other, shall use commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any consent, substitution, approval or amendment required to novate or assign all SpinCo Liabilities and obtain in writing the unconditional release of each member of the Parent Group that is a party to any such arrangements, so that, in any such case, the members of the SpinCo Group shall be solely responsible for such SpinCo Liabilities; provided, however, that, except as otherwise expressly provided in this Agreement or any of the Ancillary Agreements, neither Parent nor SpinCo shall be obligated to contribute any capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Third Party from whom any such consent, substitution, approval, amendment or release is requested.
(ii)If Parent or SpinCo is unable to obtain, or to cause to be obtained, any such required consent, substitution, approval, amendment or release and the applicable member of the Parent Group continues to be bound by such agreement, lease, license or other obligation or Liability (each, an “Unreleased SpinCo Liability”), SpinCo shall, to the extent not prohibited by Law, as indemnitor, guarantor, agent or subcontractor for such member of the Parent Group, as the case may be, (x) pay, perform and discharge fully all the obligations or other Liabilities of such member of the Parent Group that constitute Unreleased SpinCo Liabilities from and after the Effective Time and (y) use commercially reasonable efforts to effect such payment, performance or discharge prior to any demand for such payment, performance or discharge is permitted to be made by the obligee thereunder on any member of the Parent Group. If and when any such consent, substitution, approval, amendment or release shall be obtained or the Unreleased SpinCo Liabilities shall otherwise become assignable or able to be novated, Parent shall promptly assign, or cause to be assigned, and SpinCo or the applicable SpinCo Group member shall assume, such Unreleased SpinCo Liabilities without exchange of further consideration.
(b)Novation of Parent Liabilities.
(i)Each of Parent and SpinCo, at the request of the other, shall use commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any consent, substitution, approval or amendment required to novate or assign all Parent Liabilities and obtain in writing the unconditional release of each member of the SpinCo Group that is a party to any such arrangements, so that, in any such case, the members of the Parent Group shall be solely responsible for such Parent Liabilities; provided, however, that, except as otherwise expressly provided in this Agreement or any of the Ancillary Agreements, neither Parent nor SpinCo shall be obligated to contribute any capital or pay any consideration in any form (including providing any letter of credit, guaranty or other financial accommodation) to any Third
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Party from whom any such consent, substitution, approval, amendment or release is requested.
(ii)If Parent or SpinCo is unable to obtain, or to cause to be obtained, any such required consent, substitution, approval, amendment or release and the applicable member of the SpinCo Group continues to be bound by such agreement, lease, license or other obligation or Liability (each, an “Unreleased Parent Liability”), Parent shall, to the extent not prohibited by Law, as indemnitor, guarantor, agent or subcontractor for such member of the SpinCo Group, as the case may be, (x) pay, perform and discharge fully all the obligations or other Liabilities of such member of the SpinCo Group that constitute Unreleased Parent Liabilities from and after the Effective Time and (y) use commercially reasonable efforts to effect such payment, performance or discharge prior to any demand for such payment, performance or discharge is permitted to be made by the obligee thereunder on any member of the SpinCo Group. If and when any such consent, substitution, approval, amendment or release shall be obtained or the Unreleased Parent Liabilities shall otherwise become assignable or able to be novated, SpinCo shall promptly assign, or cause to be assigned, and Parent or the applicable Parent Group member shall assume, such Unreleased Parent Liabilities without exchange of further consideration.
2.6Release of Guarantees. In furtherance of, and not in limitation of, the obligations set forth in Section 2.5:
(a)On or prior to the Effective Time or as soon as practicable thereafter, each of Parent and SpinCo shall, at the request of the other Party and with the reasonable cooperation of such other Party and the applicable member(s) of such other Party’s Group, use commercially reasonable efforts to (i) have any member(s) of the Parent Group removed as guarantor of or obligor for any SpinCo Liability to the extent that such guarantee or obligation relates to SpinCo Liabilities, including the removal of any Security Interest on or in any Parent Asset that may serve as collateral or security for any such SpinCo Liability, and (ii) have any member(s) of the SpinCo Group removed as guarantor of or obligor for any Parent Liability to the extent that such guarantee or obligation relates to Parent Liabilities, including the removal of any Security Interest on or in any SpinCo Asset that may serve as collateral or security for any such Parent Liability.
(b)To the extent required to obtain a release from a guarantee of:
(i)any member of the Parent Group, SpinCo shall execute a guarantee agreement substantially in the form of the existing guarantee or such other form as is agreed to by the relevant parties to such guarantee agreement, which agreement shall include the removal of any Security Interest on or in any Parent Asset that may serve as collateral or security for any SpinCo Liability, except to the extent that such existing guarantee contains representations, covenants or other terms or provisions either (x) with which SpinCo would be reasonably unable to comply or (y) which SpinCo would not reasonably be able to avoid breaching; and
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(ii)any member of the SpinCo Group, Parent shall execute a guarantee agreement substantially in the form of the existing guarantee or such other form as is agreed to by the relevant parties to such guarantee agreement, which agreement shall include the removal of any Security Interest on or in any SpinCo Asset that may serve as collateral or security for any Parent Liability, except to the extent that such existing guarantee contains representations, covenants or other terms or provisions either (x) with which Parent would be reasonably unable to comply or (y) which Parent would not reasonably be able to avoid breaching.
(c)If Parent or SpinCo is unable to obtain, or to cause to be obtained, any such required removal or release as set forth in clauses (a) and (b) of this Section 2.6, respectively, (i) the Party or the relevant member of its Group that has assumed the Liability with respect to such guarantee shall indemnify, defend and hold harmless the guarantor or obligor against or from any Liability arising from or relating thereto in accordance with the provisions of Article IV and shall, as agent or subcontractor for such guarantor or obligor, pay, perform and discharge fully all the obligations or other Liabilities of such guarantor or obligor thereunder, and (ii) each of Parent and SpinCo, on behalf of itself and the other members of its Group, agrees not to renew or extend the term of, increase any obligations under, or transfer to a Third Party, any loan, guarantee, lease, contract or other obligation for which the other Party or a member of its Group is or may be liable, unless all obligations of such other Party and the members of such other Party’s Group with respect thereto are thereupon terminated by documentation satisfactory in form and substance to such other Party.
2.7Termination of Agreements.
(a)Except as set forth in Section 2.7(b), in furtherance of the releases and other provisions of Section 4.1, SpinCo and each member of the SpinCo Group, on the one hand, and Parent and each member of the Parent Group, on the other hand, hereby terminate any and all agreements, arrangements, commitments or understandings, whether or not in writing, between or among SpinCo and/or any member of the SpinCo Group, on the one hand, and Parent and/or any member of the Parent Group, on the other hand, effective as of the Effective Time. No such terminated agreement, arrangement, commitment or understanding (including any provision thereof which purports to survive termination) shall be of any further force or effect after the Effective Time. Each Party shall, at the reasonable request of the other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.
(b)The provisions of Section 2.7(a) shall not apply to any of the following agreements, arrangements, commitments or understandings (or to any of the provisions thereof): (i) this Agreement and the Ancillary Agreements (and each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement to be entered into by any of the Parties or any of the members of their respective Groups or to be continued from and after the Effective Time); (ii) any agreements, arrangements, commitments or understandings listed or described on Schedule 2.7(b)(ii); (iii) any agreements, arrangements, commitments or understandings to which any Third Party is a party thereto (including for the avoidance of doubt, any Shared Contracts); (iv) any intercompany accounts payable or accounts receivable accrued
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as of the Effective Time that are reflected in the books and records of the Parties or otherwise documented in writing in accordance with past practices, which shall be settled in the manner contemplated by Section 2.7(c); and (v) any agreements, arrangements, commitments or understandings to which any non-wholly owned Subsidiary of Parent or SpinCo, as the case may be, is a party (it being understood that directors’ qualifying shares or similar interests will be disregarded for purposes of determining whether a Subsidiary is wholly owned).
(c)All of the intercompany accounts receivable and accounts payable between any member of the Parent Group, on the one hand, and any member of the SpinCo Group, on the other hand, outstanding as of the Effective Time shall, at the Effective Time or as promptly as practicable after the Effective Time, be repaid, settled or otherwise eliminated (including by means of cash transfers) as determined by Parent in its sole discretion prior to the Effective Time or as mutually and in good faith determined by Parent and SpinCo after the Effective Time.
2.8Treatment of Shared Contracts.
(a)Subject to applicable Law and without limiting the generality of the obligations set forth in Section 2.1, unless the Parties otherwise agree in writing or the benefits of any contract, agreement, arrangement, commitment or understanding described in this Section 2.8 are expressly conveyed to the applicable Party pursuant to this Agreement or an Ancillary Agreement, the Parties shall, and shall cause the members of their respective Groups to, use their respective reasonable best efforts to work together to divide, partially assign, modify or replicate (in whole or in part) the respective rights and obligations under and in respect of each Shared Contract, such that each Party or the member of its Group shall, as of the Effective Time, (i) be entitled to the related portion of the rights and benefits inuring to its respective businesses, (ii) assume the related portion of any Liabilities inuring to its respective businesses and (iii) take any actions set forth on Schedule 2.8 with respect to such Shared Contract; provided, however, that (x) in no event shall any member of any Group be required to assign (or amend) any Shared Contract in its entirety or to assign a portion of any Shared Contract that is not assignable (or cannot be amended) by its terms (including any terms imposing consents or conditions on an assignment where such consents or conditions have not been obtained or fulfilled) and (y) if any Shared Contract cannot be so partially assigned by its terms or otherwise, or cannot be amended or if such assignment or amendment would impair the benefit the parties thereto derive from such Shared Contract, then the Parties shall, and shall cause each of the members of their respective Groups to, take such other reasonable and permissible actions (including by providing prompt notice to the other Party with respect to any relevant claim of Liability or other relevant matters arising in connection with a Shared Contract so as to allow such other Party the ability to exercise any applicable rights under such Shared Contract) to cause a member of the SpinCo Group or the Parent Group, as the case may be, to receive the rights and benefits of that portion of each Shared Contract that relates to the SpinCo Business or the Parent Business, as the case may be (in each case, to the extent so related), as if such Shared Contract had been assigned to a member of the applicable Group (or amended to allow a member of the applicable Group to exercise applicable rights under such Shared Contract) pursuant to this Section 2.8, and to bear the burden of the corresponding Liabilities (including any Liabilities that may arise by reason of
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such arrangement), as if such Liabilities had been assumed by a member of the applicable Group pursuant to this Section 2.8.
(b)Each of Parent and SpinCo shall, and shall cause the members of its Group to, (i) treat for all Tax purposes the portion of each Shared Contract inuring to its or their respective businesses as an Asset owned by, and/or a Liability of, as applicable, such Party, or the members of its Group, as applicable, not later than the Effective Time, and (ii) neither report nor take any Tax position (on a Tax Return or otherwise) inconsistent with such treatment (unless required by applicable Law).
(c)Nothing in this Section 2.8 shall require any member of any Group to make any non-de minimis payment (except to the extent advanced, assumed or agreed in advance to be reimbursed by any member of the other Group), incur any non-de minimis obligation or grant any non-de minimis concession for the benefit of any member of any other Group in order to effect any transaction contemplated by this Section 2.8.
2.9Bank Accounts; Cash Balances.
(a)Each Party agrees to take, or cause the members of its Group to take, at the Effective Time (or such earlier time as the Parties may agree), all actions necessary to amend all contracts or agreements governing each bank and brokerage account owned by SpinCo or any other member of the SpinCo Group (collectively, the “SpinCo Accounts”) and all contracts or agreements governing each bank or brokerage account owned by Parent or any other member of the Parent Group (collectively, the “Parent Accounts”) so that each such SpinCo Account and Parent Account, if currently linked (whether by automatic withdrawal, automatic deposit or any other authorization to transfer funds from or to, hereinafter “Linked”) to any Parent Account or SpinCo Account, respectively, is de-Linked from such Parent Account or SpinCo Account, respectively.
(b)It is intended that, following consummation of the actions contemplated by Section 2.9(a), there will be in place a cash management process pursuant to which the SpinCo Accounts will be managed and funds collected will be transferred into one (1) or more accounts maintained by SpinCo or a member of the SpinCo Group.
(c)It is intended that, following consummation of the actions contemplated by Section 2.9(a), there will continue to be in place a cash management process pursuant to which the Parent Accounts will be managed and funds collected will be transferred into one (1) or more accounts maintained by Parent or a member of the Parent Group.
(d)With respect to any outstanding checks issued or payments initiated by Parent, SpinCo, or any of the members of their respective Groups prior to the Effective Time, such outstanding checks and payments shall be honored following the Effective Time by the Person or Group owning the account on which the check is drawn or from which the payment was initiated, respectively.
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(e)As between Parent and SpinCo (and the members of their respective Groups), all payments made and reimbursements received after the Effective Time by either Party (or member of its Group) that relate to a business, Asset or Liability of the other Party (or member of its Group), shall be held by such Party (or member of its Group) in trust for the use and benefit of the Party (or member of its Group) entitled thereto and, promptly following receipt by such Party (or member of its Group) of any such payment or reimbursement, such Party shall pay over, or shall cause the applicable member of its Group to pay over to the other Party, the amount of such payment or reimbursement without right of set-off.
(f)It is understood and agreed that, effective as of the Effective Time (and after giving effect to the Cash Transfer), SpinCo and members of the SpinCo Group shall have (following the adjustments (if any) contemplated by this Section 2.9) cash and cash equivalents in an aggregate amount that equals the Target Cash Amount.
(g)Within fifteen (15) days after the Distribution Date, Parent shall deliver to SpinCo a good faith calculation of the aggregate amount of cash and cash equivalents (net of any overdrafts) held by the SpinCo Group as of the Effective Time (the “Final Cash Balance”). Parent’s calculation of the Final Cash Balance shall be final, binding, conclusive and non-appealable on SpinCo for all purposes of this Agreement and, for the avoidance of doubt, shall not be subject to further adjustment as a result of payments required to be made by one party to the other after the Effective Time under this Agreement or under any of the Ancillary Agreements.
(h)If the Final Cash Balance exceeds the Target Cash Amount, then SpinCo shall pay or cause to be paid an amount in cash equal to such difference to Parent by wire transfer of immediately available funds to an account or accounts designated in writing by Parent to SpinCo within five (5) Business Days after the date of delivery of the Final Cash Balance by Parent. If the Final Cash Balance is less than the Target Cash Amount, then Parent shall pay or cause to be paid an amount in cash equal to such absolute value of the difference to SpinCo by wire transfer of immediately available funds to an account or accounts designated in writing by SpinCo to Parent within five (5) Business Days after the date of delivery of the Final Cash Balance by Parent. Any such payment shall be treated by the Parties for all purposes as an adjustment to the Cash Transfer that occurred immediately prior to the Distribution.
2.10Ancillary Agreements. Effective on or prior to the Effective Time, each of Parent and SpinCo will, or will cause the applicable members of their Groups to, execute and deliver all Ancillary Agreements to which it is a party.
2.11Disclaimer of Representations and Warranties. EACH OF PARENT (ON BEHALF OF ITSELF AND EACH MEMBER OF THE PARENT GROUP) AND SPINCO (ON BEHALF OF ITSELF AND EACH MEMBER OF THE SPINCO GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, NO PARTY TO THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR OTHERWISE, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO: (A) THE ASSETS,
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BUSINESSES OR LIABILITIES TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, (B) ANY CONSENTS OR APPROVALS REQUIRED IN CONNECTION THEREWITH, (C) THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, (D) THE ABSENCE OF ANY DEFENSES OR RIGHT OF SET-OFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY CLAIM OR OTHER ASSET, INCLUDING ANY ACCOUNTS RECEIVABLE, OF ANY PARTY, OR (E) THE LEGAL SUFFICIENCY OF ANY ASSIGNMENT, DOCUMENT OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN “AS IS,” “WHERE IS” BASIS (AND, IN THE CASE OF ANY REAL PROPERTY, BY MEANS OF A QUITCLAIM, SPECIAL WARRANTY OR SIMILAR FORM OF DEED OR CONVEYANCE), AND THE RESPECTIVE TRANSFEREES SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE WILL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD AND MARKETABLE TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, AND (II) ANY NECESSARY APPROVALS OR NOTIFICATIONS ARE NOT OBTAINED OR MADE OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT COMPLIED WITH.
2.12SpinCo Financing Arrangements; SpinCo Debt Incurrence.
(a)Prior to the Effective Time and pursuant to the Plan of Reorganization, (i) SpinCo and/or other members of the SpinCo Group will enter into one or more financing arrangements and agreements, as set forth on Schedule 2.12 (the “SpinCo Financing Arrangements”), pursuant to which it or they shall borrow prior to the Effective Time a principal amount of not less than $[l] (the “SpinCo Debt”) and (ii) SpinCo and/or other members of the SpinCo Group shall distribute, convey or otherwise transfer in the manner determined by Parent some or all (as determined by Parent in its sole discretion) of the proceeds of the SpinCo Debt to Parent as partial consideration for the transfer of the SpinCo Assets to SpinCo in the Contribution pursuant to Section 2.1 (such distribution, conveyance or transfer, the “Cash Transfer”). Parent and SpinCo agree to take, and shall cause the respective members of their Group to take, all necessary actions to assure the full release and discharge of Parent and the other members of the Parent Group from all liabilities and other obligations pursuant to the SpinCo Financing Arrangements as of no later than the Effective Time. The Parties agree that SpinCo or another member of the SpinCo Group, as the case may be, and not Parent or any member of the Parent Group, are and shall be responsible for all costs and expenses incurred in connection with the SpinCo Financing Arrangements.
(b)Prior the Effective Time, Parent and SpinCo shall cooperate in the preparation of all materials as may be necessary or advisable to execute the SpinCo Financing Arrangements.
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2.13Financial Information Certifications. Parent’s disclosure controls and procedures and internal control over financial reporting (as each is contemplated by the Exchange Act) are currently applicable to SpinCo as its wholly owned Subsidiary (and not as a reporting company under the Exchange Act). In order to enable the principal executive officer and principal financial officer of SpinCo to make the certifications required of them under Section 302 of the Sarbanes-Oxley Act of 2002 following the Distribution in respect of any quarterly or annual fiscal period of SpinCo that begins on or prior to the Distribution Date in respect of which financial statements are not included in the Form 10 (a “Straddle Period”), upon twenty (20) Business Days’ advance written request by SpinCo, Parent shall provide SpinCo with one (1) or more certifications with respect to such disclosure controls and procedures and the effectiveness thereof and whether there were any changes in the internal controls over financial reporting that have materially affected or are reasonably likely to materially affect the internal control over financing reporting, which certification(s) shall (x) be with respect to the applicable Straddle Period (it being understood that no certification need be provided with respect to any period or portion of any period after the Distribution Date) and (y) be in substantially the same form as those that had been provided by officers or employees of Parent in similar certifications delivered prior to the Distribution Date, with such changes thereto as Parent may reasonably determine. Such certification(s) shall be provided by Parent (and not by any officer or employee in their individual capacity).
ARTICLE III
THE DISTRIBUTION
3.1Sole and Absolute Discretion; Cooperation.
(a)Parent shall, in its sole and absolute discretion, determine the terms of the Distribution including the form, structure and terms of any transaction(s) and/or offering(s) to effect the Distribution and the timing and conditions to the consummation of the Distribution. In addition, Parent may, at any time and from time to time until the consummation of the Distribution, modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution. Nothing shall in any way limit Parent’s right to terminate this Agreement or the Distribution as set forth in Article IX or alter the consequences of any such termination from those specified in Article IX.
(b)SpinCo shall cooperate with Parent to accomplish the Distribution, and shall, at Parent’s direction, promptly take any and all actions necessary or desirable to effect the Distribution (including, in connection with the Distribution, in respect of the registration under the Exchange Act of SpinCo Shares on the Form 10). Parent shall select any investment bank or manager in connection with the Distribution, as well as any financial printer, solicitation and/or exchange agent and financial, legal, accounting and other advisors for Parent. SpinCo and Parent, as the case may be, will provide to the Distribution Agent any information required in order to complete the Distribution.
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3.2Actions Prior to the Distribution. Prior to the Effective Time and subject to the terms and conditions set forth herein, the Parties shall take, or cause to be taken, the following actions in connection with the Distribution:
(a)Notice to NYSE. Parent shall, to the extent possible, give the NYSE not less than ten (10) days’ advance notice of the Record Date in compliance with Rule 10b-17 under the Exchange Act.
(b)SpinCo Certificate of Incorporation and SpinCo Bylaws. On or prior to the Distribution Date, Parent and SpinCo shall take all necessary actions so that, as of the Effective Time, the SpinCo Certificate of Incorporation and the SpinCo Bylaws shall become the certificate of incorporation and bylaws of SpinCo, respectively.
(c)SpinCo Directors and Officers. On or prior to the Distribution Date, Parent and SpinCo shall take all necessary actions so that as of the Effective Time: (i) the directors and executive officers of SpinCo shall be those set forth in the Information Statement made available to the Record Holders prior to the Distribution Date, unless otherwise agreed by the Parties; (ii) each individual referred to in clause (i), with the exception of Bradley S. Jacobs, shall have resigned from his or her position, if any, as a member of the Parent Board and/or as an executive officer of Parent; and (iii) SpinCo shall have such other officers as SpinCo shall appoint.
(d)NYSE Listing. SpinCo shall prepare and file, and shall use its best efforts to have approved, an application for the listing of the SpinCo Shares to be distributed in the Distribution on the NYSE, subject to official notice of distribution.
(e)Securities Law Matters. SpinCo shall file any amendments or supplements to the Form 10 as may be necessary or advisable in order to cause the Form 10 to become and remain effective as required by the SEC or federal, state or other applicable securities Laws. Parent and SpinCo shall cooperate in preparing, filing with the SEC and causing to become effective registration statements or amendments thereof that are required to reflect the establishment of, or amendments to, any employee benefit and other plans necessary or advisable in connection with the transactions contemplated by this Agreement and the Ancillary Agreements. Parent and SpinCo will prepare, and SpinCo will, to the extent required under applicable Law, file with the SEC any such documentation and any requisite no-action letters that Parent determines are necessary or desirable to effectuate the Distribution, and Parent and SpinCo shall each use reasonable best efforts to obtain all necessary approvals from the SEC with respect thereto as soon as practicable. Parent and SpinCo shall take all such action as may be necessary or appropriate under the securities or blue sky Laws of the United States (and any comparable Laws under any foreign jurisdiction) in connection with the Distribution.
(f)Availability of Information Statement. Parent shall, as soon as is reasonably practicable after the Form 10 is declared effective under the Exchange Act and the Parent Board has approved the Distribution, cause the Information Statement or Notice of Internet Availability of the Information Statement to be mailed to the Record Holders.
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(g)The Distribution Agent. Parent shall enter into a distribution agent agreement with the Distribution Agent or otherwise provide instructions to the Distribution Agent regarding the Distribution.
(h)Stock-Based Employee Benefit Plans. Parent and SpinCo shall take all actions as may be necessary to approve the grants of adjusted equity awards by Parent (in respect of Parent Shares) and SpinCo (in respect of SpinCo Shares) in connection with the Distribution in order to satisfy the requirements of Rule 16b-3 under the Exchange Act.
3.3Conditions to the Distribution.
(a)The consummation of the Distribution will be subject to the satisfaction, or waiver by Parent in its sole and absolute discretion, of the following conditions:
(i)The SEC shall have declared effective the Form 10; no order suspending the effectiveness of the Form 10 shall be in effect; and no proceedings for such purposes shall have been instituted or threatened by the SEC;
(ii)The Information Statement or Notice of Internet Availability of the Information Statement shall have been mailed to the Record Holders;
(iii)Parent shall have received an opinion from its external tax counsel, satisfactory to the Parent Board in its sole discretion, regarding the qualification of the Contribution and the Distribution, taken together, as a transaction described in Sections 355 and 368(a)(1)(D) of the Code;
(iv)An independent appraisal firm acceptable to Parent shall have delivered one (1) or more opinions to the Parent Board confirming the solvency and financial viability of Parent immediately prior to the Distribution and of Parent and SpinCo immediately after consummation of the Distribution, and such opinions shall be acceptable to Parent in form and substance in Parent’s sole discretion and such opinions shall not have been withdrawn or rescinded;
(v)The Separation, the Distribution, the Contribution and the other transactions contemplated by this Agreement and the Plan of Reorganization shall have been completed in accordance with the Plan of Reorganization (other than those steps that are expressly contemplated to occur at or after the Effective Time);
(vi)The actions and filings necessary or appropriate under applicable U.S. federal, U.S. state or other securities Laws or blue sky Laws and the rules and regulations thereunder shall have been taken or made, and, where applicable, have become effective or been accepted by the applicable Governmental Authority;
(vii)Each of the Ancillary Agreements shall have been duly executed and delivered by the applicable parties thereto;
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(viii)No order, injunction or decree issued by any Governmental Authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation, the Distribution or any of the transactions related thereto shall be pending or in effect;
(ix)The SpinCo Shares to be distributed to the Parent stockholders in the Distribution shall have been approved for listing on the NYSE, subject to official notice of distribution;
(x)SpinCo and/or other members of the SpinCo Group, as applicable, shall have consummated the SpinCo Financing Arrangements. SpinCo and/or other members of the SpinCo Group shall have issued and incurred the SpinCo Debt on terms satisfactory to Parent in its sole and absolute discretion. Parent shall have received the proceeds from the Cash Transfer. Parent shall be satisfied in its sole and absolute discretion that, as of the Effective Time, it shall have no Liability whatsoever under the SpinCo Financing Arrangements; and
(xi)No other events or developments shall exist or shall have occurred that, in the judgment of the Parent Board, in its sole and absolute discretion, makes it inadvisable to effect the Separation, the Distribution or the transactions contemplated by this Agreement or any Ancillary Agreement.
(b)The foregoing conditions are for the sole benefit of Parent and shall not give rise to or create any duty on the part of Parent or the Parent Board to waive or not waive any such condition or in any way limit Parent’s right to terminate this Agreement as set forth in Article IX or alter the consequences of any such termination from those specified in Article IX. Any determination made by the Parent Board prior to the Distribution concerning the satisfaction or waiver of any or all of the conditions set forth in Section 3.3(a) shall be conclusive and binding on the Parties. If Parent waives any material condition, it shall (or shall cause SpinCo to) promptly issue a press release or file a Current Report on Form 8-K with the SEC describing such waiver.
3.4The Distribution.
(a)Subject to Section 3.3, on or prior to the Effective Time, SpinCo will deliver to the Distribution Agent, for the benefit of the Record Holders, book-entry transfer authorizations for such number of the outstanding SpinCo Shares as is necessary to effect the Distribution, and shall cause the transfer agent for the Parent Shares to instruct the Distribution Agent to distribute at the Effective Time the appropriate number of SpinCo Shares to each such holder or designated transferee or transferees of such holder by way of direct registration in book-entry form. SpinCo will not issue paper stock certificates in respect of the SpinCo Shares. The Distribution shall be effective at the Effective Time.
(b)Subject to Sections 3.3 and 3.4(c), each Record Holder will be entitled to receive in the Distribution a number of whole SpinCo Shares equal to the number of Parent Shares held by such Record Holder on the Record Date multiplied by the Distribution Ratio.
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(c)Record Holders holding a number of Parent Shares on the Record Date that would entitle such holders to receive less than one whole SpinCo Share in the Distribution will receive cash in lieu of such fractional share. For the avoidance of doubt, no fractional shares will be distributed or credited to book-entry accounts in connection with the Distribution. Parent shall cause the Distribution Agent to, as soon as practicable after the date on which “when-issued” trading of the SpinCo Shares begins on the NYSE, (a) determine the number of whole and fractional SpinCo Shares allocable to each Record Holder and (b) aggregate all fractional shares into whole shares and sell the whole shares obtained thereby in open market transactions at then prevailing trading prices on behalf of holders who would otherwise be entitled to fractional share interests. Parent shall cause the Distribution Agent to, as soon as practicable after the Effective Time, distribute to each such holder, or for the benefit of each beneficial owner, such holder’s or owner’s ratable share of the net proceeds of such sale, based upon the average gross selling price per SpinCo Share after making appropriate deductions for any amount required to be withheld under applicable Tax Law and less any brokers’ charges, commissions or transfer Taxes. The Distribution Agent, in its sole discretion, will determine the timing and method of selling such fractional shares, the selling price of such fractional shares and the broker-dealer through which such fractional shares will be sold; provided, however, that the designated broker-dealer is not an Affiliate of Parent or SpinCo. Neither Parent nor SpinCo will pay any interest on the proceeds from the sale of fractional shares.
(d)Any SpinCo Shares that remain unclaimed by any Record Holder one hundred eighty (180) days after the Distribution Date shall be delivered to SpinCo, and SpinCo or its transfer agent on its behalf shall hold such SpinCo Shares for the account of such Record Holder, and the Parties agree that all obligations to provide such SpinCo Shares shall be obligations of SpinCo, subject in each case to applicable escheat or other abandoned property Laws, and Parent shall have no Liability with respect thereto.
(e)Until the SpinCo Shares are duly transferred in accordance with this Section 3.4 and applicable Law, from and after the Effective Time, SpinCo will regard the Persons entitled to receive such SpinCo Shares as record holders of SpinCo Shares in accordance with the terms of the Distribution without requiring any action on the part of such Persons. SpinCo agrees that, subject to any transfers of such shares, from and after the Effective Time, (i) each such holder will be entitled to receive all dividends, if any, payable on, and exercise voting rights and all other rights and privileges with respect to, the SpinCo Shares then held by such holder, and (ii) each such holder will be entitled, without any action on the part of such holder, to receive evidence of ownership of the SpinCo Shares then held by such holder.
ARTICLE IV
MUTUAL RELEASES; INDEMNIFICATION
4.1Release of Pre-Distribution Claims.
(a)SpinCo Release of Parent. Except as provided in Sections 4.1(c) and 4.1(d), effective as of the Effective Time, SpinCo does hereby, for itself and each other member of the SpinCo Group, and their respective successors and assigns, and, to the extent permitted by Law, all Persons who at any time prior to the Effective Time have been stockholders, directors,
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officers, members, agents or employees of any member of the SpinCo Group (in each case, in their respective capacities as such), remise, release and forever discharge (i) Parent and the members of the Parent Group, and their respective successors and assigns, (ii) all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, members, agents or employees of any member of the Parent Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, and (iii) all Persons who at any time prior to the Effective Time are or have been stockholders, directors, officers, members, agents or employees of a Transferred Entity and who are not, as of immediately following the Effective Time, directors, officers or employees of SpinCo or a member of the SpinCo Group, in each case from: (A) all SpinCo Liabilities, (B) all Liabilities arising from or in connection with the transactions and all other activities to implement the Separation and the Distribution and (C) all Liabilities arising from or in connection with actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time), in each case to the extent relating to, arising out of or resulting from the SpinCo Business, the SpinCo Assets or the SpinCo Liabilities.
(b)Parent Release of SpinCo. Except as provided in Sections 4.1(c) and 4.1(d), effective as of the Effective Time, Parent does hereby, for itself and each other member of the Parent Group and their respective successors and assigns, and, to the extent permitted by Law, all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, members, agents or employees of any member of the Parent Group (in each case, in their respective capacities as such), remise, release and forever discharge (i) SpinCo and the members of the SpinCo Group and their respective successors and assigns, and (ii) all Persons who at any time prior to the Effective Time have been stockholders, directors, officers, members, agents or employees of any member of the SpinCo Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from (A) all Parent Liabilities, (B) all Liabilities arising from or in connection with the transactions and all other activities to implement the Separation and the Distribution and (C) all Liabilities arising from or in connection with actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time), in each case to the extent relating to, arising out of or resulting from the Parent Business, the Parent Assets or the Parent Liabilities.
(c)Obligations Not Affected. Nothing contained in Section 4.1(a) or 4.1(b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings that are specified in Section 2.7(b) or the applicable Schedules thereto as not to terminate as of the Effective Time, in each case in accordance with its terms. Nothing contained in Section 4.1(a) or 4.1(b) shall release any Person from:
(i)any Liability to the extent provided in or resulting from any agreement among any members of the Parent Group or any members of the SpinCo
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Group that is specified in Section 2.7(b) or the applicable Schedules thereto as not to terminate as of the Effective Time, or any other Liability specified in Section 2.7(b) as not to terminate as of the Effective Time;
(ii)any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any member of any Group under, this Agreement or any Ancillary Agreement;
(iii)any Liability for the sale, lease, construction or receipt of goods, property or services purchased, obtained or used in the ordinary course of business by a member of one Group from a member of the other Group prior to the Effective Time;
(iv)any Liability provided in or resulting from any other contract or agreement that is entered into after the Distribution between one Party (or a member of such Party’s Group), on the one hand, and the other Party (or a member of such Party’s Group), on the other hand;
(v)any Liability that the Parties may have with respect to indemnification or contribution or other obligation pursuant to this Agreement, any Ancillary Agreement or otherwise for claims brought against the Parties by Third Parties, which Liability shall be governed by the provisions of this Article IV and Article V and, if applicable, the appropriate provisions of the Ancillary Agreements; or
(vi)any Liability the release of which would result in the release of any Person other than a Person released pursuant to this Section 4.1.
In addition, nothing contained in Section 4.1(a) shall release any member of the Parent Group from honoring its existing obligations to indemnify any director, officer or employee of SpinCo who was a director, officer or employee of any member of the Parent Group on or prior to the Effective Time, to the extent such director, officer or employee becomes a named defendant in any Action with respect to which such director, officer or employee was entitled to such indemnification pursuant to such existing obligations; it being understood that, if any portion of the underlying obligation giving rise to such Action is a SpinCo Liability, SpinCo shall indemnify Parent for such portion of such Liability (including Parent’s costs to indemnify the director, officer or employee) in accordance with the provisions set forth in this Article IV.
(d)No Claims. SpinCo shall not make, and shall not permit any other member of the SpinCo Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Parent or any other member of the Parent Group, or any other Person released pursuant to Section 4.1(a), with respect to any Liabilities released pursuant to Section 4.1(a). Parent shall not make, and shall not permit any other member of the Parent Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against SpinCo or any other member of the SpinCo Group, or any other Person
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released pursuant to Section 4.1(b), with respect to any Liabilities released pursuant to Section 4.1(b).
(e)Execution of Further Releases. At any time at or after the Effective Time, at the request of either Party, the other Party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions of this Section 4.1.
4.2Indemnification by SpinCo. SpinCo shall, and shall cause the other members of the SpinCo Group to, indemnify, defend and hold harmless Parent, each member of the Parent Group and each of their respective past, present and future directors, officers, employees and agents, in each case in their respective capacities as such, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “Parent Indemnitees”), from and against any and all Liabilities of the Parent Indemnitees to the extent relating to, arising out of or resulting from, directly or indirectly, any of the following items (without duplication):
(a)any SpinCo Liability;
(b)any failure of SpinCo, any other member of the SpinCo Group or any other Person to pay, perform or otherwise discharge in accordance with their respective terms any SpinCo Liabilities, whether prior to, on or after the Effective Time;
(c)any breach by SpinCo or any other member of the SpinCo Group of this Agreement or any of the Ancillary Agreements;
(d)any guarantee, indemnification or contribution obligation, surety bond or other credit support agreement, arrangement, commitment or understanding in respect of a SpinCo Liability, that is provided by any member of the Parent Group and that survives following the Distribution; and
(e)any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in the Form 10, the Information Statement (as amended or supplemented if SpinCo shall have furnished any amendments or supplements thereto) or any other Disclosure Document, other than the matters described in clause (e) of Section 4.3.
4.3Indemnification by Parent. Parent shall, and shall cause the other members of the Parent Group to, indemnify, defend and hold harmless SpinCo, each member of the SpinCo Group and each of their respective past, present and future directors, officers, employees or agents, in each case in their respective capacities as such, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “SpinCo Indemnitees”), from and against any and all Liabilities of the SpinCo Indemnitees to the extent relating to, arising out of or resulting from, directly or indirectly, any of the following items (without duplication):
(a)any Parent Liability;
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(b)any failure of Parent, any other member of the Parent Group or any other Person to pay, perform or otherwise discharge in accordance with their respective terms any Parent Liabilities, whether prior to, on or after the Effective Time;
(c)any breach by Parent or any other member of the Parent Group of this Agreement or any of the Ancillary Agreements;
(d)any guarantee, indemnification or contribution obligation, surety bond or other credit support agreement, arrangement, commitment or understanding in respect of a Parent Liability, that is provided by any member of the SpinCo Group and that survives following the Distribution; and
(e)any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to statements made explicitly in Parent’s name in the Form 10, the Information Statement (as amended or supplemented if SpinCo shall have furnished any amendments or supplements thereto) or any other Disclosure Document; it being agreed that the statements set forth on Schedule 4.3(e) shall be the only statements made explicitly in Parent’s name in the Form 10, the Information Statement or any other Disclosure Document, and all other information contained in the Form 10, the Information Statement or any other Disclosure Document shall be deemed to be information supplied by SpinCo.
4.4Indemnification Obligations Net of Insurance Proceeds and Other Amounts.
(a)The Parties intend that any Liability subject to indemnification, contribution or reimbursement pursuant to this Article IV or Article V will be net of (i) Insurance Proceeds that actually reduce the amount of, or are paid to the applicable Indemnitee in respect of, such Liability and (ii) other amounts recovered (net of any out-of-pocket costs or expenses incurred in, or Taxes imposed with respect to, the collection thereof and net of any reimbursements) from any Person that actually reduce the amount of, or are paid to the applicable Indemnitee in respect of, such Liability (“Third-Party Proceeds”). Accordingly, the amount that either Party (an “Indemnifying Party”) is required to pay to any Person entitled to indemnification or contribution hereunder (an “Indemnitee”) will be reduced by any Insurance Proceeds or Third-Party Proceeds recovered (net of any out-of-pocket costs or expenses incurred in, or Taxes imposed with respect to, the collection thereof and net of any reimbursements) by or on behalf of the Indemnitee in respect of the related Liability. If an Indemnitee receives a payment (an “Indemnity Payment”) required by this Agreement from an Indemnifying Party in respect of any Liability and subsequently receives Insurance Proceeds or Third-Party Proceeds in respect of such Liability, then within ten (10) days after receipt of such Insurance Proceeds, the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds or Third-Party Proceeds (net of any out-of-pocket costs or expenses incurred in, or Taxes imposed with respect to, the collection thereof and net of any reimbursements) had been received, realized or recovered before the Indemnity Payment was made.
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(b)The Parties agree that an insurer that would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of any provision contained in this Agreement or in any Ancillary Agreement, have any subrogation rights with respect thereto, it being understood that no insurer or any other Third Party shall be entitled to a “windfall” (i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification and contribution provisions hereof. Each Party shall, and shall cause the members of its Group to, use commercially reasonable efforts (taking into account the probability of success on the merits and the cost of expending such efforts, including attorneys’ fees and expenses) to collect or recover any Insurance Proceeds and Third-Party Proceeds that may be collectible or recoverable respecting the Liabilities for which indemnification or contribution may be available under this Article IV. Notwithstanding the foregoing, an Indemnifying Party may not delay making any indemnification payment required under the terms of this Agreement, or otherwise satisfying any indemnification obligation, pending the outcome of any Action to collect or recover Insurance Proceeds or Third-Party Proceeds, and an Indemnitee need not attempt to collect any Insurance Proceeds or Third-Party Proceeds prior to making a claim for indemnification or contribution or receiving any Indemnity Payment otherwise owed to it under this Agreement or any Ancillary Agreement.
4.5Procedures for Indemnification of Third-Party Claims.
(a)Notice of Claims. If, at or following the Effective Time, an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) who is not a member of the Parent Group or the SpinCo Group of any claim or of the commencement by any such Person of any Action (collectively, a “Third-Party Claim”) with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to Section 4.2 or 4.3, or any other Section of this Agreement or any Ancillary Agreement, such Indemnitee shall give such Indemnifying Party written notice thereof as soon as practicable, but in any event within thirty (30) days (or sooner if the nature of the Third-Party Claim so requires) after becoming aware of such Third-Party Claim. Any such notice shall describe the Third-Party Claim in reasonable detail, including the facts and circumstances giving rise to such claim for indemnification, and include copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third-Party Claim. Notwithstanding the foregoing, the failure of an Indemnitee to provide notice in accordance with this Section 4.5(a) shall not relieve an Indemnifying Party of its indemnification obligations under this Agreement, except to the extent to which the Indemnifying Party is materially prejudiced by the Indemnitee’s failure to provide notice in accordance with this Section 4.5(a).
(b)Control of Defense. An Indemnifying Party may elect to defend (and seek to settle or compromise), at its own expense and with its own counsel, any Third-Party Claim. Notwithstanding the foregoing, if the Indemnifying Party assumes such defense and, in the course of defending such Third-Party Claim, (i) the Indemnifying Party discovers that the facts presented at the time the Indemnifying Party acknowledged its indemnification obligation in respect of such Third-Party Claim were not true in all material respects and (ii) such untruth provides a reasonable basis for asserting that the Indemnifying Party does not have an indemnification obligation in respect of such Third-Party Claim, then (A) the Indemnifying Party
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shall not be bound by such acknowledgment, (B) the Indemnifying Party shall promptly thereafter provide the Indemnitee written notice of its assertion that it does not have an indemnification obligation in respect of such Third-Party Claim and (C) the Indemnitee shall have the right to assume the defense of such Third-Party Claim. Within thirty (30) days after the receipt of a notice from an Indemnitee in accordance with Section 4.5(a) (or sooner, if the nature of the Third-Party Claim so requires), the Indemnifying Party shall provide written notice to the Indemnitee indicating whether the Indemnifying Party shall assume responsibility for defending the Third-Party Claim. If an Indemnifying Party elects not to assume responsibility for defending any Third-Party Claim or fails to notify an Indemnitee of its election within thirty (30) days after receipt of the notice from an Indemnitee as provided in Section 4.5(a), then the Indemnitee that is the subject of such Third-Party Claim shall be entitled to continue to conduct and control the defense of such Third-Party Claim.
(c)Allocation of Defense Costs. If an Indemnifying Party has elected to assume the defense of a Third-Party Claim, then such Indemnifying Party shall be solely liable for all fees and expenses incurred by it in connection with the defense of such Third-Party Claim and shall not be entitled to seek any indemnification or reimbursement from the Indemnitee for any such fees or expenses incurred by the Indemnifying Party during the course of the defense of such Third-Party Claim by such Indemnifying Party, regardless of any subsequent decision by the Indemnifying Party to reject or otherwise abandon its assumption of such defense. If an Indemnifying Party elects not to assume responsibility for defending any Third-Party Claim or fails to notify an Indemnitee of its election within thirty (30) days after receipt of a notice from an Indemnitee as provided in Section 4.5(a), and the Indemnitee conducts and controls the defense of such Third-Party Claim and the Indemnifying Party has an indemnification obligation with respect to such Third-Party Claim, then the Indemnifying Party shall be liable for all reasonable, documented fees and expenses incurred by the Indemnitee in connection with the defense of such Third-Party Claim.
(d)Right to Monitor and Participate. An Indemnitee that does not conduct and control the defense of any Third-Party Claim, or an Indemnifying Party that does not elect to defend any Third-Party Claim as contemplated hereby, nevertheless shall have the right to employ separate counsel (including local counsel as necessary) of its own choosing to monitor and participate in (but not control) the defense of any Third-Party Claim for which it is a potential Indemnitee or Indemnifying Party, as applicable, but the fees and expenses of such counsel shall be at the expense of such Indemnitee or Indemnifying Party, as the case may be, and the provisions of Section 4.5(c) shall not apply to such fees and expenses. Notwithstanding the foregoing, but subject to Sections 6.7 and 6.8, such Party shall cooperate with the Party entitled to conduct and control the defense of such Third-Party Claim in such defense and make available to the controlling Party, at the non-controlling Party’s expense, all witnesses, information and materials in such Party’s possession or under such Party’s control relating thereto as are reasonably required by the controlling Party. In addition to the foregoing, if any Indemnitee reasonably determines in good faith that such Indemnitee and the Indemnifying Party have actual or potential differing defenses or conflicts of interest between them that make joint representation inappropriate, then the Indemnitee shall have the right to employ separate counsel (including local counsel) and to participate in (but not control) the defense, compromise, or
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settlement thereof, and in such case the Indemnifying Party shall bear the reasonable, documented fees and expenses of such counsel for all Indemnitees.
(e)No Settlement. Neither Party may settle or compromise any Third-Party Claim for which either Party is seeking to be indemnified hereunder without the prior written consent of the other Party (which consent may not be unreasonably withheld, delayed or conditioned), unless such settlement or compromise is solely for monetary damages that are fully payable by the settling or compromising Party, does not involve any admission, finding or determination of wrongdoing or violation of Law by the other Party and provides for a full, unconditional and irrevocable release of the other Party from all Liability in connection with the Third-Party Claim.
4.6Additional Matters.
(a)Timing of Payments. Indemnification or contribution payments in respect of any Liabilities for which an Indemnitee is entitled to indemnification or contribution under this Article IV shall be paid reasonably promptly (but in any event within forty-five (45) days after the final determination of the amount that the Indemnitee is entitled to indemnification or contribution under this Article IV) by the Indemnifying Party to the Indemnitee as such Liabilities are incurred upon demand by the Indemnitee, including reasonably satisfactory documentation setting forth the basis for the amount of such indemnification or contribution payment, including documentation with respect to calculations made and consideration of any Insurance Proceeds that actually reduce the amount of such Liabilities. The indemnity and contribution provisions contained in this Article IV shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Indemnitee, and (ii) the knowledge by the Indemnitee of Liabilities for which it might be entitled to indemnification hereunder.
(b)Notice of Direct Claims. Any claim for indemnification or contribution under this Agreement or any Ancillary Agreement that does not result from a Third-Party Claim shall be asserted by written notice given by the Indemnitee to the applicable Indemnifying Party; provided that the failure by an Indemnitee to so assert any such claim shall not prejudice the ability of the Indemnitee to do so at a later time, except to the extent (if any) that the Indemnifying Party is materially prejudiced as a result of such failure. Such Indemnifying Party shall have a period of thirty (30) days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such thirty (30)-day period, such specified claim shall be conclusively deemed a Liability of the Indemnifying Party under this Section 4.6(b) or, in the case of any written notice in which the amount of the claim (or any portion thereof) is estimated, on such later date when the amount of the claim (or such portion thereof) becomes finally determined. If such Indemnifying Party does not respond within such thirty (30)-day period or rejects such claim in whole or in part, such Indemnitee shall, subject to the provisions of Article VII, be free to pursue such remedies as may be available to such party as contemplated by this Agreement and the Ancillary Agreements, as applicable, without prejudice to its continuing rights to pursue indemnification or contribution hereunder.
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(c)Pursuit of Claims Against Third Parties. If (i) a Party incurs any Liability arising out of this Agreement or any Ancillary Agreement, (ii) an adequate legal or equitable remedy is not available for any reason against the other Party to satisfy the Liability incurred by the incurring Party and (iii) a legal or equitable remedy may be available to the other Party against a Third Party for such Liability, then the other Party shall use commercially reasonable efforts to cooperate with the incurring Party, at the incurring Party’s expense, to permit the incurring Party to obtain the benefits of such legal or equitable remedy against the Third Party.
(d)Subrogation. In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third-Party Claim against any claimant or plaintiff asserting such Third-Party Claim or against any other Person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.
(e)Substitution. In the event of an Action in which the Indemnifying Party is not a named defendant, if either the Indemnitee or Indemnifying Party shall so request, the Parties shall endeavor to substitute the Indemnifying Party for the named defendant. If such substitution or addition cannot be achieved for any reason or is not requested, the named defendant shall allow the Indemnifying Party to manage the Action as set forth in and subject to the terms of Section 4.5 and this Section 4.6.
(f)Tax Matters Agreement Coordination. The above provisions of this Section 4.6 and the provisions of Section 4.2 through Section 4.10 (other than this Section 4.6(f)) shall not apply to Taxes and Tax matters. It is understood and agreed that Taxes and Tax matters, including the control of Tax-related proceedings, shall be governed by the Tax Matters Agreement. In the case of any conflict or inconsistency between this Agreement and the Tax Matters Agreement in relation to any matters addressed by the Tax Matters Agreement, the Tax Matters Agreement shall prevail.
4.7Right of Contribution.
(a)Contribution. If any right of indemnification contained in Section 4.2 or Section 4.3 is held unenforceable or is unavailable for any reason (other than pursuant to the terms hereof), or is insufficient to hold harmless an Indemnitee in respect of any Liability for which such Indemnitee is entitled to indemnification hereunder, then the Indemnifying Party shall contribute to the amounts paid or payable by the Indemnitees as a result of such Liability (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the members of its Group, on the one hand, and the Indemnitees entitled to contribution, on the other hand, as well as any other relevant equitable considerations.
(b)Allocation of Relative Fault. Solely for purposes of determining relative fault pursuant to this Section 4.7: (i) any fault associated with the business conducted with the Delayed SpinCo Assets or Delayed SpinCo Liabilities (except for the gross negligence or
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intentional misconduct of a member of the Parent Group) or with the ownership, operation or activities of the SpinCo Business prior to the Effective Time shall be deemed to be the fault of SpinCo and the other members of the SpinCo Group, and no such fault shall be deemed to be the fault of Parent or any other member of the Parent Group; (ii) any fault associated with the business conducted with Delayed Parent Assets or Delayed Parent Liabilities (except for the gross negligence or intentional misconduct of a member of the SpinCo Group) shall be deemed to be the fault of Parent and the other members of the Parent Group, and no such fault shall be deemed to be the fault of SpinCo or any other member of the SpinCo Group; and (iii) any fault associated with the ownership, operation or activities of the Parent Business prior to the Effective Time shall be deemed to be the fault of Parent and the other members of the Parent Group, and no such fault shall be deemed to be the fault of SpinCo or any other member of the SpinCo Group.
4.8Covenant Not to Sue. Each Party hereby covenants and agrees that none of it, the members of such Party’s Group or any Person claiming through it shall bring suit or otherwise assert any claim against any Indemnitee, or assert a defense against any claim asserted by any Indemnitee, including before any court, arbitrator, mediator or administrative agency anywhere in the world, and further (on behalf of itself, the members of such Party’s Group and any other Person claiming through it) waives and releases any claim or defense against any Person, alleging that: (a) the assumption of any SpinCo Liabilities by SpinCo or a member of the SpinCo Group on the terms and conditions set forth in this Agreement and the Ancillary Agreements is unlawful, a breach of a fiduciary or other duty, void, unenforceable, unconscionable, inequitable, or otherwise improper for any reason; (b) the retention of any Parent Liabilities by Parent or a member of the Parent Group on the terms and conditions set forth in this Agreement and the Ancillary Agreements is unlawful, a breach of a fiduciary or other duty, void, unenforceable, unconscionable, inequitable, or otherwise improper for any reason; or (c) the provisions of this Article IV or any Ancillary Agreement are unlawful, a breach of a fiduciary or other duty, void, unenforceable, unconscionable, inequitable, or otherwise improper for any reason.
4.9Remedies Cumulative. The remedies provided in this Article IV shall be cumulative and, subject to the provisions of Article VIII, shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.
4.10Survival of Indemnities. The rights and obligations of each of Parent and SpinCo and their respective Indemnitees under this Article IV shall survive (a) the sale or other transfer by either Party or any member of its Group of any assets or businesses or the assignment by it of any Liabilities or (b) any merger, consolidation, business combination, sale of all or substantially all of its Assets, restructuring, recapitalization, reorganization or similar transaction involving either Party or any of the members of its Group.
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ARTICLE V
CERTAIN OTHER MATTERS
5.1Insurance Matters.
(a)Subject to the terms and conditions of this Agreement, Parent and SpinCo agree to cooperate in good faith to attempt to implement an orderly transition of applicable insurance coverage from the date hereof through the Effective Time. In no event shall Parent or any other member of the Parent Group or any Parent Indemnitee have any Liability or obligation whatsoever to any member of the SpinCo Group in the event that any Policy or other Policy-related contract shall be terminated or otherwise cease to be in effect for any reason, shall be unavailable or inadequate to cover any Liability of any member of the SpinCo Group for any reason whatsoever or shall not be renewed or extended beyond the current expiration date. In connection with the foregoing, SpinCo will (i) if requested by Parent, execute assumption agreements or similar contracts in connection with any Policy and provide for replacement of accounts or collateral, in each case such that Parent is not required to extend payments on behalf of SpinCo in connection with such Policy and (ii) arrange for direct payment of any amounts owed by a member of the SpinCo Group in connection with insurance or self-insurance-related claims arising from SpinCo or any other members of the SpinCo Group.
(b)From and after the Effective Time, with respect to any losses, damages and Liability incurred by any member of the SpinCo Group prior to the Effective Time that constitutes a SpinCo Liability, at the request of SpinCo, Parent will use commercially reasonable efforts to pursue claims, at SpinCo’s sole cost and expense (to the extent not otherwise covered by applicable insurance policies then in effect prior to the Effective Time), on behalf of the applicable member of the SpinCo Group (with such member of the SpinCo Group entitled to all Insurance Proceeds resulting from or arising out of any such claims) under Available Parent Policies, but solely to the extent that such Available Parent Policies provided coverage for the applicable member of the SpinCo Group prior to the Effective Time; provided that such obligation of Parent to make claims on behalf of the applicable member of the SpinCo Group under such Available Parent Policies shall be subject to the terms and conditions of such Available Parent Policies, including any limits on coverage or scope, any deductibles, self-insured retentions and other fees and expenses, and shall be subject to the following additional conditions:
(i)SpinCo shall provide written notification to Parent of any request for Parent to pursue a claim on behalf of the applicable member of the SpinCo Group pursuant to this Section 5.1(b), and Parent shall use commercially reasonable efforts to pursue such claim, at SpinCo’s sole cost and expense, as promptly as is reasonably practicable;
(ii)SpinCo shall, and shall cause the other members of the SpinCo Group to, cooperate with and assist Parent and the other members of the Parent Group and share such Information as is reasonably necessary in order to permit Parent and the other members of the Parent Group to manage and conduct the insurance matters contemplated by this Section 5.1; and
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(iii)SpinCo shall exclusively bear (and neither Parent nor any other member of the Parent Group shall have any obligation to repay or reimburse SpinCo or any other member of the SpinCo Group for) and shall be liable for all excluded, uninsured, uncovered, unavailable or uncollectible amounts of all such claims pursued on behalf of SpinCo or any other member of the SpinCo Group under the Parent Policies as provided for in this Section 5.1(b).
In the event an Available Parent Policy aggregate is exhausted, or believed likely to be exhausted, due to noticed claims, the SpinCo Group, on the one hand, and the Parent Group, on the other hand, shall be responsible for their pro rata portion of the reinstatement premium, if any, based upon the losses of such Group submitted to Parent’s insurance carrier(s) (including any submissions prior to the Effective Time). To the extent that the SpinCo Group or the Parent Group is allocated more than its pro rata portion of such premium due to the timing of losses submitted to Parent’s insurance carrier(s), the other party shall promptly pay the first party an amount so that each Group has been properly allocated its pro rata portion of the reinstatement premium. Subject to the following sentence, Parent may elect not to reinstate the applicable Available Parent Policy aggregate. In the event that Parent elects not to reinstate the applicable Available Parent Policy aggregate, it shall provide prompt written notice to SpinCo, and SpinCo may direct Parent in writing to, and Parent shall, in such case reinstate the Available Parent Policy aggregate; provided that SpinCo shall be responsible for all reinstatement premiums and other costs associated with such reinstatement.
In the event that any member of the Parent Group incurs any losses, damages or Liability prior to or in respect of the period prior to the Effective Time for which such member of the Parent Group is entitled to coverage under the Policies of SpinCo or any other member of the SpinCo Group, the same process pursuant to this Section 5.1(b) shall apply, substituting “Parent” for “SpinCo” and “SpinCo” for “Parent”, as applicable.
(c)SpinCo and the other members of the SpinCo Group shall indemnify, hold harmless and reimburse Parent and the other members of the Parent Group for any deductibles, self-insured retention, retrospective premium payments, premium adjustments, indemnity payments, settlements, judgments, legal fees, allocated claims expenses, claim handling fees and expenses, administrative costs, personnel time and other expenses incurred by Parent or any other member of the Parent Group in connection with any Parent Policy to the extent resulting from the operations or activities of, or the pursuit of any claims on behalf of, SpinCo or any other members of the SpinCo Group, whether such expenses arise from SpinCo or any other members of the SpinCo Group, employees of SpinCo or any other members of the SpinCo Group, or Third Parties.
(d)Except as provided in Section 5.1(b), from and after the Effective Time, neither SpinCo nor any member of the SpinCo Group shall have any rights to or under any of the Parent Policies. From and after the Effective Time, SpinCo shall maintain in effect all insurance programs required to comply with the contractual obligations of SpinCo and the SpinCo Group and such other Policies required by Law or as reasonably necessary or appropriate for companies operating a business similar to SpinCo’s. In furtherance of the foregoing, beginning on the
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Distribution Date, SpinCo shall pay for and maintain non-cancelable run-off (tail) insurance policies of not less than the existing coverage amount, for a period of six (6) years after the Distribution Date to provide insurance coverage for events, acts or omissions occurring on or prior to the Distribution Date for all persons who were directors, managers or officers of members of the SpinCo Group on or prior to the Closing Date, which policies shall contain terms and conditions no less favorable to the insured persons than the directors’, managers’ or officers’ liability insurance coverage and employee practices liability insurance coverage, respectively, maintained by the Parent Group prior to the Effective Time. With respect to other “Claims Made” insurance policies provided by the Parent Group prior to Effective Time, SpinCo may, in its discretion, purchase run-off (tail) insurance policies in order to continue coverage under those policies for wrongful acts allegedly occurring prior to the Effective Time.
(e)In connection with Parent’s pursuit of a claim on behalf of SpinCo or any other member of the SpinCo Group under any Available Parent Policy pursuant to this Section 5.1, Parent shall not be required to take any action that would be reasonably likely to: (i) have an adverse impact on the then-current relationship between Parent or any member of the Parent Group, on the one hand, and the applicable insurance company, on the other hand; (ii) result in the applicable insurance company terminating or reducing coverage, or increasing the amount of any premium owed by Parent or any other member of the Parent Group under the applicable Available Parent Policy; or (iii) otherwise compromise, jeopardize or interfere with the rights of Parent or any other member of the Parent Group under the applicable Available Parent Policy.
(f)All payments and reimbursements by SpinCo pursuant to this Section 5.1 shall be made within thirty (30) days after SpinCo’s receipt of an invoice therefor from Parent. If Parent incurs costs to enforce SpinCo’s obligations herein, SpinCo agrees to indemnify and hold harmless Parent for such enforcement costs, including reasonable attorneys’ fees pursuant to Section 4.6. Parent shall retain the exclusive right to control the Parent Policies and the insurance programs of Parent or any other member of the Parent Group, including the right to exhaust, settle, release, commute, buy back or otherwise resolve disputes with respect to any such Parent Policies and programs and to amend, modify or waive any rights under any such Parent Policies and programs, notwithstanding whether any such Parent Policies or programs apply to any SpinCo Liabilities and/or claims SpinCo has made or could make in the future, and no member of the SpinCo Group shall erode, exhaust, settle, release, commute, buy back or otherwise resolve disputes with insurers of Parent or any other member of the Parent Group with respect to any of the Parent Policies and the insurance programs of Parent or any other member of the Parent Group, or amend, modify or waive any rights under any such Parent Policies and programs. No member of the Parent Group shall have any obligation to secure extended reporting for any claims under any Parent Policy for any acts or omissions of any member of the SpinCo Group incurred prior to the Effective Time.
(g)This Agreement shall not be considered as an attempted assignment of any Policy or other Policy-related contract and shall not be construed to waive any right or remedy of any member of the Parent Group in respect of any Policy or other Policy-related contract.
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(h)SpinCo does hereby, for itself and each other member of the SpinCo Group, agree that no member of the Parent Group shall have any Liability whatsoever as a result of the Parent Policies or the insurance practices of Parent or any other member of the Parent Group as in effect at any time, including as a result of the level or scope of any insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, or the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise.
5.2Late Payments. Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement or any Ancillary Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within thirty (30) days after receipt of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to the Prime Rate plus ten percent (10%).
5.3Inducement. SpinCo acknowledges and agrees that Parent’s willingness to cause, effect and consummate the Separation and the Distribution has been conditioned upon and induced by SpinCo’s covenants and agreements in this Agreement and the Ancillary Agreements, including SpinCo’s assumption of the SpinCo Liabilities pursuant to the Separation and the provisions of this Agreement and SpinCo’s covenants and agreements contained in Article IV.
5.4Use of Parent Names.
(a)Except as expressly provided in this Section 5.4, SpinCo agrees that neither SpinCo nor any other member of the SpinCo Group shall use, or have or acquire the right to use or any other rights in, the Parent Names.
(b)As soon as reasonably practicable after the Effective Time, SpinCo shall cause any member of the SpinCo Group having an entity name, corporate name, trade name, d/b/a or similar name that includes the Parent Names (“Corporate Names”) to change its name to a name that does not include any Parent Name, including making any legal filings necessary to effect such change. In any event within sixty (60) days after the Effective Time, SpinCo shall file at the applicable local registry all documentation required to effect a name change.
(c)Except as provided in Section 5.4(b) with respect to the change of Corporate Names, the SpinCo Group may continue temporarily to use the Parent Names following the Effective Time, to the extent and in substantially the same manner as used immediately prior to Effective Time, so long as SpinCo shall, and shall cause the other members of the SpinCo Group to, (i) immediately after the Effective Time, cease to hold itself out as having any affiliation with the Parent Group and (ii) use reasonable best efforts to minimize and eliminate use of the Parent Names by the SpinCo Group as soon as practicable; provided, that as soon as practicable after the Effective Time (and in any event within six (6) months thereafter), SpinCo shall, and shall cause the other members of the SpinCo Group to, (i) cease and discontinue use of all Parent Names and (ii) complete the removal of the Parent Names from all
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products, services, platforms, websites, signage, vehicles, properties, technical information, stationery and promotional or other marketing materials and other assets.
(d)Any use of the Parent Names authorized in this Section 5.4 shall be subject to (x) compliance with the Parent Group’s reasonable quality control requirements and guidelines in effect for the Parent Names and (y) to the extent practicable, the placement of a reasonably appropriate disclaimer on any materials bearing the Parent Names (including stationery, business cards, signage, advertising materials, inventory, packaging, product, service and training literature, and other similar materials) identifying in a readily observable manner that the members of the SpinCo Group are no longer Affiliates of the Parent Group. Any and all goodwill arising from the use of the Parent Names as described in this Section 5.4 shall inure to the sole and exclusive benefit of the Parent Group.
(e)Notwithstanding the foregoing, nothing in this Section 5.4 shall preclude either Group from making any reference to the Marks of the other Group in internal historical, tax, employment or similar records or for purposes of disclosures as are reasonably necessary and appropriate to describe the historical relationship of the Parties. Further, nothing in this Section 5.4 shall require the SpinCo Group to cease any use of the Parent Names embedded in the source code of any Software included in the SpinCo Technology where such Parent Name is not visible to a user of such Software.
5.5Non-Competition.
(a)Non-Competition. Each Party covenants and agrees that, from the Effective Time until the second (2nd) anniversary of the Distribution Date (the “Non-Compete Period”), neither Party will, and will cause each other member of its respective Group not to, directly or indirectly, own, invest in, operate, manage, control, participate or engage in any Prohibited Business (as applicable) without the prior written consent of the other Party; provided, that nothing in this Section 5.5(a) will prohibit (i) the ownership by Parent or SpinCo, as the case may be, or any member of its respective Group, of debt, equity or any other class of securities of any Person that owns, invests in, operates, manages, controls, participates or engages directly or indirectly in a Prohibited Business (as applicable), provided ownership of such securities (either directly, indirectly or upon conversion) is less than 5% of such class of securities of such Person or (ii) exercising its rights or performing or complying with its obligations under this Agreement or any Ancillary Agreement. Notwithstanding the foregoing, in the event that a merger, acquisition, consolidation or other business combination with or from an affiliated Person that directly or indirectly owns, invests in, operates, manages, controls, participates or engages in a Prohibited Business (so long as such Prohibited Business represents less than 40% of such Person’s consolidated assets or revenue) results in Parent or SpinCo, as the case may be, directly or indirectly owning, investing in, operating, managing, controlling, participating or engaging in a Prohibited Business in breach of this Section 5.5(a) at the time of such transaction, such transaction (and resulting operations of such business) shall not be deemed a breach of this Section 5.5(a) if the consolidated assets or revenue earnings attributable to the Prohibited Business represent no greater than twenty percent (20%) of the resulting Person’s consolidated assets or revenue.
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(b)Remedies; Enforcement. Each Party acknowledges and agrees that (i) injury to the other Party from any breach of the obligations of such party set forth in this Section 5.5 would be irreparable and impossible to measure and (ii) the remedies at law for any breach or threatened breach of this Section 5.5, including monetary damages, would therefore be inadequate compensation for any loss and the other Party shall have the right to specific performance and injunctive or other equitable relief in accordance with Section 10.13, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. Each Party understands and acknowledges that the restrictive covenants and other agreements contained in this Section 5.5 are an essential part of this Agreement and the transactions contemplated hereby. It is the intent of the Parties that the provisions of this Section 5.5 shall be enforced to the fullest extent permissible under applicable Law applied in each jurisdiction in which enforcement is sought. If any particular provision or portion of this Section 5.5 shall be adjudicated to be invalid or unenforceable, such provision or portion thereof shall be deemed amended to the minimum extent necessary to render such provision or portion valid and enforceable, such amendment to apply only with respect to the operation of such provision or portion thereof in the particular jurisdiction in which such adjudication is made.
ARTICLE VI
EXCHANGE OF INFORMATION; CONFIDENTIALITY
6.1Agreement for Exchange of Information.
(a)Subject to Section 6.9 and any other applicable confidentiality obligations, each of Parent and SpinCo, on behalf of itself and each member of its Group, agrees to use commercially reasonable efforts to provide or make available, or cause to be provided or made available, to the other Party and the members of such other Party’s Group, at any time before, on or after the Effective Time, as soon as reasonably practicable after written request therefor, any information (or a copy thereof) in the possession or under the control of such Party or its Group that the requesting Party or its Group requests and, with respect to clause (iii), access to the facilities, systems, infrastructure and personnel of such Party or its Group, in each case to the extent that (i) such information relates to the SpinCo Business, or any SpinCo Asset or SpinCo Liability, if SpinCo is the requesting Party, or to the Parent Business, or any Parent Asset or Parent Liability, if Parent is the requesting Party, (ii) such information is required by the requesting Party to comply with its obligations under this Agreement or any Ancillary Agreement or (iii) such information is required by the requesting Party to comply with any laws or regulations or stock exchange rules or obligations imposed by any Governmental Authority, including, without limitation, the obligation to verify the accuracy of internal controls over information technology reporting of financial data and related processes employed in connection with verifying compliance with Section 404 of the Sarbanes-Oxley Act of 2002; provided, however, that, in the event that the Party to whom the request has been made determines that any such provision of information could be detrimental to the Party providing the information, violate any Law or agreement, or waive any privilege available under applicable Law, including any attorney-client privilege, then the Parties shall use commercially reasonable efforts to permit compliance with such obligations only to the extent and in a manner that avoids any such harm or consequence. The Party providing information pursuant to this Section 6.1 shall only be
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obligated to provide such information in the form, condition and format in which it then exists, and in no event shall such Party be required to perform any improvement, modification, conversion, updating or reformatting of any such information, and nothing in this Section 6.1 shall expand the obligations of any Party under Section 6.4. Each Party shall cause its and its Subsidiaries’ employees to, and shall use commercially reasonable efforts to cause its Representatives’ employees to, when on the property of any Party or its Subsidiaries, or when given access to any facilities, systems, infrastructure or personnel of the other Party or any members of its Group, conform to the policies and procedures of such Party and its Group concerning health, safety, conduct and security that are made known or provided to the accessing Party from time to time.
(b)Without limiting the generality of the foregoing, until the end of Parent’s fiscal year during which the Distribution Date occurs (and for a reasonable period of time afterwards as required for each Party to prepare consolidated financial statements or complete a financial statement audit for the fiscal year during which the Distribution Date occurs), each Party shall use commercially reasonable efforts to cooperate with the other Party’s information requests to enable (i) the other Party to meet its timetable for dissemination of its earnings releases, financial statements and management’s assessment of the effectiveness of its disclosure controls and procedures and its internal control over financial reporting in accordance with Items 307 and 308, respectively, of Regulation S-K promulgated under the Exchange Act and (ii) the other Party’s accountants to timely complete their review of the quarterly financial statements and audit of the annual financial statements, including, to the extent applicable to such Party, its auditor’s audit of its internal control over financial reporting and management’s assessment thereof in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the SEC’s and Public Company Accounting Oversight Board’s rules and auditing standards thereunder and any other applicable Laws.
(c)Subject to any limitation imposed by applicable Law and to the extent that it has not done so before the Effective Time, Parent shall transfer to SpinCo any employment records (including any Form I-9, Form W-2 or other IRS forms) with respect to SpinCo Group Employees and Former SpinCo Group Employees and other records reasonably required by SpinCo to enable SpinCo to properly carry out its obligations under this Agreement and the Employee Matters Agreement. Such transfer of records generally shall occur as soon as administratively practicable at or after the Effective Time. Each Party shall permit the other Party reasonable access to its employee records, to the extent reasonably necessary for such accessing Party to carry out its obligations hereunder.
6.2Ownership of Information. The provision of any information pursuant to Section 6.1 or Section 6.7 shall not affect the ownership of such information (which shall be determined solely in accordance with the terms of this Agreement and the Ancillary Agreements), or constitute a grant of rights in or to any such information.
6.3Compensation for Providing Information. The Party requesting information after the Effective Time agrees to reimburse the other Party for the reasonable costs, if any, of creating, gathering, copying, transporting and otherwise complying with the request
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with respect to such information (including any reasonable costs and expenses incurred in any review of information for purposes of protecting the Privileged Information of the providing Party or in connection with the restoration of backup media for purposes of providing the requested information). Except as may be otherwise specifically provided elsewhere in this Agreement, any Ancillary Agreement or any other agreement between the Parties, such costs shall be computed in accordance with the providing Party’s standard methodology and procedures.
6.4Record Retention.
(a)To facilitate the possible exchange of information pursuant to this Article VI and other provisions of this Agreement after the Effective Time, the Parties agree to use commercially reasonable efforts, which shall be no less rigorous than those used for retention of such Party’s own information, to retain all information in their respective possession or control at the Effective Time, including all employee-related information, in accordance with the policies of Parent as in effect at the Effective Time or such other policies as may be adopted by Parent after the Effective Time (provided, in the case of SpinCo, that Parent notifies SpinCo of any such change). Notwithstanding the foregoing, [Section 9.01] of the Tax Matters Agreement will govern the retention of Tax-related records.
(b)Each Party shall preserve and keep all documents subject to a litigation hold as of the date of this Agreement until such Party has been notified that such litigation hold is no longer applicable.
6.5Limitations of Liability. Neither Party shall have any Liability to the other Party in the event that any information exchanged or provided pursuant to this Agreement is found to be inaccurate in the absence of gross negligence, bad faith or willful misconduct by the Party providing such information. Neither Party shall have any Liability to any other Party if any information is destroyed after commercially reasonable efforts by such Party to comply with the provisions of Section 6.4.
6.6Other Agreements Providing for Exchange of Information.
(a)The rights and obligations granted under this Article VI are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange, retention or confidential treatment of information set forth in any Ancillary Agreement.
(b)Any Party that receives, pursuant to a request for information in accordance with this Article VI, Tangible Information that is not relevant to its request shall, at the request of the providing Party, (i) return it to the providing Party or, at the providing Party’s request, destroy such Tangible Information and (ii) deliver to the providing Party written confirmation that such Tangible Information was returned or destroyed, as the case may be, which confirmation shall be signed by an authorized representative of the requesting Party.
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6.7Production of Witnesses; Records; Cooperation.
(a)After the Effective Time, except in the case of a Dispute between Parent and SpinCo, or any members of their respective Groups (an “Adversarial Action”), each Party shall use commercially reasonable efforts to make available to the other Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available without undue burden, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action in which the requesting Party (or member of its Group) may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requesting Party shall bear all costs and expenses in connection therewith.
(b)If an Indemnifying Party chooses to defend or to seek to compromise or settle any Third-Party Claim, the other Party shall use their commercially reasonable efforts to make available to such Indemnifying Party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available without undue burden, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, compromise or settlement, as the case may be, and shall otherwise cooperate in such defense, compromise or settlement, as the case may be.
(c)Without limiting the foregoing, the Parties shall cooperate and consult to the extent reasonably necessary with respect to any Actions, other than Adversarial Actions.
(d)Without limiting any provision of this Section 6.7, each of the Parties agrees to cooperate, and to cause each member of its respective Group to cooperate, with each other in the defense of any infringement or similar claim with respect to any Intellectual Property Rights and shall not claim to acknowledge, or permit any member of its respective Group to claim to acknowledge, the validity or infringing use of any Intellectual Property Rights of a Third Party in a manner that would hamper or undermine the defense of such infringement or similar claim.
(e)The obligation of the Parties to provide witnesses pursuant to this Section 6.7 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to provide as witnesses directors, officers, employees, other personnel and agents without regard to whether such person or the employer of such person could assert a possible business conflict (other than in connection with an Adversarial Action).
(f)Without limiting any provision of this Section 6.7 and except with respect to an Adversarial Action, each Party shall use commercially reasonable efforts to cooperate and work together to unify, consolidate and share (to the extent permissible under applicable privacy/
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data protection Laws) all relevant documents, resolutions, government filings, data, payroll, employment and benefit plan information on regular timetables and cooperate as needed with respect to (i) any claims under or audit of or litigation with respect to any employee benefit plan, policy or arrangement contemplated by this Agreement or the Employee Matters Agreement, (ii) efforts to seek a determination letter, private letter ruling or advisory opinion from the IRS or U.S. Department of Labor on behalf of any employee benefit plan, policy or arrangement contemplated by this Agreement or the Employee Matters Agreement, (iii) any filings that are required to be made or supplemented to the IRS, U.S. Pension Benefit Guaranty Corporation, U.S. Department of Labor or any other Governmental Authority, and (iv) any audits by a Governmental Authority or corrective actions, relating to any Benefit Plan, labor or payroll practices; provided, however, that requests for cooperation must be reasonable and not interfere with daily business operations.
6.8Privileged Matters.
(a)The Parties recognize, solely for the purposes of asserting all privileges and protections that may be asserted under applicable Law, that legal and other professional services that have been and will be provided prior to the Effective Time have been and will be rendered for the collective benefit of each of the members of the Parent Group and the SpinCo Group, and that each of the members of the Parent Group and the SpinCo Group should be deemed to be the client with respect to such services. The Parties recognize that legal and other professional services will be provided following the Effective Time, which services will be rendered, unless agreed otherwise, solely for the benefit of the Parent Group or the SpinCo Group, as the case may be. In furtherance of the foregoing, each Party shall authorize the delivery to and/or retention by the other Party of materials existing as of the Effective Time that are necessary for such other Party to perform or receive such services.
(b)The Parties agree as follows:
(i)Parent shall be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to the Parent Business and not to the SpinCo Business, whether or not the Privileged Information is in the possession or under the control of any member of the Parent Group or any member of the SpinCo Group. Parent shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to any Parent Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the Privileged Information is in the possession or under the control of any member of the Parent Group or any member of the SpinCo Group.
(ii)SpinCo shall be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in connection with any Privileged Information that relates solely to the SpinCo Business and not to the Parent Business, whether or not the Privileged Information is in the possession or under the control of any member of the SpinCo Group or any member of the Parent Group. SpinCo shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities in
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connection with any Privileged Information that relates solely to any SpinCo Liabilities resulting from any Actions that are now pending or may be asserted in the future, whether or not the Privileged Information is in the possession or under the control of any member of the SpinCo Group or any member of the Parent Group.
(c)Subject to the remaining provisions of this Section 6.8, the Parties agree that Parent shall be entitled, in perpetuity, to control the assertion or waiver of all privileges and immunities not allocated pursuant to Section 6.8(b) or Section 6.10 and all privileges and immunities relating to any Actions or other matters that involve both Parties (or one (1) or more members of their respective Groups) and in respect of which both Parties have Liabilities under this Agreement.
(d)If any Dispute arises between the Parties or any members of their respective Groups regarding whether a privilege or immunity should be waived to protect or advance the interests of either Party and/or any member of their respective Groups, each Party agrees that it shall (i) negotiate with the other Party in good faith, (ii) endeavor to minimize any prejudice to the rights of the other Party and (iii) not unreasonably withhold consent to any request for waiver by the other Party. Further, each Party specifically agrees that it shall not withhold its consent to the waiver of a privilege or immunity for any purpose, except in good faith to protect its own legitimate interests.
(e)In the event of any Dispute between Parent and SpinCo, or any members of their respective Groups, either Party may waive a privilege in information relating to the Dispute in which the other Party or member of such other Party’s Group has a shared privilege, without obtaining consent pursuant to Section 6.8(c); provided that (a) the Parties intend such waiver of a shared privilege to be effective only as to the use of information with respect to the Action between the Parties and/or the applicable members of their respective Groups, and is not intended to operate as a waiver of the shared privilege with respect to any Third Party, and (b) for the avoidance of doubt, the Parties will maintain the confidentiality of the information subject to the shared privilege from third parties in accordance with Section 6.9.
(f)Upon receipt by either Party, or by any member of its respective Group, of any subpoena, discovery or other request that may reasonably be expected to result in the production or disclosure of Privileged Information subject to a shared privilege or immunity or as to which another Party has the sole right hereunder to assert a privilege or immunity, or if either Party obtains knowledge that any of its, or any member of its respective Group’s, current or former directors, officers, agents or employees has received any subpoena, discovery or other request that may reasonably be expected to result in the production or disclosure of such Privileged Information, such Party shall (unless prohibited by Law) promptly notify the other Party of the existence of the request (which notice shall be delivered to such other Party no later than five (5) Business Days following the receipt of any such subpoena, discovery or other request) and shall provide the other Party a reasonable opportunity to review the Privileged Information and to assert any rights it or they may have under this Section 6.8 or otherwise, to prevent the production or disclosure of such Privileged Information.
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(g)Any furnishing of, or access or transfer of, any information pursuant to this Agreement is made in reliance on the agreement between Parent and SpinCo set forth in this Section 6.8 and in Section 6.9 to maintain the confidentiality of Privileged Information and to assert and maintain all applicable privileges and immunities. The Parties agree that their respective rights to any access to information, witnesses and other Persons, the furnishing of notices and documents and other cooperative efforts between the Parties contemplated by this Agreement, and the transfer of Privileged Information between the Parties and members of their respective Groups as needed pursuant to this Agreement, shall not be deemed a waiver of any privilege that has been or may be asserted under this Agreement or otherwise.
(h)In connection with any matter contemplated by Section 6.7 or this Section 6.8, the Parties agree to, and to cause the applicable members of their Group to, use commercially reasonable efforts to maintain their respective separate and joint privileges and immunities, including by executing joint defense and/or common interest agreements where necessary or useful for this purpose.
6.9Confidentiality.
(a)Confidentiality. From and after the Effective Time until the five (5)-year anniversary of the Effective Time, each of Parent and SpinCo, on behalf of itself and each member of its respective Group, agrees to hold, and to cause its respective Representatives to hold, in strict confidence, with at least the same degree of care that applies to Parent’s confidential and proprietary information pursuant to policies in effect as of the Effective Time, all confidential and proprietary information to the extent concerning the Parent Business or the Parent Group (in the case of SpinCo) or the SpinCo Business or the SpinCo Group (in the case of Parent) (such Group’s “Confidential Information”) that is either in its possession (including such Confidential Information in its possession prior to the date hereof) or furnished by any such other Party or any member of such Party’s Group or their respective Representatives at any time pursuant to this Agreement, any Ancillary Agreement or otherwise, and shall not use any such Confidential Information other than for such purposes as shall be expressly permitted hereunder or thereunder, except, in each case, to the extent that such Confidential Information has been (i) in the public domain or generally available to the public, other than as a result of a disclosure by such Party or any member of such Party’s Group or any of their respective Representatives in violation of this Agreement, (ii) later lawfully acquired from other sources by such Party (or any member of such Party’s Group), which sources are not themselves bound by a confidentiality obligation or other contractual, legal or fiduciary obligation of confidentiality with respect to such Confidential Information, or (iii) independently developed or generated without reference to or use of any Confidential Information of the other Party or any member of such Party’s Group. If any Confidential Information of one Party or any member of its Group is disclosed to the other Party or any member of such other Party’s Group in connection with providing services to such first Party or any member of such first Party’s Group under this Agreement or any Ancillary Agreement, then such disclosed Confidential Information shall be used only as required to perform such services.
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(b)No Release. Each Party agrees not to release or disclose, or permit to be released or disclosed, any Confidential Information to any other Person, except (1) to its Representatives who need to know such Confidential Information in their capacities as such (who shall be advised of their obligations hereunder with respect to such Confidential Information), (2) to any nationally recognized statistical rating organization as it reasonably deems necessary, solely for the purpose of obtaining a rating of securities or other debt instruments upon normal terms and conditions; (3) if such Party or its respective Group is required or compelled to disclose any such Confidential Information by judicial or administrative process or by other requirements of Law or stock exchange rule or is advised by outside counsel in connection with a proceeding brought by a Governmental Authority that is advisable to do so, (4) as required in connection with any legal or other proceeding by one Party against the other Party or in respect of claims by one Party against the other Party brought in a proceeding, (5) as necessary in order to permit a Party to prepare and disclose its financial statements, tax returns or other required disclosures, (6) as necessary for a Party to enforce its rights or perform its obligations under this Agreement or any Ancillary Agreement and (7) to Governmental Authorities in accordance with applicable procurement regulations and contract requirements; provided, however, that, with respect to clause (1) hereof: (A) such Representatives shall keep such Confidential Information confidential and will not disclose such Confidential Information to any other Person and (B) each Party agrees that it is responsible to the other Party for any action or failure to act that would constitute a breach or violation of Section 6.9(a) by any such Representative; with respect to clause (2) hereof, the Party whose Confidential Information is being disclosed or released to such rating organization is promptly notified thereof; and, with respect to clauses (3) and (4) hereof, that the Person required to disclose such Confidential Information shall provide the applicable Person to which such Confidential Information relates prompt and, to the extent reasonably practicable and legally permissible, prior notice of such disclosure and shall use reasonable best efforts to cooperate, at the expense of the requesting Person, in seeking any appropriate protective arrangements requested by such Person. In the event that such other Person fails to receive such appropriate protective arrangements in a timely manner, the Person that is required to disclose such Confidential Information of the other Group may thereafter disclose, or cause to be disclosed, only that portion of Confidential Information that is legally required to be disclosed, and the disclosing Person shall (x) provide the other Party with a copy of the Confidential Information so disclosed, in the same form and format so disclosed, together with a list of all Persons to whom such Confidential Information was disclosed, in each case, to the extent legally permitted, and (y) use reasonable best efforts to ensure that confidential treatment is accorded to such Confidential Information.
(c)Third-Party Information; Privacy or Data Protection Laws. Each Party acknowledges that it and members of its Group may presently have and, following the Effective Time, may have or have access to confidential or proprietary information personal information relating to Third Parties that was received by the other Party or members of the other Party’s Group that may subject to confidentiality or non-disclosure agreements,, privacy policies, and privacy, data protection or other applicable Laws. Each Party agrees that it shall hold, protect and use, and shall cause the members of its Group to hold, protect and use, such information in accordance with the terms of such confidentiality or non-disclosure agreements, privacy policies, and applicable privacy, data protection and other applicable Laws. With respect to confidentiality
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or non-disclosure agreements and privacy policies, these obligations shall only apply if and to the extent the Party that originally received the information provides the applicable agreement or privacy policy to the other Party and identifies the information subject to the agreement or policy with sufficient specificity to enable the other Party to comply with the agreement or policy.
6.10Conflicts Waiver. Each of the Parties acknowledges, on behalf of itself and each other member of its Group, notwithstanding anything to the contrary contained herein or imposed by operation of law, that Parent has retained Paul, Weiss, Rifkind, Wharton & Garrison LLP, Wachtell, Lipton, Rosen & Katz and their affiliated businesses (collectively, the “Known Counsel”) to act as its counsel in connection with this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby. SpinCo hereby agrees on behalf of itself and each member of its Group that, notwithstanding anything to contrary contained herein or imposed by operation of law, in the event that a dispute (whether or not related to this Agreement, the Ancillary Agreements, or the transactions contemplated hereby and thereby) arises between or among (x) any member of the SpinCo Group, any SpinCo Indemnitee or any of their respective Affiliates, on the one hand, and (y) any member of the Parent Group, any Parent Indemnitee or any of their respective Affiliates, on the other hand, any Known Counsel may represent any member of the Parent Group, any Parent Indemnitee or any of their respective Affiliates in such dispute even though the interests of such Person may be directly adverse to, or conflict with the legal or economic interests of, any Person described in clause (x), and even though such Known Counsel may have represented or provided advice to a Person described in clause (x) in a matter substantially related to such dispute, or may be handling ongoing matters for a Person described in clause (x), and even though such Known Counsel may have or previously have had confidential or privileged information of a Person described in clause (x) that may be related to such dispute, and SpinCo hereby waives, on behalf of itself and each other Person described in clause (x), as applicable, any conflict of interest or claim to confidentiality in connection with such representation by such Known Counsel, and SpinCo hereby agrees, on behalf of itself and each other Person described in clause (x), as applicable, not to seek to disqualify such Known Counsel in connection with such representation. SpinCo, on behalf of itself and each other member of its Group, irrevocably authorizes any Known Counsel to disclose or provide any of its confidential or privileged information existing as of the date hereof to Parent or any other member of the Parent Group, and to otherwise use or disclose that information in accordance with Parent’s direction. Each of SpinCo and Parent, on behalf of itself and each other member of its Group, agrees to take, and to cause their respective then-Affiliates to take, all steps necessary to implement the intent of this Section 6.10. Each of SpinCo and Parent, on behalf of itself and each other member of its Group, further agrees that each Known Counsel and its respective partners and employees are third-party beneficiaries of this Section 6.10, and may seek to enforce, without limitation, this Section 6.10.
ARTICLE VII
DISPUTE RESOLUTION
7.1Good Faith Officer Negotiation. Subject to Section 7.4, either Party seeking resolution of any dispute, controversy or claim arising out of or relating to this Agreement or any Ancillary Agreement (including regarding whether any Assets are SpinCo
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Assets, any Liabilities are SpinCo Liabilities or the validity, interpretation, breach or termination of this Agreement or any Ancillary Agreement) (a “Dispute”), shall provide written notice thereof to the other Party (the “Officer Negotiation Request”). Within fifteen (15) days after the delivery of the Officer Negotiation Request, the Parties shall attempt to resolve the Dispute through good faith negotiation. All such negotiations shall be conducted by executives who hold, at a minimum, the title of Senior Vice President and who have authority to settle the Dispute. All such negotiations shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence. If the Parties are unable for any reason to resolve a Dispute within fifteen (15) days after receipt of the Officer Negotiation Request, and such fifteen (15)-day period is not extended by mutual written consent of the Parties, the Chief Executive Officers of the Parties shall enter into good faith negotiations in accordance with Section 7.2.
7.2CEO Negotiation. If any Dispute is not resolved pursuant to Section 7.1, the Party that delivered the Officer Negotiation Request shall provide written notice of such Dispute to the Chief Executive Officer of each Party (a “CEO Negotiation Request”). As soon as reasonably practicable following receipt of a CEO Negotiation Request, the Chief Executive Officers of the Parties shall begin conducting good faith negotiations with respect to such Dispute. All such negotiations shall be confidential and shall be treated as compromise and settlement negotiations for purposes of applicable rules of evidence. If the Chief Executive Officers of the Parties are unable for any reason to resolve a Dispute within fifteen (15) days after receipt of a CEO Negotiation Request, and such fifteen (15)-day period is not extended by mutual written consent of the Parties, the Dispute shall be submitted to arbitration in accordance with Section 7.3.
7.3Arbitration.
(a)In the event that a Dispute has not been resolved within fifteen (15) days after the receipt of a CEO Negotiation Request in accordance with Section 7.2, or within such longer period as the Parties may agree in writing, then such Dispute shall, upon the written request of a Party (the “Arbitration Request”), be submitted to be finally resolved by binding arbitration. The JAMS Comprehensive Arbitration Rules and Procedures with Expedited Procedures (“JAMS Expedited Rules”) in effect at the time of the arbitration shall govern the arbitration, except as they may be modified herein or by mutual written agreement of the Parties. The arbitration shall be held in (i) New York City, New York or (ii) such other place as the Parties may mutually agree in writing. Unless otherwise agreed by the Parties in writing, any Dispute to be decided pursuant to this Section 7.3 will be decided (x) before a sole arbitrator if the amount in dispute, inclusive of all claims and counterclaims, totals less than $10,000,000, or (y) by a panel of three (3) arbitrators if the amount in dispute, inclusive of all claims and counterclaims, totals $10,000,000 or more. The arbitrators shall be empowered to fully and finally determine the arbitrability of any claim (including whether a Dispute is within the scope of the Parties’ agreement to arbitrate).
(b)The panel of three (3) arbitrators will be chosen as follows: (i) within fifteen (15) days from the date of the receipt of the Arbitration Request, each Party will name an
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arbitrator; and (ii) the two (2) Party-appointed arbitrators will thereafter, within thirty (30) days from the date on which the second (2nd) of the two (2) arbitrators was named, name a third (3rd), independent arbitrator who will act as chairperson of the arbitral tribunal. In the event that either Party fails to name an arbitrator within fifteen (15) days from the date of receipt of the Arbitration Request, then upon written application by either Party, that arbitrator shall be appointed pursuant to the JAMS Expedited Rules. In the event that the two (2) Party-appointed arbitrators fail to appoint the third (3rd), then the third (3rd) independent arbitrator will be appointed pursuant to the JAMS Expedited Rules. If the arbitration will be before a sole independent arbitrator, then the sole independent arbitrator will be appointed by agreement of the Parties within fifteen (15) days from the date of receipt of the Arbitration Request. If the Parties cannot agree to a sole independent arbitrator during such fifteen (15)-day period, then upon written application by either party, the sole independent arbitrator will be appointed pursuant to the JAMS Expedited Rules.
(c)The arbitrator(s) will have the right to award, on an interim basis, or include in the final award, any relief that it deems proper in the circumstances, including money damages (with interest on unpaid amounts from the due date), injunctive relief (including specific performance) and attorneys’ fees and costs; provided that the arbitrator(s) will not award any relief not specifically requested by the Parties and, in any event, will not award any indirect, punitive, exemplary, enhanced, treble, remote, speculative or similar damages in excess of compensatory damages of the other arising in connection with the transactions contemplated hereby (other than any such Liability with respect to a Third-Party Claim). Upon selection of the arbitrator(s) following any grant of preliminary relief by an emergency arbitrator pursuant to Section 7.4, the arbitrator(s) may affirm or disaffirm that relief, and the Parties will seek modification or rescission of the interim relief as necessary to accord with that decision. The award of the arbitrator(s) shall be final and binding on the Parties, and may be entered or enforced in any court of competent jurisdiction, including, without limitation any state or federal court within the state of Delaware (which the parties hereby agree have jurisdiction over them to enforce any such award). The initiation of an Officer Negotiation Request, CEO Negotiation Request, or arbitration pursuant to this Article VII will toll the applicable statute of limitations for the duration of any such proceedings (not to exceed thirty (30) days, unless the Parties agree otherwise). Notwithstanding applicable state law, the arbitration and this agreement to arbitrate shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1, et seq.
(d)The Parties agree that any arbitration hereunder shall be kept confidential, and that the existence of the proceeding and all of its elements (including any pleadings, briefs or other documents or evidence submitted or exchanged, any testimony or other oral submissions, and any awards) shall be deemed confidential, and shall not be disclosed beyond the arbitrator(s) and JAMS, the Parties, their counsel, and any Person necessary to the conduct of the proceeding, except as and to the extent required by law and to defend or pursue any legal right. In the event any Party makes application to any court in connection with this Article VII (including any proceedings to enforce a final award), that party shall take all steps reasonably within its power to cause such application, and any exhibits (including copies of any award or decisions of the arbitrator(s)) to be filed under seal, shall oppose any challenge by any third party to such sealing, and shall give the other Party immediate notice of such challenge.
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7.4Emergency Relief. Notwithstanding the foregoing provisions of this Article VII, (a) a Party may seek preliminary provisional or injunctive relief with respect to a Dispute without first complying with the procedures set forth in Section 7.1, Section 7.2 and Section 7.3 if such action is reasonably necessary to avoid irreparable damage, and in such event, that Party shall apply to JAMS for the appointment of a single emergency arbitrator to consider any request for, and if appropriate grant, such provisional or injunctive relief, and (b) either Party may initiate arbitration before the expiration of the periods specified in Section 7.1 and Section 7.2 if such Party has submitted an Officer Negotiation Request and/or a CEO Negotiation Request and the other Party has failed to comply with Section 7.1 and/or Section 7.2 in good faith with respect to such negotiation.
7.5Conduct During Dispute Resolution Process. Unless otherwise agreed in writing, the Parties shall, and shall cause the respective members of their Groups to, continue to honor all commitments under this Agreement and each Ancillary Agreement to the extent required by such agreements during the course of dispute resolution pursuant to the provisions of this Article VII, unless such commitments are the specific subject of the Dispute at issue.
7.6Dispute Resolution Coordination. Except to the extent otherwise provided in [Section 14] of the Tax Matters Agreement, the provisions of this Article VII (other than this Section 7.6) shall not apply with respect to the resolution of any dispute, controversy or claim arising out of or relating to Taxes or Tax matters (it being understood and agreed that the resolution of any dispute, controversy or claim arising out of or relating to Taxes or Tax matters shall be governed by the Tax Matters Agreement).
ARTICLE VIII
FURTHER ASSURANCES AND ADDITIONAL COVENANTS
8.1Further Assurances.
(a)In addition to the actions specifically provided for elsewhere in this Agreement, but subject to the express limitations of this Agreement and of the Ancillary Agreements, each of the Parties shall use reasonable best efforts, prior to, on and after the Effective Time, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.
(b)Without limiting the foregoing, prior to, on and after the Effective Time, each Party hereto shall cooperate with the other Party, and without any further consideration, but at the expense of the requesting Party, to execute and deliver, or use reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all Approvals or Notifications of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument (including any consents or Governmental Approvals), and to take all such other actions as such Party may reasonably be requested to take by the other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order
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to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the transfers of the SpinCo Assets and the Parent Assets and the assignment and assumption of the SpinCo Liabilities and the Parent Liabilities and the other transactions contemplated hereby and thereby.
(c)On or prior to the Effective Time, Parent and SpinCo in their respective capacities as direct and indirect stockholders of the members of their Groups, shall each ratify any actions that are reasonably necessary or desirable to be taken by Parent, SpinCo or any of the members of their respective Groups, as the case may be, to effectuate the transactions contemplated by this Agreement and the Ancillary Agreements.
(d)Effective at the Effective Time, Parent and SpinCo, and each of the members of their respective Groups, waive (and agree not to assert against any of the others) any claim or demand that any of them may have against any of the others for any Liabilities or other claims relating to or arising out of: (i) the failure of SpinCo or any other member of the SpinCo Group, on the one hand, or of Parent or any other member of the Parent Group, on the other hand, to provide any notification or disclosure required under any state Environmental Law in connection with the Separation or the other transactions contemplated by this Agreement, including the transfer by any member of any Group to any member of the other Group of ownership or operational control of any Assets not previously owned or operated by such transferee; or (ii) any inadequate, incorrect or incomplete notification or disclosure under any such state Environmental Law by the applicable transferor. To the extent any Liability to any Governmental Authority or any Third Party arises out of any action or inaction described in clauses (i) or (ii) above, the transferee of the applicable Asset hereby assumes and agrees to pay any such Liability.
ARTICLE IX
TERMINATION
9.1Termination. This Agreement and all Ancillary Agreements may be terminated and the Distribution may be amended, modified or abandoned at any time prior to the Effective Time by Parent, in its sole and absolute discretion, without the approval or consent of any other Person, including SpinCo. After the Effective Time, this Agreement may not be terminated, except by an agreement in writing signed by a duly authorized officer of each of the Parties.
9.2Effect of Termination. In the event of any termination of this Agreement prior to the Effective Time, no Party (nor any of its directors, officers or employees) shall have any Liability or further obligation to the other Party by reason of this Agreement.
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ARTICLE X
MISCELLANEOUS
10.1Counterparts; Entire Agreement; Corporate Power.
(a)This Agreement and each Ancillary Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.
(b)This Agreement, the Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein. This Agreement and the Ancillary Agreements together govern the arrangements in connection with the Separation and the Distribution and would not have been entered into independently.
(c)Parent represents on behalf of itself and each other member of the Parent Group, and SpinCo represents on behalf of itself and each other member of the SpinCo Group, as follows:
(i)each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and each Ancillary Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby; and
(ii)this Agreement and each Ancillary Agreement to which it is a party has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof.
(d)Each Party acknowledges that it and each other Party is executing certain of the Ancillary Agreements by facsimile, stamp or mechanical signature, and that delivery of an executed counterpart of a signature page to this Agreement or any Ancillary Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by e-mail in portable document format (.pdf) shall be effective as delivery of such executed counterpart of this Agreement or any Ancillary Agreement. Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by e-mail in portable document format (.pdf)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause each such Ancillary Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.
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10.2Governing Law. This Agreement and, unless expressly provided therein, each Ancillary Agreement (and any claims or disputes arising out of or related hereto or thereto or to the transactions contemplated hereby and thereby or to the inducement of any party to enter herein and therein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware irrespective of the choice of laws principles of the State of Delaware, including all matters of validity, construction, effect, enforceability, performance and remedies.
10.3Assignability. Except as set forth in any Ancillary Agreement, this Agreement and each Ancillary Agreement shall be binding upon and inure to the benefit of the Parties and the parties thereto, respectively, and their respective successors and permitted assigns; provided, however, that neither Party nor any such party thereto may assign its rights or delegate its obligations under this Agreement or any Ancillary Agreement without the express prior written consent of the other Party hereto or other parties thereto, as applicable. Notwithstanding the foregoing, no such consent shall be required for the assignment of a Party’s rights and obligations under this Agreement and the Ancillary Agreements (except as may be otherwise provided in any such Ancillary Agreement) in whole (i.e., the assignment of a Party’s rights and obligations under this Agreement and all Ancillary Agreements at the same time) in connection with a change of control or a sale of all or substantially all of a Party (or its assets) so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant party thereto by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party.
10.4Third Party Beneficiaries. Except for the indemnification rights under this Agreement and each Ancillary Agreement of any Parent Indemnitee or SpinCo Indemnitee in their respective capacities as such, (a) the provisions of this Agreement and each Ancillary Agreement are solely for the benefit of the Parties and are not intended to confer upon any Person except the Parties any rights or remedies hereunder, and (b) there are no Third Party beneficiaries of this Agreement or any Ancillary Agreement and neither this Agreement nor any Ancillary Agreement shall provide any Third Party with any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement or any Ancillary Agreement.
10.5Notices. All notices, requests, claims, demands or other communications under this Agreement and, to the extent applicable and unless otherwise provided therein, under each of the Ancillary Agreements, shall be in writing and shall be given or made (and except as provided herein, shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by certified mail, return receipt requested, or by electronic mail (“e-mail”), so long as confirmation of receipt of such e-mail is requested and received, to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 10.5):
If to Parent, to:
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XPO Logistics, Inc.
Five American Lane
Greenwich, Connecticut 06831
Attention: Chief Financial Officer, Ravi Tulsyan
E-mail: [l]
with a copy (which shall not constitute notice), to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Attention:Scott A. Barshay
Steven J. Williams
E-mail:sbarshay@paulweiss.com
swilliams@paulweiss.com
If to SpinCo (prior to the Effective Time), to:
RXO, Inc.
[__]
[__]
[__]
Attention:
E-mail:[__]
with a copy (which shall not constitute notice), to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Attention:Scott A. Barshay
Steven J. Williams
E-mail:sbarshay@paulweiss.com
swilliams@paulweiss.com
If to SpinCo (from and after the Effective Time), to:
RXO, Inc.
[__]
[__]
[__]
Attention:[__]
E-mail:[__]
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with a copy (which shall not constitute notice), to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Attention:Scott A. Barshay
Steven J. Williams
E-mail:sbarshay@paulweiss.com
swilliams@paulweiss.com
A Party may, by notice to the other Party, change the address to which such notices are to be given or made.
10.6Severability. If any provision of this Agreement or any Ancillary Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
10.7Force Majeure. No Party shall be deemed in default of this Agreement or, unless otherwise expressly provided therein, any Ancillary Agreement for any delay or failure to fulfill any obligation (other than a payment obligation) hereunder or thereunder so long as and to the extent to which any delay or failure in the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. In the event of any such excused delay, the time for performance of such obligations (other than a payment obligation) shall be extended for a period equal to the time lost by reason of the delay. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event, (a) provide written notice to the other Party of the nature and extent of any such Force Majeure condition and (b) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement and the Ancillary Agreements, as applicable, as soon as reasonably practicable.
10.8No Set-Off. Except as expressly set forth in any Ancillary Agreement or as otherwise mutually agreed to in writing by the Parties, neither Party nor any member of such Party’s group shall have any right of set-off or other similar rights with respect to (a) any amounts received pursuant to this Agreement or any Ancillary Agreement or (b) any other amounts claimed to be owed to the other Party or any member of its Group arising out of this Agreement or any Ancillary Agreement.
10.9Expenses. Except as otherwise expressly set forth in this Agreement or any Ancillary Agreement, or as otherwise agreed to in writing by the Parties, all fees, costs and expenses incurred on or prior to the Effective Time in connection with the preparation,
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execution, delivery and implementation of this Agreement, including the Separation and the Distribution, and any Ancillary Agreement, the Separation, the Form 10, the Plan of Reorganization and the consummation of the transactions contemplated hereby and thereby will be borne by the Party or its applicable Subsidiary incurring such fees, costs or expenses. The Parties agree that certain specified costs and expenses shall be allocated between the Parties as set forth on Schedule 10.9.
10.10Headings. The article, section and paragraph headings contained in this Agreement and in the Ancillary Agreements are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or any Ancillary Agreement.
10.11Survival of Covenants. Except as expressly set forth in this Agreement or any Ancillary Agreement, the covenants, representations and warranties contained in this Agreement and each Ancillary Agreement, and Liability for the breach of any obligations contained herein, shall survive the Separation and the Distribution and shall remain in full force and effect.
10.12Waivers of Default. Waiver by a Party of any default by the other Party of any provision of this Agreement or any Ancillary Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by a Party in exercising any right, power or privilege under this Agreement or any Ancillary Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.
10.13Specific Performance. Subject to the provisions of Article VII, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement or any Ancillary Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief in respect of its or their rights under this Agreement or such Ancillary Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative (and, for the avoidance of doubt, shall be pursued in accordance with Article VII). The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by each of the Parties.
10.14Amendments. No provisions of this Agreement or any Ancillary Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.
10.15Interpretation. In this Agreement and in any Ancillary Agreement: (a) words in the singular shall be deemed to include the plural and vice versa and words of one gender shall be deemed to include the other genders as the context requires; (b) the terms
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“hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement (or the applicable Ancillary Agreement) as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement (or such Ancillary Agreement); (c) Article, Section, Schedule, Exhibit and Appendix references are to the Articles, Sections, Schedules, Exhibits and Appendices to this Agreement (or the applicable Ancillary Agreement), unless otherwise specified; (d) unless otherwise stated, all references to any agreement (including this Agreement and each Ancillary Agreement) shall be deemed to include the exhibits, schedules and annexes (including all Schedules, Exhibits and Appendixes) to such agreement; (e) the word “including” and words of similar import when used in this Agreement (or the applicable Ancillary Agreement) shall mean “including, without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) unless otherwise specified in a particular case, the word “days” refers to calendar days; (h) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified; and (i) unless expressly stated to the contrary in this Agreement or in any Ancillary Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to [l], 2022.
10.16Limitations of Liability. Notwithstanding anything in this Agreement to the contrary, neither SpinCo or any member of the SpinCo Group, on the one hand, nor Parent or any member of the Parent Group, on the other hand, shall be liable under this Agreement to the other for any indirect, incidental, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages of the other arising in connection with the transactions contemplated hereby (other than any such Liability with respect to a Third-Party Claim).
10.17Performance. Parent will cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement or in any Ancillary Agreement to be performed by any member of the Parent Group. SpinCo will cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement or in any Ancillary Agreement to be performed by any member of the SpinCo Group. Each Party (including its permitted successors and assigns) further agrees that it will (a) give timely notice of the terms, conditions and continuing obligations contained in this Agreement and any applicable Ancillary Agreement to all of the other members of its Group and (b) cause all of the other members of its Group not to take any action or fail to take any such action inconsistent with such Party’s obligations under this Agreement, any Ancillary Agreement or the transactions contemplated hereby or thereby.
10.18Mutual Drafting. This Agreement and the Ancillary Agreements shall be deemed to be the joint work product of the Parties and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable.
10.19Ancillary Agreements.
(a)In the event of any conflict or inconsistency between the terms of this Agreement and the terms of the Transition Services Agreement, the Tax Matters Agreement, the
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Employee Matters Agreement or the Intellectual Property License Agreement (each, a “Specified Ancillary Agreement”), the terms of the applicable Specified Ancillary Agreement, shall control with respect to the subject matter addressed by such Specified Ancillary Agreement to the extent of such conflict or inconsistency.
(b)In the event of any conflict or inconsistency between the terms of this Agreement or any Specified Ancillary Agreement, on the one hand, and any Transfer Document, on the other hand, including with respect to the allocation of Assets and Liabilities as among the Parties or the members of their respective Groups, this Agreement or such Specified Ancillary Agreement shall control.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Parties have caused this Separation and Distribution Agreement to be executed by their duly authorized representatives as of the date first written above.
XPO LOGISTICS, INC.
By:
Name:
Ravi Tulsyan
Title:Chief Financial Officer
RXO, INC.
By:
Name:
Title:
Exhibit 2.2

TRANSITION SERVICES AGREEMENT
BY AND BETWEEN
XPO LOGISTICS, INC.
AND
RXO, INC.
DATED AS OF [●], 2022


TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
2
Section 1.01    Definitions
2
ARTICLE II SERVICES
6
Section 2.01    Services
6
Section 2.02    Performance of Services
8
Section 2.03    Charges for Services
9
Section 2.04    Reimbursement for Out-of-Pocket Costs and Expenses
9
Section 2.05    Changes in the Performance of Services
10
Section 2.06    Transitional Nature of Services
10
Section 2.07    Subcontracting
10
Section 2.08    Contract Manager
11
ARTICLE III OTHER ARRANGEMENTS
11
Section 3.01    Access
11
ARTICLE IV INTELLECTUAL PROPERTY
12
Section 4.01    Intellectual Property Ownership
12
Section 4.02    Deliverables
12
Section 4.03    Limited License
13
Section 4.04    Software Licenses or Services
13
ARTICLE V BILLING; TAXES
13
Section 5.01    Procedure
13
Section 5.02    Late Payments
14
Section 5.03    Taxes
14
Section 5.04    No Set-Off
14
Section 5.05    Audit Rights
15
ARTICLE VI TERM AND TERMINATION
15
Section 6.01    Term
15
Section 6.02    Early Termination
15
Section 6.03    Interdependencies
16
Section 6.04    Effect of Termination
16
Section 6.05    Information Transmission
17
ARTICLE VII CONFIDENTIALITY; PROTECTIVE ARRANGEMENTS
17
Section 7.01    Parent and SpinCo Obligations
17
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Section 7.02    No Release; Return or Destruction
18
Section 7.03    Privacy and Data Protection Laws
18
Section 7.04    Protective Arrangements
18
ARTICLE VIII LIMITED LIABILITY AND INDEMNIFICATION
19
Section 8.01    Limitations on Liability
19
Section 8.02    Obligation to Re-Perform; Liabilities
19
Section 8.03    Third-Party Claims
20
Section 8.04    Provider Indemnity
20
Section 8.05    Recipient Indemnity
20
Section 8.06    Indemnification Procedures
20
ARTICLE IX MISCELLANEOUS
20
Section 9.01    Mutual Cooperation
20
Section 9.02    Further Assurances
21
Section 9.03    Audit Assistance
21
Section 9.04    Independent Contractors
21
Section 9.05    Counterparts; Entire Agreement; Corporate Power
21
Section 9.06    Governing Law
22
Section 9.07    Assignability
22
Section 9.08    Third-Party Beneficiaries
23
Section 9.09    Notices
23
Section 9.10    Severability
24
Section 9.11    Force Majeure
24
Section 9.12    Headings
25
Section 9.13    Survival of Covenants
25
Section 9.14    Waivers of Default
25
Section 9.15    Dispute Resolution
25
Section 9.16    Specific Performance
26
Section 9.17    Amendments
26
Section 9.18    Precedence of Schedules
26
Section 9.19    Interpretation
26
Section 9.20    Mutual Drafting
27
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TRANSITION SERVICES AGREEMENT
This TRANSITION SERVICES AGREEMENT (this “Agreement”) is entered into as of [●], 2022, by and between XPO Logistics, Inc., a Delaware corporation (“Parent”), and RXO, Inc., a Delaware corporation (“SpinCo”).
R E C I T A L S:
WHEREAS, the board of directors of Parent (the “Parent Board”) has determined that it is in the best interests of Parent and its stockholders to create a new publicly traded company that shall operate the SpinCo Business;
WHEREAS, in furtherance of the foregoing, the Parent Board has determined that it is appropriate and desirable to separate the SpinCo Business from the Parent Business (the “Separation”) and, following the Separation, make a distribution, on a pro rata basis, to holders of Parent Shares on the Record Date of all of the outstanding SpinCo Shares owned by Parent (the “Distribution”);
WHEREAS, SpinCo has been incorporated solely for these purposes and has not engaged in activities, except in connection with the Separation and the Distribution;
WHEREAS, SpinCo and Parent have prepared, and SpinCo has filed with the SEC, the Form 10, which includes the Information Statement, and which sets forth disclosures concerning SpinCo, the Separation and the Distribution;
WHEREAS, to effectuate the Separation and the Distribution, Parent and SpinCo have entered into a Separation and Distribution Agreement, dated as of the date hereof (the “Separation and Distribution Agreement”);
WHEREAS, to facilitate and provide for an orderly transition in connection with the Separation and the Distribution, the Parties desire to enter into this Agreement to set forth the terms and conditions pursuant to which each of the Parties shall provide Services to the other Party for a transitional period; and
WHEREAS, the Parties acknowledge that this Agreement, the Separation and Distribution Agreement, and the other Ancillary Agreements represent the integrated agreement of Parent and SpinCo relating to the Separation and the Distribution, are being entered together, and would not have been entered independently.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:


ARTICLE I
DEFINITIONS
Section 1.01    Definitions. For purposes of this Agreement (including the Recitals hereof), the following terms have the following meanings, and capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Separation and Distribution Agreement:
“Action” has the meaning set forth in the Separation and Distribution Agreement.
“Additional Services” has the meaning set forth in Section 2.01(b).
“Affiliate” has the meaning set forth in the Separation and Distribution Agreement.
“Agreement” has the meaning set forth in the Preamble.
“Ancillary Agreements” has the meaning set forth in the Separation and Distribution Agreement.
“Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions are generally authorized or required by law to close in the United States or New York, New York.
“Charge” and “Charges” have the meaning set forth in Section 2.03.
“Confidential Information” means all Information that is either confidential or proprietary.
“Contract Manager” has the meaning set forth in Section 2.08.
“Deliverables” has the meaning set forth in Section 4.02.
“Dispute” has the meaning set forth in Section 9.15(a).
“Distribution” has the meaning set forth in the Recitals.
“Distribution Date” means the date of the consummation of the Distribution, which shall be determined by the Parent Board in its sole and absolute discretion.
“Effective Time” means 12:01 a.m., Eastern Time, on the Distribution Date.
“e-mail” has the meaning set forth in Section 9.09.
“Force Majeure” means, with respect to a Party, an event beyond the reasonable control of such Party (or any Person acting on its behalf), which event (a) does not arise or result from the fault or negligence of such Party (or any Person acting on its behalf) and (b) by its nature would not reasonably have been foreseen by such Party (or such Person), or, if it would
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reasonably have been foreseen, was unavoidable, and includes acts of God, acts of civil or military authority, embargoes, epidemics, pandemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any significant and prolonged failure in electrical or air conditioning equipment. Notwithstanding the foregoing, (i) the receipt by a Party of an unsolicited takeover offer or other acquisition proposal, even if unforeseen or unavoidable, and such Party’s response thereto and (ii) the inability to obtain sufficient funds needed for the performance of a Party’s obligation hereunder, shall not be deemed an event of Force Majeure.
“Governmental Authority” has the meaning set forth in the Separation and Distribution Agreement.
“Information” has the meaning set forth in the Separation and Distribution Agreement.
“Information Statement” has the meaning set forth in the Separation and Distribution Agreement.
“Intellectual Property License Agreement” has the meaning set forth in the Separation and Distribution Agreement.
“Intellectual Property Rights” has the meaning set forth in the Separation and Distribution Agreement.
“Interest Payment” has the meaning set forth in Section 5.02.
“Law” has the meaning set forth in the Separation and Distribution Agreement.
“Level of Service” has the meaning set forth in Section 2.02(c).
“Liabilities” has the meaning set forth in the Separation and Distribution Agreement.
“Non-Income Taxes” has the meaning set forth in Section 5.03(a).
“Parent” has the meaning set forth in the Preamble.
“Parent Board” has the meaning set forth in the Recitals.
“Parent Business” has the meaning set forth in the Separation and Distribution Agreement.
“Parent Shares” means the shares of common stock, par value $0.001 per share, of Parent.
“Party” or “Parties” means the parties to this Agreement.
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“Person” has the meaning set forth in the Separation and Distribution Agreement.
“Personal Information” means all information concerning an identified or identifiable person, as well as all information defined as “personal information,” “personally identifiable information,” “personal health information,” or the equivalent under any Law concerning the collection, use, storage or processing of such information.
“Project Work” has the meaning set forth in Section 2.01(c).
“Provider” means, with respect to any Service, the Party providing such Service.
“Provider Indemnitees” has the meaning set forth in Section 8.03.
“Recipient” means, with respect to any Service, the Party receiving such Service.
“Recipient Indemnitees” has the meaning set forth in Section 8.04.
“Record Date” means the close of business on the date to be determined by the Parent Board as the record date for determining holders of Parent Shares entitled to receive SpinCo Shares pursuant to the Distribution.
“Representatives” has the meaning set forth in the Separation and Distribution Agreement.
“Separation” has the meaning set forth in the Recitals.
“Separation and Distribution Agreement” has the meaning set forth in the Recitals.
“Service Baseline Period” has the meaning set forth in Section 2.02(c).
“Service Period” means, with respect to any Service, the period commencing on the Distribution Date and ending on the earliest to occur of (a) the date that a Party terminates the provision of such Service pursuant to Section 6.02 and (b) the earlier of the date, if any, specified for termination of such Service on the Schedules hereto or eight (8) months from the Distribution Date.
“Services” has the meaning set forth in Section 2.01(a).
“SpinCo” has the meaning set forth in the Preamble.
“SpinCo Business” has the meaning set forth in the Separation and Distribution Agreement.
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“SpinCo Change of Control” means the first of the following events, if any, to occur following the Distribution Date:
(a)    the acquisition by any person, entity or “group” (as defined in Section 13(d) of the Exchange Act) of beneficial ownership of fifty percent (50%) or more of the combined voting power of SpinCo’s then-outstanding voting securities, other than any such acquisition by SpinCo, any of its Subsidiaries, any employee benefit plan of SpinCo or any of its Subsidiaries, or any Affiliates of any of the foregoing;
(b)    the merger, consolidation or other similar transaction involving SpinCo, as a result of which persons who were stockholders of SpinCo immediately prior to such merger, consolidation, or other similar transaction do not, immediately thereafter, own, directly or indirectly, more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the merged or consolidated company; or
(c)    the sale, transfer or other disposition of all or substantially all of the assets of SpinCo and its Subsidiaries.
“SpinCo Shares” means the shares of common stock, par value $0.01 per share, of SpinCo.
“Subsidiary” has the meaning set forth in the Separation and Distribution Agreement.
“Tax” has the meaning set forth in the Tax Matters Agreement.
“Tax Matters Agreement” has the meaning set forth in the Separation and Distribution Agreement.
“Taxing Authority” has the meaning set forth in the Tax Matters Agreement.
“Termination Charges” shall mean, with respect to the termination of any Service pursuant to Section 5.02(a)(i), the sum of (a) any and all costs, fees and expenses (other than any severance or retention costs) payable by Provider of such Service to a Third Party principally because of the early termination of such Service; provided, however, that Provider shall use commercially reasonable efforts to minimize any costs, fees or expenses payable to any Third Party in connection with such early termination of such Service and credit any such reductions against the Termination Charges payable by Recipient; and (b) any additional severance and retention costs, if any, because of the early termination of such Service that Provider of such terminated Service incurs to employees who had been retained primarily to provide such terminated Service (it being agreed that the costs set forth in this clause (b) shall only be the amount, if any, in excess of the severance and retention costs that such Provider would have paid to such employees if the Service had been provided for the full period during which such Service would have been provided hereunder but for such early termination).
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“Third Party” means any Person other than the Parties or any of their respective Affiliates.
“Third-Party Claim” means any Action commenced by any Third Party against any Party or any of its Affiliates.
ARTICLE II
SERVICES
Section 2.01    Services.
(a)    Commencing as of the Effective Time, Provider agrees to provide, or to cause one or more of its Subsidiaries to provide, to Recipient, or any Subsidiary of Recipient, the applicable services (the “Services”) set forth on the Schedules hereto.
(b)    At any time after the date of this Agreement, if (i) SpinCo identifies a service that Parent provided to SpinCo during the last sixty (60) days prior to the Distribution Date that SpinCo reasonably needs in order for the SpinCo Business to continue to operate in substantially the same manner in which the SpinCo Business operated during the last sixty (60) days prior to the Distribution Date, and such service was not included on the Schedules hereto (other than because the Parties agreed such service shall not be provided), or (ii) Parent identifies a service that SpinCo provided to Parent during the last sixty (60) days prior to the Distribution Date that Parent reasonably needs in order for the Parent Business to continue to operate in substantially the same manner in which the Parent Business operated during the last sixty (60) days prior to the Distribution Date, and such service was not included on the Schedules hereto (other than because the Parties agreed such service shall not be provided) then, in each case, if such Party provides written notice to the other Party within sixty (60) days after the Distribution Date requesting such additional services, then the Party receiving such notice shall use its commercially reasonable efforts to provide such requested additional services (such requested additional services, the “Additional Services”); provided, however, that neither Party shall be obligated to provide any Additional Service if it does not, in its commercially reasonable judgment, have adequate resources to provide such Additional Service or if the provision of such Additional Service would significantly disrupt the operation of such Party’s or its Subsidiaries’ businesses; and provided, further, that a Party shall not be required to provide any Additional Services if the Parties, acting reasonably and in good faith, are unable to reach agreement on the terms thereof (including with respect to Charges therefor). In connection with any request for Additional Services in accordance with this Section 2.01(b), the Parties shall negotiate in good faith the terms of a supplement to the applicable Schedule, which terms shall be consistent with the terms of, and the pricing methodology used for, similar Services provided under this Agreement. Upon the mutual written agreement of the Parties, the supplement to the applicable Schedule shall describe in reasonable detail the nature, scope, Service Period(s), termination provisions and other terms applicable to such Additional Services in a manner similar to that in which the Services are described in the existing Schedules. Each supplement to the applicable Schedule, as agreed to in writing by the Parties, shall be deemed part of this Agreement as of the date of such agreement and the Additional Service(s) set forth therein shall be deemed
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“Services” provided under this Agreement, in each case subject to the terms and conditions of this Agreement.
(c)    At any time after the date of this Agreement and during the term of this Agreement, if (i) SpinCo identifies in good faith that additional work project support or resources are reasonably required to transition off the Services, including with respect to any migration, and such service was not included on the Schedules hereto (other than because the Parties agreed such service shall not be provided) and does qualify as an Additional Service pursuant to Section 2.01(b), or (ii) Parent identifies in good faith that additional work project support or resources are reasonably required to transition off the Services, including with respect to any migration, and such service was not included on the Schedules hereto (other than because the Parties agreed such service shall not be provided) and does qualify as an Additional Service pursuant to Section 2.01(b) then, in each case, if such Party provides written notice to the other Party during the term of this Agreement requesting such additional work project support or resources, the Party receiving such notice shall use its commercially reasonable efforts to provide such requested additional work project support or resources (such requested additional work project support or resources, the “Project Work”); provided, however, that neither Party shall be obligated to provide any Project Work if it does not, in its commercially reasonable judgment, have adequate resources to provide such Project Work or if the provision of such Project Work would significantly disrupt the operation of such Party’s or its Subsidiaries’ businesses; and provided, further, that neither Party shall be required to provide any Project Work if the Parties, acting reasonably and in good faith, are unable to reach agreement on the terms thereof (it being agreed that the Charges for such Project Work that is to be performed by employees of the Party providing the Project Work shall be billed at the rate set forth in the Schedules hereto under the heading “Project Work”). In connection with any request for Project Work in accordance with this Section 2.01(c), the Parties shall negotiate in good faith the terms of a supplement to the applicable Schedule. Upon the mutual written agreement of the Parties, the supplement to the applicable Schedule shall describe in reasonable detail the nature, scope, Service Period(s), termination provisions and other terms applicable to such Project Work in a manner similar to that in which the Services are described in the existing Schedules. Each supplement to the applicable Schedule, as agreed to in writing by the Parties, shall be deemed part of this Agreement as of the date of such agreement and the Project Work set forth therein shall be deemed “Services” provided under this Agreement, in each case subject to the terms and conditions of this Agreement.
(d)    It is not the intent of Provider to render, nor of Recipient to receive from Provider, professional advice or opinions, whether with regard to Tax, generally accepted accounting principles, legal, treasury, finance, employment or other business and financial matters, technical advice, whether with regard to information technology or other matters; Recipient shall not rely on, or construe, any Service rendered by or on behalf of Provider as such professional advice or opinions or technical advice; and Recipient shall seek all third-party professional advice and opinions or technical advice as it may desire or need from persons other than Provider or its Affiliates.
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Section 2.02    Performance of Services.
(a)    Subject to Section 2.05, Provider shall perform, or shall cause one or more of its Subsidiaries to perform (directly, through one or more of its Subsidiaries, or through a Third Party service provider in accordance herewith), all Services to be provided in a manner that is substantially similar in all material respects to the analogous services provided by or on behalf of Provider or any of its Subsidiaries to its applicable functional group or Subsidiary during the twelve (12)-month period ending on the last day of Provider’s last fiscal quarter completed on or prior to the date of the Distribution Date (the “Service Baseline Period”) and that in any event, conforms in all material respects with the terms of the Schedules hereto.
(b)    Nothing in this Agreement shall require Provider to perform or cause to be performed any Service to the extent that the manner of such performance would constitute a violation of any applicable Law or any existing contract or agreement with a Third Party. If Provider is or becomes aware that any such violation is reasonably likely, Provider shall use commercially reasonable efforts to promptly advise Recipient of such potential violation, and Provider and Recipient will mutually seek an alternative that addresses such potential violation. The Parties agree to cooperate in good faith and use commercially reasonable efforts to obtain any necessary Third Party consents required under any existing contract or agreement with a Third Party to allow Provider to perform, or cause to be performed, all Services to be provided hereunder in accordance with the standards set forth in this Section 2.02; provided, however, that Provider shall not be obligated, in connection with obtaining any such Third Party consent, to contribute any capital, pay or grant any consideration or concession in any form (including by providing any letter of credit, guaranty or other financial accommodation) to any Person, other than, in each case, reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees incurred by Provider or any of its Subsidiaries, all of which shall be promptly reimbursed by Recipient. If, with respect to a Service, the Parties, despite the use of such commercially reasonable efforts, are unable to obtain a required Third Party consent, or the performance of such Service by Provider would constitute a violation of any applicable Law, Provider shall have no obligation whatsoever to perform or cause to be performed such Service.
(c)    Unless otherwise provided with respect to a specific Service on the Schedules hereto, Provider shall not be obligated to perform or cause to be performed any Service in a manner that is more burdensome in any material respect (with respect to service quality or quantity) than analogous services provided by Provider or its applicable functional group or Subsidiary (collectively referred to as the “Level of Service”) during the Service Baseline Period. If Recipient requests that Provider perform or cause to be performed any Service that exceeds the Level of Service during the Service Baseline Period, then the Parties shall cooperate and negotiate in good faith to determine whether Provider will be required to provide such requested increased Level of Service. If the Parties agree that Provider shall provide the requested increased Level of Service, then such increased Level of Service shall be documented in a written agreement signed by the Parties. Each amended section of the Schedules hereto, as agreed in writing by the Parties, shall be deemed part of this Agreement as of the date of such written agreement, and the Level of Service increase(s) set forth in such
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written agreement shall be deemed a part of the “Services” provided under this Agreement, in each case subject to the terms and conditions of this Agreement.
(d)    (i) Neither Provider nor any of its Subsidiaries shall be required to perform or cause to be performed any of the Services for the benefit of any Third Party or any other Person other than Recipient and its Subsidiaries, and (ii) EXCEPT AS EXPRESSLY PROVIDED IN SECTION 7.04, RECIPIENT ACKNOWLEDGES AND AGREES THAT ALL SERVICES ARE PROVIDED ON AN “AS-IS,” “WHERE IS” BASIS, THAT RECIPIENT ASSUMES ALL RISK AND LIABILITY ARISING FROM OR RELATING TO ITS USE OF AND RELIANCE UPON THE SERVICES, AND THAT PROVIDER MAKES NO REPRESENTATIONS OR GRANTS ANY WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, WITH RESPECT TO THE SERVICES. PROVIDER SPECIFICALLY DISCLAIMS ANY WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR USE OR PURPOSE OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.
(e)    Each Party shall be responsible for its own compliance with any and all Laws applicable to its performance under this Agreement. No Party shall knowingly take any action in violation of any such applicable Law that results in Liability being imposed on the other Party.
Section 2.03    Charges for Services. Unless otherwise provided with respect to a specific Service on the Schedules hereto, Recipient shall pay Provider a fee (either one (1)-time or recurring) for such Services (or category of Services, as applicable) (each fee, a “Charge” and, collectively, “Charges”), which Charges shall be set forth on the applicable Schedules hereto, or if not so set forth, then, unless otherwise provided with respect to a specific Service on the Schedules hereto, based upon the cost of providing such Services. During the term of this Agreement, the amount of a Charge for any Service may be modified to the extent of (a) any adjustments mutually agreed by the Parties, (b) any adjustments due to a change in Level of Service requested by Recipient and agreed by Provider, and (c) any adjustment in the rates or charges imposed by any Third Party service provider that is providing Services; provided that Provider will use commercially reasonable efforts to notify Recipient of any such material change in rates as promptly as practicable. Together with any invoice for Charges, Provider shall provide Recipient with reasonable documentation, including any additional documentation reasonably requested by Recipient, to the extent that such documentation is in Provider’s or its Subsidiaries’ possession or control, to support the calculation of such Charges.
Section 2.04    Reimbursement for Out-of-Pocket Costs and Expenses. In addition to any increase to a Charge contemplated by Section 2.02(c) and Section 2.03, Recipient shall reimburse Provider for reasonable out-of-pocket costs and expenses incurred by Provider or any of its Subsidiaries in connection with providing the Services (including reasonable travel-related expenses) to the extent that such costs and expenses are not reflected in the Charges for such Services; provided, however, that any such cost or expense in excess of two thousand dollars
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($2,000.00) that is not consistent with historical practice between the Parties for any individual Service (including business travel and related expenses) shall require advance written approval of Recipient; provided, further, that if Recipient does not provide such advance written approval and the incurrence of such cost or expense is reasonably necessary for Provider to provide such Service in accordance with the standards set forth in this Agreement, Provider shall not be required to perform such Service. Any authorized travel-related expenses incurred in performing the Services shall be charged to Recipient in accordance with Provider’s then-applicable business travel policies.
Section 2.05    Changes in the Performance of Services.
(a)    Notwithstanding the foregoing, Provider may make changes from time to time in the manner of performing the Services if Provider is making similar changes in performing analogous services for itself and if Provider furnishes to Recipient reasonable prior written notice (in content and timing) of such changes; provided, that if such change shall materially adversely affect the timeliness or quality of, or the Charges for, the applicable Service, the Parties shall cooperate in good faith to agree on modifications to such Services as are commercially reasonable in consideration of the circumstances.
(b)    Subject to the limitations set forth in Section 2.02(b), Recipient may request a change to a Service by submitting a request in writing to Provider describing the proposed change in reasonable detail. Provider shall respond to the request as soon as reasonably practicable, and the Parties shall use commercially reasonable efforts to agree to such request, unless the change requested would adversely impact the cost, liability, or risk associated with providing or receiving the applicable Service, or cause any other disruption or adverse impact on the business or operations of Provider or its Affiliates. Each agreed-upon change shall be documented by an amendment in writing to the applicable Schedule. Each such amendment of the Schedules hereto, as agreed in writing by the Parties, shall be deemed part of this Agreement as of the date of such written agreement, and the change to the applicable Service(s) set forth in such written agreement shall be deemed a part of the “Services” provided under this Agreement, in each case subject to the terms and conditions of this Agreement.
Section 2.06    Transitional Nature of Services. The Parties acknowledge the transitional nature of the Services and agree to cooperate in good faith and to use commercially reasonable efforts to avoid a disruption in the transition of the Services from Provider to Recipient (or its designee). Recipient agrees to use commercially reasonable efforts to reduce or eliminate its and its Affiliates’ dependency on each Service to the extent and as soon as is reasonably practicable.
Section 2.07    Subcontracting. Provider may hire or engage one or more Third Parties to perform any or all of its obligations under this Agreement; provided, however, that (a) Provider shall use substantially the same degree of care (but at least reasonable care) in selecting each such Third Party as it would if such Third Party was being retained to provide similar services to Provider and (b) Provider shall in all cases remain responsible (as primary obligor) for all of its obligations under this Agreement with respect to the scope of the Services, the performance standard for Services set forth in Sections 2.02(a), 2.02(b) and 2.02(c) and the content of the
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Services provided to Recipient. Provider shall be liable for any breach of its obligations under this Agreement by any Third Party service provider engaged by Provider.
Section 2.08    Contract Manager. Each Party shall appoint an individual to act as its primary point of operational contact for the administration and operation of this Agreement (each, a “Contract Manager”) who shall have overall responsibility for coordinating all activities undertaken by such Party hereunder, for acting as a day-to-day contact with the other Party, and for making available to the other Party the data, facilities, resources and other support services required for the performance of the services in accordance with the terms of this Agreement; provided that for each Service, the Contract Manager shall be permitted to delegate the foregoing responsibilities for such Service to an individual identified on the Schedules, and such representative shall be deemed to be the Contract Manager with respect to such Service. The initial Contract Managers for the Parties are set forth on the applicable Schedules. The Parties may change their respective Contract Managers from time to time upon notice to the other Party in accordance herewith.
ARTICLE III
OTHER ARRANGEMENTS
Section 3.01    Access.
(a)    Upon reasonable advance written notice, SpinCo shall, and shall cause its Subsidiaries to, allow Parent and its Subsidiaries and their respective Representatives reasonable access to the facilities of SpinCo and its Subsidiaries that is necessary for Parent and its Subsidiaries to fulfill their obligations under this Agreement. In addition to the foregoing right of access, SpinCo shall, and shall cause its Subsidiaries to, afford Parent, its Subsidiaries and their respective Representatives, upon reasonable advance written notice, reasonable access during normal business hours to the facilities, Information, systems, infrastructure and personnel of SpinCo and its Subsidiaries as reasonably necessary for Parent to verify the adequacy of internal controls over information technology, reporting of financial data and related processes employed in connection with the Services being provided by SpinCo or its Subsidiaries, including in connection with verifying compliance with Section 404 of the Sarbanes-Oxley Act of 2002; provided that (i) such access shall not unreasonably interfere with any of the business or operations of SpinCo or any of its Subsidiaries and (ii) in the event that SpinCo determines in good faith that providing such access could violate any applicable Law or agreement or waive any attorney-client privilege, then the Parties shall use commercially reasonable efforts to permit such access in a manner that avoids any such consequence. Parent agrees that all of its and its Subsidiaries’ employees shall, and that it shall use commercially reasonable efforts to cause its Representatives’ employees to, when on the property of SpinCo or its Subsidiaries, or when given access to any facilities, Information, systems, infrastructure or personnel of SpinCo or its Subsidiaries, conform to the policies and procedures of SpinCo and its Subsidiaries, as applicable, concerning health, safety, conduct and security which are made known or provided to Parent from time to time.
(b)    Upon reasonable advance written notice, Parent shall, and shall cause its Subsidiaries to, allow SpinCo and its Subsidiaries and their respective Representatives
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reasonable access to the facilities of Parent and its Subsidiaries that is necessary for SpinCo and its Subsidiaries to fulfill their obligations under this Agreement. In addition to the foregoing right of access, Parent shall, and shall cause its Subsidiaries to, afford SpinCo, its Subsidiaries and their respective Representatives, upon reasonable advance written notice, reasonable access during normal business hours to the facilities, Information, systems, infrastructure and personnel of Parent and its Subsidiaries as reasonably necessary for SpinCo to verify the adequacy of internal controls over information technology, reporting of financial data and related processes employed in connection with the Services being provided by Parent or its Subsidiaries, including in connection with verifying compliance with Section 404 of the Sarbanes-Oxley Act of 2002; provided that (i) such access shall not unreasonably interfere with any of the business or operations of Parent or any of its Subsidiaries and (ii) in the event that Parent determines in good faith that providing such access could violate any applicable Law or agreement or waive any attorney-client privilege, then the Parties shall use commercially reasonable efforts to permit such access in a manner that avoids any such consequence. SpinCo agrees that all of its and its Subsidiaries’ employees shall, and that it shall use commercially reasonable efforts to cause its Representatives’ employees to, when on the property of Parent or its Subsidiaries, or when given access to any facilities, Information, systems, infrastructure or personnel of Parent or its Subsidiaries, conform to the policies and procedures of Parent and its Subsidiaries, as applicable, concerning health, safety, conduct and security which are made known or provided to SpinCo from time to time.
ARTICLE IV
INTELLECTUAL PROPERTY
Section 4.01    Intellectual Property Ownership. As between the parties, subject to the terms of the Separation and Distribution Agreement, the Intellectual Property License Agreement and any other Ancillary Agreements, any Intellectual Property Rights owned or licensed by one party or any of its Affiliates that are provided to the other party or any of such other party’s Affiliates or third-party providers or third-party vendors pursuant to this Agreement shall remain the property of the party providing such Intellectual Property Rights, or the Affiliates of such party that provides same. Recipient shall not remove or alter any copyright, trademark, confidentiality or other proprietary notices that appear on any intellectual property owned or licensed by Provider, and Recipient shall reproduce any such notices on any and all copies thereof. Recipient shall not attempt to decompile, translate, reverse engineer or make excessive copies of any intellectual property owned or licensed by Provider, and Recipient shall promptly notify Provider of any such attempt, regardless of whether by Recipient or any Third Party, of which Recipient becomes aware.
Section 4.02    Deliverables. Provider acknowledges and agrees that, to the fullest extent permitted under applicable Law, any and all materials, products, data, data files, records, reports, documentation, deliverables, work product or other information (including any Intellectual Property Rights therein, collectively, “Deliverables”) generated with respect to the Services shall be deemed “works made for hire” as that phrase is defined in the Copyright Revision Act of 1976 (17 U.S.C. §101) for Recipient and shall be the sole and exclusive property of Recipient. In the event that for any reason the Deliverables are not deemed “works made for hire,” Provider agrees
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to (and shall cause its Affiliates or third-party contractors to) use commercially reasonable efforts to assign and transfer, and does hereby assign and transfer, to Provider, any and all of Provider’s rights, title, and interest in and to such Deliverables. Provider shall (and shall cause its Affiliates or third-party contractors to) execute and deliver any and all instruments and other documents and take such other actions as may be reasonably necessary or reasonably requested by Recipient to document the aforesaid assignment and transfer the Deliverables to Recipient or its Affiliates, as the case may be, or to enable Recipient to secure, register, maintain, enforce or otherwise fully protect its rights in and to the Deliverables. Provider hereby waives any and all of its moral rights that Provider may have in the Deliverables.
Section 4.03    Limited License. Each Party, on behalf of itself and its Affiliates, hereby grants, and shall cause its third-party contractors to grant, to the other Party and its Affiliates, a limited, royalty-free, fully paid-up, worldwide, non-sublicensable (except to third-parties solely to the extent required for the receipt or provision, as the case may be, of any Service), non-exclusive, non-transferable license, solely for the duration of any applicable Service, to use the Intellectual Property Rights owned by or licensed to such party or any of its Affiliates, solely to the extent necessary for, as the case may be, Provider to provide the Services and Recipient to receive and use the Services. Except as expressly identified in this Article IV, nothing contained in this Agreement shall be deemed to grant one party, by implication, estoppel or otherwise, any license rights, ownership rights or other rights in any Intellectual Property Rights owned by the other party (or any Affiliate or third-party contractor of the other party).
Section 4.04    Software Licenses or Services. With respect to any software license or access to software-based services that are provided under or as part of a Service, (i) Recipient shall comply with the terms and conditions of the vendor/licensor applicable to such software license or service, and (ii) Recipient understands that Provider shall, subject to Section 2.02(b), use commercially reasonable efforts to share access to such software license or service, but that Provider might not be able to procure consent to such shared access despite reasonable efforts, in which case Provider shall cooperate in good faith with Recipient in Recipient’s efforts to contract directly with the applicable software vendor (which software/service fees shall be Recipient responsibility); provided, however, that Provider shall not be required to contribute capital, pay or grant any consideration or concession in any form (including by providing any letter of credit, guaranty or other financial accommodation) to any Person in order to obtain or make any consent that is required in order for Provider to provide such software license or service (other than reasonable out-of-pocket expenses, attorneys’ fees and recording or similar fees, all of which shall be reimbursed by the Recipient, as promptly as reasonably practicable).
ARTICLE V
BILLING; TAXES
Section 5.01    Procedure. Recipient shall pay, or cause to be paid to, Provider the Charges for the Services as set forth in this Agreement, including, as applicable, on the Schedules, and, without duplication, all other costs incurred by Provider as set forth in this Agreement. Amounts payable pursuant to this Agreement shall be paid by wire transfer or Automated Clearing House payment (or such other method of payment as may be agreed
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between the Parties from time to time) to Provider (as directed by Provider), which amounts shall be due (a) in the case of recurring Charges, on a quarterly basis on or prior to the first (1st) day of the calendar quarter for which the applicable Service is to be provided, and (b) in the case of all other amounts, within thirty (30) days of Recipient’s receipt of each invoice for Charges, including reasonable documentation pursuant to Section 2.03. All amounts due and payable hereunder shall be paid in U.S. dollars. Any billing Dispute shall be handled pursuant to the procedures set out in Section 9.15; provided, that notwithstanding the existence of any Dispute, Recipient shall promptly pay any undisputed amount(s) .
Section 5.02    Late Payments. Charges not paid when due (including any undisputed amounts) pursuant to this Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within thirty (30) days of the receipt of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to the Prime Rate plus two percent (2%) (the “Interest Payment”).
Section 5.03    Taxes.
(a)    Without limiting any provisions of this Agreement, Recipient shall be responsible for and shall pay any and all excise, sales, use, value-added, goods and services, transfer, stamp, documentary, filing, recordation and other similar Taxes, in each case, imposed or, payable with respect to, or assessed as a result of the provision of Services by Provider or any fees or charges (including any Charges) payable by Recipient pursuant to this Agreement (collectively, “Non-Income Taxes”), but excluding any Taxes measured by reference to net income. The Party required to account for such Non-Income Tax shall provide to the other Party appropriate Tax invoices and, if applicable, evidence of the remittance of the amount of such Non-Income Tax to the relevant Governmental Authority. The Parties shall use commercially reasonable efforts to minimize Non-Income Taxes and to obtain any refund, return, rebate or the like of any Non-Income Tax, including by filing any necessary exemption or other similar forms, certificates or other similar documents, in each case, to the extent legally permissible.
(b)    Notwithstanding anything to the contrary set forth in this Agreement, Recipient shall be entitled to deduct and withhold from any payment to Provider any such Taxes that Recipient is required by any applicable Law to withhold. To the extent any amounts are so deducted and withheld, Recipient shall timely pay when due such deducted and withheld amounts to the proper Governmental Authority and promptly provide to Provider evidence of such payment to such Governmental Authority. The Parties shall use commercially reasonable efforts to minimize withholding Taxes to the extent legally permissible.
(c)    If Provider (i) receives any refund (whether by payment, offset, credit or otherwise) or (ii) utilizes any overpayment, in each case, of Taxes that were borne by Recipient pursuant to this Agreement, then Provider shall promptly pay, or cause to be paid, to Recipient an amount equal to such refund or overpayment, net of any additional Taxes payable by Provider as a result of the receipt of such refund or such overpayment.
Section 5.04    No Set-Off. Except as mutually agreed in writing by the Parties, no Party nor any of its Affiliates shall have any right of set-off or other similar rights with respect to
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(a) any amounts received pursuant to this Agreement or (b) any other amounts claimed to be owed to the other Party or any of its Subsidiaries arising out of this Agreement.
Section 5.05    Audit Rights. Subject to the confidentiality provisions of this Agreement, each Party shall, and shall cause their respective Affiliates to, provide, upon ten (10) days’ prior written notice from the other Party, any Information within such Party’s or its Affiliates’ possession that the requesting Party reasonably requests in connection with any Services being provided to such requesting Party by the other Party or a Third Party service provider, including any applicable invoices or other supporting documentation, and in the case of a Third Party service provider, agreements documenting the arrangements between such Third Party service provider and Provider; provided, however, that each Party shall make no more than one (1) such request during any calendar quarter. The requesting Party shall reimburse the other Party for any reasonable, documented, out-of-pocket costs incurred in connection with such other Party providing such Information.
ARTICLE VI
TERM AND TERMINATION
Section 6.01    Term. This Agreement shall commence at the Effective Time and shall terminate upon the earliest to occur of (a) the close of business on the last day of the last Service Period with respect to any Service either Party is obligated to provide to the other Party in accordance with the terms of this Agreement and the Schedules hereto and (b) the mutual written agreement of the Parties to terminate this Agreement in its entirety. Unless otherwise terminated pursuant to Section 6.02, this Agreement shall terminate with respect to each Service as of the close of business on the last day of the Service Period for such Service; provided that Recipient may request to extend any Service Period for any Service to the extent reasonably necessary, in order to continue the operations of Recipient in a manner consistent with its operations during the Service Baseline Period, by providing written notice to Provider, specifying the requested length of such extension, no later than thirty (30) days prior to the scheduled end of the Service Period with respect to such Service. Upon receipt of such extension request, Provider shall continue to perform such Service for the extended period as set out in such extension request on the same terms and conditions as are provided on the applicable Schedule and this Agreement; provided, however, that the cost set forth in the applicable Schedule for the applicable Service shall be increased by twenty percent (20%) with respect to any such Service each three (3) month period occurring after the initial Service Period. Without the prior agreement of Provider, in no event shall Recipient be entitled to extend a service for a period that is more than three (3) months after the end of the initial Service Period set forth in the applicable Schedule. In no event shall the aggregate term (i.e., the initial Service Period plus any extension period(s), including any extension periods previously permitted under this Agreement) for any Service exceed a period of twenty-four (24) months after the Distribution Date.
Section 6.02    Early Termination.
(a)    Without prejudice to Recipient’s rights with respect to Force Majeure, Recipient may from time to time terminate this Agreement with respect to the entirety of any Service (but not any portion thereof) (i) for any reason or no reason, upon the giving of at least
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thirty (30) days’ prior written notice to Provider; provided, however, that such termination (x) may only be effective as of the last day of a calendar month and (y) shall be subject to the obligation to pay any applicable Termination Charges pursuant to Section 6.04, or (ii) if Provider has failed to perform any of its material obligations under this Agreement with respect to such Service, and such failure shall continue to be uncured by Provider for a period of at least thirty (30) days after receipt by Provider of written notice of such failure from Recipient; provided, however, that (i) such termination may only be effective as of the last day of a month and (ii) Recipient shall not be entitled to terminate this Agreement with respect to the applicable Service if, as of the end of such period, there remains a good faith Dispute between the Parties (undertaken in accordance with the terms of Section 9.15) as to whether Provider has cured the applicable breach.
(b)    Provider may terminate this Agreement with respect to the entirety or portion of any Service at any time upon prior written notice to Recipient, if Recipient has failed to perform any of its material obligations under this Agreement with respect to such Service, including making payment of Charges for such Service when due, and such failure shall continue to be uncured by Recipient for a period of at least thirty (30) days after receipt by Recipient of a written notice of such failure from Provider; provided, however, that Provider shall not be entitled to terminate this Agreement with respect to the applicable Service if, as of the end of such period, there remains a good faith Dispute between the Parties (undertaken in accordance with the terms of Section 9.15) as to whether Recipient has cured the applicable breach.
(c)    Parent may terminate this Agreement with respect to all Services provided by Parent if there is a SpinCo Change of Control.
(d)    The Schedules hereto shall be updated to reflect any terminated Service.
Section 6.03    Interdependencies. The Parties acknowledge and agree that (a) there may be interdependencies among the Services being provided under this Agreement; (b) upon the request of either Party, the Parties shall cooperate and act in good faith to determine whether (i) any such interdependencies exist with respect to the particular Service that Recipient is seeking to terminate pursuant to Section 6.02, and (ii) in the case of such termination, Provider’s ability to provide a particular Service in accordance with this Agreement would be materially and adversely affected by such termination of another Service; and (c) in the event that the Parties have determined that such interdependencies exist and such termination would materially and adversely affect Provider’s ability to provide a particular Service in accordance with this Agreement, the Parties shall (i) negotiate in good faith to amend the Schedules hereto with respect to such impacted Service prior to such termination, which amendment shall be consistent with the terms of comparable Services, and (ii) if after such negotiation, the Parties are unable to agree on such amendment, Provider’s obligation to provide such Service shall terminate automatically with such termination.
Section 6.04    Effect of Termination. Upon the termination of any Service pursuant to this Agreement, Provider shall have no further obligation to provide the terminated Service, and Recipient shall have no obligation to pay any future Charges relating to such Service; provided, however, that Recipient shall remain obligated to Provider for (a) the Charges owed and payable
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in respect of Services provided prior to the effective date of termination for such Service and (b) any applicable Termination Charges (which Termination Charges shall be payable only in the event that Recipient terminates any Service pursuant to Section 6.02(a)(i)). In connection with the termination of any Service, the provisions of this Agreement not relating solely to such terminated Service shall survive any such termination, and in connection with a termination of this Agreement, Article I, this Article VI, Article VIII and Article IX, all confidentiality obligations under this Agreement and Liability for all due and unpaid Charges and Termination Charges shall continue to survive indefinitely.
Section 6.05    Information Transmission. Provider, on behalf of itself and its Subsidiaries, shall use commercially reasonable efforts to provide or make available, or cause to be provided or made available, to Recipient, in accordance with Section 6.1 of the Separation and Distribution Agreement and to the extent permissible, any Information received or computed by Provider for the benefit of Recipient concerning the relevant Service during the Service Period as reasonably requested by Recipient; provided, however, that, except as otherwise agreed in writing by the Parties, (a) Provider shall not have any obligation to provide, or cause to be provided, Information in any nonstandard format, (b) Provider and its Subsidiaries shall be reimbursed for their reasonable costs in accordance with Section 6.3 of the Separation and Distribution Agreement for creating, gathering, copying, transporting and otherwise providing such Information and (c) Provider shall use commercially reasonable efforts to maintain any such Information in accordance with Section 6.4 of the Separation and Distribution Agreement.
ARTICLE VII
CONFIDENTIALITY; PROTECTIVE ARRANGEMENTS
Section 7.01    Parent and SpinCo Obligations. Subject to Section 7.04, until the five (5)-year anniversary of the date of the termination of this Agreement in its entirety, each of Parent and SpinCo, on behalf of itself and each of its Subsidiaries, agrees to hold, and to cause its respective Representatives to hold, in strict confidence, with at least the same degree of care that applies to Parent’s Confidential Information pursuant to policies in effect as of the Effective Time, all Confidential Information concerning the other Party or its Subsidiaries or their respective businesses that is either in its possession (including Confidential Information in its possession prior to the date hereof) or furnished by such other Party or such other Party’s Subsidiaries or their respective Representatives at any time pursuant to this Agreement, and shall not use any such Confidential Information other than for such purposes as may be expressly permitted hereunder, except, in each case, to the extent that such Confidential Information (a) is in the public domain or is generally available to the public, other than as a result of a disclosure by such Party or any of its Subsidiaries or any of their respective Representatives in violation of this Agreement; (b) is lawfully acquired from other sources by such Party or any of its Subsidiaries, which sources are not themselves known by such Party or any of its Subsidiaries to be bound by a confidentiality obligation or other contractual, legal or fiduciary obligation of confidentiality with respect to such Confidential Information; or (c) is independently developed or generated without reference to or use of the Confidential Information of the other Party or any of its Subsidiaries. If any Confidential Information of a Party or any of its Subsidiaries is disclosed to the other Party or any of its Subsidiaries in connection with providing the Services,
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then such disclosed Confidential Information shall be used only as required to perform such Services.
Section 7.02    No Release; Return or Destruction. Each Party agrees (a) not to release or disclose, or permit to be released or disclosed, any Confidential Information of the other Party pursuant to Section 7.01 to any other Person, except its Representatives who need to know such Confidential Information in their capacities as such (who shall be advised of their obligations hereunder with respect to such Confidential Information) and except in compliance with Section 7.04, and (b) to use commercially reasonable efforts to maintain such Confidential Information in accordance with Section 6.4 of the Separation and Distribution Agreement. Without limiting the foregoing, when any such Confidential Information is no longer needed for the purposes contemplated by the Separation and Distribution Agreement, this Agreement or any other Ancillary Agreements, each Party will promptly after request of the other Party either return to the other Party all such Confidential Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or notify the other Party in writing that it has destroyed such information (and such copies thereof and such notes, extracts or summaries based thereon); provided that the Parties may retain electronic back-up versions of such Confidential Information maintained on routine computer system back-up tapes, disks or other back-up storage devices; and provided, further, that any such retained back-up information shall remain subject to the confidentiality provisions of this Agreement.
Section 7.03    Privacy and Data Protection Laws. Each Party shall comply with all applicable state, federal and foreign Laws relating to the collection, use, processing, or storage of Personal Information that are or that may in the future be applicable to the provision of the Services under this Agreement.
Section 7.04    Protective Arrangements. In the event that a Party or any of its Subsidiaries either determines on the advice of its counsel that it is required to disclose any information pursuant to applicable Law or receives any request or demand under lawful process or from any Governmental Authority to disclose or provide information of the other Party (or any of its Subsidiaries) that is subject to the confidentiality provisions hereof, such Party shall notify the other Party (to the extent legally permitted) as promptly as practicable under the circumstances prior to disclosing or providing such information and shall cooperate, at the expense of the other Party, in seeking any appropriate protective order requested by the other Party. In the event that such other Party fails to receive such appropriate protective order in a timely manner and the Party receiving the request or demand reasonably determines that its failure to disclose or provide such information shall actually prejudice the Party receiving the request or demand, then the Party that received such request or demand may thereafter disclose or provide information to the extent required by such Law (as so advised by its counsel) or by lawful process or such Governmental Authority, and the disclosing Party shall promptly provide the other Party with a copy of the information so disclosed, in the same form and format so disclosed, together with a list of all Persons to whom such information was disclosed, in each case to the extent legally permitted.
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ARTICLE VIII
LIMITED LIABILITY AND INDEMNIFICATION
Section 8.01    Limitations on Liability.
(a)    SUBJECT TO SECTION 8.02 AND EXCEPT FOR THE FAILURE TO PAY FOR SERVICES, THE TOTAL LIABILITIES OF EITHER PARTY AND ITS SUBSIDIARIES AND THEIR RESPECTIVE REPRESENTATIVES, COLLECTIVELY, UNDER THIS AGREEMENT FOR ANY ACT OR FAILURE TO ACT IN CONNECTION HEREWITH (INCLUDING THE PERFORMANCE OR BREACH OF THIS AGREEMENT), OR FROM THE SALE, DELIVERY, PROVISION OR USE OF ANY SERVICES PROVIDED UNDER OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR OTHERWISE, SHALL NOT EXCEED 100% OF THE AGGREGATE CHARGES PAID AND PAYABLE UNDER THIS AGREEMENT TO SUCH PARTY IN RESPECT OF SERVICES PROVIDED BY SUCH PARTY UNDER THIS AGREEMENT.
(b)    IN NO EVENT SHALL EITHER PARTY, ITS SUBSIDIARIES OR THEIR RESPECTIVE REPRESENTATIVES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, PUNITIVE, EXEMPLARY, REMOTE, SPECULATIVE OR SIMILAR DAMAGES IN EXCESS OF COMPENSATORY DAMAGES OF THE OTHER PARTY IN CONNECTION WITH THE PERFORMANCE OF THIS AGREEMENT (OTHER THAN ANY SUCH LIABILITY WITH RESPECT TO A THIRD-PARTY CLAIM), AND EACH PARTY HEREBY WAIVES ON BEHALF OF ITSELF, ITS SUBSIDIARIES AND ITS REPRESENTATIVES ANY CLAIM FOR SUCH DAMAGES, WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE.
(c)    The limitations in Section 8.01(a) and Section 8.01(b) shall not apply in respect of any Liability arising out of or in connection with (i) either Party’s Liability for breaches of confidentiality under Article VI, (ii) the Parties’ respective obligations under Section 8.03 or (iii) the willful misconduct or fraud of or by the Party to be charged.
Section 8.02    Obligation to Re-Perform; Liabilities. In the event of any breach of this Agreement by Provider with respect to the provision of any Services (with respect to which Provider can reasonably be expected to re-perform in a commercially reasonable manner), Provider shall, at the request of Recipient, promptly correct in all material respects such error, defect or breach or re-perform in all material respects such Services at the sole cost and expense of Provider. Notwithstanding anything herein to the contrary, the remedy set forth in this Section 8.02 shall be the sole and exclusive remedy of Recipient for any such breach of this Agreement; provided, however, that the foregoing shall not prohibit Recipient from exercising its right to terminate this Agreement in accordance with the provisions of Section 6.02(a) or to seek specific performance in accordance with Section 9.16. Any request for re-performance in accordance with this Section 8.02 by Recipient must be in writing and specify in reasonable detail the particular error, defect or breach, and such request must be made no more than one month from the later of (a) the date on which such breach occurred and (b) the date on which such breach was reasonably discovered by Recipient.
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Section 8.03    Third-Party Claims. In addition to (but not in duplication of) its other indemnification obligations (if any) under the Separation and Distribution Agreement, this Agreement or any other Ancillary Agreement, Recipient shall indemnify, defend and hold harmless Provider, its Subsidiaries and each of their respective Representatives, and each of the successors and assigns of any of the foregoing (collectively, the “Provider Indemnitees”), from and against any and all claims of Third Parties relating to, arising out of or resulting from Recipient’s use or receipt of the Services provided by Provider hereunder, other than Third-Party Claims to the extent arising out of the gross negligence, bad faith, willful misconduct or fraud of any Provider Indemnitee.
Section 8.04    Provider Indemnity. Subject to the limitations in Section 8.01(a) and Section 8.01(b), in addition to (but not in duplication of) its other indemnification obligations (if any) under the Separation and Distribution Agreement, this Agreement or any other Ancillary Agreement, Provider shall indemnify, defend and hold harmless Recipient and its Subsidiaries, and each of the successors and assigns of any of the foregoing (collectively, the “Recipient Indemnitees”), from and against any and all Liabilities to the extent relating to, arising out of or resulting from the sale, delivery or provision of any Services provided by Provider hereunder, but only to the extent that such Liability relates to, arises out of or results from Provider’s gross negligence, bad faith, willful misconduct or fraud with respect to the sale, delivery or provision of any Services provided by Provider hereunder.
Section 8.05    Recipient Indemnity. Subject to the limitations in Section 8.01(a) and Section 8.01(b), in addition to (but not in duplication of) its other indemnification obligations (if any) under the Separation and Distribution Agreement, this Agreement or any other Ancillary Agreement, Recipient shall indemnify, defend and hold harmless Provider Indemnitees, from and against any and all Liabilities to the extent relating to, arising out of or resulting from the sale, delivery or provision of any Services provided by Provider hereunder, but only to the extent that such Liability relates to, arises out of or results from Recipient’s gross negligence, bad faith, willful misconduct or fraud with respect to the sale, delivery or provision of any Services provided by Provider hereunder.
Section 8.06    Indemnification Procedures. The procedures for indemnification set forth in Sections 4.5, 4.6 and 4.7 of the Separation and Distribution Agreement shall govern claims for indemnification under this Agreement.
ARTICLE IX
MISCELLANEOUS
Section 9.01    Mutual Cooperation. Each Party shall, and shall cause its Subsidiaries to, cooperate with the other Party and its Subsidiaries in connection with the performance of the Services hereunder; provided, however, that such cooperation shall not unreasonably disrupt the normal operations of such Party or its Subsidiaries; and, provided, further, that this Section 9.01 shall not require such Party to incur any out-of-pocket costs or expenses, unless and except as expressly provided in this Agreement or otherwise agreed in writing by the Parties.
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Section 9.02    Further Assurances. Subject to the terms of this Agreement, each Party shall take, or cause to be taken, any and all reasonable actions, including the execution, acknowledgment, filing and delivery of any and all documents and instruments that any other Party may reasonably request in order to effect the intent and purpose of this Agreement and the transactions contemplated hereby.
Section 9.03    Audit Assistance. Each of the Parties and their respective Subsidiaries are or may be subject to regulation and audit by a Governmental Authority (including a Taxing Authority), standards organizations, customers or other parties to contracts with such Parties or their respective Subsidiaries under applicable Law, standards or contract provisions. If a Governmental Authority, standards organization, customer or other party to a contract with a Party or its Subsidiary exercises its right to examine or audit such Party’s or its Subsidiary’s books, records, documents or accounting practices and procedures pursuant to such applicable Law, standards or contract provisions, and such examination or audit relates to the Services, then the other Party shall provide, at the sole cost and expense of the requesting Party, all assistance reasonably requested by the Party that is subject to the examination or audit in responding to such examination or audits or requests for Information, to the extent that such assistance or Information is within the reasonable control of the cooperating Party and is related to the Services.
Section 9.04    Independent Contractors. The Parties each acknowledge and agree that they are separate entities, each of which has entered into this Agreement for independent business reasons. The relationships of the Parties hereunder are those of independent contractors and nothing contained herein shall be deemed to create a joint venture, partnership or any other relationship between the Parties. Employees performing Services hereunder do so on behalf of, under the direction of, and as employees of, Provider, and Recipient shall have no right, power or authority to direct such employees, unless otherwise specified with respect to a particular Service on the Schedules hereto.
Section 9.05    Counterparts; Entire Agreement; Corporate Power.
(a)    This Agreement may be executed in one (1) or more counterparts, all of which shall be considered one (1) and the same agreement, and shall become effective when one (1) or more counterparts have been signed by each of the Parties and delivered to the other Party.
(b)    This Agreement, the Separation and Distribution Agreement and the other Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein. This Agreement, the Separation and Distribution Agreement, and the other Ancillary Agreements govern the arrangements in connection with the Separation and the Distribution and would not have been entered independently.
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(c)    Parent represents on behalf of itself and, to the extent applicable, each of its Subsidiaries, and SpinCo represents on behalf of itself and, to the extent applicable, each of its Subsidiaries, as follows:
(i)    each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and
(ii)    this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it and is enforceable in accordance with the terms hereof.
(d)    Each Party acknowledges and agrees that delivery of an executed counterpart of a signature page to this Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by e-mail in portable document format (PDF) shall be effective as delivery of such executed counterpart of this Agreement. Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by e-mail in portable document format (PDF)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause this Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.
Section 9.06    Governing Law. This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any Party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware, irrespective of the choice of Laws principles of the State of Delaware, including all matters of validity, construction, effect, enforceability, performance and remedies.
Section 9.07    Assignability. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns; provided, however, that neither Party may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other Party. Notwithstanding the foregoing, no such consent shall be required for the assignment of a Party’s rights and obligations under the Separation and Distribution Agreement, this Agreement and the other Ancillary Agreements in whole (i.e., the assignment of a Party’s rights and obligations under the Separation and Distribution Agreement, this Agreement and all of the other Ancillary Agreements all at the same time) in connection with a merger, consolidation or other business combination of a Party with or into any other Person or a sale of all or substantially all of the assets of a Party to another Person, in each case so long as the resulting, surviving or acquiring Person assumes all of the obligations of the relevant Party by operation of Law or pursuant to an agreement in form and
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substance reasonably satisfactory to the other Party; provided, further, that, in connection with the acquisition by a purchaser of all or a significant portion of a business unit of Parent or its Affiliates, whether such acquisition is effected by a share purchase or sale of assets, Parent may assign its rights and obligations, in whole or in part, under this Agreement to such purchaser upon the consummation of such acquisition.
Section 9.08    Third-Party Beneficiaries. Except as provided in Article VIII with respect to the Provider Indemnitees and the Recipient Indemnitees in their respective capacities as such, (a) the provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any other Person except the Parties any rights or remedies hereunder; and (b) there are no other third-party beneficiaries of this Agreement and this Agreement shall not provide any other Third Party with any remedy, claim, Liability, reimbursement, claim of action or other right.
Section 9.09    Notices. All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and except as provided herein shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by certified mail, return receipt requested, by facsimile, or by electronic mail (“e-mail”), so long as confirmation of receipt of such e-mail is requested and received, to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 9.09):
If to Parent, to:
XPO Logistics, Inc.
Five American Lane
Greenwich, CT 06831
Attention:Chief Financial Officer, Ravi Tulsyan
E-mail:
[●]
with a copy (which shall not constitute notice) to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Attention:Scott A. Barshay
Steven J. Williams
E-mail:sbarshay@paulweiss.com
swilliams@paulweiss.com
If to SpinCo, to:
RXO, Inc.
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[__]
[__]
[__]
Attention:[__]
E-mail:   [__]
with a copy (which shall not constitute notice), to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Attention:Scott A. Barshay
Steven J. Williams
E-mail:sbarshay@paulweiss.com
swilliams@paulweiss.com
Any Party may, by notice to the other Party, change the address to which such notices are to be given.
Section 9.10    Severability. If any provision of this Agreement or any Ancillary Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
Section 9.11    Force Majeure. No Party shall be deemed in default of this Agreement for any delay or failure to fulfill any obligation hereunder so long as and to the extent to which any delay or failure in the fulfillment of such obligations is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. Without limiting the termination rights contained in this Agreement, in the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such Force Majeure, (a) provide written notice to the other Party of the nature and extent of such Force Majeure; and (b) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement as soon as reasonably practicable (and in no event later than the date that the affected Party resumes analogous performance under any other agreement for itself, its Affiliates or any Third Party), unless this Agreement has previously been terminated under Article VI or this Section 9.11. Recipient shall be (i) relieved of the obligation to pay Charges for the affected Service(s) throughout the duration of such Force Majeure and (ii) entitled to permanently terminate such Service(s) if the delay or failure in providing such
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Services because of a Force Majeure shall continue to exist for more than thirty (30) consecutive days (it being understood that Recipient shall not be required to provide any advance notice of such termination to Provider).
Section 9.12    Headings. The Article, Section and Paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Section 9.13    Survival of Covenants. Except as expressly set forth in this Agreement, the covenants, representations and warranties and other agreements contained in this Agreement, and Liability for the breach of any obligations contained herein, shall survive the Effective Time and shall remain in full force and effect thereafter.
Section 9.14    Waivers of Default. Waiver by a Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by a Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 9.15    Dispute Resolution.
(a)    In the event of any controversy, dispute or claim (a “Dispute”) arising out of or relating to any Party’s rights or obligations under this Agreement (whether arising in contract, tort or otherwise), calculation or allocation of the costs of any Service or otherwise arising out of or relating in any way to this Agreement (including the interpretation or validity of this Agreement), such Dispute shall be resolved by submitting such Dispute (including in reasonable detail the basis for such Dispute) first to the relevant Contract Manager of each Party, and the Contract Managers shall seek to resolve such Dispute through informal good faith negotiation. In the event that the Contract Managers fail to meet, or if they meet and fail to resolve a Dispute, within twenty (20) Business Days of the submission of such Dispute, then either Party may pursue the remedy set forth in Section 9.15(b).
(b)    If the procedures set forth in Section 9.15(a) have been followed with respect to a Dispute and such Dispute remains unresolved, such Dispute shall be resolved in accordance with the dispute resolution process referred to in Article VII of the Separation and Distribution Agreement.
(c)    In any Dispute regarding the amount of a Charge or a Termination Charge, if such Dispute is finally resolved pursuant to the dispute resolution process set forth or referred to in Section 9.15(a) and (b) and it is determined that the Charge or the Termination Charge, as applicable, that Provider has invoiced Recipient, and that Recipient has paid to Provider, is greater or less than the amount that the Charge or the Termination Charge, as applicable, should have been, then (i) if it is determined that Recipient has overpaid the Charge or the Termination Charge, as applicable, Provider shall within ten (10) calendar days after such determination reimburse Recipient an amount of cash equal to such overpayment, plus the Interest Payment,
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accruing from the date of payment by Recipient to the time of reimbursement by Provider; and (ii) if it is determined that Recipient has underpaid the Charge or the Termination Charge, as applicable, Recipient shall within ten (10) calendar days after such determination reimburse Provider an amount of cash equal to such underpayment, plus the Interest Payment, accruing from the date such payment originally should have been made by Recipient to the time of payment by Recipient.
Section 9.16    Specific Performance. Subject to Section 9.15, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief in respect of its or their rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative (and, for the avoidance of doubt, shall be pursued in accordance with Section 9.15 or Article VII of the Separation and Distribution Agreement, as applicable). The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by each of the Parties. Unless otherwise agreed in writing, Provider shall continue to provide Services and the Parties shall honor all other commitments under this Agreement during the course of dispute resolution pursuant to the provisions of Section 9.15 and this Section 9.16 with respect to all matters not subject to such Dispute; provided, however, that this obligation shall only exist during the term of this Agreement.
Section 9.17    Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.
Section 9.18    Precedence of Schedules. Each Schedule attached to or referenced in this Agreement is hereby incorporated into and shall form a part of this Agreement; provided, however, that the terms contained in such Schedule shall only apply with respect to the Services provided under that Schedule. In the event of a conflict between the terms contained in an individual Schedule and the terms in the body of this Agreement, the terms in the Schedule shall take precedence with respect to the Services under such Schedule only. No terms contained in individual Schedules shall otherwise modify the terms of this Agreement.
Section 9.19    Interpretation. In this Agreement, (a) words in the singular shall be deemed to include the plural and vice versa and words of one gender shall be deemed to include the other genders as the context requires; (b) the terms “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules, Annexes and Exhibits hereto) and not to any particular provision of this Agreement; (c) Article, Section, Exhibit, Annex and Schedule references are to the Articles, Sections, Exhibits, Annexes and Schedules to this Agreement, unless otherwise specified; (d) unless otherwise stated, all references to any agreement shall be deemed to include
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the exhibits, schedules and annexes to such agreement; (e) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise specified; (f) the word “or” need not be exclusive; (g) unless otherwise specified in a particular case, the word “days” refers to calendar days; (h) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified; and (i) unless expressly stated to the contrary in this Agreement, all references to “the date hereof,” “the date of this Agreement” and “hereby” and words of similar import shall all be references to [●], 2022.
Section 9.20    Mutual Drafting. This Agreement shall be deemed to be the joint work product of the Parties and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable to this Agreement.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.
XPO LOGISTICS, INC.
By:
Name:Ravi Tulsyan
Title:Chief Financial Officer
RXO, INC.
By:
Name:
Title:
[Signature Page to Transition Services Agreement]
Exhibit 2.3
TAX MATTERS AGREEMENT
BY AND BETWEEN
XPO LOGISTICS, INC.
AND
RXO, INC.
DATED AS OF [●], 2022


TABLE OF CONTENTS
Page
SECTION 1.
DEFINITION OF TERMS
2
SECTION 2.
ALLOCATION OF TAX LIABILITIES
11
Section 2.01
General Rule
11
Section 2.02
Allocation of Federal Income Tax and Federal Other Tax
12
Section 2.03
Allocation of State Income and State Other Taxes
12
Section 2.04
Allocation of Foreign Taxes
13
Section 2.05
Certain Transaction and Other Taxes
13
SECTION 3.
PRORATION OF TAXES FOR STRADDLE PERIODS.
14
SECTION 4.
PREPARATION AND FILING OF TAX RETURNS.
15
Section 4.01
General
15
Section 4.02
XPO’s Responsibility
15
Section 4.03
SpinCo’s Responsibility
15
Section 4.04
Reserved
15
Section 4.05
Tax Accounting Practices
15
Section 4.06
Consolidated or Combined Tax Returns
16
Section 4.07
Right to Review Tax Returns
17
Section 4.08
SpinCo Carrybacks and Claims for Refund
17
Section 4.09
Apportionment of Earnings and Profits and Other Tax Attributes
18
Section 4.10
Section 367 Transactions
19
SECTION 5.
TAX PAYMENTS.
19
Section 5.01
Payment of Taxes with Respect to Tax Returns
19
Section 5.02
Indemnification Payments
19
SECTION 6.
TAX BENEFITS
20
Section 6.01
Tax Benefits.
20
Section 6.02
XPO and SpinCo Income Tax Deductions in Respect of Certain Equity Awards and Incentive Compensation
21
SECTION 7.
TAX-FREE STATUS.
22
Section 7.01
Representations.
22
Section 7.02
Restrictions on SpinCo
22
Section 7.03
Restrictions on XPO
25
Section 7.04
Procedures Regarding Opinions and Rulings
25
Section 7.05
Liability for Tax-Related Losses
26
Section 7.06
Section 336(e) Election
29
i

Section 7.07
Certain Assumptions
29
SECTION 8.
ASSISTANCE AND COOPERATION.
29
Section 8.01
Assistance and Cooperation.
29
Section 8.02
Income Tax Return Information
30
Section 8.03
Reliance by XPO
31
Section 8.04
Reliance by SpinCo
31
SECTION 9.
TAX RECORDS
31
Section 9.01
Retention of Tax Records
31
Section 9.02
Access to Tax Records
32
SECTION 10.
TAX CONTESTS
32
Section 10.01
Notice
32
Section 10.02
Control of Tax Contests
32
SECTION 11.
EFFECTIVE DATE; TERMINATION OF PRIOR
34
INTERCOMPANY TAX ALLOCATION AGREEMENTS.
34
SECTION 12.
SURVIVAL OF OBLIGATIONS.
34
SECTION 13.
TREATMENT OF PAYMENTS; TAX GROSS UP.
34
Section 13.01
Treatment of Tax Indemnity and Tax Benefit Payments
34
Section 13.02
Tax Gross Up
35
Section 13.03
Interest
35
SECTION 14.
DISAGREEMENTS.
35
SECTION 15.
LATE PAYMENTS.
36
SECTION 16.
EXPENSES.
36
SECTION 17.
GENERAL PROVISIONS.
36
Section 17.01
Specified Matters
36
Section 17.02
Addresses and Notices
36
Section 17.03
Binding Effect
38
Section 17.04
Waiver of Default
38
Section 17.05
Severability
38
Section 17.06
Authority
39
Section 17.07
Further Action
39
Section 17.08
Integration
39
Section 17.09
Construction
39
Section 17.10
No Double Recovery
40
Section 17.11
Counterparts
40
Section 17.12
Governing Law
40
Section 17.13
Amendment
40
ii

Section 17.14
SpinCo Subsidiaries
40
Section 17.15
Successors
40
Section 17.16
Specific Performance
41
Section 17.17
Survival of Covenants
41
iii

TAX MATTERS AGREEMENT
This TAX MATTERS AGREEMENT, dated as of [●], 2022 (this “Agreement”), is by and between XPO Logistics, Inc., a Delaware corporation (“XPO”) and RXO, Inc., a Delaware corporation and a wholly owned subsidiary of XPO (“SpinCo”) (collectively, the “Companies” and each a “Company”).
R E C I T A L S
WHEREAS, XPO and SpinCo have entered into a Separation and Distribution Agreement, dated as of [●], 2022 (the “Separation and Distribution Agreement”), providing for (i) the separation of the SpinCo Group from the XPO Group (the “Separation”) and, following the Separation, (ii) the distribution, on a pro rata basis, to holders of XPO Shares on the Record Date of 100% of the outstanding SpinCo Shares (the “Distribution”);
WHEREAS, pursuant to the terms of the Separation and Distribution Agreement, among other things, XPO has taken or will take the following actions: (a) (i) directly or indirectly contribute the SpinCo Assets to SpinCo and cause SpinCo to directly or indirectly assume the SpinCo Liabilities, in actual or constructive exchange for (A) the issuance by SpinCo to XPO of SpinCo Shares and (B) the transfer by SpinCo to XPO of cash, including some or all of the proceeds of the SpinCo Financing Arrangements (the “SpinCo Cash Proceeds” and such contribution, the “Contribution”) and (ii) transfer the SpinCo Cash Proceeds to one or more third-party creditors of XPO (the “XPO Debt Repayment”) in connection with the Plan of Reorganization; and (b) effect the Distribution;
WHEREAS, for Federal Income Tax purposes, it is intended that each of the Internal Distribution and the Distribution (together with the Contribution) shall qualify as a transaction that is generally tax-free pursuant to Sections 355(a) and 368(a)(1)(D) of the Code;
WHEREAS, as of the date hereof, XPO is the common parent of an affiliated group (as defined in Section 1504 of the Code) of corporations, including SpinCo, which has elected to file consolidated Federal Income Tax Returns;
WHEREAS, as a result of the Distribution, SpinCo and its subsidiaries will cease to be members of the affiliated group of which XPO is the common parent; and
WHEREAS, the Parties desire to provide for and agree upon the allocation between the Parties of liabilities for Taxes arising prior to, as a result of and subsequent to, the Distribution, and to provide for and agree upon other matters relating to Taxes;
NOW THEREFORE, in consideration of the mutual agreements contained herein, the Parties hereby agree as follows:


Section 1.    Definition of Terms.
For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings, and capitalized terms used but not otherwise defined herein shall have the meaning ascribed to them in the Separation and Distribution Agreement:
“Adjustment Request” shall mean any formal or informal claim or request filed with any Tax Authority, or with any administrative agency or court, for the adjustment, refund, or credit of Taxes, including (a) any amended Tax Return claiming adjustment to the Taxes as reported on the Tax Return or, if applicable, as previously adjusted, (b) any claim for equitable recoupment or other offset, and (c) any claim for refund or credit of Taxes previously paid.
“Agreement” shall mean this Tax Matters Agreement.
“Capital Stock” shall mean all classes or series of capital stock, including (a) common stock, (b) all options, warrants and other rights to acquire such capital stock and (c) all instruments properly treated as stock for Federal Income Tax purposes.
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Companies” and “Company” shall have the meaning provided in the first sentence of this Agreement.
“Contribution” shall have the meaning set forth in the Recitals. For the avoidance of doubt, qualification of the Contribution (including as part of the External Separation Transaction) as part of a transaction described in Section 368(a)(1)(D) and Section 355(a) of the Code relates to only the portion of the Contribution that comprises of any legal contribution to, or assumption by, RXO in connection with the Contribution of any SpinCo Assets or SpinCo Liabilities legally held by XPO.
“Debt Reallocation” shall mean (a) any actual or deemed assumption of XPO debt by SpinCo in connection with the Contribution, (b) the receipt by XPO of the SpinCo Cash Proceeds and (c) the XPO Debt Repayment.
“Deconsolidation Date” shall mean the last day on which SpinCo qualifies as a member of the affiliated group (as defined in Section 1504 of the Code) of which XPO is the common parent.
“DGCL” shall mean the Delaware General Corporation Law.
“Distribution” shall have the meaning provided in the Recitals.
“External Separation Transaction” shall mean each of (a) the Contribution and the Distribution and (b) the Debt Reallocation.
“Federal Income Tax” shall mean any Tax imposed by Subtitle A of the Code, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
2

“Federal Other Tax” shall mean any Tax imposed by the federal government of the United States other than any Federal Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
“Fifty-Percent or Greater Interest” shall have the meaning ascribed to such term for purposes of Sections 355(d) and (e) of the Code.
“Final Determination” shall mean the final resolution of liability for any Tax, which resolution may be for a specific issue or adjustment or for a Tax Period, (a) by IRS Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the taxpayer, or by a comparable form under the laws of a State, local, or foreign taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall not constitute a Final Determination to the extent that it reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund or the right of the Tax Authority to assert a further deficiency in respect of such issue or adjustment or for such Tax Period (as the case may be); (b) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (c) by a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the laws of a State, local, or foreign taxing jurisdiction; (d) by any allowance of a refund or credit in respect of an overpayment of Income Tax or Other Tax, but only after the expiration of all Tax Periods during which such refund may be recovered (including by way of offset) by the jurisdiction imposing such Income Tax or Other Tax; or (e) by any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the Parties.
“Foreign Income Tax” shall mean any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, which is an income tax as defined in Treasury Regulations Section 1.901-2, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
“Foreign Other Tax” shall mean any Tax imposed by any foreign country or any possession of the United States, or by any political subdivision of any foreign country or United States possession, other than any Foreign Income Taxes and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
“Foreign Separations” shall mean the internal restructuring transactions intended to effect the separation of (a) the XPO Assets and XPO Liabilities from the SpinCo Assets and SpinCo Liabilities and/or (b) the SpinCo Assets and SpinCo Liabilities from the XPO Assets and XPO Liabilities, in each case, held by certain subsidiaries of XPO organized in jurisdictions outside of the United States (including through the direct transfer of equity interests in any such subsidiary).
“Foreign Tax” shall mean any Foreign Income Taxes or Foreign Other Taxes.
“Foreign Tax-Free Status” shall mean, with respect to (a) each of the Foreign Separations, the qualification thereof for non-recognition of income or gain (or similar treatment) for Foreign Income Tax purposes under the laws of the relevant foreign jurisdiction and (b) any Foreign Separation that is covered by a Tax Opinion or other written guidance addressing the
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Foreign Tax treatment thereof, the qualification of such transaction for the Foreign Tax treatment set forth in such Tax Opinion or other written guidance, it being understood and agreed that written guidance shall include any intended tax treatment set forth in the Plan of Reorganization.
“Former Parent Group Employee” shall have the meaning set forth in the Employee Matters Agreement.
“Former SpinCo Group Employee” shall have the meaning set forth in the Employee Matters Agreement.
“Group” shall mean the XPO Group or the SpinCo Group, as the context requires.
“Income Tax” shall mean any Federal Income Tax, State Income Tax or Foreign Income Tax.
“Internal Distribution” shall mean (a) the deemed contribution by XPO CNW, Inc. to XPO Logistics Managed Transportation, LLC, a limited liability company that will have elected pursuant to Treasury Regulations Section 301.7701-3 to be treated as an association taxable as a corporation for Federal Income Tax purposes (“Managed Transport”), of XPO Logistics Worldwide Canada Inc. and any and all other assets held by and liabilities of Managed Transport and (b) the distribution by XPO CNW, Inc. of Managed Transport, to XPO in a transaction intended to qualify, for Federal Income Tax purposes, as a reorganization pursuant to Sections 355(a) and 368(a)(1)(D) of the Code.
“IRS” shall mean the U.S. Internal Revenue Service.
“Joint Adjustment” shall mean any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest that is not a SpinCo Adjustment or an XPO Adjustment.
“Joint Return” shall mean any Return of a member of the XPO Group or the SpinCo Group that is not a Separate Return.
“Joint Return Tax Attributes” shall have the meaning set forth in Section 4.09(b)(i).
“Notified Action” shall have the meaning set forth in Section 7.04(a).
“Other Tax” shall mean any Federal Other Tax, State Other Tax, or Foreign Other Tax.
“Parent Awards” shall have the meaning set forth in the Employee Matters Agreement.
“Parent Group Employees” shall have the meaning set forth in the Employee Matters Agreement.
“Parties” shall mean the parties to this Agreement.
“Past Practices” shall have the meaning set forth in Section 4.05(a).
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“Payment Date” shall mean (a) with respect to any XPO Federal Consolidated Income Tax Return, the due date for any required installment of estimated Taxes determined under Section 6655 of the Code, the due date (determined without regard to extensions) for filing the Tax Return determined under Section 6072 of the Code, and the date the Tax Return is filed, and (b) with respect to any other Tax Return, the corresponding dates determined under applicable Tax Law; in each case, taking into account any automatic or validly elected extensions, deferrals or postponements of the due date for payment of any such estimated Taxes or any Tax shown on such Tax Return, as applicable.
“Payor” shall have the meaning set forth in Section 5.02(a).
“Person” shall mean any individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization or a Governmental Authority or any department, agency or political subdivision thereof, without regard to whether any entity is treated as disregarded for Federal Income Tax purposes.
“Post-Deconsolidation Period” shall mean any Tax Period beginning after the Deconsolidation Date, and, in the case of any Straddle Period, the portion of such Straddle Period beginning after the Deconsolidation Date.
“Pre-Deconsolidation Period” shall mean any Tax Period ending on or prior to the Deconsolidation Date, and, in the case of any Straddle Period, the portion of such Straddle Period ending on the Deconsolidation Date.
“Privilege” shall mean any privilege that may be asserted under applicable law, including, any privilege arising under or relating to the attorney-client relationship (including the attorney-client and work product privileges), the accountant-client privilege and any privilege relating to internal evaluation processes.
“Proposed Acquisition Transaction” shall mean, with respect to SpinCo, a transaction or series of transactions (or any agreement, understanding or arrangement, within the meaning of Section 355(e) of the Code and Treasury Regulations Section 1.355-7, or any other Treasury Regulations promulgated thereunder, to enter into a transaction or series of transactions), whether such transaction is supported by the management or shareholders of SpinCo, is a hostile acquisition, or otherwise, as a result of which SpinCo would merge or consolidate with any other Person or as a result of which any Person or Persons would (directly or indirectly) acquire, or have the right to acquire, from SpinCo and/or one or more holders of outstanding shares of Capital Stock of SpinCo, a number of shares of Capital Stock of SpinCo that would, when combined with any other changes in ownership of Capital Stock of SpinCo pertinent for purposes of Section 355(e) of the Code, comprise (45%) or more of (a) the value of all outstanding shares of Capital Stock of SpinCo as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series or (b) the total combined voting power of all outstanding shares of voting stock of SpinCo as of the date of such transaction, or in the case of a series of transactions, the date of the last transaction of such series. Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include (i) the adoption by SpinCo of a customary shareholder rights plan or (ii) issuances by SpinCo that satisfy Safe Harbor VIII
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(relating to acquisitions in connection with a person’s performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulations Section 1.355-7(d). For purposes of determining whether a transaction constitutes an indirect acquisition, any recapitalization resulting in a shift of voting power or any redemption of shares of stock shall be treated as an indirect acquisition of shares of stock by the non-exchanging shareholders. This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and shall be interpreted accordingly. Any clarification of, or change in, the statute or Treasury Regulations promulgated under Section 355(e) of the Code shall be incorporated into this definition and its interpretation.
“PTEP” shall mean any earnings and profits of a foreign corporation that would be excluded from gross income pursuant to Section 959 of the Code.
“Representation Letters” shall mean the representation letters and any other materials delivered by, or on behalf of, XPO, SpinCo or others to a Tax Advisor in connection with the issuance by such Tax Advisor of a Tax Opinion.
“Required Party” shall have the meaning set forth in Section 5.02(a).
“Reserve” shall mean a financial statement reserve, in accordance with generally accepted accounting principles, pursuant to ASC Topic 740, excluding, for the avoidance of doubt, any reserve related to Taxes imposed with respect to the Transactions.
“Responsible Company” shall mean, with respect to any Tax Return, the Company having responsibility for filing such Tax Return.
“Restriction Period” shall mean the period beginning on the Deconsolidation Date and ending on the two-year anniversary of the Deconsolidation Date.
“Retention Date” shall have the meaning set forth in Section 9.01.
“Section 7.02(e) Acquisition Transaction” shall mean any transaction or series of transactions that is not a Proposed Acquisition Transaction but would be a Proposed Acquisition Transaction if the percentage reflected in the definition of Proposed Acquisition Transaction were 35% instead of 45%.
“Section 336(e) Election” shall have the meaning set forth in Section 7.06.
“Separate Return” shall mean (a) in the case of any Tax Return of any member of the SpinCo Group (including any consolidated, combined or unitary return), any such Tax Return that does not include any member of the XPO Group and (b) in the case of any Tax Return of any member of the XPO Group (including any consolidated, combined or unitary return), any such Tax Return that does not include any member of the SpinCo Group.
“Separation” shall have the meaning set forth in the Recitals.
“Separation and Distribution Agreement” shall have the meaning set forth in the Recitals.
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“Separation-Related Tax Contest” shall mean any Tax Contest in which the IRS, another Tax Authority or any other Person asserts a position that could reasonably be expected to adversely affect the (a) U.S. Tax-Free Status of the Internal Distribution or any External Separation Transaction or (b) Foreign Tax-Free Status of any Foreign Separation.
“Shared Taxes” shall have the meaning set forth in Section 7.05(d).
“Specified Percentage Interest” shall have the meaning set forth on Schedule 7.07.
“SpinCo” shall have the meaning provided in the first sentence of this Agreement, and references herein to SpinCo shall include any entity treated as a successor to SpinCo.
“SpinCo Active Trade or Business” shall mean the active conduct (as defined in Section 355(b)(2) of the Code and the Treasury Regulations thereunder) by SpinCo and its “separate affiliated group” (as defined in Section 355(b)(3)(B) of the Code) of the trade or business(es) relied upon to satisfy Section 355(b) of the Code with respect to the Distribution (as described in the Representation Letters), as conducted immediately prior to the Distribution.
“SpinCo Adjustment” shall mean any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent SpinCo would be exclusively liable for any resulting Tax under this Agreement or exclusively entitled to receive any resulting Tax Benefit under this Agreement.
“SpinCo Affiliated Group” shall mean the affiliated group (as defined in Section 1504 of the Code and the Treasury Regulations thereunder) of which SpinCo is the common parent.
“SpinCo Allocated Income Taxes” shall mean Income Taxes for which SpinCo is responsible pursuant to Section 2.02(a), 2.03(a), or 2.04(a).
“SpinCo Awards” shall have the meaning set forth in the Employee Matters Agreement.
“SpinCo Carryback” shall mean any net operating loss, net capital loss, excess tax credit, or other similar Tax item of any member of the SpinCo Group that may or must be carried from one Tax Period to another prior Tax Period under the Code or other applicable Tax Law.
“SpinCo Cash Proceeds” shall have the meaning provided in the Recitals.
“SpinCo CFO Certificate” shall have the meaning set forth in Section 7.02(e).
“SpinCo Federal Consolidated Income Tax Return” shall mean any United States Federal Income Tax Return for the affiliated group (as defined in Section 1504 of the Code) of which SpinCo is the common parent.
“SpinCo Filing Date” shall have the meaning set forth in Section 7.05(e)(ii)(A).
“SpinCo Group” shall mean SpinCo and its Affiliates, as determined immediately after the Distribution.
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“SpinCo Group Employees” shall have the meaning set forth in the Employee Matters Agreement.
“SpinCo Post-Deconsolidation Period” shall mean any Post-Deconsolidation Period determined by reference to the Deconsolidation Date.
“SpinCo Pre-Deconsolidation Period” shall mean any Pre-Deconsolidation Period determined by reference to the Deconsolidation Date.
“SpinCo Separate Return” shall mean any Separate Return of SpinCo or any member of the SpinCo Group.
“State Credit” shall mean any Tax credit for a particular State.
“State Income Tax” shall mean any Tax imposed by any State of the United States (or by any political subdivision of any such State) or the District of Columbia, or any city or municipality located therein, which is imposed on or measured by net income, including state and local franchise or similar Taxes measured by net income, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
“State Other Tax” shall mean any Tax imposed by any State of the United States (or by any political subdivision of any such State) or the District of Columbia, or any city or municipality located therein, other than any State Income Taxes, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
“Straddle Period” shall mean any Tax Period that, with respect to SpinCo, begins on or before and ends after the Deconsolidation Date.
“Tax” or “Taxes” shall mean any income, gross income, gross receipts, profits, capital stock, franchise, withholding, payroll, social security, workers compensation, unemployment, disability, property, ad valorem, stamp, excise, severance, occupation, service, sales, use, license, lease, transfer, import, escheat and unclaimed property, export, value added, alternative minimum, estimated or other tax (including any fee, assessment, or other charge in the nature of or in lieu of any tax) imposed by any Governmental Authority or political subdivision thereof, and any interest, penalties, additions to tax, or additional amounts in respect of the foregoing.
“Tax Advisor” shall mean any Tax counsel or accountant of recognized national standing in the United States (or, in the case of any Tax Opinion that is an opinion regarding the Foreign Tax treatment of any Foreign Separation, in the relevant foreign jurisdiction(s)).
“Tax Advisor Dispute” shall have the meaning set forth in Section 14.
“Tax Attribute” shall mean a net operating loss, net capital loss, unused investment credit, unused foreign tax credit, excess charitable contribution, general business credit or any other Tax Item that could reduce a Tax.
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“Tax Authority” shall mean, with respect to any Tax, the Governmental Authority or political subdivision thereof that imposes such Tax, and the agency (if any) charged with the collection of such Tax for such entity or subdivision.
“Tax Benefit” shall mean any reduction in liability for Tax as a result of any loss, deduction, refund, credit, or other item reducing Taxes otherwise payable.
“Tax Contest” shall mean an audit, review, examination, assessment or any other administrative or judicial proceeding with the purpose or effect of redetermining Taxes (including any administrative or judicial review of any claim for refund).
“Tax Item” shall mean, with respect to any Income Tax, any item of income, gain, loss, deduction, or credit.
“Tax Law” shall mean the law of any Governmental Authority or political subdivision thereof relating to any Tax.
“Tax Opinion” shall mean (a) each opinion of a Tax Advisor delivered to XPO or any of its subsidiaries in connection with, and regarding the Federal Income Tax treatment of (i) any External Separation Transaction or (ii) the Internal Distribution, and (b) each opinion of a Tax Advisor delivered to XPO or any of its subsidiaries in connection with, and regarding the Foreign Tax treatment of, any Foreign Separation.
“Tax Period” shall mean, with respect to any Tax, the period for which the Tax is reported as provided under the Code or other applicable Tax Law.
“Tax Records” shall mean any Tax Returns, Tax Return workpapers, documentation relating to any Tax Contests and any other books of account or records (whether or not in written, electronic or other tangible or intangible forms and whether or not stored on electronic or any other medium) required to be maintained under the Code or other applicable Tax Laws or under any record retention agreement with any Tax Authority.
“Tax-Related Losses” shall mean (a) all federal, state, local and foreign Taxes imposed pursuant to any settlement, Final Determination, judgment or otherwise (including Taxes required to be reflected on any Tax Return prepared in accordance with Section 4.05(b)); (b) all accounting, legal and other professional fees and court costs incurred in connection with such Taxes; and (c) all costs, expenses and damages associated with stockholder litigation or controversies and any amount paid by XPO (or any XPO Affiliate) or SpinCo (or any SpinCo Affiliate) in respect of the liability of shareholders, whether paid to shareholders or to the IRS or any other Tax Authority; in each case, resulting from the failure of, (i) any External Separation Transaction or the Internal Distribution to have U.S. Tax-Free Status, or (ii) any Foreign Separation to have Foreign Tax-Free Status.
“Tax Return” or “Return” shall mean any report of Taxes due, any claim for refund of Taxes paid, any information return with respect to Taxes, or any other similar report, statement, declaration, or document filed or required to be filed under the Code or other Tax Law, including
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any attachments, exhibits, or other materials submitted with any of the foregoing, and including any amendments or supplements to any of the foregoing.
“Transactions” shall mean the External Separation Transactions and the other transactions contemplated by the Separation and Distribution Agreement (including the Internal Distribution, the Foreign Separations, and the other transactions contemplated by the Plan of Reorganization).
“Treasury Regulations” shall mean the regulations promulgated from time to time under the Code as in effect for the relevant Tax Period.
“Unqualified Tax Opinion” shall mean an unqualified opinion of a Tax Advisor on which XPO may rely to the effect that a transaction will not (a) affect the U.S. Tax-Free Status of any External Separation Transaction or the Internal Distribution or (b) adversely affect any of the conclusions set forth in any Tax Opinion regarding the U.S. Tax-Free Status of any External Separation Transaction or the Internal Distribution; provided, that any Tax opinion obtained in connection with a proposed acquisition of Capital Stock of SpinCo (or any entity that was a “distributing corporation” or “controlled corporation” in the Internal Distribution) entered into during the Restriction Period shall not qualify as an Unqualified Tax Opinion unless such Tax opinion concludes that such proposed acquisition will not be treated as “part of a plan (or series of related transactions),” within the meaning of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder, that includes the Distribution (or applicable Internal Distribution). Any such opinion must assume that the External Separation Transactions and/or the Internal Distribution, as relevant, would have qualified for U.S. Tax-Free Status if the transaction in question did not occur, but the assumption described in Section 7.07 shall be required only to the extent provided for in Schedule 7.07.
“U.S. Tax-Free Status” shall mean, with respect to each External Separation Transaction and the Internal Distribution, the qualification thereof (i) as a transaction described in Section 368(a)(1)(D) and Section 355(a) of the Code, (ii) as a transaction in which the stock distributed thereby is “qualified property” for purposes of Section 361(c)(2) of the Code and (iii) as a transaction in which XPO, SpinCo, and the members of their respective Groups (as relevant) recognize no income or gain for Federal Income Tax purposes pursuant to Sections 355, 361 and 1032 of the Code, other than intercompany items or excess loss accounts taken into account pursuant to the Treasury Regulations promulgated pursuant to Section 1502 of the Code.
“XPO” shall have the meaning provided in the first sentence of this Agreement, and references herein to XPO shall include any entity treated as a successor to XPO.
“XPO Adjustment” shall mean any proposed adjustment by a Tax Authority or claim for refund asserted in a Tax Contest to the extent XPO would be exclusively liable for any resulting Tax under this Agreement or exclusively entitled to receive any resulting Tax Benefit under this Agreement.
“XPO Affiliated Group” shall mean the affiliated group (as defined in Section 1504 of the Code and the Treasury Regulations thereunder) of which XPO is the common parent.
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“XPO Assets” shall mean the Parent Assets.
“XPO Debt Repayment” shall have the meaning provided in the Recitals.
“XPO Federal Consolidated Income Tax Return” shall mean any United States Federal Income Tax Return for the XPO Affiliated Group.
“XPO Filing Date” shall have the meaning set forth in Section 7.05(e)(i).
“XPO Foreign Combined Income Tax Return” shall mean (a) a consolidated, combined or unitary or other similar Foreign Income Tax Return or (b) any Foreign Income Tax Return with respect to any profit and/or loss sharing group, group payment or similar group or fiscal unity, in the case of each of clauses (a) and (b), that actually includes, by election or otherwise, one or more members of the XPO Group together with one or more members of the SpinCo Group; provided, that, for the avoidance of doubt, in the case of a Foreign Income Tax Return of a member of the SpinCo Group that (x) is required to be filed with respect to a Straddle Period and (y) would otherwise (without regard to this proviso) be an XPO Foreign Combined Income Tax Return, any portion of such Foreign Income Tax Return reflecting Tax Items with respect to any Post-Deconsolidation Period (i) shall in no event be an XPO Foreign Combined Income Tax Return and (ii) shall instead be a Separate Return of such member of the SpinCo Group.
“XPO Group” shall mean XPO and its Affiliates, excluding any entity that is a member of the SpinCo Group.
“XPO Liabilities” shall mean the Parent Liabilities.
“XPO Separate Return” shall mean any Separate Return of XPO or any member of the XPO Group.
“XPO Shares” shall mean the shares of common stock, par value $0.001 per share, of XPO.
“XPO State Combined Income Tax Return” shall mean a consolidated, combined or unitary Tax Return with respect to State Income Taxes that actually includes, by election or otherwise, one or more members of the XPO Group and one or more members of the SpinCo Group.
Section 2.    Allocation of Tax Liabilities.
Section 2.01    General Rule.
(a)    XPO Liability. XPO shall be liable for, and shall indemnify and hold harmless the SpinCo Group from and against any liability for, Taxes that are allocated to XPO under this Section 2.
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(b)    SpinCo Liability. SpinCo shall be liable for, and shall indemnify and hold harmless the XPO Group from and against any liability for, Taxes that are allocated to SpinCo under this Section 2.
Section 2.02    Allocation of Federal Income Tax and Federal Other Tax. Except as otherwise provided in Section 2.05, Federal Income Tax and Federal Other Tax shall be allocated as follows:
(a)    Allocation of Tax Relating to XPO Federal Consolidated Income Tax Returns. With respect to any XPO Federal Consolidated Income Tax Return, XPO shall be responsible for any and all Federal Income Taxes due or required to be reported on any such Tax Return (including any increase in such Tax as a result of a Final Determination).
(b)    Allocation of Tax Relating to Federal Separate Income Tax Returns. (i) XPO shall be responsible for any and all Federal Income Taxes due with respect to or required to be reported on any XPO Separate Return and (ii) SpinCo shall be responsible for any and all Federal Income Taxes due or required to be reported on any SpinCo Separate Return; in each case, including any increase in such Tax as a result of a Final Determination.
(c)    Allocation of Federal Other Tax. (i) XPO shall be responsible for any and all Federal Other Taxes due with respect to or required to be reported on any XPO Separate Return or any Joint Return that XPO or any member of the XPO Group is obligated to file under the Code and (ii) SpinCo shall be responsible for any and all Federal Other Taxes due or required to be reported on any SpinCo Separate Return or any Joint Return that SpinCo or any member of the SpinCo Group is obligated to file under the Code; in each case, including any increase in such Tax as a result of a Final Determination.
Section 2.03    Allocation of State Income and State Other Taxes. Except as otherwise provided in Section 2.05, State Income Tax and State Other Tax shall be allocated as follows:
(a)    Allocation of Tax Relating to XPO State Combined Income Tax Returns. With respect to any XPO State Combined Income Tax Return, XPO shall be responsible for any and all State Income Taxes due with respect to or required to be reported on any such Tax Return (including any increase in such Tax as a result of a Final Determination).
(b)    Allocation of Tax Relating to State Separate Income Tax Returns. (i) XPO shall be responsible for any and all State Income Taxes due with respect to or required to be reported on any XPO Separate Return and (ii) SpinCo shall be responsible for any and all State Income Taxes due or required to be reported on any SpinCo Separate Return; in each case, including any increase in such Tax as a result of a Final Determination.
(c)    Allocation of State Other Taxes. (i) XPO shall be responsible for any and all State Other Taxes due with respect to or required to be reported on any XPO Separate Return or any Joint Return that XPO or any member of the XPO Group is obligated to file under applicable Tax Law and (ii) SpinCo shall be responsible for any and all State Other Taxes due or required to be reported on any SpinCo Separate Return or any Joint Return that SpinCo or any
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member of the SpinCo Group is obligated to file under applicable Tax Law; in each case, including any increase in such Tax as a result of a Final Determination.
Section 2.04    Allocation of Foreign Taxes. Except as otherwise provided in Section 2.05, Foreign Income Tax and Foreign Other Tax shall be allocated as follows:
(a)    Allocation of Tax Relating to XPO Foreign Combined Income Tax Returns. XPO shall be responsible for any and all Foreign Income Taxes due with respect to or required to be reported on any XPO Foreign Combined Income Tax Return (including any increase in such Tax as a result of a Final Determination).
(b)    Allocation of Tax Relating to Foreign Separate Income Tax Returns. (i) XPO shall be responsible for any and all Foreign Income Taxes due with respect to or required to be reported on any XPO Separate Return and (ii) SpinCo shall be responsible for any and all Foreign Income Taxes due or required to be reported on any SpinCo Separate Return; in each case, including any increase in such Tax as a result of a Final Determination.
(c)    Allocation of Foreign Other Taxes. (i) XPO shall be responsible for any and all Foreign Other Taxes due with respect to or required to be reported on any XPO Separate Return or any Joint Return that XPO or any member of the XPO Group is obligated to file under applicable Tax Law and (ii) SpinCo shall be responsible for any and all Foreign Other Taxes due or required to be reported on any SpinCo Separate Return or any Joint Return that SpinCo or any member of the SpinCo Group is obligated to file under applicable Tax Law; in each case, including any increase in such Tax as a result of a Final Determination.
Section 2.05    Certain Transaction and Other Taxes.
(a)    SpinCo Liability. SpinCo shall be liable for, and shall indemnify and hold harmless the XPO Group from and against any liability for:
(i)    any stamp, sales and use, gross receipts, or other transfer Taxes imposed by any Tax Authority on any member of the SpinCo Group (if such member is primarily liable for such Tax) on the transfers occurring pursuant to the Transactions;
(ii)    any value-added or goods and services Tax imposed by any Tax Authority on any transfer occurring pursuant to the Transactions to the extent any member of the SpinCo Group is the transferee with respect to the relevant transfer;
(iii)    any Tax (other than Tax-Related Losses) resulting from a breach by SpinCo of any covenant made by SpinCo in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement; and
(iv)    any Tax-Related Losses for which SpinCo is responsible pursuant to Section 7.05.
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The amounts for which SpinCo is liable pursuant to Section 2.05(a)(i), (ii), and (iii) shall include all accounting, legal, and other professional fees and court costs incurred in connection with the relevant Taxes.
(b)    XPO Liability. XPO shall be liable for, and shall indemnify and hold harmless the SpinCo Group from and against any liability for:
(i)    any stamp, sales and use, gross receipts, or other transfer Taxes imposed by any Tax Authority on any member of the XPO Group (if such member is primarily liable for such Tax) on the transfers occurring pursuant to the Transactions;
(ii)    any value-added or goods and services Tax imposed by any Tax Authority on any transfer occurring pursuant to the Transactions to the extent any member of the XPO Group is the transferee with respect to the relevant transfer;
(iii)    any Tax (other than Tax-Related Losses) resulting from a breach by XPO of any covenant made by XPO in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement; and
(iv)    any Tax-Related Losses for which XPO is responsible pursuant to Section 7.05.
The amounts for which XPO is liable pursuant to Section 2.05(b)(i), (ii), and (iii) shall include all accounting, legal, and other professional fees and court costs incurred in connection with the relevant Taxes.
Section 3.    Proration of Taxes for Straddle Periods.
(a)    General Method of Proration. In the case of any Straddle Period, Tax Items shall be apportioned between Pre-Deconsolidation Periods and Post-Deconsolidation Periods in accordance with the principles of Treasury Regulations Section 1.1502-76(b) as interpreted and applied by XPO in its sole and absolute discretion. With respect to the XPO Federal Consolidated Income Tax Return for the taxable year that includes the Distribution, XPO may determine in its sole and absolute discretion whether to make a ratable election under Treasury Regulations Section 1.1502-76(b)(2)(ii) with respect to SpinCo. SpinCo shall, and shall cause each member of the SpinCo Group to, take all actions necessary to give effect to any such election.
(b)    Transactions Treated as Extraordinary Item. In determining the apportionment of Tax Items between Pre-Deconsolidation Periods and Post-Deconsolidation Periods, any Tax Items relating to the Transactions shall be treated as extraordinary items described in Treasury Regulations Section 1.1502-76(b)(2)(ii)(C) and shall (to the extent arising on or prior to the Deconsolidation Date) be allocated to the Pre-Deconsolidation Period(s), and any Taxes related to such items shall be treated under Treasury Regulations Section 1.1502-76(b)(2)(iv) as relating to such extraordinary item and shall (to the extent arising on or prior to the Deconsolidation Date) be allocated to the Pre-Deconsolidation Period(s).
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Section 4.    Preparation and Filing of Tax Returns.
Section 4.01    General. Except as otherwise provided in this Section 4, Tax Returns shall be prepared and filed when due (taking into account extensions) by the Person obligated to file such Tax Returns under the Code or applicable Tax Law. The Companies shall, and shall cause their respective Affiliates to, provide assistance and cooperation to one another in accordance with Section 8 with respect to the preparation and filing of Tax Returns (including by providing information required to be provided pursuant to Section 8).
Section 4.02    XPO’s Responsibility. XPO has the exclusive obligation and right to
prepare and file, or to cause to be prepared and filed:
(a)    XPO Federal Consolidated Income Tax Returns for any Tax Periods ending before, on or after the Deconsolidation Date;
(b)    XPO State Combined Income Tax Returns, XPO Foreign Combined Income Tax Returns and any other Joint Returns that XPO determines, in its sole and absolute discretion, are required to be filed (or that XPO chooses to be filed) by XPO or any member of the XPO Group for Tax Periods ending before, on or after the Deconsolidation Date; and
(c)    XPO Separate Returns and SpinCo Separate Returns that XPO determines, in its sole and absolute discretion, are required to be filed by the Companies or any of their Affiliates for Tax Periods ending before, on or after the Deconsolidation Date (limited, in the case of SpinCo Separate Returns, to such Tax Returns as are required to be filed (taking into account extensions) on or before the Deconsolidation Date.
Section 4.03    SpinCo’s Responsibility. SpinCo shall prepare and file, or shall cause to be prepared and filed, all Tax Returns required to be filed by or with respect to members of the SpinCo Group other than those Tax Returns that XPO is required or entitled to prepare and file under Section 4.02. The Tax Returns required to be prepared and filed by SpinCo under this Section 4.03 shall include (a) any SpinCo Federal Consolidated Income Tax Return for Tax Periods ending after the Deconsolidation Date and (b) SpinCo Separate Returns required to be filed (taking into account extensions) after the Deconsolidation Date.
Section 4.04    Reserved.
Section 4.05    Tax Accounting Practices.
(a)    General Rule. Except as otherwise provided in Section 4.05(b), with respect to any Tax Return that SpinCo has the obligation and right to prepare and file, or cause to be prepared and filed, under Section 4.03, for any Pre-Deconsolidation Period or any Straddle Period (or any Tax Period beginning after the Deconsolidation Date to the extent items reported on such Tax Return could reasonably be expected to affect items reported on any Tax Return that XPO has the obligation or right to prepare), such Tax Return shall be prepared in accordance with past practices, accounting methods, elections, conventions, transfer pricing and Tax positions (“Past Practices”) used with respect to the Tax Returns in question (unless there is no
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“reasonable basis” (or comparable standard under state, local or foreign law) for the use of such Past Practices), and to the extent any items are not covered by Past Practices (or in the event that there is no “reasonable basis” (or comparable standard under state, local or foreign law) for the use of such Past Practices), in accordance with reasonable Tax accounting practices selected by SpinCo (unless such Tax accounting practice would have an adverse and material impact on XPO, as determined by XPO in its sole and absolute discretion, in which case such Tax accounting practices shall be selected by SpinCo in consultation with XPO and with the written consent of XPO (such consent not to be unreasonably withheld, delayed or conditioned)). Except as otherwise provided in Section 4.05(b), XPO shall prepare any Tax Return that it has the obligation and right to prepare and file, or cause to be prepared and filed, under Section 4.02, in accordance with reasonable Tax accounting practices selected by XPO in its sole and absolute discretion.
(b)    Reporting of Transactions. Except to the extent otherwise required (x) by a change in applicable law or (y) as a result of a Final Determination, (i) neither XPO nor SpinCo shall (and neither shall permit or cause any member of its Group to) take any position that is inconsistent with the treatment of (A) any External Separation Transaction or the Internal Distribution, in each case, as having U.S. Tax-Free Status (or analogous status under state or local law) or (B) any Foreign Separation intended to have Foreign Tax-Free Status as having such status, and (ii) SpinCo shall not (and shall not permit or cause any member of the SpinCo Group to) take any position with respect to any material Tax Item on a Tax Return, or otherwise treat such Tax Item, in a manner that is inconsistent with the manner such Tax Item is reported on a Tax Return required to be prepared or filed by XPO pursuant to Section 4.02 (including, without limitation, the claiming of a deduction previously claimed on any such Tax Return); provided, however, that, notwithstanding anything to the contrary herein, (1) if XPO determines, in its sole and absolute discretion, that there has been a change in relevant facts after the Deconsolidation Date as a result of which (I) any External Separation Transaction or the Internal Distribution does not qualify for U.S. Tax-Free Status or (II) any Foreign Separation intended to have Foreign Tax-Free Status does not qualify for such status, then (2) XPO shall promptly notify SpinCo in writing and, following such notice, each of the Parties shall report such External Separation Transaction, Internal Distribution, or Foreign Separation, as applicable, in the manner set forth in such notice (and shall not be permitted to take positions inconsistent with such notice).
Section 4.06    Consolidated or Combined Tax Returns. SpinCo shall elect and join, and shall cause its Affiliates to elect and join, in filing any XPO State Combined Income Tax Returns and any Joint Returns that XPO determines, in its sole and absolute discretion, are required to be filed or that XPO chooses to file pursuant to Section 4.02(b). With respect to any Tax Return relating to any Tax Period (or portion thereof) ending on or prior to the Deconsolidation Date, which Tax Return otherwise would be a SpinCo Separate Return, SpinCo will elect and join, and will cause its Affiliates to elect and join, in filing consolidated, unitary, combined, or other similar joint Tax Returns, to the extent each entity is eligible to join in such Tax Returns, upon XPO’s request. In the event that, following the Deconsolidation Date, XPO or a member of the XPO Group makes a Tax election (other than consistent with Past Practices) with respect to any XPO Federal Consolidated Income Tax Return, XPO State Combined Income Tax Return or
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XPO Foreign Combined Income Tax Return and XPO determines, in its sole and absolute discretion, that the making of such Tax election would have a material and adverse impact on the Tax liability or Tax attributes of any member of the SpinCo Group in a Tax Period ending after the Deconsolidation Date, XPO shall provide written notice of such determination to SpinCo within a reasonable period of time following such determination.
Section 4.07    Right to Review Tax Returns.
(a)    General. The Company that has responsibility for preparing and filing any material Tax Return under this Agreement shall make such Tax Return (or the relevant portions thereof) and related workpapers available for review by the other Company, if requested, to the extent the requesting party (i) is or would reasonably be expected to be liable for Taxes reflected on such Tax Return, (ii) is or would reasonably be expected to be liable for any additional Taxes owing as a result of adjustments to the amount of such Taxes reported on such Tax Return, (iii) has or would reasonably be expected to have a claim for Tax Benefits under this Agreement in respect of items reflected on such Tax Return, or (iv) reasonably requires such documents to confirm compliance with the terms of this Agreement; provided, however, that notwithstanding anything in this Agreement to the contrary, XPO shall not be required to make any XPO Federal Consolidated Income Tax Return available for review by SpinCo. The Company that has responsibility for preparing and filing such Tax Return under this Agreement shall use reasonable efforts to make such Tax Return (or the relevant portions thereof) and related workpapers available for review as required under this paragraph sufficiently in advance of the due date for filing such Tax Return to provide the requesting Party with a meaningful opportunity to review and comment on such Tax Return and shall consider such comments in good faith. The Companies shall attempt in good faith to resolve any material disagreement arising out of the review of such Tax Return and, failing such resolution, any material disagreement shall be resolved in accordance with the provisions of Section 14 as promptly as practicable.
(b)    Execution of Returns Prepared by Other Party. In the case of any Tax Return that is required to be prepared by one Company under this Agreement and that is required by law to be signed by the other Company (or by its authorized representative), the Company that is legally required to sign such Tax Return shall not be required to sign such Tax Return under this Agreement unless there is at least a “reasonable basis” (or comparable standard under state, local or foreign law) for the Tax treatment of each material item reported on the Tax Return.
Section 4.08    SpinCo Carrybacks and Claims for Refund. SpinCo hereby agrees that, unless XPO consents in writing, (a) no Adjustment Request with respect to any Joint Return shall be filed and (b) any available elections to waive the right to claim in any SpinCo Pre-Deconsolidation Period with respect to any Joint Return any SpinCo Carryback arising in a SpinCo Post-Deconsolidation Period shall be made, and no affirmative election shall be made to claim any such SpinCo Carryback; provided, however, that the Parties agree that any such Adjustment Request shall be made with respect to any SpinCo Carryback related to Federal Income Taxes or State Income Taxes, upon the reasonable request of SpinCo, if (i) such SpinCo
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Carryback is necessary to prevent the loss of the Federal Income and/or State Income Tax Benefit of such SpinCo Carryback (including, but not limited to, an Adjustment Request with respect to a SpinCo Carryback of a federal or state capital loss arising in a Post-Deconsolidation Period to a Pre-Deconsolidation Period) and (ii) such Adjustment Request, based on XPO’s determination, in its sole and absolute discretion, will cause no Tax detriment to XPO, the XPO Group or any member of the XPO Group. Any Adjustment Request to which XPO consents under this Section 4.08 shall be prepared and filed by the Responsible Company with respect to the Tax Return to be adjusted, subject to Section 4.07.
Section 4.09    Apportionment of Earnings and Profits and Other Tax Attributes.
(a)    General. XPO shall use commercially reasonable efforts to determine or cause its designee to determine, in XPO’s sole and absolute discretion, the portion, if any, of (i) any Tax Attribute that must (absent a Final Determination to the contrary) be apportioned to (1) SpinCo or any member of the SpinCo Group from any member of the XPO Group and (2) XPO or any member of the XPO Group from any member of the SpinCo Group, in each case, in accordance with this Section 4.09 and applicable law, and (ii) the amount of Tax basis and earnings and profits (including, for the avoidance of doubt, PTEP) to be apportioned to (1) SpinCo or any member of the SpinCo Group from any member of the XPO Group and (2) XPO or any member of the XPO Group from any member of the SpinCo Group, in each case, in accordance with this Section 4.09 and applicable law, and shall provide written notice of the calculation thereof to SpinCo as soon as reasonably practicable after XPO or its designee prepares such calculation. For the absence of doubt, XPO shall not be liable to SpinCo or any member of the SpinCo Group for any failure of any determination under this Section 4.09 to be accurate or sustained under applicable law, including as the result of any Final Determination.
(b)    Tax Attributes.
(i)    Except as provided in clause (ii), all Tax Attributes with respect to consolidated Federal Income Tax of the XPO Affiliated Group and all Tax Attributes with respect to any consolidated, combined or unitary State Income Tax or Foreign Income Tax, in each case as of the Deconsolidation Date and arising in respect of a Joint Return (“Joint Return Tax Attributes”) shall be apportioned to XPO or any member of the XPO Group for use on the final XPO Federal Consolidated Income Tax Return, any final XPO State Combined Income Tax Return, any final Foreign Combined Income Tax Return or any other final Joint Return, as applicable, that includes SpinCo or any member of the SpinCo Group.
(ii)    Any Joint Return Tax Attributes remaining after the filing of the applicable final Joint Return pursuant to clause (i) that, as determined by XPO in its sole and absolute discretion, were generated by SpinCo or any member of the SpinCo Group and may be apportioned to SpinCo or any member of the SpinCo Group shall be apportioned to SpinCo or any member of the SpinCo Group; provided that in the case of a State Credit, such State Credit shall be apportioned to the Group and to the member of such Group that generated such State Credit, to the extent allowable by law.
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(c)    Notices. Any written notice delivered by XPO pursuant to this Section 4.09 shall be binding on SpinCo and each member of the SpinCo Group and shall not be subject to dispute resolution; provided that XPO shall consider, in its sole and absolute discretion, any reasonable comments SpinCo may timely provide with respect to such written notice. Except to the extent otherwise required by a change in applicable law or pursuant to a Final Determination, SpinCo shall not take any position (whether on a Tax Return or otherwise) that is inconsistent with the information contained in any such written notice.
Section 4.10    Section 367 Transactions. SpinCo will not take or fail to take, and will not cause or permit any member of its Group to take or fail to take, any action that would cause XPO or any member of the XPO Group or SpinCo or any member of the SpinCo Group to recognize gain under Section 367 of the Code or the Treasury Regulations promulgated thereunder, to the extent such action is described in the Plan of Reorganization or notified in writing by XPO to SpinCo within 180 days following the Deconsolidation Date.
Section 5.    Tax Payments.
Section 5.01    Payment of Taxes with Respect to Tax Returns. Subject to Section 5.02, (a) the Responsible Company with respect to any Tax Return shall pay (or cause to be paid) any Tax required to be paid to the applicable Tax Authority on or before the relevant Payment Date, and (b) in the case of any adjustment pursuant to a Final Determination with respect to any Tax Return, the Responsible Company shall pay (or cause to be paid) to the applicable Tax Authority when due (taking into account any automatic or validly elected extensions, deferrals or postponements) any additional Tax due with respect to such Tax Return required to be paid as a result of such adjustment pursuant to a Final Determination.
Section 5.02    Indemnification Payments.
(a)    If a Company (the “Payor”) is required pursuant to Section 5.01 (or otherwise under applicable Tax Law) to pay to a Tax Authority a Tax for which the other Company (the “Required Party”) is liable, in whole or in part, under this Agreement (including, for the avoidance of doubt, any administrative or judicial deposit required to be paid by the Payor to a Tax Authority or other Governmental Authority to pursue any Tax Contest, to the extent the Required Party would be liable under this Agreement for any Tax resulting from such Tax Contest), the Required Party shall reimburse the Payor within 15 days of delivery by the Payor to the Required Party of an invoice for the amount due from the Required Party, accompanied by evidence of payment and a statement detailing the Taxes paid and describing in reasonable detail the particulars relating thereto. If the amount to be paid by the Required Party pursuant to this Section 5.02 is in respect of any Tax in excess of $20 million required to be paid by the Payor to a single Governmental Authority on or prior to a single due date (taking into account any automatic or validly elected extensions, deferrals or postponements), then the Required Party shall pay the Payor such amount no later than the later of (i) three days after delivery by the Payor to the Required Party of an invoice for the amount due, accompanied by a statement detailing the Taxes required to be paid and describing in reasonable detail the particulars relating thereto and (ii) three days prior to the due date for the payment of such Tax (taking into account any automatic or validly elected extensions, deferrals or postponements).
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(b)    All indemnification payments under this Agreement shall be made by XPO directly to SpinCo, and by SpinCo directly to XPO; provided, however, that if the Companies mutually agree with respect to any such indemnification payment, (i) any member of the XPO Group, on the one hand, may make such indemnification payment to any member of the SpinCo Group, on the other hand, and (ii) any member of the SpinCo Group, on the one hand, may make such indemnification payment to any member of the XPO Group, as applicable.
Section 6.    Tax Benefits.
Section 6.01    Tax Benefits.
(a)    Except as provided in Section 6.01(b), (i) XPO shall be entitled to any refund (and any interest thereon received from the applicable Tax Authority) of Taxes that are related to a Joint Return and for which XPO is responsible pursuant to Section 2.02, 2.03 or 2.04 and of Taxes related to any XPO Separate Return, (ii) SpinCo shall be entitled to any refund (and any interest thereon received from the applicable Tax Authority) of Taxes that are related to a Joint Return and for which SpinCo is responsible pursuant to Section 2.02, 2.03 or 2.04 and of Taxes related to any SpinCo Separate Return and (iii) a Company receiving a refund to which the other Company is entitled hereunder in whole or in part shall pay over such refund (or portion thereof), net of cost (including Taxes) resulting therefrom, to such other Company within 30 days after such refund is received; provided, that, with respect to any refund (or any interest thereon received from the applicable Tax Authority) of Shared Taxes or Taxes for which both Companies are liable under Section 7.05(c)(i), each Company shall be entitled to the portion of such refund that reflects its proportionate liability for such Taxes, as determined by XPO in its sole and absolute discretion.
(b)    SpinCo shall be entitled to any refund that is attributable to, and would not have arisen but for, a SpinCo Carryback pursuant to the proviso set forth in Section 4.08; provided, however, that SpinCo shall indemnify and hold the members of the XPO Group harmless from and against any and all collateral Tax consequences resulting from or caused by any such SpinCo Carryback as determined by XPO in its sole and absolute discretion, including (but not limited to) the loss or postponement of any benefit from the use of Tax Attributes generated by a member of the XPO Group or an Affiliate thereof if (x) such Tax Attributes expire unutilized, but would have been utilized but for such SpinCo Carryback or (y) the use of such Tax Attributes is postponed to a later Tax Period than the Tax Period in which such Tax Attributes would have been utilized but for such SpinCo Carryback. Any such payment of such refund made by XPO to SpinCo pursuant to this Section 6.01(b) shall be recalculated in light of any Final Determination (or any other facts that may arise or come to light after such payment is made, such as a carryback of an XPO Group Tax Attribute to a Tax Period in respect of which such refund is received) that would affect the amount to which SpinCo is entitled, and an appropriate adjusting payment shall be made by SpinCo to XPO such that the aggregate amount paid pursuant to this Section 6.01(b) equals such recalculated amount.
(c)    If (i) (A) a member of the SpinCo Group actually realizes in cash any Tax Benefit as a result of an adjustment pursuant to a Final Determination or reporting required by clause (x) or clause (y) of Section 4.05(b), in each case, that increases Taxes for which a member
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of the XPO Group is liable hereunder (or reduces any Tax Attribute of a member of the XPO Group) and such Tax Benefit would not have arisen but for such adjustment or reporting (determined on a “with and without” basis), or (B) a member of the XPO Group actually realizes in cash any Tax Benefit as a result of an adjustment pursuant to a Final Determination or reporting required by clause (x) or clause (y) of Section 4.05(b), in each case, that increases Taxes for which a member of the SpinCo Group is liable hereunder (or reduces any Tax Attribute of a member of the SpinCo Group) and such Tax Benefit would not have arisen but for such adjustment or reporting (determined on a “with and without” basis), and (ii) the aggregate Tax Benefit realized or realizable by a member of the SpinCo Group or a member of the XPO Group, as applicable, as a result of such adjustment or reporting would reasonably be expected to exceed $1 million, then, SpinCo or XPO, as the case may be, shall make a payment to XPO or SpinCo, as appropriate, within 30 days following such actual realization of the Tax Benefit in an amount equal to such Tax Benefit actually realized in cash (including any Tax Benefit actually realized as a result of the payment); provided, further, that no Company (or any Affiliate of any Company) shall be obligated to make a payment otherwise required pursuant to this Section 6.01(c) to the extent making such payment would place such Company (or any of its Affiliates) in a less favorable net after-Tax position than such Company (or such Affiliate) would have been in if the relevant Tax Benefit had not been realized. If a Company or one of its Affiliates pays over any amount pursuant to the preceding sentence and such Tax Benefit is subsequently disallowed or adjusted, the Parties shall promptly make appropriate payments (including in respect of any interest paid or imposed by any Tax Authority) to reflect such disallowance or adjustment.
(d)    No later than 30 days after a Tax Benefit described in Section 6.01(c) is actually realized in cash by a member of the XPO Group or a member of the SpinCo Group, XPO (if a member of the XPO Group actually realizes such Tax Benefit) or SpinCo (if a member of the SpinCo Group actually realizes such Tax Benefit) shall provide the other Company with a written calculation of the amount payable to such other Company by XPO or SpinCo pursuant to this Section 6. In the event that XPO or SpinCo disagrees with any such calculation described in this Section 6.01(d), XPO or SpinCo shall so notify the other Company in writing within 30 days of receiving the written calculation set forth above in this Section 6.01(d). XPO and SpinCo shall endeavor in good faith to resolve such disagreement, and, failing that, the amount payable under this Section 6 shall be determined in accordance with the provisions of Section 14 as promptly as practicable.
(e)    Any Party that realizes a Tax Benefit generated under an agreement pursuant to which the applicable advisor is compensated on a contingency fee basis is responsible for such contingency fee, regardless of the Party that executed such agreement.
Section 6.02    XPO and SpinCo Income Tax Deductions in Respect of Certain Equity Awards and Incentive Compensation. To the extent permitted by applicable law, Income Tax deductions arising by reason of exercises of options or vesting or settlement following the Distribution of Parent Awards or SpinCo Awards held by any Person shall be claimed (i) in the case of a Parent Group Employee or Former Parent Group Employee, solely by the XPO Group, (ii) in the case of a SpinCo Group Employee or Former SpinCo Group Employee, solely by the
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SpinCo Group and (iii) in the case of a non-employee director, by the Company for which the director serves as a director following the Distribution; provided, that in the case of any director who serves on the boards of directors of XPO and SpinCo, XPO shall be entitled only to the deductions arising in respect of Parent Awards or SpinCo Awards in existence at the time of the Distribution or (in the case of Parent Awards) issued by XPO thereafter, and SpinCo shall be entitled only to the deductions arising in respect of SpinCo Awards issued by SpinCo following the Distribution.
Section 7.    Tax-Free Status.
Section 7.01    Representations.
(a)    Each of XPO and SpinCo hereby represents and warrants that (i) it has reviewed the Representation Letters and the Tax Opinions and (ii) subject to any qualifications therein, all information, representations and covenants contained therein that relate to such Company or any member of its Group are true, correct and complete.
(b)    SpinCo hereby represents and warrants that it has no plan or intention of taking any action, or failing to take any action (or causing or permitting any member of its Group to take or fail to take any action), that could reasonably be expected to cause any representation, covenant, or factual statement made in this Agreement, the Separation and Distribution Agreement, any Representation Letters, any of the Ancillary Agreements or any of the Tax Opinions to be untrue.
(c)    SpinCo hereby represents and warrants that, during the two-year period ending on the Deconsolidation Date, there was no “agreement, understanding, arrangement, substantial negotiations or discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of any member of the SpinCo Group or by any other person or persons with the implicit or explicit permission of one or more of such officers or directors regarding an acquisition of all or a significant portion of the SpinCo Capital Stock (or the Capital Stock of any member of the SpinCo Group that was a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(b) of the Code) in the Internal Distribution or any predecessor of SpinCo or such member of the SpinCo Group); provided, however, that no representation is made regarding the absence of any “agreement, understanding, arrangement, substantial negotiations or discussions” (as such terms are defined in Treasury Regulations Section 1.355-7(h)) by any one or more officers or directors of XPO (or by any other person or persons with the implicit or explicit permission of one or more of such officers or directors) who are not officers or directors of SpinCo.
Section 7.02    Restrictions on SpinCo.
(a)    SpinCo agrees that it will not take or fail to take, and will not cause or permit any of its Affiliates to take or fail to take, any action where such action or failure to act would be inconsistent with or cause to be untrue any material, information, covenant or representation in this Agreement, the Separation and Distribution Agreement (including the Plan of Reorganization), any of the Ancillary Agreements, any Representation Letters, or any Tax
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Opinion. SpinCo agrees that it will not take or fail to take, and will not cause or permit any of its Affiliates to take or fail to take, any action where such action or failure to act would, or could reasonably be expected to, prevent U.S. Tax-Free Status or Foreign Tax-Free Status.
(b)    SpinCo agrees that, from the date hereof until the first day after the Restriction Period, it will (and will cause its “separate affiliated group” (as defined in Section 355(b)(3)(B) of the Code) to) (i) maintain the active conduct (as defined in Section 355(b)(2) of the Code and the Treasury Regulations promulgated thereunder) of the SpinCo Active Trade or Business and (ii) not engage in any transaction that would result in it ceasing to be engaged in the SpinCo Active Trade or Business for purposes of Section 355(b)(2) of the Code. SpinCo further agrees that, from the date hereof until the first day after the Restriction Period, it will cause each member of the SpinCo Group that was a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(b) of the Code) in the Internal Distribution (and such member’s “separate affiliated group” (as defined in Section 355(b)(3)(B) of the Code)) to (x) maintain the active conduct (as defined in Section 355(b)(2) of the Code and the Treasury Regulations promulgated thereunder) of the trade or business(es) relied upon to satisfy Section 355(b) of the Code with respect to the Internal Distribution (as described in the relevant Representation Letters, and/or relevant Tax Opinion), as conducted immediately prior to the Internal Distribution and (y) not engage in any transaction that would result in such member ceasing to be engaged in the active conduct of such trade or business for purposes of Section 355(b)(2) of the Code.
(c)    Reserved.
(d)    SpinCo agrees that, from the date hereof until the first day after the Restriction Period, it will not:
(A)    enter into any Proposed Acquisition Transaction or, to the extent SpinCo has the right to prohibit any Proposed Acquisition Transaction, permit any Proposed Acquisition Transaction to occur (whether by (1) redeeming rights under a shareholder rights plan, (2) finding a tender offer to be a “permitted offer” under any such plan or otherwise causing any such plan to be inapplicable or neutralized with respect to any Proposed Acquisition Transaction or (3) approving any Proposed Acquisition Transaction, whether for purposes of Section 203 of the DGCL or any similar corporate statute, any “fair price” or other provision of SpinCo’s charter or bylaws or otherwise),
(B)    merge or consolidate with any other Person or liquidate or partially liquidate,
(C)    in a single transaction or series of transactions (1) sell or transfer (other than sales or transfers of inventory in the ordinary course of business) all or substantially all of the assets that were transferred to SpinCo pursuant to the Contribution, (2) sell or transfer to any Person that is not a member of SpinCo’s “separate affiliated group” (as defined in Section 355(b)(3)(B) of the Code) 30% or more of the gross assets of the SpinCo Active Trade or Business, or (3) sell or transfer 30% or more of the consolidated gross assets of SpinCo and its Affiliates,
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(D)    redeem or otherwise repurchase (directly or through a SpinCo Affiliate) any SpinCo Capital Stock, or rights to acquire SpinCo Capital Stock, except to the extent such repurchases satisfy Section 4.05(1)(b) of Revenue Procedure 96-30 (as in effect prior to the amendment by Revenue Procedure 2003-48),
(E)    amend its certificate of incorporation (or other organizational documents) or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of SpinCo Capital Stock (including, without limitation, through the conversion of one class of SpinCo Capital Stock into another class of SpinCo Capital Stock),
(F)    take any other action or actions (including any action or transaction that would be reasonably likely to be inconsistent with any representation or covenant made in this Agreement, the Separation and Distribution Agreement, any of the Ancillary Agreements, any Representation Letters or any Tax Opinion) that, in the aggregate (and taking into account any other transactions described in this subparagraph (d)), would be reasonably likely to have the effect of causing or permitting one or more persons to acquire, directly or indirectly, Capital Stock representing a Fifty-Percent or Greater Interest in SpinCo or otherwise jeopardize the U.S. Tax-Free Status of the Distribution or the Internal Distribution, or
(G)    cause or permit any member of the SpinCo Group that was a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(b) of the Code) in the Internal Distribution to take any action or enter into any transaction described in the preceding clauses (B), (C), (D), (E) or (F) (substituting references therein to “SpinCo,” the “ Contribution,” the “SpinCo Active Trade or Business” and “SpinCo Capital Stock” with references to the relevant corporation, the transfer of assets to such corporation pursuant to the Transactions, the active conduct of the trade or business(es) relied upon with respect to the Internal Distribution (as described in the relevant Representation Letters and/or relevant Tax Opinion) for purposes of Section 355(b)(2) of the Code and the Capital Stock of such corporation),
unless, in each case, prior to taking any such action set forth in the foregoing clauses (A) through (G), (x) SpinCo shall have requested that XPO obtain a private letter ruling from the IRS and/or any other applicable Tax Authority in accordance with Sections 7.04(b) and (d) to the effect that such transaction will not affect the U.S. Tax-Free Status of any External Separation Transaction or the Internal Distribution, and XPO shall have received such a private letter ruling in form and substance satisfactory to XPO in its sole and absolute discretion (and in determining whether a private letter ruling is satisfactory, XPO may consider, among other factors, the appropriateness of any underlying assumptions and management’s representations made in connection with such private letter ruling), (y) SpinCo shall have provided XPO with an Unqualified Tax Opinion in form and substance satisfactory to XPO in its sole and absolute discretion (and in determining whether an opinion is satisfactory, XPO may consider, among other factors, the appropriateness of any underlying assumptions and management’s representations if used as a basis for the
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opinion and XPO may determine that no opinion would be acceptable to XPO) or (z) XPO shall have waived the requirement to obtain such private letter ruling or Unqualified Tax Opinion.
(e)    Certain Acquisitions of SpinCo Capital Stock. If SpinCo proposes to enter into any Section 7.02(e) Acquisition Transaction or, to the extent SpinCo has the right to prohibit any Section 7.02(e) Acquisition Transaction, proposes to permit any Section 7.02(e) Acquisition Transaction to occur, in each case, during the period from the date hereof until the first day after the Restriction Period, SpinCo shall provide XPO, no later than ten days following the signing of any written agreement with respect to the Section 7.02(e) Acquisition Transaction, with a written description of such transaction (including the type and amount of SpinCo Capital Stock to be issued in such transaction) and a certificate of the Chief Financial Officer of SpinCo to the effect that the Section 7.02(e) Acquisition Transaction is not a Proposed Acquisition Transaction or any other transaction to which the requirements of Section 7.02(d) apply (a “SpinCo CFO Certificate”).
(f)    Certain Additional Restrictions on SpinCo. SpinCo shall not (and shall not cause or permit any of its Subsidiaries to) take any action set forth on Schedule 7.02(f).
Section 7.03    Restrictions on XPO. XPO agrees that it will not take or fail to take, or cause or permit any member of the XPO Group to take or fail to take, any action where such action or failure to act would be inconsistent with or cause to be untrue any material, information, covenant or representation in this Agreement, the Separation and Distribution Agreement, any of the Ancillary Agreements, any Representation Letters, or any Tax Opinion. XPO agrees that it will not take or fail to take, or cause or permit any member of the XPO Group to take or fail to take, any action where such action or failure to act would or could reasonably be expected to prevent U.S. Tax-Free Status or Foreign Tax-Free Status.
Section 7.04    Procedures Regarding Opinions and Rulings.
(a)    If SpinCo notifies XPO that it desires to take one of the actions described in clauses (A) through (G) of Section 7.02(d) (a “Notified Action”), XPO and SpinCo shall reasonably cooperate to attempt to obtain the private letter ruling or Unqualified Tax Opinion referred to in Section 7.02(d), unless XPO shall have waived the requirement to obtain such private letter ruling or Unqualified Tax Opinion.
(b)    Rulings or Unqualified Tax Opinions at SpinCo’s Request. At the reasonable request of SpinCo pursuant to Section 7.02(d), XPO shall cooperate with SpinCo and use commercially reasonable efforts to seek to obtain, as expeditiously as reasonably practicable, a private letter ruling from the IRS or an Unqualified Tax Opinion for the purpose of permitting SpinCo to take the Notified Action. Further, in no event shall XPO be required to file any request for a private letter ruling under this Section 7.04(b) unless SpinCo represents that (i) it has reviewed the request for such private letter ruling and (ii) all information and representations, if any, relating to any member of the SpinCo Group, contained in the related documents are (subject to any qualifications therein) true, correct and complete. SpinCo shall reimburse XPO for all reasonable costs and expenses incurred by the XPO Group in obtaining a private letter
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ruling or Unqualified Tax Opinion requested by SpinCo within 15 business days after receiving an invoice from XPO therefor.
(c)    Rulings or Tax Opinions at XPO’s Request. XPO shall have the right to seek a private letter ruling (or other ruling) from the IRS (and/or any other applicable Tax Authority) concerning any Transaction (including the impact of any transaction thereon) or an Unqualified Tax Opinion (or other opinion of a Tax Advisor with respect to any of the Transactions) at any time in its sole and absolute discretion. If XPO determines to seek such a private letter ruling (or other ruling) or an Unqualified Tax Opinion (or other opinion), SpinCo shall (and shall cause each of its Affiliates to) cooperate with XPO and take any and all actions reasonably requested by XPO in connection with obtaining the private letter ruling (or other ruling) or Unqualified Tax Opinion (or other opinion) (including, without limitation, by making any representation or covenant or providing any materials or information requested by the IRS (and/or any other applicable Tax Authority) or any Tax Advisor; provided, that SpinCo shall not be required to make (or cause any of its Affiliates to make) any representation or covenant that is inconsistent with historical facts or as to future matters or events over which it has no control). XPO and SpinCo shall each bear its own costs and expenses in obtaining such a private letter ruling (or other ruling) or an Unqualified Tax Opinion (or other opinion) requested by XPO.
(d)    Ruling Process Control. SpinCo hereby agrees that XPO shall have sole and exclusive control over the process of obtaining any private letter ruling (or other ruling) and that only XPO shall apply for such a private letter ruling (or other ruling). In connection with obtaining a private letter ruling pursuant to Section 7.04(b), XPO shall (i) keep SpinCo informed in a timely manner of all material actions taken or proposed to be taken by XPO in connection therewith; (ii) (A) reasonably in advance of the submission of any related private letter ruling documents provide SpinCo with a draft copy thereof, (B) reasonably consider SpinCo’s comments on such draft copy and (C) provide SpinCo with a final copy; and (iii) provide SpinCo with notice reasonably in advance of, and SpinCo shall have the right to attend, any formally scheduled meetings with the IRS (subject to the approval of the IRS) that relate to such private letter ruling. Neither SpinCo nor any of its directly or indirectly controlled Affiliates shall seek any guidance from the IRS or any other Tax Authority (whether written, verbal or otherwise) at any time concerning any Transaction that is the subject of a Tax Opinion (including the impact of any transaction on any of the foregoing).
Section 7.05    Liability for Tax-Related Losses.
(a)    Notwithstanding anything in this Agreement or the Separation and Distribution Agreement to the contrary, subject to Section 7.05(c), SpinCo shall be responsible for, and shall indemnify and hold harmless XPO, its Affiliates and its officers, directors and employees from and against, 100% of any Tax-Related Losses that are attributable to or result from any one or more of the following: (A) the acquisition, after the Effective Time, of all or a portion of SpinCo’s Capital Stock and/or its or its subsidiaries’ assets (including any Capital Stock of any member of the SpinCo Group that was a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(b) of the Code) in the Internal Distribution) by any means whatsoever by any Person(s), (B) any action or failure to act by SpinCo after the
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Distribution (including, without limitation, any amendment to SpinCo’s certificate of incorporation (or other organizational documents), whether through a stockholder vote or otherwise) affecting the voting rights of SpinCo Capital Stock (including, without limitation, through the conversion of one class of SpinCo Capital Stock into another class of SpinCo Capital Stock), (C) any act or failure to act by SpinCo or any SpinCo Affiliate described in Section 7.02 (regardless whether such act or failure to act is covered by a private letter ruling, Unqualified Tax Opinion or waiver described in clause (x), (y) or (z) of Section 7.02(d) or in a SpinCo CFO Certificate described in Section 7.02(e)(i)) or (D) any breach by SpinCo of its agreement and representations set forth in Section 7.01 (other than Section 7.01(a)).
(b)    Notwithstanding anything in this Agreement or the Separation and Distribution Agreement to the contrary, subject to Section 7.05(c), XPO shall be responsible for, and shall indemnify and hold harmless SpinCo, its Affiliates and each of its officers, directors and employees from and against, 100% of any Tax-Related Losses that are attributable to, or result from any one or more of the following: (i) the acquisition, after the Effective Time, of all or a portion of XPO’s Capital Stock and/or its or its subsidiaries’ assets (including any Capital Stock of any member of the XPO Group that was a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(b) of the Code) in the Internal Distribution) by any means whatsoever by any Person(s) or (ii) any act or failure to act by XPO or a member of the XPO Group described in Section 7.03.
(c)    
(i)    To the extent that any Tax-Related Loss is subject to indemnity under Sections 7.05(a) and (b), responsibility for such Tax-Related Loss shall be shared by SpinCo and XPO according to relative fault.
(ii)    Notwithstanding anything in Section 7.05(b) or (c)(i) or any other provision of this Agreement or the Separation and Distribution Agreement to the contrary:
(A)    with respect to (1) any Tax-Related Loss resulting from the application of Section 355(e) or Section 355(f) of the Code (other than as a result of an acquisition of a Fifty-Percent or Greater Interest in XPO or any member of the XPO Group that was a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(b) of the Code) in the Internal Distribution) and (2) any other Tax-Related Loss, in each case, resulting, in whole or in part, from an acquisition after the Distribution of any Capital Stock or assets of SpinCo (or any SpinCo Affiliate) by any means whatsoever by any Person or any action or failure to act by SpinCo affecting the voting rights of SpinCo, SpinCo shall be responsible for, and shall indemnify and hold harmless XPO, its Affiliates, and each of its officers, directors and employees from and against, 100% of such Tax-Related Loss;
(B)    for purposes of calculating the amount and timing of any Tax-Related Loss for which SpinCo is responsible under this Section 7.05, Tax-Related Losses shall be calculated by assuming that XPO, the XPO Affiliated Group and each member of the XPO Group (1) pay Tax at the highest marginal corporate Tax rates in
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effect in each relevant Tax Period and (2) have no Tax Attributes in any relevant Tax Period; and
(iii)    Notwithstanding anything in Section 7.05(a) or (c)(i) or any other provision of this Agreement or the Separation and Distribution Agreement to the contrary, with respect to (A) any Tax-Related Loss resulting from the application of Section 355(e) or Section 355(f) of the Code (other than as a result of an acquisition of a Fifty-Percent or Greater Interest in SpinCo or any member of the SpinCo Group that was a “distributing corporation” or a “controlled corporation” (within the meaning of Section 355(b) of the Code) in the Internal Distribution) and (B) any other Tax-Related Loss, in each case, resulting, in whole or in part, from an acquisition after the Distribution of any Capital Stock or assets of XPO (or any XPO Affiliate) by any means whatsoever by any Person (other than as a result of an acquisition in the Internal Distribution), XPO shall be responsible for, and shall indemnify and hold harmless SpinCo, its Affiliates, and each of its officers, directors and employees from and against, 100% of such Tax-Related Loss.
(d)    Allocation of Certain Separation-Related Taxes. Each of XPO and SpinCo shall be liable for, and shall indemnify and hold harmless the SpinCo Group or the XPO Group, as applicable, from and against any liability for Tax-Related Losses with respect to Income Taxes (except to the extent (A) such Tax is a Tax-Related Loss for which SpinCo or XPO is responsible pursuant to Section 7.05(a) or (b), respectively, or (B) XPO or SpinCo would otherwise be responsible for such amounts pursuant to Section 7.05(c)) (such Taxes, “Shared Taxes”) in the proportions set forth on Schedule 7.05(d).
(e)    Notwithstanding any other provision of this Agreement or the Separation and Distribution Agreement to the contrary:
(i)    SpinCo shall pay XPO the amount for which SpinCo has an indemnification obligation under this Section 7.05: (A) in the case of Tax-Related Losses described in clause (a) of the definition of Tax-Related Losses, no later than the later of (x) seven business days after delivery by XPO to SpinCo of an invoice for the amount of such Tax-Related Losses or (y) three business days prior to the date XPO files, or causes to be filed, the applicable Tax Return for the year of the relevant transaction, as applicable (the “XPO Filing Date”) (provided, that if such Tax-Related Losses arise pursuant to a Final Determination described in clause (a), (b) or (c) of the definition of “Final Determination,” then SpinCo shall pay XPO no later than the later of (x) seven business days after delivery by XPO to SpinCo of an invoice for the amount of such Tax-Related Losses or (y) three business days prior to the date for making payment with respect to such Final Determination) and (B) in the case of Tax-Related Losses described in clause (b) or (c) of the definition of Tax-Related Losses, no later than the later of (x) 7 business days after delivery by XPO to SpinCo of an invoice for the amount of such Tax-Related Losses or (y) two business days after the date XPO pays such Tax-Related Losses.
(ii)    XPO shall pay SpinCo the amount for which XPO has an indemnification obligation under this Section 7.05: (A) in the case of Tax-Related Losses described in clause (a) of the definition of Tax-Related Losses, no later than the later of (x) seven business days after delivery by SpinCo to XPO of an invoice for the amount of such Tax-Related
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Losses or (y) three business days prior to the date SpinCo files, or causes to be filed, the applicable Tax Return for the year of the relevant transaction, as applicable (the “SpinCo Filing Date”) (provided, that if such Tax-Related Losses arise pursuant to a Final Determination described in clause (a), (b) or (c) of the definition of “Final Determination,” then XPO shall pay SpinCo no later than the later of (x) seven business days after delivery by SpinCo to XPO of an invoice for the amount of such Tax-Related Losses or (y) three business days prior to the date for making payment with respect to such Final Determination); and (B) in the case of Tax-Related Losses described in clause (b) or (c) of the definition of Tax-Related Losses, no later than the later of (x) seven business days after delivery by SpinCo to XPO of an invoice for the amount of such Tax-Related Losses or (y) two business days after the date SpinCo pays such Tax-Related Losses.
Section 7.06    Section 336(e) Election. If XPO determines, in its sole and absolute discretion, that one or more protective elections under Section 336(e) of the Code (each, a “Section 336(e) Election”) shall be made with respect to the Distribution and/or the Internal Distribution, SpinCo shall (and shall cause any relevant member of the SpinCo Group to) join with XPO and/or any relevant member of the XPO Group, as applicable, in the making of any such election and shall take any action reasonably requested by XPO or that is otherwise necessary to give effect to any such election (including making any other related election). If a Section 336(e) Election is made with respect to the Distribution and/or the Internal Distribution, then this Agreement shall be amended in such a manner as is determined by XPO in its sole and absolute discretion to take into account such Section 336(e) Election(s), including by requiring that, in the event (a) the Contribution, Distribution, or the Internal Distribution fails to have U.S. Tax-Free Status and (b) a Company (or such Company’s Group) that does not have exclusive responsibility pursuant to this Agreement for Tax-Related Losses arising from such failure actually realizes in cash a Tax Benefit from the step-up in Tax basis resulting from the Section 336(e) Election, such Company shall pay over to the Company that has exclusive responsibility pursuant to this Agreement for such Tax-Related Losses any such Tax Benefits realized (provided, that, if such Tax-Related Losses are Shared Taxes or Taxes for which more than one Company is liable under Section 7.05(c)(i), the Company that actually realizes in cash the Tax Benefit resulting from the relevant Section 336(e) Election shall pay over to the other Company responsible for such Taxes the percentage of any such Tax Benefits realized that corresponds to such Company’s percentage share of such Taxes).
Section 7.07    Certain Assumptions. For purposes of determining whether any transaction or series of transactions is a Section 7.02(e) Acquisition Transaction or a Proposed Acquisition Transaction, it shall be assumed that certain transactions resulted in one or more persons acquiring directly or indirectly common stock representing no less than the Specified Percentage Interest in SpinCo for purposes of Section 355(e) of the Code.
Section 8.    Assistance and Cooperation.
Section 8.01    Assistance and Cooperation.
(a)    Each of the Companies shall provide (and shall cause its Affiliates to provide) the other Company and its agents, including accounting firms and legal counsel, with
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such cooperation or information as they may reasonably request in connection with (i) preparing and filing Tax Returns, (ii) determining the liability for and amount of any Taxes due (including estimated Taxes) or the right to and amount of any refund of Taxes, (iii) examinations of Tax Returns and (iv) any administrative or judicial proceeding in respect of Taxes assessed or proposed to be assessed. Such cooperation shall include making available, upon reasonable notice, all information and documents in its possession relating to the other Company and its Affiliates as provided in Section 9. Each of the Companies shall also make available to the other Company, as reasonably requested and available, personnel (including employees and agents of the Companies or their respective Affiliates) responsible for preparing, maintaining and interpreting information and documents relevant to Taxes. In addition, SpinCo shall provide (and shall cause its Affiliates to provide) XPO and its agents, including accounting firms and legal counsel, with such cooperation or information as they may reasonably request in connection with the preparation and filing of any Tax Return (including any statement, agreement or informational Tax Return) or in connection with any potential election by XPO under Treasury Regulations Section 1.245A-5(e)(3)(i) to close the taxable year of any controlled foreign corporation transferred to the SpinCo Group (which election shall be made at XPO’s sole and absolute discretion).
(b)    Any information or documents provided under this Section 8 or Section 9 shall be kept confidential by the Company receiving the information or documents, except as may otherwise be necessary in connection with the filing of Tax Returns or in connection with any administrative or judicial proceedings relating to Taxes. Notwithstanding any other provision of this Agreement or any other agreement, in no event shall either Company or any of its Affiliates be required to provide the other Company or any of its Affiliates or any other Person access to or copies of any information if such action could reasonably be expected to result in the waiver of any Privilege. In addition, in the event that either Company determines that the provision of any information to the other Company or its respective Affiliates could be commercially detrimental, violate any law or agreement or waive any Privilege, the Parties shall use reasonable best efforts to permit compliance with their obligations under this Section 8 or Section 9 in a manner that avoids any such harm or consequence.
Section 8.02    Income Tax Return Information. XPO and SpinCo acknowledge that time is of the essence in relation to any request for information, assistance or cooperation made by SpinCo or XPO pursuant to Section 8.01 or this Section 8.02. XPO and SpinCo acknowledge that failure to comply with the deadlines set forth herein or reasonable deadlines otherwise set by SpinCo or XPO could cause irreparable harm. Each Company shall provide to the other Company information and documents relating to its Group required by such other Company to prepare its Tax Returns. Any information or documents required by the Company that is responsible for preparing such Tax Returns under this Agreement shall be provided in such form as the preparing Company reasonably requests and in sufficient time for such Tax Returns to be filed on a timely basis; provided, that, this Section 8.02 shall not apply to information governed by Section 4.09. In the event that, following the Deconsolidation Date, SpinCo receives notice from any Tax Authority that any Foreign Income Taxes reported on any Tax Return for a Tax Period ending on or prior to the Deconsolidation Date may be subject to adjustment, SpinCo shall provide written notice thereof to XPO promptly following receipt of such notice.
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Section 8.03    Reliance by XPO. If any member of the SpinCo Group supplies information to a member of the XPO Group in connection with a Tax liability and an officer of a member of the XPO Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then, upon the written request of XPO identifying the information being so relied upon, the Chief Financial Officer of SpinCo (or any officer of SpinCo as designated by the Chief Financial Officer of SpinCo) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete. SpinCo agrees to indemnify and hold harmless each member of the XPO Group and its directors, officers and employees from and against any fine, penalty, or other cost or expense of any kind attributable to a member of the SpinCo Group having supplied, pursuant to this Section 8, a member of the XPO Group with inaccurate or incomplete information in connection with a Tax liability.
Section 8.04    Reliance by SpinCo. If any member of the XPO Group supplies information to a member of the SpinCo Group in connection with a Tax liability and an officer of a member of the SpinCo Group signs a statement or other document under penalties of perjury in reliance upon the accuracy of such information, then upon the written request of SpinCo identifying the information being so relied upon, the Chief Financial Officer of XPO (or any officer of XPO as designated by the Chief Financial Officer of XPO) shall certify in writing that to his or her knowledge (based upon consultation with appropriate employees) the information so supplied is accurate and complete. XPO agrees to indemnify and hold harmless each member of the SpinCo Group and its directors, officers and employees from and against any fine, penalty, or other cost or expense of any kind attributable to a member of the XPO Group having supplied, pursuant to this Section 8, a member of the SpinCo Group with inaccurate or incomplete information in connection with a Tax liability; provided, that, this Section 8.04 shall not apply to information governed by Section 4.09.
Section 9.    Tax Records.
Section 9.01    Retention of Tax Records. Each Company shall preserve and keep all Tax Records exclusively relating to the assets and activities of its Group for the relevant Pre-Deconsolidation Period(s), and XPO shall preserve and keep all other Tax Records relating to Taxes of the Groups for the relevant Pre-Deconsolidation Periods, for so long as the contents thereof may become material in the administration of any matter under the Code or other applicable Tax Law, but in any event until the later of (a) the expiration of any applicable statutes of limitations, or (b) ten years after the Deconsolidation Date (such later date, the “Retention Date”). After the Retention Date, each Company may dispose of such Tax Records upon 90 days’ prior written notice to the other Company. If, prior to the Retention Date, a Company reasonably determines that any Tax Records that it would otherwise be required to preserve and keep under this Section 9 are no longer material in the administration of any matter under the Code or other applicable Tax Law and the other Company agrees, then such first Company may dispose of such Tax Records upon 90 days’ prior notice to the other Company. Any notice of an intent to dispose given pursuant to this Section 9.01 shall include a list of the Tax Records to be disposed of describing in reasonable detail the files, books or other records
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being disposed. The notified Company shall have the opportunity, at its cost and expense, to copy or remove, within such 90-day period, all or any part of such Tax Records.
Section 9.02    Access to Tax Records. Each of the Companies and their respective Affiliates shall make available to each other for inspection and copying during normal business hours upon reasonable notice all Tax Records for Pre-Deconsolidation Periods to the extent reasonably required by the other Company in connection with the preparation of financial accounting statements, audits, litigation, or the resolution of items under this Agreement.
Section 10.    Tax Contests.
Section 10.01    Notice. Each of the Companies shall provide prompt notice to the other of any written communication from a Tax Authority regarding any pending or threatened Tax audit, assessment or proceeding or other Tax Contest for which it may be entitled to indemnification by the other Company hereunder. Such notice shall include copies of the pertinent portion of any written communication from a Tax Authority and contain factual information (to the extent known) describing any asserted Tax liability in reasonable detail. The failure of one Company to notify the other of such communication in accordance with the immediately preceding sentences shall not relieve the other Company of any liability or obligation to pay such Tax or make indemnification payments under this Agreement, except to the extent that the failure timely to provide such notification actually prejudices the ability of the other Company to contest such Tax liability or increases the amount of such Tax liability.
Section 10.02    Control of Tax Contests.
(a)    Joint Returns. In the case of any Tax Contest with respect to any Joint Return that was filed prior to the Deconsolidation Date or for which XPO is otherwise the Responsible Company, XPO shall have exclusive control over such Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 10.02(b), and shall be solely responsible for any Tax liability resulting from such Tax Contest (and all accounting, legal and other professional fees and court costs incurred in connection therewith). In the case of any Tax Contest with respect to any Joint Return for which SpinCo is the Responsible Company, SpinCo shall have exclusive control over such Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 10.02(b), and shall be solely responsible for any Tax liability resulting from such Tax Contest (and all accounting, legal and other professional fees and court costs incurred in connection therewith).
(b)    Separation-Related and Certain Other Tax Contests.
(i)    In the event of any:
(A)    (x) Separation-Related Tax Contest as a result of which SpinCo could reasonably be expected to become exclusively liable for any Tax or Tax-Related Losses or (y) Tax Contest as a result of which SpinCo could reasonably be expected to become liable for any SpinCo Allocated Income Taxes, and, in each case,
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which XPO has the right to administer and control pursuant to Section 10.02(a) or (c), (1) XPO shall consult with SpinCo reasonably in advance of taking any significant action in connection with such Tax Contest, (2) XPO shall offer SpinCo a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest, (3) XPO shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest and (4) XPO shall provide SpinCo copies of any written materials relating to such Tax Contest received from the relevant Tax Authority; and
(B)    (x) Separation-Related Tax Contest as a result of which SpinCo could reasonably be expected to become liable for any portion of any Tax or Tax-Related Losses pursuant to Section 7.05(c)(i) or (y) Tax Contest as a result of which SpinCo could reasonably be expected to become liable for any Shared Taxes, and, in each case, which XPO has the right to administer and control pursuant to Section 10.02(a) or (c), (1) XPO shall keep SpinCo reasonably informed with respect to such Tax Contest, (2) XPO shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest, and (3) XPO shall provide SpinCo copies of any written materials relating to such Tax Contest received from the relevant Tax Authority.
(ii)    In the event of any Separation-Related Tax Contest with respect to any SpinCo Separate Return as a result of which XPO could reasonably be expected to become liable for any Tax or Tax-Related Losses, (A) SpinCo shall consult with XPO reasonably in advance of taking any significant action in connection with such Tax Contest, (B) SpinCo shall consult with XPO and offer XPO a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Contest, (C) SpinCo shall defend such Tax Contest diligently and in good faith as if it were the only party in interest in connection with such Tax Contest, (D) XPO shall be entitled to participate in such Tax Contest and receive copies of any written materials relating to such Tax Contest received from the relevant Tax Authority, and (E) SpinCo shall not settle, compromise or abandon any such Tax Contest without obtaining the prior written consent of XPO which consent shall not be unreasonably withheld; provided, however, that in the case of any (1) Separation-Related Tax Contest as a result of which XPO could reasonably be expected to become liable for any Tax or Tax-Related Losses pursuant to Section 7.05(b) or Section 7.05(c)(i), or (2) Tax Contest as a result of which XPO could reasonably be expected to become liable for any Shared Taxes and, in each case, which SpinCo has the right to administer and control pursuant to Section 10.02(d), XPO shall have the right to elect to assume control of such Tax Contest, in which case the provisions of Section 10.02(b)(i)(B) shall apply.
(c)    XPO Separate Returns. In the case of any Tax Contest with respect to any XPO Separate Return, XPO shall have exclusive control over such Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 10.02(b), and shall be solely responsible for any Tax liability resulting from such Tax Contest (and all accounting, legal and other professional fees and court costs incurred in connection therewith).
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(d)    SpinCo Separate Returns. In the case of any Tax Contest with respect to any SpinCo Separate Return, SpinCo shall have exclusive control over such Tax Contest, including exclusive authority with respect to any settlement of such Tax liability, subject to Section 10.02(b), and shall be solely responsible for any Tax liability resulting from such Tax Contest (and all accounting, legal and other professional fees and court costs incurred in connection therewith).
(e)    Power of Attorney. SpinCo shall (and shall cause each member of the SpinCo Group to) execute and deliver to XPO (or such member of the XPO Group as XPO shall designate) any power of attorney or other similar document reasonably requested by XPO (or such designee) in connection with any Tax Contest controlled by XPO described in this Section 10.
Section 11.    Effective Date; Termination of Prior Intercompany Tax Allocation Agreements.
This Agreement shall be effective as of the Effective Time. As of the Effective Time, (a) all prior intercompany Tax allocation agreements or arrangements solely between or among XPO and/or any of its Subsidiaries, on the one hand, and SpinCo and/or members of the SpinCo Group, on the other hand, shall be terminated, and (b) amounts due under such agreements or arrangements as of the date on which the Effective Time occurs shall be settled. Upon such termination and settlement, no further payments by or to XPO or such Subsidiaries or by or to SpinCo or such members of the SpinCo Group, with respect to such agreements or arrangements shall be made, and all other rights and obligations resulting from such agreements or arrangements shall cease at such time. Any payments pursuant to such agreements shall be disregarded for purposes of computing amounts due under this Agreement; provided, that to the extent appropriate, as determined by XPO in its sole and absolute discretion, payments made pursuant to such agreements or arrangements shall be credited to SpinCo or XPO, respectively, in computing their respective obligations pursuant to this Agreement, in the event that such payments relate to a Tax liability that is the subject matter of this Agreement for a Tax Period that is the subject matter of this Agreement.
Section 12.    Survival of Obligations.
The representations, warranties, covenants and agreements set forth in this Agreement shall be unconditional and absolute and shall remain in effect without limitation as to time.
Section 13.    Treatment of Payments; Tax Gross Up.
Section 13.01    Treatment of Tax Indemnity and Tax Benefit Payments. In the absence of any change in Tax treatment under the Code or other applicable Tax Law, for all Income Tax purposes, the Companies agree to treat, and to cause their respective Affiliates to treat, (a) any indemnity payment required by this Agreement or by the Separation and Distribution Agreement to be made (i) by XPO to SpinCo as a contribution by XPO to SpinCo (or a reduction in the SpinCo Cash Proceeds transferred from SpinCo to XPO) and (ii) by SpinCo to XPO as a distribution by SpinCo to XPO, in each case, occurring immediately prior to the Distribution;
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and (b) any payment of interest or State Income Taxes by or to a Tax Authority, as taxable or deductible, as the case may be, to the Company entitled under this Agreement to retain such payment or required under this Agreement to make such payment. The Parties shall cooperate in good faith (including, where relevant, by using commercially reasonable efforts to establish local payment arrangements between each Party’s Subsidiaries) to minimize or eliminate, to the extent permissible under applicable law, any Tax that would otherwise be imposed with respect to any payment required by this Agreement or by the Separation and Distribution Agreement (or maximize the ability to obtain a credit for, or refund of, any such Tax).
Section 13.02    Tax Gross Up. If notwithstanding the manner in which payments described in Section 13.01(a) were reported, there is a Tax liability or an adjustment to a Tax liability of a Company as a result of its receipt of a payment pursuant to this Agreement or the Separation and Distribution Agreement, such payment shall be appropriately adjusted, as determined by XPO in its sole and absolute discretion, so that the amount of such payment, reduced by the amount of all Income Taxes payable with respect to the receipt thereof (but taking into account all correlative Tax Benefits resulting from the payment of such Income Taxes), shall equal the amount of the payment that the Company receiving such payment would otherwise be entitled to receive.
Section 13.03    Interest. Anything herein to the contrary notwithstanding, to the extent one Company makes a payment of interest to another Company under this Agreement with respect to the period from (a) the date that the payor was required to make a payment to the payee to (b) the date that the payor actually made such payment, the interest payment shall be treated as interest expense to the payor (deductible to the extent provided by law) and as interest income by the payee (includible in income to the extent provided by law). The amount of the payment shall not be adjusted to take into account any associated Tax Benefit to the payor or increase in Tax to the payee.
Section 14.    Disagreements.
The Companies desire that collaboration will continue between them. Accordingly, they will try, and they will cause their respective Group members to try, to resolve in good faith all disagreements regarding their respective rights and obligations under this Agreement, including any amendments hereto. In furtherance thereof, in the event of any dispute or disagreement (a “Tax Advisor Dispute”) between any member of the XPO Group and any member of the SpinCo Group as to the interpretation of any provision of this Agreement or the performance of obligations hereunder, representatives of the Tax departments of the Companies shall negotiate in good faith to resolve the Tax Advisor Dispute. If such good faith negotiations do not resolve the Tax Advisor Dispute, then such Tax Advisor Dispute shall be resolved pursuant to the procedures set forth in Article VII of the Separation and Distribution Agreement; provided, that each of the mediators or arbitrators selected in accordance with Article VII of the Separation and Distribution Agreement must be Tax Advisors. Nothing in this Section 14 will prevent either Company from seeking injunctive relief if any delay resulting from the efforts to resolve the Tax Advisor Dispute through the procedures set forth in Article VII of the Separation and Distribution Agreement could result in serious and irreparable injury to such Company.
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Notwithstanding anything to the contrary in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement, XPO and SpinCo are the only members of their respective Groups entitled to commence a dispute resolution procedure under this Agreement and each of XPO and SpinCo will cause its respective Group members not to commence any dispute resolution procedure other than through such Party as provided in this Section 14.
Section 15.    Late Payments.
Any amount owed by one Party to another Party under this Agreement that is not paid when due shall bear interest at the Prime Rate plus two percent (2%), compounded semiannually, from the due date of the payment to the date paid. To the extent interest required to be paid under this Section 15 duplicates interest required to be paid under any other provision of this Agreement, interest shall be computed at the higher of the interest rate provided under this Section 15 or the interest rate provided under such other provision.
Section 16.    Expenses.
Except as otherwise provided in this Agreement, each Party and its Affiliates shall bear their own expenses incurred in connection with the preparation of Tax Returns, Tax Contests, and other matters related to Taxes under the provisions of this Agreement.
Section 17.    General Provisions.
Section 17.01    Specified Matters. Notwithstanding anything to the contrary in this Agreement, the provisions of Schedule A shall, in addition to the provisions of this Agreement, apply to the matters set forth therein. In the event of any conflict between the provisions of Schedule A and any provision in this Agreement, the provisions of Schedule A shall govern.
Section 17.02    Addresses and Notices. All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and except as provided herein, shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by certified mail, return receipt requested, or by electronic mail (“e-mail”), so long as confirmation of receipt of such e-mail is requested and received, to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 17.02):
If to XPO, to:
XPO Logistics, Inc.
Five American Lane
Greenwich, Connecticut 06831
Attention: Chief Financial Officer, Ravi Tulsyan
E-mail: [●]
with a copy (which shall not constitute notice), to:
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Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019
Attention: Jeffrey B. Samuels
Scott M. Sontag
E-mail: jsamuels@paulweiss.com
ssontag@paulweiss.com
If to SpinCo (prior to the Effective Time), to:
RXO, Inc.
[●]
[●]
Attention: [●]
E-mail: [●]
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with a copy (which shall not constitute notice), to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019
Attention: Jeffrey B. Samuels
Scott M. Sontag
E-mail: jsamuels@paulweiss.com
ssontag@paulweiss.com
If to SpinCo (from and after the Effective Time), to:
RXO, Inc.
[●]
[●]
Attention: [●]
E-mail: [●]
with a copy (which shall not constitute notice), to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019
Attention: Jeffrey B. Samuels
Scott M. Sontag
E-mail: jsamuels@paulweiss.com
ssontag@paulweiss.com
A Party may, by notice to the other Parties, change the address to which such notices are to be given or made.
Section 17.03    Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.
Section 17.04    Waiver of Default. Waiver by a Party of any default by another Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of any other Party. No failure or delay by a Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 17.05    Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been
38

held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
Section 17.06    Authority. XPO represents on behalf of itself and each other member of the XPO Group and SpinCo represents on behalf of itself and each other member of the SpinCo Group, as follows:
(a)    each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement; and
(b)    this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms hereof.
Section 17.07    Further Action. Prior to, on, and after the Effective Time, each Party hereto shall cooperate with the other Parties, at the expense of the requesting Party, to execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including the execution and delivery to the other Parties and their Affiliates and representatives of such powers of attorney or other authorizing documentation as is reasonably necessary or appropriate in connection with Tax Contests (or portions thereof) under the control of such other Parties in accordance with Section 10, and to make all filings with any Governmental Authority, and to take all such other actions as such Party may reasonably be requested to take by the other Parties from time to time, consistent with the terms of this Agreement, in order to effectuate the provisions and purposes of this Agreement.
Section 17.08    Integration. This Agreement, together with each of the exhibits and schedules appended hereto, contain the entire agreement among the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings among the Parties other than those set forth herein and in the Separation and Distribution Agreement and the other Ancillary Agreements. This Agreement, the Separation and Distribution Agreement, and the other Ancillary Agreements together govern the arrangements in connection with the Separation and the Distribution and would not have been entered independently. In the event of any inconsistency between this Agreement and the Separation and Distribution Agreement, or any other agreements relating to the transactions contemplated by the Separation and Distribution Agreement, with respect to matters addressed herein, the provisions of this Agreement shall control (it being understood that the terms pursuant to which any transition services related to Tax matters shall be provided under the Transition Services Agreement shall be governed by the Transition Services Agreement).
Section 17.09    Construction. The language in all parts of this Agreement shall in all cases be construed according to its fair meaning and shall not be strictly construed for or against any Party. The captions, titles and headings included in this Agreement are for convenience only, and
39

do not affect this Agreement’s construction or interpretation. Unless otherwise indicated, all “Section” references in this Agreement are to sections of this Agreement.
Section 17.10    No Double Recovery. No provision of this Agreement shall be construed to provide an indemnity or other recovery for any costs, damages, or other amounts for which the damaged Party has been fully compensated under any other provision of this Agreement or under any other agreement or action at law or equity. Unless expressly required in this Agreement, a Party shall not be required to exhaust all remedies available under other agreements or at law or equity before recovering under the remedies provided in this Agreement.
Section 17.11    Counterparts. Each Party acknowledges that it and each other Party may execute this Agreement by facsimile, stamp or mechanical signature and that delivery of an executed counterpart of a signature page to this Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by e-mail in portable document format (.pdf) shall be effective as delivery of such executed counterpart of this Agreement. Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by e-mail in portable document format (.pdf)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause this Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.
Section 17.12    Governing Law. This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any Party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware irrespective of the choice of Laws principles of the State of Delaware including all matters of validity, construction, effect, enforceability, performance and remedies.
Section 17.13    Amendment. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representatives of the Parties against whom it is sought to enforce such waiver, amendment, supplement or modification.
Section 17.14    SpinCo Subsidiaries. If, at any time, SpinCo acquires or creates one or more subsidiaries that are includable in the SpinCo Group, they shall be subject to this Agreement and all references to the SpinCo Group herein shall thereafter include a reference to such subsidiaries.
Section 17.15    Successors. This Agreement shall be binding upon and inure to the benefit of the Parties and the parties thereto, respectively, and their respective successors and permitted assigns; provided, however, that neither Party nor any such party thereto may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the
40

other Party hereto or other parties thereto, as applicable. Notwithstanding the foregoing, no such consent shall be required for the assignment of a Party’s rights and obligations under this Agreement in whole (i.e., the assignment of a Party’s rights and obligations under this Agreement) in connection with a change of control or a sale of all or substantially all of a Party (or its assets) so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant party thereto by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party.
Section 17.16    Specific Performance. Notwithstanding anything to the contrary in this Agreement or the Separation and Distribution Agreement (or any Ancillary Agreement), in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of Section 7.01(b) or Section 7.02, XPO shall have the right, without first pursuing the procedures set forth in Section 14, to specific performance and injunctive or other equitable relief in respect of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. SpinCo agrees that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any Action for specific performance that a remedy at law would be adequate is waived. SpinCo also waives any requirements for the securing or posting of any bond with such remedy.
Section 17.17    Survival of Covenants. Except as expressly set forth in this Agreement, the covenants, representations and warranties contained in this Agreement, and Liability for the breach of any obligations contained herein, shall survive the Separation and the Distribution and shall remain in full force and effect.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.
XPO LOGISTICS, INC.
By:
Name: Ravi Tulsyan
Title: Chief Financial Officer
RXO, INC.
By:
Name: [●]
Title: [●]
[Signature Page to the Tax Matters Agreement]
Exhibit 2.4

FORM OF
EMPLOYEE MATTERS AGREEMENT
BY AND BETWEEN
XPO LOGISTICS, INC.
AND
RXO, INC.
DATED AS OF [l], 2022


TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
1
Section 1.01.    Definitions
1
Section 1.02.    Interpretation
6
ARTICLE II GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES
7
Section 2.01.    General Principles
7
Section 2.02.    Service Credit Recognized by SpinCo and SpinCo Benefit Plans
9
Section 2.03.    Adoption and Transfer and Assumption of Benefit Plans
9
Section 2.04.    Reimbursement
10
ARTICLE III ASSIGNMENT OF EMPLOYEES
12
Section 3.01.    Active Employees
12
Section 3.02.    Individual Agreements
13
Section 3.03.    Consultation with Labor Representatives; Labor Agreements
13
Section 3.04.    Non-Solicitation
14
ARTICLE IV EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION
15
Section 4.01.    Generally
15
Section 4.02.    Equity Incentive Awards.
15
Section 4.03.    Employee Stock Purchase Plan
19
Section 4.04.    Non-Equity Incentive Practices and Plans
19
Section 4.05.    Director Compensation
20
ARTICLE V QUALIFIED RETIREMENT PLANS
20
Section 5.01.    Parent Pension Plan
21
Section 5.02.    SpinCo 401(k) Plan
21
Section 5.03.    Canada Defined Contribution Plan
22
ARTICLE VI NONQUALIFIED DEFERRED COMPENSATION PLANS
23
Section 6.01.    Parent Deferred Compensation Plans
23
Section 6.02.    Participation; Distributions
24
Section 6.03.    Notice Requirement
24
ARTICLE VII WELFARE BENEFIT PLANS
24
Section 7.01.    Welfare Plans
24
Section 7.02.    Retiree Medical Plans.
25
Section 7.03.    COBRA
26
Section 7.04.    Flexible Spending Accounts
26
Section 7.05.    Disability Plans
26
Section 7.06.    Vacation, Holidays and Leaves of Absence
27
Section 7.07.    Workers’ Compensation
27
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Section 7.08.    Insurance Contracts
27
Section 7.09.    Third-Party Vendors
27
ARTICLE VIII MISCELLANEOUS
28
Section 8.01.    Preservation of Rights to Amend
28
Section 8.02.    Fiduciary Matters
28
Section 8.03.    Further Assurances
28
Section 8.04.    Counterparts; Entire Agreement; Corporate Power
28
Section 8.05.    Governing Law
29
Section 8.06.    Assignability
29
Section 8.07.    Third-Party Beneficiaries
29
Section 8.08.    Notices
30
Section 8.09.    Severability
31
Section 8.10.    Force Majeure
31
Section 8.11.    Headings
32
Section 8.12.    Survival of Covenants
32
Section 8.13.    Waivers of Default
32
Section 8.14.    Dispute Resolution
32
Section 8.15.    Specific Performance
32
Section 8.16.    Amendments
32
Section 8.17.    Interpretation
33
Section 8.18.    Limitations of Liability
33
Section 8.19.    Mutual Drafting
33
SCHEDULES
Schedule AConcentration of Certain Parent Awards into Post-Separation Parent Awards
Schedule BConcentration of SpinCo CEO Founder Award into SpinCo Award
Schedule CBasket of Certain Parent Awards
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EMPLOYEE MATTERS AGREEMENT
This EMPLOYEE MATTERS AGREEMENT, dated as of [l], 2022 (this “Agreement”), is by and between XPO Logistics, Inc., a Delaware corporation (“Parent”), and RXO, Inc., a Delaware corporation (“SpinCo”).
R E C I T A L S:
WHEREAS, the board of directors of Parent (the “Parent Board”) has determined that it is in the best interests of Parent and its stockholders to create a new publicly traded company that shall operate the SpinCo Business;
WHEREAS, in furtherance of the foregoing, the Parent Board has determined that it is appropriate and desirable to separate the SpinCo Business from the Parent Business (the “Separation”) and, following the Separation, make a distribution, on a pro rata basis, to holders of Parent Shares on the Record Date of all the outstanding SpinCo Shares (the “Distribution”);
WHEREAS, SpinCo has been incorporated solely for these purposes and has not engaged in activities, except in connection with the Separation and the Distribution;
WHEREAS, SpinCo and Parent have prepared, and SpinCo has filed with the SEC, the Form 10, which includes the Information Statement and which sets forth disclosures concerning SpinCo, the Separation and the Distribution;
WHEREAS, in order to effectuate the Separation and Distribution, Parent and SpinCo have entered into a Separation and Distribution Agreement, dated as of the date hereof (the “Separation and Distribution Agreement”);
WHEREAS, in addition to the matters addressed by the Separation and Distribution Agreement, the Parties desire to enter into this Agreement to set forth the terms and conditions of certain employment, compensation and benefit matters; and
WHEREAS, the Parties acknowledge that this Agreement, the Separation and Distribution Agreement and the other Ancillary Agreements represent the integrated agreement of Parent and SpinCo relating to the Separation and the Distribution, are being entered into together and would not have been entered into independently.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
Article I
DEFINITIONS
Section 1.01.Definitions. For purposes of this Agreement (including the recitals hereof), the following terms have the following meanings, and capitalized terms used but not


otherwise defined herein shall have the meaning ascribed to them in the Separation and Distribution Agreement.
“Agreement” shall have the meaning set forth in the Preamble to this Agreement and shall include all Schedules hereto and all amendments, modifications, and changes hereto entered into pursuant to Section 8.16.
“Benefit Plan” shall mean any contract, agreement, policy, practice, program, plan, trust, commitment or arrangement providing for benefits, perquisites or compensation of any nature from an employer to any Employee or Former Employee, or to any family member, dependent, or beneficiary of any such Employee or Former Employee, including cash or deferred arrangement plans, profit-sharing plans, post-employment programs, pension plans, supplemental pension plans, welfare plans, stock purchase, and contracts, agreements, policies, practices, programs, plans, trusts, commitments and arrangements providing for terms of employment, fringe benefits, severance benefits, change-incontrol protections or benefits, life, accidental death and dismemberment, disability and accident insurance, tuition reimbursement, adoption assistance, travel reimbursement, vacation, sick, personal or bereavement days, leaves of absences and holidays; provided, however, that the term “Benefit Plan” does not include any government-sponsored benefits, such as workers’ compensation, unemployment or any similar plans, programs or policies or Individual Agreements.
“COBRA” shall mean the U.S. Consolidated Omnibus Budget Reconciliation Act of 1985, as codified at Section 601 et seq. of ERISA and at Section 4980B of the Code and including all regulations promulgated thereunder.
“Distribution” shall have the meaning set forth in the Recitals.
“Employee” shall mean any Parent Group Employee or SpinCo Group Employee.
“ERISA” shall mean the U.S. Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder.
“Former Employees” shall mean Former Parent Group Employees and Former SpinCo Group Employees.
“Former Parent Group Employee” shall mean any individual who is a former employee of the Parent Group as of the Effective Time and who is not a Former SpinCo Group Employee.
“Former SpinCo Group Employee” shall mean any individual who is a former employee of Parent or any of its Subsidiaries or former Subsidiaries as of the Effective Time, in each case, who was primarily dedicated to the SpinCo Business as of immediately prior to termination of employment with any such entity (other than any SpinCo LTD Recipient).
“Group” shall mean either the SpinCo Group or the Parent Group, as the context requires.
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“HIPAA” shall mean the U.S. Health Insurance Portability and Accountability Act of 1996, as amended, and the regulations promulgated thereunder.
“Individual Agreement” shall mean any individual (a) employment contract, (b) retention, severance or change in control agreement, or (c) other agreement containing restrictive covenants (including confidentiality, noncompetition and nonsolicitation provisions) between a member of the Parent Group and a SpinCo Group Employee or any Former SpinCo Group Employee, as in effect immediately prior to the Effective Time.
“Labor Agreement” shall have the meaning set forth in Section 2.01.
“Parent” shall have the meaning set forth in the Preamble.
“Parent 401(k) Plan” shall mean the XPO Logistics 401(k) Plan and XPO Logistics Retirement Savings Plan, as in effect or as it may be amended from time to time.
“Parent Awards” shall mean the Parent Performance-Based RSU Awards and Parent RSU Awards, collectively.
“Parent Benefit Plan” shall mean any Benefit Plan established, sponsored or maintained by Parent or any of its Subsidiaries immediately prior to the Effective Time, but excluding any SpinCo Benefit Plan.
“Parent Board” shall have the meaning set forth in the Recitals.
“Parent Business” shall have the meaning set forth in the Separation and Distribution Agreement.
“Parent Canada Defined Contribution Plan” shall mean The Pension Plan for Employees of XPO Logistics Freight Canada Inc.
“Parent Compensation Committee” shall mean the Compensation Committee of the Parent Board.
“Parent Deferred Compensation Plan” shall mean the Con-Way Inc. 2005 Deferred Compensation Plan for Executives and Key Employees.
“Parent Director” shall mean each Parent nonemployee director as of immediately after the Effective Time who served on the Parent Board immediately prior to the Effective Time.
“Parent ESPP” shall mean the XPO Logistics, Inc. Employee Stock Purchase Plan.
“Parent Group Employees” shall have the meaning set forth in Section 3.01(a).
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“Parent Non-Equity Incentive Practices” shall mean the corporate non-equity incentive practices of the Parent Group.
“Parent Omnibus Plan” shall mean any equity compensation plan sponsored or maintained by the Parent immediately prior to the Effective Time, including the XPO Logistics, Inc. 2016 Omnibus Incentive Compensation Plan, as amended from time to time and the XPO Logistics, Inc. Amended and Restated 2011 Omnibus Incentive Compensation Plan, as amended from time to time.
“Parent Performance-Based RSU Award” shall mean a restricted stock unit award that is subject to performance-based vesting (including, without limitation, any such award that is subject to a gating performance condition relating to the occurrence of the Distribution prior to a specified date) outstanding as of immediately prior to the Effective Time, granted pursuant to the Parent Omnibus Plan.
“Parent Ratio” shall mean the quotient obtained by dividing (a) the Pre-Separation Parent Stock Value by (b) the Post-Separation Parent Stock Value.
“Parent Retiree Medical Plan” shall mean the XPO Logistics Retiree Health Savings Account (401(h)).
“Parent RSU Award” shall mean a restricted stock unit award outstanding as of immediately prior to the Effective Time that is not subject to performance-based vesting conditions, granted pursuant to the Parent Omnibus Plan.
“Parent Welfare Plan” shall mean any Parent Benefit Plan that is a Welfare Plan, including the XPO Benefit Plan and XPO Logistics Canada Inc. Group Benefits Policy.
“Parties” shall mean the parties to this Agreement.
“Post-Separation Parent Awards” shall mean Post-Separation Parent RSU Awards, and Post-Separation Parent Performance-Based RSU Awards, collectively.
“Post-Separation Parent Performance-Based RSU Award” shall mean a Parent Performance-Based RSU Award, as adjusted as of the Effective Time in accordance with Section 4.02(b), as applicable.
“Post-Separation Parent RSU Award” shall mean a Parent RSU Award, as adjusted as of the Effective Time in accordance with Section 4.02(a), as applicable.
“Post-Separation Parent Stock Value” shall mean the [l].
“Pre-Separation Parent Stock Value” shall mean the [l].
“QDRO” shall mean a qualified domestic relations order within the meaning of Section 206(d) of ERISA and Section 414(p) of the Code.
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“Restricted Employees” shall have the meaning set forth in Section 3.04(a).
“Securities Act” shall mean the U.S. Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.
“Separation” shall have the meaning set forth in the Recitals.
“Separation and Distribution Agreement” shall have the meaning set forth in the
Recitals.
“Sign-On Obligations” shall have the meaning set forth in Section 2.04(a)(ii).
“SpinCo” shall have the meaning set forth in the Preamble.
“SpinCo 401(k) Plan” shall mean the SpinCo 401(k) Savings Plans, to be adopted by SpinCo prior to or on the Distribution Date as described in Section 5.02.
“SpinCo 401(k) Trust” shall have the meaning set forth in Section 5.02(a).
“SpinCo Awards” shall mean SpinCo Performance-Based RSU Awards and SpinCo RSU Awards, collectively.
“SpinCo Benefit Plan” shall mean any Benefit Plan established, sponsored, maintained or contributed to by a member of the SpinCo Group as of or after the Effective Time.
“SpinCo Board” shall mean the Board of Directors of SpinCo.
“SpinCo Business” shall have the meaning set forth in the Separation and Distribution Agreement.
“SpinCo Canada Defined Contribution Fund” shall have the meaning set forth in Section 5.03(a).
“SpinCo Canada Defined Contribution Plan” shall mean the SpinCo Canada Defined Contribution Plan, to be adopted by SpinCo prior to or on the Distribution Date as described in Section 5.03.
“SpinCo Flex Plan” shall mean the Health Flexible Spending Account and the Dependent Care Flexible Spending Account under a cafeteria plan established by SpinCo as described in Section 7.04.
“SpinCo Group Employees” shall have the meaning set forth in Section 3.01(a).
“SpinCo LTD Recipient” shall mean any individual who would otherwise be a SpinCo Group Employee or Former SpinCo Group Employee but is receiving long-term disability benefits under a Parent Welfare Plan on the Distribution Date.
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“SpinCo Non-Equity Incentive Practices” shall mean the corporate non-equity incentive practices, as established by SpinCo before or as of the Effective Time pursuant to Section 2.03(a) and Section 4.04(a).
“SpinCo Omnibus Plan” shall mean the SpinCo 2022 Omnibus Incentive Plan, as established by SpinCo as of the Effective Time pursuant to Section 2.03(a) and Section 4.01.
“SpinCo Performance-Based RSU Award” shall mean an award of performance-based restricted stock units that is subject to performance-based vesting assumed and granted by SpinCo pursuant to the SpinCo Omnibus Plan in accordance with Section 4.02(b).
“SpinCo Ratio” shall mean the quotient obtained by dividing (a) the Pre-Separation Parent Stock Value by (b) the SpinCo Stock Value.
“SpinCo RSU Award” shall mean an award of restricted stock units that is not subject to performance-based vesting conditions, assumed and granted pursuant to the SpinCo Omnibus Plan in accordance with Section 402(a).
“SpinCo Stock Value” shall mean [l].
“SpinCo Welfare Plan” shall mean a Welfare Plan established, sponsored, maintained or contributed to by any member of the SpinCo Group for the benefit of SpinCo Group Employees and Former SpinCo Group Employees.
“Transferred Account Balances” shall have the meaning set forth in Section 7.04.
“Transferred Director” shall mean each SpinCo nonemployee director as of immediately after the Effective Time who served on the Parent Board immediately prior to the Effective Time.
“U.S.” shall mean the United States of America.
“Welfare Plan” shall mean any “welfare plan” (as defined in Section 3(1) of ERISA) or a “cafeteria plan” under Section 125 of the Code, and any benefits offered thereunder, and any other plan offering health benefits (including medical, prescription drug, dental, vision, mental health, substance abuse and retiree health), disability benefits, or life, accidental death and dismemberment, and business travel insurance, pre-Tax premium conversion benefits, dependent care assistance programs, employee assistance programs, paid time off programs, contribution funding toward a health savings account, flexible spending accounts or severance.
Section 1.02.Interpretation. Section 10.15 of the Separation and Distribution Agreement is hereby incorporated by reference.
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Article II
GENERAL PRINCIPLES FOR ALLOCATION OF LIABILITIES
Section 2.01.General Principles. All provisions herein shall be subject to the requirements of all applicable Law and any collective bargaining, works council or similar agreement or arrangement with any labor union, works council or other labor representative (each, a “Labor Agreement”). Notwithstanding anything in this Agreement to the contrary, if the terms of a Labor Agreement or applicable Law require that any Assets or Liabilities be retained or assumed by, or transferred to, a Party in a manner that is different than what is set forth in this Agreement, such retention, assumption or transfer shall be made in accordance with the terms of such Labor Agreement and applicable Law and shall not be made as otherwise set forth in this Agreement; provided that, in such case, the Parties shall take all necessary action to preserve the economic terms of the allocation of Assets and Liabilities contemplated by this Agreement. The provisions of this Agreement shall apply in respect of all jurisdictions.
(a)    Acceptance and Assumption of SpinCo Liabilities. Except as otherwise provided by this Agreement, on or prior to the Effective Time, but in any case prior to the Distribution, SpinCo and the applicable SpinCo Designees shall accept, assume and agree faithfully to perform, discharge and fulfill all of the following Liabilities in accordance with their respective terms (each of which shall be considered a SpinCo Liability), regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to, at or subsequent to the Effective Time, regardless of where or against whom such Liabilities are asserted or determined (including any Liabilities arising out of claims made by Parent’s or SpinCo’s respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates against any member of the Parent Group or the SpinCo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the Parent Group or the SpinCo Group, or any of their respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates:
(i)    any and all wages, salaries, incentive compensation, equity compensation, commissions, bonuses and any other employee compensation or benefits payable to or on behalf of any SpinCo Group Employees and Former SpinCo Group Employees after the Effective Time, without regard to when such wages, salaries, incentive compensation, equity compensation, commissions, bonuses or other employee compensation or benefits are or may have been awarded or earned;
(ii)    any and all Liabilities whatsoever with respect to claims under a SpinCo Benefit Plan, taking into account the SpinCo Benefit Plan’s assumption of Liabilities with respect to SpinCo Group Employees and Former SpinCo Group Employees that were originally the Liabilities of the corresponding Parent Benefit Plan with respect to periods prior to the Effective Time;
(iii)    any and all Liabilities arising out of, relating to or resulting from the employment, or termination of employment of all SpinCo Group Employees and Former SpinCo Group Employees; and
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(iv)    any and all Liabilities expressly assumed or retained by any member of the SpinCo Group pursuant to this Agreement.
(b)    Acceptance and Assumption of Parent Liabilities. Except as otherwise provided by this Agreement, on or prior to the Effective Time, but in any case prior to the Distribution, Parent and certain members of the Parent Group designated by Parent shall accept, assume and agree faithfully to perform, discharge and fulfill all of the following Liabilities in accordance with their respective terms (each of which shall be considered a Parent Liability), regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to, at or subsequent to the Effective Time, regardless of where or against whom such Liabilities are asserted or determined (including any Liabilities arising out of claims made by Parent’s or SpinCo’s respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates against any member of the Parent Group or the SpinCo Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the Parent Group or the SpinCo Group, or any of their respective directors, officers, Employees, Former Employees, agents, Subsidiaries or Affiliates:
(i)    any and all wages, salaries, incentive compensation, equity compensation, commissions, bonuses and any other employee compensation or benefits payable to or on behalf of any Parent Group Employees and Former Parent Group Employees after the Effective Time, without regard to when such wages, salaries, incentive compensation, equity compensation, commissions, bonuses or other employee compensation or benefits are or may have been awarded or earned;
(ii)    any and all Liabilities whatsoever with respect to claims under a Parent Benefit Plan, taking into account a corresponding SpinCo Benefit Plan’s assumption of Liabilities with respect to SpinCo Group Employees and Former SpinCo Group Employees that were originally the Liabilities of such Parent Benefit Plan with respect to periods prior to the Effective Time;
(iii)    any and all Liabilities arising out of, relating to or resulting from the employment, or termination of employment of all Parent Group Employees and Former Parent Group Employees; and
(iv)    any and all Liabilities expressly assumed or retained by any member of the Parent Group pursuant to this Agreement.
(c)    Unaddressed Liabilities. To the extent that this Agreement does not address particular Liabilities and the Parties later determine that they should be allocated in connection with the Distribution, the Parties shall agree in good faith on the allocation, taking into account the handling of comparable Liabilities under this Agreement.
(d)    Non-U.S. Employees. SpinCo Group Employees and Former SpinCo Group Employees who are residents outside of the United States or otherwise are subject to non-U.S. Law and their related benefits and Liabilities shall be treated in the same manner as the
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SpinCo Group Employees and Former SpinCo Group Employees, respectively, who are residents of the United States and are not subject to non-U.S. Law. Notwithstanding anything in this Agreement to the contrary, all actions taken with respect to non-U.S. Employees or U.S. Employees working in non-U.S. jurisdictions, including any action under a Benefit Plan, shall be subject to and accomplished in accordance with applicable Law in the custom of the applicable jurisdictions and SpinCo may make such changes, modifications or amendments to the SpinCo Benefit Plans as may be required by applicable Law, vendor limitations or as are necessary to reflect the Separation.
Section 2.02.Service Credit Recognized by SpinCo and SpinCo Benefit Plans. As of the Effective Time, the SpinCo Benefit Plans shall, and SpinCo shall cause each member of the SpinCo Group to, recognize each SpinCo Group Employee’s and each Former SpinCo Group Employee’s full service with Parent or any of its Subsidiaries or predecessor entities at or before the Effective Time, to the same extent that such service was recognized by Parent for similar purposes prior to the Effective Time as if such full service had been performed for a member of the SpinCo Group, for purposes of eligibility, vesting and determination of level of benefits under any SpinCo Benefit Plans.
Section 2.03.Adoption and Transfer and Assumption of Benefit Plans.
(a)    Adoption by SpinCo of Benefit Plans. As of no later than the Effective Time, SpinCo shall, or shall cause the members of the SpinCo Group to, adopt Benefit Plans (and related trusts, if applicable) as contemplated and in accordance with the terms of this Agreement, which Benefit Plans are generally intended to contain terms substantially similar in all material respects to those of the corresponding Parent Benefit Plans as in effect immediately prior to the Effective Time, with such changes, modifications or amendments to the SpinCo Benefit Plans as may be required by applicable Law or to reflect the Separation and Distribution, including limiting participation in any such SpinCo Benefit Plan to SpinCo Group Employees and Former SpinCo Group Employees who participated in the corresponding Benefit Plan immediately prior to the Effective Time.
(b)    Plans Not Required to Be Adopted. With respect to any Benefit Plan not otherwise addressed in this Agreement, the Parties shall agree in good faith on the treatment of such plan and the Liabilities thereunder, taking into account the handling of any comparable plan under this Agreement and, notwithstanding that SpinCo shall not have an obligation to continue to maintain any such plan with respect to the provision of future benefits from and after the Effective Time, SpinCo shall remain obligated to pay or provide any previously accrued or incurred benefits to the SpinCo Group Employees and Former SpinCo Group Employees consistent with Section 2.01(a) of this Agreement.
(c)    Information, Elections and Beneficiary Designations. Each Party shall use its commercially reasonable efforts to provide the other Party with information describing each Benefit Plan election made by an Employee or Former Employee that may have application to such Party’s Benefit Plans from and after the Effective Time, and each Party shall use its commercially reasonable efforts to administer its Benefit Plans using those elections, including any beneficiary designations. Each Party shall, upon reasonable request, use its commercially
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reasonable efforts to provide the other Party and the other Party’s respective Affiliates, agents, and vendors all information reasonably necessary to the other Party’s operation or administration of its Benefit Plans.
(d)    No Duplication or Acceleration of Benefits. Notwithstanding anything to the contrary in this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement, no participant in any Benefit Plan shall receive service credit or benefits or recognition of compensation or other factors to the extent that receipt of such service credit or benefits or recognition of compensation or other factors would result in duplication of benefits provided to such participant by the corresponding Benefit Plan or any other plan, program or arrangement sponsored or maintained by a member of the Group that sponsors the corresponding Benefit Plan. Furthermore, unless expressly provided for in this Agreement, the Separation and Distribution Agreement or in any Ancillary Agreement or required by applicable Law, no provision in this Agreement shall be construed to (i) create any right to accelerate vesting, distributions or entitlements under any Benefit Plan sponsored or maintained by a member of the Parent Group or member of the SpinCo Group on the part of any Employee or Former Employee or (ii) limit the ability of a member of the Parent Group or SpinCo Group to amend, merge, modify, eliminate, reduce or otherwise alter in any respect any benefit under any Benefit Plan sponsored or maintained by a member of the Parent Group or SpinCo Group, respectively, or any trust, insurance policy or funding vehicle related thereto.
(e)    Transition Services. The Parties acknowledge that the Parent Group or the SpinCo Group may provide administrative services for certain of the other Party’s compensation and benefit programs for a transitional period under the terms of the Transition Services Agreement. The Parties agree to enter into a business associate agreement (if required by HIPAA or other applicable health information privacy Laws) in connection with such Transition Services Agreement.
(f)    Beneficiaries. References to Parent Group Employees, Former Parent Group Employees, SpinCo Group Employees, Former SpinCo Group Employees, and current and former nonemployee directors of either Parent or SpinCo shall be deemed to refer to their beneficiaries, dependents, survivors and alternate payees, as applicable.
Section 2.04.Reimbursement.
(a)    By SpinCo.
(i)    From time to time after the completion of the Separation, SpinCo shall promptly reimburse Parent for the cost of any obligations or Liabilities that Parent elects to, or is compelled to, pay or otherwise satisfy, that are or that pursuant to this Agreement have become, the responsibility of the SpinCo Group. Parent shall invoice SpinCo after the end of each fiscal month for all such costs (if any) in such fiscal month. SpinCo shall pay any amounts due by SpinCo hereunder in immediately available funds within thirty (30) days of SpinCo’s receipt of each invoice therefor. Any amount not paid within thirty (30) days after the date when payable shall bear interest at the rate described in the definition of Interest Payment (as defined in the Transition Services Agreement) from the date such amount is due. SpinCo shall not
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deduct, set off, counterclaim or otherwise withhold any amount owed by it to Parent (on account of any obligation owed by the Parent Group, whether or not such obligation has been finally adjudicated, settled or otherwise agreed upon in writing) against the amounts payable pursuant to this Agreement; provided that if SpinCo disputes any amount on an invoice, SpinCo shall notify Parent in writing within twenty (20) days after SpinCo’s receipt of such invoice and shall describe in detail the reason for disputing such amount, provide any documents or other materials supporting its dispute, and will be entitled to withhold only the amount in dispute during the pendency of the dispute. SpinCo shall cause the timely payment of the undisputed portion of each invoice in the manner set forth in this Agreement and shall be subject to late charges at the rate described in the definition of Interest Payment and any other costs incurred by Parent pursuant to this Section 2.04(a) on any amount that is unsuccessfully disputed. For the avoidance of doubt, such SpinCo shall reimburse Parent for the cost of headhunter or placement fees payable in connection with the hiring of SpinCo Group Employees in connection with the Separation.
(ii)    In addition, if SpinCo or any member of the SpinCo group receives a repayment of relocation expenses, sign-on bonus, or other compensation that was originally paid by a member of the Parent Group (the “Sign-On Obligations”), then SpinCo shall, or shall cause a SpinCo Group entity to, pay to Parent the amount of such compensation repayment in immediately available funds within thirty (30) days of the receipt of such compensation repayment by SpinCo or a member of the SpinCo Group. SpinCo shall make a good faith effort to seek, or cause the applicable member of the SpinCo Group to seek, repayment of any Sign-On Obligations to the extent that there exists a contractual right to repayment that is legally enforceable by SpinCo or the applicable member of the SpinCo Group.
(b)    By Parent. From time to time after the completion of the Separation, Parent shall promptly reimburse SpinCo for the cost of any obligations or Liabilities that SpinCo elects to, or is compelled to, pay or otherwise satisfy, that are or that pursuant to this Agreement have become, the responsibility of the Parent Group. SpinCo shall invoice Parent after the end of each fiscal month for all such costs (if any) in such fiscal month. Parent shall pay any amounts due by Parent hereunder in immediately available funds within thirty (30) days of Parent’s receipt of each invoice therefor. Any amount not paid within thirty (30) days after the date when payable shall bear interest at the rate described in the definition of Interest Payment from the date such amount is due. Parent shall not deduct, set off, counterclaim or otherwise withhold any amount owed by it to SpinCo (on account of any obligation owed by the SpinCo Group, whether or not such obligation has been finally adjudicated, settled or otherwise agreed upon in writing) against the amounts payable pursuant to this Agreement; provided that if Parent disputes any amount on an invoice, Parent shall notify SpinCo in writing within twenty (20) days after Parent’s receipt of such invoice and shall describe in detail the reason for disputing such amount, provide any documents or other materials supporting its dispute, and will be entitled to withhold only the amount in dispute during the pendency of the dispute. Parent shall cause the timely payment of the undisputed portion of each invoice in the manner set forth in this Agreement and shall be subject to late charges at the rate described in the definition of Interest Payment and any other costs incurred by SpinCo and controlled pursuant to this Section 2.04(b) on any amount that is unsuccessfully disputed.
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Article III
ASSIGNMENT OF EMPLOYEES
Section  3.01.Active Employees.
(a)    Assignment and Transfer of Employees. Effective as of no later than the Effective Time and except as otherwise agreed to by the Parties, (i) the applicable member of the Parent Group shall have taken such actions as are necessary to ensure that each individual who is intended to be an employee of the SpinCo Group as of immediately after the Effective Time (including any such individual who is not actively working as of the Effective Time as a result of an illness, injury or an approved leave of absence (other a SpinCo LTD Recipient)) (collectively, the “SpinCo Group Employees”) is employed by a member of the SpinCo Group as of immediately after the Effective Time, and (ii) the applicable member of the Parent Group shall have taken such actions as are necessary to ensure that each individual who is intended to be an employee of the Parent Group as of immediately after the Effective Time (including any such individual who is not actively working as of the Effective Time as a result of an illness, injury or an approved leave of absence, including any individual receiving long-term disability benefits under a Parent Welfare Plan) and any other individual employed by the Parent Group as of the Effective Time who is not a SpinCo Group Employee (collectively, the “Parent Group Employees”) is employed by a member of the Parent Group as of immediately after the Effective Time. Each of the Parties agrees to execute, and to seek to have the applicable Employees execute, such documentation, if any, as may be necessary to reflect such assignment and/or transfer.
(b)    At-Will Status. Nothing in this Agreement shall create any obligation on the part of any member of the Parent Group or any member of the SpinCo Group to (i) change the employment status of any Employee from “at-will,” to the extent that such Employee is an “at-will” employee under applicable Law or (ii) continue the employment of any Employee or permit the return from a leave of absence for any period after the date of this Agreement (except as required by applicable Law); provided that with respect to clause (ii) in the case of a SpinCo LTD Recipient who is able to return to employment following the commencement of long-term disability benefits under a Parent Welfare Plan, SpinCo shall comply with any requirements relating to such employment rights of such SpinCo LTD Recipient and such obligations and any related Liabilities shall be obligations and related Liabilities of SpinCo Group. For the avoidance of doubt, the reemployment rights of any SpinCo Group Employee who becomes eligible for long-term disability benefits under a Parent Welfare Plan subsequent to the Effective Time shall remain a Liability of the SpinCo Group. is Except as provided in this Agreement, this Agreement shall not limit the ability of the Parent Group or the SpinCo Group to change the position, compensation or benefits of any Employees for performance-related, business or any other reason.
(c)    Non-compete, Severance, Change in Control, or Other Payments. The Parties acknowledge and agree that the Separation and Distribution and the assignment, transfer or continuation of the employment of Employees as contemplated by this Section 3.01 shall not be deemed an involuntary termination of employment or a change in control entitling any
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SpinCo Group Employee or Parent Group Employee to non-compete, severance, change in control, or other payments or benefits.
Section  3.02.Individual Agreements.
(a)    Assignment by Parent. To the extent necessary, Parent shall assign, or cause an applicable member of the Parent Group to assign, to SpinCo or another member of the SpinCo Group, as designated by SpinCo, all Individual Agreements, with such assignment to be effective as of no later than the Effective Time; provided, however, that to the extent that assignment of any such Individual Agreement is not permitted by the terms of such agreement or by applicable Law, effective as of the Effective Time, each member of the SpinCo Group shall be considered to be a successor to each member of the Parent Group for purposes of, and a third-party beneficiary with respect to, such Individual Agreement, such that each member of the SpinCo Group shall enjoy all the rights and benefits under such agreement (including rights and benefits as a third-party beneficiary); provided, further, Parent Group hereby assigns to the SpinCo Group all of Parent Group’s obligations, rights and benefits relating to restrictive covenants (including without limitation noncompetition and nonsolicitation covenants) contained in all Individual Agreements between the Parent Group and any SpinCo Group Employee or Former SpinCo Group Employee, only as such obligations, rights and benefits pertain to the SpinCo Business which shall also include the rights, obligations and benefits of the Parent Group under any such Individual Agreement pertaining to work product or confidential information that relate solely to the SpinCo Business. This assignment and transfer shall operate to assign and transfer any and all associated enforcement rights of Parent Group with respect to the same and SpinCo Group shall, with respect to such transferred rights, obligations and benefits, be the real party in interest. The Parties agree that Parent Group fully retains any and all rights, obligations and benefits under all Individual Agreements, including rights of enforcement relating to Parent Group and SpinCo Group Employees and Former Employees, relating to work product, confidential information and restrictive covenants (including without limitation noncompetition and nonsolicitation covenants), as they pertain to Parent Business.

(b)    Assumption by SpinCo. Effective as of the Effective Time, SpinCo shall, or shall cause the members of the SpinCo Group to, assume and honor any Individual Agreement to the extent assigned, including any obligations thereunder to which any SpinCo Group Employee or Former SpinCo Group Employee is a party with any member of the Parent Group.
Section  3.03.Consultation with Labor Representatives; Labor Agreements. The Parties shall cooperate to notify, inform and/or consult with any labor union, works council or other labor representative regarding the Separation and Distributions to the extent required by Law or a Labor Agreement. No later than as of immediately before the Effective Time, SpinCo shall have taken, or caused another member of the SpinCo Group to take, all actions that are necessary (if any) for SpinCo or another member of the SpinCo Group to (a) assume any Labor Agreements in effect with respect to SpinCo Group Employees and Former SpinCo Group Employees (excluding obligations thereunder with respect to any Parent Group Employees or Former Parent Group Employees, to the extent applicable) and (b) unless otherwise provided in this Agreement, assume and honor any obligations of the Parent Group under any Labor Agreements as such obligations relate to SpinCo Group Employees and Former SpinCo Group Employees. No later than as of immediately before the Effective Time, Parent shall have taken, or caused another
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member of the Parent Group to take, all actions that are necessary (if any) for Parent or another member of the Parent Group to (a) assume any Labor Agreements in effect with respect to Parent Group Employees and Former Parent Group Employees (excluding obligations thereunder with respect to any SpinCo Group Employees, or Former SpinCo Group Employees, the extent applicable) and (b) assume and honor any obligations of the SpinCo Group under any Labor Agreements as such obligations relate to Parent Group Employees and Former Parent Group Employees.
Section  3.04.Non-Solicitation.
(a)    Non-Solicitation, Non-Hire. Each Party agrees that, for the period of two (2) years immediately following the Effective Time, such Party shall, and shall cause each member in its Group, to not solicit for employment or hireany individual who is a salaried employee of a member of the other Group as of immediately prior to the Effective Time (“Restricted Employees”); provided that the foregoing restrictions shall not apply to: (i) any Restricted Employee who terminates employment (which for the avoidance of doubt, occurs at the end of any garden leave, if applicable) at least six (6) months prior to the applicable solicitation and/or hiring, (ii) the solicitation of a Restricted Employee whose employment was involuntarily terminated by the employing Party in a severance qualifying termination before the employment discussions with the soliciting Party commenced, and (iii) any Restricted Employee whose prospective employment is agreed to in writing by the soliciting Party and the employing Party, or in the case of a Restricted Employee who is not currently employed, the Party who last employed Restricted Employee; and provided, further that it shall not be deemed to be a violation of this Section 3.04 for either Party, or the members of its Group, to post a general solicitation that is not targeted at Restricted Employees of the other Party and the members of its Group.
(b)    Remedies; Enforcement. Each Party acknowledges and agrees that (i) injury to the employing Party from any breach by the other Party of the obligations set forth in this Section 3.04 would be irreparable and impossible to measure and (ii) the remedies at Law for any breach or threatened breach of this Section 3.04, including monetary damages, would therefore be inadequate compensation for any loss and the employing Party shall have the right to specific performance and injunctive or other equitable relief in accordance with this Section 3.04, in addition to any and all other rights and remedies at Law or in equity, and all such rights and remedies shall be cumulative. Each Party understands and acknowledges that the restrictive covenants and other agreements contained in this Section 3.04 are an essential part of this Agreement and the transactions contemplated hereby. It is the intent of the Parties that the provisions of this Section 3.04 shall be enforced to the fullest extent permissible under applicable Law applied in each jurisdiction in which enforcement is sought. If any particular provision or portion of this Section 3.04 shall be adjudicated to be invalid or unenforceable, such provision or portion thereof shall be deemed amended to the minimum extent necessary to render such provision or portion valid and enforceable, such amendment to apply only with respect to the operation of such provision or portion thereof in the particular jurisdiction in which such adjudication is made.
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Article IV
EQUITY, INCENTIVE AND EXECUTIVE COMPENSATION
Section 4.01.Generally. Each Parent Award that is outstanding as of immediately prior to the Effective Time shall be adjusted as described below; provided, however that, prior to the Effective Time, the Parent Compensation Committee may provide for different adjustments with respect to some or all Parent Awards to the extent that the Parent Compensation Committee deems such adjustments necessary and appropriate. Any adjustments made by the Parent Compensation Committee pursuant to the foregoing sentence shall be deemed incorporated by reference herein as if fully set forth below and shall be binding on the Parties and their respective Affiliates. Before the Effective Time, the SpinCo Omnibus Plan shall be established, with such terms as are necessary to permit the implementation of the provisions of Section 4.02.
Section 4.02.Equity Incentive Awards.
(a)    RSU Awards. Each Parent RSU Award that is outstanding as of immediately prior to the Effective Time shall be treated as follows:
(i)    Parent RSU Concentration Awards. If the holder is a Parent Group Employee covered by Schedule A to this Agreement, Former Employee or Parent Director, such award shall be converted, as of the Effective Time, into a Post-Separation Parent RSU Award, and shall, except as otherwise provided in this Section 4.02, be subject to the same terms and conditions (including with respect to vesting) after the Effective Time as were applicable to such Parent RSU Award immediately prior to the Effective Time; provided, however, that from and after the Effective Time, the number of Parent Shares subject to such Post-Separation Parent RSU Award shall be equal to the product, rounded to the nearest whole number of shares, obtained by multiplying (A) the number of Parent Shares subject to the corresponding Parent RSU Award immediately prior to the Effective Time, by (B) the Parent Ratio.
(ii)    SpinCo RSU Concentration Awards. If the holder is a SpinCo Group Employee (except to the extent provided by Schedule B to this Agreement) or a Transferred Director, such award shall be converted, as of the Effective Time, into a SpinCo RSU Award, and shall, except as otherwise provided in this Section 4.02, be subject to the same terms and conditions (including with respect to vesting) after the Effective Time as were applicable to such Parent RSU Award immediately prior to the Effective Time; provided, however, that from and after the Effective Time, the number of SpinCo Shares subject to such SpinCo RSU Award shall be equal to the product, rounded to the nearest whole number of shares, obtained by multiplying (A) the number of Parent Shares subject to the corresponding Parent RSU Award immediately prior to the Effective Time, by (B) the SpinCo Ratio.
(iii)    Basket RSU Awards. If the holder is an Employee covered by Schedule C to this Agreement, such award shall be converted, as of the Effective Time, into a Post-Separation Parent RSU Award and a SpinCo RSU Award, and shall, except as otherwise provided in this Section 4.02, be subject to the same terms and conditions (including with respect to vesting) after the Effective Time as were applicable to such Parent RSU Award immediately
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prior to the Effective Time; provided, however, that from and after the Effective Time (i) the number of Parent Shares subject to the Post-Separation Parent RSU Award shall be equal to the number of Parent Shares subject to the corresponding Parent RSU Award immediately prior to the Effective Time, and the number of SpinCo Shares subject to the SpinCo RSU Award shall be equal to the product, rounded to the nearest whole number of shares, obtained by multiplying (A) the number of Parent Shares subject to the Parent RSU Award immediately prior to the Effective Time by (B) the Distribution Ratio.
(b)    Performance-Based RSU Awards. Each Parent Performance-Based RSU Award that is outstanding as of immediately prior to the Effective Time shall be treated as follows:
(i)    Parent Performance-Based RSU Concentration Awards. If the holder is a Parent Group Employee covered by Schedule A to this Agreement, or a Former Employee (other than a Former Parent Group Employee who is being paid for consulting services by Parent as of the Distribution Date), such Parent Performance-Based RSU Award shall be converted, as of the Effective Time, into a Post-Separation Parent Performance-Based RSU Award, and shall, except as otherwise provided in this Section 4.02, be subject to the same terms and conditions (including with respect to time-based vesting) after the Effective Time as were applicable to such Parent Performance-Based RSU Award immediately prior to the Effective Time; provided, however, that from and after the Effective Time, the number of Parent Shares subject to such Post-Separation Parent Performance-Based RSU Award shall be equal to the product, rounded to the nearest whole number of shares, obtained by multiplying (A) the number of Parent Shares subject to the corresponding Parent Performance-Based RSU Award immediately prior to the Effective Time, by (B) the Parent Ratio. The applicable performance-based vesting conditions may be modified in a manner determined by the Parent Compensation Committee (including by deeming the applicable performance-based vesting conditions to be achieved based on a designated performance level).
(ii)    SpinCo Performance-Based RSU Concentration Awards. If the holder is a SpinCo Group Employee (except to the extent provided by Schedule B to this Agreement), such Parent Performance-Based RSU Award shall be converted, as of the Effective Time, into a SpinCo Performance-Based RSU Award, and shall, except as otherwise provided in this Section 4.02, be subject to the same terms and conditions (including with respect to time-based vesting) after the Effective Time as were applicable to such Parent Performance-Based RSU Award immediately prior to the Effective Time; provided, however, that from and after the Effective Time, the number of SpinCo Shares subject to such SpinCo Performance-Based RSU Award shall be equal to the product, rounded to the nearest whole number of shares, obtained by multiplying (A) the number of Parent Shares subject to the corresponding Parent Performance-Based RSU Award immediately prior to the Effective Time, by (B) the SpinCo Ratio. The applicable performance-based vesting conditions may be modified in a manner determined by the Parent Compensation Committee prior to the Effective Time (including by deeming the applicable performance-based vesting conditions to be achieved based on a designated performance level).
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(iii)    Basket Performance-Based RSU Awards. If the holder is an Employee covered by Schedule C to this Agreement or a Former Parent Group Employee who is being paid for consulting services by Parent as of the Distribution Date, such award shall be converted, as of the Effective Time, into a Post-Separation Parent Performance-Based RSU Award and a SpinCo Performance-Based RSU Award, and shall, except as otherwise provided in this Section 4.02, be subject to the same terms and conditions (including with respect to vesting) after the Effective Time as were applicable to such Parent Performance-Based RSU Award immediately prior to the Effective Time; provided, however, that from and after the Effective Time (i) the number of Parent Shares subject to the Post-Separation Parent Performance-Based RSU Award shall be equal to the number of Parent Shares subject to the corresponding Parent Performance-Based RSU Award immediately prior to the Effective Time, and the number of SpinCo Shares subject to the SpinCo Performance-Based RSU Award shall be equal to the product, rounded to the nearest whole number of shares, obtained by multiplying (A) the number of Parent Shares subject to the Parent Performance-Based RSU Award immediately prior to the Effective Time by (B) the Distribution Ratio. The applicable performance-based vesting conditions may be modified in a manner determined by the Parent Compensation Committee prior to the Effective Time (including by deeming the applicable performance-based vesting conditions to be achieved based on a designated performance level), provided that in all events the adjusted performance-based vesting conditions for a Parent Group Employee or a Former Parent Group Employee who is being paid by Parent for performing consulting services at the Distribution Date will relate to the performance of the Parent Group and the adjusted performance-based vesting conditions for a SpinCo Group employee will relate to the performance of the SpinCo Group.
(c)    Settlement; Tax Withholding and Reporting.
(i)    Settlement. After the Effective Time, Post-Separation Parent Awards, regardless of by whom held, shall be settled by Parent and SpinCo Awards, regardless of by whom held, shall be settled by SpinCo.
(ii)    Withholding.
(A)    Upon the vesting, payment or settlement, as applicable, of SpinCo Awards, SpinCo shall be solely responsible for ensuring the satisfaction of all applicable Tax withholding requirements on behalf of each SpinCo Group Employee and for ensuring the collection and transfer of applicable employee withholding Taxes by the SpinCo stock plan administrator to Parent or a member of the Parent Group designated by Parent with respect to each Parent Group Employee or Former Employee (with Parent or the designated member of the Parent Group being responsible for remittance of the applicable employee Taxes and payment and remittance of the applicable employer Taxes relating to Parent Group Employees and Former Employees to the applicable Governmental Authority).
(B)    Upon the vesting, payment or settlement, as applicable, of Post-Separation Parent Awards, Parent shall be solely responsible for ensuring the satisfaction of all applicable Tax withholding requirements on behalf of each Parent Group Employee or Former Employee and for ensuring the collection and transfer of applicable employee
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withholding Taxes by the Parent stock plan administrator to SpinCo or a member of the SpinCo Group designated by SpinCo with respect to each SpinCo Group Employee (with SpinCo the designated member of the SpinCo Group being responsible for remittance of the applicable employee Taxes and payment and remittance of the applicable employer Taxes relating to SpinCo Group Employees to the applicable Governmental Authority).
(iii)    Reporting. Following the Effective Time, Parent shall be responsible for all income Tax reporting in respect of Post-Separation Parent Awards and SpinCo Awards held by Parent Group Employees, Former Employees and Parent Directors, and SpinCo shall be responsible for all income Tax reporting in respect of Post-Separation Parent Awards and SpinCo Awards held by SpinCo Group Employees and Transferred Directors.
(iv)    Forfeitures. Following the Effective Time, if any Post-Separation Parent Award shall fail to become vested, such Post-Separation Parent Award shall be forfeited to Parent and if any SpinCo Award shall fail to become vested such SpinCo Award shall be forfeited to SpinCo.
(d)    Cooperation. Each of the Parties shall establish an appropriate administration system to administer, in an orderly manner, the withholding and reporting requirements with respect to all awards. Each of the Parties shall work together to unify and consolidate all indicative data and payroll and employment information on regular timetables and make certain that each applicable Person’s data and records in respect of such awards are correct and updated on a timely basis. The foregoing shall include information required for Tax withholding and remittance, compliance with trading windows, and compliance with the requirements of the Exchange Act and other applicable Laws. In order to facilitate the foregoing matters, each Party shall maintain, at its own expense, Morgan Stanley Shareworks as its stock plan administrator (or such other party as may be agreed between Parent and SpinCo) for the period commencing at the Effective Time and ending no earlier than the earlier of (i) the fifth (5th) anniversary of the Effective Time and (ii) the date on which there are no longer outstanding any Post-Separation Parent Awards and SpinCo Awards.
(e)    Miscellaneous Award Terms. None of the Separation, the Distribution or any employment transfer described in Section 3.01(a) shall constitute a termination of employment for any Employee or termination of service for any non-employee director for purposes of any Post-Separation Parent Award or any SpinCo Award. After the Effective Time, for any award adjusted under this Section 4.02, any reference to a “change in control,” “change of control” or similar definition in an award agreement, employment agreement or Parent Omnibus Plan applicable to such award (i) with respect to Post-Separation Parent Awards shall be deemed to refer to a “change in control,” “change of control” or similar definition as set forth in the applicable award agreement, employment agreement or Parent Omnibus Plan, and (ii) with respect to SpinCo Awards, shall be deemed to refer to a “Change in Control” as defined in the SpinCo Omnibus Plan. With respect to (A) SpinCo Awards held by Parent Group Employees and Former Employees, treatment of such awards in connection with a change in capitalization at SpinCo, change in control of SpinCo, or other corporate event of SpinCo, shall in all events be consistent with the treatment of similar types of SpinCo equity awards then held by employees of
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the SpinCo Group and (B) Post-Separation Parent Awards held by SpinCo Group Employees, treatment of such awards in connection with a change in capitalization at Parent, change in control of Parent, or other corporate event of Parent, shall in all events be consistent with the treatment of similar types of Parent equity awards then held by employees of the Parent Group.
(f)    Registration and Other Regulatory Requirements. SpinCo agrees to file the appropriate registration statements with respect to, and to cause to be registered pursuant to the Securities Act, the SpinCo Shares authorized for issuance under the SpinCo Omnibus Plan, as required pursuant to the Securities Act, on or promptly following the Effective Time and in any event before the date of issuance of any SpinCo Shares pursuant to the SpinCo Omnibus Plan. The Parties shall take such additional actions as are deemed necessary or advisable to effectuate the foregoing provisions of this Section 4.02(f), including, to the extent applicable, compliance with securities Laws and other legal requirements associated with equity compensation awards in affected non-U.S. jurisdictions.
Section 4.03.Employee Stock Purchase Plan. The accumulated payroll deductions of any SpinCo Group Employee under the Parent ESPP immediately prior to the Effective Time shall be returned to such SpinCo Group Employee as soon as practical following the Effective Time in accordance with the procedure established by Parent for such purpose. For the avoidance of doubt, SpinCo shall not be required to establish or maintain an employee stock purchase plan.
Section 4.04.Non-Equity Incentive Practices and Plans.
(a)    Corporate Bonus Practices.
(i)    The Parent Compensation Committee shall determine the level of achievement of any applicable annual cash incentive goals that do not relate exclusively to the RXO business for the period from January 1, 2022 through the latest practicable date prior to the Effective Time and SpinCo shall determine the amount of the annual cash incentive payments with respect to such period for SpinCo Group Employees and Former SpinCo Group Employees who are otherwise eligible to receive such payments pursuant to the SpinCo Non-Equity Incentive Practices based on such performance determination. Subject to the first sentence of this Section 4.04(a)(i), (i) the SpinCo Group shall be responsible for determining all bonus awards that would otherwise be payable under the SpinCo Non-Equity Incentive Practices to SpinCo Group Employees or Former SpinCo Group Employees for any performance periods that are open when the Effective Time occurs and (ii) the SpinCo Group shall also determine for SpinCo Group Employees or Former SpinCo Group Employees (A) the extent to which established performance criteria (as interpreted by the SpinCo Group, in its sole discretion) have been met, and (B) the payment level for each SpinCo Group Employee or Former SpinCo Group Employee. The SpinCo Group shall assume all Liabilities with respect to any such bonus awards payable to SpinCo Group Employees or Former SpinCo Group Employees for any performance periods that are open when the Effective Time occurs and thereafter, and no member of the Parent Group shall have any obligations with respect thereto.
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(ii)    The Parent Group shall be responsible for determining all bonus awards that would otherwise be payable under the Parent Non-Equity Incentive Practices to Parent Group Employees or Former Parent Group Employees and any bonus payable to a Parent Group Employee who was covered immediately prior to the Effective Time under a SpinCo Non-Equity Incentive Practices for any performance periods that are open when the Effective Time occurs . The Parent Group shall also determine for Parent Group Employees or Former Parent Group Employees (A) the extent to which established performance criteria (as interpreted by the Parent Group, in its sole discretion) have been met, and (B) the payment level for each Parent Group Employee or Former Parent Group Employee. The Parent Group shall retain (or assume as necessary) all Liabilities with respect to any such bonus awards payable to Parent Group Employees or Former Parent Group Employees for any performance periods that are open when the Effective Time occurs and thereafter, and no member of the SpinCo Group shall have any obligations with respect thereto.
(b)    Cash Long-Term Incentive Awards.
(i)    The SpinCo Group shall assume all Liabilities with respect to any long-term cash incentive awards payable to SpinCo Group Employees or Former SpinCo Group Employees for any performance periods that are open when the Effective Time occurs and thereafter, and no member of the Parent Group shall have any obligations with respect thereto.
(ii)    The Parent Group shall retain (or assume as necessary) all Liabilities with respect to any long-term cash incentive awards payable to Parent Group Employees or Former Parent Group Employees for any performance periods that are open when the Effective Time occurs and thereafter, and no member of the SpinCo Group shall have any obligations with respect thereto. The applicable performance-based vesting conditions may be modified in a manner determined by the Parent Compensation Committee prior to the Effective Time.
(c)    Other Cash Incentive Plans.
(i)    No later than the Effective Time, the Parent Group shall continue to retain (or assume as necessary) any cash incentive plan for the exclusive benefit of Parent Group Employees and Former Parent Group Employees, whether or not sponsored by the Parent Group, and, from and after the Effective Time, shall be solely responsible for all Liabilities thereunder.
(ii)    No later than the Effective Time, the SpinCo Group shall continue to retain (or assume as necessary) any cash incentive plan for the exclusive benefit of SpinCo Group Employees and Former SpinCo Group Employees, whether or not sponsored by the SpinCo Group, and, from and after the Effective Time, shall be solely responsible for all Liabilities thereunder.
Section 4.05.Director Compensation. Parent shall be responsible for the payment of any fees for service on the Parent Board that are earned at, before, or after the Effective Time, and SpinCo shall not have any responsibility for any such payments. With respect to any
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SpinCo nonemployee director, SpinCo shall be responsible for the payment of any fees for service on the SpinCo Board that are earned at any time after the Effective Time, and Parent shall not have any responsibility for any such payments. For the avoidance of doubt, with respect to the quarter in which the Distribution Date occurs, for any Transferred Director, Parent shall be responsible for the payment of director’s fees for the period up to the Distribution Date and SpinCo shall be responsible for the payment of director’s fees for the period on or after the Distribution Date.
Article V
QUALIFIED RETIREMENT PLANS
Section 5.01.Parent Pension Plan.
(a)    Retention of Pension Plan. Parent shall assume and retain the XPO Logistics Pension Plan as of the Effective Time and no member of the SpinCo Group shall assume or retain any Liability with respect to the XPO Logistics Pension Plan. Following the Effective Time, no SpinCo Group Employee shall be credited with any additional service under the XPO Logistics Pension Plan.
Section 5.02.SpinCo 401(k) Plan.
(a)    Establishment of Plan. Effective on or before the Distribution Date, SpinCo shall or shall cause the members of the SpinCo Group to, adopt and establish the SpinCo 401(k) Plans and a trust with respect to each SpinCo 401(k) Plan (each trust, a “SpinCo 401(k) Trust”), which shall be intended to meet the tax qualification requirements of Section 401(a) of the Code, the tax exemption requirement of Section 501(a) of the Code, and the requirements described in Sections 401(k) and (m) of the Code and which shall have substantially the similar terms in all material respects as of immediately prior to the Distribution Date as each corresponding Parent 401(k) Plan. Notwithstanding the foregoing, SpinCo may make such changes, modifications or amendments to each SpinCo 401(k) Plan as may be required by applicable Law or as are necessary and appropriate to reflect the Separation, including design changes to address otherwise increased costs and availability of plan design for a smaller group. SpinCo shall undertake to obtain a favorable determination letter with respect to each SpinCo 401(k) Plan if any such plan is not a preapproved plan with a favorable determination letter or opinion from the IRS.
(b)    Transfer of Account Balances. No later than thirty (30) days following the Effective Time (or such other times as mutually agreed to by the Parties), Parent shall cause the trustee of each Parent 401(k) Plan to transfer from the trust which forms a part of each Parent 401(k) Plan to the respective SpinCo 401(k) Trust, the account balances of SpinCo Group Employees under the corresponding Parent 401(k) Plan, determined as of the date of the transfer. Such transfers shall be made in kind and shall include the transfer of outstanding loans. Any Asset and Liability transfers pursuant to this Section 5.02 shall comply in all respects with Sections 414(l) and 411(d)(6) of the Code and, if required, shall be made not less than thirty (30) days after Parent shall have filed the notice under Section 6058(b) of the Code with respect to the applicable Parent 401(k) Plan.
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(c)    Transfer of Liabilities. Effective as of the Effective Time but subject to the Asset transfer specified in Section 5.02(b) above, each SpinCo 401(k) Plan shall assume and be solely responsible for all the Liabilities for or relating to SpinCo Group Employees under the corresponding Parent 401(k) Plan. SpinCo shall be responsible for all ongoing rights of or relating to SpinCo Group Employees for future participation (including the right to make payroll deductions) in each SpinCo 401(k) Plan.
(d)    Plan Provisions of SpinCo 401(k) Plan. Each SpinCo 401(k) Plan shall provide that:
(i)    SpinCo Group Employees shall be eligible to participate in the SpinCo 401(k) Plan as of the Effective Time to the extent that they were eligible to participate in the corresponding Parent 401(k) Plan as of immediately prior to the Effective Time;
(ii)    the account balance of each SpinCo Group Employee under a Parent 401(k) Plan as of the date of the transfer of Assets from such Parent 401(k) Plan (including any outstanding promissory notes relating to outstanding loans) shall be credited to such individual’s account under the corresponding SpinCo 401(k) Plan; and
(iii)    each SpinCo 401(k) Plan shall assume and honor the terms of all QDROs in effect under the corresponding Parent 401(k) Plan in respect of SpinCo Group Employees immediately prior to the Effective Time.
(a)    Plan Fiduciaries. For all periods at and after the Effective Time, the parties agree that the applicable fiduciaries of each of the Parent 401(k) Plan and the SpinCo 401(k) Plan, respectively, shall have the authority with respect to the Parent 401(k) Plan and the SpinCo 401(k) Plan, respectively, to determine the investment alternatives, the terms and conditions with respect to those investment alternatives and such other matters as are within the scope of their duties under ERISA and the terms of the applicable plan documents.
Section 5.03.Canada Defined Contribution Plan.
(a)    Effective on or before the Distribution Date, SpinCo shall, or shall cause the members of the SpinCo Group to, adopt and establish the SpinCo Canada Defined Contribution Plan and a related fund (the “SpinCo Canada Defined Contribution Fund”) that shall have substantially similar terms in all material respects as of immediately prior to the Distribution Date as the Parent Canada Defined Contribution Plan. Notwithstanding the foregoing, SpinCo may make such changes, modifications or amendments to the SpinCo Canada Defined Contribution Plan as may be required by applicable Law or as are necessary and appropriate to reflect the Separation, including design changes to address increased costs and availability of plan design for a smaller group.
(b)    Transfer of Account Balances. No later than forty-five (45) days following the Effective Time (or such other times as mutually agreed to by the Parties), Parent shall cause the funding agent of the Parent Canada Defined Contribution Plan to transfer from the fund that forms a part of the Parent Canada Defined Contribution Plan to the SpinCo Canada
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Defined Contribution Fund, the account balances of SpinCo Group Employees under the Parent Canada Defined Contribution Plan, determined as of the date of the transfer. Any Asset and Liability transfers pursuant to this Section 5.03 shall comply in all respects with the requirements of applicable Law. For greater certainty, the Parties shall, or shall cause their respective Affiliates to, cooperate in providing such notices to the affected SpinCo Group Employees as may be necessary to effect such transfer of account balances in compliance with applicable Law and published regulatory guidance. The Parties agree that to the extent that any Assets are not transferred in kind, SpinCo will map the Assets transferred into an appropriate investment vehicle.
(c)    Transfer of Liabilities. Effective as of the Effective Time but subject to the Asset transfer specified in Section 5.03(b) above, the SpinCo Canada Defined Contribution Plan shall assume and be solely responsible for all the Liabilities for or relating to SpinCo Group Employees under the Parent Canada Defined Contribution Plan. SpinCo shall be responsible for all ongoing rights of or relating to SpinCo Group Employees for future participation in the SpinCo Canada Defined Contribution Plan.
(d)    SpinCo Canada Defined Contribution Plan Provisions. The SpinCo Canada Defined Contribution Plan shall provide that:
(i)    SpinCo Group Employees shall be eligible to participate in a SpinCo Canada Defined Contribution Plan as of the Effective Time to the extent that they were eligible to participate in the corresponding Parent Canada Defined Contribution Plan as of immediately prior to the Effective Time;
(ii)    the account balance of each SpinCo Group Employee under the Parent Canada Defined Contribution Plan as of the date of the transfer of Assets from such Parent Canada Defined Contribution Plan shall be credited to such individual’s account under the corresponding SpinCo Canada Defined Contribution Plan; and
(e)    Plan Fiduciaries. For all periods at and after the Effective Time, the Parties agree that the applicable fiduciaries of the Parent Canada Defined Contribution Plan and the SpinCo Canada Defined Contribution Plan, respectively, shall have the authority with respect to the Parent Canada Defined Contribution Plan and the SpinCo Canada Defined Contribution Plan, respectively, to determine the investment alternatives, the terms and conditions with respect to those investment alternatives and such other matters as are within the scope of their duties under applicable Law and the terms of the applicable plan documents.
Article VI
NONQUALIFIED DEFERRED COMPENSATION PLANS
Section 6.01.Parent Deferred Compensation Plans. Parent shall, or shall cause a member of the Parent Group to, assume and retain all Liabilities and Assets with respect to the Parent Deferred Compensation Plans and related rabbi trusts with respect to Employees and Former Employees, whether arising before, on or after the Distribution Date and no member of the SpinCo Group shall assume or retain any Liabilities and Assets with respect to such Parent
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Deferred Compensation Plan and the related rabbi trust. Following the Effective Time, no SpinCo Employee or Former SpinCo Employee shall be credited with any additional service under the Parent Deferred Compensation Plans; provided that, any SpinCo Group Employee who is a participant in a Parent Deferred Compensation Plan immediately prior to the Effective Time and has made an irrevocable salary deferral election for the 2022 calendar year with respect to such plan shall be credited under such plan with any salary deferral amounts made pursuant to such election. In connection with the foregoing, promptly following the end of the 2022 calendar year, SpinCo shall transfer to Parent an aggregate amount in cash equal to the aggregate amount of such salary deferrals less any applicable payroll Taxes.
Section 6.02.Participation; Distributions. The Parties acknowledge that none of the transactions contemplated by this Agreement, the Separation and Distribution Agreement or any Ancillary Agreement shall trigger a payment or distribution of compensation under any of the Parent Deferred Compensation Plans and, consequently, that the payment or distribution of any compensation to which such participant is entitled under any such plan shall occur upon such participant’s separation from service from the Parent Group or SpinCo Group or at such other time as provided in the applicable deferred compensation plan or participant’s deferral election.
Section 6.03.Notice Requirement. In the event any SpinCo Group Employee who is a participant in a Parent Deferred Compensation Plan terminates employment or service with the SpinCo Group, written notice of such termination shall be provided by SpinCo to Parent within fifteen (15) days following such termination of service.
Article VII
WELFARE BENEFIT PLANS
Section 7.01.Welfare Plans.
(a)    Establishment of SpinCo Welfare Plans. Except as otherwise provided in this Article VII, as of or before the Effective Time, SpinCo shall, or shall cause the members of the SpinCo Group to establish the SpinCo Welfare Plans pursuant to Section 2.03(a) that generally correspond to the Parent Welfare Plans in which such SpinCo Group Employees participate immediately prior to the Effective Time, with such changes, modifications or amendments as may be required by applicable Law or as are necessary and appropriate to reflect the Separation, including design changes to address increased costs and availability of plan design for a smaller group. In addition, SpinCo or members of the SpinCo Group shall retain the right to modify, amend, alter or terminate the terms of any SpinCo Welfare Plan to the same extent that the Parent Group had such rights under the corresponding Parent Welfare Plan.
(b)    Waiver of Conditions; Benefit Maximums. SpinCo shall, or shall cause the members of the SpinCo Group to, use commercially reasonable efforts to cause the SpinCo Welfare Plans to:
(i)    with respect to the enrollment as of the Effective Time, waive (x) all limitations as to preexisting conditions, exclusions, and service conditions with respect to participation and coverage requirements applicable to any SpinCo Group Employee or Former
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SpinCo Group Employee, other than limitations that were in effect with respect to the SpinCo Group Employee or Former SpinCo Group Employee under the applicable Parent Welfare Plan as of immediately prior to the Effective Time, and (y) any waiting period limitation or evidence of insurability requirement applicable to a SpinCo Group Employee or Former SpinCo Group Employee other than limitations or requirements that were in effect with respect to such SpinCo Group Employee or Former SpinCo Group Employee under the applicable Parent Welfare Plans as of immediately prior to the Effective Time; and
(ii)    take into account (x) with respect to aggregate annual, lifetime, or similar maximum benefits available under the SpinCo Welfare Plans, a SpinCo Group Employee’s or Former SpinCo Group Employee’s prior claim experience under the Parent Welfare Plans and any Benefit Plan that provides leave benefits; and (y) any eligible expenses incurred by a SpinCo Group Employee or Former SpinCo Group Employee and his or her covered dependents during the portion of the plan year of the applicable Parent Welfare Plan ending as of the Effective Time to be taken into account under such SpinCo Welfare Plan for purposes of satisfying all deductible, coinsurance, and maximum out-of-pocket requirements applicable to such SpinCo Group Employee or Former SpinCo Group Employee and his or her covered dependents for the applicable plan year to the same extent as such expenses were taken into account by Parent for similar purposes prior to the Effective Time as if such amounts had been paid in accordance with such SpinCo Welfare Plan.
(c)    Allocation of Welfare Plan Assets and Liabilities. Effective as of the Effective Time and except as otherwise provided in this Article VII, the Parent Group shall retain or assume, as applicable, and be responsible for all Assets (including any insurance contracts, policies or other funding vehicles) and Liabilities relating to, arising out of or resulting from health and welfare coverage or claims incurred by or on behalf of Parent Group Employees or Former Parent Group Employees under the Parent Welfare Plans or SpinCo Welfare Plans before, at, or after the Effective Time, and the SpinCo Group shall retain or assume, as applicable, and be responsible for all Assets (including any insurance contracts, policies or other funding vehicles) and Liabilities relating to, arising out of or resulting from health and welfare coverage or claims incurred by or on behalf of SpinCo Group Employees or Former SpinCo Group Employees under the SpinCo Welfare Plans or Parent Welfare Plans before, at, or after the Effective Time. No SpinCo Welfare Plan shall provide coverage to any Parent Group Employee or Former Parent Group Employee after the Effective Time, and except as provided in this Article VII, no Parent Welfare Plan shall provide coverage to any SpinCo Group Employee or Former SpinCo Group Employee after the Effective Time.
Section 7.02.Retiree Medical Plans. Parent shall retain all Liabilities and Assets under the Parent Retiree Medical Plans with respect to any Employee or Former Employee who immediately prior to the Effective Time is a participant in a Parent Retiree Medical. Such Employee and Former Employees shall be entitled to coverage under such Parent Retiree Medical Plan in accordance with and subject to the terms of such plan as such plan may be amended from time to time by a member of the Parent Group, unless such plan is terminated by a member of the Parent Group; provided that neither any SpinCo Group Employee nor any Former SpinCo Group Employee shall be entitled to additional service credit for services to a member of the SpinCo
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Group for any period following the Distribution Date or eligibility based on attaining a specified age subsequent to the Distribution Date. For the avoidance of doubt, (i) Parent or members of the Parent Group shall retain the right to modify, amend, alter or terminate the terms of any Parent Welfare Plan, including the Retiree Medical Plan and (ii) no member of the SpinCo Group shall be required to establish a retiree medical plan pursuant to the terms of this Agreement.
Section 7.03.COBRA. The Parent Group shall continue to be responsible for complying with, and providing coverage pursuant to, the health care continuation requirements of COBRA, and the corresponding provisions of the Parent Welfare Plans with respect to any Parent Group Employees and any Former Parent Group Employees (and their covered dependents) who experience a qualifying event under COBRA before, as of, or after the Effective Time. Effective as of the Effective Time, the SpinCo Group shall assume responsibility for complying with, and providing coverage pursuant to, the health care continuation requirements of COBRA, and the corresponding provisions of the SpinCo Welfare Plans with respect to any SpinCo Group Employees or Former SpinCo Group Employees (and their covered dependents) who experience a qualifying event under the SpinCo Welfare Plans and/or the Parent Welfare Plans before, as of, or after the Effective Time. The Parties agree that the consummation of the transactions contemplated by the Separation and Distribution Agreement shall not constitute a COBRA qualifying event for any purpose of COBRA.
Section 7.04.Flexible Spending Accounts. As of no later than the Effective Time, SpinCo shall, or shall cause the members of the SpinCo Group to, establish SpinCo Welfare Plans, including a cafeteria plan that shall provide health or dependent care flexible spending account benefits to SpinCo Group Employees on and after the Effective Time (collectively, the “SpinCo Flex Plan”). The Parties shall use commercially reasonable efforts to ensure that as of the Effective Time any health and dependent care flexible spending accounts of SpinCo Group Employees (whether positive or negative) (the “Transferred Account Balances”) under Parent Welfare Plans are transferred as soon as practicable after the Effective Time, from the Parent Welfare Plans to the SpinCo Flex Plan. Such SpinCo Flex Plan shall assume responsibility as of the Effective Time for all outstanding health or dependent care claims under the corresponding Parent Welfare Plans of each SpinCo Group Employee as of the first day of the year in which the Effective Time occurs and shall assume and agree to perform the obligations of the corresponding Parent Welfare Plans from and after the Effective Time. As soon as practicable after the Effective Time, and in any event within thirty (30) days after the amount of the Transferred Account Balances is determined or such later date as mutually agreed upon by the Parties, Parent shall pay SpinCo the net aggregate amount of the Transferred Account Balances, if such amount is positive, and SpinCo shall pay Parent the net aggregate amount of the Transferred Account Balances, if such amount is negative.
Section 7.05.Disability Plans. The Parent Group shall assume and retain all Liabilities for providing long-term disability benefits under a Parent Welfare Plan with respect to any Parent Group Employee or Former Parent Group Employee (including any SpinCo LTD Recipient) and with respect to any SpinCo Group Employee and any Former SpinCo Group Employee who is on short-term disability on the Distribution Date and who subsequently becomes eligible to receive long-term disability benefits under a Parent Welfare Plan that provides long-
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term disability benefits but only with respect to benefits arising from long-term disability claims incurred by any SpinCo Group Employee or Former SpinCo Group Employee prior to the Distribution Date and only to the extent such individual is entitled to such benefit. For this purpose, a disability claim shall be considered incurred on the date of the occurrence of the event or condition giving rise to disability. For the avoidance of doubt, if at the Distribution Date, a SpinCo Group Employee is on short-term disability due to an event or condition that occurred prior to the Distribution Date, such Employee shall remain a SpinCo Group Employee and to the extent such SpinCo Group Employee becomes entitled to long-term disability benefits under a Parent Welfare Plan, Parent shall be liable to provide long-term disability benefits under the Parent Welfare Plan but only to the extent such individual is entitled to such benefit. Except as provided in this Section 7.05, the SpinCo Group shall assume and retain all Liabilities for long-term disability benefits with respect to any SpinCo Group Employee or Former SpinCo Group Employee.
Section 7.06.Vacation, Holidays and Leaves of Absence. Effective as of no later than the Effective Time, the SpinCo Group shall assume all Liabilities of the SpinCo Group with respect to vacation, holiday, annual leave or other leave of absence, and required payments related thereto, for each SpinCo Group Employee, unless otherwise required by applicable Law. The Parent Group shall retain all Liabilities with respect to vacation, holiday, annual leave or other leave of absence, and required payments related thereto, for each Parent Group Employee.
Section 7.07.Workers’ Compensation. The treatment of workers’ compensation claims shall be governed by Section 5.1 of the Separation and Distribution Agreement.
Section 7.08.Insurance Contracts. To the extent that any Welfare Plan is funded through the purchase of an insurance contract or is subject to any stop-loss contract, the Parties shall cooperate and use their commercially reasonable efforts to replicate such insurance contracts for SpinCo or Parent as applicable (except to the extent that changes are required under applicable Law or filings by the respective insurers) and to maintain any pricing discounts or other preferential terms for both Parent and SpinCo for a reasonable term. Neither Party shall be liable for failure to obtain such insurance contracts, pricing discounts, or other preferential terms for the other Party. Each Party shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to this Section 7.08.
Section 7.09.Third-Party Vendors. Except as provided below, to the extent that any Welfare Plan is administered by a third-party vendor, the Parties shall cooperate and use their commercially reasonable efforts to replicate any contract with such third-party vendor for Parent or SpinCo, as applicable, and to maintain any pricing discounts or other preferential terms for both Parent and SpinCo for a reasonable term. Neither Party shall be liable for failure to obtain such pricing discounts or other preferential terms for the other Party. Each Party shall be responsible for any additional premiums, charges, or administrative fees that such Party may incur pursuant to this Section 7.09.
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Article VIII
MISCELLANEOUS
Section 8.01.Preservation of Rights to Amend. Except as set forth in this Agreement, the rights of each member of the Parent Group and each member of the SpinCo Group to amend, waive, or terminate any plan, arrangement, agreement, program, or policy referred to herein shall not be limited in any way by this Agreement.
Section 8.02.Fiduciary Matters. Parent and SpinCo each acknowledge that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable Law, and no Party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good faith determination (as supported by advice from counsel experienced in such matters) that to do so would violate such a fiduciary duty or standard. Each Party shall be responsible for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release and indemnify the other Party for any Liabilities caused by the failure to satisfy any such responsibility.
Section 8.03.Further Assurances. Each Party hereto shall take, or cause to be taken, any and all reasonable actions, including the execution, acknowledgment, filing and delivery of any and all documents and instruments that any other Party hereto may reasonably request in order to effect the intent and purpose of this Agreement and the transactions contemplated hereby.
Section 8.04.Counterparts; Entire Agreement; Corporate Power.
(a)    This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.
(b)    This Agreement, the Separation and Distribution Agreement and the Ancillary Agreements and the Exhibits, Schedules and appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein. This Agreement, the Separation and Distribution Agreement and the Ancillary Agreements together govern the arrangements in connection with the Separation and the Distribution and would not have been entered into independently.
(c)    Parent represents on behalf of itself and each other member of the Parent Group, and SpinCo represents on behalf of itself and each other member of the SpinCo Group, as follows:
(i)    each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby; and
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(ii)    this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms hereof.
(d)    Each Party acknowledges that it and each other Party is executing this Agreement by facsimile, stamp or mechanical signature, and that delivery of an executed counterpart of a signature page to this Agreement (whether executed by manual, stamp or mechanical signature) by facsimile or by e-mail in portable document format (.pdf) shall be effective as delivery of such executed counterpart of this Agreement. Each Party expressly adopts and confirms each such facsimile, stamp or mechanical signature (regardless of whether delivered in person, by mail, by courier, by facsimile or by e-mail in portable document format (.pdf)) made in its respective name as if it were a manual signature delivered in person, agrees that it will not assert that any such signature or delivery is not adequate to bind such Party to the same extent as if it were signed manually and delivered in person and agrees that, at the reasonable request of the other Party at any time, it will as promptly as reasonably practicable cause this Agreement to be manually executed (any such execution to be as of the date of the initial date thereof) and delivered in person, by mail or by courier.
Section 8.05.Governing Law. This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware, irrespective of the choice of laws principles of the State of Delaware, including all matters of validity, construction, effect, enforceability, performance and remedies.
Section 8.06.Assignability. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns; provided, however, that neither Party may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other Party hereto. Notwithstanding the foregoing, no such consent shall be required for the assignment of a Party’s rights and obligations under this Agreement, the Separation and Distribution Agreement and all other Ancillary Agreements (except as may be otherwise provided in any such Ancillary Agreement) in whole (i.e., the assignment of a Party’s rights and obligations under this Agreement and all Ancillary Agreements at the same time) in connection with a change of control or a sale of all or substantially all of a Party (or its assets) so long as the resulting, surviving or transferee Person assumes all the obligations of the relevant party thereto by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Party.
Section 8.07.Third-Party Beneficiaries. The provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer upon any Person except the Parties any rights or remedies hereunder. There are no third-party beneficiaries of this Agreement, and this Agreement shall not provide any Third Party with any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement. Nothing in this Agreement is intended to amend any employee benefit plan or affect the applicable plan sponsor’s right to amend or terminate any employee benefit plan pursuant to
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the terms of such plan. The provisions of this Agreement are solely for the benefit of the Parties, and no current or former Employee, officer, director, or independent contractor or any other individual associated therewith shall be regarded for any purpose as a third-party beneficiary of this Agreement.
Section 8.08.Notices. All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by certified mail, return receipt requested or by electronic mail (e-mail) so long as the confirmation of receipt of such e-mail is requested and received, to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 8.08):
If to Parent, to:
XPO Logistics, Inc.
Five American Lane
Greenwich, Connecticut 06831
Attention:Chief Financial Officer, Ravi Tulsyan
E-mail:
[l]
with a copy (which shall not constitute notice), to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
Attention:Scott A. Barshay
Steven J. Williams
E-mail:sbarshay@paulweiss.com
swilliams@paulweiss.com
If to SpinCo (prior to the Effective Time), to:
RXO, Inc
[l]
[l]
Attention:
[l]
E-mail:
[l]
with a copy (which shall not constitute notice), to:
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Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
Attention:Scott A. Barshay
Steven J. Williams
E-mail:sbarshay@paulweiss.com
swilliams@paulweiss.com
If to SpinCo (from and after the Effective Time), to:
RXO, Inc
[l]
[l]
Attention:
[l]
E-mail:
[l]
with a copy (which shall not constitute notice), to:
Paul, Weiss, Rifkind, Wharton & Garrison LL
1285 Avenue of the Americas
New York, New York 10019-6064
Attention:Scott A. Barshay
Steven J. Williams
E-mail:sbarshay@paulweiss.com
swilliams@paulweiss.com
A Party may, by notice to the other Party, change the address to which such notices are to be given or made.
Section 8.09.Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
Section 8.10.Force Majeure. No Party shall be deemed in default of this Agreement or, unless otherwise expressly provided therein, any Ancillary Agreement for any delay or failure to fulfill any obligation (other than a payment obligation) hereunder or thereunder so
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long as and to the extent to which any delay or failure in the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. In the event of any such excused delay, the time for performance of such obligations (other than a payment obligation) shall be extended for a period equal to the time lost by reason of the delay. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event, (a) provide written notice to the other Party of the nature and extent of any such Force Majeure condition; and (b) use commercially reasonable efforts to remove any such causes and resume performance under this Agreement and the Ancillary Agreements, as applicable, as soon as reasonably practicable.
Section 8.11.Headings. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Section 8.12.Survival of Covenants. Except as expressly set forth in this Agreement, the covenants, representations and warranties contained in this Agreement, and Liability for the breach of any obligations contained herein, shall survive the Separation and the Distribution and shall remain in full force and effect.
Section 8.13.Waivers of Default. Waiver by a Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by a Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 8.14.Dispute Resolution. The dispute resolution procedures set forth in Article VII of the Separation and Distribution Agreement shall apply to any dispute, controversy or claim arising out of or relating to this Agreement.
Section 8.15.Specific Performance. Subject to the provisions of Article VII of the Separation and Distribution Agreement, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party or Parties who are, or are to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief in respect of its or their rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative (and for the avoidance of doubt, shall be pursued in accordance with Article VII of the Separation and Distribution Agreement). The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by each of the Parties.
Section 8.16.Amendments. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment,
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supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification.
Section 8.17.Interpretation. In this Agreement, (a) words in the singular shall be deemed to include the plural and vice versa, and words of one gender shall be deemed to include the other genders as the context requires; (b) the terms “hereof,” “herein,” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement; (c) Article, Section, Schedule, Exhibit and Appendix references are to the Articles, Sections, Schedules, Exhibits and Appendices to this Agreement unless otherwise specified; (d) unless otherwise stated, all references to any agreement (including this Agreement and each Ancillary Agreement) shall be deemed to include the exhibits, schedules and annexes (including all Schedules, Exhibits and Appendixes) to such agreement; (e) the word “including” and words of similar import when used in this Agreement (or the applicable Ancillary Agreement) shall mean “including, without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) unless otherwise specified in a particular case, the word “days” refers to calendar days; (h) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified; and (i) unless expressly stated to the contrary in this Agreement or in any Ancillary Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to [l], 2022.
Section 8.18.Limitations of Liability. Notwithstanding anything in this Agreement to the contrary, neither SpinCo or any member of the SpinCo Group, on the one hand, nor Parent or any member of the Parent Group, on the other hand, shall be liable under this Agreement to the other for any indirect, incidental, punitive, exemplary, remote, speculative or similar damages in excess of compensatory damages of the other arising in connection with the transactions contemplated hereby (other than any such Liability with respect to a Third-Party Claim).
Section 8.19.Mutual Drafting. This Agreement shall be deemed to be the joint work product of the Parties, and any rule of construction that a document shall be interpreted or construed against a drafter of such document shall not be applicable.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the Parties have caused this Employee Matters Agreement to be executed by their duly authorized representatives as of the date first written above.
XPO LOGISTICS, INC.
By:
Name:
Title:
RXO, INC.
By:
Name:
Title:
Exhibit 2.5



INTELLECTUAL PROPERTY LICENSE AGREEMENT
BY AND BETWEEN
XPO LOGISTICS, INC.
AND
[_____________]
_________________
Dated as of [●], 2022



TABLE OF CONTENTS
Page
Article I
DEFINITIONS AND INTERPRETATION
Section 1.1    Certain Definitions
2
Section 1.2    Other Defined Terms
5
Article II
ASSIGNED INTELLECTUAL PROPERTY
Section 2.1    Assignment of the SpinCo Software
5
Article III
INTELLECTUAL PROPERTY LICENSES
Section 3.1    License to SpinCo Licensees of Parent Licensed Software
6
Section 3.2    Sublicense to SpinCo Licensees of Rail Optimizer 2.0 Platform
6
Section 3.3    Parent’s Rights to Use SpinCo Licensed Software
6
Section 3.4    Shared Software
7
Section 3.5    License to SpinCo Licensees of Parent Licensed Other IP
7
Section 3.6    Parent’s Rights to Use SpinCo Licensed Patents and SpinCo Licensed Other IP
8
Article IV
License Limitations
Section 4.1    Rights of Subsidiaries
8
Section 4.2    Sublicensing
9
Section 4.3    No Other Rights; Retained Ownership
9
Section 4.4    Delivery
10
Section 4.5    Open Source
10
Section 4.6    Treatment of Source Code
10
Section 4.7    Source Code Restrictions
10
Article V
TRANSFERABILITY
Section 5.1    Assignment
11
Section 5.2    Limitations on Change of Control
11
Section 5.3    Divestiture of Parent Business Unit
11
-i-

Article VI
Additional Terms
Section 6.1    Bankruptcy Rights
12
Section 6.2    Confidentiality
12
Article VII
No Representations or Warranties
Section 7.1    NO OTHER REPRESENTATIONS OR WARRANTIES
12
Section 7.2    General Disclaimer
13
Section 7.3    Limitation of Liability
13
Article VIII
Term
Section 8.1    Term and Termination
13
Article IX
General Provisions
Section 9.1    Transfer of IPR
14
Section 9.2    Entire Agreement
14
Section 9.3    Amendment and Waivers
14
Section 9.4    Third-Party Beneficiaries
14
Section 9.5    Other Remedies
14
Section 9.6    Notices
15
Section 9.7    Governing Law; Waiver of Jury Trial.
16
Section 9.8    Relationship of the Parties
16
Section 9.9    Interpretation
16
Section 9.10    Severability
17
Section 9.11    Counterparts
17



SCHEDULES
Schedule 1    SpinCo Licensed Patents

EXHIBITS
Exhibit A    STG Agreement
-ii-

INTELLECTUAL PROPERTY LICENSE AGREEMENT
This INTELLECTUAL PROPERTY LICENSE AGREEMENT, dated as of [●], 2022 (this “Agreement”), is by and between XPO Logistics, Inc., a Delaware corporation (“Parent”), and [________], a [●] (“OpCo” and, together with Parent, the “Parties”).
R E C I T A L S
WHEREAS, Parent, acting through itself and its direct and indirect Subsidiaries, currently operates the SpinCo Business;
WHEREAS, the board of directors of Parent (the “Parent Board”) has determined that it is in the best interests of Parent and its stockholders to create a new publicly traded company that shall operate the SpinCo Business;
WHEREAS, in furtherance of the foregoing, the Parent Board has determined that it is appropriate and desirable to separate the SpinCo Business from the Parent Business (the “Separation”) and, following the Separation, make a distribution, on a pro rata basis, to holders of Parent Shares on the Record Date of all of the outstanding SpinCo Shares owned by Parent (the “Distribution”);
WHEREAS, in order to effectuate the Separation and the Distribution, concurrently with the execution of this Agreement, Parent and SpinCo are entering into a Separation and Distribution Agreement (as amended, modified or supplemented from time to time, the “Separation Agreement”);
WHEREAS, the SpinCo Assets include certain Intellectual Property Rights and Technology;
WHEREAS, in connection with the transfer of the SpinCo Assets, on the terms and subject to the conditions set forth herein, Parent and the other members of the Parent Group (in such capacity, the “Parent Licensors”) wish to grant to the SpinCo Licensees licenses to certain Parent Licensed Other IP and Parent Licensed Software, and in connection with the transfer of the SpinCo Assets to OpCo, on the terms and subject to the conditions set forth herein, Parent, on behalf of itself and the other members of the Parent Group, wishes to reserve or receive, as applicable, licenses to certain SpinCo Licensed Other IP, SpinCo Licensed Patents and SpinCo Licensed Software;
WHEREAS, Parent and STG Logistics, Inc. (“STG”) have entered into that certain Intellectual Property License Agreement, dated as of March 24, 2022 (attached hereto as Exhibit A, and hereinafter, the “STG Agreement”), pursuant to which STG granted to Parent and its Subsidiaries a license under the Business Intellectual Property (as defined therein) embodied in the Rail Optimizer 2.0 Platform, on the terms and subject to the conditions set forth in the STG Agreement (the “Rail Optimizer 2.0 License”), and, in accordance with Section 4.1(b) of the STG Agreement, Parent desires to grant the SpinCo Licensees, and the SpinCo Licensees desire to receive, a sublicense under the Rail Optimizer 2.0 License, on the terms and subject to the conditions set forth in the STG Agreement; and
WHEREAS, this Agreement constitutes the Intellectual Property License Agreement referred to in the Separation Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the


receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1    Certain Definitions. As used herein, the following terms have the meanings set forth below. Capitalized terms that are not defined in this Agreement shall have the meanings set forth in the Separation Agreement.
(a)    “Assignment Time” means the time of the assignment of any applicable Parent-Contributed IP from a member of the Parent Group to a member of the SpinCo Group.
(b)    “Change of Control” means, with respect to any Person (the “Target Person”), the consummation of any transaction or series of related transactions involving any direct or indirect purchase or acquisition (whether by way of merger, share purchase or exchange, consolidation, license, lease, business combination, or similar transaction or otherwise) by another Person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended), other than by any Person who, prior to such transaction or series of related transactions, is an Affiliate of the Target Person, of either (i) a majority of the voting power of the securities entitled to elect the board of directors or equivalent governing body of the Target Person (or any direct or indirect parent company) or (ii) all or substantially all of the assets of the Target Person and its Subsidiaries, taken together as a whole.
(c)    “European Business” means the Parent Business conducted in Europe and Africa.
(d)    “European Field” means the field of the European Business.
(e)    “European Products” means any product or service of the European Business, as such products or services currently exist and natural evolutions of such products and services within the European Field.
(f)    “Licensed Software” means, depending upon the context of use, either the Parent Licensed Software or the SpinCo Licensed Software licensed to such Party as a Licensee.
(g)    “Licensee” means a Party and, where the context requires, the other members of such Party’s Group, in its or their capacity as the licensee of the rights or licenses granted to it by the other Party (in the case of the SpinCo Licensees and the Parent Group) or reserved by it (in the case of the Parent Group) pursuant to Article III.
(h)    “Licensor” means a Party in its capacity as the licensor or grantor of any rights or licenses (i) granted by it to the other Party or (ii) reserved by such other Party pursuant to Article III, as applicable.
(i)    “North American Territory” means the United States, Canada, Mexico and the Caribbean countries, and, in each case, their respective territories and possessions.
(j)    “Open Source Software” means Software that is subject to any license meeting the definition of “Open Source” promulgated by the Open Source Initiative, available online at http://www.opensource.org/osd.html (including any GNU General Public License, Library General Public License, Lesser General Public License, Mozilla Public License, Berkeley Software Distribution License, MIT and the Apache License).
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(k)    “Other IP” means Intellectual Property Rights other than Patents, Marks and Internet Properties.
(l)    “Parent-Contributed IP” means any SpinCo Licensed IP that is assigned from a member of the Parent Group to a member of the SpinCo Group pursuant to the applicable Transfer Document.
(m)    “Parent Field” means the business and operations of Parent and its relevant Subsidiaries that constitute the “North American Less-Than-Truckload” segment as described in Parent’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and conducted at any time prior to the Distribution by either Group. For the avoidance of doubt, “Parent Field” shall include all of the Parent Business other than the European Business.
(n)    “Parent Licensed Other IP” means the Other IP (other than the SpinCo Intellectual Property) that is owned by Parent or other members of the Parent Group as of immediately after the Distribution and (i) embodied in or by any of the SpinCo Technology or (ii) otherwise used in the SpinCo Business prior to the Distribution.
(o)    “Parent Licensed Software” means the Software customizations and customer-specific integrations for Oracle, HRIS, CRM, Auth XPO, Elastic XRT and corporate BI (including the Oracle Hub proprietary platform), in object code form, developed by Parent or its Subsidiaries prior to the Distribution in connection with the operation of the SpinCo Business.
(p)    “Parent Products” means any product or service of the Parent Business (other than the European Business), as such products or services currently exist and natural evolutions of such products and services within the Parent Field.
(q)    “Parent Technology” means all Technology, including any Technology that constitutes know-how or knowledge of any employees of the Parent Business, used in or held for use in the operation of the Parent Business.
(r)    “Rail Optimizer 2.0 Platform” has the meaning set forth in the STG Agreement.
(s)    “SpinCo Field” means the field of the SpinCo Business.
(t)    “SpinCo Licensed IP” means the SpinCo Licensed Software, the SpinCo Licensed Other IP (including all SpinCo Licensed Other IP embodied in the SpinCo Licensed Software) and the SpinCo Licensed Patents.
(u)    “SpinCo Licensed Other IP” means the Other IP included in the SpinCo Intellectual Property.
(v)    “SpinCo Licensed Patents” means (i) the Patents set forth on Schedule 1, (ii) any Patent that issues after the Distribution that claims priority to any Patent in clause (i), and (iii) any foreign counterparts to any of the foregoing.
(w)    “SpinCo Licensed Software” means the Software developed by Parent or its Subsidiaries prior to the Distribution in connection with the operation of the SpinCo Business (i) that is used for supporting and implementing (including customizations and customer-specific integrations) the (a) Freight Optimizer platform, (b) XPO Connect platform, (c) Drive XPO platform, (d) XPO Connect Last Mile platform, (e) DMS platform and (f) Pnet platform and (ii) that constitutes the Software customizations and customer-specific integrations for Cargowise.
3

(x)    “SpinCo Licensees” means OpCo and the other members of the SpinCo Group other than RXO, Inc. in their capacity as Licensees pursuant to Article III.
(y)    “SpinCo Licensors” means OpCo and the other members of the SpinCo Group other than RXO, Inc. in their capacity as Licensors pursuant to Article III.
(z)    “SpinCo-Owned IP” means all SpinCo Licensed IP other than the Parent-Contributed IP.
(aa)    “SpinCo Product” means the products and services provided to customers and end users by or on behalf of the SpinCo Business, as such products or services currently exist and natural evolutions of such products and services within the SpinCo Field.
(bb)    “SpinCo Software” means the Software developed by Parent or its Subsidiaries prior to the Distribution in connection with the operation of the SpinCo Business (i) that is used for supporting and implementing (including customizations and customer-specific integrations) the (a) Freight Optimizer platform, (b) XPO Connect platform, (c) Drive XPO platform, (d) XPO Connect Last Mile platform, (e) DMS platform, (f) XPO Connect MT platform, (g) NLM platform and (h) Pnet platform and (ii) that constitutes the Software customizations and customer-specific integrations for (a) Oracle OTM, (b) Sylectus and (c) Cargowise.
Section 1.2    Other Defined Terms. In addition, the following terms shall have the meanings ascribed to them in the corresponding section of this Agreement:
TermSection
Acquired PartySection 5.1
Acquiring PartySection 5.1
AgreementPreamble
Bankruptcy CodeSection 6.1
DistributionRecitals
Non-Acquired PartySection 5.1
OpCoPreamble
Open Source LicenseSection 4.5
ParentPreamble
Parent BoardRecitals
Parent LicensorsRecitals
PartiesPreamble
Rail Optimizer 2.0 LicenseRecitals
SeparationRecitals
Separation AgreementRecitals
Shared SoftwareSection 3.4
Spin-OutSection 4.1(b)
STGRecitals
STG AgreementRecitals
Target PersonSection 1.1(a)

4

ARTICLE II
ASSIGNED INTELLECTUAL PROPERTY
Section 2.1    Assignment of the SpinCo Software. To the extent that Other IP of Parent and its Subsidiaries embodied in the SpinCo Software is not held prior to the Distribution by OpCo or other members of the SpinCo Group, Parent hereby transfers and assigns effective as of immediately prior to the Distribution, on behalf of itself and its applicable Subsidiaries, to OpCo, and OpCo does hereby acquire and accept, effective as of immediately prior to the Distribution, all Intellectual Property Rights embodied in the SpinCo Software held by Parent or its Subsidiaries that are members of the Parent Group, including the right to enforce such Intellectual Property Rights and to retain all damages and awards resulting from such enforcement, subject to the reservation by Parent of the applicable licenses of SpinCo Licensed Software pursuant to Article III. Parent and its Subsidiaries that are members of the Parent Group shall, effective as of immediately prior to the Distribution, deliver to OpCo a copy of the existing SpinCo Software, including any related documentation in the possession or control of Parent and such Subsidiaries. Nothing set forth in the foregoing shall preclude Parent from retaining a copy of the SpinCo Software in the form of Software licensed under Article III.
ARTICLE III
INTELLECTUAL PROPERTY LICENSES
Section 3.1    License to SpinCo Licensees of Parent Licensed Software. Parent, on behalf of itself and Parent Licensors, agrees to grant, and hereby grants, effective as of immediately prior to the Distribution, to SpinCo Licensees, subject to the terms and conditions of this Agreement, including Section 5.2, a nonexclusive, nontransferable (except as set forth in Section 5.1), nonsublicensable (except as provided in Section 4.2), perpetual, irrevocable, worldwide, fully paid, royalty-free license under the Parent Licensed Other IP embodied in the Parent Licensed Software to (i) internally use, reproduce, modify and create derivative works of such Parent Licensed Software, (ii) copy and use internally (or have hosted) the Parent Licensed Software (and any derivative works thereof created by SpinCo Licensees pursuant to the foregoing clause (i)) solely for the purposes of hosting and providing the SpinCo Products to third parties as a service (SaaS) and (iii) copy and distribute (subject to any applicable confidentiality restrictions) the Parent Licensed Software (and any derivative works thereof created by SpinCo Licensees pursuant to the foregoing clause (i)), in object code form only, and only to the extent incorporated in SpinCo Products, in each case of clauses (i)-(iii), solely in the SpinCo Field.
Section 3.2    Sublicense to SpinCo Licensees of Rail Optimizer 2.0 Platform. Pursuant to the terms and conditions of the STG Agreement and this Agreement, Parent agrees to grant, and hereby grants, effective as of immediately prior to the Distribution, to SpinCo Licensees a sublicense to Parent’s rights under the Rail Optimizer 2.0 License to the fullest extent of the rights available pursuant to the terms and subject to the limitations of the STG Agreement.
Section 3.3    Parent’s Rights to Use SpinCo Licensed Software.
(a)    Subject to the terms and conditions of this Agreement, including Section 5.2, with respect to the SpinCo Licensed Other IP embodied in the SpinCo Licensed Software, (x) to the extent such SpinCo Licensed Other IP constitutes Parent-Contributed IP, Parent, on behalf of itself and the other members of the Parent Group, hereby reserves, effective as of the Assignment Time, and OpCo hereby acknowledges and accepts the reservation of, and (y) to the extent such SpinCo Licensed Other IP constitutes SpinCo-Owned IP, OpCo, on behalf of itself and the other SpinCo Licensors, agrees to grant, and hereby grants, effective as of immediately prior to the Distribution, in each case, a nonexclusive, nontransferable (except as set
5

forth in Section 5.1), nonsublicensable (except as provided in Section 4.2), perpetual, irrevocable, fully paid, royalty-free license in favor of the Parent Group under such SpinCo Licensed Other IP to (i) internally use, reproduce, modify and create derivative works of such SpinCo Licensed Software, (ii) copy and use internally (or have hosted) the SpinCo Licensed Software (and any derivative works thereof created by the Parent Group pursuant to the foregoing clause (i)) solely for the purposes of hosting and providing the Parent Products to third parties as a service (SaaS) and (iii) copy and distribute (subject to any applicable confidentiality restrictions) the SpinCo Licensed Software (and any derivative works thereof created by the Parent Group pursuant to the foregoing clause (i)) in object code form only, and only to the extent incorporated in Parent Products, in each case of clauses (i)-(iii), solely in the Parent Field in the North American Territory.
(b)    Subject to the terms and conditions of this Agreement, including Section 5.2, with respect to the SpinCo Licensed Other IP embodied in the SpinCo Licensed Software, (x) to the extent such SpinCo Licensed Other IP constitutes Parent-Contributed IP, Parent, on behalf of itself and the other members of the Parent Group, hereby reserves, effective as of the Assignment Time, and OpCo hereby acknowledges and accepts the reservation of, and (y) to the extent such SpinCo Licensed Other IP constitutes SpinCo-Owned IP, OpCo, on behalf of itself and the other SpinCo Licensors, agrees to grant, and hereby grants, effective as of immediately prior to the Distribution, in each case, a nonexclusive, nontransferable (except as set forth in Section 5.1), nonsublicensable (except as provided in Section 4.2), perpetual, irrevocable, fully paid, royalty-free license in favor of the Parent Group under such SpinCo Licensed Other IP to (i) internally use, reproduce, modify and create derivative works of such SpinCo Licensed Software, (ii) copy and use internally (or have hosted) the SpinCo Licensed Software (and any derivative works thereof created by the Parent Group pursuant to the foregoing clause (i)) solely for the purposes of hosting and providing the European Products to third parties as a service (SaaS) and (iii) copy and distribute (subject to any applicable confidentiality restrictions) the SpinCo Licensed Software (and any derivative works thereof created by the Parent Group pursuant to the foregoing clause (i)) in object code form only, and only to the extent incorporated in European Products, in each case of clauses (i)-(iii), solely in the European Field.
Section 3.4     Shared Software. The Parties acknowledge and agree that (a) the SpinCo Licensed Software may include discrete Software code (including routines, drivers and linked libraries) that originated from, or was adapted from, Software created by Parent or its Subsidiaries prior to the Distribution and (b) such discrete items of SpinCo Licensed Software, derivatives of such SpinCo Licensed Software, and Software from which such SpinCo Licensed Software were derived, are being used or are held for use by Parent and its Subsidiaries in their products other than the SpinCo Products (such Software as described in clauses (a) and (b), the “Shared Software”). Accordingly, the Parties agree that the Intellectual Property Rights embodied in or by such Shared Software shall be considered “SpinCo Licensed Other IP” for purposes of this Agreement and a license shall be granted to or reserved by Parent, as applicable, on behalf of itself and the other members of the Parent Group, pursuant to Section 3.6 of this Agreement.
Section 3.5    License to SpinCo Licensees of Parent Licensed Other IP. Subject to the terms and conditions of this Agreement, including Section 5.2, Parent, on behalf of itself and the Parent Licensors, agrees to grant, and hereby grants, effective immediately prior to the Distribution, to SpinCo Licensees a nonexclusive, nontransferable (except as set forth in Section 5.1), sublicensable (in accordance with Section 4.2), perpetual, irrevocable, worldwide, fully paid, royalty-free license under the Parent Licensed Other IP, to use, reproduce, distribute, disclose, make, modify, improve, display and perform, create derivative works of, or otherwise exploit any SpinCo Technology in any field; provided that the foregoing license does not extend to the Parent Licensed Software or any Intellectual Property Rights embodied therein.
6

Section 3.6    Parent’s Rights to Use SpinCo Licensed Patents and SpinCo Licensed Other IP. Subject to the terms and conditions of this Agreement, with respect to the SpinCo Licensed Patents and SpinCo Licensed Other IP, (x) to the extent such SpinCo Licensed IP constitutes Parent-Contributed IP, Parent, on behalf of itself and the other members of the Parent Group, hereby reserves, effective as of the Assignment Time, and OpCo hereby acknowledges and accepts the reservation of, and (y) to the extent such SpinCo Licensed IP constitutes SpinCo-Owned IP, OpCo, on behalf of itself and the other SpinCo Licensors, agrees to grant, and hereby grants, effective as of immediately prior to the Distribution, in each case, a nonexclusive, nontransferable (except as set forth in Section 5.1), sublicensable (in accordance with Section 4.2), perpetual, irrevocable, worldwide, fully paid, royalty-free license in favor of the Parent Group:
(a)    under such SpinCo Licensed Patents, to make, have made, import, use, offer to sell, sell and otherwise provide any Parent Product, including to practice any method, process or procedure claimed in any of the SpinCo Licensed Patents, in each case solely in the Parent Field;
(b)    under such SpinCo Licensed Patents, to make, have made, import, use, offer to sell, sell and otherwise provide any European Product, including to practice any method, process or procedure claimed in any of the SpinCo Licensed Patents, in each case solely in the European Field; and
(c)    under such SpinCo Licensed Other IP, to use, reproduce, distribute, disclose, make, modify, improve, display and perform, create derivative works of, or otherwise exploit the Parent Technology in any field; provided that the foregoing license does not extend to the Spinco Licensed Software (other than Shared Software) or any Intellectual Property Rights embodied therein.
ARTICLE IV
LICENSE LIMITATIONS
Section 4.1    Rights of Subsidiaries.
(a)    All rights, licenses and sublicenses granted to OpCo in Section 3.1, Section 3.2 and Section 3.5, and all rights and licenses granted to or reserved by Parent, as applicable, in Section 3.3 and Section 3.6(b), are granted to or reserved by such Party as Licensee and to or on behalf of any entity that is a Subsidiary of such Party, but only for so long as such entity is a Subsidiary of such Party, and they will automatically terminate with respect to such entity when it ceases to be a Subsidiary of such Party, except in the case of a Spin-Out of such entity as provided in Section 4.1(b).
(b)    In the event of a transaction or series of related transactions in which (i) an entity that is a Subsidiary of a Party actively engaged in a line of business ceases to be a Subsidiary of such Party or (ii) Parent sells or divests a business unit or assets to which the licenses in Article III (or part thereof) relate (such transaction in clause (i) or clause (ii), a “Spin-Out”), such spun-out entity may retain (by way of a sublicense), and the acquiror of such business unit or assets of Parent will receive (in whole or in part), any licenses granted or sublicensed to, or reserved by or on behalf of, such entity or business unit hereunder, but only with respect to the line of business that such entity or business unit is engaged in at the effective time of such Spin-Out (and not to any products of an acquirer of such entity or business unit); provided that such entity in the case of clause (i) or its successor provides the Licensor hereunder with written notice of the Spin-Out and agrees in writing to be bound by the terms of this Agreement, including any license limitations. If such entity resulting from, or in connection
7

with, the Spin-Out is acquired by, or merges with, a third party, such sublicense will not extend to any products, business or operations of such third party.
Section 4.2    Sublicensing.
(a)    Where a license granted to or reserved by a Party as a Licensee in
Article III includes a license to distribute Software, such Licensee may, in connection with such distribution to an end user, grant to the end user a sublicense to such Software pursuant to an industry-standard, object code only, nonexclusive license.
(b)    Each Party, as a Licensee, may sublicense the license and rights granted to or reserved by such Licensee with respect to Other IP in Section 3.5 and Section 3.6(c), respectively, and, in the case of Parent, with respect to the SpinCo Licensed Patents in Section 3.6(a) and Section 3.6(b), freely to a third party in connection with the operation of such Licensee’s business in the ordinary course or to such entity resulting from a Spin-Out, including in connection with the licensing of its products and services; provided that each Party shall treat any material Trade Secrets or confidential information that embodies, or is, licensed to it hereunder in the same manner, and with the same degree of care, that it treats its own like confidential information and Trade Secrets and in accordance with applicable Law, but in no event with less than reasonable care, and neither Party shall disclose such Trade Secrets or confidential information to a third party, except in connection with the disclosure of such Party’s own confidential information or Trade Secrets of at least comparable importance and value.
(c)    Except as provided in Section 4.1(b) and Section 4.2(a), neither Party, as a Licensee, will be permitted to sublicense or disclose the source code for the Licensed Software to any third party.
Section 4.3    No Other Rights; Retained Ownership.
(a)    Each Party acknowledges and agrees that (i) its rights and licenses to the other Party’s Intellectual Property Rights are solely as set forth in, and as may be limited by, this Agreement and (ii) neither Party has, nor will it claim to have, any rights or licenses to the other Party’s Intellectual Property Rights as a result of its status as a Subsidiary of such other Party or otherwise. Each Party shall retain all rights, including all Intellectual Property Rights, in and to any improvement to, or derivative works of, any Technology or Software licensed to it hereunder, and it shall have no obligation to provide or disclose such improvements or derivative works to the other Party.
(b)    Notwithstanding anything to the contrary set forth in this Agreement, this Agreement grants to the Parent Group no right or license to any Intellectual Property Rights that any members of the SpinCo Group may own now or in the future, except as expressly set forth in Section 3.3 and Section 3.6, whether by implication, estoppel or otherwise.
(c)    Notwithstanding anything to the contrary set forth in this Agreement, this Agreement grants to SpinCo Licensees no right or license to any Intellectual Property Rights that Parent Licensors may own now or in the future, except as expressly set forth in Section 3.1 and Section 3.5, and, whether by implication, estoppel or otherwise. For the avoidance of doubt, Parent Licensors retain sole ownership of Intellectual Property Rights licensed by the Parent Licensors under this Agreement.
Section 4.4    Delivery. Promptly following the date hereof, Parent shall provide or cause to be provided the Parent Licensed Software to the SpinCo Licensees in all existing forms, including in source code or modifiable form.
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Section 4.5    Open Source. The Parties acknowledge that certain Software licensed hereunder may include Open Source Software and that any use or distribution of such Software shall be subject to the terms and requirements of the license applicable to such Open Source Software. Neither Party shall use Open Source Software in connection with the Software licensed to it hereunder in a manner that would subject such Software to the terms of a license under which a component of Open Source Software is licensed (an “Open Source License”).
Section 4.6    Treatment of Source Code. Each Party, as a Licensee, acknowledges and agrees that the source code of the Licensed Software licensed to such Party as Licensee is the confidential information of the other Party as Licensor under the terms of Section 6.2 and shall in addition be subject to the terms of this Section 4.6. Each Party, as a Licensee, shall limit access to the source code of the Licensed Software to its employees who have a need to access the source code for the purposes of exercising Licensee’s rights under this Agreement. Each Party, as a Licensee, shall use reasonable commercial efforts to protect the confidentiality of the source code of the Licensed Software, including, without limitation, securing the network, server, hard drives and other media on which the source code is stored or maintained.
Section 4.7    Source Code Restrictions. Without limiting Section 4.6, each Party, as a Licensee, acknowledges and agrees that the source code of the Licensed Software licensed to such Party as Licensee is subject to the following restriction: except as expressly licensed herein, any use or distribution of such Licensed Software that requires the source code of the Licensed Software to be made available to anyone but the Licensee is expressly prohibited. Such prohibited use includes, but is not limited to, the incorporation of such source code of the Licensed Software into Software licensed under an Open Source License.
ARTICLE V
TRANSFERABILITY
Section 5.1    Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties, and their respective successors and permitted assigns; provided, however, that, except as provided in Section 4.1 and Section 5.3, neither Party may assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other Party (the “Non-Acquired Party”) hereto, as applicable. Notwithstanding the foregoing, subject to Section 5.2, no such consent shall be required for the assignment or assumption of a Party’s rights and obligations under this Agreement, the Separation Agreement and the other Ancillary Agreements (except as may be otherwise provided in the Separation Agreement or any such Ancillary Agreement) in whole (i.e., the assignment of a Party’s rights and obligations under this Agreement, the Separation Agreement and the other Ancillary Agreements all at the same time) in connection with a Change of Control of a Party (such party, the “Acquired Party”); provided that the resulting, surviving or transferee Person (the “Acquiring Party”) (a) assumes all of the obligations of the Acquired Party by operation of Law or by express assignment, as the case may be, and (b) delivers to the Non-Acquired Party, prior to or concurrently with the consummation of such Change of Control, a writing executed by the Acquiring Party prior to the consummation of any transaction resulting in a Change of Control, an express acknowledgement regarding the limitations on the licenses granted to or reserved by, as applicable, the Acquired Party as a result of such Change of Control. Any purported assignment in violation of this Section 5.1 shall be null and void.
Section 5.2    Limitations on Change of Control. In the event of a Change of Control where OpCo is the Acquired Party as set forth in Section 5.1: (i) the license set forth in Section 3.1 to Parent Licensed Software shall automatically become limited and shall not extend to (x) any product or service of the Acquiring Party or its Affiliates (other than SpinCo Licensees) that is sold, distributed, provided or otherwise commercialized at any time or (y) any
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product or service of SpinCo Licensees other than such products and services sold by SpinCo Licensees as of the date of the agreement providing for such Change of Control of OpCo (and natural extensions of such products and services) and (ii) the licenses hereunder granted to or reserved by and on behalf of, as applicable, the Parent Group shall continue in accordance with the terms of this Agreement and shall not otherwise be affected by the Change of Control of OpCo.
Section 5.3    Divestiture of Parent Business Unit. The Parties agree that upon the closing of a transaction or series of related transactions in which Parent or the other members of the Parent Group undergo a Change of Control (whether by stock purchase, merger or asset sale) to a third party or in which Parent sells or divests all or a significant portion of a business unit or assets (including equity interests) to which any such license (or part thereof) relates, Parent shall have the right to transfer, or permit the assumption of, this Agreement or any rights or licenses of Parent or its Subsidiaries hereunder, in whole or in part, by operation of Law or by express assignment, as the case may be, and this Agreement shall survive, in connection with such transaction; provided that such transfer or assumption shall not in any way limit either Parent’s and its Subsidiaries’ or OpCo’s and its Subsidiaries’ rights and licenses hereunder.
ARTICLE VI
ADDITIONAL TERMS
Section 6.1    Bankruptcy Rights. All rights and licenses granted to or reserved by a Party as Licensee hereunder are, for purposes of Section 365(n) of the United States Bankruptcy Code (the “Bankruptcy Code”), licenses of intellectual property rights within the scope of Section 101 of the Bankruptcy Code. The Licensor acknowledges that the Licensee, as a licensee of such rights and licenses hereunder, will retain and may fully exercise all of its rights and elections under the Bankruptcy Code. Each Party irrevocably waives all arguments and defenses arising under 11 U.S.C. § 365(c)(1) or successor provisions to the effect that applicable Law excuses such Party from accepting performance from or rendering performance to an entity other than the debtor or debtor-in-possession as a basis for opposing assumption of this Agreement in a case under Chapter 11 of the Bankruptcy Code to the extent that such consent is required under 11 U.S.C. § 365(c)(1) or any successor statute.
Section 6.2    Confidentiality. Notwithstanding the transfer or disclosure of any Technology or grant or reservation of any license to a Trade Secret or other proprietary right in confidential information to or by a Party hereunder, each Party agrees on behalf of itself and its Subsidiaries that (a) it (and each of its Subsidiaries) shall treat the Trade Secrets and confidential information of the other Party with at least the same degree of care as they treat their own similar Trade Secrets and confidential information, but in no event with less than reasonable care, and (b) neither Party (nor any of its Subsidiaries) may use or disclose the Trade Secrets or confidential information, as applicable, licensed or disclosed to it by the other Party under this Agreement, except in accordance with their respective license granted or reserved in Article III. Nothing herein will limit either Party’s ability to enforce its rights against any third party that misappropriates or attempts to misappropriate any Trade Secrets or confidential information from it, regardless of whether it is an owner or licensee of such Trade Secrets or confidential information.
ARTICLE VII
NO REPRESENTATIONS OR WARRANTIES
Section 7.1    NO OTHER REPRESENTATIONS OR WARRANTIES. ALL LICENSES AND RIGHTS GRANTED OR RESERVED HEREUNDER ARE GRANTED OR RESERVED ON AN AS-IS BASIS WITHOUT REPRESENTATION OR WARRANTY OF
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ANY KIND. NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, WHETHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, CUSTOM, TRADE, NONINFRINGEMENT, NON-VIOLATION OR NON-MISAPPROPRIATION OF THIRD-PARTY INTELLECTUAL PROPERTY, ARE MADE OR GIVEN BY OR ON BEHALF OF A PARTY. ALL SUCH REPRESENTATIONS AND WARRANTIES, WHETHER ARISING BY OPERATION OF LAW OR OTHERWISE, ARE HEREBY EXPRESSLY EXCLUDED.
Section 7.2    General Disclaimer. Nothing contained in this Agreement shall be construed as:
(a)    a warranty or representation by either Party as to the validity, enforceability or scope of any Intellectual Property Rights;
(b)    an agreement by either Party to maintain any Intellectual Property Rights in force;
(c)    an agreement by either Party to bring or prosecute actions or suits against any third party for infringement of Intellectual Property Rights or any other right, or conferring upon either Party any right to bring or prosecute actions or suits against any third party for infringement of Intellectual Property Rights or any other right;
(d)    conferring upon either Party any right to use in advertising, publicity or otherwise any trademark, trade name or names, or any contraction, abbreviation or simulations thereof, of the other Party;
(e)    conferring upon either Party by implication, estoppel or otherwise any license or other right, except the licenses and rights expressly granted or reserved hereunder; or
(f)    except as may be provided in the Separation Agreement or the other Ancillary Agreements, an obligation to provide any technical information, know-how, consultation, technical services or other assistance or deliverables to the other Party.
Section 7.3    Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL OR PUNITIVE DAMAGES ARISING FROM THIS AGREEMENT.
ARTICLE VIII
TERM
Section 8.1    Term and Termination. The term of this Agreement shall commence on the date hereof and shall continue until the expiration of the last to expire of the Intellectual Property Rights licensed under this Agreement; provided that the term of the Patent licenses granted or reserved, as applicable, pursuant to Section 3.6(a) and Section 3.6(b) shall end upon the expiration of the last SpinCo Licensed Patent. The transfers, assignments, conveyances and licenses granted or reserved in this Agreement are irrevocable and cannot be earlier terminated. Each Party acknowledges and agrees that its sole remedies for breach by the other Party of the licenses granted or reserved hereunder, or of any other provision hereof, shall be to bring a claim to recover damages and to seek appropriate equitable relief, subject to the restriction in the following sentence. Each Party agrees that the transfers, assignments, conveyances and licenses such Party grants or makes to the other Party shall continue in full force and effect, notwithstanding any breach of or default under any term hereof by the other Party, and in no event shall such Party, directly or indirectly, seek to have this Agreement
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(including any of the rights or licenses granted by such Party herein) rescinded, revoked or otherwise terminated, in part or in whole, or seek to enjoin the lawful exercise of any rights or licenses granted or made by such Party hereunder or take any similar action.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1    Transfer of IPR. Nothing set forth herein shall restrict either Party from transferring, assigning or licensing any Intellectual Property Rights owned by it and licensed to the other Party hereunder; provided that any transfer or assignment of any Intellectual Property Rights licensed to a Party hereunder shall be subject to the licenses granted or reserved, as applicable, in this Agreement, and the proposed transferee or assignee shall provide written acknowledgment that the Intellectual Property Rights such proposed transferee or assignee is acquiring are subject to the licenses granted or reserved, as applicable, in this Agreement.
Section 9.2    Entire Agreement. This Agreement, the Separation Agreement, the other Ancillary Agreements and the Exhibits, Schedules and Appendices hereto and thereto contain the entire agreement between the Parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter, and there are no agreements or understandings between the Parties other than those set forth or referred to herein or therein. In the event of any conflict between the terms of this Agreement and the Separation Agreement or any other Ancillary Agreement, the terms of this Agreement shall prevail. This Agreement, the Separation Agreement, the other Ancillary Agreements together govern the arrangements in connection with the Separation and the Distribution and would not have been entered into independently.
Section 9.3    Amendment and Waivers. No provisions of this Agreement shall be deemed waived, amended, supplemented or modified by a Party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the Party against whom it is sought to enforce such waiver, amendment, supplement or modification. Waiver by a Party of any default by the other Party of any provision of this Agreement shall not be deemed a waiver by the waiving Party of any subsequent or other default, nor shall it prejudice the rights of the other Party. No failure or delay by a Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof, nor shall a single or partial exercise thereof prejudice any other or further exercise thereof or the exercise of any other right, power or privilege.
Section 9.4    Third-Party Beneficiaries. The provisions of this Agreement are solely for the benefit of the Parties and are not intended to confer in or on behalf of any Person, except the Parties (and their successors and assigns), any rights, benefits, causes of action or remedies hereunder, and there are no Third Party beneficiaries of this Agreement, and this Agreement shall not provide any Third Party with any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.
Section 9.5    Other Remedies. Except to the extent set forth otherwise herein, any and all remedies herein expressly conferred upon a Party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by Law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude the exercise of any other remedy. It is accordingly agreed that, subject to Section 8.1, the Parties will be entitled (in addition to any other remedy that may be available to it) to an injunction or injunctions to prevent breaches or threatened breaches of this Agreement and to enforce specifically the terms and provisions hereof and that no Party shall be required to provide any bond or other security in connection with any such decree, order or injunction or in connection with any related action.
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Section 9.6    Notices. All notices, requests, claims, demands or other communications under this Agreement shall be in writing and shall be given or made (and except as provided herein, shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by certified mail, return receipt requested or by electronic mail (“e-mail”), so long as confirmation of receipt of such e-mail is requested and received, to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 9.6):
(a)if to OpCo:
[●]
[●]
Attention:[●]
Email: [●]
with a copy (which shall not constitute notice) to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Scott Barshay
Steve J. Williams
Email: sbarshay@paulweiss.com
swilliams@paulweiss.com
(b)if to Parent:
XPO Logistics, Inc.
Five American Lane
Greenwich, Connecticut 06831
Attention: Chief Financial Officer, Ravi Tulsyan
Email: [●]
with a copy (which shall not constitute notice) to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Scott Barshay
Steve J. Williams
Email: sbarshay@paulweiss.com
swilliams@paulweiss.com
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A Party may, by notice to the other Party, change the address to which such notices are to be given or made.
Section 9.7    Governing Law; Waiver of Jury Trial.
(a)    This Agreement (and any claims or disputes arising out of or related hereto or to the transactions contemplated hereby or to the inducement of any party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed by and construed and interpreted in accordance with the Laws of the State of Delaware irrespective of the choice of laws principles of the State of Delaware, including all matters of validity, construction, effect, enforceability, performance and remedies.
(b)    EACH PARTY TO THIS AGREEMENT WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR THE ADMINISTRATION THEREOF OR ANY OF THE SERVICES OR OTHER TRANSACTIONS CONTEMPLATED HEREIN. NO PARTY TO THIS AGREEMENT SHALL SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER LITIGATION PROCEDURE BASED UPON, OR ARISING OUT OF, THIS AGREEMENT OR RELATED INSTRUMENTS. NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION IN WHICH A JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. EACH PARTY TO THIS AGREEMENT CERTIFIES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS SET FORTH ABOVE IN THIS Section 9.7. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE PROVISIONS OF THIS Section 9.7 WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
Section 9.8    Relationship of the Parties. Nothing contained herein shall be deemed to create a partnership, joint venture or similar relationship between the Parties. Neither Party is the agent, employee, joint venturer, partner, franchisee or representative of the other Party. Each Party specifically acknowledges that it does not have the authority to, and shall not, incur any obligations or responsibilities on behalf of the other Party. Notwithstanding anything to the contrary in this Agreement, each Party (and its officers, directors, agents, employees and members) shall not hold themselves out as employees, agents, representatives or franchisees of the other Party or enter into any agreements on such Party’s behalf.
Section 9.9    Interpretation. In this Agreement: (a) words in the singular shall be deemed to include the plural and vice versa and words of one gender shall be deemed to include the other genders as the context requires; (b) the terms “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Schedules, Exhibits and Appendices hereto) and not to any particular provision of this Agreement; (c) Article, Section, Schedule, Exhibit and Appendix references are to the Articles, Sections, Schedules, Exhibits and Appendices to this Agreement, unless otherwise specified; (d) unless otherwise stated, all references to any agreement (including this Agreement, the Separation Agreement and any other Ancillary Agreement) shall be deemed to include the exhibits, schedules and annexes (including all Schedules, Exhibits and Appendixes) to such agreement; (e) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) unless otherwise specified in a particular case, the word “days” refers to calendar days; (h) references to “business day” shall mean any day other than a Saturday, a Sunday or a day on which banking institutions are
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generally authorized or required by law to close in the United States or New York, New York; (i) references herein to this Agreement or any other agreement contemplated herein shall be deemed to refer to this Agreement or such other agreement as of the date on which it is executed and as it may be amended, modified or supplemented thereafter, unless otherwise specified; and (j) unless expressly stated to the contrary in this Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to [●], 2022.
Section 9.10    Severability. If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby. Upon such determination, the Parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the Parties.
Section 9.11    Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Party.

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IN WITNESS WHEREOF, the Parties have caused this Intellectual Property License Agreement to be executed by their duly authorized representatives as of the date first written above.
XPO LOGISTICS, INC.
By:
Name:
Title:
[___________________]
By:
Name:
Title:
[Signature Page to the Intellectual Property License Agreement]
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RXO, INC.
RXO, Inc., a corporation organized and existing under the laws of the State of Delaware, pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, as it may be amended and supplemented (the “DGCL”), hereby certifies as follows:
1.The corporation was originally formed as a limited liability company in the State of Delaware on May 5, 2022. The corporation converted from a limited liability company to a corporation on [l], 2022 upon the filing of a Certificate of Conversion with the Secretary of State of the State of Delaware. The original Certificate of Incorporation was filed with the Secretary of the State of Delaware on [l], 2022 (as amended and in effect immediately prior to the adoption and effectiveness hereof, the “Original Certificate of Incorporation”).
2.This Amended and Restated Certificate of Incorporation, which restates, integrates and further amends the Original Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the DGCL and by the written consent of its sole stockholder in accordance with Section 228 of the DGCL, and is to become effective as of 11:59 PM, Eastern Time, on [l], 2022.
3.The Original Certificate of Incorporation is hereby amended and restated in its entirety to read as follows:
ARTICLE I
NAME OF CORPORATION
The name of the corporation is RXO, Inc. (the “Corporation”).
ARTICLE II
REGISTERED OFFICE; REGISTERED AGENT
The address of the Corporation’s registered office in the State of Delaware is 838 Walker Road, Suite 21-2 in the City of Dover, County of Kent, State of Delaware, 19904. The name of the Corporation’s registered agent at such address is Registered Agent Solutions, Inc. The Corporation may have such other offices, either within or without the State of Delaware, as the Board of Directors of the Corporation (the “Board of Directors”) may designate or as the business of the Corporation may from time to time require.
ARTICLE III
PURPOSE
The nature of the business of the Corporation and its purpose is to engage in any lawful act or activity for which corporations may be organized and incorporated under the DGCL.


ARTICLE IV
STOCK
Section 1.    Authorized Stock. The total number of authorized shares of capital stock of the Corporation shall be [l] ([l]) shares, which shall be divided into two classes as follows: (a) [l] ([l]) shares of common stock par value $0.01 per share (the “Common Stock”) and (b) [l]) shares of preferred stock par value $0.01 per share (the “Preferred Stock”).
Section 2.    Common Stock.
(a)    Except as otherwise provided by law, by this Amended and Restated Certificate of Incorporation, or by the resolution or resolutions adopted by the Board of Directors designating the rights, powers and preferences of any series of Preferred Stock, the holders of outstanding shares of Common Stock shall have the right to vote on all matters, including the election of directors, to the exclusion of all other stockholders, and holders of Preferred Stock shall not be entitled to receive notice of any meeting of stockholders at which they are not entitled to vote (except where otherwise provided in the certificate of designations governing such series). Each holder of record of Common Stock shall be entitled to one vote for each share of Common Stock standing in the name of the stockholder on the books of the Corporation.
(b)    Subject to any rights granted to holders of shares of any class or series of Preferred Stock then outstanding, the holders of shares of Common Stock shall be entitled to receive such dividends and other distributions in cash, property, stock or otherwise as may be declared thereon by the Board of Directors at any time and 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 such dividends and distributions.
(c)    In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, and subject to any rights granted to holders of shares of any class or series of Preferred Stock then outstanding, the holders of shares of Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them.
Section 3.    Preferred Stock. Shares of Preferred Stock may be authorized and issued in one or more series. The Board of Directors (or any committee to which it may duly delegate the authority granted in this Article IV) is hereby empowered, by resolution or resolutions, to authorize the issuance from time to time of shares of Preferred Stock in one or more series, for such consideration and for such corporate purposes as the Board of Directors (or such committee thereof) may from time to time determine, and by filing a certificate pursuant to applicable law of the State of Delaware as it presently exists or may hereafter be amended to establish from time to time for each such series the number of shares to be included in each such series and to fix the designations, powers, rights and preferences of the shares of each such series, and the qualifications, limitations and restrictions thereof to the fullest extent now or hereafter permitted by this Amended and Restated Certificate of Incorporation and the laws of the State of Delaware, including, without limitation, voting rights (if any), dividend rights, dissolution rights, conversion rights, exchange rights and redemption rights thereof, as shall be stated and expressed in a resolution or resolutions adopted by the Board of Directors (or such committee thereof) providing for the issuance of such series of Preferred Stock. Each series of Preferred Stock shall be distinctly designated.
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The authority of the Board with respect to each series of Preferred Stock shall include, but not be limited to, determination of the following:
(a)    the designation of the series, which may be by distinguishing number, letter or title;
(b)    the number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the certificate of designations governing such series) increase or decrease (but not below the number of shares thereof then outstanding);
(c)    the amounts payable on, and the preferences, if any, of shares of the series in respect of dividends, and whether such dividends, if any, shall be cumulative or noncumulative;
(d)    the dates at which dividends, if any, shall be payable;
(e)    the redemption rights and price or prices, if any, for shares of the series;
(f)    the terms and amount of any sinking fund provided for purchase or redemption of shares of the series;
(g)    the amounts payable on, and the preferences, if any, of shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation;
(h)    whether the shares of the series shall be convertible into or exchangeable for shares of any other class or series, or any other security, of the Corporation or any other corporation, and, if so, the specification of such other class or series or such other security, the conversion or exchange price or prices or rate or rates, any adjustments thereof, the date or dates at which such shares shall be convertible or exchangeable and all other terms and conditions upon which such conversion or exchange may be made;
(i)    the restrictions on the issuance of shares of the same series or of any other class or series; and
(j)    the voting rights, if any, of the holders of shares of the series.
The Corporation shall be entitled to treat the person in whose name any share of its stock is registered as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not the Corporation shall have notice thereof, except as expressly provided by applicable law.
ARTICLE V
TERM
The term of existence of the Corporation shall be perpetual.
ARTICLE VI
BOARD OF DIRECTORS
Section 1.    Number of Directors. Subject to any rights of the holders of any class or series of Preferred Stock to elect additional directors under specified circumstances, the number of directors which shall constitute the Board of Directors shall be fixed from time to time
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exclusively pursuant to a resolution adopted by the Board of Directors, but shall consist of at least one (1) member and no more than twelve (12) directors.
Section 2.    Classification; Election of Directors. The directors of the Corporation shall be divided, with respect to the time for which they severally hold office, into three classes designated Class I, Class II and Class III. The initial assignment of directors already in office at the effective time of this Amended and Restated Certificate of Incorporation to their respective classes shall be made by the Board of Directors. Each class shall consist, as nearly as possible, of one-third of the total number of directors. Class I directors shall initially serve for a term expiring at the 2023 annual meeting of stockholders, Class II directors shall initially serve for a term expiring at the 2024 annual meeting of stockholders, and Class III directors shall initially serve for a term expiring at the 2025 annual meeting of stockholders. Directors of each class shall hold office until the annual meeting at which his or her term expires and until his or her successor shall be elected and qualified, or his or her death, resignation, retirement, disqualification or removal from office. At the 2023 annual meeting of stockholders, the directors whose terms expire at that meeting will be elected for a three-year term expiring at the 2026 annual meeting of stockholders and until their respective successors shall have been duly elected and qualified or until their earlier resignation or removal; at the 2024 and 2025 annual meetings of stockholders, the directors whose terms expire at such meetings shall be elected to hold office for a one-year term expiring, respectively, at the 2025 and 2026 annual meetings of stockholders and until their respective successors shall have been duly elected and qualified or until their earlier resignation or removal (for the avoidance of doubt, at the 2025 annual meeting the Class II directors shall be elected to hold office for a one-year term expiring at the 2026 annual meeting of stockholders); and at the 2026 annual meeting of stockholders and each annual meeting of stockholders thereafter, all directors shall be elected to hold office for a one-year term expiring at the next annual meeting of stockholders and until their respective successors shall have been duly elected and qualified or until their earlier resignation or removal. Pursuant to such procedures, effective as of the conclusion of the 2026 annual meeting of stockholders (the “Declassification Time”), the Board of Directors will no longer be classified under Section 141(d) of the DGCL and directors shall no longer be divided into three classes. Prior to the Declassification Time, if the number of directors is changed, any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as practicable, but in no case will a decrease in the number of directors shorten the term of any incumbent director. Unless and except to the extent that the Amended and Restated Bylaws of the Corporation (as amended, restated or otherwise modified from time to time, the “Bylaws”) shall so require, the election of directors of the Corporation need not be by written ballot.
Section 3.    Newly Created Directorships and Vacancies. Subject to applicable law and the rights of the holders of any series of Preferred Stock with respect to such series of Preferred Stock, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, or the sole remaining director and directors so chosen shall hold office until such director’s successor has been duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. No decrease in the number of authorized directors constituting the total number of directors that the Corporation would have if there were no vacancies shall shorten the term of any incumbent director.
Section 4.    Removal of Directors. Prior to the Declassification Time, any director, or the entire Board of Directors, 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 shares of capital stock of the Corporation entitled to vote generally for the election of directors (the
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“Voting Stock”) at a meeting called for that purpose. From and after the Declassification Time, any director may be removed from office at any time with or without cause, but only by the affirmative vote of the holders of a majority of the Voting Stock at a meeting called for that purpose.
Section 5.    Rights of Holders of Preferred Stock. Notwithstanding the provisions of this Article VI, whenever the holders of one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately or together by 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 directorship shall be governed by the rights of such Preferred Stock as set forth in the certificate of designations governing such series.
Section 6.    No Cumulative Voting. Except as may otherwise be set forth in the resolution or resolutions of the Board of Directors providing the issuance of a series of Preferred Stock, and then only with respect to such series of Preferred Stock, cumulative voting in the election of directors is specifically denied.
Section 7.    Stockholder Business. Advance notice of stockholder nominations for the election of directors and of any stockholder proposals to be considered at any annual or special stockholder meeting shall be given in the manner provided in the Bylaws.
ARTICLE VII
STOCKHOLDER ACTION
Section 1.    Special Meetings of Stockholders. Special meetings of the stockholders may only be called only by or at the direction of (1) the Chairman of the Board of Directors, or (2) the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies, and any power of stockholders to call a special meeting is specifically denied. At any special meeting of stockholders, only such business shall be conducted or considered as shall have been properly brought before the meeting pursuant to the Corporation’s notice of meeting.
Section 2.    Stockholder Action by Written Consent. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
ARTICLE VIII
DIRECTOR AND OFFICER LIABILITY
To the fullest extent permitted by the DGCL, as the same exists or may hereafter be amended, a director or officer of the Corporation shall not be personally liable either to the Corporation or to any of its stockholders for monetary damages arising from a breach of fiduciary duty owed to the Corporation or its stockholders. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director or officer of the Corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal. If the DGCL hereafter is amended to further eliminate or limit the liability of a director or officer, then a director or officer of the Corporation, in addition to the circumstances in which a director is not personally liable as set forth in the preceding sentence, shall not be liable to the fullest extent permitted by the amended DGCL.
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ARTICLE IX
INDEMNIFICATION
Section 1.    In General. Each person who was or is a party or is otherwise threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter, a “Proceeding”), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was, at any time during which this Article IX is in effect (whether or not such person continues to serve in such capacity at the time any indemnification or advancement of expenses pursuant hereto is sought or at the time any Proceeding relating thereto exists or is brought), a director or officer of the Corporation or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the Corporation (hereinafter, a “Covered Person”), shall be (and shall be deemed to have a contractual right to be) indemnified and held harmless by the Corporation (and any successor of the Corporation by merger or otherwise) to the fullest extent authorized by the DGCL as the same exists or may hereafter be amended or modified from time to time (but, in the case of any such amendment or modification, only to the extent that such amendment or modification permits the Corporation to provide greater indemnification rights than said law permitted the Corporation to provide prior to such amendment or modification), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person in connection with such Proceeding if the person acted in good faith and in a manner 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 or her conduct was unlawful. The termination of any 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 the person 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 the person’s conduct was unlawful. Such indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation or ceased serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the Corporation, and shall inure to the benefit of his or her heirs, executors and administrators; provided that, except as provided in Section 3 of this Article IX, the Corporation shall indemnify any such person seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the Board of Directors.
Section 2.    Advance of Expenses. To the fullest extent authorized by the DGCL as the same exists or may hereafter be amended or modified from time to time (but, in the case of any such amendment or modification, only to the extent that such amendment or modification permits the Corporation to provide greater rights to advancement of expenses than said law permitted the Corporation to provide prior to such amendment or modification), each Covered Person shall have (and shall be deemed to have a contractual right to have) the right, without the need for any action by the Board of Directors, to be paid by the Corporation (and any successor of the Corporation by merger or otherwise) the expenses incurred in connection with defending any Proceeding in advance of its final disposition (as defined below), such advances to be paid by the Corporation within twenty (20) days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided that if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not, except to the extent specifically required by applicable law, in any other capacity in which service was or is rendered by such
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person while a director or officer, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter, the “Undertaking”) by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal (a “final disposition”) that such director or officer is not entitled to be indemnified for such expenses under this Article IX or otherwise.
Section 3.    Right of Claimant to Bring Suit. If a claim for indemnification under this Article IX is not paid in full by the Corporation within thirty (30) days after a written claim therefor by a Covered Person has been received by the Corporation, or if a request for advancement of expenses under Section 2 of this Article IX is not paid in full by the Corporation within twenty (20) days after a statement pursuant to Section 2 of this Article IX and the required Undertaking, if any, have been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim for indemnification or request for advancement of expenses, as applicable, and, if successful, in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action that, under the DGCL, the claimant has not met the standard of conduct which makes it permissible for the Corporation to indemnify the claimant for the amount claimed or that the claimant is not entitled to the requested advancement of expenses, but (except where the required Undertaking, if any, has not been tendered to the Corporation) the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Disinterested Directors (as defined in the Bylaws), Independent Counsel (as defined in the Bylaws) or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Disinterested Directors, Independent Counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
Section 4.    Contract Rights; Amendment and Repeal; Non-Exclusivity of Rights.
(a)    All of the rights conferred in this Article IX, as to indemnification, advancement of expenses and otherwise, shall be contract rights between the Corporation and each Covered Person to whom such rights are extended that vest at the commencement of such Covered Person’s service to or at the request of the Corporation and: (x) any amendment or modification of this Article IX that in any way diminishes or adversely affects any such rights shall be prospective only and shall not in any way diminish or adversely affect any such rights with respect to such person; and (y) all of such rights shall continue as to any such Covered Person who has ceased to be a director or officer of the Corporation or ceased to serve at the Corporation’s request as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, as described herein, and shall inure to the benefit of such Covered Person’s heirs, executors and administrators.
(b)    All of the rights conferred in this Article IX, as to indemnification, advancement of expenses and otherwise: (i) shall not be exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled or hereafter acquire under any statute, provision of the Certificate of Incorporation or the Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise both as to action in such person’s official capacity and as to action in another capacity while holding such office; and (ii) cannot be terminated or impaired by the Corporation, the Board of Directors or the stockholders of the Corporation with respect to a person’s service prior to the date of such termination.
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Section 5.    Insurance; Other Indemnification and Advancement of Expenses.
(a)    The Corporation may maintain insurance, at its expense, to protect itself and any current or former director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.
(b)    The Corporation may, to the extent authorized from time to time by the Board of Directors or the Chairman of the Board of Directors, grant rights to indemnification and rights to advancement of expenses incurred in connection with any Proceeding in advance of its final disposition, to any current or former officer, employee or agent of the Corporation to the fullest extent permitted by applicable law.
Section 6.    Severability. If any provision or provisions of this Article IX shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Article IX (including, without limitation, each portion of any paragraph of this Article IX 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 (2) to the fullest extent possible, the provisions of this Article IX (including, without limitation, each such portion of any paragraph of this Article IX containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
ARTICLE X
AMENDMENTS TO BYLAWS
In furtherance and not in limitation of the powers conferred by law, the Board of Directors is expressly authorized and empowered to adopt, amend, alter, change or repeal the Bylaws.
ARTICLE XI
AMENDMENTS
The Corporation reserves the right at any time to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, and any other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Amended and Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article.
ARTICLE XII
EXCLUSIVE FORUM
Unless the Corporation consents in writing to the selection of an alternative forum, the sole and exclusive forum for: (a) any derivative action or proceeding brought on behalf of the Corporation; (b) any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee or stockholder of the Corporation in such capacity to the Corporation or to the Corporation’s stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty; (c) any action asserting a claim against the Corporation or any current or former director or officer or other employee or stockholder of the Corporation in such capacity arising pursuant to any provision of the DGCL or
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this Amended and Restated Certificate of Incorporation or the Bylaws (as either may be amended from time to time); (d) any action asserting a claim related to or involving the Corporation that is governed by the internal affairs doctrine; or (e) any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL shall be a state court located within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware). The foregoing sentence shall not apply to claims arising under the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction.
Unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended.
* * * * * *
[Signature appears on next page]
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IN WITNESS WHEREOF, the undersigned has duly executed this Amended and Restated Certificate of Incorporation, this [●] day of [●], 2022.
RXO, INC.
By:
/s/ [l]
Name:
[l]
Title:
[l]
Exhibit 3.2

AMENDED AND RESTATED BYLAWS

OF

RXO, INC.

Incorporated under the Laws of the State of Delaware

Effective as of [_____], 2022


TABLE OF CONTENTS

Page
ARTICLE I OFFICES AND RECORDS
ARTICLE II STOCKHOLDERS
ARTICLE III BOARD OF DIRECTORS
ARTICLE IV OFFICERS
ARTICLE V STOCK CERTIFICATES AND TRANSFERS
ARTICLE VI INDEMNIFICATION
ARTICLE VII MISCELLANEOUS PROVISIONS
ARTICLE VIII CONTRACTS, PROXIES
ARTICLE IX AMENDMENTS
ARTICLE X CONSTRUCTION
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ARTICLE I

OFFICES AND RECORDS
SECTION 1.1    Delaware Office. The registered office of RXO, Inc. (the “Corporation”) shall be located at 838 Walker Road, Suite 21-2, Dover, Delaware 19904, County of Kent, and Registered Agent Solutions, Inc. shall be the registered agent of the Corporation in charge thereof. The registered office and registered agent may be changed by the Corporation from time to time.
SECTION 1.2    Other Offices. The Corporation may have such other offices, either inside or outside the State of Delaware, as the Board of Directors of the Corporation (the “Board of Directors” or the “Board”) may from time to time designate or as the business of the Corporation may require.
SECTION 1.3    Books and Records. Except to the extent otherwise required by law, the books and records of the Corporation may be kept inside or outside the State of Delaware at such place or places as may from time to time be designated by the Board of Directors.
ARTICLE II

STOCKHOLDERS
SECTION 2.1    Annual Meeting. The annual meeting of stockholders of the Corporation shall be held on such date and at such time and in such manner as may be fixed by resolution of the Board of Directors.
SECTION 2.2    Special Meeting. Special meetings of the stockholders may only be called by or at the direction of (1) the Chairman of the Board of Directors, or (2) the Board of Directors pursuant to a resolution adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies. The stockholders of the Corporation shall not have the power to call a special meeting of the stockholders of the Corporation or to request the Secretary of the Corporation to call a special meeting of the stockholders. Notice of every special meeting of the stockholders of the Corporation shall state the purpose or purposes of such meeting. Except as otherwise required by law, the business conducted at a special meeting of stockholders of the Corporation shall be limited exclusively to the business set forth in the Corporation’s notice of meeting, and the individual or group calling such meeting shall have exclusive authority to determine the business included in such notice. The Board may postpone, reschedule or cancel any special meeting of stockholders previously scheduled by the Board.
SECTION 2.3    Time and Place of Meeting. The Board of Directors or the Chairman of the Board, as the case may be, may designate the place, date and time of any annual or special meeting of the stockholders or may designate that the meeting be held by means of remote communication. If no designation is so made, the place of meeting shall be the principal office of the Corporation.
SECTION 2.4    Notice of Meeting. Written or printed notice, stating the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by the Corporation not less than ten (10) days nor more than sixty (60) days before the date of the meeting, either personally, by electronic transmission in the manner provided in
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Section 232 of the General Corporation Law of the State of Delaware (the “DGCL”) (except to the extent prohibited by Section 232(e) of the DGCL) or by mail, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. If notice is given by electronic transmission, such notice shall be deemed to be given at the times provided in the DGCL. Such further notice shall be given as may be required by applicable law. Meetings may be held without notice if all stockholders entitled to vote are present, or if notice is waived by those not present in accordance with Section 7.4 of these Bylaws. Any previously scheduled meeting of the stockholders may be postponed, and (unless the Certificate of Incorporation otherwise provides) any special meeting of the stockholders may be cancelled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders.
SECTION 2.5    Quorum and Adjournment. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the Voting Stock, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders, except that when specified business is to be voted on by a class or series of stock voting as a class, the holders of a majority of the shares of such class or series shall constitute a quorum of such class or series for the transaction of such business. The Chairman of the Board of Directors, the Chief Executive Officer or such other person as may be designated chairman of the meeting pursuant to Section 2.6 may adjourn the meeting from time to time, whether or not there is a quorum. No notice of the time and place, if any, of adjourned meetings need be given except as required by applicable law. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.6    Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, or in the absence of such a person, such person as the Board of Directors may designate as chairman of the meeting, or if none or in the Chairman of the Board’s absence or inability to act, the Chief Executive Officer, or if none or in the Chief Executive Officer’s absence or inability to act, the President, or if none or in the President’s absence or inability to act, a Vice President, or, if none of the foregoing is present or able to act, by a chairman to be chosen by the holders of a majority of the shares entitled to vote who are present in person or by proxy at the meeting. The Secretary, or in the Secretary’s absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the presiding officer of the meeting shall appoint any person present to act as secretary of the meeting. The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot.
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SECTION 2.7    Proxies and List of Stockholders.
(a)    Proxies. At all meetings of stockholders, a stockholder may vote by proxy executed in writing (or in such manner prescribed by the DGCL) by the stockholder, or by such stockholder’s duly authorized attorney in fact. No proxy may be voted or acted upon after the expiration of three (3) years from the date of such proxy, unless such proxy provides for a longer period. Every proxy is revocable at the pleasure of the stockholder executing it unless the proxy states that it is irrevocable and applicable law makes it irrevocable. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the Secretary.
(b)    List of Stockholders. A complete list of the stockholders entitled to vote at each meeting of stockholders, arranged in alphabetical order, and showing the address and number of shares registered in the name of each stockholder, shall be prepared and made available for examination during regular business hours by any stockholder for any purpose germane to the meeting. The list shall be available for such examination at the principal place of business of the Corporation for a period of not less than ten (10) days prior to the meeting and during the whole time of the meeting.
SECTION 2.8    Advance Notice of Stockholder Business and Nominations.
(a)    Annual Meeting of Stockholders. Without qualification or limitation, for any nominations or any other business to be properly brought before an annual meeting by a stockholder pursuant to Section 2.9(a) of these Bylaws, the stockholder must have given timely notice thereof (including, in the case of nominations, the completed and signed questionnaire, representation and agreement required by Section 2.10 of these Bylaws), and timely updates and supplements thereof, in each case in proper form, in writing to the Secretary, and such other business must otherwise be a proper matter for stockholder action.
To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred and twentieth (120th) day and not later than the close of business on the ninetieth (90th) day prior to the first (1st) anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date or if no annual meeting was held during the prior year, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred and twentieth (120th) day prior to the date of such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to the date of such annual meeting or, if the first Public Announcement of the date of such annual meeting is less than one hundred (100) days prior to the date of such annual meeting, the tenth (10th) day following the day on which Public Announcement of the date of such meeting is first made by the Corporation. In no event shall any adjournment or postponement of an annual meeting, or the Public Announcement thereof, commence a new time period for the giving of a stockholder’s notice as described above.
Notwithstanding anything in the immediately preceding paragraph to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased by the Board of Directors, and there is no Public Announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least one hundred (100) days prior to the first (1st) anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Section 2.8(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business
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on the tenth (10th) day following the day on which such Public Announcement is first made by the Corporation.
In addition, to be considered timely, a stockholder’s notice shall further be updated and supplemented, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting in the case of the update and supplement required to be made as of the record date, and not later than eight (8) business days prior to the date for the meeting or any adjournment or postponement thereof in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof. The obligation to update and supplement as set forth in this paragraph or any other Section of these Bylaws shall not limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines hereunder or enable or be deemed to permit a stockholder who has previously submitted notice hereunder to amend or update any proposal or to submit any new proposal, including by changing or adding nominees, matters, business and or resolutions proposed to be brought before a meeting of the stockholders.
(b)    Special Meetings of Stockholders. Only such business as shall have been brought before the special meeting of the stockholders pursuant to the Corporation’s notice of meeting shall be conducted at such meeting. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any stockholder may nominate an individual or individuals (as the case may be) for election to such position(s) as specified in the Corporation’s notice of meeting; provided that the stockholder gives timely notice thereof (including the completed and signed questionnaire, representation and agreement required by Section 2.10 of these Bylaws), and timely updates and supplements thereof in each case in proper form, in writing, to the Secretary.
To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred and twentieth (120th) day prior to the date of such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to the date of such special meeting or, if the first Public Announcement of the date of such special meeting is less than one hundred (100) days prior to the date of such special meeting, the tenth (10th) day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall any adjournment or postponement of a special meeting of stockholders, or the Public Announcement thereof, commence a new time period for the giving of a stockholder’s notice as described above.
In addition, to be considered timely, a stockholder’s notice shall further be updated and supplemented, if necessary, so that the information provided or required to be provided in such notice shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for the meeting in the case of the update and supplement required to be made as of the record date, and not later than eight (8) business days prior to the date for the meeting, any adjournment or postponement thereof in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof. The obligation to update and supplement as set forth in this paragraph or any other Section of these Bylaws shall not limit the Corporation’s rights with respect to any deficiencies in any notice provided by a stockholder, extend any applicable deadlines hereunder or enable or be deemed to permit a stockholder who
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has previously submitted notice hereunder to amend or update any proposal or to submit any new proposal, including by changing or adding nominees, matters, business and or resolutions proposed to be brought before a meeting of the stockholders.
(c)    Disclosure Requirements. To be in proper form, a stockholder’s notice pursuant to this Section 2.8 or Section 2.9 must include the following, as applicable:
(i)    As to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal, as applicable, is made, a stockholder’s notice must set forth:
(A)    the name and address of such stockholder, as they appear on the Corporation’s books, of such beneficial owner, if any, and of their respective affiliates or associates or others acting in concert therewith;
(B)    (1) the class or series and number of shares of the Corporation which are, directly or indirectly, owned beneficially and of record by such stockholder, such beneficial owner and their respective affiliates or associates or others acting in concert therewith, (2) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived, in whole or in part, from the value of any class or series of shares of the Corporation, or any derivative or synthetic arrangement having the characteristics of a long position in any class or series of shares of the Corporation, or any contract, derivative, swap or other transaction or series of transactions designed to produce economic benefits and risks that correspond substantially to the ownership of any class or series of shares of the Corporation, including due to the fact that the value of such contract, derivative, swap or other transaction or series of transactions is determined by reference to the price, value or volatility of any class or series of shares of the Corporation, whether or not such instrument, contract or right shall be subject to settlement in the underlying class or series of shares of the Corporation, through the delivery of cash or other property, or otherwise, and without regard to whether the stockholder of record, the beneficial owner, if any, or any affiliates or associates or others acting in concert therewith, may have entered into transactions that hedge or mitigate the economic effect of such instrument, contract or right, or any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation (any of the foregoing, a “Derivative Instrument”) directly or indirectly owned beneficially by such stockholder, the beneficial owner, if any, or any affiliates or associates or others acting in concert therewith, (3) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder, such beneficial owner or any of their respective affiliates or associates or others acting in concert therewith has any right to vote any class or series of shares of the Corporation, (4) any agreement, arrangement, understanding, relationship or otherwise, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, involving such stockholder, such beneficial owner or any of their respective affiliates or associates or others acting in concert therewith, directly or indirectly, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of the shares of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such stockholder, such beneficial owner or any of their respective affiliates or associates or others acting in concert therewith with respect to any class or series of the shares of the
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Corporation, or which provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any class or series of the shares of the Corporation (any of the foregoing, a “Short Interest”), (5) any rights to dividends on the shares of the Corporation owned beneficially by such stockholder, such beneficial owner or any of their respective affiliates or associates or others acting in concert therewith that are separated or separable from the underlying shares of the Corporation, (6) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder, such beneficial owner or any of their respective affiliates or associates or others acting in concert therewith is a general partner or, directly or indirectly, beneficially owns an interest in a general partner of such general or limited partnership, (7) any performance-related fees (other than an asset-based fee) that such stockholder, such beneficial owner or any of their respective affiliates or associates or others acting in concert therewith is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, including, without limitation, any such interests held by members of the immediate family sharing the same household of such stockholder, such beneficial owner and their respective affiliates or associates or others acting in concert therewith, (8) any significant equity interests or any Derivative Instruments or Short Interests in any principal competitor of the Corporation held by such stockholder, such beneficial owner or any of their respective affiliates or associates or others acting in concert therewith and (9) any direct or indirect interest of such stockholder, such beneficial owner and their respective affiliates or associates or others acting in concert therewith in any contract with the Corporation, any affiliate of the Corporation or any principal competitor of the Corporation (including, in any such case, any employment agreement, collective bargaining agreement or consulting agreement);
(C)    all information that would be required to be set forth in a Schedule 13D filed pursuant to Rule 13d-1(a) or an amendment pursuant to Rule 13d-2(a) if such a statement were required to be filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules and regulations promulgated thereunder by such stockholder, such beneficial owner and their respective affiliates or associates or others acting in concert therewith, if any; and
(D)    any other information relating to such stockholder, such beneficial owner or any of their respective affiliates or associates or others acting in concert therewith, if any, that would be required to be disclosed in a proxy statement and form or proxy or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder;
(ii)    If the notice includes any business other than a nomination of a director or directors that the stockholder proposes to bring before the meeting, a stockholder’s notice must, in addition to the matters set forth in subsection (i) above, also set forth: (A) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest of such stockholder, such beneficial owner and each of their respective affiliates or associates or others acting in concert therewith, if any, in such business; (B) the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such proposal or business includes a proposal to amend the Bylaws of the
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Corporation, the text of the proposed amendment); and (C) a description of all agreements, arrangements and understandings between such stockholder, such beneficial owner and each of their respective affiliates or associates or others acting in concert therewith, if any, and any other person or persons (including their names) in connection with the proposal of such business by such stockholder;
(iii)    As to each individual, if any, whom the stockholder proposes to nominate for election or reelection to the Board of Directors, a stockholder’s notice must, in addition to the matters set forth in subsection (i) above and subsection (v) below, also set forth: (A) all information relating to such individual 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 in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and (B) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three (3) years, and any other material relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant; and
(iv)    With respect to each individual, if any, whom the stockholder proposes to nominate for election or reelection to the Board of Directors, a stockholder’s notice must, in addition to the matters set forth in subsections (i) and (iii) above and subsection (v) below, also include the completed and signed questionnaire, representation and agreement required by Section 2.10 of these Bylaws. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee. Notwithstanding anything to the contrary, only persons who are nominated in accordance with the procedures set forth in these Bylaws, including, without limitation, Sections 2.8, 2.9, 2.10 and Section 2.14 hereof, shall be eligible for election as directors.
(v)    If a stockholder proposes to nominate an individual for election or reelection to the Board of Directors, a stockholder’s notice must, in addition to the matters set forth in subsection (i) above, also set forth:
(A)    a representation as to whether such stockholder intends (1) to deliver a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve the nomination, and (2) to solicit proxies in support of director nominees other than the Corporation’s nominees in accordance with Rule 14a-19 under the Exchange Act; and
(B)    a representation that such stockholder shall provide all other information and affirmations, updates and supplements required pursuant to these Bylaws;
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(d)    For any stockholder that, pursuant to Section 2.8(c)(v)(A)(2), has included a representation that such stockholder intends to solicit proxies in support of director nominees other than the Corporation’s nominees in accordance with Rule 14a-19 under the Exchange Act, such stockholder’s notice must, in addition to the matters set forth in Section 2.8(c)above, also include a signed acknowledgement (the form of which such stockholder shall request in writing from the Secretary and which the Secretary shall provide to such stockholder within ten (10) days after receiving such request) that (i) the Corporation shall disregard any proxies given for such stockholder’s director nominee(s) on the Corporation’s proxy card if such stockholder fails to comply with the requirements of Rules 14a-19(a) under the Exchange Act and (ii) the Corporation’s proxy materials and proxy card may include statements that the Corporation’s designated proxy holder(s) will not exercise the proxy power otherwise granted thereby to vote the shares as to which any proxies relate in favor of any director nominees if the stockholder thereof fails to comply with the requirements of Rules 14a-19(a) under the Exchange Act.
(e)    If a stockholder no longer intends to solicit holders of shares of the Corporation in accordance with the representation made pursuant to Section 2.8(c)(v)(A)(2), such stockholder shall inform the Corporation of this change by delivering a writing to the Secretary at the principal executive offices of the Corporation no later than two (2) business days after the occurrence of such change. If a stockholder (i) provides notice pursuant to Rule 14a-19(b) under the Exchange Act and (ii) such person or entity subsequently fails to comply with the requirements of Rules 14a-19(a) under the Exchange Act, then the Corporation shall instruct its designated proxy holders not to exercise the proxy power otherwise granted thereby to vote the shares as to which any proxies relate in favor of any director nominees nominated by such stockholder (unless any such nominee is also nominated by the Corporation). Upon request by the Corporation, if any stockholder provides notice pursuant to Rule 14a-19(b) under the Exchange Act, such stockholder shall deliver to the Corporation, no later than five (5) business days prior to the applicable meeting, reasonable evidence that the requirements of Rule 14a-19 under the Exchange Act have been satisfied.
(f)    Notwithstanding the provisions of these Bylaws, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in these Bylaws; provided, however, that any references in these Bylaws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the separate and additional requirements set forth in these Bylaws with respect to nominations or proposals as to any other business to be considered.
(g)    Nothing in these Bylaws shall be deemed to affect any rights: (i) of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act; or (ii) of the holders of any series of Preferred Stock if and to the extent provided for under applicable law, the Certificate of Incorporation or these Bylaws.
SECTION 2.9    Order of Business.
(a)    Annual Meetings of Stockholders. At any annual meeting of stockholders, only such nominations of individuals for election to the Board of Directors shall be made, and only such other business shall be conducted or considered, as shall have been properly brought before the meeting. For nominations to be properly made at an annual meeting, and proposals of other business to be properly brought before an annual meeting, nominations and proposals of other business must be: (i) specified in the Corporation’s notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors; (ii) otherwise properly made at the annual meeting, by or at the direction of the Board of Directors; or (iii) otherwise properly requested to be brought before the annual meeting by a stockholder of the Corporation in accordance with Section 2.8 or Section 2.14, as applicable, of these Bylaws and this Section
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2.9 of these Bylaws. For nominations of individuals for election to the Board of Directors or proposals of other business to be properly requested by a stockholder to be made at an annual meeting, a stockholder must: (A) be a stockholder of record at the time of the giving of notice of such annual meeting by or at the direction of the Board of Directors and at the time of the annual meeting; (B)  be entitled to vote at such annual meeting; and (C) comply with the procedures set forth in these Bylaws as to such business or nomination. The immediately preceding sentence shall be the exclusive means for a stockholder to make nominations or other business proposals (other than matters properly brought under Rule 14a-8 under the Exchange Act and included in the Corporation’s notice of meeting) before an annual meeting of stockholders.
(b)    Special Meetings of Stockholders. Only such business shall be conducted or considered at a special meeting of stockholders as shall have been properly brought before the meeting pursuant to the Corporation’s notice of meeting. To be properly brought before a special meeting, proposals of business must be (i) specified in the Corporation’s notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or (ii) otherwise properly brought before the special meeting, by or at the direction of the Board of Directors; provided, however, that nothing herein shall prohibit the Board of Directors from submitting additional matters to stockholders at any such special meeting. Nominations of individuals for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (A) by or at the direction of the Board of Directors or (B) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who (1) is a stockholder of record at the time of giving of notice of such special meeting and at the time of the special meeting, (2) is entitled to vote at the meeting (without giving effect to any proxy, voting agreement or other arrangement pursuant to which such stockholder may have been granted the right to act for another stockholder or vote in respect of stock at such special meeting), and (3) complies with the procedures set forth in these Bylaws as to such nomination. This Section 2.9(b) shall be the exclusive means for a stockholder to make nominations at a special meeting of stockholders.
(c)    General. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the chairman of any annual or special meeting shall have the power to determine whether a nomination or any other business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with these Bylaws and, if any proposed nomination or other business is not in compliance with these Bylaws, to declare that no action shall be taken on such nomination or other proposal and such nomination or other proposal shall be disregarded. Notwithstanding anything to the contrary in these Bylaws, except to the extent otherwise determined by the Board, if a stockholder (or a Qualified Representative of such stockholder) proposes to nominate an individual for election to the Board of Directors or proposes any other business to be made at an annual meeting or special meeting, as applicable, and does not appear at such meeting of stockholders to present its proposal, such nomination shall be disregarded and conclusively deemed withdrawn or such business shall not be transacted, as applicable, notwithstanding that proxies in respect of such vote may have been received by the Corporation. To be considered a “Qualified Representative” of a stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing (i) executed by such stockholder, (ii) delivered (or a reliable reproduction or electronic transmission of the writing is delivered) by such stockholder to the Corporation prior to the taking of the action taken by such person on behalf of such stockholder and (iii) stating that such person is authorized to act for such stockholder with respect to the action to be taken.
SECTION 2.10    Submission of Questionnaire, Representation and Agreement. To be eligible to be a nominee of any stockholder for election or reelection as a director of the Corporation, a person must deliver (in accordance with the time periods prescribed for delivery
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of notice under Section 2.8 or Section 2.14 of these Bylaws, as applicable) to the Secretary at the principal executive offices of the Corporation a written questionnaire with respect to the background and qualification of such individual and the background of any other person or entity on whose behalf, directly or indirectly, the nomination is being made (which questionnaire shall be provided by the Secretary upon written request), a conditional resignation in accordance with the Corporation’s resignation policy in connection with majority voting (the form of which shall be provided by the Secretary upon written request), and a written representation and agreement (in the form provided by the Secretary upon written request) that such individual:
(a)    (i) is not and will not become a party to: (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the Corporation; and (B) any Voting Commitment that could limit or interfere with such individual’s ability to comply, if elected as a director of the corporation, with such individual’s fiduciary duties under applicable law; (ii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein;
(b)    agrees to promptly provide to the Corporation such other information as the Corporation may reasonably request;
(c)    in such individual’s personal capacity and on behalf of any person or entity on whose behalf, directly or indirectly, the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply, with all applicable corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the Corporation publicly disclosed from time to time; and
(d)    consents to being named as a nominee for election as a director and intends to serve as a director if elected for the full term for which he or she is standing for election.
SECTION 2.11    Procedure for Election of Directors; Required Vote.
(a)    Except as set forth below, election of directors at all meetings of the stockholders at which directors are to be elected shall be by ballot, and, subject to any rights of the holders of any class or series of Preferred Stock to elect directors under specified circumstances, a majority of the votes cast at any meeting for the election of directors at which a quorum is present shall elect directors. For purposes of this Section 2.11, a majority of votes cast shall mean that the number of shares voted “for” a director’s election exceeds fifty percent (50%) of the total number of votes cast with respect to that director’s election. Votes cast shall include the shares voted “for” and “against” the director’s election in each case. Notwithstanding the foregoing, in the event of a “contested election” of directors, directors shall be elected by the vote of a plurality of the votes cast at any meeting for the election of directors at which a quorum is present. For purposes of this Article II, a “contested election” shall mean any election of directors in which the number of candidates for election as directors exceeds the number of directors to be elected, with the determination thereof being made by the Secretary as of the close of the applicable notice of nomination period set forth in these Bylaws or under applicable law, based on whether one or more notice(s) of nomination were timely filed and in proper form in accordance with said Bylaws; provided, however, that the determination that an election is a “contested election” shall be determinative only as to the timeliness of a notice of nomination and not otherwise as to its validity. If, prior to the time the Corporation mails its initial proxy statement in connection with such election of directors, one or more notices of nomination are
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withdrawn such that the number of candidates for election as director no longer exceeds the number of directors to be elected, the election shall not be considered a contested election, but in all other cases, once an election is determined to be a contested election, directors shall be elected by the vote of a plurality of the votes cast.
(b)    If a nominee for director who is an incumbent director is not elected and no successor has been elected at such meeting, the director shall promptly tender his or her resignation, contingent upon acceptance of such resignation by the Board in accordance with this Section 2.11(b), to the Board. The Nominating, Corporate Governance and Sustainability Committee shall make a recommendation to the Board of Directors as to whether to accept or reject the tendered resignation, or whether other action should be taken. The Board of Directors shall act on the tendered resignation, taking into account the Nominating, Corporate Governance and Sustainability Committee’s recommendation, and publicly disclose (by a press release, a Current Report on Form 8-K or other broadly disseminated means of communication) its decision regarding the tendered resignation and the rationale behind the decision within ninety (90) days from the date of the certification of the election results. The Nominating, Corporate Governance and Sustainability Committee in making its recommendation, and the Board of Directors in making its decision, may each consider any factors or other information that it considers appropriate and relevant. The director who tenders his or her resignation shall not participate in the recommendation of the Nominating, Corporate Governance and Sustainability Committee or the decision of the Board of Directors with respect to his or her resignation. If such incumbent director’s resignation is not accepted by the Board of Directors, such director shall continue to serve until the next annual meeting and until his or her successor is duly elected, or his or her earlier resignation or removal. If a director’s resignation is accepted by the Board of Directors pursuant to this Bylaw, or if a nominee for director is not elected and the nominee is not an incumbent director, then the Board of Directors, in its sole discretion, may fill any resulting vacancy pursuant to the provisions of Section 3.9 of these Bylaws or may decrease the size of the Board of Directors pursuant to the provisions of Section 3.2 of these Bylaws.
(c)    Except as otherwise provided by law, the Certificate of Incorporation, or these Bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders.
(d)    Any individual who is nominated for election to the Board of Directors and included in the Corporation’s proxy materials for an annual meeting and, if applicable, a special meeting, shall tender an irrevocable resignation in advance of the annual meeting or special meeting, as applicable. Such resignation shall become effective upon a determination by the Board of Directors or any committee thereof that: (i) the information provided pursuant to the Corporation by such individual was untrue in any material respect or omitted to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or (ii) such individual shall have breached any representations or obligations owed to the Corporation under these Bylaws.
SECTION 2.12    Inspectors of Elections; Opening and Closing the Polls. The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may, but does not need to, include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of
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inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law.
The chairman of the meeting shall be appointed by the inspector or inspectors to fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting.
SECTION 2.13    No Stockholder Action by Written Consent. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.
SECTION 2.14    Proxy Access for Director Nominations.
(a)    Information to be Included in the Corporation’s Proxy Materials. Subject to the provisions of this Section 2.14, for an annual meeting of stockholders of the Corporation, the Corporation shall include in its proxy statement and in its form of proxy for such annual meeting, in addition to any persons nominated for election by or at the direction of the Board (or any committee thereof), the name of and the Required Information (as defined below) in respect of any person nominated for election to the Board who satisfies the eligibility requirements in this Section 2.14 (a “Proxy Access Nominee”) and who is identified in a proper written notice (the “Proxy Access Notice”) that complies with, and is timely delivered pursuant to, this Section 2.14 by an Eligible Stockholder (as defined below). Notwithstanding anything to the contrary contained in this Section 2.14, the Corporation may omit from its proxy materials any information or Supporting Statement (as defined below) (or portions thereof) that it, in good faith, believes (i) would violate any applicable law or (ii) directly or indirectly impugns the character, integrity or personal reputation of, or directly or indirectly makes charges concerning improper, illegal or immoral conduct or associations, without factual foundation, with respect to any person or entity. Nothing in this Section 2.14 shall limit the Corporation’s ability to solicit against or for, and include in its proxy materials its own statements relating to, any Eligible Stockholder or Proxy Access Nominee.
(b)    Definition of Required Information. For the purposes of this Section 2.14, the “Required Information” that the Corporation shall include in its proxy statement is (i) the information concerning the Proxy Access Nominee and the Eligible Stockholder that the Corporation determines is required to be disclosed in the Corporation’s proxy statement by the applicable requirements of the Exchange Act and (ii) if the Eligible Stockholder so elects, a Supporting Statement.
(c)    Definition of Supporting Statement. For each of its Proxy Access Nominees, an Eligible Stockholder may, at its option, provide to the Secretary, at the time the Proxy Access Notice is delivered, one written statement, not to exceed five hundred (500) words, in support of such Proxy Access Nominee’s candidacy (a “Supporting Statement”). Only one Supporting Statement may be submitted by an Eligible Stockholder for each Proxy Access Nominee.
(d)    Definition of Eligible Stockholder. For the purposes of this Section 2.14, an “Eligible Stockholder” is one or more persons who:
(i)    own and have owned (in each case, as defined in Section 2.14(f)) continuously for at least three (3) years prior to the date the Proxy Access Notice is received at the principal executive offices of the Corporation (the “Minimum Holding Period”) a number of shares of the Corporation that represents at least three percent (3%) of the voting power of all shares of the Corporation issued and outstanding and entitled to
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vote in the election of directors as of the most recent date for which such amount was set forth in any Public Announcement made by the Corporation prior to the date the Proxy Access Notice is received at the principal executive offices of the Corporation (the “Required Shares”);
(ii)    continues to own the Required Shares through the date of the annual meeting of stockholders; and
(iii)    satisfies all other requirements of, and complies with all applicable procedures set forth in, this Section 2.14;
provided, that the aggregate number of record stockholders and beneficial owners whose stock ownership is counted for the purposes of satisfying the foregoing ownership requirement shall not exceed twenty (20). Two (2) or more funds that are part of the same Qualifying Fund Group (as defined in Section 2.14(e)) shall be treated as one record stockholder or beneficial owner for purposes of determining the aggregate number of record stockholders and beneficial owners in this paragraph and shall be treated as one person for the purpose of determining “ownership” as defined in Section 2.14(f). No record stockholder (other than a Custodian Holder (as defined below)) or beneficial owner may be a member of more than one group constituting an Eligible Stockholder with respect to any annual meeting of stockholders, and no shares may be attributed to more than one Eligible Stockholder or group constituting an Eligible Stockholder. If any person (other than a Custodian Holder) purports to be a member of more than one group constituting an Eligible Stockholder, such person shall only be deemed to be a member of the group that has the largest ownership position (as reflected in the applicable Proxy Access Notice). “Custodian Holder,” with respect to any Eligible Stockholder, means any broker, bank or custodian (or similar nominee) who (i) is acting solely as a nominee on behalf of a beneficial owner and (ii) does not own (as defined in Section 2.14(f)) any of the shares comprising the Required Shares of the Eligible Stockholder. For the avoidance of doubt, Required Shares will qualify as such if and only if the beneficial owner of such shares as of the date of the Proxy Access Notice has itself beneficially owned such shares continuously for the Minimum Holding Period and through the date of the annual meeting of stockholders (in addition to the other applicable requirements being met).
Whenever the Eligible Stockholder consists of a group of persons (including a group of funds that are part of the same Qualifying Fund Group), each provision in this Section 2.14 that requires the Eligible Stockholder to provide any written statements, representations, undertakings, agreements or other instruments or to meet any other conditions shall be deemed to require each such person (including each individual fund) that is a member of such group (other than a Custodian Holder) to provide such statements, representations, undertakings, agreements or other instruments and to meet such other conditions (except that the members of such group may aggregate the shares that each member has owned continuously for the Minimum Holding Period in order to meet the three percent (3%) ownership requirement of the “Required Shares” definition).
(e)    Definition of Qualifying Fund Group. For the purposes of this Section 2.14, a “Qualifying Fund Group” means two (2) or more funds that are (i) under common management and investment control, (ii) under common management and funded primarily by the same employer or (iii) a “group of investment companies,” as such term is defined in Section 12(d)(1)(G)(ii) of the Investment Company Act of 1940, as amended from time to time.
(f)    Definition of Ownership. For the purposes of this Section 2.14, a person shall be deemed to “own” only those outstanding shares of stock of the Corporation as to which the person:
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(i)    possesses full voting and investment rights; and
(ii)    possesses full economic interest (including the opportunity for profit and risk of loss);
provided, that the number of shares calculated in accordance with the foregoing clauses (i) and (ii) shall not include any shares:
(A)    sold by such person or any of its affiliates in any transaction that has not been settled or closed;
(B)    borrowed by such person or any of its affiliates for any purpose or purchased by such person or any of its affiliates pursuant to an agreement to resell; or
(C)    subject to any Derivative Instrument entered into by such person or any of its affiliates, whether any such Derivative Instrument is to be settled with shares or with cash based on the notional amount or value of outstanding shares of the Corporation, in any such case which Derivative Instrument has, or is intended to have, or if exercised would have, the purpose or effect of (x) reducing in any manner, to any extent or at any time in the future, such person’s or any of its affiliates’ full right to vote or direct the voting of any such shares; or (y) hedging, offsetting or altering to any degree gain or loss arising from the full economic ownership of such shares by such person or any of its affiliates.
For the avoidance of doubt, a person shall “own” shares held of record in the name of a nominee (including a Custodian Holder) or other intermediary so long as the person retains the right to instruct how the shares are voted with respect to the election of directors and the right to direct the disposition thereof and possesses the full economic interest therein, and a person’s ownership of shares shall be deemed to continue during any period in which such person has: (x) delegated any voting power by means of a proxy, power of attorney or other instrument or arrangement that is revocable at any time by the person without condition; or (y) loaned such shares; provided that the person has the power to recall such loaned shares on not more than five (5) business days’ notice.
For the purposes of this Section 2.14, the terms “owned,” “owning” and other variations of the word “own” shall have correlative meanings, and the term “affiliate” shall have the meaning ascribed thereto in the rules and regulations promulgated under the Exchange Act. Whether outstanding shares of the Voting Stock of the Corporation are “owned” for these purposes shall be determined by the Board.
(g)    Notice Period. To be timely under this Section 2.14, the Proxy Access Notice must be delivered to the principal executive offices of the Corporation, addressed to the Secretary, no earlier than one hundred and fifty (150) days and no later than one hundred and twenty (120) days before the first anniversary of the filing date of the Corporation’s definitive proxy statement for the prior year’s annual meeting of stockholders; provided, however, that if the date of the annual meeting is advanced by more than thirty (30) days prior to, or delayed by more than sixty (60) days after, the first (1st) anniversary of the prior year’s annual meeting of stockholders, or if no annual meeting was held in the preceding year, then, for the Proxy Access Notice to be timely, it must be delivered to the principal executive offices of the Corporation, addressed to the Secretary, (i) no earlier than one hundred and twenty (120) days before such annual meeting and (ii) no later than the close of business on the later of ninety (90) days before such annual meeting and the tenth (10th) day after the earlier of the day on which the
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notice of such annual meeting was first made by mail or the day such annual meeting is announced by Public Announcement. In no event shall an adjournment, postponement or deferral, or Public Announcement of an adjournment, postponement or deferral, of an annual meeting of stockholders commence a new time period (or extend any time period) for the giving of the Proxy Access Notice pursuant to this Section 2.14.
(h)    Form of Notice. To be in proper written form, the Proxy Access Notice must include or be accompanied by the following:
(i)    a written statement by the Eligible Stockholder certifying as to the number of shares it owns and has owned continuously for the Minimum Holding Period, and the Eligible Stockholder’s agreement to provide (A) within five (5) business days following the later of the record date for the annual meeting of stockholders or the date on which notice of the record date is first publicly disclosed, a written statement by the Eligible Stockholder certifying as to the number of shares it owns and has owned continuously through the record date and (B) prompt notice if the Eligible Stockholder ceases to own a number of shares at least equal to the Required Shares prior to the date of the annual meeting;
(ii)    if the Eligible Stockholder is not a record holder of the Required Shares, proof that the Eligible Stockholder owns, and has owned continuously for the Minimum Holding Period, the Required Shares, in a form that would be deemed by the Corporation to be acceptable pursuant to Rule 14a-8(b)(2) under the Exchange Act (or any successor rule) for purposes of a shareholder proposal under such rule;
(iii)    a copy of the Schedule 14N that has been or is concurrently being filed with the SEC as required by Rule 14a-18 under the Exchange Act;
(iv)    as to the Eligible Stockholder and each Proxy Access Nominee, the information required by Section 2.8(c)(i)(B)(2)-(9) (except that the references to the “stockholder” and to any “beneficial owner” in such clauses shall instead refer, respectively, to the “Eligible Stockholder” and “each Proxy Access Nominee” for purposes of this paragraph);
(v)    as to each Proxy Access Nominee:
(A)    the items specified in Section 2.8(c)(iii)(x) and the questionnaire, representation and agreement required by Section 2.10 of these Bylaws and an executed agreement, in a form deemed satisfactory by the Board or its designee (which form shall be provided by the Corporation reasonably promptly upon written request therefor), pursuant to which such Proxy Access Nominee agrees not to be named in any other person’s proxy statement or form of proxy; and
(B)    any other information relating to the Proxy Access Nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with the solicitation of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder;
(vi)    an executed agreement, in a form deemed satisfactory by the Board or its designee (which form shall be provided by the Corporation reasonably promptly upon written request therefor), pursuant to which the Eligible Stockholder:
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(A)    represents that it intends to continue to hold the Required Shares through the date of, and to vote the Required Shares at, the annual meeting of stockholders;
(B)    represents that it acquired the Required Shares in the ordinary course of business and not with the intent to change or influence control of the Corporation, and does not presently have such intent;
(C)    represents and agrees that it has not nominated and will not nominate for election to the Board at the annual meeting of stockholders any person other than the Proxy Access Nominee(s) it is nominating pursuant to this Section 2.14;
(D)    represents and agrees that it is not currently engaged as of the date of the agreement, and will not engage, in, and is not currently as of the date of the agreement, and will not be, a “participant” in another person’s, “solicitation” within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a director at the annual meeting other than its Proxy Access Nominee(s) or a nominee of the Board;
(E)    represents and agrees that it has not distributed and will not distribute to any stockholder or beneficial owner of the Corporation’s stock any form of proxy for the annual meeting other than the form distributed by the Corporation;
(F)    represents and agrees that it is currently in compliance as of the date of the agreement, and will comply, with all applicable laws and regulations (including, without limitation, Rule 14a-9(a) under the Exchange Act) applicable to solicitations and the use, if any, of soliciting material in connection with the annual meeting;
(G)    agrees to assume all liability stemming from any legal or regulatory violation arising out of the Eligible Stockholder’s communications with the stockholders or beneficial owners of the Corporation’s stock or out of the information that the Eligible Stockholder provided to the Corporation, in each case, in connection with the nomination or election of Proxy Access Nominee(s) at the annual meeting;
(H)    agrees to indemnify and hold harmless the Corporation and each of its directors, officers and employees individually against any liability, loss, damages, expenses or other costs (including attorneys’ fees) incurred in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the Corporation or any of its directors, officers or employees arising out of any legal or regulatory violation referenced in clause (G) above or any failure or alleged failure of the Eligible Stockholder or its Proxy Access Nominee(s) to comply with, or any breach or alleged breach by the Eligible Stockholder or its Proxy Access Nominee(s) of, the requirements of this Section 2.14; and
(I)    agrees to file with the SEC any written solicitation of the stockholders or beneficial owners of the Corporation’s stock relating to the meeting at which its Proxy Access Nominee(s) will be nominated, regardless of whether any such filing is required under Regulation 14A of the Exchange Act or
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whether any exemption from filing is available for such solicitation or other communication under Regulation 14A of the Exchange Act;
(vii)    in the case of a nomination by a group of persons together constituting an Eligible Stockholder, the designation by all group members (other than a Custodian Holder) of one member of the group that is authorized to receive communications, notices and inquiries from the Corporation and to act on behalf of the Eligible Stockholder group with respect to all matters relating to the nomination under this Section 2.14 (including withdrawal of the nomination); and
(viii)    in the case of a nomination by a group of persons together constituting an Eligible Stockholder in which two (2) or more funds that are part of the same Qualifying Fund Group are counted as one record stockholder or beneficial owner for purposes of qualifying as an Eligible Stockholder, documentation reasonably satisfactory to the Corporation that demonstrates that the funds are part of the same Qualifying Fund Group.
(i)    Additional Required Information. In addition to the information required pursuant to Section 2.14(h) or any other provision of these Bylaws, (i) the Corporation from time to time may require any proposed Proxy Access Nominee to furnish any other information (A) that may reasonably be required by the Corporation to determine whether the Proxy Access Nominee would be independent under the Independence Standards (as defined below), (B) that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such Proxy Access Nominee, (C) that may reasonably be required by the Corporation to determine the eligibility of such Proxy Access Nominee to serve as a Director or (D) as may otherwise be reasonably requested, and (ii) the Corporation from time to time may require the Eligible Stockholder to furnish any other information that may reasonably be required by the Corporation to verify the Eligible Stockholder’s continuous ownership of the Required Shares for the Minimum Holding Period or other compliance with this Section 2.14.
(j)    Exclusion From Proxy Materials. Notwithstanding anything to the contrary contained in this Section 2.14, the Corporation shall not be required pursuant to this Section 2.14 to include a Proxy Access Nominee in its proxy materials for any annual meeting of stockholders or, if the proxy statement already has been filed, to allow the nomination of a Proxy Access Nominee, notwithstanding that proxies in respect of such vote may have been received by the Board, if the Board determines that:
(i)    such Proxy Access Nominee would not satisfy the audit, compensation or other board committee independence requirements under, the applicable rules and listing standards of the principal national securities exchanges upon which the stock of the Corporation is listed or traded, any applicable rules of the SEC or any other regulatory body with jurisdiction over the Corporation, or any publicly disclosed standards used by the Board in determining and disclosing the independence of the directors and Board committee members;
(ii)    the election of such Proxy Access Nominee as a member of the Board would cause the Corporation to be in violation of its Certificate of Incorporation, these Bylaws, the rules or listing standards of the principal national securities exchanges upon which the stock of the Corporation is listed or traded, or any applicable law, rule or regulation;
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(iii)    such Proxy Access Nominee is, or has been within the past three (3) years, an officer or director of a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914, as amended from time to time;
(iv)    such Proxy Access Nominee is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or has been convicted in such a criminal proceeding within the past ten (10) years (clauses (i), (iii) and (iv) above, collectively, the “Independence Standards”);
(v)    such Proxy Access Nominee is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Securities Act of 1933, as amended from time to time (the “Securities Act”);
(vi)    such Proxy Access Nominee otherwise becomes ineligible for inclusion in the Corporation’s proxy materials pursuant to this Section 2.14 or otherwise becomes ineligible, not qualified or unavailable for election at the annual meeting of stockholders, in each case as determined by the Board or the person presiding over the annual meeting;
(vii)    such Proxy Access Nominee or the applicable Eligible Stockholder (or any member of any group of persons that together is such Eligible Stockholder) provided information to the Corporation in connection with such nomination that was untrue in any material respect or omitted to state a material fact necessary in order to make any statement made, in light of the circumstances under which it was made, not misleading;
(viii)    such Proxy Access Nominee or the applicable Eligible Stockholder (or any member of any group of persons that together is such Eligible Stockholder) otherwise breaches or fails to comply with its representations, undertakings or obligations pursuant to these Bylaws, including, without limitation, this Section 2.14; or
(ix)    the Eligible Stockholder ceases to be an Eligible Stockholder for any reason, including, but not limited to, not owning the Required Shares through the date of the applicable annual meeting.
For the purpose of this subsection (j), the occurrence of clauses (i) through (vi) and, to the extent related to a breach or failure by the Proxy Access Nominee, clauses (vii) and (viii) will result in the exclusion from the proxy materials pursuant to this Section 2.14 of the specific Proxy Access Nominee to whom the ineligibility applies and any related Supporting Statement or, if the proxy statement for the applicable annual meeting of stockholders already has been filed, will result in such Proxy Access Nominee not being eligible or qualified for election at such annual meeting of stockholders, and, in either case, no other nominee may be substituted by the Eligible Stockholder that nominated such Proxy Access Nominee. The occurrence of clause (ix) and, to the extent related to a breach or failure by an Eligible Stockholder (or any member of any group of persons that together is such Eligible Stockholder), clauses (vii) and (viii) will result in the shares owned by such Eligible Stockholder (or such member of any group of persons that together is such Eligible Stockholder) being excluded from the Required Shares and, if as a result the persons who together nominated the Proxy Access Nominee shall no longer constitute an Eligible Stockholder, will result in the exclusion from the proxy materials pursuant to this Section 2.14 of all of such persons’ Proxy Access Nominees and any related Supporting Statements or, if the proxy statement for the applicable annual meeting of stockholders already has been filed, will result in such Proxy Access Nominees not being eligible or qualified for election at such annual meeting of stockholders.
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(k)    Permitted Number of Proxy Access Nominees.
(i)    The maximum number of Proxy Access Nominees nominated by all Eligible Stockholders that will appear in the Corporation’s proxy materials with respect to an annual meeting of stockholders shall not exceed the greater of (A) two (2), and (B) twenty percent (20%) of the number (as of the last day on which a Proxy Access Notice may be delivered pursuant to this Section 2.14 with respect to the annual meeting) of directors to be elected by the holders of the Voting Stock at the annual meeting of stockholders, or if the number of directors calculated in this clause (B) is not a whole number, the closest whole number below twenty percent (20%) (such number, determined pursuant to clause (A) or clause (B), as applicable, the “Permitted Number”); provided, however, that if the number of directors to be elected by the holders of the Voting Stock at the annual meeting is reduced after the deadline in Section 2.14(g) for delivery of the Proxy Access Notice and before the date of the applicable annual meeting of stockholders for any reason (including if the Board resolves to reduce the size of the Board before or effective at the annual meeting), the Permitted Number shall be calculated based on the number of directors to be elected as so reduced. The Permitted Number shall also be reduced by (a) the number of directors in office or director candidates that in either case will be included in the Corporation’s proxy materials with respect to such annual meeting as an unopposed (by the Corporation) nominee pursuant to any agreement, arrangement or other understanding with any stockholder or group of stockholders (other than any such agreement, arrangement or understanding entered into in connection with an acquisition of the Voting Stock, by such stockholder or group of stockholders, from the Corporation); (b) the number of incumbent director candidates who were previously elected to the Board as Proxy Access Nominees at any of the preceding two (2) annual meetings of stockholders pursuant to this Section 2.14 and who remain members of the Board as of the deadline in Section 2.14(g) for delivery of the Proxy Access Notice; and (c) the number of director candidates whose names were submitted for inclusion in the Corporation’s proxy materials pursuant to this Section 2.14 for the upcoming annual meeting of stockholders, but who were thereafter nominated for election at such meeting by the Board.
(ii)    If the number of Proxy Access Nominees submitted by Eligible Stockholders pursuant to this Section 2.14 exceeds the Permitted Number, each Eligible Stockholder will select one Proxy Access Nominee for inclusion in the Corporation’s proxy materials until the Permitted Number is reached, going in order of the amount (largest to smallest) of shares of the Voting Stock of the Corporation each Eligible Stockholder disclosed as owned in its Proxy Access Notice submitted to the Corporation. If the Permitted Number is not reached after each Eligible Stockholder has selected one Proxy Access Nominee, this selection process will continue as many times as necessary, following the same order each time, until the Permitted Number is reached. After reaching the Permitted Number of Proxy Access Nominees, if any Proxy Access Nominee who satisfies the eligibility requirements in this Section 2.14 thereafter (A) is nominated by the Board for election at the upcoming annual meeting of stockholders, (B) is not submitted for election as a Director for any reason (including the failure to comply with or satisfy the eligibility requirements in this Section 2.14) other than due to a failure by the Corporation to include such Proxy Access Nominee in the Corporation’s proxy materials in violation of this Section 2.14, (C) withdraws his or her nomination (or his or her nomination is withdrawn by the applicable Eligible Stockholder) or (D) becomes unwilling or otherwise unable to serve on the Board if elected, then, in each such case, no other nominee or nominees shall be included in the Corporation’s proxy materials or otherwise submitted for election as a Director pursuant to this Section 2.14 in substitution for such Proxy Access Nominee with respect to the annual meeting of stockholders.
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(iii)    Notwithstanding anything to the contrary contained in this Section 2.14, the Corporation shall not be required to include any Proxy Access Nominees in its proxy materials pursuant to this Section 2.14 for any annual meeting of stockholders for which the Secretary receives a notice that a stockholder intends to nominate one or more persons for election to the Board pursuant to Section 2.8.
(l)    Attendance of Eligible Stockholder at Annual Meeting. Notwithstanding the foregoing provisions of this Section 2.14, unless otherwise required by law or otherwise determined by the Board or the person presiding over the meeting, if none of (i) the Eligible Stockholder or (ii) a Qualified Representative of the Eligible Stockholder appears at the annual meeting of stockholders to present such Eligible Stockholder’s Proxy Access Nominee(s), such nomination or nominations shall be disregarded and conclusively deemed withdrawn, notwithstanding that proxies in respect of the election of the Proxy Access Nominee(s) may have been received by the Corporation.
(m)    Restrictions on Re-nominations. Any Proxy Access Nominee who is included in the Corporation’s proxy materials for a particular annual meeting of stockholders but either (i) withdraws his or her nomination (or his or her nomination is deemed to have withdrawn pursuant to this Section 2.14), becomes ineligible or unavailable for election at that annual meeting, or is unwilling or otherwise unable to serve on the Board, or (ii) does not receive a number of votes cast in favor of his or her election at least equal to twenty-five percent (25%) of the votes present in person or represented by proxy and entitled to vote in the election of directors, will be ineligible to be a Proxy Access Nominee pursuant to this Section 2.14 for the next two (2) annual meetings of stockholders.
(n)    Duty to Update, Supplement and Correct. Any information required by this Section 2.14 to be provided to the Corporation must be updated and supplemented by the Eligible Stockholder or Proxy Access Nominee, as applicable, by delivery to the principal executive offices of the Corporation, addressed to the Secretary, (i) no later than ten (10) days after the record date for determining the stockholders entitled to vote at the annual meeting of stockholders, of such information as of such record date and (ii) no later than five (5) days before the annual meeting of stockholders, of such information as of the date that is ten (10) days before the annual meeting of stockholders. Further, in the event that any information or communications provided (pursuant to this Section 2.14 or otherwise) by the Eligible Stockholder or the Proxy Access Nominee to the Corporation or its stockholders ceases to be true and correct in any respect or omits a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, each Eligible Stockholder or Proxy Access Nominee, as the case may be, shall promptly notify the Secretary of any such inaccuracy or omission in such previously provided information and of the information that is required to make such information or communication true and correct. For the avoidance of doubt, the requirement to update, supplement and correct such information shall not permit any Eligible Stockholder or other person to change or add any proposed Proxy Access Nominee or be deemed to cure any defects or limit the remedies (including without limitation under these Bylaws) available to the Corporation relating to any defect (including any inaccuracy or omission).
(o)    Exclusive Method. This Section 2.14 shall be the exclusive method for stockholders to include nominees for director election in the Corporation’s proxy statement.
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ARTICLE III

BOARD OF DIRECTORS
SECTION 3.1    General Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authorities by these Bylaws expressly conferred upon them, the Board of Directors 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 required to be exercised or done by the stockholders.
SECTION 3.2    Number; Term of Office. The Board of Directors shall consist of one or more members, the number thereof to be determined in accordance with the Certificate of Incorporation.  Each director shall hold office until the expiration of the term of office to which such director was elected or appointed and until a successor is duly elected and qualified or until the director’s earlier death, resignation, disqualification or removal.
SECTION 3.3    Regular Meetings. A regular meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of stockholders. The Board of Directors may, by resolution, provide the time and place, if any, for the holding of additional regular meetings without other notice than such resolution.
SECTION 3.4    Special Meetings. Special meetings of the Board of Directors shall be called at the request of the Chairman of the Board or a majority of the Board of Directors then in office. The person or persons authorized to call special meetings of the Board of Directors may fix the place, if any, and time of the meetings.
SECTION 3.5    Notice. No notice need be given of any organizational or stated meeting of the Board of Directors for which the Board of Directors has fixed the date, hour and place. Notice of any special meeting of directors shall be given to each director at such person’s business or residence in writing by hand delivery, first-class or overnight mail or courier service, email or facsimile transmission, or orally by telephone. If mailed by first-class mail, such notice shall be deemed adequately delivered when deposited in the United States mails so addressed, with postage thereon prepaid, at least five (5) days before such meeting. If by overnight mail or courier service, such notice shall be deemed adequately delivered when delivered to the overnight mail or courier service company at least twenty-four (24) hours before such meeting. If by email, facsimile transmission, telephone or by hand, such notice shall be deemed adequately delivered when the notice is transmitted at least twelve (12) hours before such meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting, except for amendments to these Bylaws, as provided under Section 9.1 of these Bylaws. A meeting may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in accordance with Section 7.4 of these Bylaws.
SECTION 3.6    Action by Consent of Board of Directors. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board, or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
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SECTION 3.7    Conference Telephone Meetings. Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.
SECTION 3.8    Quorum. At all meetings of the Board, the presence of a majority of the total authorized number of directors shall constitute a quorum for the transaction of business. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. The directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum.
SECTION 3.9    Vacancies. Subject to applicable law and the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled only by the affirmative vote of a majority of the remaining directors, though less than a quorum of the Board of Directors, or the sole remaining director and directors so chosen shall hold office (a) until the conclusion of the 2026 annual meeting of stockholders (the “Declassification Time”), for a term expiring at an annual meeting of stockholders at which the term of office of the class to which they have been appointed expires and until such director’s successor has been duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided, and (b) after the Declassification Time, until such director’s successor has been duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. No decrease in the number of authorized directors constituting the Board of Directors shall shorten the term of any incumbent director.
SECTION 3.10    Chairman of the Board; Lead Independent Director; Vice Chairman. The Chairman of the Board will be elected by the Board of Directors and shall preside at all meetings of the stockholders and of the Board of Directors. The Board of Directors may designate the Chairman of the Board of Directors as an executive or non-executive Chairman. In addition, the Board of Directors may select a non-management director to serve as the Corporation’s “lead independent director” (the “Lead Independent Director”) and may select a non-management or management director to serve as the Corporation’s vice chairman (the “Vice Chairman”).
SECTION 3.11    Removal. Prior to the Declassification Time, any director, or the entire Board of Directors, 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 Voting Stock at a meeting called for that purpose. From and after the Declassification Time, any director may be removed from office at any time with or without cause, but only by the affirmative vote of the holders of a majority of the Voting Stock at a meeting called for that purpose.
SECTION 3.12    Committees. The Board may designate any committee as the Board considers appropriate, which shall consist of one or more directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee may to the extent permitted by law exercise such powers and shall have such responsibilities as shall be specified in the designating resolution. Each committee shall keep written minutes of its proceedings and shall report such proceedings to the Board when required.
A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. Notice of such meetings shall be given to
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each member of the committee in the manner provided for in Section 3.5 of these Bylaws. The Board shall have power at any time to fill vacancies in, to change the membership of, or to dissolve, any such committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting, in whole or in part, of persons who are not directors of the Corporation; provided, however, that no such committee shall have or may exercise any authority of the Board.
SECTION 3.13    Compensation. The directors shall be entitled to compensation for their services and reimbursement for expenses incurred in connection with the performance of their services.
ARTICLE IV

OFFICERS
SECTION 4.1    Elected Officers. The elected officers of the Corporation shall be a Secretary and such other officers (including, without limitation, a Chief Executive Officer, President, Vice Presidents, Chief Financial Officer and Treasurer) as the Board of Directors from time to time may deem proper. Any number of offices may be held by the same person. All officers elected by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. The Board or any committee thereof may from time to time elect, or the Chief Executive Officer may appoint, such other officers (including one or more Assistant Vice Presidents, Assistant Secretaries or Assistant Treasurers) and such agents, as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these Bylaws or as may be prescribed by the Board or such committee or by the Chief Executive Officer, as the case may be.
SECTION 4.2    Election and Term of Office. The elected officers of the Corporation shall be elected by the Board of Directors. Each officer shall hold office until such officer’s successor shall have been duly elected and shall have qualified or until such officer’s earlier resignation or removal.
SECTION 4.3    Chairman of the Board. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors.
SECTION 4.4    Chief Executive Officer. The Chief Executive Officer shall be responsible for the general management of the affairs of the Corporation and shall perform all duties incidental to his office which may be required by applicable law and all such other duties as are properly required of him by the Board of Directors. He shall make reports to the Board of Directors and the stockholders, and shall see that all orders and resolutions of the Board of Directors and of any committee thereof are carried into effect.
SECTION 4.5    President. The President shall act in a general executive capacity and shall assist the Chief Executive Officer in the administration and operation of the Corporation’s business and general supervision of its policies and affairs.
SECTION 4.6    Vice Presidents. Each Vice President shall have such powers and shall perform such duties as shall be assigned to such Vice President by the Board of Directors, the Chief Executive Officer or the President.
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SECTION 4.7    Chief Financial Officer. The Chief Financial Officer shall act in an executive financial capacity. The Chief Financial Officer shall assist the Chief Executive Officer and the President in the general supervision of the Corporation’s financial policies and affairs.
SECTION 4.8    Treasurer. The Treasurer shall exercise general supervision over the receipt, custody and disbursement of corporate funds. The Treasurer shall cause the funds of the Corporation to be deposited in such banks as may be authorized by the Board of Directors, or in such banks as may be designated as depositaries in the manner provided by resolution of the Board of Directors. The Treasurer shall have such further powers and duties and shall be subject to such directions as may be granted or imposed upon him from time to time by the Board of Directors, the Chief Executive Officer or the President.
SECTION 4.9    Secretary. The Secretary shall:
(a)    keep or cause to be kept in one or more books provided for that purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders;
(b)    see that all notices are duly given in accordance with the provisions of these Bylaws and as required by applicable law;
(c)    be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates, if any, of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal;
(d)    see that the books, reports, statements, certificates and other documents and records required by applicable law to be kept and filed are properly kept and filed; and
(e)    in general, perform all the duties incident to the office of Secretary and such other duties as from time to time may be assigned to such Secretary by the Board, the Chief Executive Officer or the President.
SECTION 4.10    Removal. Any officer elected, or agent appointed, by the Board of Directors may be removed from office with or without cause by the affirmative vote of a majority of the Board. Any officer or agent appointed by the Chief Executive Officer or the President may be removed by the officer that appointed such officer or agent with or without cause. No elected officer shall have any contractual rights against the Corporation for compensation by virtue of such election beyond the date of the election of his or her successor, his or her death, or his or her resignation or removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee deferred compensation plan.
SECTION 4.11    Vacancies. A newly created elected office and a vacancy in any elected office because of death, resignation, or removal may be filled by the Board of Directors. Any vacancy in an office appointed by the Chief Executive Officer or the President because of death, resignation, or removal may be filled by the Chief Executive Officer or the President.
SECTION 4.12    Compensation. The compensation of all elected officers of the Corporation shall be fixed from time to time by the Board of Directors.
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ARTICLE V

STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1    Stock; Transfers. Unless otherwise determined by the Board of Directors, the interest of each stockholder of the Corporation will be uncertificated.
The shares of the stock of the Corporation shall be transferred on the books of the Corporation, in the case of certificated shares of stock, if any, by the holder thereof in person or by such person’s attorney duly authorized in writing, upon surrender for cancellation of certificates for at least the same number of shares, with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require; and, in the case of uncertificated shares of stock, upon receipt of proper transfer instructions from the registered holder of the shares or by such person’s attorney duly authorized in writing, and upon compliance with appropriate procedures for transferring shares in uncertificated form. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.
The certificates of stock, if any, shall be signed, countersigned and registered in such manner as the Board of Directors may by resolution prescribe, which resolution may permit all or any of the signatures on such certificates to be in facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has 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 such person were such officer, transfer agent or registrar at the date of issue.
Notwithstanding anything to the contrary in these Bylaws, at all times that the Corporation’s stock is listed on a stock exchange, the shares of the stock of the Corporation shall comply with all direct registration system eligibility requirements established by such exchange, including any requirement that shares of the Corporation’s stock be eligible for issue in book-entry form. All issuances and transfers of shares of the Corporation’s stock shall be entered on the books of the Corporation with all information necessary to comply with such direct registration system eligibility requirements, including the name and address of the person to whom the shares of stock are issued, the number of shares of stock issued and the date of issue. The Board of Directors shall have the power and authority to make such rules and regulations as it may deem necessary or proper concerning the issue, transfer and registration of shares of stock of the Corporation in both the certificated (if any) and uncertificated form.
SECTION 5.2    Lost, Stolen or Destroyed Certificates. No certificate for shares of stock in the Corporation shall be issued in place of any certificate alleged to have been lost, destroyed or stolen, except on production of such evidence of such loss, destruction or theft and on delivery to the Corporation of a bond of indemnity in such amount, upon such terms and secured by such surety, as the Board of Directors or any financial officer may in its or such person’s discretion require.
SECTION 5.3    Record 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 required by applicable law.
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SECTION 5.4    Transfer and Registry Agents. The Corporation may from time to time maintain one or more transfer offices or agencies and registry offices or agencies at such place or places as may be determined from time to time by the Board of Directors or by the Chief Executive Officer or President.
ARTICLE VI

INDEMNIFICATION
SECTION 6.1    Indemnification.
(a)    In General. Each person who was or is a party or is otherwise threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter, a “Proceeding”), by reason of the fact that he or she or a person of whom he or she is the legal representative is or was, at any time during which this Bylaw is in effect (whether or not such person continues to serve in such capacity at the time any indemnification or advancement of expenses pursuant hereto is sought or at the time any Proceeding relating thereto exists or is brought), a director or officer of the Corporation or, while serving as a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the Corporation (hereinafter, a “Covered Person”), shall be (and shall be deemed to have a contractual right to be) indemnified and held harmless by the Corporation (and any successor of the Corporation by merger or otherwise) to the fullest extent authorized by the DGCL as the same exists or may hereafter be amended or modified from time to time (but, in the case of any such amendment or modification, only to the extent that such amendment or modification permits the Corporation to provide greater indemnification rights than said law permitted the Corporation to provide prior to such amendment or modification), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person in connection with such Proceeding if the person acted in good faith and in a manner 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 or her conduct was unlawful. The termination of any 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 the person 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 the person’s conduct was unlawful. Such indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation or ceased serving at the request of the Corporation as a director, officer, trustee, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by the Corporation, and shall inure to the benefit of his or her heirs, executors and administrators; provided that, except as provided in Section 6.1(d), the Corporation shall indemnify any such person seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the Board of Directors.
(b)    Advance of Expenses. To the fullest extent authorized by the DGCL as the same exists or may hereafter be amended or modified from time to time (but, in the case of any such amendment or modification, only to the extent that such amendment or modification permits the Corporation to provide greater rights to advancement of expenses than said law permitted the Corporation to provide prior to such amendment or modification), each Covered Person shall have (and shall be deemed to have a contractual right to have) the right,
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without the need for any action by the Board of Directors, to be paid by the Corporation (and any successor of the Corporation by merger or otherwise) the expenses incurred in connection with defending any Proceeding in advance of its final disposition, such advances to be paid by the Corporation within twenty (20) days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided that if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not, except to the extent specifically required by applicable law, in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter, the “Undertaking”) by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal (a “final disposition”) that such director or officer is not entitled to be indemnified for such expenses under this Bylaw or otherwise.
(c)    Indemnification in Respect of Successful Defense. Any indemnification of a director or officer of the Corporation or advance of expenses (including attorneys’ fees, costs and charges) under Section 6.1(a)‒(b) shall be made promptly, and in any event within forty-five (45) days (or, in the case of an advance of expenses, twenty (20) days, provided that the director or officer has delivered the undertaking contemplated by Section 6.1(b)), upon the written request of the director or officer. If a determination by the Corporation that the director or officer is entitled to indemnification pursuant to this Section 6.1 is required, and the Corporation fails to respond within sixty (60) days to a written request for indemnity, the Corporation shall be deemed to have approved the request.
(d)    Procedure. To obtain indemnification under this Article VI, a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification, a determination, if required by applicable law, with respect to the claimant’s entitlement thereto shall be made as follows: (i) by a majority of Disinterested Directors (as hereinafter defined), even though less than a quorum; (ii) by a committee of Disinterested Directors designated by majority vote of the Disinterested Directors, even though less than a quorum; (iii) if there are no Disinterested Directors, or if the Disinterested Directors so direct, by Independent Counsel (as hereinafter defined), in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant; or (iv) if a majority of the Disinterested Directors so directs, by a majority vote of the stockholders of the Corporation. In the event the determination of entitlement to indemnification is to be made by Independent Counsel, the Independent Counsel shall be selected by the Disinterested Directors, unless there shall have occurred within two (2) years prior to the date of the commencement of the Proceeding for which indemnification is claimed a “Change of Control” as defined in the Corporation’s 2022] Omnibus Incentive Compensation Plan, in which case the Independent Counsel shall be selected by the claimant, unless the claimant shall request that such selection be made by the Disinterested Directors. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within ten (10) days after such determination. If a claim for indemnification under this Article VI is not paid in full by the Corporation within thirty (30) days after a written claim pursuant to Section 6.1(d) of these Bylaws has been received by the Corporation, or if a request for advancement of expenses under this Article VI is not paid in full by the Corporation within twenty (20) days after a statement pursuant to Section 6.1(b) of these Bylaws and the required Undertaking, if any, have been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim for indemnification or request for advancement of expenses and, if successful, in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action that,
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under the DGCL, the claimant has not met the standard of conduct which makes it permissible for the Corporation to indemnify the claimant for the amount claimed or that the claimant is not entitled to the requested advancement of expenses, but (except where the required Undertaking, if any, has not been tendered to the Corporation) the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Disinterested Directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Disinterested Directors, Independent Counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
(e)    If a determination shall have been made pursuant to Section 6.1(d) of these Bylaws that the claimant is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to Section 6.1(d).
(f)    The Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to Section 6.1(d) that the procedures and presumptions of this Bylaw are not valid, binding and enforceable and shall stipulate in such proceeding that the Corporation is bound by all the provisions of this Bylaw.
SECTION 6.2    Contract Rights; Amendment and Repeal; Non-Exclusivity of Rights.
(a)    All of the rights conferred in this Article VI, as to indemnification, advancement of expenses and otherwise, shall be contract rights between the Corporation and each Covered Person to whom such rights are extended that vest at the commencement of such Covered Person’s service to or at the request of the Corporation and: (i) any amendment or modification of this Article VI that in any way diminishes or adversely affects any such rights shall be prospective only and shall not in any way diminish or adversely affect any such rights with respect to such person; and (ii) all of such rights shall continue as to any such Covered Person who has ceased to be a director or officer of the Corporation or ceased to serve at the Corporation’s request as a director, officer, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, as described herein, and shall inure to the benefit of such Covered Person’s heirs, executors and administrators.
(b)    All of the rights conferred in this Article VI, as to indemnification, advancement of expenses and otherwise: (i) shall not be exclusive of any other rights to which any person seeking indemnification or advancement of expenses may be entitled or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise both as to action in such person’s official capacity and as to action in another capacity while holding such office; and (ii) cannot be terminated or impaired by the Corporation, the Board of Directors or the stockholders of the Corporation with respect to a person’s service prior to the date of such termination.
SECTION 6.3    Insurance, Other Indemnification and Advancement of Expenses.
(a)    The Corporation may maintain insurance, at its expense, to protect itself and any current or former director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.
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(b)    The Corporation may, to the extent authorized from time to time by the Board of Directors or the Chief Executive Officer, grant rights to indemnification and rights to advancement of expenses incurred in connection with any Proceeding in advance of its final disposition, to any current or former officer, employee or agent of the Corporation to the fullest extent permitted by applicable law.
SECTION 6.4    Notice. Any notice, request or other communication required or permitted to be given to the Corporation under this Article VI shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary and shall be effective only upon receipt by the Secretary.
SECTION 6.5    Severability. If any provision or provisions of this Article VI 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 Article VI (including, without limitation, each portion of any paragraph of this Article VI 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 (b) to the fullest extent possible, the provisions of this Article VI (including, without limitation, each such portion of any paragraph of this Article VI containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
ARTICLE VII

MISCELLANEOUS PROVISIONS
SECTION 7.1    Fiscal Year. The fiscal year of the Corporation shall begin on the first (1st) day of January and end on the thirty-first (31st) day of December of each year.
SECTION 7.2    Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and the Certificate of Incorporation.
SECTION 7.3    Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation and the words “Corporate Seal” and “Delaware.” The form of such seal shall be subject to alteration by the Board. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or reproduced or may be used in any other lawful manner.
SECTION 7.4    Waiver of Notice. Whenever any notice is required to be given to any stockholder or director of the Corporation under the provisions of the DGCL, the Certificate of Incorporation or these Bylaws, a waiver thereof in writing, signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the stockholders or the Board of Directors or committee thereof need be specified in any waiver of notice of such meeting.
SECTION 7.5    Audits. The accounts, books and records of the Corporation shall be audited upon the conclusion of each fiscal year by an independent certified public accountant selected by the Board of Directors.
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SECTION 7.6    Resignations. Any director or any officer, whether elected or appointed, may resign at any time by giving written notice of such resignation to the Chairman of the Board or the Secretary, and such resignation shall be deemed to be effective as of the close of business on the date said notice is received by the Chairman of the Board or the Secretary, or at such later time as is specified therein. Except to the extent specified in such notice, no formal action shall be required of the Board of Directors or the stockholders to make any such resignation effective.
SECTION 7.7    Reliance on Reports and Experts. To the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, a member of the Board, or a member of any committee designated by the Board, shall, in the performance of such member’s duties, be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.
SECTION 7.8    Definitions. For purposes of these Bylaws:
(i)    “affiliate” and “associate” shall have the meanings ascribed thereto in Rule 405 under the Exchange Act; provided, however, that the term “partner” as used in the definition of “associate” shall not include any limited partner that is not involved in the management of the relevant partnership.
(ii)    “Disinterested Director” means a director of the Corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant.
(iii)    “Independent Counsel” means a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Corporation or the claimant in an action to determine the claimant’s rights under these Bylaws.
(iv)    “Public Announcement” means disclosure in a press release reported by a national news service or in a document publicly filed by the Corporation with the SEC pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.
(v)    “SEC” means the U.S. Securities and Exchange Commission.
(vi)    “Voting Stock” means the outstanding shares of capital stock of the Corporation entitled to vote generally for the election of directors.
ARTICLE VIII

CONTRACTS, PROXIES
SECTION 8.1    Contracts. Except as otherwise required by applicable law, the Certificate of Incorporation or these Bylaws, any contracts or other instruments may be executed and delivered in the name and on behalf of the Corporation by such officer or officers of the Corporation as the Board of Directors may from time to time direct. Such authority may be general or confined to specific instances as the Board may determine. The Chairman of the Board, the Chief Executive Officer or the President of the Corporation may execute bonds,
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contracts, deeds, leases and other instruments to be made or executed by or on behalf of the Corporation. Subject to any restrictions imposed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President of the Corporation may delegate contractual powers to others under his jurisdiction, it being understood, however, that any such delegation of power shall not relieve such officer of responsibility with respect to the exercise of such delegated power.
SECTION 8.2    Proxies. Unless otherwise provided by resolution adopted by the Board of Directors, the Chairman of the Board, the Chief Executive Officer, the President or any Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation or entity, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation or entity, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation or entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper in the premises
ARTICLE IX

AMENDMENTS
SECTION 9.1    Amendment.
(a)    By the Stockholders. Subject to the provisions of the Certificate of Incorporation, these Bylaws may be altered, amended or repealed, or new Bylaws enacted, at any special meeting of the stockholders if duly called for that purpose (provided that in the notice of such special meeting, notice of such purpose shall be given), or at any annual meeting, by the affirmative vote of the holders of a majority of the Voting Stock.
(b)    By the Board of Directors. Subject to the laws of the State of Delaware, the Certificate of Incorporation and these Bylaws, these Bylaws may also be altered, amended or repealed, or new Bylaws enacted, by the Board of Directors.
ARTICLE X

CONSTRUCTION
SECTION 10.1    Construction. In the event of any conflict between the provisions of these Bylaws as in effect from time to time and the provisions of the Certificate of Incorporation of the Corporation as in effect from time to time, the provisions of such Certificate of Incorporation shall be controlling.
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Exhibit 10.1
xpologisticslogo.jpg
May 6, 2022
Drew Wilkerson
[address]

Dear Drew,
On behalf of the leadership team of XPO Logistics, Inc. (“XPO”), I’m happy to offer you a new position as Chief Executive Officer of the anticipated spin-off of XPO’s North American Transportation (“NAT”) segment (“SpinCo” or the “Company”), subject to and commencing upon the completion of the spin-off of NAT, which is expected to occur in the second half of 2022 (the “Spin-Off Effective Date”). If the spin-off does not occur, you will remain in your existing role of President, NAT, subject to the existing terms and conditions of your employment with XPO. I know I speak for the rest of our team when I say how pleased we are to make you this offer. This letter sets forth all of the terms and conditions of the offer.
Reporting and Work Location. In your role as Chief Executive Officer of SpinCo, you’ll report directly to SpinCo’s Board of Directors, and lead SpinCo. You’ll be based out of SpinCo’s Charlotte, North Carolina office.
Full-Time Employment. During your employment, you will be required to devote your full time and attention to your duties and responsibilities for the Company. You may not engage in any outside full or part-time employment without the prior written consent of the Company. For the avoidance of doubt, this does not preclude you from serving as an officer or director or otherwise participating in non-profit, educational, social welfare, religious or civic organizations, provided any such activities do not unreasonably interfere with the performance of your duties and responsibilities to the Company.
Your Compensation. We’d like to offer you the following compensation package:
•Base Salary: You’ll receive an annual base salary of $650,000, paid on a biweekly basis, less all applicable withholdings and deductions, and pro-rated for any partial period worked.
•Non-Pro-rated Annual Incentive: You will be eligible to participate in the Company’s annual incentive plan, subject to the terms and conditions of the plan, as may be amended. The incentive plan structure is based on a target percentage of your base salary. The target incentive for you is 135% of your base salary. You will have the opportunity to earn 0% to 200% of your target incentive based on the aggregate level of achievement of your performance goals and the Company’s achievement of its business goals. Your performance goals, the Company’s business goals, and the payout curve for the bonus plan will be determined annually by the Compensation Committee of the Company’s Board of Directors (or its delegate) in its discretion. Your annual incentive will not be pro-rated for the year in which you begin employment as the CEO of SpinCo.


•Long-term Incentive: You will be eligible for a long-term incentive award, the amount, form and timing of which will be determined by SpinCo following the Spin-Off Effective Date. Any such award will be contingent upon the approval of the Compensation Committee of SpinCo’s Board of Directors or its delegate.
•Incentive Grant: On May 2, 2022 (the “Grant Date”), XPO awarded you an initial long-term stock incentive award (the “Incentive Grant”) with a Grant Date value of $7,500,000 to be awarded in the form of Company Performance-Based Stock Units (“PSUs”). The PSUs will vest in increments over five years following the Grant Date, contingent upon (i) the occurrence of the spin-off by December 31, 2022 and (ii) your continuous employment with XPO through the date of the spin-off and then with SpinCo following the spin-off through each applicable vesting date. If either of these vesting conditions is not satisfied, then any unvested portion of the Incentive Grant shall be forfeited. In connection with the spin-off, it is expected that the Incentive Grant will be converted into an award relating to SpinCo common stock based on an adjustment methodology to be approved by the Compensation Committee of the Company’s Board of Directors.
•Annual and long-term incentive awards will be reflective of your individual performance and contributions, Company performance, and the scope and expectations of your role in the Company. As an at-will employee, annual and long-term incentives are subject to change at the sole discretion of the Company’s Board of Directors.
Your Benefits.
We’re committed to hiring the best people, such as yourself. That’s why we offer a competitive benefits package-including healthcare coverage, personal time off, life/disability insurance, retirement planning and more. Additional details related to SpinCo’s benefits package will be provided to you following the Spin-Off Effective Date. Please note that the Company reserves the right to modify, amend and/or terminate the employee benefits at any time in its sole and absolute discretion, with or without prior notice to you, consistent with applicable law.
•Severance Benefits. You will also be eligible for severance payments and other benefits upon certain qualifying termination events, subject to the terms and conditions of the SpinCo Severance Plan (“Plan”). A draft form of the Plan is attached, which will be finalized prior to the spin-off and become effective on the Spin-Off Effective Date.
•Company Policies. As a condition of your continued employment, you are required to abide by the Company’s rules and policies as may be published from time to time.
•SpinCo Confidential Information Protection Agreement. As a condition of your initial employment with SpinCo, you will be required to sign a Confidential Information Protection Agreement (“CIPA”) with SpinCo (the “SpinCo CIPA”). As the Spin-Off Effective Date and name of SpinCo are not yet public information, we have enclosed a draft of the form SpinCo CIPA to provide you with the general terms of the anticipated SpinCo CIPA, which, among other things, prohibits unauthorized use or disclosure of SpinCo’s confidential and proprietary information, and includes an 18-month non-competition provision and a two-year non-solicitation provision following the termination of your employment with SpinCo. You will be


provided with the final execution copy of the SpinCo CIPA in advance of the Spin-Off Effective Date, which you will be required to sign by the Spin-Off Effective Date.
•XPO CIPA. Your existing CIPA with XPO (the “XPO CIPA”) will remain in effect in accordance with its terms, and XPO and its affiliates reserve all rights to enforce the provisions of the XPO CIPA as to XPO’s remaining business following the Spin-Off Effective Date. By signing this letter, you and XPO agree that the separation of your employment with XPO in connection with your transition to SpinCo is not considered a termination by XPO with or without Cause as defined under the XPO CIPA, and you are not entitled to any non-compete, severance, change in control, or other payments under the XPO CIPA upon separation of your employment with XPO in connection with the spin-off.
At-Will Employment. Your employment with the Company will be “at-will,” and shall continue only so long as continued employment is mutually agreeable to you and the Company. Either you or the Company may terminate the employment relationship at any time and for any reason, with or without cause or advance notice. We request that, in the event of resignation, you give the Company at least 30 days advance notice. Neither this offer letter nor any other written material issued by the Company constitutes a contract between you and the Company for employment, express or implied, for any specific duration.
Third Party Beneficiary. By signing this letter, you agree that SpinCo is an express third-party beneficiary of this letter, and this letter is for the benefit of SpinCo and XPO. You hereby expressly agree and consent to the assignment of this letter to SpinCo as of the Spin-Off Effective Date. All rights and obligations of XPO under this letter will transfer to SpinCo, and XPO will cease to have any obligations to you, as of the Spin-Off Effective Date.
Entire Offer. This letter, along with the SpinCo CIPA and SpinCo Severance Plan, contains the entire agreement and understanding between you and the Company regarding the employment relationship and supersedes any prior or contemporaneous agreements, understandings, communications, offers, representations, warranties, or commitments by or on behalf of the Company (oral or written). This offer letter is not to be construed as a contract for employment in any particular position for any particular salary or time period.
Taking the next step. As you know, XPO has generated tremendous momentum, thanks to the efforts of our people. With you on our team, we’re sure to continue along this trajectory and move forward to greater success.
Please make sure you’ve read the offer letter completely, plus all information included with it. Then sign and return the offer letter by e-mail to me at [email address]. This offer of employment will terminate if it is not accepted, signed, and returned within ten (10) business days from the date above.


If you have any questions, please reach out to me at [telephone number] or [email address].
We look forward to working with you!
Sincerely,
/s/Josephine Berisha
Josephine Berisha,
Chief Human Resources Officer
[email address]
Enclosures: Form SpinCo Confidential Information Protection Agreement; Draft Severance Plan
EMPLOYMENT ACCEPTANCE
I accept XPO’s offer of employment as stated above.
/s/Drew Wilkerson
Drew Wilkerson
5/9/22
Date
Exhibit 10.2
image_0.jpg
August 24, 2022
Jamie Harris
[address]

Dear Jamie,
On behalf of the leadership team of XPO Logistics, Inc. (“XPO”), I’m happy to offer you the position of Chief Financial Officer (“CFO”), NAT at XPO Logistics, Inc. (“XPO”) until the completion of the anticipated spinoff of XPO’s North American Transportation (“NAT”) segment, RXO Inc. (“RXO”), which is expected to occur in the second half of 2022 (the “Spinoff Effective Date”). Commencing on the Spinoff Effective Date, you will hold the position of CFO at RXO. I know I speak for the rest of our team when I say how pleased we are to make you this offer. This letter sets forth all of the terms and conditions of the offer.
Reporting and Work Location. In your initial role as CFO, NAT, you’ll report directly to XPO’s President, NAT, and lead NAT’s financial operations at XPO. In your role as CFO of RXO, you’ll report directly to RXO’s Chief Executive Officer, and manage RXO’s financial operations. Your anticipated start date will be September 26, 2022, and you’ll be based out of XPO’s Charlotte, North Carolina office. You will be based out of RXO’s Charlotte, North Carolina office on the Spinoff Effective Date.
Full-Time Employment. During your employment, you will be required to devote your full time and attention to your duties and responsibilities for the Company (“Company” here and for the remainder of this letter refers to XPO until the Spinoff Effective Date, and then refers to RXO on and after the Spinoff Effective Date). You may not engage in any outside full or part-time employment without the prior written consent of the Company. 
Your Compensation. We’d like to offer you the following compensation package:
•Base Salary: You’ll receive an annualized base salary of $600,000, paid on a biweekly basis, less all applicable withholdings and deductions, and pro-rated for any partial period worked. This is an exempt position, meaning you will not be eligible for overtime compensation.
•Non-Pro-Rated Annual Incentive: You will be eligible to participate in the Company’s annual incentive plan, subject to the terms and conditions of the plan, as may be amended. The incentive plan structure is based on a target percentage of your base salary. The target incentive for you is 100% of your base salary. You will have the opportunity to earn 0% to 200% of your target incentive based on the aggregate level of achievement of your performance goals (determined by the Chief Executive Officer) and the Company’s achievement of its business goals. Your performance goals, the Company's business goals, and the payout curve for the bonus plan will be determined annually by the Compensation


Committee of the Company’s Board of Directors or its delegate. Your annual incentive will not be pro-rated for the year in which you are hired.
•Long-term Incentive: You will be eligible for an annual long-term incentive award in the target amount of $1,350,000 based upon the Company and you reaching certain target performance goals after the end of the performance period. The form of the long-term incentive award will be determined by the Company following the Spinoff Effective Date. The annual long-term incentive award will be contingent upon the annual approval of the Compensation Committee of RXO’s Board of Directors or its delegate, which shall also have discretion to increase or decrease your award after the end of the applicable performance period.
•Cash Sign-on: You will receive a cash sign-on bonus in the total amount of $200,000, less applicable taxes and withholdings that will be paid to you by XPO in accordance with the Company’s payroll procedures on the normal payroll date following 30 days of your continuous employment.
If you voluntarily leave employment with the Company on or before 12 months of your start date with XPO for any reason other than to begin employment with RXO, you’re required to repay the Company 100% of the gross amount of the cash sign-on bonus. That repayment amount drops to 50% if you voluntarily leave the Company after 12 months but before 24 months of your start date with XPO.
•Incentive Grant: XPO intends to award you an initial long-term stock incentive award (the “Incentive Grant”) with a target grant date value of $4,000,000 to be awarded in the form of Company Performance-Based Restricted Stock Units (“PSUs”). The PSUs will vest in increments over five years following the grant date, contingent upon (i) the occurrence of the spinoff by March 31, 2023 and (ii) your continuous employment with XPO through the date of the spinoff and then with RXO following the spinoff through each applicable vesting date. If either of these vesting conditions is not satisfied, then any unvested portion of the Incentive Grant shall be forfeited. The Incentive Grant will be granted to you as soon as practicable following your start date with XPO and will be subject to the applicable terms and conditions set forth in the Omnibus Plan and the applicable award agreement. Upon the spinoff, the Incentive Grant will be converted into an award relating to RXO common stock based on an equitable adjustment methodology to be approved by the Compensation Committee of XPO’s Board of Directors.
•Replacement Grant: Subject to approval of the Compensation Committee of the Company’s Board of Directors or its delegate, in the event (i) the Incentive Grant is forfeited because the spinoff does not occur by March 31, 2023 and (ii) your employment with XPO is involuntarily terminated by XPO, XPO will award you a stock award with a grant date value of $2,000,000 (the “Replacement Award”) provided you timely sign and do not revoke a release satisfactory to XPO.  The stock underlying the Replacement Award will be fully vested upon grant, but will be subject to lock up restrictions, which will expire at annual intervals over a five year period following the grant date. 
Annual and long-term incentive awards will be reflective of your individual performance and contributions, Company performance, and the scope and expectations of your role in the


Company. As an at-will employee, annual and long-term incentives are subject to change at the sole discretion of the Company.  
Your Benefits.
We offer a competitive benefits package—including healthcare coverage, personal time off, life/disability insurance, retirement planning and more. Additional details related to RXO’s benefits package will be provided to you following the Spinoff Effective Date. Please note that the Company reserves the right to modify, amend and/or terminate the employee benefits at any time in its sole and absolute discretion, with or without prior notice to you, consistent with applicable law.
•Severance Benefits. You will also be eligible for severance payments and other benefits upon certain qualifying termination events, subject to the terms and conditions of the RXO Severance Plan (“Plan”). A draft form of the Plan is attached, which will be finalized prior to the spinoff and become effective on the Spinoff Effective Date.
Your Representations and Conditions of Employment.
•Representations. In your work for the Company, you are not permitted to use or disclose any confidential information, including trade secrets, of any former employer or other person to whom you have a confidentiality obligation. You are expected to use only generally known information which is used by persons with training and experience comparable to your own, which is common in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company.
◦You confirm that you have carefully reviewed your files (including emails, computer files and hard copies, whether personal or business) and deleted, and not retained copies of, any files prepared, generated or used during any prior employment that could contain confidential information or trade secrets of your current or former employer.
◦You agree not to bring onto the Company premises any unpublished documents or property belonging to any former employer or other person to whom you owe a confidentiality obligation.
◦By accepting this offer of employment, you affirm that you are not a party to any employment agreement, covenant not to compete, non-solicitation covenant, or other restrictive covenants that would preclude you from accepting employment with the Company.
◦During our discussions about your proposed job duties, you assured us that you would be able to perform those duties within the above-described guidelines.

•Company Policies. As a condition of your continued employment, you are required to abide by the Company’s rules and policies as may be published from time to time.



•Confidential Information Protection Agreement. Your acceptance of this offer and commencement of employment with XPO is contingent upon you entering into the enclosed Confidential Information Protection Agreement (“CIPA”), which prohibits unauthorized use or disclosure of XPO’s confidential and proprietary information and includes an 18-month non-competition provision and a two-year non-solicitation provision following the termination of your employment with XPO. In connection with the spinoff, as a condition of beginning your employment with RXO, you will be required to sign a CIPA with RXO (the “RXO CIPA”).

•Pre-Hire Screening and Work Authorization. This employment offer is contingent on the satisfactory conclusion of appropriate pre-employment background check and drug screen, as may be conducted by the Company in accordance with applicable law. As required by law, this offer is subject to satisfactory proof of your identity and authorization to work in the United States.
At-Will Employment. Your employment with the Company will be “at-will,” and shall continue only so long as continued employment is mutually agreeable to you and the Company. Either you or the Company may terminate the employment relationship at any time and for any reason, with or without cause or advance notice. We request that, in the event of resignation, you give the Company at least 30 days advance notice. Neither this offer letter nor any other written material issued by the Company constitutes a contract between you and the Company for employment, express or implied, for any specific duration. The at-will employment relationship cannot be changed except in writing signed by the Company's Chief Executive Officer.
If the spinoff of RXO is not completed by March 31, 2023, your employment with the Company shall be involuntarily terminated.
Third Party Beneficiary. By signing this letter, you agree that RXO is an express third-party beneficiary of this letter, and this letter, including your obligations to repay the cash sign-on bonus, is for the benefit of RXO and XPO. You hereby expressly agree and consent to the enforcement of your obligations to repay the cash sign-on bonus by XPO, RXO, and their respective successors and/or assigns. You hereby expressly agree and consent to the assignment of this letter to RXO as of the Spinoff Effective Date. All rights and obligations of XPO under this letter will transfer to RXO, and XPO will cease to have any obligations to you, as of the Spinoff Effective Date.
Entire Offer. This letter, along with the XPO CIPA, contains the entire agreement and understanding between you and the Company regarding the employment relationship and supersedes any prior or contemporaneous agreements, understandings, communications, offers, representations, warranties, or commitments by or on behalf of the Company (oral or written). This offer letter is not to be construed as a contract for employment in any particular position for any particular salary or time period. 


Taking the next step. As you know, XPO has generated tremendous momentum, thanks to the efforts of our people. With you on our team, we’re sure to continue along this trajectory and move forward to greater success.
Please make sure you’ve read the offer letter completely, plus all information included with it. Then sign and return the offer letter by e-mail to me at [email address]. This offer of employment will terminate if it is not accepted, signed, and returned within ten (10) business days from the date above.
If you have any questions, please reach out to me at [telephone number] or [email address]. We look forward to working with you!


Sincerely,
/s/Josephine Berisha,
Josephine Berisha,
Chief Human Resources Officer 
Josephine.Berisha@xpo.com
Enclosures: XPO Confidential Information Protection Agreement; Draft RXO Severance Plan
EMPLOYMENT ACCEPTANCE
I accept XPO’s offer of employment as stated above.
/s/Jamie Harris
Jamie Harris 
8/26/2022
Date
Exhibit 10.3
image_0a.jpg
July 19, 2022
Jeff Firestone
[address]

Dear Jeff,
On behalf of the leadership team of XPO Logistics, Inc. (“XPO”), I’m happy to offer you the position of Chief Legal Officer, NAT at XPO Logistics, Inc. (“XPO”) until the completion of the anticipated spin-off of XPO’s North American Transportation (“NAT”) segment (“SpinCo”), which is expected to occur in the second half of 2022 (the “Spin-off Effective Date”). Commencing on the Spin-Off Effective Date, you will hold the position of Chief Legal Officer at SpinCo. I know I speak for the rest of our team when I say how pleased we are to make you this offer. This letter sets forth all of the terms and conditions of the offer.
Reporting and Work Location. In your initial role as Chief Legal Officer, NAT, you’ll report directly to XPO’s President, NAT, and lead the NAT legal group at XPO. In your role as Chief Legal Officer of SpinCo, you’ll report directly to SpinCo’s Chief Executive Officer, and lead the legal group at SpinCo. Tentatively beginning on August 22, 2022, you’ll be based out of XPO’s Charlotte, North Carolina office. On the Spin-off Effective Date, you’ll be based out of SpinCo’s Charlotte, North Carolina office.
Full-Time Employment. During your employment, you will be required to devote your full time and attention to your duties and responsibilities for the Company (“Company” here and for the remainder of this letter refers to XPO until the Spin-Off Effective Date, and then refers to SpinCo on and after the Spin-Off Effective Date). You may not engage in any outside full or part-time employment without the prior written consent of the Company. 
Your Compensation. We’d like to offer you the following compensation package:
•Base Salary: You’ll receive an annual base salary of $525,000, paid on a biweekly basis, less all applicable withholdings and deductions, and pro-rated for any partial period worked.
•Annual Incentive: You will be eligible to participate in the Company’s annual incentive plan, subject to the terms and conditions of the plan, as may be amended. The incentive plan structure is based on a target percentage of your base salary. The target incentive for you is 100% of your base salary. You will have the opportunity to earn 0% to 200% of your target incentive based on the aggregate level of achievement of your performance goals (determined by the Chief Executive Officer) and the Company’s achievement of its business goals. Your performance goals, the Company's business goals, and the payout curve for the bonus plan will be determined annually by the Company in its discretion and, as necessary, based upon approval of the Compensation Committee of SpinCo’s Board of Directors or its delegate. Your annual incentive will not be pro-rated for the year in which you are hired.
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•Long-term Incentive: You will be eligible for a long-term incentive award in the annualized target amount of $1,000,000, the amount, form and timing of which will be determined by SpinCo following the Spin-off Effective Date. Any such award will be contingent upon the approval of the Compensation Committee of SpinCo’s Board of Directors or its delegate.  
•Incentive Grant: XPO intends to award you an initial long-term stock incentive award (the “Incentive Grant”), as soon as practicable after your start date, with a target grant date value of $2,000,000 to be awarded in the form of Company Performance-Based Stock Units. The Incentive Grant is expected to vest in increments over five years following the grant date, contingent upon (i) the occurrence of the NAT spin-off by March 31, 2023 and (ii) your continuous employment with XPO through the date of the NAT spin-off and then with SpinCo following the NAT spin-off through each applicable vesting date. If either of these vesting conditions is not satisfied, then any unvested portion of the Incentive Grant shall be forfeited. Subject to the approval of XPO’s Compensation Committee, in connection with the spin-off, it is expected that the Incentive Grant will be converted into an award relating to SpinCo common stock based on an adjustment methodology to be approved by XPO’s Compensation Committee.
•Annual and long-term incentive awards will be reflective of your individual performance and contributions, Company performance, and the scope and expectations of your role in the Company. As an at-will employee, annual and long-term incentives are subject to change at the sole discretion of the Company.  
•Cash Sign-on: You are eligible to receive a cash sign-on bonus in the amount of $700,000, less applicable taxes and withholdings. If you voluntarily leave employment with the Company on or before 12 months of your start date with XPO for any reason other than to begin employment with SpinCo, you’re required to repay the Company 100% of the gross amount of the sign-on bonus. That figure drops to 50% if you leave the Company after 12 months but before 24 months of your start date with XPO.
•Buyout Equity (RSUs): Subject to approval of the Compensation Committee of the Company’s Board of Directors or its delegate, you will be granted a one-time award having a value of $1,000,000 at the time of grant in the form of time-based restricted stock units (RSUs) as soon as practicable after your start date, subject to the following vesting schedule and your continuing employment with the Company on such date. The RSUs will vest in three equal increments on the first three anniversaries of the grant date.
o    Subject to the approval of XPO’s Compensation Committee, in connection with the spin-off, it is expected that the shares of XPO stock underlying your RSUs will be converted into an award relating to SpinCo common stock based on an adjustment methodology to be approved by XPO’s Compensation Committee.
Your Benefits.
We offer a competitive benefits package—including healthcare coverage, personal time off, life/disability insurance, retirement planning and more. Additional details related to SpinCo’s benefits package will be provided to you following the Spin-off Effective Date. Please note that the Company reserves the right to modify, amend and/or terminate the employee benefits at any
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time in its sole and absolute discretion, with or without prior notice to you, consistent with applicable law.
o    Severance Benefits. You will also be eligible for severance payments and other benefits upon certain qualifying termination events, subject to the terms and conditions of the SpinCo Severance Plan (“Plan”). A draft form of the Plan is attached, which will be finalized prior to the spin-off and become effective on the Spin-off Effective Date.
Your Representations and Conditions of Employment.
•Representations. In your work for the Company, you are not permitted to use or disclose any confidential information, including trade secrets, of any former employer or other person to whom you have a confidentiality obligation. You are expected to use only generally known information which is used by persons with training and experience comparable to your own, which is common in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company.
o    You confirm that you have carefully reviewed your files (including emails, computer files and hard copies, whether personal or business) and deleted, and not retained copies of, any files prepared, generated or used during any prior employment that could contain confidential information or trade secrets of your current or former employer.
o    You agree not to bring onto the Company premises any unpublished documents or property belonging to any former employer or other person to whom you owe a confidentiality obligation.
o    By accepting this offer of employment, you affirm that you are not a party to any employment agreement, covenant not to compete, non-solicitation covenant, or other restrictive covenants that would preclude you from accepting employment with the Company.
o    During our discussions about your proposed job duties, you assured us that you would be able to perform those duties within the above-described guidelines.
•Company Policies. As a condition of your continued employment, you are required to abide by the Company’s rules and policies as may be published from time to time.
•Confidential Information Protection Agreement. Your acceptance of this offer and commencement of employment with XPO is contingent upon you entering into the enclosed Confidential Information Protection Agreement (“CIPA”), which prohibits unauthorized use or disclosure of XPO’s confidential and proprietary information and includes an 18-month non-competition provision and a two-year non-solicitation provision following the termination of your employment with XPO. In connection with the spin-off, as a condition of beginning your employment with SpinCo, you will be required to sign a CIPA with SpinCo (the “SpinCo CIPA”).
•Pre-Hire Screening and Work Authorization. This employment offer is contingent on the satisfactory conclusion of appropriate pre-employment background check and drug screen, as may be conducted by the Company in accordance with applicable law. As required by law,
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this offer is subject to satisfactory proof of your identity and authorization to work in the United States.
At-Will Employment. Your employment with the Company will be “at-will,” and shall continue only so long as continued employment is mutually agreeable to you and the Company. Either you or the Company may terminate the employment relationship at any time and for any reason, with or without cause or advance notice. We request that, in the event of resignation, you give the Company at least 30 days advance notice. Neither this offer letter nor any other written material issued by the Company constitutes a contract between you and the Company for employment, express or implied, for any specific duration.
Third Party Beneficiary. By signing this letter, you agree that SpinCo is an express third-party beneficiary of this letter, and this letter, including your obligations to repay the cash sign-on bonus, is for the benefit of SpinCo and XPO. You hereby expressly agree and consent to the enforcement of your obligations to repay the cash sign-on bonus by XPO, SpinCo, and their respective successors and/or assigns. You hereby expressly agree and consent to the assignment of this letter to SpinCo as of the Spin-off Effective Date. All rights and obligations of XPO under this letter will transfer to SpinCo, and XPO will cease to have any obligations to you, as of the Spin-off Effective Date.
Entire Offer. This letter, along with the XPO CIPA and SpinCo Severance Plan, contains the entire agreement and understanding between you and the Company regarding the employment relationship and supersedes any prior or contemporaneous agreements, understandings, communications, offers, representations, warranties, or commitments by or on behalf of the Company (oral or written). This offer letter is not to be construed as a contract for employment in any particular position for any particular salary or time period. 
Taking the next step. As you know, XPO has generated tremendous momentum, thanks to the efforts of our people. With you on our team, we’re sure to continue along this trajectory and move forward to greater success.
Please make sure you’ve read the offer letter completely, plus all information included with it. Then sign and return the offer letter by e-mail to me at [email address]. This offer of employment will terminate if it is not accepted, signed, and returned within ten (10) business days from the date above.
If you have any questions, please reach out to me at [telephone number] or [email address]. We look forward to working with you!
Sincerely,
/s/ Josephine Berisha
Josephine Berisha
Chief Human Resources Officer 
[email address]
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Enclosures: XPO Confidential Information Protection Agreement; Draft Severance Plan
EMPLOYMENT ACCEPTANCE
I accept XPO’s offer of employment as stated above.
/s/ Jeff Firestone
Jeff Firestone 
July 20, 2022
Date
5
Exhibit 10.4
FORM OF
RXO, INC. 2022 OMNIBUS INCENTIVE COMPENSATION PLAN
SECTION 1.    Purpose. The purpose of this RXO, Inc. 2022 Omnibus Incentive Compensation Plan (the “Plan”) is to promote the interests of the Company and its stockholders by (a) attracting and retaining exceptional directors, officers, employees and consultants (including prospective directors, officers, employees and consultants) of the Company (as defined below) and its Affiliates (as defined below) and (b) enabling such individuals to participate in the long-term growth and financial success of the Company.
SECTION 2.    Definitions. As used herein, the following terms shall have the meanings set forth below:
“Affiliate” means (a) any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company and/or (b) any entity in which the Company has a significant equity interest, in each case, as determined by the Committee.
“Assumed Spin-Off Award” means an award granted to certain employees, consultants and directors of the Company, XPO Logistics, Inc. and their respective subsidiaries under an equity compensation plan maintained by XPO Logistics, Inc., which Award is assumed by the Company in connection with the Spin-Off, pursuant to the terms of the Employee Matters Agreement.
“Award” means any award that is permitted under SECTION 6 and was granted under the Plan, including an Assumed Spin-Off Award.
“Award Agreement” means any written or electronic agreement, contract or other instrument or document evidencing any Award, which may (but need not) require execution or acknowledgment by a Participant.
“Applicable Exchange” means the New York Stock Exchange LLC or any other national stock exchange or quotation system on which the Shares may be listed or quoted.
“Board” means the Board of Directors of the Company.
“Cash Incentive Award” means an Award (a) that is granted pursuant to SECTION 6(f) of the Plan, (b) that is settled in cash and (c) the value of which is set by the Committee and is not calculated by reference to the Fair Market Value of Shares.
“Change of Control” shall (a) have the meaning set forth in an Award Agreement; provided, however, that except in the case of a transaction described in subparagraph (b)(iii) below, any definition of Change of Control set forth in an Award Agreement shall provide that a Change of Control shall not occur until consummation or effectiveness of a change in control of the Company, rather than upon the announcement, commencement, stockholder approval or other potential occurrence of any event or transaction that, if completed, would result in a change in control of the Company, or (b) if there is no definition set forth in an Award Agreement, mean the occurrence of any of the following events:
(i)during any period, individuals who were directors of the Company on the first day of such period (the “Incumbent Directors”) cease for any reason to constitute a majority of the Board; provided, however, that any individual becoming a director subsequent to the first day of such period whose election, or nomination by the Board for election by the Company’s stockholders, was approved by a vote of at least a majority of the Incumbent Directors shall be considered as though such individual were an Incumbent Director, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person (as defined below) other than the Board (including without limitation any settlement thereof);
(ii)the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction (but not, for the avoidance of doubt, a sale of assets) involving the Company (each, a “Reorganization”) if such Reorganization requires the approval of the Company’s stockholders under the law of the Company’s jurisdiction of organization (whether such approval is required for such Reorganization or for the issuance of securities of the Company in such Reorganization), unless, immediately following such Reorganization, (1) individuals and entities who were the “beneficial owners” (as such term is defined in


Rule 13d-3 under the Exchange Act (or a successor rule thereto)) of the securities eligible to vote for the election of the Board (“Company Voting Securities”) outstanding immediately prior to the consummation of such Reorganization continue to beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities of the corporation or other entity resulting from such Reorganization (including a corporation that, as a result of such transaction, owns the Company either directly or through one or more subsidiaries) (the “Continuing Company”) in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Reorganization (excluding, for such purposes, any outstanding voting securities of the Continuing Company that such beneficial owners hold immediately following the consummation of the Reorganization as a result of their ownership prior to such consummation of voting securities of any corporation or other entity involved in or forming part of such Reorganization other than the Company), (2) no “person” (as such term is used in Section 13(d) of the Exchange Act) (each, a “Person”) (excluding (x) any employee benefit plan (or related trust) sponsored or maintained by the Continuing Company or any corporation controlled by the Continuing Company and (y) any one or more Specified Stockholders) beneficially owns, directly or indirectly, 30% or more of the combined voting power of the then outstanding voting securities of the Continuing Company and (3) at least 50% of the members of the board of directors of the Continuing Company (or equivalent body) were Incumbent Directors at the time of the execution of the definitive agreement providing for such Reorganization or, in the absence of such an agreement, at the time at which approval of the Board was obtained for such Reorganization;
(iii)the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company unless such liquidation or dissolution is part of a transaction or series of transactions described in paragraph (ii) above that does not otherwise constitute a Change of Control; or
(iv)any Person, corporation or other entity or “group” (as used in Section 14(d)(2) of the Exchange Act) (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or an Affiliate, (C) any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the voting power of the Company Voting Securities or (D) any one or more Specified Stockholders, including any group in which a Specified Stockholder is a member) becomes the beneficial owner, directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company Voting Securities; provided, however, that for purposes of this subparagraph (iv), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Company, (x) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or an Affiliate, (y) any acquisition by an underwriter temporarily holding such Company Voting Securities pursuant to an offering of such securities or any acquisition by a pledgee of Company Voting Securities holding such securities as collateral or temporarily holding such securities upon foreclosure of the underlying obligation or (z) any acquisition pursuant to a Reorganization that does not constitute a Change of Control for purposes of subparagraph (ii) above.
“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto, and the regulations promulgated thereunder.
“Committee” means the Compensation Committee of the Board or a subcommittee thereof, or such other committee of the Board as may be designated by the Board to administer the Plan.
“Company” means RXO, Inc., a corporation organized under the laws of Delaware, together with any successor thereto.
“Deferred Share Unit” means a deferred share unit Award that represents an unfunded and unsecured promise to deliver Shares in accordance with the terms of the applicable Award Agreement.
“Employee Matters Agreement” means the Employee Matters Agreement dated entered into between the Company and XPO Logistics, Inc. in connection with the Spin-Off.
“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor statute thereto, and the regulations promulgated thereunder.
“Exercise Price” means (a) in the case of each Option, the price specified in the applicable Award Agreement as the price-per-Share at which Shares may be purchased pursuant to such Option or (b) in the case of each SAR, the price
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specified in the applicable Award Agreement as the reference price-per-Share used to calculate the amount payable to the applicable Participant pursuant to such SAR.
“Fair Market Value” means, except as otherwise provided in the applicable Award Agreement, (a) with respect to any property other than Shares, the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee and (b) with respect to Shares as of any date, (i) the closing per-share sales price of the Shares as reported by the Applicable Exchange for such stock exchange for such date or if there were no sales on such date, on the closest preceding date on which there were sales of Shares or (ii) in the event there shall be no public market for the Shares on such date, the fair market value of the Shares as determined in good faith by the Committee.
“Incentive Stock Option” means an option to purchase Shares from the Company that (a) is granted under SECTION 6(b) of the Plan and (b) is intended to qualify for special Federal income tax treatment pursuant to Sections 421 and 422 of the Code, as now constituted or subsequently amended, or pursuant to a successor provision of the Code, and which is so designated in the applicable Award Agreement.
“Independent Director” means a member of the Board (a) who is neither an employee of the Company nor an employee of any Affiliate, and (b) who, at the time of acting, is a “Non-Employee Director” under Rule 16b-3.
“Nonqualified Stock Option” means an option to purchase Shares from the Company that (a) is granted under SECTION 6(b) of the Plan and (b) is not an Incentive Stock Option.
“Option” means an Incentive Stock Option or a Nonqualified Stock Option or both, as the context requires.
“Participant” means any director, officer, employee or consultant (including any prospective director, officer, employee or consultant) of the Company or its Affiliates who is eligible for an Award under SECTION 5 and who is selected by the Committee to receive an Award under the Plan or who receives a Substitute Award pursuant to SECTION 4(c) or an Assumed Spin-Off Award.
“Performance Criteria” means the criterion or criteria that the Committee shall select for purposes of establishing the Performance Goal(s) for a Performance Period with respect to any Performance Award, which may include: (A) share price, (B) net income, earnings or earnings before or after taxes (including earnings before interest and taxes or earnings before interest, taxes, depreciation and amortization) including, in each case, for the avoidance of doubt, on an adjusted basis, (C) operating income, profit, operating profit or economic profit, (D) capital efficiency, (E) cash flow (including specified types or categories thereof including, but not limited to, operating cash flow and free cash flow), (F) cash flow return on capital, (G) revenues (including specified types or categories thereof), (H) return on stockholders’ equity, (I) return on investment or capital, (J) return on assets, (K) gross or net profitability/profit margins, (L) objective measures of productivity or operating efficiency, (M) costs (including specified types or categories thereof), (N) budgeted expenses (operating and capital), (O) market share (in the aggregate or by segment), (P) level or amount of acquisitions (in terms of size, number of transactions or otherwise), (Q) economic value-added, (R), enterprise value, (S) book value, (T) working capital, (U) safety and accident rates, (V) days sales outstanding, (W) customer satisfaction, (X) overall or selected premium or sales, (Y) expense ratio, (Z) gross or unit margin, and (AA) total stockholder return.
“Performance Formula” means, for a Performance Period, the one or more objective formulas applied against the relevant Performance Goal to determine, with regard to the Performance Award of a particular Participant, whether all, some portion but less than all, or none of such Award has been earned for the Performance Period.
“Performance Goal” means, for a Performance Period, the one or more goals established by the Committee for the Performance Period based upon the Performance Criteria.
“Performance Period” means the one or more periods of time as the Committee may select over which the attainment of one or more Performance Goals shall be measured for the purpose of determining a Participant’s right to and the payment of a Performance Award.
“Performance Award” means an Award under SECTION 6(e) of the Plan that is subject to the achievement of Performance Goals, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including without limitation, cash or Shares, or any combination thereof, upon achievement of such Performance Goals during the relevant Performance Period as the Committee shall establish at the time of such Award or thereafter.
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“Restricted Share” means a Share that is granted under SECTION 6(d) of the Plan that is subject to certain transfer restrictions, forfeiture provisions and/or other terms and conditions specified herein and in the applicable Award Agreement.
“RSU” means a restricted stock unit Award that is granted under SECTION 6(d) of the Plan and is designated as such in the applicable Award Agreement and that represents an unfunded and unsecured promise to deliver Shares, cash, other securities, other Awards or other property in accordance with the terms of the applicable Award Agreement.
“Rule 16b-3” means Rule 16b-3 as promulgated and interpreted by the SEC under the Exchange Act or any successor rule or regulation thereto as in effect from time to time.
“SAR” means a stock appreciation right Award that is granted under SECTION 6(c) of the Plan and that represents an unfunded and unsecured promise to deliver Shares, cash, other securities, other Awards or other property equal in value to the excess, if any, of the Fair Market Value per Share over the Exercise Price per Share of the SAR, subject to the terms of the applicable Award Agreement.
“SEC” means the Securities and Exchange Commission or any successor thereto and shall include the staff thereof.
“Shares” means shares of common stock of the Company, [$0.01] par value, or such other securities of the Company (a) into which such shares shall be changed by reason of a recapitalization, merger, consolidation, split-up, combination, exchange of shares or other similar transaction or (b) as may be determined by the Committee pursuant to SECTION 4(b).
“Specified Stockholder” means Bradley S. Jacobs, Jacobs Private Equity LLC and its Affiliates, or any other entity or organization controlled, directly or indirectly, by Bradley S. Jacobs.
“Spin-Off” means the distribution of the outstanding Shares to the stockholders of XPO Logistics, Inc. in [2022], pursuant to the Separation and Distribution Agreement between the Company and XPO Logistics, Inc. entered into in connection with such distribution.
“Subsidiary” means any entity in which the Company, directly or indirectly, possesses 50% or more of the total combined voting power of all classes of its stock.
“Substitute Awards” shall have the meaning specified in SECTION 4(c).
“Treasury Regulations” means all proposed, temporary and final regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).
SECTION 3.    Administration.
(a)Composition of the Committee. The Plan shall be administered by the Committee, which shall be composed of one or more directors, as determined by the Board; provided that, to the extent necessary to comply with the rules of the Applicable Exchange and Rule 16b-3 and to satisfy any other applicable laws or rules, the Committee shall be composed of two or more directors, all of whom shall be Independent Directors and all of whom shall meet the independence requirements of the Applicable Exchange.
(b)Authority of the Committee. Subject to the terms of the Plan and applicable law, and in addition to the other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have sole and plenary authority to administer the Plan, including the authority to (i) designate Participants, (ii) determine the type or types of Awards to be granted to a Participant, (iii) determine the number of Shares to be covered by, or with respect to which payments, rights or other matters are to be calculated in connection with, Awards, (iv) determine the terms and conditions of any Awards, (v) determine the vesting schedules of Awards and, if certain performance criteria must be attained in order for an Award to vest or be settled or paid, establish such performance criteria and certify whether, and to what extent, such performance criteria have been attained, (vi) determine whether, to what extent and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited or suspended, (vii) determine whether, to what extent and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder
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thereof or of the Committee, (viii) interpret, administer, reconcile any inconsistency in, correct any default in and/or supply any omission in, the Plan and any instrument or agreement relating to, or Award made under, the Plan, (ix) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan, (x) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, Awards, (xi) amend an outstanding Award or grant a replacement Award for an Award previously granted under the Plan if, in its sole discretion, the Committee determines that (A) the tax consequences of such Award to the Company or the Participant differ from those consequences that were expected to occur on the date the Award was granted or (B) clarifications or interpretations of, or changes to, tax law or regulations permit Awards to be granted that have more favorable tax consequences than initially anticipated and (xii) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
(c)Committee Decisions. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole and plenary discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Award and any stockholder.
(d)Indemnification. No member of the Board, the Committee or any employee of the Company (each such person, a “Covered Person”) shall be liable for any action taken or omitted to be taken or any determination made in good faith with respect to the Plan or any Award. Each Covered Person shall be indemnified and held harmless by the Company from and against (i) any loss, cost, liability or expense (including attorneys’ fees) that may be imposed upon or incurred by such Covered Person in connection with or resulting from any action, suit or proceeding to which such Covered Person may be a party or in which such Covered Person may be involved by reason of any action taken or omitted to be taken under the Plan or any Award Agreement and (ii) any and all amounts paid by such Covered Person, with the Company’s approval, in settlement thereof, or paid by such Covered Person in satisfaction of any judgment in any such action, suit or proceeding against such Covered Person; provided that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding, and, once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Company’s choice. The foregoing right of indemnification shall not be available to a Covered Person to the extent that a court of competent jurisdiction in a final judgment or other final adjudication, in either case not subject to further appeal, determines that the acts or omissions of such Covered Person giving rise to the indemnification claim resulted from such Covered Person’s bad faith, fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the Company’s Restated Certificate of Incorporation or Amended and Restated Bylaws, in each case, as may be amended from time to time. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which Covered Persons may be entitled under the Company’s Restated Certificate of Incorporation or Amended and Restated Bylaws, as a matter of law, or otherwise, or any other power that the Company may have to indemnify such persons or hold them harmless.
(e)Delegation of Authority to Officers. The Committee may delegate, on such terms and conditions as it determines in its sole and plenary discretion, to one or more officers of the Company the authority to make grants of Awards to officers (other than any officer subject to Section 16 of the Exchange Act), employees and consultants of the Company and its Affiliates (including any prospective officer (other than any such officer who is expected to be subject to Section 16 of the Exchange Act), employee or consultant) and all necessary and appropriate decisions and determinations with respect thereto.
(f)Awards to Non-Employee Directors. Notwithstanding anything to the contrary contained herein, the Board may, in its sole and plenary discretion, at any time and from time to time, grant Awards to non-employee directors or administer the Plan with respect to such Awards. In any such case, the Board shall have all the authority and responsibility granted to the Committee herein.
SECTION 4.    Shares Available for Awards; Cash Payable Pursuant to Awards.
(a)Shares and Cash Available. Subject to adjustment as provided in SECTION 4(b), the maximum aggregate number of Shares that may be delivered pursuant to Awards granted under the Plan shall be equal to [●], which includes Shares subject to all Assumed Spin-Off Awards (the “Plan Share Limit”), of which [●] Shares may be delivered pursuant to Incentive Stock Options granted under the Plan (such amount, the “Plan ISO Limit”).If, after the effective date of the Plan, any Award is forfeited (or otherwise
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expires, terminates or is canceled without the delivery of all Shares subject thereto), then, in any such case, any number of Shares subject to such Award that were not issued with respect to such Award shall not be treated as issued for purposes of reducing the Plan Share Limit. Notwithstanding the foregoing and for the avoidance of doubt, if Shares issued upon exercise, vesting or settlement of an Award are, or Shares owned by a Participant are, surrendered or tendered to the Company in payment of the Exercise Price of an Award (including any SAR) or any taxes required to be withheld in respect of an Award or if any Award based on the Fair Market Value of a Share is settled other than wholly by delivery of Shares (including cash settlement), in any such case, in accordance with the terms and conditions of the Plan and any applicable Award Agreement, such surrendered or tendered Shares or Awards not settled with Shares shall not again become available to be delivered pursuant to Awards under the Plan or increase the Plan ISO Limit. The maximum value of Shares available to be granted pursuant to Awards to any non-employee director under the Plan in any fiscal year of the Company shall be equal to $[●] as of the applicable date of grant provided that such limitation shall apply to Assumed Spin-Off Awards.
(b)Adjustments for Changes in Capitalization and Similar Events.
(i)In the event of any extraordinary dividend or other extraordinary distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, rights offering, stock split, reverse stock split, split-up or spin-off, the Committee shall equitably adjust any or all of (A) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted, including (1) the Plan Share Limit, and (2) the Plan ISO Limit, and (B) the terms of any outstanding Award, including (1) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards or to which outstanding Awards relate and (2) the Exercise Price, if applicable, with respect to any Award; provided, however, that the Committee shall determine the method and manner in which to effect such equitable adjustment.
(ii)In the event that the Committee determines that any reorganization, merger, consolidation, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares (including any Change of Control) such that an adjustment is determined by the Committee in its discretion to be appropriate or desirable, then the Committee may (A) in such manner as it may deem appropriate or desirable, equitably adjust any or all of (1) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Awards may be granted, including (W) the Plan Share Limit, and (X) the Plan ISO Limit, and (2) the terms of any outstanding Award, including (X) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Awards or to which outstanding Awards relate and (Y) the Exercise Price, if applicable, with respect to any Award, (B) if deemed appropriate or desirable by the Committee, make provision for a cash payment to the holder of an outstanding Award in consideration for the cancelation of such Award, including, in the case of an outstanding Option or SAR, a cash payment to the holder of such Option or SAR in consideration for the cancelation of such Option or SAR in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the Shares subject to such Option or SAR over the aggregate Exercise Price of such Option or SAR and (C) if deemed appropriate or desirable by the Committee, cancel and terminate any Option or SAR having a per-Share Exercise Price equal to, or in excess of, the Fair Market Value of a Share subject to such Option or SAR without any payment or consideration therefor.
(c)Substitute Awards. Awards may, in the discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by the Company or any of its Affiliates or a company acquired by the Company or any of its Affiliates or with which the Company or any of its Affiliates combines (“Substitute Awards”); provided, however, that in no event may any Substitute Award be granted in a manner that would violate the prohibitions on repricing of Options and SARs, as set forth in clauses (i), (ii) and (iii) of SECTION 7(b). The number of Shares underlying any Substitute Awards shall be counted against the Plan Share Limit; provided, however, that Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding awards previously granted by an entity that is acquired by the Company or any of its Affiliates or with which the Company or any of its Affiliates combines shall not be counted against the Plan Share Limit; provided further, however, that Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding stock options
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intended to qualify for special tax treatment under Sections 421 and 422 of the Code that were previously granted by an entity that is acquired by the Company or any of its Affiliates or with which the Company or any of its Affiliates combines shall be counted against the maximum aggregate number of Shares available for Incentive Stock Options under the Plan.
(d)Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares.
SECTION 5.    Eligibility. Any director, officer, employee or consultant (including any prospective director, officer, employee or consultant) of the Company or any of its Affiliates shall be eligible to be designated a Participant.
SECTION 6.    Awards.
(a)Types of Awards. Awards may be made under the Plan in the form of (i) Options, (ii) SARs, (iii) Restricted Shares, (iv) RSUs, (v) Deferred Share Units, (vi) Performance Awards (vii) Cash Incentive Awards and (viii) other equity-based or equity-related Awards that the Committee determines are consistent with the purpose of the Plan and the interests of the Company. Awards may be granted in tandem with other Awards. No Incentive Stock Option (other than an Incentive Stock Option that may be assumed or issued by the Company in connection with a transaction to which Section 424(a) of the Code applies) may be granted to a person who is ineligible to receive an Incentive Stock Option under the Code.
(b)Options.
(i)Grant. Subject to the provisions of the Plan, the Committee shall have sole and plenary authority to determine (A) the Participants to whom Options shall be granted, (B) subject to SECTION 4(a), the number of Shares subject to each Option to be granted to each Participant, (C) whether each Option shall be an Incentive Stock Option or a Nonqualified Stock Option and (D) the terms and conditions of each Option, including the vesting criteria, term, methods of exercise and methods and form of settlement. In the case of Incentive Stock Options, the terms and conditions of such grants shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code and any regulations related thereto, as may be amended from time to time. Each Option granted under the Plan shall be a Nonqualified Stock Option unless the applicable Award Agreement expressly states that the Option is intended to be an Incentive Stock Option. If an Option is intended to be an Incentive Stock Option, and if, for any reason, such Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option (or portion thereof) shall be regarded as a Nonqualified Stock Option appropriately granted under the Plan; provided that such Option (or portion thereof) otherwise complies with the Plan’s requirements relating to Nonqualified Stock Options.
(ii)Exercise Price. The Exercise Price of each Share covered by each Option shall be not less than 100% of the Fair Market Value of such Share (determined as of the date the Option is granted); provided, however, in the case of each Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Affiliate, the per-Share Exercise Price shall be no less than 110% of the Fair Market Value per Share on the date of the grant.
(iii)Vesting and Exercise. Subject to Section 6(i), each Option shall be vested and exercisable at such times, in such manner and subject to such terms and conditions as the Committee may, in its sole and plenary discretion, specify in the applicable Award Agreement or thereafter. Except as otherwise specified by the Committee in the applicable Award Agreement, each Option may only be exercised to the extent that it has already vested at the time of exercise. Each Option shall be deemed to be exercised when written or electronic notice of such exercise has been given to the Company in accordance with the terms of the Award by the person entitled to exercise the Award and full payment pursuant to SECTION 6(b)(iv) for the Shares with respect to which the Award is exercised has been received by the Company. Exercise of each Option in any manner shall result in a decrease in the number of Shares that thereafter may be available for sale under the Option and, except as expressly set forth in SECTION 4(a) and SECTION 4(c), in the number of Shares that may be available for purposes of the Plan, by the number of Shares as to which the Option is exercised. The Committee may impose such conditions with respect to the
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exercise of each Option, including any conditions relating to the application of Federal or state securities laws, as it may deem necessary or advisable.
(iv)Payment.
(A)No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the aggregate Exercise Price therefor is received by the Company, and the Participant has paid to the Company (or the Company has withheld in accordance with SECTION 9(d)) an amount equal to any Federal, state, local and foreign income and employment taxes required to be withheld. Such payments may be made in cash (or its equivalent) or, in the Committee’s sole and plenary discretion, (1) by exchanging Shares owned by the Participant (which are not the subject of any pledge or other security interest), (2) if there shall be a public market for the Shares at such time, subject to such rules as may be established by the Committee, through delivery of irrevocable instructions to a broker to sell the Shares otherwise deliverable upon the exercise of the Option and to deliver cash promptly to the Company, (3) by having the Company withhold Shares from the Shares otherwise issuable pursuant to the exercise of the Option or (4) through any other method (or combination of methods) as approved by the Committee; provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Shares so tendered to the Company, together with any Shares withheld by the Company in accordance with this SECTION 6(b)(iv) or SECTION 9(d), as of the date of such tender, is at least equal to such aggregate Exercise Price and the amount of any Federal, state, local or foreign income or employment taxes required to be withheld, if applicable.
(B)Wherever in the Plan or any Award Agreement a Participant is permitted to pay the Exercise Price of an Option or taxes relating to the exercise of an Option by delivering Shares, the Participant may, subject to procedures satisfactory to the Committee, satisfy such delivery requirement by presenting proof of beneficial ownership of such Shares, in which case the Company shall treat the Option as exercised without further payment and shall withhold such number of Shares from the Shares acquired by the exercise of the Option.
(v)Expiration. Except as otherwise set forth in the applicable Award Agreement, each Option shall expire immediately, without any payment, upon the earlier of (A) the tenth anniversary of the date the Option is granted (or, in the case of each Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Affiliate, the fifth anniversary of the date the Option is granted) and (B) three months after the date the Participant who is holding the Option ceases to be a director, officer, employee or consultant of the Company or one of its Affiliates. In no event may an Option be exercisable after the tenth anniversary of the date the Option is granted.
(c)SARs.
(i)(Grant. Subject to the provisions of the Plan, the Committee shall have sole and plenary authority to determine (A) the Participants to whom SARs shall be granted, (B) subject to SECTION 4(a), the number of SARs to be granted to each Participant, (C) the Exercise Price thereof and (D) the conditions and limitations applicable to the exercise thereof.
(ii)Exercise Price. The Exercise Price of each Share covered by a SAR shall be not less than 100% of the Fair Market Value of such Share (determined as of the date the SAR is granted).
(iii)Vesting and Exercise. Each SAR shall entitle the Participant to receive an amount upon exercise equal to the excess, if any, of the Fair Market Value of a Share on the date of exercise of the SAR over the Exercise Price thereof. The Committee shall determine, in its sole and plenary discretion, whether a SAR shall be settled in cash, Shares, other securities, other Awards, other property or a combination of any of the foregoing. Subject to Section 6(i), each SAR shall be vested and exercisable at such times, in such manner and subject to such terms and
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conditions as the Committee may, in its discretion, specify in the applicable Award Agreement or thereafter.
(iv)Other Terms and Conditions. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine, at or after the grant of a SAR, the vesting criteria, term, methods of exercise, methods and form of settlement and any other terms and conditions of any SAR; provided, however, that in no event may any SAR be exercisable after the tenth anniversary of the date the SAR is granted. Any determination by the Committee that is made pursuant to this SECTION 6(c)(iv) may be changed by the Committee from time to time and may govern the exercise of SARs granted or exercised thereafter.
(v)Substitution SARs. The Committee shall have the ability to substitute, without the consent of the affected Participant or any holder or beneficiary of SARs, SARs settled in Shares (or SARs settled in Shares or cash in the Committee’s discretion) (“Substitution SARs”) for outstanding Nonqualified Stock Options (“Substituted Options”); provided that (A) the substitution shall not otherwise result in a modification of the terms of any Substituted Option, (B) the number of Shares underlying the Substitution SARs shall be the same as the number of Shares underlying the Substituted Options and (C) the Exercise Price of the Substitution SARs shall be equal to the Exercise Price of the Substituted Options. If, in the opinion of the Company’s auditors, this provision creates adverse accounting consequences for the Company, it shall be considered null and void.
(vi)Expiration. Except as otherwise set forth in the applicable Award Agreement, each SAR shall expire immediately, without any payment, upon the earlier of (A) the tenth anniversary of the date the SAR is granted and (B) three months after the date the Participant who is holding the SAR ceases to be a director, officer, employee or consultant of the Company or one of its Affiliates. In no event may a SAR be exercisable after the tenth anniversary of the date the SAR is granted.
(d)Restricted Shares and RSUs.
(i)Grant. Subject to the provisions of the Plan, the Committee shall have sole and plenary authority to determine (A) the Participants to whom Restricted Shares and RSUs shall be granted, (B) subject to SECTION 4(a), the number of Restricted Shares and RSUs to be granted to each Participant, (C) the duration of the period during which, and the conditions, if any, under which, the Restricted Shares and RSUs may vest or may be forfeited to the Company and (D) the terms and conditions of each such Award, including the vesting criteria, term, methods of exercise and methods and form of settlement.
(ii)Transfer Restrictions. Restricted Shares and RSUs may not be sold, assigned, transferred, pledged or otherwise encumbered except as provided in the Plan or as may be provided in the applicable Award Agreement; provided, however, that the Committee may in its discretion, determine that Restricted Shares and RSUs may be transferred by the Participant for no consideration. Each Restricted Share may be evidenced in such manner as the Committee shall determine. If certificates representing Restricted Shares are registered in the name of the applicable Participant, such certificates must bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Shares, and the Company may, at its discretion, retain physical possession of such certificates until such time as all applicable restrictions lapse.
(iii)Payment/Lapse of Restrictions. Each RSU shall be granted with respect to a specified number of Shares (or a number of Shares determined pursuant to a specified formula) or shall have a value equal to the Fair Market Value of a specified number of Shares (or a number of Shares determined pursuant to a specified formula). RSUs shall be paid in cash, Shares, other securities, other Awards or other property, as determined in the sole and plenary discretion of the Committee, upon the lapse of restrictions applicable thereto, or otherwise in accordance with the applicable Award Agreement.
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(e)Performance Awards.
(i)Grant. Subject to the provisions of the Plan, the Committee shall have sole and plenary authority to determine the Participants to whom Performance Awards shall be granted.
(ii)Performance Goals. The Committee shall set Performance Goals in its discretion which, depending on the extent to which they are met during a Performance Period, will determine in accordance with SECTION 4(a) the number of Shares and/or amount of cash or other property that will be paid out to the Participant pursuant to the Performance Award.
(iii)Earning of Performance Awards. Subject to the provisions of the Plan, after the applicable Performance Period has ended, the holder of Performance Awards shall be entitled to receive, subject to the terms and conditions of, and at the times specified in, the applicable Award Agreement, a payout of the Shares, cash or other property earned by the Participant over the Performance Period pursuant to the Performance Award, to be determined by the Committee, in its sole and plenary discretion, as a function of the extent to which the corresponding Performance Goals have been achieved.
(iv)Form and Timing of Payment of Performance Awards. Subject to the provisions of the Plan, the Committee, in its sole and plenary discretion, may pay earned Performance Awards in the form of Shares, cash or other property (or in a combination thereof) that have an aggregate Fair Market Value equal to the value of the earned Performance Awards at the close of the applicable Performance Period. Such Shares may be granted subject to any restrictions in the applicable Award Agreement deemed appropriate by the Committee. The determination of the Committee with respect to the form and timing of payout of such Awards shall be set forth in the applicable Award Agreement.
(f)Cash Incentive Awards.
(i)Grant. Subject to the provisions of the Plan, the Committee, in its sole and plenary discretion, shall have the authority to determine (A) the Participants to whom Cash Incentive Awards shall be granted, (B) subject to SECTION 4(a), the number of Cash Incentive Awards to be granted to each Participant, (C) the duration of the period during which, and the conditions, if any, under which, the Cash Incentive Awards may vest or may be forfeited to the Company and (D) the other terms and conditions of the Cash Incentive Awards. Each Cash Incentive Award shall have an initial value that is established by the Committee at the time of grant. The Committee shall set performance goals or other payment conditions in its discretion, which, depending on the extent to which they are met during a specified performance period, shall determine the number and/or value of Cash Incentive Awards that shall be paid to the Participant.
(ii)Earning of Cash Incentive Awards. Subject to the provisions of the Plan, after the applicable vesting period has ended, the holder of Cash Incentive Awards shall be entitled to receive a payout of the number and value of Cash Incentive Awards earned by the Participant over the specified performance period, to be determined by the Committee, in its sole and plenary discretion, as a function of the extent to which the corresponding performance goals or other conditions to payment have been achieved.
(g)Other Stock-Based Awards. Subject to the provisions of the Plan, the Committee shall have the sole and plenary authority to grant to Participants other equity-based or equity-related Awards (including, but not limited to, Deferred Share Units and fully vested Shares) (whether payable in cash, equity or otherwise) in such amounts and subject to such terms and conditions as the Committee shall determine; provided that any such Awards must comply, to the extent deemed desirable by the Committee, with Rule 16b-3 and applicable law.
(h)Dividends and Dividend Equivalents. In the sole and plenary discretion of the Committee, an Award, other than an Option or SAR or a Cash Incentive Award, may provide the Participant with dividends or dividend equivalents, payable in cash, Shares, other securities, other Awards or other property, on such terms and conditions as may be determined by the Committee in its sole and plenary discretion, including, (i) payment directly to the Participant, or (ii) reinvestment in additional Shares, Restricted Shares
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or other Awards; provided, however, that no dividend or dividend equivalent may be delivered or paid in respect of an Award prior to the vesting of such Award.
(i)Minimum Vesting Provision. All Awards granted hereunder shall be subject to a designated vesting period of at least one year following the date of grant, except that (A) up to five percent of shares available for grant under the Plan and (B) the Assumed Spin-Off Awards may be granted without regard to this requirement.
SECTION 7.    Amendment and Termination.
(a)Amendments to the Plan. Subject to any applicable law or government regulation and to the rules of the Applicable Exchange, the Plan may be amended, modified or terminated by the Board without the approval of the stockholders of the Company, except that stockholder approval shall be required for any amendment that would (i) increase the Plan Share Limit or the Plan ISO Limit, (ii) change the class of employees or other individuals eligible to participate in the Plan, (iii) constitute a material increase in the benefits to be provided to eligible employees within the meaning of the New York Stock Exchange rules as of the date hereof, or (iv) result in the amendment, cancelation or action described in clause (i), (ii) or (iii) of the second sentence of SECTION 7(b) being permitted without approval by the Company’s stockholders; provided, however, that any adjustment under SECTION 4(b) shall not constitute an increase for purposes of SECTION 7(a)(i). No amendment, modification or termination of the Plan may, without the consent of the Participant to whom any Award shall theretofore have been granted, materially and adversely affect the rights of such Participant (or his or her transferee) under such Award, unless otherwise provided by the Committee in the applicable Award Agreement.
(b)Amendments to Awards. The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate any Award theretofore granted, prospectively or retroactively; provided, however, that, except as set forth in the Plan, unless otherwise provided by the Committee in the applicable Award Agreement, any such waiver, amendment, alteration, suspension, discontinuance, cancelation or termination that would materially and adversely impair the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the applicable Participant, holder or beneficiary. Notwithstanding the preceding sentence, in no event may any Option or SAR (i) be amended to decrease the Exercise Price thereof, (ii) be cancelled at a time when its Exercise Price exceeds the Fair Market Value of the underlying Shares in exchange for another Option or SAR or any Restricted Share, RSU, other equity-based Award, award under any other equity-compensation plan or any cash payment or (iii) be subject to any action that would be treated, for accounting purposes, as a “repricing” of such Option or SAR, unless such amendment, cancellation or action is approved by the Company’s stockholders. For the avoidance of doubt, an adjustment to the Exercise Price of an Option or SAR that is made in accordance with SECTION 4(b) or SECTION 8 shall not be considered a reduction in Exercise Price or “repricing” of such Option or SAR.
(c)Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. Subject to the final sentence of SECTION 7(b), the Committee is hereby authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in SECTION 4(b) or the occurrence of a Change of Control) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange, accounting principles or law (i) whenever the Committee, in its sole and plenary discretion, determines that such adjustments are appropriate or desirable, including, without limitation, providing for a substitution or assumption of Awards, accelerating the exercisability of, lapse of restrictions on, or termination of, Awards or providing for a period of time for exercise prior to the occurrence of such event, (ii) if deemed appropriate or desirable by the Committee, in its sole and plenary discretion, by providing for a cash payment to the holder of an Award in consideration for the cancelation of such Award, including, in the case of an outstanding Option or SAR, a cash payment to the holder of such Option or SAR in consideration for the cancelation of such Option or SAR in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the Shares subject to such Option or SAR over the aggregate Exercise Price of such Option or SAR and (iii) if deemed appropriate or desirable by the Committee, in its sole and plenary discretion, by canceling and terminating any Option or SAR having a per-Share Exercise Price equal to, or in excess of, the Fair Market Value of a Share subject to such Option or SAR without any payment or consideration therefor.
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SECTION 8.    Change of Control.
(a)General. The provisions of this Section 8 shall, subject to Section 4(b), apply notwithstanding any other provision of the Plan to the contrary, except to the extent the Committee specifically provides otherwise in an Award Agreement.
(b)Impact of Change of Control. Upon the occurrence of a Change of Control, except as otherwise provided in Section 8(e), each Award shall be replaced pursuant to Section 4(b) with an award that meets the requirements of this Section 8(b) (any award meeting the requirements of this Section 8(b), a “Replacement Award” and any award intended to be replaced by a Replacement Award, a “Replaced Award”). An Award shall meet the conditions of this Section 8(b) (and hence qualify as a Replacement Award) if: (i) it is of the same type as the Replaced Award; (ii) it has a value equal to the value of the Replaced Award as of the date of the Change of Control; (iii) if the underlying Replaced Award was an equity-based award, it relates to publicly traded equity securities of the Company or the entity surviving the Company following the Change of Control; (iv) it contains terms relating to vesting (including with respect to a termination of employment or service) that are substantially identical to those of the Replaced Award; and (v) its other terms and conditions are not less favorable to the Participant than the terms and conditions of the Replaced Award (including the provisions that would apply in the event of a subsequent Change of Control) as of the date of the Change of Control. Without limiting the generality of the foregoing, a Replacement Award may take the form of a continuation of the applicable Replaced Award if the requirements of the preceding sentence are satisfied. If a Replacement Award is granted, the Replaced Award shall not vest upon the Change of Control. The determination whether the conditions of this Section 8(b) are satisfied shall be made by the Committee, as constituted immediately before the Change of Control, in its sole discretion.
(c)Termination of Employment. Upon a termination of employment or service of a Participant occurring upon or during the two years immediately following the date of a Change of Control by reason of death, disability, by the Company without Cause (as defined in Section 8(d)), or, only to the extent specified in an Award Agreement, by the Participant for “Good Reason” (as defined in Section 8(d)), (i) all Replacement Awards held by such Participant shall vest in full, be free of restrictions, and be earned in an amount equal to the full value of such Replacement Award, and (ii) unless otherwise provided in the applicable Award Agreement, notwithstanding any other provision of the Plan to the contrary, any Option or SAR held by the Participant as of the date of the Change of Control that remains outstanding as of the date of such termination of employment or service may thereafter be exercised, until (A) in the case of Incentive Stock Options, the last date on which such Incentive Stock Options would be exercisable in the absence of this Section 8(c), and (B) in the case of Nonqualified Stock Options and SARs, the later of (x) the last date on which such Nonqualified Stock Option or SAR would be exercisable upon the relevant termination of employment in the absence of this Section 8(c) and (y) the earlier of (1) the first anniversary of such termination of employment or service and (2) expiration of the term of such Nonqualified Stock Option or SAR.
(d)Definitions. The following terms shall have the following meanings for purposes of this Section 8 only:
(i)Unless otherwise determined by the Committee and set forth in an applicable Award Agreement, “Cause” shall mean (A) the Participant’s dereliction of duties or gross negligence or failure to perform his duties or refusal to follow any lawful directive of the officer to whom he reports; (B) the Participant’s abuse of or dependency on alcohol or drugs (illicit or otherwise) that adversely affects his performance of duties for the Company; (C) the Participant’s commission of any fraud, embezzlement, theft or dishonesty or any deliberate misappropriation of money or other assets of the Company; (D) the Participant’s breach of any fiduciary duties of the Company; (E) any act, or failure to act, by the Participant in bad faith to the detriment of the Company; (F) the Participant’s failure to cooperate in good faith with a governmental or internal investigation of the Company or any of its directors, managers, officers or employees, if the Company requests the Participant’s cooperation; (G) the Participant’s failure to follow Company policies, including the Company’s code of conduct and/or ethics policy, as may be in effect from time to time; or (H) the Participant’s conviction of, or plea of nolo contendere to, a felony or any serious crime; provided that in cases where cure is possible, the Participant shall first be provided with a 15-day cure period.
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(ii)Unless otherwise determined by the Committee and set forth in an applicable Award Agreement, “Good Reason” shall mean (A) a material breach by the Company of the Participant’s applicable Award Agreement or (B) a reduction in the Participant’s base salary; provided that the Company shall first be provided with a 30-day cure period following receipt of written notice from the Participant setting forth in reasonable detail the specific conduct of the Company that is alleged to constitute Good Reason, to cease and to cure, any conduct specified in such written notice; provided, further, that such notice shall be provided to the Company within 45 days of the occurrence of the conduct alleged to constitute Good Reason and if, at the end of the cure period, the circumstance alleged to constitute Good Reason has not been remedied the Participant will be entitled to terminate his employment for Good Reason during the 30-day period that follows the end of the cure period. If the Participant does not terminate employment or service during such 30-day period, he will not be permitted to terminate his employment for Good Reason as a result of such event or condition.
(e)Awards not Replaced. Notwithstanding the foregoing, unless otherwise provided in the applicable Award Agreement, in the event that an Award shall not be replaced pursuant to Section 4(b) with a Replacement Award meeting the requirements of Section 8(b), any such Award that is (i) an outstanding Option or SAR then held by a Participant that is unexercisable or otherwise unvested shall automatically become exercisable or otherwise vested, as the case may be, as of immediately prior to the Change of Control, (ii) a Cash Incentive Award or a Performance Award shall be paid out as if the date of the Change of Control were the last day of the applicable Performance Period and “target” performance levels had been attained and (iii) not described in clause (i) or (ii) of this Section 8(e) then held by a Participant that is unexercisable, unvested or still subject to restrictions or forfeiture, shall automatically be exercisable and vested and all restrictions and forfeiture provisions related thereto shall lapse as of immediately prior to such Change of Control. Notwithstanding the foregoing, if any Award is subject to Section 409A of the Code, this Section 8 shall be applicable only to the extent specifically provided in the Award Agreement and permitted pursuant to Section 11(e). Nothing in this Section 8 shall preclude the Company from settling upon a Change of Control an Award if it is not replaced by a Replacement Award, to the extent effectuated in accordance with Treas. Reg. § 1.409A-3(j)(ix).
SECTION 9.    General Provisions.
(a)Nontransferability. Except as otherwise specified in the applicable Award Agreement, during the Participant’s lifetime each Award (and any rights and obligations thereunder) shall be exercisable only by the Participant, or, if permissible under applicable law, by the Participant’s legal guardian or representative, and no Award (or any rights and obligations thereunder) may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that (i) the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance and (ii) the Board or the Committee may permit further transferability, on a general or specific basis, and may impose conditions and limitations on any permitted transferability; provided, however, that Incentive Stock Options shall not be transferable in any way that would violate Section 1.422-2(a)(2) of the Treasury Regulations and in no event may any Award (or any rights and obligations thereunder) be transferred in any way in exchange for value. All terms and conditions of the Plan and all Award Agreements shall be binding upon any permitted successors and assigns.
(b)No Rights to Awards. No Participant or other Person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated.
(c)Share Certificates. All certificates for Shares or other securities of the Company or any Affiliate delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, the applicable Award Agreement or the rules, regulations and other requirements of the SEC, the Applicable Exchange and any applicable Federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
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(d)Withholding.
(i)Authority to Withhold. A Participant may be required to pay to the Company or any Affiliate, and the Company or any Affiliate shall have the right and is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to a Participant, the amount (in cash, Shares, other securities, other Awards or other property) of any applicable withholding taxes in respect of an Award, its exercise or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Committee or the Company to satisfy all obligations for the payment of such taxes.
(ii)Alternative Ways to Satisfy Withholding Liability. Without limiting the generality of clause (i) above, subject to the Committee’s discretion, a Participant may satisfy, in whole or in part, the foregoing withholding liability by delivery of Shares owned by the Participant (which are not subject to any pledge or other security interest) having a Fair Market Value equal to such withholding liability or by having the Company withhold from the number of Shares otherwise issuable pursuant to the exercise of the Option or SAR, or the lapse of the restrictions on any other Award (in the case of SARs and other Awards, if such SARs and other Awards are settled in Shares), a number of Shares having a Fair Market Value equal to such withholding liability.
(e)Section 409A.
(i)It is intended that the provisions of the Plan comply with Section 409A of the Code, and all provisions of the Plan shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code. Each payment under any Award shall be treated as a separate payment for purposes of Section 409A of the Code. In no event may a Participant, directly or indirectly, designate the calendar year of any payment to be made under any Award.
(ii)No Participant or the creditors or beneficiaries of a Participant shall have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under the Plan to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to any Participant or for the benefit of any Participant under the Plan may not be reduced by, or offset against, any amount owing by any such Participant to the Company or any of its Affiliates.
(iii)If, at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (A) such Participant shall be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (B) the Company shall make a good faith determination that an amount payable pursuant to an Award constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it on the first business day after such six-month period. Such amount shall be paid without interest, unless otherwise determined by the Committee, in its sole discretion, or as otherwise provided in any applicable employment agreement between the Company and the relevant Participant.
(iv)Notwithstanding any provision of the Plan to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to any Award as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on such Participant or for such Participant’s account in connection with an Award (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its Affiliates shall have any obligation to indemnify or otherwise hold such Participant harmless from any or all of such taxes or penalties.
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(f)Award Agreements. Each Award hereunder shall be evidenced by an Award Agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Award and any rules applicable thereto, including the effect on such Award of the death, disability or termination of employment or service of a Participant and the effect, if any, of such other events as may be determined by the Committee.
(g)No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of options, restricted stock, shares, other types of equity-based awards (subject to stockholder approval if such approval is required) and cash incentive awards, and such arrangements may be either generally applicable or applicable only in specific cases.
(h)No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained as a director, officer, employee or consultant of or to the Company or any Affiliate, nor shall it provide a Participant with any rights to continued service on the Board. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or discontinue any directorship or consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(i)No Rights as a Stockholder. No Participant or holder or beneficiary of any Award shall have any rights as a stockholder with respect to any Shares to be distributed under the Plan until he or she has become the holder of such Shares. In connection with each grant of Restricted Shares, except as provided in the applicable Award Agreement, the Participant shall be entitled to the rights of a stockholder (including the right to vote) in respect of such Restricted Shares. Except as otherwise provided in SECTION 4(b), SECTION 7(c) or the applicable Award Agreement, no adjustments shall be made for dividends or distributions on (whether ordinary or extraordinary, and whether in cash, Shares, other securities or other property), or other events relating to, Shares subject to an Award for which the record date is prior to the date such Shares are delivered.
(j)Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of Delaware, without giving effect to the conflict of laws provisions thereof.
(k)Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
(l)Other Laws; Restrictions on Transfer of Shares. The Committee may refuse to issue or transfer any Shares or other consideration under an Award if, acting in its sole and plenary discretion, it determines that the issuance or transfer of such Shares or such other consideration might violate any applicable law or regulation or entitle the Company to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to the relevant Participant, holder or beneficiary. Without limiting the generality of the foregoing, no Award granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole and plenary discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the Federal and any other applicable securities laws.
(m) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate, on one hand, and a Participant or any other Person, on the other. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or such Affiliate.
(n)Recoupment of Awards. Any Award Agreement may provide for recoupment by the Company of all or any portion of an Award if the Company’s financial statements are required to be restated
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due to noncompliance with any financial reporting requirement under the Federal securities laws or as otherwise determined by the Committee. This SECTION 9(n) shall not be the Company’s exclusive remedy with respect to such matters.
(o)No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated.
(p)Requirement of Consent and Notification of Election Under Section 83(b) of the Code or Similar Provision. No election under Section 83(b) of the Code (to include in gross income in the year of transfer the amounts specified in Section 83(b) of the Code) or under a similar provision of law may be made unless expressly permitted by the terms of the applicable Award Agreement or by action of the Committee in writing prior to the making of such election. If an Award recipient, in connection with the acquisition of Shares under the Plan or otherwise, is expressly permitted under the terms of the applicable Award Agreement or by such Committee action to make such an election and the Participant makes the election, the Participant shall notify the Committee of such election within ten days of filing notice of the election with the Internal Revenue Service (or any successor thereto) or other governmental authority, in addition to any filing and notification required pursuant to regulations issued under Section 83(b) of the Code or any other applicable provision.
(q)Requirement of Notification Upon Disqualifying Disposition Under Section 421(b) of the Code. If any Participant shall make any disposition of Shares delivered pursuant to the exercise of an Incentive Stock Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions) or any successor provision of the Code, such Participant shall notify the Company of such disposition within ten days of such disposition.
(r)Headings and Construction. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. Whenever the words “include”, “includes” or “including” are used in this Plan, they shall be deemed to be followed by the words “but not limited to”.
(s)Assumed Spin-Off Awards. Notwithstanding anything in this Plan to the contrary, each Assumed Spin-Off Award shall be subject to the terms and conditions of the equity compensation plan and award agreement to which such Award was subject immediately prior to the Spin-Off, subject to the adjustment of such Award by the Compensation Committee of XPO Logistics, Inc. and the terms of the Employee Matters Agreement, provided that following the date of the Spin-Off, each such Award shall relate solely to Shares and be administered by the Committee in accordance with the administrative procedures in effect under this Plan.
SECTION 10.    Term of the Plan.
(a)Effective Date. Prior to the Spin-Off, this Plan was approved by the Board and by XPO Logistics, Inc. as the sole shareowner of the Company. The Plan shall be effective as of the date on which the Spin-Off occurs (the “Effective Date”).
(b)Expiration Date. No Award shall be granted under the Plan after the tenth anniversary of the Effective Date and no ISO shall be granted after the tenth anniversary of shareholder approval. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award granted hereunder, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award or to waive any conditions or rights under any such Award, shall nevertheless continue thereafter.
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Exhibit 10.5
FORM OF

RXO, INC.
SEVERANCE PLAN
SECTION 1
PURPOSE OF THE PLAN
The Board of Directors (the “Board”) of RXO, Inc. (the “Company”) desires to provide financial assistance to select executives upon certain terminations of employment in accordance with the terms and conditions of the RXO, Inc. Severance Plan (this “Plan”).
The Board also recognizes that the possibility of a Change in Control (as defined in Section 2.6) of the Company, and the uncertainty it could create, may result in the loss or distraction of executives of the Company to the detriment of the Company and its shareholders. The Board considers the avoidance of such loss and distraction to be essential to protecting and enhancing the best interests of the Company and its shareholders. The Board also believes that when a Change in Control is perceived as imminent, or is occurring, the Board should be able to receive and rely on disinterested service from executives regarding the best interests of the Company and its shareholders without concern that employees might be distracted or concerned by the personal uncertainties and risks created by the perception of an imminent or occurring Change in Control.
Therefore, in order to fulfill the above purposes, the Plan was adopted by the Board and shall become effective on the Effective Date (as defined in Section 2.13).
SECTION 2
DEFINITIONS
Certain capitalized terms used herein have the definitions given to such terms in the first place in which they are used. As used herein, the following capitalized words and phrases shall have the following respective meanings:
2.1    “Affiliate” means any entity controlled by, controlling or under common control with the Company.
2.2    “Annual Base Salary” means the annual base salary paid or payable, including any base salary that is subject to deferral, to the Participant by the Company or any of the Affiliates at the rate in effect immediately prior to the Date of Termination or, if the Date of Termination is during a Change in Control Period, the rate in effect (or required to be in effect before any diminution that is a basis of the Participant’s termination for Good Reason) immediately prior to the Change in Control, or, if higher, immediately prior to the Date of Termination.
2.3    “Benefit Continuation Period” means (a) with respect to the CEO, a period of eighteen (18) months following the Date of Termination and (b) with respect to all other Participants, a period of twelve (12) months following the Date of Termination.



2.4    “Cause” shall means (a) the Participant’s dereliction of duties or gross negligence or failure to perform his duties or refusal to follow any lawful directive of the officer to whom he reports; (b) the Participant’s abuse of or dependency on alcohol or drugs (illicit or otherwise) that adversely affects his performance of duties for the Company or an Affiliate; (c) the Participant’s commission of any fraud, embezzlement, theft or dishonesty or any deliberate misappropriation of money or other assets of the Company or an Affiliate; (d) the Participant’s breach of any fiduciary duties of the Company or any Affiliate; (e) any act, or failure to act, by the Participant in bad faith to the detriment of the Company or an Affiliate; (f) the Participant’s failure to cooperate in good faith with a governmental or internal investigation of the Company or an Affiliate or any of its directors, managers, officers or employees, if the Company requests the Participant’s cooperation; (g) the Participant’s failure to follow Company policies, including the Company’s code of conduct and/or ethics policy, as may be in effect from time to time; (h) the Participant’s conviction of, or plea of nolo contendere to, a felony or any serious crime; provided that in cases where cure is possible, the Participant shall first be provided with a 15-day cure period; or (i) other than during a Change in Control Period, any other matter which the Company or as relevant Affiliate reasonably considers justifies or would justify the Participant's summary dismissal including without limitation in accordance with the Participant's contract of employment or local law.
2.5    “CEO” means the Chief Executive Officer of the Company.
2.6    “Change in Control” shall mean any of the following:
(i)    during any period, individuals who were directors of the Company on the first day of such period (the “Incumbent Directors”) cease for any reason to constitute a majority of the Board; provided, however, that any individual becoming a director subsequent to the first day of such period whose election, or nomination by the Board for election by the Company’s stockholders, was approved by a vote of at least a majority of the Incumbent Directors shall be considered as though such individual were an Incumbent Director, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person (as defined below) other than the Board (including without limitation any settlement thereof);
(ii)    the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction (but not, for the avoidance of doubt, a sale of assets) involving the Company (each, a “Reorganization”) if such Reorganization requires the approval of the Company’s stockholders under the law of the Company’s jurisdiction of organization (whether such approval is required for such Reorganization or for the issuance of securities of the Company in such Reorganization), unless, immediately following such Reorganization, (1) individuals and entities who were the “beneficial owners” (as such term is defined in Rule 13d-3 under the Exchange Act (or a successor rule thereto)) of the securities eligible to vote for the election of the Board (“Company Voting Securities”) outstanding immediately prior to the consummation of such
2

Reorganization continue to beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities of the corporation or other entity resulting from such Reorganization (including a corporation that, as a result of such transaction, owns the Company either directly or through one or more Subsidiaries) (the “Continuing Company”) in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Reorganization (excluding, for such purposes, any outstanding voting securities of the Continuing Company that such beneficial owners hold immediately following the consummation of the Reorganization as a result of their ownership prior to such consummation of voting securities of any corporation or other entity involved in or forming part of such Reorganization other than the Company), (2) no “person” (as such term is used in Section 13(d) of the Exchange Act) (each, a “Person”) (excluding (x) any employee benefit plan (or related trust) sponsored or maintained by the Continuing Company or any corporation controlled by the Continuing Company and (y) any one or more Specified Stockholders) beneficially owns, directly or indirectly, 30% or more of the combined voting power of the then outstanding voting securities of the Continuing Company and (3) at least 50% of the members of the board of directors of the Continuing Company (or equivalent body) were Incumbent Directors at the time of the execution of the definitive agreement providing for such Reorganization or, in the absence of such an agreement, at the time at which approval of the Board was obtained for such Reorganization;
(iii)    the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company unless such liquidation or dissolution is part of a transaction or series of transactions described in paragraph (ii) above that does not otherwise constitute a Change of Control; or
(iv)    any Person, corporation or other entity or “group” (as used in Section 14(d)(2) of the Exchange Act) (other than (A) the Company, (B) any trustee or other fiduciary holding securities under an employee benefit plan of the Company or an Affiliate, (C) any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the voting power of the Company Voting Securities or (D) any one or more Specified Stockholders, including any group in which a Specified Stockholder is a member) becomes the beneficial owner, directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company Voting Securities; provided, however, that for purposes of this subparagraph (iv), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Company, (x) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or an Affiliate, (y) any acquisition by an underwriter temporarily holding such Company Voting Securities pursuant to an offering of such securities or any acquisition by a pledgee of Company Voting Securities holding such securities as collateral or temporarily holding such securities upon foreclosure of the underlying obligation or (z) any acquisition pursuant to a Reorganization that does not constitute a Change in Control for purposes of subparagraph (ii) above.
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2.7    “Change in Control Period” means the period commencing on, and including, the date of a Change in Control and ending on, and including, the second anniversary of the date of such Change in Control.
2.8    “Code” means the Internal Revenue Code of 1986, as amended from time to time.
2.9    “Committee” means the Compensation Committee of the Board.
2.10    “Company” means RXO, Inc. and any successor(s) thereto or, if applicable, the ultimate parent of any such successor.
2.11    “Date of Termination” means the date of receipt of a Notice of Termination from the Company or the Participant, as applicable, or any later date specified in the Notice of Termination (subject to the notice and cure periods in the definition of Good Reason). If the Participant’s employment is terminated by reason of death, the Date of Termination shall be the date of death of the Participant. If the Participant’s employment is terminated by reason of Disability, the Date of Termination shall be the date on which the Participant becomes eligible for benefits under the Company’s (or as, relevant, any Affiliate's) long-term disability plan. Notwithstanding the foregoing, in no event shall the Date of Termination of any U.S. Taxpayer Participant occur until such U.S. Taxpayer Participant experiences a “separation from service” within the meaning of Section 409A of the Code, and the date on which such separation from service takes place shall be the “Date of Termination.”
2.12    “Disability” shall have the meaning given to such term in the Company’s (or as, relevant, any Affiliate's)long -term disability plan applicable to the Participant.
2.13    “Effective Date” means the date on which the Separation (as defined in Section 2.24) occurs.
2.14    “Good Reason” means the occurrence of any of the following events or circumstances during a Change in Control Period and without the Participant’s prior written consent:
(a)    A material reduction of the Participant’s Annual Base Salary from that in effect immediately prior to the Change in Control (or if higher, that in effect at any time thereafter), other than pursuant to a general reduction in Annual Base Salary that applies on a uniform basis to all similarly situated executives of the Company or, as relevant, the Affiliate which employs the Participant;
(b)    A material reduction in the Participant’s target annual cash bonus opportunity from that in effect immediately prior to the Change in Control (or, if higher, that in effect at any time thereafter);
(c)    A material, adverse change in the Participant’s title, reporting relationship, authority, duties, or responsibilities from those in effect immediately prior to the Change in Control;
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(d)    The Company’s requirement that the Participant be based at a location that is more than 50 miles from the location of the Participant’s employment immediately prior to the Change of Control; or
(e)    The failure of the Company to obtain an agreement from any successor to the Company to assume and agree to perform the obligations under this Plan with respect to the Participant.
In order to invoke a termination for Good Reason, the Participant shall provide written notice to the Company of the existence of one or more of the conditions described in clauses (a) through (e) within 90 days of the initial existence of such condition, describing in reasonable detail such condition, and the Company shall have 30 days following receipt of such written notice (the “Cure Period”) during which it may remedy the condition. In the event that the Company fails to remedy the condition constituting Good Reason during the applicable Cure Period, the “separation from service” (within the meaning of Section 409A of the Code) must occur, if at all, within 30 days following the earlier of (i) the end of the Cure Period, or (ii) the date the Company provides written notice to the Participant that it does not intend to cure such condition. The Participant’s mental or physical incapacity following the occurrence of an event described above in clauses (a) through (e) shall not affect the Participant’s ability to terminate employment for Good Reason and the Participant’s death following delivery of a Notice of Termination for Good Reason shall not affect the Participant’s estate’s entitlement to the severance payments and benefits provided hereunder upon a termination of employment for Good Reason.
2.15    “Multiple” means (a) for the CEO, two and one-half (2.5) and (b) for all other Participants, two (2).
2.16    “Notice of Termination” means a written notice delivered to the other party that (a) indicates the specific termination provision in this Plan relied upon, (b) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant’s employment under the provision so indicated, and (c) if the Date of Termination is other than the date of receipt of such notice, specifies the Date of Termination (which Date of Termination shall be not more than 30 days after the giving of such notice or 90 days in the case of a termination for Good Reason). Any termination by the Company for Cause or by the Participant for Good Reason shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 10.6 of this Plan. The failure by the Participant or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Cause shall not waive any right of the Participant or the Company, respectively, hereunder or preclude the Participant or the Company, respectively, from asserting such fact or circumstance in enforcing the Participant’s or ]the Company’s respective rights hereunder. For the avoidance of doubt, any notice served under the Plan will not affect the Company's or any Affiliate's ability to exercise any of its rights in relation to termination or notice under the relevant Participant's contract of employment.
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2.17    “Participant” means (a) the CEO, (b) each other executive officer of the Company, and (c) any other executive employed by the Company or any Affiliate who is selected by the Committee for participation in the Plan and notified of the same in writing.
2.18    “Plan” means this RXO, Inc. Severance Plan.
2.19    “Qualifying CIC Termination” means any termination of a Participant’s employment, during a Change in Control Period (a) by the Participant for Good Reason or (b) by the Company or as relevant any Affiliate other than for Cause, death or Disability.
2.20    “Qualifying Non-CIC Termination” means any termination of a Participant’s employment (a) by the Company or as relevant any Affiliate other than for Cause, death or Disability and (b) that is not a Qualifying CIC Termination.
2.21    “Salary Continuation Period” means (a) with respect to the CEO, the period of eighteen (18) months immediately following the Date of Termination and (b) with respect to all other Participants, the period of twelve (12) months immediately following the Date of Termination.
2.22    “Target Annual Bonus” means the Participant’s target annual cash bonus in effect immediately prior to the Date of Termination or if the Date of Termination is during a Change in Control Period, the Participant’s target annual cash bonus in effect (or required to be in effect before any diminution that is a basis of the Participant’s termination for Good Reason) immediately prior to the Change in Control, or, if higher, immediately prior to the Date of Termination.
2.23    “Separation” means the separation of the Company from XPO Logistics, Inc. pursuant to which the Company becomes a separate publicly traded company.
2.24    “Specified Stockholder” means Brad Jacobs, Jacobs Private Equity LLC and its Affiliates, or any other entity or organization controlled, directly or indirectly, by Brad Jacobs.
2.25    “Subsidiary” means any entity in which the Company, directly or indirectly, possesses 50% or more of the total combined voting power of all classes of its voting securities.
2.26    “U.S. Taxpayer Participant” means any Participant whose compensation income is subject to taxation in the United States of America.
SECTION 3
SEPARATION BENEFITS
3.1    Qualifying Non-CIC Termination. If a Participant experiences a Qualifying Non-CIC Termination, the Company shall pay or provide to the Participant the following payments and benefits at the time or times set forth below, subject to Section 9 and subject to (other than in the case of the Accrued Obligations and Other Benefits) the Participant’s execution of a general release of claims and settlement agreement in the form delivered to the Participant by the Company or as relevant Affiliate on or within 5 days after the Date of Termination (the “Release
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Agreement”) and return of all property of the Company and its Affiliates including any laptops or other electronic devices (with the data intact) and such Release Agreement becoming effective and irrevocable in accordance with its terms no later than the sixtieth (60th) day following the Date of Termination:
(a)    a lump sum payment in cash payable within 30 days following the Date of Termination, equal to the sum of (A) the Participant’s accrued but unpaid Annual Base Salary through the Date of Termination, (B) any annual incentive payment earned by the Participant for a performance period that was completed prior to the Date of Termination where such payment remains due and outstanding, (C) any accrued and unused vacation pay or other paid time off, and (D) subject to any expenses policy in force from time to time, any business expenses incurred by the Participant that are unreimbursed as of the Date of Termination, in each case, to the extent not theretofore paid (the sum of the amounts described in clauses (A), (B), (C) and (D) shall be hereinafter referred to as the “Accrued Obligations”); provided that, for any U.S. Taxpayer Participant, notwithstanding the foregoing, in the case of clauses (A) and (B), if such U.S. Taxpayer Participant has made an irrevocable election under any deferred compensation arrangement subject to Section 409A of the Code to defer any portion of the Annual Base Salary or annual incentive payment described in clause (A) or (B) above, then for all purposes of this Section 3 (including, without limitation, Section 3.1(a) and 3.2(a)), such deferral election, and the terms of the applicable arrangement, shall apply to the same portion of the amount described in such clauses (A) or (B), and such portion shall not be considered as part of the “Accrued Obligations” but shall instead be an “Other Benefit” (as defined below);
(b)    a lump sum payment payable in cash no later than 70 days following the Date of Termination equal to the product of (A) the Target Annual Bonus and (B) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs from the first day of such fiscal year to and including the Date of Termination, and the denominator of which is the total number of days in such fiscal year, reduced by any annual bonus payment to which the Participant has been paid or is otherwise entitled, in each case, for the same period of service, and subject to any applicable deferral election on the same basis as set forth in the proviso to Section 3.1(a) (the “Prorated Bonus”);
(c)    continuation of Annual Base Salary for the Salary Continuation Period paid to the Participant ratably over the Salary Continuation Period in accordance with the Company’s (or as relevant Affiliate's) regularly scheduled payroll dates; provided that any payments due within 70 days following the Date of Termination shall be paid on the first payroll date coincident with or immediately following the 70th day immediately following the Date of Termination;
(d)    at the option of the Company, either (1) for the Benefit Continuation Period, healthcare benefit coverage to the Participant (and the Participant’s dependents who were covered by healthcare benefit coverage (including medical, prescription, dental
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and vision) pursuant to a plan sponsored by the Company or an Affiliate as of immediately prior to the Date of Termination, if any (the “eligible dependents”)), with the requirement for the Participant (or the eligible dependents) to pay a monthly premium at the active employee rate for such healthcare benefit coverage as if the Participant had continued employment with the Company during the Benefit Continuation Period; provided that, for any U.S. Taxpayer Participant, the receipt of such heath care benefit shall be conditioned upon the Participant making a timely election to receive COBRA coverage provided to former employees under Section 4980B of the Code and continuing such coverage during the Benefit Continuation Period so long as it is available or (2) a cash lump sum payment equal to the amount of the employer contribution, based on the rates and coverage elections in effect at the Date of Termination, that would be been provided towards healthcare benefit coverage for the Participant and the Participant’s eligible dependents during the Benefit Continuation Period had the Participant remained employed with the Company or as relevant Affiliate during such period (the “Healthcare Benefits”); and
(e)    to the extent not theretofore paid or provided, any other amounts or benefits required to be paid or provided or which the Participant is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and the Affiliated Entities, including amounts credited to the Participant’s account under any deferred compensation plan, payable pursuant to the terms of such plan, program, policy or practice (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).
3.2    Qualifying CIC Termination. If a Participant experiences a Qualifying CIC Termination, the Company shall pay or provide to the Participant the following payments and benefits at the time or times set forth below, subject to Section 9 and subject to (other than in the case of the Accrued Obligations and Other Benefits) the Participant’s execution of a Release Agreement (provided that such Release Agreement shall not contain any new or additional restrictive covenants), and return of all property of the Company and its Affiliates including any laptops or other electronic devices (with the data intact) and such Release Agreement becoming effective and irrevocable in accordance with its terms no later than the seventieth (70th) day following the Date of Termination:
(a)    a lump sum payment in cash payable within 30 days following the Date of Termination equal to the Accrued Obligations;
(b)    a lump sum payment in cash payable within 70 days of the Date of Termination equal to the Prorated Bonus;
(c)    a lump sum payment in cash payable within 70 days of the Date of Termination equal to the product of (1) the Multiple and (2) the sum of (A) the Participant’s Annual Base Salary and (B) the Target Annual Bonus;
(d)    the Healthcare Benefits; and
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(e)    Other Benefits payable pursuant to the terms of such plan, program, policy or practice or contract or agreement.
For U.S. Taxpayer Participant, then notwithstanding the foregoing, with respect to any payment or benefit that constitutes nonqualified deferred compensation within the meaning of Section 409A of the Code, if the Change in Control does not constitute an event described in Section 409A(a)(2)(v) of the Code and the regulations thereunder, then solely to the extent necessary to avoid the application of additional taxes and penalties on such payment or benefit under Section 409A of the Code, such payment or benefit shall be paid or provided on the same schedule that would have applied to such payment or benefit in connection with a Qualifying Non-CIC Termination.
SECTION 4
GOLDEN PARACHUTE EXCISE TAX
4.1    The provisions of this Section 4 shall apply to U.S. Taxpayer Participants only.
4.2    If a Participant has a Qualifying CIC Termination, anything in this Plan to the contrary notwithstanding, in the event the Accounting Firm (as defined below) shall determine that receipt of all Payments (as defined below) would subject the Participant to the excise tax under Section 4999 of the Code, the Accounting Firm shall determine whether to reduce any of the Payments paid or payable pursuant to this Plan (the “Plan Payments”) so that the Parachute Value (as defined below) of all Payments, in the aggregate, equals the Safe Harbor Amount (as defined below). The Plan Payments shall be so reduced only if the Accounting Firm determines that the Participant would have a greater Net After-Tax Receipt (as defined below) of aggregate Payments if the Plan Payments were so reduced. If the Accounting Firm determines that the Participant would not have a greater Net After-Tax Receipt of aggregate Payments if the Plan Payments were so reduced, the Participant shall receive all Plan Payments to which the Participant is entitled hereunder.
4.3    If the Accounting Firm determines that aggregate Plan Payments should be reduced so that the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount, the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof. All determinations made by the Accounting Firm under this Section 4 shall be binding upon the Company and the Participant and shall be made as soon as reasonably practicable and in no event later than 15 days following the Date of Termination. For purposes of reducing the Plan Payments so that the Parachute Value of all Payments, in the aggregate, equals the Safe Harbor Amount, only amounts payable under this Plan (and no other Payments) shall be reduced. The reduction of the amounts payable hereunder, if applicable, shall be made by reducing the Plan Payments and benefits that have a Parachute Value in the following order: Section 3.2(b), Section 3.2(c), Section 3.2(e) and Section 3.2(d) in each case, beginning with payments or benefits that do not constitute non-qualified deferred compensation and reducing payments or benefits in reverse chronological order beginning with those that are to be paid or provided the farthest in time from the Date of Termination, based on the Accounting Firm’s determination. All reasonable fees and expenses of the Accounting Firm shall be borne solely by the Company.
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4.4    To the extent requested by the Participant, the Company shall cooperate with the Participant in good faith in valuing, and the Accounting Firm shall take into account the value of, services provided or to be provided by the Participant (including, without limitation, the Participant’s agreeing to refrain from performing services pursuant to a covenant not to compete or similar covenant, before, on or after the date of a change in ownership or control of the Company (within the meaning of Q&A-2(b) of the final regulations under Section 280G of the Code), such that payments in respect of such services may be considered reasonable compensation within the meaning of Q&A-9 and Q&A-40 to Q&A-44 of the final regulations under Section 280G of the Code and/or exempt from the definition of the term “parachute payment” within the meaning of Q&A-2(a) of the final regulations under Section 280G of the Code in accordance with Q&A-5(a) of the final regulations under Section 280G of the Code.
4.5    The following terms shall have the following meanings for purposes of this Section 4:
(a)    “Accounting Firm” shall mean a nationally recognized certified public accounting firm or other professional organization that is a certified public accounting firm recognized as an expert in determinations and calculations for purposes of Section 280G of the Code that is selected by the Company prior to a Change in Control for purposes of making the applicable determinations hereunder, which firm shall not, without the Participant’s consent, be a firm serving as accountant or auditor for the individual, entity or group effecting the Change in Control.
(b)    “Net After-Tax Receipt” shall mean the present value (as determined in accordance with Sections 280G(b)(2)(A)(ii) and 280G(d)(4) of the Code) of a Payment net of all taxes imposed on the Participant with respect thereto under Sections 1 and 4999 of the Code and under applicable state and local laws, determined by applying the highest marginal rate under Section 1 of the Code and under state and local laws which applied to the Participant’s taxable income for the immediately preceding taxable year, or such other rate(s) as the Accounting Firm determines to be likely to apply to the Participant in the relevant tax year(s).
(c)    “Parachute Value” of a Payment shall mean the present value as of the date of the Change in Control for purposes of Section 280G of the Code of the portion of such Payment that constitutes a “parachute payment” under Section 280G(b)(2) of the Code, as determined by the Accounting Firm for purposes of determining whether and to what extent the excise tax under Section 4999 of the Code will apply to such Payment.
(d)    “Payment” shall mean any payment, benefit or distribution in the nature of compensation (within the meaning of Section 280G(b)(2) of the Code) to or for the benefit of the Participant, whether paid, payable or provided pursuant to this Plan or otherwise.
(e)    “Safe Harbor Amount” shall mean the maximum Parachute Value of all Payments that the Participant can receive without any Payments being subject to the Excise Tax.
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4.6    The provisions of this Section 4 shall survive the expiration of this Plan.
SECTION 5
NONDUPLICATION; LEGAL FEES; NON-EXCLUSIVITY OF RIGHTS
5.1    Offset for Other Employment or Work. Any compensation earned by a Participant from any other work, whether as an employee or an independent contractor, during the Salary Continuation Period or in the case of a Qualifying CIC Termination, during the period of time represented by the severance multiple (i.e., two and one half (2.5) equates to 30 months from the Date of Termination and two (2) equates to twenty four-months from the Date of Termination) (the “Severance Period”) shall reduce on a dollar for dollar (or as relevant the local country currency) basis, the amount paid by the Company under Section 3.1 or 3.2, as applicable. To the extent that compensation under Section 3.1 or 3.2 is already received by the Participant from the Company in a lump sum payment or otherwise and there is no further compensation that may be reduced, the Participant shall immediately on demand repay the Company on an after-tax basis the amount that should have been reduced as determined in writing by the Company. The Participant shall notify the Company in writing within 7 days if such Participants earns any compensation during the Severance Period.
5.2    Nonduplication. The amount of any payment under Section 3.1(c) and 3.2(c) of this Plan will be offset and reduced (but not below zero) by the full amount and/or value of any severance benefits, compensation and benefits provided during any notice period, pay in lieu of notice, mandated termination indemnities, or similar benefits that the Participant may separately be entitled to receive from the Company or any Affiliate based on any employment agreement, confidential information protection agreement or other contractual obligation (whether individual or union/works council) or statutory scheme. If a U.S. Taxpayer Participant’s employment is terminated because of a plant shut-down or mass layoff or other event to which the Worker Adjustment and Retraining Notification Act of 1988 or similar state law (collectively, “WARN”) applies, then the amount of the severance payment under Section 3.1(c) and 3.2(c) of this Plan to which the Participant is entitled shall be reduced, dollar for dollar, by the amount of any pay provided to the Participant in lieu of the notice required by WARN, and the Benefits Continuation Period shall be reduced for any period of benefits continuation or pay in lieu thereof provided to Participant due to the application of WARN.
5.3    Legal Fees. Solely during the Change in Control Period, the Company agrees to pay as incurred (within 10 business days following the Company’s receipt of an invoice from the Participant), to the full extent permitted by law, all legal fees and expenses that the Participant may reasonably incur as a result of any contest by the Company, the Participant or others of the validity or enforceability of, or liability under, any provision of this Plan or any guarantee of performance thereof (including as a result of any contest (regardless of the outcome) by the Participant about the amount of any payment pursuant to this Plan) (each, a “Contest”), plus, in each case, interest on any delayed payment to which the Participant is ultimately determined to be entitled at the applicable federal rate provided for in Section 7872(f)(2)(A) of the Code (“Interest”) based on the rate in effect for the month in which such legal fees and expenses were incurred.
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SECTION 6
AMENDMENT AND TERMINATION
The Plan may be terminated or amended in any respect by resolution adopted by the Committee; provided that, in connection with or in anticipation of a Change in Control, this Plan may not be terminated or amended in any manner that would adversely affect the rights of Participants in connection with a Qualifying CIC Termination; provided, further, that following a Change in Control, this Plan shall continue in full force and effect and shall not terminate, expire or be amended until after all Participants who become entitled to any payments or benefits hereunder in connection with a Qualifying CIC Termination shall have received such payments and benefits in full pursuant to Section 3.
SECTION 7
PLAN ADMINISTRATION
7.1    General. The Committee is responsible for the general administration and management of this Plan (the committee acting in such capacity, the “Plan Administrator”) and shall have all powers and duties necessary to fulfill its responsibilities, including, but not limited to, the discretion to interpret and apply the provisions of this Plan and to determine all questions relating to eligibility for benefits under this Plan, to interpret or construe ambiguous, unclear, or implied (but omitted) terms in any fashion it deems to be appropriate, and to make any findings of fact needed in the administration of this Plan. Following a Change in Control, the validity of any such interpretation, construction, decision, or finding of fact shall be given de novo review if challenged in court, by arbitration, or in any other forum, and such de novo standard shall apply notwithstanding the grant of full discretion hereunder to the Plan Administrator or characterization of any such decision by the Plan Administrator as final or binding on any party.
7.2    Not Subject to ERISA. This Plan does not require an ongoing administrative scheme and, therefore, is intended to be a payroll practice which is not subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). However, if it is determined that this Plan is subject to ERISA, (i) it shall be considered to be an unfunded plan maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees (a “top-hat plan”), and (ii) it shall be administered in a manner which complies with the provisions of ERISA that are applicable to top-hat plans.
7.3    Indemnification. To the extent permitted by law, the Company shall indemnify the Plan Administrator, whether the Committee or the Independent Committee, from all claims for liability, loss, or damage (including the payment of expenses in connection with defense against such claims) arising from any act or failure to act in connection with this Plan.
SECTION 8
SUCCESSORS; ASSIGNMENT
8.1    Successors. The Company shall require any corporation, entity, individual or other person who is the successor (whether direct or indirect by purchase, merger, consolidation,
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reorganization or otherwise) to all or substantially all the business and/or assets of the Company to expressly assume and agree to perform, by a written agreement in form and in substance satisfactory to the Company, all of the obligations of the Company under this Plan. As used in this Plan, the term “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Plan by operation of law, written agreement or otherwise.
8.2    Assignment of Rights. It is a condition of this Plan, and all rights of each person eligible to receive benefits under this Plan shall be subject hereto, that no right or interest of any such person in this Plan shall be assignable or transferable in whole or in part, except by will or the laws of descent and distribution or other operation of law, including, but not by way of limitation, lawful execution, levy, garnishment, attachment, pledge, bankruptcy, alimony, child support or qualified domestic relations order.
SECTION 9
SECTION 409A OF THE CODE
9.1    The provisions of this Section 9 shall apply to U.S. Taxpayer Participants only.
9.2    General. The obligations under this Plan are intended to comply with the requirements of Section 409A of the Code or an exemption or exclusion therefrom and shall in all respects be administered in accordance with Section 409A of the Code. Any payments that qualify for the “short-term deferral” exception, the separation pay exception or another exception under Section 409A of the Code shall be paid under the applicable exception to the maximum extent possible. For purposes of nonqualified deferred compensation under Section 409A of the Code, each payment of compensation under this Plan shall be treated as a separate payment of compensation. All payments to be made upon a termination of employment under this Plan may only be made upon a “separation from service” under Section 409A of the Code to the extent necessary in order to avoid the imposition of penalty taxes on a Participant pursuant to Section 409A of the Code. In no event may a Participant, directly or indirectly, designate the calendar year of any payment under this Plan.
9.3    Reimbursements and In-Kind Benefits. Notwithstanding anything to the contrary in this Plan, all reimbursements and in-kind benefits provided under this Plan that are subject to Section 409A of the Code shall be made in accordance with the requirements of Section 409A of the Code, including without limitation, where applicable, the requirement that (i) in no event shall the Company’s obligations to make such reimbursements or to provide such in-kind benefits apply later than the Participant’s remaining lifetime (or if longer, through the 20th anniversary of the Effective Date; (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (iii) the reimbursement of an eligible fees and expenses shall be made no later than the last day of the calendar year following the year in which the applicable fees and expenses were incurred; provided that the Participant shall have submitted an invoice for such fees and expenses at least 10 days before the end of the calendar year next following the calendar year in which such fees
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and expenses were incurred; and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
9.4    Delay of Payments. Notwithstanding any other provision of this Plan to the contrary, if a Participant is considered a “specified employee” for purposes of Section 409A of the Code (as determined in accordance with the methodology established by the Company as in effect on the Date of Termination), any payment or benefit that constitutes nonqualified deferred compensation within the meaning of Section 409A of the Code that is otherwise due to be paid to such Participant under this Agreement during the six-month period immediately following such Participant’s separation from service (as determined in accordance with Section 409A of the Code) on account of such Participant’s separation from service shall be accumulated and paid to such Participant with Interest (based on the rate in effect for the month in which the Participant’s separation from service occurs) on the first business day of the seventh month following the Participant’s separation from service (the “Delayed Payment Date”), to the extent necessary to avoid penalty taxes or accelerated taxation pursuant to Section 409A of the Code. If such Participant dies during the postponement period, the amounts and entitlements delayed on account of Section 409A of the Code shall be paid to the personal representative of his or her estate on the first to occur of the Delayed Payment Date or 30 calendar days after the date of such Participant’s death.
SECTION 10
MISCELLANEOUS
10.1    Controlling 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 conflicting provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the laws of any jurisdiction other than the State of Delaware to be applied. In furtherance of the foregoing, the internal laws of the State of Delaware will control the interpretation and construction of this Agreement, even if under such jurisdiction’s choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply.
10.2    Withholding. The Company may withhold from any amount payable or benefit provided under this Plan such federal, state, local, foreign and other taxes and/ or social security payments as are required to be withheld pursuant to any applicable law or regulation.
10.3    Gender and Plurals. Wherever used in this Plan document, words in the masculine gender shall include masculine or feminine gender, and, unless the context otherwise requires, words in the singular shall include the plural, and words in the plural shall include the singular.
10.4    Plan Controls. In the event of any inconsistency between this Plan document, the Service Agreement and any other communication regarding this Plan, this Plan document controls. The captions in this Plan are not part of the provisions hereof and shall have no force or effect.
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10.5    Not an Employment Contract. Neither this Plan nor any action taken with respect to it shall confer upon any person the right to continued employment with the Company or any Affiliate.
10.6    Notices.
(a)    Any notice required to be delivered to the Company by a Participant hereunder shall be properly delivered to the Company when personally delivered to, or actually received through the U.S. mail or electronic mail (e-mail) (so long as confirmation of receipt of e-mail is requested or received) by:
RXO, Inc.
[•]
[•]
Attention:General Counsel
E-mail:[•]
(b)    Any notice required to be delivered to the Participant by the Company hereunder shall be properly delivered to the Participant when the Company delivers such notice by e-mail (so long as confirmation of receipt of e-mail is requested or received), personally or by placing said notice in the U.S. mail registered or certified mail, return receipt requested, postage prepaid to that person’s last known address as reflected on the books and records of the Company.
10.7    Severability. If any provision of this Plan is held invalid or unenforceable, its invalidity or unenforceability shall not affect any other provisions of this Plan, and this Plan shall be construed and enforced as if such provision had not been included in this Plan.
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Exhibit 10.6
FORM OF
RXO, INC.
CASH LONG-TERM INCENTIVE PLAN
SECTION 1    Purpose; Effective Date. The purpose of this RXO, Inc. Cash Long-Term Incentive Plan (the “Plan”) is to promote the interests of the Company and its stockholders by (a) attracting and retaining exceptional employees (including prospective employees) of the Company (as defined below) and its Affiliates (as defined below) and (b) enabling such individuals to participate in the long-term growth and financial success of the Company. This Plan shall be effective as of the date of the Spin-Off, upon the occurrence of which the Company shall become a separate publicly traded company.
SECTION 2    Definitions. As used herein, the following terms shall have the meanings set forth below:
“Administrator” means the Compensation Committee of the Board, or such other committee as the Board may from time to time designate, which committee shall be comprised of not less than two directors, and shall be appointed by and serve at the pleasure of the Board.
“Affiliate” means (a) any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company and/or (b) any entity in which the Company has a significant equity interest.
“Assumed Spin-Off Award” means each award (a) originally granted to certain employees of the Company, XPO Logistics, Inc. and their respective subsidiaries under the XPO Cash Long-Term Incentive Plan effective as of January 1, 2020, and (b) assumed by the Company in connection with the Spin-Off pursuant to the terms of the Employee Matters Agreement between the Company and XPO entered into in connection with the Spin-Off.
“Award” means each (i) award granted under the Plan that entitles the holder to receive a fixed amount of cash subject to the terms and conditions of the Plan and the applicable Award Agreement and (ii) Assumed Spin-Off Award.
“Award Agreement” means any written or electronic agreement, contract or other instrument or document evidencing any Award, which may (but need not) require execution or acknowledgment by a Participant.
“Board” means the Board of Directors of the Company.
“Change of Control” shall (a) have the meaning set forth in an Award Agreement; or (b) if there is no definition set forth in the Award Agreement, shall have the meaning given in the Company’s 2022 Omnibus Incentive Compensation Plan, as amended, as in effect from time to time.


“Code” means the Internal Revenue Code of 1986, as amended from time to time, or any successor statute thereto, and the regulations promulgated thereunder.
“Company” means RXO, Inc., a corporation organized under the laws of Delaware, together with any successor thereto.
“Executive Officer” means an officer of the Company who is an executive officer of the Company within the meaning of Rule 3b-7 under the U.S. Securities Exchange Act of 1934, as amended.
“Participant” means any employee (including any prospective employee) of the Company or its Affiliates who is eligible for an Award under SECTION 4 and who is selected by the Administrator to receive an Award under the Plan or who holds an Assumed Spin-Off Award.
“Spin-Off” means the distribution of shares of shares of common stock of the Company to the stockholders of XPO in 2022, pursuant to the Separation and Distribution Agreement between the Company and XPO entered into in connection with such distribution.
“XPO” means XPO Logistics, Inc.
SECTION 3    Administration.
(a)    Authority of the Administrator. Subject to the terms of the Plan and applicable law, and in addition to the other express powers and authorizations conferred on the Administrator by the Plan, the Administrator shall have sole and plenary authority to administer the Plan, including the authority to (i) designate Participants, (ii) determine the amount of each Award, (iii) determine the terms and conditions of any Awards, (iv) determine the vesting schedules of Awards and, if certain performance goals must be attained in order for an Award to vest or be settled or paid, establish such performance goals and certify whether, and to what extent, such performance criteria have been attained, (v) determine whether, to what extent and under what circumstances cash payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Administrator, (vi) interpret, administer, reconcile any inconsistency in, correct any default in and/or supply any omission in, the Plan and any instrument or agreement relating to, or Award made under, the Plan, (vii) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan, (viii) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, Awards, (ix) amend any outstanding Award, and (x) make any other determination and take any other action that the Administrator deems necessary or desirable for the administration of the Plan. Performance goals applicable to any Award may consist of financial, operational and strategic performance measures for the Company, an Affiliate and/or any business or functional unit thereof; individual performance goals for Participants; and/or such other goals as may be determined by the Administrator.
(b)    Administrator Decisions. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole and plenary discretion of the Administrator, may be made
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at any time and shall be final, conclusive and binding upon all persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Award and any stockholder.
(c)    Indemnification. No member of the Board of Directors of the Company, the Administrator or any officer or employee of the Company (each such person, a “Covered Person”) shall be liable for any action taken or omitted to be taken or any determination made in good faith with respect to the Plan or any Award. Each Covered Person shall be indemnified and held harmless by the Company from and against (i) any loss, cost, liability or expense (including attorneys’ fees) that may be imposed upon or incurred by such Covered Person in connection with or resulting from any action, suit or proceeding to which such Covered Person may be a party or in which such Covered Person may be involved by reason of any action taken or omitted to be taken under the Plan or any Award Agreement and (ii) any and all amounts paid by such Covered Person, with the Company’s approval, in settlement thereof, or paid by such Covered Person in satisfaction of any judgment in any such action, suit or proceeding against such Covered Person; provided that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding, and, once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Company’s choice. The foregoing right of indemnification shall not be available to a Covered Person to the extent that a court of competent jurisdiction in a final judgment or other final adjudication, in either case not subject to further appeal, determines that the acts or omissions of such Covered Person giving rise to the indemnification claim resulted from such Covered Person’s bad faith, fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the Company’s Amended and Restated Certificate of Incorporation or Amended and Restated Bylaws, in each case, as may be amended from time to time. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which Covered Persons may be entitled under the Company’s Restated Certificate of Incorporation or Amended and Restated Bylaws, as a matter of law, or otherwise, or any other power that the Company may have to indemnify such persons or hold them harmless.
(d)    Delegation of Authority. The Administrator may delegate, on such terms and conditions as it determines in its sole and plenary discretion, to one or more officers of the Company the authority to make grants of Awards pursuant to the Plan and all necessary and appropriate decisions and determinations with respect thereto; provided, however, that the Administrator shall administer the Plan with respect to any Participant who is an Executive Officer. No officer may designate himself or herself as an Award recipient under any authority delegated to the officer.
(e)    Any such officer of the Company to whom such authority is delegated shall be considered the Administrator when acting within the scope of such delegated authority.
SECTION 4    Eligibility. Any employee (including any prospective employee) of the Company or any of its Affiliates shall be eligible to be designated a Participant.
SECTION 5    Awards. Subject to the provisions of the Plan, the Administrator, in its sole and plenary discretion, shall have the authority to determine (i) the Participants to whom
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Awards shall be granted, (ii) the amount of each Award, (iii) the duration of the period during which, and the conditions, if any, under which, each Award may vest or may be forfeited to the Company and (iv) the other terms and conditions of each Award.
SECTION 6    Amendment and Termination.
(a)    Amendments to the Plan. Subject to any applicable law or government regulation, the Plan may be amended, modified or terminated by the Company. No amendment, modification or termination of the Plan may, without the consent of the Participant to whom any Award shall theretofore have been granted, materially and adversely affect the rights of such Participant (or his or her transferee) under such Award, unless otherwise provided by the Administrator in the applicable Award Agreement.
(b)    Amendments to Awards. The Administrator may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate any Award theretofore granted, prospectively or retroactively; provided, however, that, except as set forth in the Plan, unless otherwise provided by the Administrator in the applicable Award Agreement, any such waiver, amendment, alteration, suspension, discontinuance, cancelation or termination that would materially and adversely impair the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the applicable Participant, holder or beneficiary.
SECTION 7    Change of Control. Unless otherwise provided by the Administrator in the applicable Award Agreement, upon the occurrence of a Change in Control, each outstanding Award shall immediately vest and become payable within thirty (30) days thereafter.
SECTION 8    General Provisions.
(a)    Nontransferability. Except as otherwise specified in the applicable Award Agreement, during the Participant’s lifetime no Award (or any rights and obligations thereunder) may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of descent and distribution, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate; provided that (i) the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance and (ii) the Administrator may permit further transferability, on a general or specific basis, and may impose conditions and limitations on any permitted transferability. All terms and conditions of the Plan and all Award Agreements shall be binding upon any permitted successors and assigns.
(b)    No Rights to Awards. No Participant or other person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Administrator’s determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated.
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(c)    Withholding. A Participant may be required to pay to the Company or any Affiliate, and the Company or any Affiliate shall have the right and is hereby authorized to withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to a Participant, the amount of any applicable withholding taxes in respect of an Award or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Administrator or the Company to satisfy all obligations for the payment of such taxes.
(d)    Section 409A.
(i)    It is intended that the provisions of the Plan comply with Section 409A of the Code, and all provisions of the Plan shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code. Each payment under any Award shall be treated as a separate payment for purposes of Section 409A of the Code. In no event may a Participant, directly or indirectly, designate the calendar year of any payment to be made under any Award.
(ii)    No Participant or the creditors or beneficiaries of a Participant shall have the right to subject any deferred compensation (within the meaning of Section 409A of the Code) payable under the Plan to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to any Participant or for the benefit of any Participant under the Plan may not be reduced by, or offset against, any amount owing by any such Participant to the Company or any of its Affiliates.
(iii)    If, at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (A) such Participant shall be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (B) the Company shall make a good faith determination that an amount payable pursuant to an Award constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it on the first business day after such six-month period. Such amount shall be paid without interest, unless otherwise determined by the Administrator, in its sole discretion, or as otherwise provided in any applicable employment agreement between the Company and the relevant Participant.
(iv)    Notwithstanding any provision of the Plan to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to any Award as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on such Participant or for such
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Participant’s account in connection with an Award (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its Affiliates shall have any obligation to indemnify or otherwise hold such Participant harmless from any or all of such taxes or penalties.
(e)    Award Agreements. Each Award hereunder shall be evidenced by an Award Agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Award and any rules applicable thereto, including the effect on such Award of the death, disability or termination of employment or service of a Participant and the effect, if any, of such other events as may be determined by the Administrator.
(f)    Assumed Spin-Off Awards. Notwithstanding anything in this Plan to the contrary, each Assumed Spin-Off Award shall be subject to the terms and conditions of the plan and award agreement to which such Award was subject immediately prior to the Spin-Off, provided that, following the date of the Spin-Off, each such Award be administered by the Administrator (or its delegate) in accordance with the administrative procedures in effect under this Plan.
(g)    No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of cash incentive awards, and such arrangements may be either generally applicable or applicable only in specific cases.
(h)    No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained as an employee of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(i)    Governing Law. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of the State of Delaware, without giving effect to the conflict of laws provisions thereof.
(j)    Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Administrator, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Administrator, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
(k)    No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the
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Company or any Affiliate, on one hand, and a Participant or any other person, on the other. To the extent that any person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or such Affiliate.
(l)    Recoupment of Awards. Any Award Agreement may provide for recoupment by the Company of all or any portion of an Award if the Company’s financial statements are required to be restated due to noncompliance with any financial reporting requirement under the Federal securities laws or as otherwise determined by the Administrator. This Section 8(l) shall not be the Company’s exclusive remedy with respect to such matters.
(m)    Headings and Construction. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. Whenever the words “include”, “includes” or “including” are used in this Plan, they shall be deemed to be followed by the words “but not limited to.”
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Exhibit 10.7
AWARD AGREEMENT UNDER THE XPO
LOGISTICS, INC. CASH LONGTERM INCENTIVE PLAN,
dated as of 15Jan2020, (the “Grant Date”), between XPO
LOGISTICS, INC., a Delaware corporation (the “Company”),
and Andrew Wilkerson.
This Award Agreement (this “Award Agreement”) sets forth the terms and conditions of a cash award (this “Award”) that are subject to the terms and conditions specified herein granted to you under the XPO Logistics, Inc. Cash LongTerm Incentive Plan (the “Plan”). This Award provides you with the opportunity to earn, subject to the terms of this Award Agreement, up to $200,000 of cash, as set forth in Section 3 of this Award Agreement.
THIS AWARD IS SUBJECT TO ALL TERMS AND CONDITIONS OF THE PLAN AND THIS AWARD AGREEMENT, INCLUDING THE DISPUTE RESOLUTION PROVISIONS SET FORTH IN SECTION 10 OF THIS AWARD AGREEMENT. BY SIGNING YOUR NAME BELOW, YOU SHALL HAVE CONFIRMED YOUR ACCEPTANCE OF THE TERMS AND CONDITIONS OF THIS AWARD AGREEMENT.
SECTION 1. The Plan. This Award is made pursuant to the Plan, all the terms of which are hereby incorporated in this Award Agreement. In the event of any conflict between the terms of the Plan and the terms of this Award Agreement, the terms of the Plan shall govern.
SECTION 2. Definitions. Capitalized terms used in this Award Agreement that are not defined in this Award Agreement have the meanings as used or defined in the Plan. As used in this Award Agreement, the following terms have the meanings set forth below:
“Business Day” means a day that is not a Saturday, a Sunday or a day on which banking institutions are legally permitted to be closed in the City of New York.
“Cause” means: (i) your dereliction of duties or gross negligence or failure to perform your duties or refusal to follow any lawful directive of the officer to whom you report; (ii) your abuse of or dependency on alcohol or drugs (illicit or otherwise) that adversely affects your performance of duties for the Company; (iii) your commission of any fraud, embezzlement, theft or dishonesty, or any deliberate misappropriation of money or other assets of the Company; (iv) your breach of any fiduciary duties to the Company or any agreement with the Company; (v) any act, or failure to act, by you in bad faith to the detriment of the Company; (vi) your failure to provide the Company with at least 30 days’ advanced written notice of your intention to resign; (vii) your failure to cooperate in good faith with a governmental or internal investigation of the Company or any of its directors, managers, officers or employees, if the Company requests your cooperation; (viii) your failure to follow Company policies, including the Company’s code of conduct and/or ethics policy, as may be in effect from time to time, and (ix) your conviction of, or plea of nolo contendere to, a felony or any serious crime; provided thatin cases where cure is possible, you shall first be provided a 15day cure period. If, subsequent to your termination of employment for any reason other than by the Company for


Cause, it is determined in good faith by the Chief Executive Officer of the Company that your employment could have been terminated by the Company for Cause, your employment shall, at the election of the Chief Executive Officer of the Company at any time up to two years after your termination of employment but in no event more than six months after the Chief Executive Officer of the Company learns of the facts or events that could give rise to the termination for Cause, be deemed to have been terminated for Cause retroactively to the date the events giving rise to Cause occurred.
“Code” means the Internal Revenue Code of 1986, as amended.
“Employment Agreement” means any individual employment agreement between you and the Company or any of its Subsidiaries.
“Section 409A” means Section 409A of the Code, and the regulations and other interpretive guidance promulgated thereunder, as in effect from time to time.
“Settlement Date” means the next regularly scheduled payroll date following the earliest of (i) the applicable Vesting Date; (ii) the date of your termination of employment; or (iii) a Change of Control.
“Vesting Date” means the date on which the service requirement set forth in Section 3(a) of this Award Agreement is met.
SECTION 3. Vesting and Settlement. Regularly Scheduled Settlement. Except as otherwise provided in this Award Agreement, the vesting period will be the three calendar year period commencing with the year in which the Grant Date occurs and one–twelfth of the Award will become vested on the last day of the calendar quarter in which the Grant Date occurs and each subsequent calendar quarter during such vesting period (each, a “Vesting Date”), subject to your continued employment through each such Vesting Date.
(a) Termination of Employment. Notwithstanding anything to the contrary in this Award Agreement or the Plan:
(i) if your employment terminates by reason of your death, the remainder of the Award shall vest in full immediately;
(ii) if your employment is terminated by the Company for Cause or by reason of your Disability, the remainder of the Award shall be immediately forfeited;
(iii) if your employment is terminated by the Company without Cause,
(A) you shall vest in the sum of the portion of the Award scheduled and eligible to vest on each of the Vesting Dates occurring after the date of termination and before the next anniversary of the Grant Date immediately following the date of termination, and (B) the remainder of the Award shall be forfeited; and
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(iv) if you resign for any reason, (A) you shall vest in a portion of the Award, solely with respect to the portion of the Award scheduled and eligible to vest on the Vesting Date immediately following the date of termination, equal to the product of (x) the portion of the Award scheduled and eligible to vest on the Vesting Date immediately following the date of termination and (y) a fraction, the numerator of which is the number of days from the Vesting Date immediately preceding the date of termination (or, if such termination is after the Grant Date but prior to the first Vesting Date, the Grant Date) through the date of termination of your employment and the denominator of which is the number of days from the Vesting Date immediately preceding the date of termination (or, if such termination is after the Grant Date but prior to the first Vesting Date, the Grant Date) through the Vesting Date immediately following the date of termination,and (B) the remainder of the Award shall be forfeited.
By way of illustration, if, on the date that is two (2) months after the first Vesting Date, your employment terminates (A) by reason of a termination by the Company without Cause, you shall vest in three–twelfths of the Award (i.e., the sum of the one–twelfth of the Award that was scheduled and eligible to vest on the second, third, and fourth Vesting Dates) or (B) by reason of your resignation, you shall vest in two–thirds (2/3) of the portion of the Award (i.e., one–twelfth) that was scheduled and eligible to vest on the second Vesting Date and, in each case, the remainder of the Award shall be forfeited.
(b) Change of Control. Upon a Change of Control that occurs during your employment, the Award shall vest in full immediately.
(c) Settlement of Award. On the Settlement Date, the Company shall deliver to you or your legal representative a lump sum cash payment equal to the portion of the Award that has vested in accordance with the terms of this Award Agreement.
SECTION 4. Forfeiture of Award. If you (a) breach any restrictive covenant (which, for the avoidance of doubt, includes any non-compete, non-solicit, non disparagement or confidentiality provisions) contained in any arrangements with the Company (including any Employment Agreement and the confidentiality covenant contained in Section 10(c) hereof) to which you are subject or (b) engage in fraud or willful misconduct that contributes materially to any financial restatement or material loss to the Company or any of its Subsidiaries, your rights with respect to the Award shall immediately terminate, and you shall be entitled to no further payments or benefits with respect thereto and, if the Award has vested and/or settled, the Company may require you to forfeit or remit to the Company any amount payable, or the after-tax net amount paid or received by you, in respect of the Award; provided, however, that (i) the Company shall make such demand that you forfeit or remit any such amount no later than six months after learning of the conduct described in this Section 4 and (ii) in cases where
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cure is possible, you shall first be provided a 15-day cure period to cease, and to cure, such conduct.
SECTION 5. Non-Transferability of Award. Unless otherwise provided by the Administrator in its discretion, the Award may not be sold, assigned, alienated, transferred, pledged, attached or otherwise encumbered except as provided in Section 8 (a) of the Plan. Any purported sale, assignment, alienation, transfer, pledge, attachment or other encumbrance of the Award in violation of the provisions of this Section 5 and Section 8(a) of the Plan shall be void.
SECTION 6. Withholding, Consents and Legends.
(a) Withholding. The delivery of cash pursuant to Section 3 of this Award Agreement is conditioned on satisfaction of any applicable withholding taxes in accordance with this Section 8(c) of the Plan. No later than the date as of which an amount first becomes includible in your gross income for Federal, state, local or foreign income tax purposes with respect to any portion of the Award, you shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any Federal, state, local and foreign taxes that are required by applicable laws and regulations to be withheld with respect to such amount. In the event that there is withholding tax liability in connection with the settlement of the Award, if authorized by the Administrator in its sole discretion, you may satisfy, in whole or in part, any withholding tax liability by having the Company withhold from the cash you would be entitled to receive upon settlement of the Award, an amount equal to such withholding tax liability.
(b) Consents. Your rights in respect of the Award are conditioned on the receipt to the full satisfaction of the Administrator of any required consents that the Administrator may determine to be necessary or advisable (including your consent to the Company’s supplying to any third-party recordkeeper of the Plan such personal information as the Administrator deems advisable to administer the Plan).
SECTION 7. Successors and Assigns of the Company. The terms and conditions of this Award Agreement shall be binding upon and shall inure to the benefit of the Company and its successors and assigns.
SECTION 8. Administrator Discretion. The Administrator shall have full and plenary discretion with respect to any actions to be taken or determinations to be made in connection with this Award Agreement, and its determinations shall be final, binding and conclusive.
SECTION 9. Dispute Resolution.
(a) Jurisdiction and Venue. Notwithstanding any provision in your Employment Agreement, you and the Company irrevocably submit to the exclusive jurisdiction of (i) the United States District Court for the Southern District of New York and (ii) the courts of the State of New York for the purposes of any suit, action or other proceeding arising out of
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this Award Agreement or the Plan. You and the Company agree to commence any such action, suit or proceeding either in the United States District Court for the Southern District of New York or, if such suit, action or other proceeding may not be brought in such court for jurisdictional reasons, in the courts of the State of New York. You and the Company further agree that service of any process, summons, notice or document by U.S. registered mail to the other party’s address set forth below shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which you have submitted to jurisdiction in this Section 9(a). You and the Company irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Award Agreement or the Plan in (A) the United States District Court for the Southern District of New York or (B) the courts of the State of New York, and hereby and thereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.
(b) Waiver of Jury Trial. You and the Company hereby waive, to the fullest extent permitted by applicable law, any right either of you may have to a trial by jury in respect to any litigation directly or indirectly arising out of, under or in connection with this Award Agreement or the Plan.
(c) Confidentiality. You hereby agree to keep confidential the existence of, and any information concerning, a dispute described in this Section 9, except that you may disclose information concerning such dispute to the court that is considering such dispute or to your legal counsel (provided that such counsel agrees not to disclose any such information other than as necessary to the prosecution or defense of the dispute).
SECTION 10. Notice. All notices, requests, demands and other communications required or permitted to be given under the terms of this Award Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three Business Days after they have been mailed by U.S. certified or registered mail, return receipt requested, postage prepaid, addressed to the other party as set forth below:
If to the Company:XPO Logistics, Inc.
Five American Lane
Attention: Chief Human Resources
Officer
If to you:To your address as most recently supplied to
the Company and set forth in the Company’s
records
The parties may change the address to which notices under this Award Agreement shall be sent by providing written notice to the other in the manner specified above.
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SECTION 11. Governing Law. This Award Agreement shall be deemed to be made in the State of Delaware, and the validity, construction and effect of this Award Agreement in all respects shall be determined in accordance with the laws of the State of Delaware, without giving effect to the conflict of law principles thereof.
SECTION 12. Headings and Construction. Headings are given to the Sections and subsections of this Award Agreement solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of this Award Agreement or any provision thereof. Whenever the words “include”, “includes” or “including” are used in this Award Agreement, they shall be deemed to be followed by the words “but not limited to”. The term “or” is not exclusive.
SECTION 13. Amendment of this Award Agreement. The Administrator may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate this Award Agreement prospectively or retroactively; provided, however, that, except as set forth in Section 14(d) of this Award Agreement, any such waiver, amendment, alteration, suspension, discontinuance, cancelation or termination that would materially and adversely impair your rights under this Award Agreement shall not to that extent be effective without your consent.
SECTION 14. Section 409A. It is intended that the provisions of this Award Agreement comply with Section 409A, and all provisions of this Award Agreement shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.
(a) Neither you nor any of your creditors or beneficiaries shall have the right to subject any deferred compensation (within the meaning of Section 409A) payable under this Award Agreement to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Section 409A, any deferred compensation (within the meaning of Section 409A) payable to you or for your benefit under this Award Agreement may not be reduced by, or offset against, any amount owing by you to the Company or any of its Affiliates.
(b) If, at the time of your separation from service (within the meaning of Section 409A), (i) you shall be a specified employee (within the meaning of Section 409A and using the identification methodology selected by the Company from time to time) and (ii) the Company shall make a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A in order to avoid taxes or penalties under Section 409A, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it, without interest (except as otherwise provided in your Employment Agreement), on the first Business Day after such six-month period. For purposes of Section 409A, each payment hereunder will be deemed to be a separate payment as permitted under Treasury Regulation Section 1.409A2(b)(2)(iii).
6

(c) Notwithstanding any provision of this Award Agreement to the contrary, in light of the uncertainty with respect to the proper application of Section 409A, the Company reserves the right to make amendments to this Award Agreement as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A. In any case, you shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on you or for your account in connection with this Award Agreement (including any taxes and penalties under Section 409A), and neither the Company nor any of its Affiliates shall have any obligation to indemnify or otherwise hold you harmless from any or all of such taxes or penalties.
SECTION 15. Counterparts. This Award Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. You and the Company hereby acknowledge and agree that signatures delivered by facsimile or electronic means (including by “pdf”) shall be deemed effective for all purposes.
SECTION 16. Section 280G. Notwithstanding anything in this Award Agreement to the contrary and regardless of whether this Award Agreement has otherwise expired or terminated, unless otherwise provided in your Employment Agreement, in the event that any payments, distributions, benefits or entitlements of any type payable to you (“CIC Benefits”) (i) constitute “parachute payments” within the meaning of Section 280G of the Code, and (ii) but for this paragraph would be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then your CIC Benefits shall be reduced to such lesser amount (the “Reduced Amount”) that would result in no portion of such benefits being subject to the Excise Tax; provided that such amounts shall not be so reduced if the Company determines, based on the advice of Golden Parachute Tax Solutions LLC, or such other nationally recognized certified public accounting firm as may be designated by the Company (the “Accounting Firm”), that without such reduction you would be entitled to receive and retain, on a net after tax basis (including, without limitation, any excise taxes payable under Section 4999 of the Code), an amount that is greater than the amount, on a net after tax basis, that you would be entitled to retain upon receipt of the Reduced Amount. Unless the Company and you otherwise agree in writing, any determination required under this Section 16 shall be made in writing in good faith by the Accounting Firm. In the event of a reduction of benefits hereunder, benefits shall be reduced by first reducing or eliminating the portion of the CIC Benefits that are payable under this Award Agreement and then by reducing or eliminating the portion of the CIC Benefits that are payable in cash and then by reducing or eliminating the noncash portion of the CIC Benefits, in each case, in reverse order beginning with payments or benefits which are to be paid the furthest in the future. For purposes of making the calculations required by this Section 16, the Accounting Firm may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of the Code, and other applicable legal authority. The Company and you shall furnish to the Accounting Firm such information and documents as the Accounting Firm may reasonably require in order to make a determination under this Section 16, and the Company shall bear the cost of all fees the Accounting Firm charges in connection with any calculations contemplated by this Section 16. In connection with making determinations under this Section
7

16, the Accounting Firm shall take into account the value of any reasonable compensation for services to be rendered by you before or after the Change of Control, including any non-competition provisions that may apply to you and the Company shall cooperate in the valuation of any such services, including any non-competition provisions.
The parties have duly executed this Award Agreement as of the date first written above.
XPO LOGISTICS, INC.
by/s/ Meghan Henson
Name: Meghan Henson
Title:   Chief Human Resources
            Officer
8
Exhibit 10.8


Form of
2022
North America Transport (“NAT”) Consolidated Annual Incentive Plan

Table of Contents
1.
Overview
3
2.
Eligibility
3
3.
Plan Effective Date
3
4.
Plan Design
3
4.1.    Measures & Metrics
3
4.2.    Weights Assigned to Performance Metrics
4
4.3.    Funding Scale
4
4.4.    Bonus Calculation
6
4.5.    Award Computational Examples
7
4.6.    Payment Frequency
8
5.
Eligibility Criteria
8
5.1.    Requirement of Active Employment
8
5.2.    Exclusion Rules
8
5.3.    Employee Acknowledgment
8
5.4.    New Hires and Transfers In
8
5.5.    Change in Position
8
5.6.    Leaves of Absence
9
5.7.    Separation due to Retirement, Death or Disability
9
5.8.    Effect of Separation
9
6.
Change Management
10
6.1.    Plan Communication
10
6.2.    Plan Errors and Overpayments
10
6.3.    Communicating Changes to the Plan
10
7.
Plan Terms and Conditions
10
7.1.    Management Discretion
10
7.2.    At-Will Employment
10
7.3.    Entire Understanding
11
7.4.    No Transfers, Assignments or Pledges
11
7.5.    No Trust / Separate Fund
11
7.6.    Plan Liability
12
7.7.    Single Plan Eligibility
12
8.
Abbreviations and Terminology
12
Page 2 of 12
1.Overview
Reference is made to the proposed distribution (the “Spin-Off”) of the outstanding shares of common stock of RXO, Inc. (“RXO”) to the stockholders of XPO Logistics, Inc. in 2022 pursuant to the Separation and Distribution Agreement between RXO and XPO Logistics, Inc. entered into in connection with such distribution.
This document explains the terms of the NAT Consolidated Annual Incentive Plan (hereinafter, the “Plan”). As of the date on which the Spin-Off occurs (the “Spin-Off Date”), and in accordance with the Employee Matters Agreement (“EMA”) entered into between RXO and XPO Logistics, Inc. in connection with the Spin-Off, RXO will assume the obligations under the 2022 XPO Annual Incentive Plan with respect to SpinCo Group Employees and Former SpinCo Group Employees and satisfy such obligations pursuant to the terms of the EMA and this Plan. In this Plan, the terms the “Company,” “we” and “our” refer to, prior to the Spin-Off Date, XPO Logistics, Inc., and, on and after the Spin-Off Date, RXO, Inc.. In this Plan, the term “Participant”, refers to employees eligible under this Plan. Neither this Plan, nor any other Company guidelines, policies, or practices creates an employment contract, bargain, or agreement or confers any contractual rights whatsoever. No representative of the Company is authorized to provide any employee, individually or on a collective basis, with an employment contract or special arrangement concerning the terms or conditions of employment unless the contract or agreement is in writing and signed by the president of the Company.
2.Eligibility
Determination of eligibility for this Plan will be at the discretion of the Company.
Employees within the NA Transport business unit supporting either the collective NA Transport enterprise, or multiple business lines within NA Transport (i.e., Brokerage, Global Forwarding, Last Mile and Managed Transportation) and who are in HR, IT, Legal, Finance or Sales Operations .
Functional leaders within the NA Transport business unit reporting directly to the President of NA Transport.
Employees who are eligible for a sales incentive plan, sales commissions or quarterly bonuses are ineligible to participate in this plan.
Employees hired after September 30th in the given calendar year are ineligible to receive a bonus for that specific year and will become eligible in the following year, unless there is a pre-existing agreement in writing with the employee.
Employees who have given notice of resignation or who terminate before the bonus payout date, will be ineligible to receive any bonus, subject to applicable law.
Temporary employees and contractors are ineligible under this plan.
In addition, whomever the Company in its sole discretion deems eligible to participate, as documented in writing, may also be an eligible Participant in this Plan.
3.Plan Effective Date
The effective date for this Plan is January 1, 2022.
This Plan supersedes all previous bonus incentive plans and agreements, and all other previous oral or written statements by the Company on the subject.
This Plan will continue in effect until revised or terminated by the Company in writing or superseded by a subsequent Plan.
4.Plan Design
The Participants are subject to all terms of this Plan. Financial targets may be recalibrated post any spin-off activity based on the review and discretion of the management team.
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4.1.Measures & Metrics
Under the terms of this Plan, each Participant’s incentive compensation (or “Bonus”) will be determined based on the financial performance of the NA Transport business against goals which will be measured on an annual basis, and based on individual employee performance which will be measured annually.
Each Participant in the Plan is eligible to earn a bonus payout based on the corresponding metrics. The metrics are as follows:
1.Adjusted EBITDA
2.Individual Employee Performance
4.2.Weights Assigned to Performance Metrics
The funding of this Plan is determined solely (100%) on Adjusted EBITDA performance. Adjusted EBITDA goals are set by the management team in its sole discretion, reviewed regularly by senior management and the Corporate FP&A team and measured on a quarterly basis throughout the performance year.
Once the funding is calculated for the entire bonus pool after the end of the performance year (see Table 5.3A for the calculation scale), bonus allocations are determined based on individual employee performance, as assessed during the performance management process. Therefore, bonus payouts can vary based on individual performance; managers will be provided guidance from Human Resources on overall pool allocations at the time of planning.
Underperforming employees as determined by the Employee’s manager will not be bonus eligible.
Note: Adjusted EBITDA goals and targets may be adjusted or recalibrated post any spin-off activity based on the review and discretion of the management team.
4.3.Funding Scale
The Adjusted EBITDA achievements at each level of the Plan are measured against the funding scale. The funding scale will determine the bonus funding percentages for each level. Each year, the Adjusted EBITDA attainment percentage will be applied to the funding scale to determine the bonus funding percentage.
Refer to Table 5.3A to review the funding scale.
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Table 4.3A – Funding Scale
image_0b.jpg
Note: Any achievement in between the values shown above will have payouts calculated based on straight line interpolation. The maximum funding percentage is capped at 200%.
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4.4.Bonus Calculation
The bonus calculation is a multi-step process that includes the following components: base salary, bonus target, consolidated bonus funding percentage and employee performance.
Base Salary: For exempt employees, base salary that the Participant is being paid during the performance year, prorated based on hire date and time spent at each salary (if the Participant’s salary changes) will be used as the basis for the bonus calculation. For non-exempt employees eligible earnings, including regular earnings, holiday pay, paid time off, overtime, bereavement, training, shift differentials, parental leave, vacation pay, jury duty and other applicable wage types as defined by the Company, will be used as the basis for the bonus calculation. Incentive compensation is not included in the eligible earnings calculation. The eligible earnings will be based on the Participant’s date of hire or change in position. For more information on proration rules, refer to section 6.4.
Year-End Bonus Targets: Each eligible Participant will have a target bonus percentage, which is ultimately applied to base salary (or eligible earnings, for non-exempt employees) for the performance year to determine the target bonus dollar amount. Year-end bonus targets are based on time spent in position. If a Participant changes positions within the year, the year-end bonus target will be calculated based on the number of days the Participant spent at each bonus target. For more information on proration rules, refer to section 6.4.
Consolidated Funding Percentage: The consolidated bonus funding percentage is based on the Adjusted EBITDA attainment achieved on a quarter-by-quarter basis. Each 25% portion of a Participant’s bonus opportunity will be measured against the Adjusted EBITDA attainment for the given quarter and the sum of all the quarterly attainments will form the bonus pool for the performance year (this is the “funding percentage”). The Funding Scale above (see Table 5.3A) will be used each quarter to generate the calculation.
Employee Performance: Employee performance rating is the evaluative metric and represents the assessment each employee will receive from his/her manager, identifying how well the employee performs against individual goals that have been set for him/her from the beginning of the year, during the performance management process.
Bonus pools will be allocated to designated compensation planning managers once the bonus funding is finalized.
Final bonus amounts will be based on individual employee performance, available bonus funding and input and review from the management team. Bonus payouts will vary based on these factors and managers will be provided guidance on overall pool allocations at the time of planning.
Underperforming employees as determined by the Employee’s manager will not be bonus eligible.
Page 6 of 12
Table 4.4A- Bonus Calculation
image_1.jpg
*A combination of bonus funding and individual employee performance will determine final decisions, based on review from the management team.
The Company retains absolute discretion to approve, increase, decrease or eliminate the amount of any award under the Plan.
4.5.Award Computational Examples
Table 4.5A – NAT Consolidated Example
image_2.jpg
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4.6.Payment Frequency
Bonuses are calculated annually (based on quarterly calibrations accumulated throughout the year) and paid in the first quarter following the end of the performance period.
All incentive payments are subject to all required and authorized deductions as well as withholdings.
Participants must meet the Eligibility Criteria contained in Section 6, including being actively employed on the date the bonus is paid.
Because no right to payment is vested until payment is made, this Plan is intended not to trigger application of Section 409A of the Internal Revenue Code.
5.Eligibility Criteria
5.1.Requirement of Active Employment
To earn or receive a bonus award, participants must be actively employed by the Company in a position eligible under this Plan, both on the last day of the applicable performance or calculation period (e.g., the last day of the performance year), and on the date that the incentive is scheduled to be paid, subject to applicable law.
5.2.Exclusion Rules
Only active employees meeting the criteria set forth in the Plan documents are eligible for participation in this Plan.
No bonus may be earned where a Plan Participant has engaged in any fraud, deception, or misrepresentation to customers, the Company, or both. In such event, the Company may adjust the bonus or any future payments to the extent permitted by applicable law.
5.3.Employee Acknowledgment
It is a condition of the employee’s eligibility that s/he timely acknowledges the terms and conditions of the Plan in writing or through an approved electronic method (e.g., the Company’s Learning Management System).
5.4.New Hires and Transfers In
Eligibility for a bonus under this Plan begins the first day of the performance or calculation period (January 1st) following commencement of employment in the position covered by this Plan. Only employees hired on or before September 30th are eligible to participate in this Plan. Employees hired or transferred into this plan in Q2 or Q3 will have a prorated target bonus, for each of the new and prior positions, based on time in the position.
Transfers into the Plan will be prorated based on the Participant’s start date in the new plan and eligible earnings.
Participants who transfer from non-eligible bonus roles to eligible bonus roles will be eligible to receive a bonus for the time spent only in the bonus eligible role. The bonus calculation will be prorated based on date of entry into the bonus eligible role.
Participants who transfer between business units, within the annual incentive plan framework, will not be impacted by prorations, if the bonus plan, bonus target percent and bonus eligibility remain the same.
5.5.Change in Position
If the Participant leaves a position covered by this Plan due to promotion or job classification change, s/he will be eligible for incentives for the last performance or calculation period that the Participant completed (e.g., calendar year) whether or not s/he is employed in the position covered by this Plan on the date that the incentive is scheduled to be paid, subject to all other terms of the Plan and provided that the Participant is actively employed by the Company in a different position on the payment date, unless otherwise required by applicable law.
Page 8 of 12
Participants who are promoted or receive a bonus target percent increase will be eligible for a prorated bonus target percent based on the time spent in each role. The bonus calculation will account for earnings throughout the year.
Participants who are demoted or receive a bonus target percent decrease will be eligible for a prorated bonus target percent based on the time spent in each role. The bonus calculation will account for earnings throughout the year.
In addition, the Company will calculate and pay the Participant a bonus amount based on his/her actual results during the partial period during which s/he left the position covered by this Plan, subject to all other terms of the Plan and provided that s/he is actively employed by the Company on the date that the payment is scheduled to be paid to the Participant, unless otherwise required by applicable law. This calculation will be done in the Company’s discretion, and the Company may prorate, but shall not be required to prorate, any related targets and/or payout amounts when making that calculation.
5.6.Leaves of Absence
Participants on an approved leave of absence (including medical and personal leaves of absence) are eligible to participate in this plan. Participants should not do work under any circumstances while on leave. Participants will receive appropriate payment upon their return to work. If the employee does not return to work, his/her eligibility in the plan will be forfeited.
Participants on a federal- or state-mandated leave (or by written agreement with the Plan Administrator), will be paid according to the rules and regulations applicable to such leaves. Participants on protected federal, state, or local leaves will be eligible to receive a prorated portion of the incentive bonus as required by law.
If a Participant is not actively employed on the date an incentive is scheduled to be paid due to an approved leave of absence, but was employed through the end of the performance period and would otherwise have earned an incentive for that performance period, the incentive will be considered earned, and will be paid in the ordinary course, despite the Participant’s absence on the date of payment.
At the Company’s discretion, the Company may prorate the incentives for employees on unpaid, personal leaves of absence to take into consideration the length of time that a Participant is or was on a leave of absence. If the Participant’s leave is taken on an intermittent or reduced schedule basis, then s/he may be eligible for a pro-rata portion of the incentive, reflecting the aggregate time worked during the applicable period.
5.7.Separation due to Retirement, Death or Disability
Participants who leave a position covered by this Plan due to retirement (age 55 with 10 or more years of service), death or total disability (as defined in our long-term disability plan), will be eligible to receive a bonus award for the last performance/calculation period that s/he completed (e.g., calendar year) whether or not s/he is actively employed by the Company on the date that the bonus award is scheduled to be paid (but subject to all other terms of the Plan). In addition, the Company will calculate and pay the participant (or his/her estate) a bonus award amount based on his/her actual results during the partial period in which s/he left the position, subject to all other terms of the Plan. This calculation will be done in the Company’s discretion, and the Company may prorate, but shall not be required to prorate, any related targets and/or payout amounts when making that calculation. In no event will a Participant be eligible to receive incentives that have not been earned prior to his or her last day of employment, unless otherwise required by applicable law.
Employees should contact their local Human Resources representative for an explanation of incentive payments due upon retirement, as applicable.
5.8.Effect of Separation
Employees in California
If the Participant leaves the Company, voluntarily or involuntarily, before the end of the performance period (e.g., calendar year) then the Participant will be paid only for those incentives earned prior to his or her last day of employment. Such payments will be paid as soon as Participant’s incentives are calculable pursuant to Section 5.4 of the Plan.
Page 9 of 12
Employees in FLSA-only States
If the Participant leaves the Company, voluntarily or involuntarily, before the end of the performance period (e.g., calendar year) then the Participant will not earn the incentives for that performance period.
6.Change Management
6.1.Plan Communication
Communication of the plan will be made to eligible employees in writing by business unit management and Human Resources, as soon as practicable, before or after the start of the new year.
6.2.Plan Errors and Overpayments
If an error in calculation is discovered or brought to the attention of the Company, correction of the error will occur in a timely manner. If the error resulted in an underpayment to the Participant, then the amount owed will be paid to the Participant in the Participant’s next pay period. If the error resulted in an overpayment to the Participant, then the overpayment will be considered an advance subject to repayment, to the maximum extent permitted by applicable law.
If the Participant believes that s/he has not been paid the correct amount due under this Plan for any time period, the Participant must notify his/her manager by the earlier of ninety (90) days after the end of the applicable performance or calculation period (e.g., calendar year) or thirty (30) days after receiving a statement showing the Company’s calculation of the payout, or the issue may be considered conclusively resolved against the Participant to the full extent permitted by applicable local law.
If a Participant at any time owes any amounts to the Company, the Participant agrees to pay those amounts to Company upon demand, and in addition authorizes Company to deduct any amounts owed from any payment of any kind otherwise due to Participant including, but not limited to incentives or other wages to the full extent permitted by applicable law. Participants may be required to sign an express written authorization for the Company to recover any overpayment.
6.3.Communicating Changes to the Plan
The Company and Compensation Committee of the Board of Directors retain absolute sole discretion to approve, increase, decrease or eliminate the amount of any unearned award under the Plan, to the maximum extent permitted by applicable law.
All such changes will be in writing.
7.Plan Terms and Conditions
7.1.Management Discretion
This Plan is not a contract, promise or guarantee that any amount, or any particular amount, will be earned or paid. No incentive, bonus or other amount is earned in advance of its approval and payment by the Company and satisfaction of all conditions required under this Plan. Except for the terms of the prior two sentences, which may not be modified, and to the extent permitted by state law, this compensation Plan and/or its application to any person may be modified or terminated by the Company in writing at any time, in the discretion of authorized Company management. In all instances in which this Plan grants discretion to the Company, the Company shall have the right to exercise its discretion in a complete and unfettered manner as allowed by applicable law.
The Company reserves the right to administer, construe and interpret this Plan, to make all determinations related to this Plan, to approve all payments before they are made, and to resolve all issues and disputes related to this Plan, all at the Company’s discretion. The Company’s decisions on these subjects shall be final, conclusive and binding on all concerned.
7.2.At-Will Employment
Eligibility to participate in this Plan does not constitute a contract of employment with the Company and does not provide the Participant any right or expectation to continue as an employee of the Company. All employment with the Company by individuals who are eligible for this Plan is on an at-
Page 10 of 12
will basis, meaning that either the employee or the Company may terminate the employment relationship at any time for any reason, either with or without cause or notice.
7.3.Entire Understanding
This Plan is the final and complete expression of the parties’ agreements on these subjects. There are no further or contrary oral or written promises or representations on these subjects. This Plan may be amended only by the Company, and only in writing. It may not be amended orally or by course of dealing. This Plan supersedes and replaces all prior discussions, representations or agreements on these subjects, including all other incentive compensation programs, plans and agreements of any kind, unless otherwise specifically determined in writing by management, in its discretion. If any part of this Plan is held to be unenforceable, it shall not affect any other part. If any part of this Plan is held to be unenforceable as written, it shall be enforceable to the maximum extent allowed by applicable law. The provisions of this Plan shall not be interpreted for or against any party based on that party having drafted the provisions. No waiver of any provision of this Plan shall be enforceable unless in writing and signed by the party who is claimed to have made the waiver. No waiver of any provision of this Plan in any one or more instances shall constitute a waiver in any other instance.
7.4.No Transfers, Assignments or Pledges
No incentive payment, or rights (if any) under this Plan, may be assigned, pledged or otherwise transferred or encumbered by the Participant other than by will or the inheritance laws, and any purported transfer or encumbrance will be void and unenforceable against the Company.
7.5.No Trust / Separate Fund
Neither this Plan nor any incentive award or right (if any) to receive any incentive award shall create or be construed to create a trust or separate fund of any kind or any fiduciary relationship on the part of the Company or any other person. Any right to receive payments from the Company under this Plan (if any) shall be no greater than the right of an unsecured general creditor of the Company.
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7.6.Plan Liability
No member of any the Company board of directors or board committee, nor any employee of the Company exercising authority under this Plan, shall be liable to any Plan participant for any action, omission or determination made with respect to this Plan.
7.7.Single Plan Eligibility
Employees who are eligible to participate in this Plan are not eligible to receive incentive payments under any other incentive, or bonus program, or plan. This provision does not apply to ad hoc sales contests and special incentive opportunities related to this role.
8.Abbreviations and Terminology
TermDefinition

Adjusted EBITDA
Earnings Before Interest, Taxes, Depreciation and Amortization is an indicator of a company's profitability, calculated as earnings for the applicable period (quarter or full year) for the respective area (region, district, branch, total brokerage), before the payments of interest, taxes, depreciation and amortization expenses, in each case as determined in accordance with computations applied for internal monthly operating review reports. At management’s discretion, the Company may make adjustments in this calculation for: (i) any expenses that the Company determines are attributable to the business and that are borne by the Company and not by the business; and (ii) any such equitable adjustments as the Company in good faith determines appropriate (including without limitation, extraordinary gains and extraordinary losses, or costs related to acquired organizations).
Page 12 of 12
Exhibit 10.9

REGISTRATION RIGHTS AGREEMENT
by and among
JACOBS PRIVATE EQUITY, LLC,
THE OTHER HOLDERS OF REGISTRABLE SECURITIES AND
DESIGNATED SECURED LENDERS FROM TIME TO TIME PARTY HERETO
and
RXO, INC.
Dated as of [     ], 2022


TABLE OF CONTENTS
ARTICLE I Definitions
1
ARTICLE II Registration Rights
3
SECTION 2.01.
Demand Registration Rights
3
SECTION 2.02.
Piggyback Registration Rights
6
ARTICLE III Registration Procedures
7
SECTION 3.01.
Expenses of Registration and Selling
7
SECTION 3.02.
Obligations of the Company
7
SECTION 3.03.
Suspension of Sales
10
SECTION 3.04.
Furnishing Information
11
ARTICLE IV Indemnification and Contribution
11
SECTION 4.01.
Indemnification
11
SECTION 4.02.
Contribution
13
ARTICLE V Miscellaneous
13
SECTION 5.01.
Indemnities to Survive
13
SECTION 5.02.
Lock-Up Agreements
14
SECTION 5.03.
Enforcement
14
SECTION 5.04.
Rule 144 Reporting
14
SECTION 5.05.
Notices
15
SECTION 5.06.
Governing Law
16
SECTION 5.07.
Assignment; Persons Benefiting
16
SECTION 5.08.
Counterparts
16
SECTION 5.09.
Amendments
16
SECTION 5.10.
Severability
16
SECTION 5.11.
Headings
16
SECTION 5.12.
Entire Agreement
16
SECTION 5.13.
Attorney’s Fees
17
SECTION 5.14.
Limitation of Liability
17


REGISTRATION RIGHTS AGREEMENT, dated as of [ ], 2022 (this “Agreement”), by and among JACOBS PRIVATE EQUITY, LLC (the “Investor Representative”), each of the other Holders (as defined below), each Designated Secured Lender (as defined below) and RXO, INC., a Delaware corporation (the “Company”).
WITNESSETH:
WHEREAS, the Investor Representative is party to that certain Registration Rights Agreement, dated as of September 2, 2011, by and among the Investor Representative, XPO Logistics, Inc. (“XPO”) and the other parties thereto (the “XPO Registration Rights Agreement”).
WHEREAS, pursuant to the Separation and Distribution Agreement, dated as of [ ], 2022, by and between XPO and the Company, XPO will distribute all of the issued and outstanding shares of the Company’s common stock to XPO’s stockholders, on a pro rata basis.
WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the best interests of the Company and its stockholders for the Company to enter into a registration rights agreement with the Investor Representative on substantially the same terms as the XPO Registration Rights Agreement with respect to the Company Common Stock (as defined below).
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Investor Representative and the Company hereby agree as follows:
ARTICLE I
Definitions
As used in this Agreement, the following terms shall have the following meanings:
“Agreement” has the meaning set forth in the preamble to this Agreement.
“Board” has the meaning set forth in the recitals to this Agreement.
“Company” has the meaning set forth in the preamble to this Agreement, and its successors and permitted assigns.
“Company Common Stock” means the common stock, par value $0.01 per share, of the Company.
“Demand Holders” has the meaning set forth in Section 2.01(a).
“Demand Registration” has the meaning set forth in Section 2.01(a).


“Demand Registration Statement” has the meaning set forth in Section 2.01(a).
“Designated Secured Lender” means any secured lender or other pledgee of a Holder to whom any Registrable Securities of such Holder are pledged as collateral or otherwise subjected to a lien to secure an obligation of such Holder, and with respect to which the applicable Holder has provided written notice to the Company that such person shall constitute a “Designated Secured Lender” for purposes of this Agreement.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Expenses” means all expenses incurred by the Company, the Holders and any Designated Secured Lenders in effecting any registration pursuant to this Agreement, including all registration and filing fees, printing expenses, reasonable fees and disbursements of one counsel selected by the Investor Representative to represent all Holders and Designated Secured Lenders of Registrable Securities included in such registration, blue sky fees and expenses and expenses of the Company’s independent accountants in connection with any regular or special reviews or audits incident to or required by any such registration, but excluding all underwriting discounts and selling commissions applicable to the sale of the applicable Registrable Securities.
“Holder” means each holder of Registrable Securities, including the Investor Representative and any assignees or transferees thereof (including any pledgees who acquire and hold Registrable Securities upon foreclosure of the underlying obligation).
“including” means “including, without limitation”.
“Investor Representative” has the meaning set forth in the preamble to this Agreement.
“Maximum Number of Shares” has the meaning set forth in Section 2.01(c).
“person” means any natural person, corporation, limited liability company, partnership, joint venture, trust, business association, governmental entity or other entity.
“Piggyback Registration” has the meaning set forth in Section 2.02(a).
“Prospectus” means the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus.
“registered and registration” shall refer to a registration effected by preparing and (a) filing a Registration Statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration of or automatic effectiveness of such Registration Statement or (b) filing a Prospectus and/or prospectus supplement in respect of an appropriate effective Registration Statement on Form S-3.
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“Registrable Securities” means shares of Company Common Stock. Registrable Securities shall continue to be Registrable Securities (whether they continue to be held by the Investor Representative or they are transferred to other persons) until (i) they are sold pursuant to an effective Registration Statement under the Securities Act; or (ii) they may be sold by their holder without registration under the Securities Act pursuant to Rule 144 without limitation thereunder on volume or manner of sale or other restrictions under Rule 144.
“Registration Rights” means the rights of Holders set forth in Article II to have Registrable Securities registered under the Securities Act for sale under one or more effective Registration Statements.
“Registration Statement” means any registration statement filed by the Company under the Securities Act pursuant to the Registration Rights, including the Prospectus, any amendments and supplements to such registration statement, including post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement.
“Rule 144 and Rule 415” mean, in each case, such rule promulgated under the Securities Act (or any successor provision), as such rule may be amended from time to time.
“Scheduled Black-Out Period” means, with respect to any fiscal quarter, the period from and including the day that is fourteen days prior to the end of such fiscal quarter to and including the later of (i) the day that is two days after the day on which the Company publicly releases its earnings for such fiscal quarter and (ii) the day on which the executive officers and directors of the Company are no longer prohibited by Company policies applicable with respect to such quarterly earnings period from buying or selling equity securities of the Company.
“SEC” means the Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
ARTICLE II
Registration Rights
SECTION 2.01.    Demand Registration Rights.  (a) Subject to the provisions hereof, any Holder or group of Holders holding Registrable Securities constituting, convertible into or exercisable for, in the aggregate, no less than a majority of the total number of shares of Company Common Stock that constitute Registrable Securities (the “Demand Holders”) may, at any time from and after the date hereof, request registration for resale under the Securities Act of all or part of the Registrable Securities (a “Demand Registration”) by giving written notice thereof to the Company (which request shall specify the number of shares of Registrable Securities to be offered by each Holder and/or its Designated Secured Lenders and whether such Registration Statement shall be a “shelf” Registration Statement under Rule 415 promulgated under the Securities Act). The Company shall give written notice of any request for a Demand Registration, which request complies with this Section 2.01(a), within five days after the receipt
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thereof, to each Holder who did not initially join in such request. Within 10 days after receipt of such notice, any such Holder may request in writing that all or part of its Registrable Securities be included in such Demand Registration, and the Company shall include in the Demand Registration the Registrable Securities of each such Holder requested to be so included, subject to the provisions of Section 2.01(c). Each such request shall specify the number of shares of Registrable Securities to be offered by such Holder and/or its Designated Secured Lenders. If requested by any Holder, the Company shall include as a selling security holder in the applicable Registration Statement any Designated Secured Lender of the applicable Holder with respect to the Registrable Securities of the applicable Holder, subject to Section 3.04. Subject to Section 2.01(c) below, upon receipt of a Demand Registration notice in accordance herewith, the Company shall use reasonable best efforts (i) to file a Registration Statement (which shall be a “shelf” Registration Statement under Rule 415 promulgated under the Securities Act if requested pursuant to the request of the Demand Holders pursuant to the first sentence of this Section 2.01(a)) registering for resale such number of Registrable Securities as requested to be so registered as promptly as reasonably practicable and in any event within 30 days, in the case of a registration statement on Form S-3, or 45 days, in the case of a registration statement on Form S-1, after the request of the Demand Holders therefor (such Registration Statement, a “Demand Registration Statement”) and (ii) to cause such Demand Registration Statement to be declared effective by the SEC as promptly as reasonably practicable thereafter. Notwithstanding the foregoing, the Company shall not be required to effect a registration pursuant to this Section 2.01(a): (A) with respect to securities that are not Registrable Securities; (B) during any Scheduled Black-Out Period; (C) if the aggregate offering price of the Registrable Securities to be offered is less than $5,000,000, unless the Registrable Securities to be offered constitute all of the then-outstanding Registrable Securities; or (D) within 90 days after the effective date of a prior Demand Registration Statement. If permitted under the Securities Act, such Demand Registration Statement shall be one that is automatically effective upon filing.
(b)    The Holders shall be entitled to a total of three Demand Registrations. A Registration Statement shall not count as a permitted Demand Registration unless and until it has become effective and Holders are able to register at least 75% of the Registrable Securities requested by the Holders to be included in such registration. A Demand Registration shall not count against the number of such registrations set forth in the second preceding sentence if (i) after the applicable Demand Registration Statement has become effective, such Demand Registration Statement or the related offer, sale or distribution of Registrable Securities thereunder becomes the subject of any stop order, injunction or other order or restriction imposed by the SEC or any other governmental agency or court for any reason attributable to the Company and such interference is not thereafter eliminated so as to permit the completion of the contemplated distribution of Registrable Securities or (ii) in the case of an underwritten offering, the conditions specified in the related underwriting agreement, if any, are not satisfied or waived for any reason attributable to the Company or for any reason not attributable to the selling Holder or Holders or their applicable Designated Secured Lenders, and as a result of any such circumstances described in clause (i) or (ii), less than all of the Registrable Securities covered by the Demand Registration Statement are sold by the selling Holder or Holders or their applicable Designated Secured Lenders pursuant to the Demand Registration Statement.
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(c)    The Company may include in a Demand Registration Statement shares of Company Common Stock for sale for its own account or for the account of other security holders of the Company. If such Demand Registration Statement is in respect of an underwritten offering and the managing underwriters of the requested Demand Registration advise the Company and the Investor Representative that in their reasonable opinion the number of shares of Company Common Stock or other securities proposed to be included in the Demand Registration Statement exceeds the number of shares of Company Common Stock or other securities that can be sold in such underwritten offering without materially delaying or jeopardizing the success of the offering (including the offering price per share) (such maximum number of shares, the “Maximum Number of Shares”), the Company will include in such Demand Registration Statement only such number of shares of Company Common Stock and other securities that in the reasonable opinion of the managing underwriters can be sold without materially delaying or jeopardizing the success of the offering (including the offering price per share), which shares of Company Common Stock and other securities will be so included in the following order of priority: (i) first, the Registrable Securities of all Holders requested to be included therein, pro rata on the basis of the aggregate number of shares of Company Common Stock represented (including upon exercise or conversion) by the Registrable Securities requested to be included by each such Holder; (ii) second, the shares of Company Common Stock and other securities the Company proposes to sell; and (iii) third, any other shares of Company Common Stock and other securities that have been requested to be so included by any other person.
(d)    If any of the Registrable Securities covered by a Demand Registration are to be sold in an underwritten offering, the Company and the Investor Representative shall mutually agree upon the selection of the managing underwriter or underwriters. If the Company and the Investor Representative are unable to agree on the managing underwriter or underwriters within a reasonable amount of time, the Company and the Investor Representative shall each select a managing underwriter and such underwriters shall serve as joint managing underwriters in respect of such offering.
(e)    Notwithstanding the foregoing, if the Board determines in its good faith judgment that the filing of a Demand Registration Statement would require the disclosure of material non-public information concerning the Company that at the time is not, in the good faith judgment of the Board, in the best interests of the Company to disclose and is not, in the opinion of the Company’s counsel, otherwise required to be disclosed, then the Company shall have the right to defer such filing for the period during which such registration would require such disclosure; provided, however, that (x) the Company may not defer such filing for a period of more than 45 days per notice, (y) the total number of days that any such deferrals may be in effect in any 12-month period shall not exceed 90 days in the aggregate, less (without duplication) the number of days during such 12-month period in which any suspensions pursuant to Section 3.03(ii) are or have been in effect, and (z) the Company shall not exercise its right to defer a Demand Registration more than three times in the aggregate in any 12-month period, less the number of suspensions pursuant to Section 3.03(ii) that are or have been in effect during such 12-month period. The Company shall give written notice of its determination to the Holders and any applicable Designated Secured Lenders to defer the filing and of the fact that the purpose for
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such deferral no longer exists, in each case, as promptly as reasonably practicable after the occurrence thereof.
(f)    The Company shall use reasonable best efforts to keep each Demand Registration Statement effective until the earlier of (i) two years (in the case of a shelf Demand Registration Statement) or 90 days (in the case of any other Demand Registration Statement) from the effective date of such Demand Registration Statement and (ii) such time as all of the Registrable Securities covered by such Demand Registration Statement have been sold pursuant to such Demand Registration Statement.
SECTION 2.02.    Piggyback Registration Rights.  (a) If at any time the Company has registered or has determined to register any of its securities for its own account or for the account of other security holders of the Company on any registration form (other than Form S-4 or S-8 or a successor form, or any other form if substantially all of the proceeds thereof are to be used to finance any publicly-announced acquisition) which permits the inclusion of the Registrable Securities (a “Piggyback Registration”), the Company will give the Holders written notice thereof promptly (but in no event less than 15 days prior to the anticipated filing date) and, subject to this Section 2.02, shall include in such registration all Registrable Securities requested to be included therein pursuant to the written request of one or more Holders received within 10 days after delivery of the Company’s notice. If requested by any Holder, the Company shall include as a selling security holder in the applicable Registration Statement any Designated Secured Lender of the applicable Holder with respect to the Registrable Securities of the applicable Holder, subject to Section 3.04. If a Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company, and the managing underwriters advise the Company and the Investor Representative that in their reasonable opinion the number of shares of Company Common Stock and other securities proposed to be included in such registration exceeds the Maximum Number of Shares, the Company shall include in such registration: (i) first, the number of shares of Company Common Stock and other securities that the Company proposed to sell; (ii) second, the number of shares of Company Common Stock and other Registrable Securities requested to be included therein by all Holders who have requested registration of Registrable Securities in accordance with this Section 2.02(a), pro rata on the basis of the aggregate number of shares of Company Common Stock represented (including upon exercise or conversion) by the Registrable Securities requested to be included by each such Holder; and (iii) third, any other shares of Company Common Stock and other securities that have been requested to be so included by any other person.
(b)    If a Piggyback Registration is initiated as an underwritten registration on behalf of a holder of shares of Company Common Stock or other securities other than the Holders (or, for the avoidance of doubt, their assignees) pursuant to a written agreement enforceable against the Company, and the managing underwriters advise the Company and the Investor Representative that in their reasonable opinion the number of shares of Company Common Stock and other securities proposed to be included in such registration exceeds the Maximum Number of Shares, then the Company shall include in such registration: (i) first, the number of shares of Company Common Stock and other securities requested to be included therein by the holder(s) requesting such registration; (ii) second, the number of shares of
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Company Common Stock and other Registrable Securities requested to be included therein by all Holders who have requested registration of Registrable Securities in accordance with Section 2.02(a), pro rata on the basis of the aggregate number of shares of Company Common Stock represented (including upon exercise or conversion) by the Registrable Securities requested to be included by each such Holder; (iii) third, the number of shares of Company Common Stock and other securities that the Company proposes to sell; and (iv) fourth, any other shares of Company Common Stock and other securities that have been requested to be so included by any other person.
(c)    If any Piggyback Registration is a primary or secondary underwritten offering, the Company shall have the right to select, in its sole discretion, the managing underwriter or underwriters to administer any such offering.
(d)    The Company shall not grant to any person the right to request the Company to register any shares of Company Common Stock or other securities in a Piggyback Registration unless such rights are consistent with the provisions of this Section 2.02.
(e)    Each Holder may withdraw all or any part of its Registrable Securities (on its own behalf or on behalf of its applicable Designated Secured Lender) from a Piggyback Registration at any time by delivering written notice of such withdrawal request to the Company, unless such Piggyback Registration is underwritten, in which case Registrable Securities may not be withdrawn after the effective date of the applicable Registration Statement.
ARTICLE III
Registration Procedures
SECTION 3.01.    Expenses of Registration and Selling.  All Expenses of the Company, the Holders and the applicable Designated Secured Lenders incurred in connection with any registration, qualification or compliance hereunder or the sale of any securities registered hereunder shall be borne by the Company.
SECTION 3.02.    Obligations of the Company.  Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably practicable, subject to the other provisions of this Agreement:
(a)    Prepare and file with the SEC a Registration Statement with respect to a proposed offering of Registrable Securities and use reasonable best efforts to have such Registration Statement declared effective as promptly as practicable.
(b)    Prepare and file with the SEC such amendments and supplements to the applicable Registration Statement and the Prospectus or prospectus supplement used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such Registration Statement.
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(c)    Furnish to the selling Holder or Holders, any applicable Designated Secured Lender and any underwriters such number of copies of the applicable Registration Statement and each such amendment and supplement thereto (including in each case all exhibits) and of a Prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned or to be distributed by them.
(d)    Use reasonable best efforts to register and qualify the securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Investor Representative or any managing underwriter(s), to keep such registration or qualification in effect for so long as such Registration Statement remains in effect and to take any other action which may be reasonably necessary to enable the selling Holder or Holders or their applicable Designated Secured Lenders to consummate the disposition in such jurisdictions of the securities owned by the selling Holder or Holders or their applicable Designated Secured Lenders; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, to file a general consent to service of process or to become subject to taxation in any such states or jurisdictions.
(e)    Notify the selling Holder or Holders and their applicable Designated Secured Lenders at any time when a Prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the applicable Prospectus, as then in effect, includes an untrue statement of a material fact or omits 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 such statements were made, not misleading.
(f)    Give written notice to the selling Holder or Holders and their applicable Designated Secured Lenders:
(i)    when any Registration Statement filed pursuant to Section 2.01 or 2.02 or any amendment thereto has been filed with the SEC and when such Registration Statement or any post-effective amendment thereto has become effective;
(ii)    of any request by the SEC for amendments or supplements to any Registration Statement or the Prospectus included therein or for additional information;
(iii)    of the issuance by the SEC of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose;
(iv)    of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and
(v)    of the happening of any event that requires the Company to make changes in any effective Registration Statement or Prospectus in order to make the
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statements therein not misleading (in the case of the Prospectus, in the light of the circumstances under which such statements were made), which notice shall be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made.
(g)    Use reasonable best efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of any Registration Statement referred to in Section 3.02(f)(iii) at the earliest practicable time.
(h)    Upon the occurrence of any event contemplated by Section 3.02(f)(v), promptly prepare a post-effective amendment to such Registration Statement or a supplement to the related Prospectus or file any other required document so that, as thereafter delivered to the selling Holder or Holders, their applicable Designated Secured Lenders and any underwriters, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. If the Company notifies the selling Holder or Holders and their applicable Designated Secured Lenders in accordance with Section 3.02(f)(v) to suspend the use of the Prospectus until the requisite changes to the Prospectus have been made, then the selling Holder or Holders and their applicable Designated Secured Lenders and any underwriters shall suspend use of such Prospectus and use reasonable best efforts to return to the Company all copies of such Prospectus (at the Company’s expense) other than permanently filed copies then in the possession of the selling Holder or Holders, their applicable Designated Secured Lenders or the underwriters.
(i)    Use reasonable best efforts to procure the cooperation of the Company’s transfer agent in settling any offering or sale of Registrable Securities, including with respect to the transfer of physical stock certificates into book-entry form in accordance with any procedures reasonably requested by the Investor Representative or any managing underwriter(s).
(j)    In the case of an underwritten offering, enter into an underwriting agreement in form, scope and substance as is customarily entered into for similar underwritten offerings of equity securities by similar companies and take all such other actions reasonably requested by the Investor Representative or by the managing underwriter(s), if any, to expedite or facilitate the underwritten disposition of such Registrable Securities, and in connection therewith (i) make such representations and warranties to the selling Holder or Holders, their applicable Designated Secured Lenders and the managing underwriter(s) with respect to the business of the Company and its subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by the issuer in similar underwritten offerings of equity securities by similar companies, and, if true, confirm the same if and when requested; (ii) use reasonable best efforts to furnish the underwriter(s) with opinions of counsel to the Company, addressed to the managing underwriter(s), covering the matters customarily covered in the opinions requested in similar underwritten offerings of equity securities by similar companies; (iii) use reasonable best efforts to obtain “cold comfort” letters from the current and former independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any business acquired by the Company for which
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financial statements and financial data are included in the Registration Statement) who have certified the financial statements included in such Registration Statement, such letters to be in customary form and covering matters of the type customarily covered in “cold comfort” letters in connection with similar underwritten offerings of equity securities by similar companies; (iv) if an underwriting agreement is entered into, provide that the same shall contain indemnification provisions and procedures customary in similar underwritten offerings of equity securities by similar companies and consistent with the provisions of Section 4.01 hereof; and (v) deliver such documents and certificates as may be reasonably requested by the selling Holder or Holders, their counsel and the managing underwriter(s) to evidence the continued validity of the representations and warranties made pursuant to clause (i) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company.
(k)    Make available for inspection by a single representative of the selling Holder or Holders and their applicable Designated Secured Lenders, and the managing underwriter(s), if any, and their respective attorneys or accountants, at the offices where normally kept, during reasonable business hours, financial and other records, pertinent corporate documents and properties of the Company, and cause the officers, directors and employees of the Company to supply all information in each case reasonably requested by any such representative, managing underwriter(s), attorney or accountant in connection with such Registration Statement.
(l)    (i) Use reasonable best efforts to cause all shares of Company Common Stock covered by a Registration Statement to be listed on the national securities exchange on which the Company Common Stock is then listed, and enter into such customary agreements, including a supplemental listing application and indemnification agreement in customary form; provided, however, that the applicable listing requirements are satisfied, and (ii) provide a transfer agent and registrar for such Registrable Securities covered by such Registration Statement no later than the effective date of such Registration Statement. For the avoidance of doubt, the Company shall bear the cost of all reasonable expenses associated with any listing.
(m)    Make reasonably available senior executives of the Company to participate in “road show” and other marketing presentations from time to time as reasonably requested by the managing underwriter(s), if any.
SECTION 3.03.    Suspension of Sales.  During (i) any Scheduled Black-Out Period, (ii) upon receipt of written notice from the Company that the Board has determined, in good faith, that permitting continuing offers and sales of Registrable Securities registered under a shelf Registration Statement would require the disclosure of material non-public information concerning the Company that at the time is not, in the good faith judgment of the Board, in the best interests of the Company to disclose and is not, in the opinion of the Company’s counsel, otherwise required to be disclosed, the period during which allowing such offers and sales would require such disclosure (provided that (x) the Company may not suspend use of the applicable Registration Statement pursuant to this clause (ii) for a period of more than 45 days per notice, (y) the total number of days that any such suspensions pursuant to this clause (ii) may be in
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effect in any 12-month period shall not exceed 90 days in the aggregate, less (without duplication) the number of days during such 12-month period in which any deferrals pursuant to Section 2.01(e) are or have been in effect, and (z) the Company shall not exercise its right to suspend use of a Registration Statement pursuant to this clause (ii) more than three times in the aggregate in any 12-month period, less the number of deferrals pursuant to Section 2.01(e) that are or have been in effect during such 12-month period), or (iii) the period following receipt of written notice from the Company that a Registration Statement, Prospectus or prospectus supplement contains or may contain an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading (excluding for purposes of this clause (iii) any event or circumstances to which clause (ii) could be applicable), the selling Holder or Holders and their applicable Designated Secured Lenders shall discontinue disposition of Registrable Securities pursuant to the applicable Registration Statement until the termination of such Scheduled Black-Out Period or until the selling Holder or Holders and their applicable Designated Secured Lenders have received copies of a supplemented or amended Prospectus or prospectus supplement, or until the selling Holder or Holders and their applicable Designated Secured Lenders are advised in writing by the Company that the use of the Prospectus and, if applicable, prospectus supplement may be resumed. If so directed by the Company, in the case of a suspension pursuant to clause (iii), the selling Holder or Holders and their applicable Designated Secured Lenders shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in their possession, of the Prospectus and, if applicable, prospectus supplement covering such Registrable Securities current at the time of receipt of such suspension notice. The Company shall use reasonable best efforts to cure any untrue statement of a material fact or material omission in order to permit the resumption of dispositions at the earliest practicable date following a suspension in accordance with clause (iii).
SECTION 3.04.    Furnishing Information.  It shall be a condition precedent to the obligations of the Company to include the Registrable Securities of any Holder and its Designated Secured Lenders in any Registration Statement that the applicable Holder or its applicable Designated Secured Lender furnish to the Company such information regarding itself, the Registrable Securities held by or pledged to it and the intended method of disposition of such securities as shall be required to effect the registered offering of its Registrable Securities in accordance with the Securities Act and the requirements of the applicable Securities Act form. As a condition to any Designated Secured Lender being named as a selling security holder in any Registration Statement pursuant hereto, the Company may, in its discretion, require that such Designated Secured Lender confirm in writing its agreement to comply with the obligations of a Designated Secured Lender specified in this Agreement with respect to such registration.
ARTICLE IV
Indemnification and Contribution
SECTION 4.01.    Indemnification.  (a) In connection with each registration pursuant to Article II, the Company agrees to indemnify and hold harmless each selling Holder and each Designated Secured Lender named as a selling security holder in the applicable
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Registration Statement, and each person, if any, who controls any such person within the meaning of Section 15 of the Securities Act, as follows:
(i)    against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of an untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of an untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and
(ii)    against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company, which consent shall not be unreasonably withheld;
provided, however, that, with respect to any selling Holder or Designated Secured Lender, this indemnity shall not apply to any loss, liability, claim, damage or expense to the extent arising out of an untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by such selling Holder or Designated Secured Lender expressly for use in the Registration Statement (or any amendment thereto), or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto).
(b)    Each selling Holder and each Designated Secured Lender agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, each of its officers who signed a Registration Statement and the other selling Holders and applicable Designated Secured Lenders, and each person, if any, who controls the Company, any other selling Holder or any Designated Secured Lender within the meaning of Section 15 of the Securities Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in Section 4.01(a), as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), in reliance upon and in conformity with written information furnished to the Company by such selling Holder or Designated Secured Lender expressly for use in the Registration Statement (or any amendment thereto), or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); provided that no such selling Holder or Designated Secured Lender shall be liable under this Section 4.01 for any amounts exceeding the product of the sales price per Registrable Security and the number of Registrable Securities being sold pursuant to such Registration Statement or Prospectus by such selling Holder or Designated Secured Lender.
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(c)    Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve the indemnifying party from any liability it may have under this Agreement, except to the extent that the indemnifying party is prejudiced thereby. If it so elects, after receipt of such notice, an indemnifying party, jointly with any other indemnifying parties receiving such notice, may assume the defense of such action with counsel chosen by it; provided, however, that the indemnified party shall be entitled to participate in (but not control) the defense of such action with counsel chosen by it, the reasonable fees and expenses of which shall be paid by such indemnified party, unless a conflict would arise if one counsel were to represent both the indemnified party and the indemnifying party, in which case the reasonable fees and expenses of counsel to the indemnified party shall be paid by the indemnifying party or parties. In no event shall the indemnifying party or parties be liable for a settlement of an action with respect to which they have assumed the defense if such settlement is effected without the written consent of such indemnifying party, or for the reasonable fees and expenses of more than one counsel for (i) the Company and its officers, directors and controlling persons as a group, and (ii) the selling Holders, the applicable Designated Secured Lenders and their controlling persons as a group, in each case, in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances; provided, however, that if, in the reasonable judgment of an indemnified party, a conflict of interest may exist between such indemnified party and the Company or any other of such indemnified parties with respect to such claim, the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel.
SECTION 4.02.    Contribution.  (a) If the indemnification provided for in or pursuant to Section 4.01 is due in accordance with the terms hereof, but held by a court of competent jurisdiction to be unavailable or unenforceable in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which result in such losses, claims, damages, liabilities or expenses as well as any other relevant equitable considerations. The relative fault of the indemnifying party on the one hand and of the indemnified party 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 indemnifying party or by the indemnified party, and by such party’s relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. In no event shall the liability of any selling Holder or Designated Secured Lender be greater in amount than the amount for which such selling Holder or Designated Secured Lender would have been obligated to pay by way of indemnification if the indemnification provided for under Section 4.01(a) had been available under the circumstances.
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(b)    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. For purposes of this Section 4.02(b), each director of the Company, each officer of the Company who signed a Registration Statement, and each person, if any, who controls the Company or a selling Holder or Designated Secured Lender within the meaning of Section 15 of the Securities Act shall have the same rights to contribution as the Company or such selling Holder or Designated Secured Lender, as the case may be.
ARTICLE V
Miscellaneous
SECTION 5.01.    Indemnities to Survive.  The indemnity and contribution agreements contained in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of any underwriting or agency agreement; (ii) any investigation made by or on behalf of the selling Holder or Holders, any applicable Designated Secured Lender, the Company or any underwriter or agent or controlling person; or (iii) the consummation of the sale or successive resales of the Registered Securities.
SECTION 5.02.    Lock-Up Agreements.  (a) The Company agrees that, in connection with an underwritten offering in respect of which Registrable Securities are being sold, if requested by the managing underwriter(s), it will not, directly or indirectly, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, any Company Common Stock or securities convertible into or exchangeable or exercisable for Company Common Stock (subject to customary exceptions), other than any such sale or distribution of Company Common Stock, for a period of 90 days from the effective date of the registration statement pertaining to such Registrable Securities or such shorter period to which the selling Holder or Holders and the Designated Secured Lenders are subject.
(b)    The lock-up agreements set forth in Section 5.02(a) shall be subject to customary exceptions that may be set forth in a written underwriting agreement.
SECTION 5.03.    Enforcement.  The Company, the Holders and the Designated Secured Lenders 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 the Company, the Holders and the Designated Secured Lenders 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 in the Delaware Court of Chancery (and if the Delaware Court of Chancery shall be unavailable, in any Delaware State court or the Federal court of the United States of America sitting in the State of Delaware), this being in addition to any other remedy to which they are entitled at law or in equity. Each of the parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that (x) any party has an adequate remedy at law or (y) an award of specific performance is not an appropriate remedy for any reason at law or equity.
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SECTION 5.04.    Rule 144 Reporting.  With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use reasonable best efforts to:
(a)    for so long as it is subject to the periodic reporting obligations of the Exchange Act, make and keep public information available, as those terms are understood and defined in Rule 144(c)(1) or any similar or analogous rule promulgated under the Securities Act, at all times after the effective date of this Agreement;
(b)    for so long as it is subject to the periodic reporting obligations of the Exchange Act, file with the SEC, in a timely manner, all reports and other documents required of the Company under the Exchange Act; and
(c)    furnish to the Holders and any Designated Secured Lenders forthwith upon request: (i) in the event the Company is no longer subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 under the Securities Act and of the Exchange Act; (ii) in the event the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, a copy of the most recent annual or quarterly report of the Company; and (iii) such other reports and documents as the Holders may reasonably request in availing themselves of any rule or regulation of the SEC allowing them to sell any such securities without registration; provided, however, that the Company shall be deemed to have furnished any such document if it shall have timely made such document available on the SEC’s Electronic Data Gathering, Analysis and Retrieval System, or a successor system.
SECTION 5.05.    Notices.  Any notice, demand or delivery to the Investor Representative or the Company authorized by this Agreement shall be sufficiently given or made when mailed if sent by first-class mail, postage prepaid, or when transmitted via facsimile or electronic mail, addressed to the Investor Representative or the Company, as applicable, as follows:
if to the Investor Representative, to:
Jacobs Private Equity, LLC
350 Round Hill Road
Greenwich, CT 06831
Facsimile:  203-661-6684
Attention:  Bradley S. Jacobs
Email:  brad@jpe.com
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with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Facsimile:  212-757-3990
Attention:  David S. Huntington, Esq.
Email:  dhuntington@paulweiss.com
if to the Company, to:
RXO, Inc.
11215 North Community House Road
Charlotte, NC 28277
Attention: Jeff Firestone, Chief Legal Officer
Email: [ ]
or such other address as shall have been furnished to the party giving or making such notice, demand or delivery.
Any notice required to be given by the Company to the Holders (other than the Investor Representative) or any Designated Secured Lenders pursuant to this Agreement shall be made by mailing by registered mail, return receipt requested, to such Holders at their respective addresses shown on the register of the Company or to such Designated Secured Lenders at their respective addresses designated in writing to the Company by the applicable Holders. Any notice that is mailed to any such Holder or Designated Secured Lender in the manner herein provided shall be conclusively presumed to have been duly given when mailed, whether or not such Holder or Designated Secured Lender receives the notice.
SECTION 5.06.    Governing Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.
SECTION 5.07.    Assignment; Persons Benefiting.  Any Holder may assign all or a portion of its rights hereunder (including the exclusive right to exercise the Registration Rights with respect to such Holder’s Registrable Securities) to any person (including any secured lender or other pledgee of such Holder) to which such Holder assigns or transfers any interest in all or a portion of such Holder’s Registrable Securities. The Company shall acknowledge any such assignment promptly upon the written request (including documentation reasonably satisfactory to the Company of such assignment) of such Holder or such Holder’s assignee. This Agreement shall be binding upon and inure to the benefit of the Company and the Investor Representative, and their respective successors, assigns, beneficiaries, executors and administrators, and the Holders from time to time of the Registrable Securities, and the Designated Secured Lenders. Except as otherwise expressly provided herein, nothing in this Agreement is intended or shall be construed to confer upon any person, other than the Company,
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the Investor Representative, the Holders and the Designated Secured Lenders, any right, remedy or claim under or by reason of this Agreement or any part hereof.
SECTION 5.08.    Counterparts.  This Agreement may be executed in any number of counterparts, including by means of facsimile and/or electronic mail transmission, each of which shall be deemed an original, but all of which together constitute one and the same instrument.
SECTION 5.09.    Amendments.  Neither this Agreement nor any provisions hereof shall be waived, modified, changed, discharged or terminated other than in a writing signed by each of the Company and the Demand Holders.
SECTION 5.10.    Severability.  If any provision of this Agreement or the application of any such provision to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 5.11.    Headings.  The descriptive headings of the several Articles and Sections of this Agreement are inserted for convenience and shall not control or affect the meaning or construction of any of the provisions hereof.
SECTION 5.12.    Entire Agreement.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof.
SECTION 5.13.    Attorney’s Fees.  In any action or proceeding brought to enforce any provision of this Agreement, the successful party shall be entitled to recover reasonable attorney’s fees in addition to its costs and expenses and any other available remedy.
SECTION 5.14.    Limitation of Liability.  No party to this Agreement shall be liable to any other party for any consequential, indirect or special damages under any provision of this Agreement or for any consequential, indirect, punitive or special damages arising out of any act or failure to act hereunder even if that party has been advised of or has foreseen the possibility of such damages.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
RXO, INC.
By:
Name: Jeff Firestone
Title: Chief Legal Officer
JACOBS PRIVATE EQUITY, LLC
By:
Name:  Bradley S. Jacobs
Title:    Managing Member
Exhibit 21.1
EntityState of Incorporation
Jacobson Transportation Company, Inc.Iowa
XPO Global Forwarding, Inc.Delaware
XPO Last Mile Holding, Inc.Delaware
XPO Last Mile, Inc.Georgia
XPO Logistics Express, LLCDelaware
XPO Logistics Managed Transportation, LLCDelaware
XPO Logistics NLM, LLCDelaware
XPO Logistics, LLCDelaware
XPO NAT Solutions, LLCDelaware

Exhibit 99.1
xpologo1b.jpg
[     ], 2022
Dear XPO Logistics Stockholder:
In March, we announced our plan to separate XPO Logistics into two independent transportation companies with vast potential. The separation will occur through a distribution to XPO stockholders of all of the outstanding shares of RXO, Inc. (“RXO”), a newly formed, publicly traded company that will be created by the spin-off of our asset-light, tech-enabled brokered transportation platform. XPO will continue to be a publicly traded company after the separation.
The spin-off, once complete, will create two transportation leaders with distinct investment identities and clearly delineated value propositions in their respective industries: RXO will be the fourth largest broker of full truckload freight transportation in the United States, with a proprietary digital freight marketplace, access to massive truckload capacity and complementary brokered services for managed transportation, last mile and freight forwarding. XPO will be a leading provider of less-than-truckload transportation in North America, with a European transportation business that we plan to divest.
Each separate company will be best fit for its purpose, with an independent growth strategy and distinct profit drivers, and will be positioned to effectively manage capital and other resources to best support its strategic priorities. The separate management teams of each company will have more flexibility to tailor decision-making to their company’s strategy, customer requirements, stakeholder interests and employee culture. The separation will also create an independent equity currency for RXO, which will allow each company to structure incentive compensation arrangements that are more closely aligned with the performance of its respective business.
Upon completion of the distribution, each XPO stockholder as of [     ], 2022, the record date for the distribution, will receive one share of RXO common stock for every share of XPO common stock held as of the close of business on the record date. RXO common stock will be issued in book-entry form only, which means that no physical share certificates will be issued. For U.S. federal income tax purposes, the distribution is intended to be tax-free both to XPO stockholders and to XPO. No vote of XPO stockholders is required for the distribution. You do not need to take any action to receive shares of RXO to which you are entitled as an XPO stockholder, and you do not need to pay any consideration or surrender or exchange your XPO common stock, which will continue to trade on the New York Stock Exchange.
We encourage you to read the attached information statement, which is being provided to all XPO stockholders that held shares of XPO on the record date for the distribution. The information statement describes the planned distribution of RXO common stock in detail and contains important business and financial information about RXO.
We believe that the separation will create new opportunities for both companies to realize significant growth, led by management teams with a demonstrated commitment to our investors, customers, employees and communities. As a stockholder of our company, you’ve experienced the benefit of XPO’s decade-long commitment to operational excellence and value creation. We look forward to the potential we expect to unlock with this new separation — for XPO, for RXO and for you, as a stockholder of both companies.
Sincerely,
[                                    ]
Brad Jacobs
Chairman and Chief Executive Officer
XPO Logistics, Inc.


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[     ], 2022
Dear Future RXO Stockholder:
I’m excited to welcome you as a future stockholder of RXO, Inc. (“RXO”), a leader in technology-enabled brokered transportation services in North America. The planned spin-off of RXO from XPO as a standalone company is a compelling prospect for us, and one that we believe will unlock value for all our stakeholders.
The opportunity we see in front of RXO is rooted in years of momentum as part of XPO, during which time our brokerage platform benefited from significant investments in digitization, customer service, talent and scale. As a separate public company, we can build on this strong positioning to capitalize on secular tailwinds in our industry, including the increasing broker penetration of the for-hire truckload industry and the growing shipper and carrier preference for digital brokerage capabilities. Moreover, we’ll be able to deepen our focus on serving our customers by enhancing RXO ConnectTM, our proprietary digital brokerage platform, for our specific end-markets. In doing so, we’ll continue to capitalize on the first-mover technology advantage RXO inherited from XPO and become an increasingly valuable partner to our customers for their transportation needs.
Importantly for you as a stockholder, we’ll be able to intensify our focus on our strategic priorities. RXO will have a simplified business structure, a capital structure tailored to our opportunities and a clearly delineated investment profile. Our standalone stock listing will create an independent equity currency we can use to recruit talent and structure employee incentive compensation arrangements that are more directly tied to our performance, and pursue strategic objectives, including acquisitions. We believe that these and other compelling rationales for the spin-off will amplify our ability to drive profitable growth in our best-in-class truck brokerage business and further leverage our technology advantage in our large and fragmented industry.
We expect to list RXO’s common stock on the New York Stock Exchange under the symbol “RXO” when the spin-off is complete.
Our vision for the future is clear. As an independent company, we intend to continue to deliver superior value for our customers through operational excellence, innovation and reliable access to massive transportation capacity. We plan to continue to invest in top talent and profitable growth and generate strong cash flows, providing excellent outcomes for our stockholders. For our employees, we’ll build on our cohesive, people-centric culture and engage our team in our vision.
We look forward to participating in this future with you as a holder of RXO common stock.
Sincerely,
[                                    ]
Drew Wilkerson
Chief Executive Officer
RXO, Inc.


Preliminary and Subject to Completion, Dated September 28, 2022
Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the U.S. Securities and Exchange Commission under the U.S. Securities Exchange Act of 1934, as amended.
INFORMATION STATEMENT
RXO, INC.
This information statement is being furnished in connection with the distribution by XPO Logistics, Inc. (“XPO”) to its stockholders of the outstanding shares of common stock of RXO, Inc. (“RXO”), a wholly owned subsidiary of XPO that will hold the assets and liabilities associated with XPO’s North American truck brokerage business, as well as its services for managed transportation, last mile and freight forwarding (the “RXO Businesses”). To implement the separation, XPO currently plans to distribute all of the shares of RXO common stock on a pro rata basis to XPO stockholders in a distribution that is intended to be tax-free for U.S. federal income tax purposes both to XPO stockholders and to XPO. Immediately after the distribution becomes effective, XPO will own no outstanding shares of our common stock. RXO, LLC will be converted into a Delaware corporation prior to the separation and distribution.
For every share of common stock of XPO held of record by you as of the close of business on [     ], 2022, which is the record date for the distribution, you will receive one share of RXO common stock. As discussed under “The Separation and Distribution—Trading Between the Record Date and the Distribution Date,” if you sell your shares of XPO common stock in the “regular-way” market after the record date up to the distribution date, you also will be selling your right to receive shares of RXO common stock in connection with the distribution. We expect the shares of RXO common stock to be distributed by XPO to you at 12:01 a.m., Eastern Time, on [     ], 2022. We refer to the date of the distribution of the RXO common stock as the “distribution date.”
Until the distribution occurs, RXO will be a wholly owned subsidiary of XPO, and consequently, XPO will have the sole and absolute discretion to determine and change the terms of the separation (or to terminate the separation), including the establishment of the record date for the distribution and the distribution date.
No vote of XPO stockholders is required for the distribution. Therefore, you are not being asked for a proxy, and you are requested not to send XPO a proxy, in connection with the distribution. You do not need to pay any consideration, exchange or surrender your existing shares of XPO common stock or take any other action to receive your shares of RXO common stock.
There is no current trading market for RXO common stock, although we expect that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the distribution date, and we expect “regular-way” trading of RXO common stock to begin on the distribution date. RXO intends to list its common stock on the New York Stock Exchange (the “NYSE”) under the symbol “RXO.” Following the distribution, XPO will continue to trade on the NYSE under the symbol “XPO.”
In reviewing this information statement, you should carefully consider the matters described in the section titled “Risk Factors” beginning on page 23.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
The date of this information statement is [       ], 2022.
This information statement was first made available to XPO stockholders on or about [      ], 2022.


TABLE OF CONTENTS
Page
Presentation of Information
Unless the context otherwise requires or otherwise specifies:
•The information included in this information statement about RXO, including the Combined Financial Statements of RXO, assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution.
•Except as otherwise specified herein, references in this information statement to “RXO,” “we,” “us,” “our,” “our company” and “the company” refer to: (i) RXO, LLC (a newly formed holding company), and (ii) RXO, Inc. following the conversion of RXO, LLC into a Delaware corporation, which will occur prior to the separation and distribution, and, in each case, its combined subsidiaries.
•References in this information statement to the “RXO Businesses” refer to XPO’s North American truck brokerage business, as well as its services for managed transportation, last mile and freight forwarding.
•References in this information statement to “XPO” refer to XPO Logistics, Inc., a Delaware corporation, and its subsidiaries, including the RXO Businesses prior to completion of the separation and the distribution and excluding the RXO Businesses following completion of the separation and the distribution.
•References in this information statement to the “separation” or “spin-off” refer to the spin-off of the RXO Businesses from XPO’s other businesses and the creation, as a result of the distribution, of an independent, publicly traded company, RXO, to hold the assets and liabilities associated with the RXO Businesses after the distribution.
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•References in this information statement to the “distribution” refer to the pro rata distribution of all of RXO’s issued and outstanding shares of common stock to XPO stockholders as of the close of business on the record date for the distribution.
•References in this information statement to RXO’s per share data assume a distribution ratio of one share of RXO common stock for every share of XPO common stock.
•References in this information statement to RXO’s historical assets, liabilities, products, businesses or activities generally refer to the historical assets, liabilities, products, businesses or activities of the RXO Businesses as the businesses were conducted as part of XPO prior to the completion of the separation.
Industry and Market Information
Unless indicated otherwise, the information concerning the industries and markets in which RXO participates contained in this information statement is based on RXO’s general knowledge of and expectations concerning its operating environment. The market positions, shares, market sizes and growth estimates included in this information statement are based on estimates using RXO’s internal data and estimates, data from various third-party industry analyses, internal research and adjustments, and assumptions that RXO believes to be reasonable. RXO has not independently verified data from industry analyses and cannot guarantee their accuracy or completeness. In addition, RXO believes that data regarding the industry, market positions, shares, market sizes and growth estimates provide general guidance but are inherently imprecise. Further, RXO’s estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed in the estimates and assumptions. Accordingly, investors should not place undue reliance on this information.
ii

INFORMATION STATEMENT SUMMARY
The following is a summary of selected information discussed in this information statement. This summary may not contain all of the details concerning the separation, the distribution or other information that may be important to you. To better understand the separation, the distribution and our business and financial position, you should carefully review this entire information statement. Unless the context otherwise requires, the information included in this information statement about RXO, including the Combined Financial Statements of RXO, assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution.
Unless the context otherwise requires, or when otherwise specified, references in this information statement to our historical assets, liabilities, products, businesses or activities of our businesses are generally intended to refer to the historical assets, liabilities, products, businesses or activities of the RXO Businesses as they were conducted as part of XPO prior to completion of the separation and distribution.
Company Overview
RXO is a high-performing brokered transportation platform defined by cutting-edge technology and a nimble, asset-light business model, with the largest component being our core truck brokerage business. We are the fourth largest broker of full truckload freight transportation in the United States, with approximately 4% share of the entire $88 billion brokered truckload industry in 2021. Over 80% of our operating income in 2021 was generated by truck brokerage; the remainder was comprised of our brokered services for managed transportation, last mile and freight forwarding. RXO is led by Drew Wilkerson, chief executive officer, and Jamie Harris, chief financial officer. These executives have deep experience in their respective fields, having previously served in senior roles with industry leaders.
Our truck brokerage business has a variable cost structure with robust free cash flow conversion and a long track record of generating a high return on invested capital. Shippers create demand for our service, and we place their freight with qualified independent carriers using our technology. We price our service on either a contract or a spot basis.
Notable factors driving growth and margin expansion in our business include our ability to access massive truckload capacity for shippers through our carrier relationships, our proprietary, cutting-edge technology, our strong management expertise and favorable industry tailwinds. As of June 30, 2022, we had approximately 98,000 carriers in our North American truck brokerage network, and access to over one and a half million trucks.
We provide our customers with highly efficient access to capacity through our RXO ConnectTM digital brokerage technology. This proprietary platform is a major differentiator for our truck brokerage business, and together with our pricing technology, we believe it can unlock incremental profitable growth well beyond our current levels. All of our services utilize our proprietary platform.
In 2021, we generated $4.7 billion of revenue. See “Summary Historical and Pro Forma Combined Financial Data” for additional information. As of June 30, 2022, we operated with approximately 7,400 team members (comprised of approximately 5,600 full-time and part-time employees and 1,800 temporary workers) and 196 locations.
Drivers of Value Creation
We have identified five key drivers of value creation in our truck brokerage business:
•Critical Scale in an Expanding Industry with Low Penetration: We are the fourth largest broker of full truckload freight transportation in the United States, with a carrier pool that gives us access to vast truck capacity to serve high shipper demand for transportation. We are also well-established as a truckload broker of choice across diversified industry sectors, with a notable presence in the e-commerce and retail sectors. Despite our scale, we have just 4% of the brokered truckload industry revenue, which includes LTL and full truckload transportation provided direct to shippers and via managed transportation providers, and
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expect to benefit from both overall industry growth in demand for truckload transportation, and a long runway for increased broker penetration of for-hire trucking.
•Proprietary Technology: We believe we are strongly differentiated by our technology as a leading innovator of sophisticated brokerage solutions that enhance visibility, reliability, speed, accuracy and cost effectiveness, and by the fully automated transactional capabilities of our digital platform. As more and more shippers outsource their road freight needs to brokers, they increasingly prefer brokers that have the digital capabilities we offer.
•Long-Tenured, Blue-Chip Customer Relationships in Attractive Verticals: Our customer base includes numerous long-term relationships with market leaders and other world-class companies across a diversified array of customer verticals, with a significant presence in consumer-facing sectors. Our tiered sales organization tailors its approach to each prospective customer based on size and profitability potential.
•Asset-Light Model Generates High Returns and Substantial Free Cash Flow: We utilize an asset-light business model that gives us agility and generates strong free cash flow.
•Experienced and Cohesive Leadership and Strong Company Values: Our business operations are led by highly experienced executives who are recognized as leading truck brokerage experts and technologists. These executives have worked together for many years, creating value through operational excellence, data science and a people-centric culture.
Critical Scale in an Expanding Industry with Low Penetration
Our truck brokerage business operates in a growing, $88 billion brokered truckload industry in the United States, within a total addressable for-hire trucking opportunity of approximately $400 billion in 2021. The brokered truckload industry size includes $8 billion from managed transportation services, which represents approximately one third of the total managed transportation industry in the United States. We expect that our industry will continue to grow faster than GDP, propelled by strong secular tailwinds, such as a trend toward outsourcing freight transportation, increased brokerage penetration of for-hire truckload transportation and adoption of digital brokerage technologies by shippers and carriers. In addition, given our size in our industry, we see a significant opportunity to increase our market share through ongoing shipper and carrier adoption of our proprietary RXO ConnectTM platform.
Our best-in-class truck brokerage business has a long track record of outperforming our industry and peers in key metrics. For the full year 2021, compared with 2020 and 2019, respectively: our revenue growth in truck brokerage was 63% and 100%, and our load growth was 29% and 40%, including 38% and 84% load growth from our top 20 customers. Additionally, we grew our 2021 margin dollars, which represent our revenue less the cost of transportation and services (exclusive of depreciation and amortization), by 49% and 86% compared with 2020 and 2019, respectively. From 2013 to 2021, our truck brokerage revenue compound annual growth rate (“CAGR”) was 27% — approximately three times the U.S. brokered truckload industry growth rate, and notably, over 90% of our revenue growth over this period was organic. Over the last three years, we increased our productivity, measured by loads per head per day, by 50%.
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business1a.jpg
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(1)U.S. brokered truckload industry size; reflects brokered component of ~$400 billion total addressable truckload opportunity
The growing complexity of supply chains, the advent of brokerage technology and the increase in risk aversion by supply chain operators have encouraged shippers to seek out large, third-party transportation partners with on-demand access to trucks and drivers, real-time pricing and continuous visibility into the movement of their goods. This has led to a sustained shift toward utilizing outsourced transportation brokers such as RXO that have a strong technology offering and provide data for better decision-making.
Broker penetration of for-hire truckload transportation has doubled in the last 15 years, and is still less than 25%. The penetration rate is expected to continue a steady climb, with industry forecasts predicting ongoing increases.
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Proprietary Technology
Our first-mover advantage in brokerage technology dates back to the start of XPO in 2011, when we foresaw the technological potential in the brokerage model. RXO is capitalizing on that advantage.
A decade ago, truck brokerage was conducted largely by telephone through manual interactions between customers and brokers. This limited the industry’s ability to realize efficiencies and made it challenging for many brokers to maintain high levels of customer service as they grew in scale.
We established our competitive advantage with significant investments in proprietary brokerage technology that harnesses data science. We began matching shippers to carriers using the visibility provided by our Freight Optimizer system. We then developed our RXO ConnectTM digital brokerage platform architecture, which incorporates machine learning and fully automates the brokerage process, making transactions more efficient for all parties involved. Over the past 10 years, we have spent approximately $300 million on developing our technology.
Today, digital brokerage platforms are changing the face of the truck brokerage industry and are expected to continue to grow in importance as shippers increasingly value the efficiencies of automation. Approximately 80% of
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RXO’s brokerage orders are currently created or covered digitally, and we expect the digital nature of our transactions to increase to 95% or higher over time.
Long-Tenured, Blue-Chip Customer Relationships in Attractive Verticals
We have a large opportunity to grow our share in key verticals with durable fundamentals, where we have strong partnerships with preeminent customers and extensive expertise. Our revenue is well-diversified across customers with different demand patterns and seasonality, including more than half of the Fortune 100 companies. In 2021, our revenue profile reflected a strong mix of both verticals and customers, with low concentration risk:
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(1)Before eliminations
Our value proposition is a combination of massive carrier capacity, highly efficient technology, deep expertise and the agility to not only solve supply chain challenges, but also proactively improve results — these are benefits that resonate with truck brokerage customers of all sizes. The average relationship tenure of our top 10 customers company-wide, based on revenue, is approximately 16 years, and the average relationship tenures of our top 10 and top 20 truck brokerage customers, based on revenue, are approximately 14 years.
Our tiered sales organization tailors its approach to each prospective customer based on size and profitability potential and has dedicated teams targeting enterprise customers, national customers and emerging growth companies. Our sales organization draws upon vertical-specific experience and leverages internal resources, including the self-service capabilities of RXO Connect™, in order to meet each customer’s needs.
Asset-Light Model Generates High Returns and Substantial Free Cash Flow
RXO’s asset-light business model historically has generated a high return on invested capital across cycles and robust free cash flow. We do not own the great majority of trucks and other assets used to perform our services, and in 2021, only 13% of our costs were fixed. This limits our capital requirements and gives our business substantial flexibility, compared with asset-based transportation providers.
Our largest capital expenditure is technology, which allows us to continually enhance our financial and operational agility. Labor is a significant cost; however, a large part of our labor cost is related to sales commissions. This variable cost structure automatically decreases costs at times of lower demand and increases revenue and margin faster than costs as demand returns. The resilience inherent in our business model reduces risk in all macroeconomic environments.
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For example, when the market is poised to tighten, our business model gives us the ability to review rates with our top customers, hire employees to increase capacity, onboard more carriers and backstop rates. When the market is poised to loosen, we are able to look for opportunities to reduce carrier costs to expand margins, slow hiring, lean into contractual business and offer dedicated solutions to ensure reliable capacity for key customers. The resilience inherent in our business model reduces risk and facilitates succeeding in all macroeconomic environments.
Experienced and Cohesive Leadership and Strong Company Values
RXO is led by Drew Wilkerson, chief executive officer, and Jamie Harris, chief financial officer. These executives have deep experience in their respective fields, having previously served in senior roles with XPO and other industry leaders.
Mr. Wilkerson is a transportation industry veteran with 16 years of experience in brokerage operations. He joined XPO in May 2012 to spearhead the growth of the company’s flagship truck brokerage hub in Charlotte, North Carolina. In May 2014, he was promoted to regional vice president, with responsibility for major brokerage operations, and served as the key liaison for strategic accounts. In March 2017, he was named president of XPO’s North American brokerage business; and in February 2020, he was named president of XPO’s North American transportation division, with P&L responsibility for truck brokerage, expedite, intermodal, drayage, managed transportation, last mile and freight forwarding. He has served in this role until the separation. Prior to XPO, Mr. Wilkerson held leadership positions in sales, operations, and customer and carrier relationship management with C.H. Robinson Worldwide.
Mr. Harris is a career CFO with 35 years of experience in B2B sectors, including two decades with public companies. He has served as chief financial officer of XPO’s North American transportation division from September 2022 until the separation. Prior to XPO, he was CFO and treasurer of SPX Technologies and earlier held positions as CFO and then interim CEO of Elevate Textiles, Inc. Previously, Mr. Harris held various executive roles with Coca-Cola Consolidated, the largest independent Coca-Cola franchisee in the United States, including eight years as CFO and two years as executive vice president, business transformation.
Our leadership team also provides executive support for our culture, which is defined by our environmental, social and governance framework, and by our values: safe, entrepreneurial, respectful, innovative and inclusive. We strive to move goods most efficiently through supply chains in a way that maximizes value for all our stakeholders. For example, our technology platform is designed to help us operate with minimal waste and reduce the carbon footprint of shipper supply chains, while also reducing “empty miles” for the carriers that provide the transportation. In April 2022, we enhanced the environmental sustainability of our truck brokerage offering with the launch of our Ship Net-Zero program, which gives shippers a way to negate the carbon footprint of their freight by purchasing carbon offsets for the sustainability projects of their choice.
Relationship-Based Operating Structure
Our truck brokerage business operates as an intermediary between shippers and carriers (truck and fleet owners), connecting truckload supply and demand. Our value proposition is based on our ability to access truck capacity on a massive scale; give shippers and carriers the benefits of our proprietary digital freight marketplace; and solve transportation challenges for our customers by utilizing the bench strength of our business — namely, the expertise of our brokerage leaders, technologists and employees.
Our asset-light business model relies on our business relationships with independent motor carriers for the transportation of our customers’ freight. We typically sign a non-exclusive, one-year, renewable agreement with carriers; this agreement establishes the carrier’s role as an independent contractor and provides that the carrier is solely responsible for aspects of their service. In 2021, more than 96% of our truck brokerage revenue was generated from independent contractor services provided to truck brokerage customers, with the balance provided to customers of other RXO businesses through co-brokerage agreements.
We conduct our truck brokerage operations by striving to best utilize our resources of people, technology and data. Our sales representatives communicate with customers about truckload freight that needs to be shipped, and we locate trucks with available capacity using our RXO ConnectTM technology platform. In addition, our technology
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interfaces give customers the ability to post their freight loads and tap into truck capacity on our platform. On the supply side, truck drivers and fleet owners use our carrier interfaces to find loads and better utilize their assets. Carriers can bid and book loads online and through our platform’s mobile app. Our brokerage platform synergizes these operating strengths within a single digital freight marketplace. Approximately 80% of our truck brokerage transactions have a digital profile — and, as that percentage continues to grow, we are able to process more volume per head over time.
Our Strategy
Our strategy is designed to deliver value through our resources, including extensive carrier relationships, automated shipper-carrier interactions, end-to-end digital tracking and data analyses generated by our proprietary algorithms. Our growth and optimization strategy encompasses:
•Marketing our brokerage capabilities and value-added services to new and existing customers of all sizes, using a partnership approach that creates enduring relationships;
•Leveraging our positioning to increasingly capitalize on secular trends in demand, such as the increasing broker penetration of the for-hire truckload industry and the growing shipper preference for digital brokerage services;
•Continuing to recruit and retain talented customer and carrier sales representatives, and continuously improve their productivity with our state-of-the-art technology;
•Continuing to attract high-caliber independent carriers to provide third-party transportation services for our customers; and
•Capitalizing on our first-mover technology advantage to continue to gain share of the truck brokerage industry by optimizing brokerage processes and pricing for customers and carriers, and by enhancing the productivity of our operations.
Technology and Intellectual Property
RXO benefits from first-mover advantage in brokerage technology, with a fully automated, cloud-based digital platform that enables us to enhance our service, capture share and reduce costs. We established our advantage through more than a decade of investment in proprietary technology, and we are committed to staying at the forefront of the technological evolution of our industry.
Our RXO ConnectTM digital brokerage platform is scalable and self-learning. It gives shippers access to our growing transportation network and our valuable market data, and it gives independent truck drivers the ability to secure loads through our mobile app. As of June 30, 2022, we had nearly 800,000 cumulative truck driver downloads of the app.
Importantly, our digital brokerage platform creates ongoing value for RXO by: (i) giving us real-time visibility into available supply and demand for current and future time periods; (ii) engaging customers and carriers through user-friendly interfaces underpinned by cutting-edge pricing technology; (iii) optimizing for value and margin through superior real-time market intelligence derived from data harvested during load-matching; and (iv) facilitating transactions through cost-efficient automation. See “Technology and Intellectual Property” for more information.
Other Brokered Transportation Services
In addition to our core truck brokerage business, we also offer asset-light services for managed transportation, last mile for heavy goods and freight forwarding. We believe this comprehensive suite of brokered transportation solutions, provided through a single source, is a differentiator for RXO and capitalizes on synergy opportunities between the services in the form of cross-selling and shared technology. In 2021, over 60% of our revenue was related to customers that did business with more than one of our services. We estimate that the total addressable
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industry opportunity for the range of services we offer was over $750 billion in 2021. This includes the $400 billion U.S. for-hire truckload industry.
Managed Transportation
Our managed transportation service provides asset-light solutions for shippers who outsource their freight transportation to gain reliability, visibility and cost savings. This service uses proprietary technology to enhance revenue synergies with truck brokerage, last mile and freight forwarding. We are the sixth largest provider of managed transportation services in the United States and have grown our freight under management by more than 80% since 2019. In 2021, we had approximately 3% revenue share of the U.S. managed transportation industry, and, for the twelve months ended June 30, 2022, approximately $3.9 billion of freight under management. We estimate that the market growth rate of the total addressable market for the managed transportation services we offer will be 10% from 2021 to 2026.
Our managed transportation offering includes bespoke load planning and procurement, complex solutions tailored to specific challenges, performance monitoring, engineering and data analytics, among other services. Our control tower solution leverages the expertise of a dedicated team focused on continuous improvement, and digital, door-to-door visibility into order status and freight in transit. In 2021, we managed more than 2.8 million shipments using control tower technology. In addition, we offer technology-enabled managed expedite services that automate transportation procurement for time-critical freight moved by independent road and air charter carriers.
Last Mile
Our last mile offering is an asset-light service that facilitates the delivery of heavy goods to consumers, performed by highly qualified third-party contractors; this gives us daily access to over 7,000 trucks. We are the largest provider of outsourced last mile service for heavy goods in the United States, with approximately 7% market share and a network that is positioned within 125 miles of the vast majority of the U.S. population. In 2021, we facilitated over 11 million last mile deliveries and installations for omnichannel and e-commerce retailers and direct-to-consumer manufacturers. We estimate that the market growth rate for the total addressable market for the last mile services we offer will be 10% from 2021 to 2024.
We operate our last mile business using a proprietary technology platform we developed specifically for the last mile consumer experience, integrated with RXO Connect™. This enables real-time tracking and on-demand delivery updates and rescheduling, customized notifications and signature-less release upon delivery. Approximately 50% of our eligible last mile orders are now self-scheduled by the consumer via the web or automated calls, and all data regarding a shipment’s progress is visible in one place. Our automation capabilities are a major lever in driving superior customer satisfaction and a 30% reduction in calls per delivery since 2018.
Freight Forwarding
Our freight forwarding service is a scalable, asset-light offering managed with advanced technology that facilitates ocean, road and air transportation and assists with customs brokerage. We are a U.S.-based freight forwarder with a global network of company-owned and partner-owned locations and coverage of key trade lanes that reach approximately 160 countries and territories through more than 2,500 domestic and 400 international carriers. We estimate that the market growth rate for the total addressable market for the freight forwarding services we offer will be 3% from 2021 to 2026.
Our freight forwarding service provides valuable support to other RXO operations by providing centralized procurement for domestic and cross-border capacity management. We leverage economies of scale, carrier relationships and local market expertise at thousands of destinations to connect key production and consumption centers hundreds or thousands of miles apart. Our freight forwarding business model is nimble and resilient to changes in demand; we can readily increase capacity to manage volume, while retaining inherent flexibility in capital expenditures.
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The Separation and Distribution
In March 2022, XPO announced its intention to separate into two independent, publicly traded companies. The separation will occur through a pro rata distribution to XPO stockholders of all of the shares of common stock of RXO, the newly formed company that will consist of XPO’s existing tech-enabled brokered transportation services platform in North America. XPO will remain a publicly traded company after the separation and distribution, consisting of its existing asset-based North American less-than-truckload business and its European transportation business.
On [     ], 2022, the XPO board of directors approved the distribution of [     ] shares of RXO common stock, on the basis of one share of RXO common stock for every share of XPO common stock held as of the close of business on [     ], 2022, the record date for the distribution.
RXO’s Post-Separation Relationship with XPO
Upon the distribution, XPO and RXO will become two separate companies with separate management teams and boards of directors. Prior to the distribution, XPO and RXO will enter into the separation agreement. We will also enter into various other agreements that will provide a framework for our relationship with XPO after the separation, including a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property license agreement. These agreements will provide for the allocation between RXO and XPO of the assets, employees, liabilities and obligations (including, among others, investments, property and employee benefits, insurance and tax-related assets and liabilities) of XPO and its subsidiaries attributable to periods prior to, at and after the separation and will govern the relationship between us and XPO subsequent to the completion of the separation. For additional information regarding the separation agreement and other transaction agreements, see the sections titled “Risk Factors—Risks Related to the Separation and Distribution” and “Certain Relationships and Related Party Transactions.”
Reasons for the Separation
The XPO board of directors believes that the separation of XPO into two independent, publicly traded companies through the separation of the RXO Businesses from XPO is in the best interests of XPO and its stockholders for a number of reasons, including:
•Enhanced Management Focus on Core Businesses. The separation will create two companies more fit for purpose, and give each company’s management team an undiluted focus on their specific operating and strategic priorities and customer requirements. The separation will enable the management teams of each company to better focus on strengthening its core businesses and operations, to more effectively address unique operating and other needs, and to pursue distinct and targeted opportunities for long-term growth and profitability. The separation will enable each company to deepen its competitive differentiation by having its technology team focus on enhancing the proprietary software developed for its specific service offerings, including XPO’s less-than-truckload (“LTL”) technology platform and RXO’s digital brokerage platform.
•Clear-Cut Investment Identities. The separation will allow investors to more clearly understand the separate business models, financial profiles and investment identities of the two companies and to invest in each company based on a better appreciation of these characteristics. The separation will also provide an opportunity to allow each company to have less debt relative to its market capitalization. To the extent that enhanced investor understanding of each business model and demonstrated deleveraging result in greater investor demand for shares of XPO stock and/or RXO stock, it could cause each company to be valued at multiples higher than XPO’s current multiple, and higher than its publicly traded peers. Any such increase in the aggregate market value of XPO and RXO following the separation, relative to XPO’s current market value, would benefit XPO, RXO and their respective stakeholders.
•Creation of Independent Equity Currencies and Enhanced Strategic Opportunities. The separation will provide each of XPO and RXO with its own pure-play equity currency that can be used to facilitate raising capital and to pursue M&A opportunities that are more closely aligned with each company’s strategic goals
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and expected growth opportunities. To the extent that the separate equity currencies are more attractively valued, this would further increase these benefits to XPO and RXO.
•Improved Alignment of Management Incentives and Performance. The separation will allow each company to more effectively recruit, retain and motivate employees through the use of equity-based compensation that more closely aligns management and employee incentives with specific growth objectives, financial goals and business attributes. To the extent that the separate equity currencies are more attractively valued, this would further benefit XPO and RXO.
•Separate Capital Structures and Allocation of Financial Resources. The separation will permit each company to allocate its financial resources to meet the unique needs of its business and intensify the focus on its distinct operating and strategic priorities, including by investing in enhancements to the proprietary software developed for its service offerings. The separation will also give each business its own capital structure and allow it to manage capital allocation and capital return strategies with greater agility in response to changes in the operating environment and industry landscape. Further, the separation will eliminate internal competition for capital between the two businesses and enable each business to implement a capital structure tailored to its strategy and business needs.
The XPO board of directors also considered a number of potentially negative factors in evaluating the separation, including:
•Risk of Failure to Achieve Anticipated Benefits of the Separation. We may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: the separation will demand significant management resources and require significant amounts of management’s time and effort, which may divert management’s attention from operating our business; following the separation, we may be more susceptible to market fluctuations, and other events may be more disadvantageous for us than if we were still part of XPO, because our business would be less diversified than XPO’s business is prior to the completion of the separation.
•Disruptions and Costs Related to the Separation. The actions required to separate the RXO Businesses from XPO could disrupt our operations. In addition, in connection with the separation and the transition to being a standalone public company, we will incur costs that will, in the aggregate, be substantial. These costs may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management personnel who are new to RXO, tax costs, and costs to separate information systems.
•Loss of Scale and Increased Administrative Costs. Prior to the separation, RXO is able to take advantage of XPO’s size and purchasing power in procuring certain goods, services and technologies. After the separation, as a standalone company, we may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those XPO obtained prior to completion of the separation. In addition, as part of XPO, RXO benefits from certain functions performed by XPO, such as accounting, tax, legal, human resources and other general and administrative functions. After the separation, XPO will not perform these functions for us, other than certain functions that will be provided for a limited time pursuant to the transition services agreement, and, because of our smaller scale as a standalone company, our cost of performing such functions could be higher than the amounts reflected in our historical financial statements, which would cause our profitability to decrease.
•Limitations on Strategic Transactions. Under the terms of the tax matters agreement that we will enter into with XPO, we will be restricted from taking certain actions that could cause the distribution or certain related transactions (or certain transactions undertaken as part of the internal reorganization) to fail to qualify as tax-free under applicable law. These restrictions may limit, for a period of time, our ability to pursue certain strategic transactions and equity issuances or engage in other transactions that might increase the value of our business.
•Uncertainty Regarding Stock Prices. We cannot predict with certainty the effect of the separation on the trading prices of RXO or XPO common stock or know whether the combined market value of one share of
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our common stock and one share of XPO common stock will be less than, equal to or greater than the market value of one share of XPO common stock prior to the distribution.
In determining whether to pursue the separation, the XPO board of directors concluded the potential benefits of the separation outweighed the potential negative factors. See the sections titled “The Separation and Distribution—Reasons for the Separation” and “Risk Factors” included elsewhere in this information statement.
Capitalization Summary
For information regarding the post-distribution capitalization of RXO, see the section titled “Capitalization.”
Summary of Risk Factors
An investment in our company is subject to a number of risks, including risks related to our business, risks related to the separation and distribution and risks related to our common stock. Set forth below is a high-level summary of some, but not all, of these risks. Please read the information in the section titled “Risk Factors” of this information statement for a more thorough description of these and other risks.
Risks Related to Our Business
Risks Related to Industry Dynamics
•We operate in a highly competitive industry and, if we are unable to adequately address factors that may adversely affect our revenue and costs, our business could suffer.
•Economic recessions and other factors that reduce economic activity could have a material adverse impact on our business.
•If we continue to face unfavorable market conditions arising from the COVID-19 pandemic, our business, prospects, financial condition and operating results may be negatively impacted.
•Volatility in fuel prices impacts our fuel surcharge revenue and may impact our profitability.
•Higher carrier prices may result in decreased income from operations and increases in working capital.
•Extreme or unusual weather conditions can disrupt our operations, impact freight volumes, and increase our costs, all of which could have a material adverse effect on our business results.
•Our operations may be subject to seasonal fluctuations, and our inability to manage these fluctuations could negatively affect our business and our results of operations.
Risks Related to Third-Party Relationships
•We depend on third parties in the operation of our business.
•Our business relies on third-party carriers to conduct its operations, and the status of these parties as independent contractors, rather than employees, is being challenged.
•Our business may be materially adversely affected by labor disputes or organizing efforts.
Risks Related to Our Use of Technology
•Our business will be seriously harmed if we fail to develop, implement, maintain, upgrade, enhance, protect and integrate our information technology systems, including those systems of any businesses that we acquire.
•We could be affected by cyberattacks or breaches of our information systems, any of which could have a material adverse effect on our business.
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•A failure of our information technology infrastructure, information systems, networks or processes may materially adversely affect our business.
•Issues related to the intellectual property rights on which our business depends, whether related to our failure to enforce our own rights or infringement claims brought by others, could have a material adverse effect on our business, financial condition and results of operations.
•Third-party security incidents could result in the loss of our or our customers’ data, expose us to liability, harm our reputation, damage our competitiveness and adversely impact our financial results.
Risks Related to Litigation and Regulation
•We are subject to claims arising from our transportation operations.
•From time to time, we are involved in lawsuits and are subject to various claims that could result in significant expenditures and impact our operations.
•Our third-party carriers are subject to increasingly stringent laws protecting the environment, including transitional risks relating to climate change, which could directly or indirectly have a material adverse effect on our business.
•We are subject to governmental regulations and political conditions, which could negatively impact our business.
Risks Related to Our Strategy and Operations
•We depend on our ability to attract and retain qualified employees and temporary workers.
•Failure to successfully implement our cost and revenue initiatives could cause our future financial results to suffer.
•We may not successfully manage our growth.
•Our inability to successfully manage the costs and operational difficulties of adding new customers or more volume from existing customers may negatively affect our financial condition and operations.
•We derive a significant portion of our total revenue and adjusted gross profit from our largest customers.
•The contractual terms between us and our customers could expose us to penalties and costs in the event we do not meet the contractually prescribed performance levels.
•Damage to our reputation through unfavorable publicity or the actions of our employees or independent contractors could adversely affect our financial condition.
•If we determine that our goodwill has become impaired, we may incur impairment charges, which would negatively impact our operating results.
•Any acquisitions that we may complete in the future may be unsuccessful or result in other risks or developments that adversely affect our financial condition and results.
•We may not realize all of the anticipated benefits of any divestitures we may make in the future, or the benefits of any such divestitures may take longer to realize than expected.
Risks Related to the Separation and Distribution
•We have no history of operating as an independent company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.
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•Following the separation and distribution, our financial profile will change, and we will be a smaller, less diversified company than XPO prior to the separation.
•We may not achieve some or all of the expected benefits of the separation and distribution, and the separation and distribution may materially adversely affect our business.
•XPO’s plan to separate into two independent, publicly traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.
•Challenges in the commercial and credit environment may adversely affect the expected benefits of the separation, the expected plans or anticipated timeline to complete the separation and our future access to capital on favorable terms.
•We intend to incur, and may in the future incur, additional debt obligations, that could adversely affect our business and profitability and our ability to meet other obligations.
•We could experience temporary interruptions in business operations and incur additional costs as we build our information technology infrastructure and transition our data to our own systems.
•Our accounting, tax and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject as a standalone, publicly traded company following the separation and distribution.
•In connection with the separation into two public companies, each of XPO and RXO will indemnify each other for certain liabilities. If we are required to pay under these indemnities to XPO, our financial results could be negatively impacted. The XPO indemnities may not be sufficient to hold us harmless from the full amount of liabilities for which XPO will be allocated responsibility, and XPO may not be able to satisfy its indemnification obligations in the future.
•XPO may fail to perform under various transaction agreements that will be executed as part of the separation, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.
•We may be held liable to XPO if we fail to perform certain services under the transition services agreement, and the performance of such services may negatively impact our business and operations.
•The terms we will receive in our agreements with XPO could be less beneficial than the terms we may have otherwise received from unaffiliated third parties.
•If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we, as well as XPO and XPO’s stockholders, could be subject to significant tax liabilities, and, in certain circumstances, we could be required to indemnify XPO for material amounts of taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement. In addition, if certain internal restructuring transactions were to fail to qualify as transactions that are generally tax-free for U.S. federal or non-U.S. income tax purposes, we, as well as XPO, could be subject to significant tax liabilities.
•We may not be able to engage in desirable capital-raising or strategic transactions following the separation.
•The transfer to us of certain contracts, permits and other assets and rights may require the consents or approvals of, or provide other rights to, third parties and governmental authorities. If such consents or approvals are not obtained, we may not be entitled to the benefit of such contracts, permits and other assets and rights, which could increase our expenses or otherwise harm our business and financial performance.
•Following the distribution, certain of our directors and employees may have actual or potential conflicts of interest because of their positions with or financial interests in XPO.
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•Until the distribution occurs, the XPO board of directors has sole and absolute discretion to change the terms of the separation and distribution in ways that may be unfavorable to us.
•No vote of XPO stockholders is required in connection with the distribution. As a result, if you do not want to receive our common stock in the distribution, your sole recourse will be to divest yourself of your XPO common stock prior to the record date for the distribution.
Risks Related to Our Common Stock
•We cannot be certain that an active trading market for our common stock will develop or be sustained after the distribution and, following the distribution, our stock price may fluctuate significantly.
•The combined post-separation value of one share of XPO common stock and one share of RXO common stock may not equal or exceed the pre-distribution value of one share of XPO common stock.
•There may be substantial and rapid changes in our stockholder base, which may cause our stock price to fluctuate significantly.
•A significant number of shares of our common stock may be sold following the distribution, which may cause our stock price to decline.
•Any stockholder’s percentage of ownership in RXO may be diluted in the future at any given time.
•We cannot guarantee the timing, amount or payment of any dividends on our common stock.
•Certain provisions in RXO’s amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of RXO, which could decrease the trading price of RXO’s common stock.
•RXO’s amended and restated certificate of incorporation will contain an exclusive forum provision that may discourage lawsuits against RXO and RXO’s directors and officers.
Corporate Information
RXO was formed as a Delaware limited liability company on May 5, 2022 for the purpose of holding the RXO Businesses in connection with the separation and distribution described herein. Prior to the transfer of the RXO Businesses to us by XPO, which will occur prior to the distribution, RXO will have no operations other than those incidental to the separation and related transactions. Prior to the separation and distribution, RXO will be converted into a Delaware corporation. The address of our principal executive offices will be 11215 North Community House Road, Charlotte, NC 28277. Our telephone number after the distribution will be [     ]. We maintain an internet site at www.rxo.com. Our website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.
Reason for Furnishing this Information Statement
This information statement is being furnished solely to provide information to XPO stockholders who will receive shares of RXO common stock in the distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of XPO’s or RXO’s securities. The information contained in this information statement is believed by RXO to be accurate as of the date set forth on its cover. Changes may occur after that date, and neither XPO nor RXO undertakes any obligation to update the information except as may be required in the normal course of their respective disclosure obligations and practices, or as required by applicable law.
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QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION
What is RXO and why is XPO separating the RXO Businesses and distributing RXO common stock?RXO, which is currently a wholly owned subsidiary of XPO, was formed to own and operate XPO’s RXO Businesses. The separation of RXO from XPO and the distribution of RXO common stock is intended, among other things, to simplify XPO’s business structure, enable the management of the two companies to pursue opportunities for long-term growth and profitability unique to each company’s business, and allow each business to more effectively implement its own capital structure, investment identity, and resource allocation strategies. XPO expects that the separation will result in enhanced long-term performance of each business for the reasons discussed in the section titled “The Separation and Distribution—Reasons for the Separation.”
Why am I receiving this document?XPO is delivering this document to you because you are a holder of shares of XPO common stock. If you are a holder of shares of XPO common stock as of the close of business on [     ], 2022, the record date for the distribution, you will be entitled to receive one share of RXO common stock for every share of XPO common stock that you hold at the close of business on such date. This document is intended to describe the separation and distribution and help you understand how the separation and distribution will affect your post-separation ownership in XPO and RXO.
How will the separation of RXO from XPO work?As part of the separation, and prior to the distribution, XPO and its subsidiaries expect to complete an internal reorganization (which we refer to as the “internal reorganization”) to transfer to RXO the RXO Businesses that RXO will own following the separation. To complete the separation, XPO will distribute all of the outstanding shares of RXO common stock to XPO stockholders on a pro rata basis in a distribution intended to be tax-free for U.S. federal income tax purposes both to XPO stockholders and to XPO. Following the separation, the number of shares of XPO common stock you own will not change as a result of the separation.
What is the record date for the distribution?The record date for the distribution will be [     ], 2022.
When will the distribution occur?We expect that all of the outstanding shares of RXO common stock will be distributed by XPO at 12:01 a.m., Eastern Time, on [     ], 2022, to holders of record of shares of XPO common stock at the close of business on [     ], 2022, the record date for the distribution.
What do stockholders need to do to participate in the distribution?Stockholders of XPO as of the record date for the distribution will not be required to take any action to receive RXO common stock in the distribution, but you are urged to read this entire information statement carefully. No stockholder approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of XPO common stock or take any other action to receive your shares of RXO common stock. Please do not send in your XPO stock certificates. The distribution will not affect the number of outstanding shares of XPO common stock or any rights of XPO stockholders, although it will affect the market value of each outstanding share of XPO common stock.
How will shares of RXO common stock be issued?You will receive shares of RXO common stock through the same channels that you currently use to hold or trade shares of XPO common stock, whether through a brokerage account, 401(k) plan or other channel. Receipt of RXO shares will be documented for you in the same manner that you typically receive stockholder updates, such as monthly broker statements and 401(k) statements.
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If you own shares of XPO common stock as of the close of business on the record date for the distribution, including shares owned in certificate form, XPO, with the assistance of American Stock Transfer & Trust Company, LLC, the distribution agent for the distribution (the “distribution agent” or “AST”), will electronically distribute shares of RXO common stock to you or to your brokerage firm on your behalf in book-entry form. The distribution agent will mail you a book-entry account statement that reflects your shares of RXO common stock, or your bank or brokerage firm will credit your account for the shares.
How many shares of RXO common stock will I receive in the distribution?XPO will distribute to you one share of RXO common stock for every share of XPO common stock held by you as of close of business on the record date for the distribution. Based on approximately [     ] shares of XPO common stock outstanding as of [     ], 2022, a total of approximately [     ] shares of RXO common stock will be distributed to XPO’s stockholders. For additional information on the distribution, see “The Separation and Distribution.”
Will RXO issue fractional shares of its common stock in the distribution?No. XPO will distribute one share of our common stock for each share of XPO common stock you own as of the close of business on the record date.
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What are the conditions to the distribution?
The distribution is subject to final approval by the XPO board of directors, as well as to the satisfaction (or waiver by XPO in its sole and absolute discretion) of a number of conditions, including, among others:
•the U.S. Securities and Exchange Commission (the “SEC”) declaring effective the registration statement of which this information statement forms a part; there being no order suspending the effectiveness of the registration statement; and no proceedings for such purposes having been instituted or threatened by the SEC;
•this information statement (or notice of internet availability of this information statement) having been made available to XPO stockholders;
•the receipt by XPO and continuing validity of an opinion of its outside counsel, satisfactory to the XPO board of directors, regarding the qualification of the distribution, together with certain related transactions, as a “reorganization” within the meaning of Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”);
•the separation and other transactions contemplated by the separation and distribution agreement, which is described below in this information statement (the “separation agreement”), and by the plan of reorganization included in the separation agreement, to occur prior to the distribution having been completed in accordance with the plan of reorganization;
•an independent appraisal firm acceptable to the XPO board of directors having delivered one or more opinions to the XPO board confirming the solvency and financial viability of XPO before the completion of the distribution, and each of XPO and RXO after completion of the distribution, in each case in a form and substance acceptable to the XPO board in its sole and absolute discretion, and with such opinions not having been withdrawn or rescinded;
•all actions and filings necessary or appropriate under applicable U.S. federal, state or other securities or blue sky laws and the rules and regulations thereunder relating to the separation and distribution having been taken or made and, where applicable, having become effective or been accepted;
•the transaction agreements relating to the separation and distribution having been duly executed and delivered by the parties thereto;
•no order, injunction or decree issued by any government authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions being in effect;
•the shares of RXO common stock to be distributed having been approved for listing on the NYSE, subject to official notice of distribution;
•XPO having received certain proceeds from the RXO financing arrangements described under “Description of Material Indebtedness” and being satisfied in its sole and absolute discretion that, as of the effective time of the distribution, it will have no further liability under such arrangements; and
•no other event or development existing or having occurred that, in the judgment of XPO’s board of directors, in its sole and absolute discretion, makes it inadvisable to effect the separation, the distribution or the other related transactions.
XPO and RXO cannot assure you that any or all of these conditions will be met, or that the separation or distribution will be consummated even if all of the conditions are met. XPO can decline at any time to go forward with the separation and distribution. In addition, XPO may waive any of the conditions to the distribution. For a complete discussion of all of the conditions to the distribution, see “The Separation and Distribution—Conditions to the Distribution.”
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What is the expected date of completion of the separation?The completion and timing of the separation are dependent upon a number of conditions. We expect that the shares of RXO common stock will be distributed by XPO at 12:01 a.m., Eastern Time, on [     ], 2022, to the holders of record of shares of XPO common stock at the close of business on [     ], 2022, the record date for the distribution. However, no assurance can be provided as to the timing of the separation or distribution or that all conditions to the distribution will be met.
Can XPO decide to cancel the distribution of RXO common stock even if all of the conditions have been met?Yes. Until the distribution has occurred, the XPO board of directors has the right to terminate the distribution, even if all of the conditions are satisfied.
What if I want to sell my XPO common stock or my RXO common stock?You should consult with your financial advisors, such as your stock broker, bank and/or tax advisor. If you sell your shares of XPO common stock in the “regular-way” market after the record date and before the distribution date, you also will be selling your right to receive shares of RXO common stock in connection with the distribution.
What is “regular-way” and “ex-distribution” trading of XPO common stock?Beginning on or shortly before the record date for the distribution and continuing up to the distribution date, we expect that there will be two markets in XPO common stock: a “regular-way” market and an “ex-distribution” market. XPO common stock that trades in the “regular-way” market will trade with an entitlement to shares of RXO common stock distributed pursuant to the distribution. Shares that trade in the “ex-distribution” market will trade without an entitlement to RXO common stock distributed pursuant to the distribution. If you decide to sell any shares of XPO common stock before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your XPO common stock with or without your entitlement to RXO common stock pursuant to the distribution. If trading on an “ex-distribution” basis, you may purchase or sell XPO common stock up to the distribution date, but your transaction will not settle until after the distribution date.
Where will I be able to trade shares of RXO common stock?RXO intends to list its common stock on the NYSE under the symbol “RXO.” RXO anticipates that trading in shares of its common stock will begin on a “when-issued” basis on or shortly before the distribution date and will continue up to the distribution date, and that “regular-way” trading in RXO common stock will begin on the distribution date. If trading begins on a “when-issued” basis, you may purchase or sell RXO common stock up to the distribution date, but your transaction will not settle until after the distribution date. RXO cannot predict the trading prices for its common stock before, on or after the distribution date.
What will happen to the listing of XPO common stock?
XPO common stock will continue to trade on the NYSE after the distribution.
Will the number of shares of XPO common stock that I own change as a result of the distribution?No. The number of shares of XPO common stock that you own will not change as a result of the distribution.
Will the distribution affect the market price of my XPO common stock?
Yes. As a result of the distribution, XPO expects the trading price of shares of XPO common stock immediately following the distribution to be different from the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the RXO Businesses. There can be no assurance that the aggregate market value of XPO common stock and RXO common stock following the separation will be higher or lower than the market value of XPO common stock if the separation did not occur. This means, for example, that the combined trading prices of a share of XPO common stock and a share of RXO common stock after the distribution may be equal to, greater than or less than the trading price of a share of XPO common stock before the distribution.
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What are the material U.S. federal income tax consequences of the separation and the distribution?It is a condition to the distribution that XPO receives an opinion of its outside counsel, satisfactory to the XPO board of directors, regarding the qualification of the distribution, together with certain related transactions, as a “reorganization” within the meaning of Sections 355 and 368(a)(1)(D) of the Code.

If the distribution, together with certain related transactions, so qualifies, generally no gain or loss will be recognized by you, and no amount will be included in your income, for U.S. federal income tax purposes upon your receipt of RXO common stock in the distribution. You should carefully read the section titled “Material U.S. Federal Income Tax Consequences” and should consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local tax laws, as well as any non-U.S. tax laws.
What will RXO’s relationship be with XPO following the separation?Upon the distribution, XPO and RXO will become two separate companies with separate management teams and boards of directors. RXO will enter into a separation and distribution agreement with XPO to effect the separation and to provide a framework for RXO’s relationship with XPO after the separation, and will enter into certain other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property license agreement. These agreements will provide for the allocation between RXO and XPO of the assets, employees, liabilities and obligations (including, among others, investments, property and employee benefits, insurance and tax-related assets and liabilities) of XPO and its subsidiaries attributable to periods prior to, at and after the separation and will govern the relationship between RXO and XPO subsequent to the completion of the separation. For additional information regarding the separation agreement and other transaction agreements, see the sections titled “Risk Factors—Risks Related to the Separation and Distribution” and “Certain Relationships and Related Party Transactions.”
Who will manage RXO after the separation?RXO will benefit from a management team with an extensive background in the RXO Businesses. For more information regarding RXO’s management and directors, see “Management” and “Directors.”
Are there risks associated with owning RXO common stock?Yes. Ownership of RXO common stock is subject to both general and specific risks relating to the RXO Businesses, the industry and macroeconomy in which it operates, its ongoing contractual relationships with XPO and its status as a separate, publicly traded company. Ownership of RXO common stock is also subject to risks relating to the separation. Certain of these risks are described in the “Risk Factors” section of this information statement. We encourage you to read that section carefully.
Does RXO plan to pay dividends?
The declaration and payment of any dividends in the future by RXO will be subject to the sole discretion of its board of directors and will depend upon many factors. See “Dividend Policy.”
Will RXO incur any indebtedness prior to or at the time of the distribution?Yes. RXO anticipates issuing $350 million in aggregate principal amount of senior notes and $100 million in aggregate principal amount of term loans. We also anticipate entering into a revolving credit facility in aggregate principal amount of up to $500 million. We expect to transfer all or a portion of the net proceeds of the notes and the term loans to XPO, which XPO intends to use to repay existing indebtedness prior to the 12-month anniversary of the distribution. Assuming the completion of such transactions, RXO anticipates having approximately $450 million of indebtedness upon completion of the distribution. See “Description of Material Indebtedness” and “Risk Factors — Risks Related to Our Business.”
Who will be the distribution agent for the distribution and transfer agent and registrar for RXO common stock?The distribution agent, transfer agent and registrar for the RXO common stock will be AST. For questions relating to the transfer or mechanics of the stock distribution, you should contact AST at 877-248-6417 (toll free) or 718-921-8317.
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Where can I find more information about XPO and RXO?Before the distribution, if you have any questions relating to XPO, you should contact:

XPO Logistics, Inc.
Five American Lane
Greenwich, CT 06831
Attention: Investor Relations

After the distribution, RXO stockholders who have any questions relating to RXO should contact:

RXO, Inc.
11215 North Community House Road
Charlotte, NC 28277
Attention: Investor Relations

The RXO investor relations website is at [     ]. The RXO website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.
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SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA
The following summary financial data reflects the combined operations of RXO. We derived the summary Combined Income Statement Data for the years ended December 31, 2021, 2020 and 2019, and summary Combined Balance Sheet Data as of December 31, 2021 and 2020, as set forth below, from our audited Combined Financial Statements, which are included in the “Index to Financial Statements” section of this information statement. We derived our summary Combined Balance Sheet Data as of December 31, 2019, also as set forth below, from our unaudited underlying financial records, which were derived from the financial records of XPO. We derived the summary Combined Income Statement Data for the six months ended June 30, 2022 and 2021, and summary Combined Balance Sheet Data as of June 30, 2022, as set forth below, from our unaudited Condensed Combined Financial Statements, which are included in the “Index to Financial Statements” section of this information statement. The historical results do not necessarily indicate the results expected for any future period.
The summary Unaudited Pro Forma Combined Financial Data as of June 30, 2022, for the six months ended June 30, 2022 and 2021 and for the year ended December 31, 2021 has been prepared to reflect the spin-off, including the incurrence of indebtedness of $450 million, and the distribution of approximately $554 million of cash to XPO. The Unaudited Pro Forma Condensed Combined Statement of Operations presented assumes the spin-off occurred on January 1, 2021, the beginning of our most recently completed fiscal year. The Unaudited Pro Forma Condensed Combined Balance Sheet presented for June 30, 2022 assumes the spin-off occurred on June 30, 2022, our latest balance sheet date. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information, and we believe such assumptions are reasonable under the circumstances.
The Unaudited Pro Forma Condensed Combined Financial Information is not necessarily indicative of our results of operations or financial condition had the distribution and our anticipated post-spin-off capital structure been completed on the dates assumed. It may not reflect the results of operations or financial condition that would have resulted had we been operating as an independent, publicly traded company during such periods. In addition, it is not necessarily indicative of our future results of operations or financial condition.
You should read this summary financial data together with “Unaudited Pro Forma Condensed Combined Financial Information,” “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our Combined Financial Statements and accompanying notes and our Condensed Combined Financial Statements and accompanying notes included elsewhere in this information statement.
Pro FormaHistorical
Six Months Ended
June 30,
Year Ended
December 31,
Six Months Ended
June 30,
Years Ended
December 31,
(In millions, except per share data)20222021
2021
20222021
2021
2020
2019
Operating results
Revenue$2,538 $2,164 $4,689 $2,538 $2,164 $4,689 $3,357 $3,141 
Operating income106 89 179 109 99 192 60 82 
Income before income taxes89 70 143 110 98 191 57 84 
Net income68 53 114 83 75 150 43 62 
Pro forma earnings per share
Basic$0.59 $0.49 $1.02 
Diluted$0.59 $0.47 $1.00 
Other data (1)
Adjusted EBITDA$173 $133 $268 $176 $138 $277 $157 $168 
Free cash flow$153 $78 $117 $(14)$68 
__________________
(1)Refer to non-GAAP reconciliations included below.
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Pro FormaHistorical
As of June 30,
As of June 30,
As of December 31,
(In millions)
2022
2022
2021
2020
2019
Financial position
Cash and cash equivalents (1)
$100 $212 $29 $70 $51 
Total assets2,264 2,372 2,068 1,870 1,622 
Long-term debt442 — — — — 
Total equity645 1,199 1,070 1,068 979 
__________________
(1)It is anticipated that, on the distribution date, RXO will have approximately $100 million of cash. The separation agreement will provide for an adjustment payment to potentially be made following the distribution from RXO to XPO, or from XPO to RXO, so that RXO’s final cash balance as of the effective time of the distribution is equal to $100 million.
The tables below reconcile our non-GAAP measures to the nearest financial measure that is in accordance with accounting principles generally accepted in the United States (“GAAP”) for the periods presented.
Adjusted EBITDA
Pro FormaHistorical
Six Months Ended
June 30,
Year Ended
December 31,
Six Months Ended
June 30,
Years Ended
December 31,
(In millions)20222021
2021
20222021
2021
2020
2019
Net income$68 $53 $114 $83 $75 $150 $43 $62 
Interest expense18 18 35 — — — — — 
Income tax provision21 17 29 27 23 41 14 22 
Depreciation and amortization expense (1)
42 40 81 42 40 81 76 74 
Transaction and integration costs21 5 7 21 1 2 14 1 
Restructuring costs3 — 2 3 — 2 10 9 
Other— — — — (1)1 — — 
Adjusted EBITDA$173 $133 $268 $176 $138 $277 $157 $168 
__________________
(1)Includes amortization of acquisition-related intangible assets of $11 million and $12 million for the six months ended June 30, 2022 and 2021, respectively, and $24 million, $25 million and $34 million for the years 2021, 2020 and 2019, respectively.
Free Cash Flow - Historical
Six Months Ended June 30,
Years Ended December 31,
(In millions)20222021
2021
2020
2019
Net cash provided by operating activities$177 $96 $155 $25 $123 
Payment for purchases of property and equipment(24)(19)(39)(47)(56)
Proceeds from sale of property and equipment— 1 1 8 1 
Free cash flow$153 $78 $117 $(14)$68 
Statement Regarding Non-GAAP Measures
RXO’s non-GAAP financial measures for the six months ended June 30, 2022 and 2021 and the years ended December 31, 2021, 2020 and 2019 and the unaudited pro forma financial data for the six months ended June 30, 2022 and 2021, and the year ended December 31, 2021 used in this information statement include adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”) and free cash flow on a combined basis.
We believe the above adjusted financial measures facilitate analysis of our ongoing business operations because they exclude items that may not be reflective of, or are unrelated to, RXO’s core operating performance, and may assist investors with comparisons to prior periods and assessing trends in our underlying business. Other companies may calculate these non-GAAP financial measures differently, and therefore our measures may not be comparable to
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similarly titled measures of other companies. These non-GAAP financial measures should only be used as supplemental measures of our operating performance.
Adjusted EBITDA is calculated as net income before interest expense, income tax, depreciation and amortization expense, transaction and integration costs, restructuring costs and other adjustments as set forth in the above table. Transaction and integration costs are generally incremental costs that result from an actual or planned acquisition, divestiture or spin-off and may include third-party financial, legal and tax expenditures, consulting fees and retention awards. Restructuring costs primarily relate to severance costs associated with business optimization initiatives. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and evaluating RXO’s ongoing performance.
We believe that adjusted EBITDA improves comparability from period to period by removing the impact of our capital structure (interest and financing expenses), asset base (depreciation and amortization), tax impacts and other adjustments that management has determined are not reflective of core operating activities and thereby assists investors with assessing trends in our underlying business.
We believe that free cash flow is an important measure of our ability to repay maturing debt or fund other uses of capital that we believe will enhance stockholder value. We calculate free cash flow as net cash provided by operating activities, less payment for purchases of property and equipment plus proceeds from sale of property and equipment.
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RISK FACTORS
You should carefully consider the following risks and other information in this information statement in evaluating RXO and RXO common stock (“our common stock”). Any of the following risks and uncertainties could materially adversely affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may impair our business, including our results of operations, liquidity and financial condition.
Risks Related to Our Business
Risks Related to Industry Dynamics
We operate in a highly competitive industry and, if we are unable to adequately address factors that may adversely affect our revenue and costs, our business could suffer.
Competition in the transportation services industry is intense. Increased competition may lead to a reduction in revenues, reduced profit margins, or a loss of market share, any one of which could harm our business. There are many factors that could impair our profitability, including the following: (i) competition from other transportation services companies, some of which offer different services or have a broader coverage network, more fully developed information technology systems and greater capital resources than we do; (ii) a reduction in the rates charged by our competitors to gain business, especially during times of declining economic growth, which may limit our ability to maintain or increase our rates, maintain our operating margins or achieve significant growth in our business; (iii) shippers soliciting bids from multiple carriers for their shipping needs, which may result in the depression of freight rates or loss of business to competitors; (iv) the establishment by our competitors of cooperative relationships to increase their ability to address shipper needs; (v) decisions by our current or prospective customers to develop or expand internal capabilities for some of the services we provide; (vi) the development of new technologies or business models that could result in our disintermediation in certain services we provide; and (vii) competition from other transportation services companies and technology companies that are aggressively pursuing strategies and business models to digitize their services and expand their digital service offerings, including through the development and implementation of new technology that provides a significant competitive advantage.
Economic recessions and other factors that reduce economic activity could have a material adverse impact on our business.
The transportation industry in North America historically has experienced cyclical fluctuations in financial results due to economic recessions, downturns in the business cycles of our customers, increases in the prices charged by third-party carriers, interest rate fluctuations, prolonged periods of inflation, political instability, geopolitical conflict and war, changes in international trade policies and other U.S. and global economic factors beyond our control. During economic downturns, a reduction in overall demand for transportation services will likely reduce demand for our services and exert downward pressures on our rates and margins. In addition, in periods of strong economic growth, overall demand may exceed the available supply of transportation resources, resulting in increased network congestion and operating inefficiencies. Changes in international trade policies could significantly reduce the volume of goods transported globally and adversely affect our business and results of operations. These factors subject our business to various risks that may have a material impact on our operating results and future prospects. These risks may include the following:
•A reduction in overall freight volume reduces our opportunities for growth. In addition, if a downturn in our customers’ business causes a reduction in the volume of freight shipped by those customers, our operating results could be adversely affected;
•Some of our customers may experience financial distress, file for bankruptcy protection, go out of business, or suffer disruptions in their business and may be unable to pay us. In addition, some customers may not pay us as quickly as they have in the past, causing our working capital needs to increase;
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•A significant number of our carriers may go out of business or may be unable to secure sufficient equipment capacity or services to enable us to meet our commitments to our customers;
•We may not be able to adjust appropriately our expenses to rapid changes in market demand. In order to maintain high variability in our business model, it is necessary to adjust staffing levels when market demand changes. In periods of rapid change, it is more difficult to match our staffing levels to our business needs. In addition, we have other expenses that are primarily variable but are fixed for a period of time, as well as certain significant fixed expenses;
•A prolonged, escalated or expanded war in Ukraine or sanctions imposed in response to the war and future conflicts may adversely impact global supply chain activities and the economy at large; and
•The U.S. government has made significant changes in U.S. trade policy and has taken certain actions that have negatively impacted U.S. trade, including imposing tariffs on certain goods imported into the United States. To date, several governments, including the European Union (“EU”) and China have imposed tariffs on certain goods imported from the United States. These actions may contribute to weakness in the global economy that could adversely affect our results of operations. Any further changes in U.S. or international trade policy could trigger additional retaliatory actions by affected countries, resulting in “trade wars” and further increased costs for goods transported globally, which may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or in trading partners limiting their trade with countries that impose anti-trade measures.
Any of these factors could have an adverse effect on our business, results of operations or financial condition, as well as on the price of our common stock.
If we continue to face unfavorable market conditions arising from the COVID-19 pandemic, our business, prospects, financial condition and operating results may be negatively impacted.
The COVID-19 pandemic that emerged in 2020 affected, and may continue to affect, economic activity broadly and customer sectors served by our industry. We continue to closely monitor the COVID-19 pandemic and its impact on all aspects of our business and geographies, including how it has impacted, and may continue to impact, our employees, customers and business partners. The COVID-19 pandemic has created significant volatility, uncertainty and economic disruption, which may adversely affect our business operations and may materially and adversely affect our results of operations, cash flows and financial position.
Our operations and those of our customers have been subject to supply chain disruptions due to pandemic-related plant and port shutdowns, transportation delays, government actions and other factors beyond our control. The global shortage of certain components such as semiconductor chips, strains on production or extraction of raw materials, cost inflation, and labor and equipment shortages, could escalate in future quarters. Labor shortages, particularly of truck drivers, mechanics and others employed by our third-party carriers, have led and may continue to lead to increased costs of procuring transportation services, and along with equipment shortages, can result in lower levels of service, including timeliness, productivity and quality of service. If these providers continue to face unfavorable market conditions, our business, prospects, financial condition and operating results may be negatively impacted.
In response to the COVID-19 pandemic, we incurred additional costs to meet the needs of our customers and employees and implemented operational changes. Further operational changes, including extended periods of remote work arrangements, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, impair our ability to manage our business, and cause us to incur additional costs, which may be significant.
The impacts of the COVID-19 pandemic and new strains of the virus that cause COVID-19 may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 outbreak has subsided. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict. We cannot predict how long the dynamics described above will last in the economic recovery, or whether future
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challenges, if any, will adversely affect our results of operations. As a result, the pandemic and related supply chain and operational disruptions could have a material impact on our results of operations and heighten many of our other known risks described herein.
Volatility in fuel prices impacts our fuel surcharge revenue and may impact our profitability.
We are subject to risks associated with the availability and price of fuel, all of which are subject to political, economic and market factors that are outside of our control.
Fuel expense constitutes one of the greatest costs to the independent contractor drivers and third-party carriers who transport freight arranged by our operations. Accordingly, we may be adversely affected by the timing and degree of fuel price fluctuations. As is customary in our industry, most of our customer contracts include fuel surcharge programs or other cost-recovery mechanisms to mitigate the effect of any fuel price increases over base amounts established in the contract. However, these mechanisms may not fully capture an increase in fuel price. Furthermore, market pressures may limit our ability to assess fuel surcharges in the future. The extent to which we are able to recover increases in fuel costs may be impacted by the amount of empty or out-of-route truck miles or engine idling time.
Decreases in fuel prices reduce the cost of transportation services and, accordingly, will reduce our revenues and may reduce margins. Significant changes in the price or availability of fuel in future periods, or significant changes in our ability to mitigate fuel price increases through the use of fuel surcharges, could have a material adverse impact on our operations, fleet capacity and ability to generate both revenues and profits.
Higher carrier prices may result in decreased income from operations and increases in working capital.
Motor carriers can be expected to charge higher prices if market conditions warrant or to cover higher operating expenses. Our income from operations may decrease if we are unable to increase our pricing to our customers. Increased demand for over the road transportation services and changes in regulations may reduce available capacity and increase motor carrier pricing. In some instances where we have entered into contract freight rates with customers, in the event market conditions change and those contracted rates are below market rates, we may be required to provide transportation services at a loss. To date, such losses have not been material, but there can be no assurances that such losses will not be material in the future. As our volumes increase or we increase freight rates charged to our customers, the resulting increase in revenues may increase our working capital needs due to our business model which generally has a higher length of days sales outstanding than days payables outstanding.
Extreme or unusual weather conditions can disrupt our operations, impact freight volumes, and increase our costs, all of which could have a material adverse effect on our business results.
Our business depends, in part, on predictable temperate weather patterns. Certain seasonal weather conditions and isolated weather events can disrupt our operations. At least some of our operations are constantly at risk of extreme adverse weather conditions. Any unusual or prolonged adverse weather patterns in our areas of operations or markets, whether due to climate change or otherwise, can temporarily impact freight volumes and increase our costs.
Our operations may be subject to seasonal fluctuations, and our inability to manage these fluctuations could negatively affect our business and our results of operations.
Many of our customers typically realize a significant portion of their sales in the fourth quarter of each year during the holiday season. Although not all of our customers experience the same seasonal variation, and some customers may have seasonal peaks that occur in periods other than the fourth quarter, the seasonality of our customers’ businesses places higher demands on our services, requiring us to take measures, including temporarily expanding our workforce, to meet our customers’ demands. Our failure to meet our customers’ expectations during these seasonal peaks may negatively affect our customer relationships, could expose us to penalties under our contractual arrangements with customers and ultimately could negatively affect our business and our results of operations.
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Risks Related to Third-Party Relationships
We depend on third parties in the operation of our business.
We generally do not own or control the transportation assets that deliver our customers’ freight, and we do not employ the people directly involved in delivering this freight. In addition, we engage third-party contractors who own and operate their own equipment and vendors to provide value-added services. Accordingly, we are dependent on third parties to provide truck, rail, ocean, air and other transportation and related services and to report certain events to us, including delivery information and cargo claims. This reliance on third parties could cause delays in reporting certain events, impacting our ability to recognize revenue and claims in a timely manner.
Our inability to maintain positive relationships with independent carriers could significantly limit our ability to serve our customers on competitive terms. In addition, changes in the terms of the relationships with our vendors may make our value-added services less compelling to customers and adversely impact our results. Our ability to secure sufficient equipment or other transportation services to meet our commitments to customers or provide our services on competitive terms is subject to inherent risks, many of which are beyond our control, including equipment and labor shortages in the transportation industry, interruptions or stoppages in transportation services, “Acts of God” or acts of terrorism, changes in regulations impacting transportation, increases in operating expenses for carriers that result in a reduction in available carriers, and changes in transportation rates; and if we are unable to meet our commitments to our customers or provide our services on competitive terms, our operating results could be materially and adversely affected, and our customers could shift their business to our competitors temporarily or permanently.
Our business relies on third-party carriers to conduct its operations, and the status of these parties as independent contractors, rather than employees, is being challenged.
Federal and state legislation as well as tax and other regulatory authorities have sought to assert that independent contractors in the transportation service industry are employees rather than independent contractors. There can be no assurance that interpretations supporting independent contractor status will not change, that other federal or state legislation will not be enacted or that various authorities will not successfully assert a position that re-classifies independent contractors to be employees. If the third-party carriers with which we contract for the performance of delivery services, or their delivery workers, are determined to be our employees, that determination could materially increase our exposure under a variety of federal and state tax, workers’ compensation, unemployment benefits, labor, employment and tort laws, as well as our potential liability for employee benefits and tax withholdings. Any of the above increased costs would adversely affect our business and operating results.
In addition, we are involved in several class action and collective action lawsuits claiming that the third-party carriers with which we contract, or their delivery workers, should be treated as our employees, rather than independent contractors. These lawsuits may seek substantial monetary damages (including claims for unpaid wages, overtime, unreimbursed business expenses, deductions from wages and other items), injunctive relief, or both.
While we believe that our third-party carriers are properly classified as independent contractors rather than as employees, and that their delivery workers are not employees of the company, adverse final outcomes in these matters could result in changes to their independent contractor status and could, among other things, entitle certain claimants to reimbursement of certain expenses and to the benefit of wage-and-hour laws, and result in employment and withholding taxes, back wages and benefit liability for us. These claims involve potentially significant classes that could involve thousands of claimants and, accordingly, significant potential damages and litigation costs, and could lead others to bring similar claims. Adverse final outcomes in these matters or changes to state or federal laws could cause us to change our business model, which could have a material adverse effect on our business strategies, financial condition, results of operations or cash flows.
The results of these matters cannot be predicted with certainty and an unfavorable resolution of one or more of these matters could have a material adverse effect on our financial condition, results of operations or cash flows.
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Our business may be materially adversely affected by labor disputes or organizing efforts.
Our business could be adversely affected by strikes and labor negotiations at seaports, labor disputes between railroads and their union employees, or by a work stoppage at one or more railroads or local trucking companies servicing rail or port terminals, including work disruptions involving owner-operators under contract with our local trucking operations. Port shutdowns and similar disruptions to major points in national or international transportation networks, most of which are beyond our control, could result in terminal embargoes, disrupt equipment and freight flows, depress volumes and revenues, increase costs and have other negative effects on our operations and financial results.
Labor disputes involving our customers could affect our operations. If our customers experience plant slowdowns or closures because they are unable to negotiate labor contracts, our revenue and profitability could be negatively impacted.
Although our work force in the United States is not unionized, labor unions may attempt to organize our employees. Successful unionization by our employees or organizing efforts could lead to business interruptions, work stoppages and the reduction of service levels due to work rules that could have an adverse effect on our customer relationships and our revenues, earnings, financial position and outlook.
Risks Related to Our Use of Technology
Our business will be seriously harmed if we fail to develop, implement, maintain, upgrade, enhance, protect and integrate our information technology systems, including those systems of any businesses that we acquire.
We rely heavily on our information technology systems in managing our business; they are a key component of our customer-facing services and internal growth strategy. In general, we expect our customers to continue to demand more sophisticated, fully integrated technology from their carriers. To keep pace with changing technologies and customer demands, we must correctly address market trends and enhance the features and functionality of our proprietary technology platform in response to these trends. This process of continuous enhancement may lead to significant ongoing software development costs, which will continue to increase if we pursue new acquisitions of companies and their current systems. In addition, we may fail to accurately determine the needs of our customers or trends in the transportation industry, or we may fail to respond appropriately by implementing functionality for our technology platform in a timely or cost-effective manner. Any such failures could result in decreased demand for our services and a corresponding decrease in our revenues.
We must ensure that our information technology systems remain competitive. If our information technology systems are unable to manage high volumes with reliability, accuracy and speed as we grow, or if such systems are not suited to manage the various services we offer, our service levels and operating efficiency could decline. In addition, if we fail to hire and retain qualified personnel to implement, protect and maintain our information technology systems, or if we fail to enhance our systems to meet our customers’ needs, our results of operations could be seriously harmed.
Our technology may not be successful or may not achieve the desired results, and we may require additional training or different personnel to successfully implement this technology. Our technology development process may be subject to cost overruns or delays in obtaining the expected results, which may result in disruptions to our operations.
We could be affected by cyberattacks or breaches of our information systems, any of which could have a material adverse effect on our business.
We may be subject to cybersecurity attacks and other intentional hacking. Any failure to identify and address such defects or errors or prevent a cyber-attack could result in service interruptions, operational difficulties, loss of revenues or market share, liability to our customers or others, the diversion of corporate resources, injury to our reputation or increased service and maintenance costs. Addressing such issues could prove to be impossible or very costly and responding to the resulting claims or liability could similarly involve substantial cost. Also, due to recent advances in technology and well-known efforts on the part of computer hackers and cyber-terrorists to breach data
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security of companies, we face risks associated with potential failure to adequately protect critical corporate, customer and employee data, which, if released, could adversely impact our customer relationships, our reputation, and even violate privacy laws. Recently, regulatory and enforcement focus on data protection has heightened in the United States. Failure to comply with applicable data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties, which could harm our business, our reputation, results of operations and financial condition.
A failure of our information technology infrastructure, information systems, networks or processes may materially adversely affect our business.
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems to effectively manage our sales and marketing, financial, legal and compliance functions, engineering and product development tasks, research and development data, communications, order entry and fulfillment and other business processes. We also rely on third parties and virtualized infrastructure to operate our information technology systems. Despite significant testing for risk management, external and internal risks, such as malware, insecure coding, “Acts of God,” data leakage and human error pose a direct threat to the stability or effectiveness of our information technology systems and operations. The failure of our information technology systems to perform as we anticipate could adversely affect our business through transaction errors, billing and invoicing errors, internal recordkeeping and reporting errors, processing inefficiencies and loss of sales, receivables collection or customers. Any such failure could result in harm to our reputation and have an ongoing adverse impact on our business, results of operations and financial condition, including after the underlying failures have been remedied. Further, the delay or failure to implement information system upgrades and new systems effectively could disrupt our business, distract management’s focus and attention from our business operations, and increase our implementation and operating costs, any of which could negatively impact our operations and operating results.
Issues related to the intellectual property rights on which our business depends, whether related to our failure to enforce our own rights or infringement claims brought by others, could have a material adverse effect on our business, financial condition and results of operations.
We use both internally developed and purchased technologies in conducting our business. Whether internally developed or purchased, it is possible that users of these technologies could be claimed to infringe upon or violate the intellectual property rights of third parties. In the event that a claim is made against us by a third-party for the infringement of intellectual property rights, a settlement or adverse judgment against us could result in increased costs to license the technology or a legal prohibition against our using the technology. Thus, our failure to obtain, maintain or enforce our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.
We rely on a combination of intellectual property rights, including patents, copyrights, trademarks, domain names, trade secrets, intellectual property licenses and other contractual rights, to protect our intellectual property and technology. Any of our owned or licensed intellectual property rights could be challenged, invalidated, circumvented, infringed or misappropriated; our trade secrets and other confidential information could be disclosed in an unauthorized manner to third parties; or we may fail to secure the rights to intellectual property developed by our employees, contractors and others. Efforts to enforce our intellectual property rights may be time-consuming and costly, distract management’s attention, divert our resources and ultimately be unsuccessful. Moreover, should we fail to develop and properly manage future intellectual property, this could adversely affect our market positions and business opportunities.
Third-party security incidents could result in the loss of our or our customers’ data, expose us to liability, harm our reputation, damage our competitiveness and adversely impact our financial results.
We rely on third parties to provide us with a number of operational and technical services. These third parties may have access to our systems, provide hosting services or otherwise process data about us or our customers, employees or partners. Our ability to monitor such third parties’ security measures is limited. Any security incident involving such third parties could compromise the integrity or availability of, or result in the theft of, our and our customers’ data. Unauthorized access to data and other confidential or proprietary information may be obtained
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through break-ins, network breaches by unauthorized parties, employee theft or misuse, or other misconduct. If any of the foregoing were to occur or to be perceived to occur, our reputation may suffer, our competitive position may be diminished, we could face lawsuits, regulatory investigation, fines, and potential liability and our financial results could be negatively impacted.
Risks Related to Litigation and Regulation
We are subject to claims arising from our transportation operations.
We use the services of thousands of transportation companies in connection with our transportation operations. From time to time, the drivers employed and engaged by the motor carriers we contract with are involved in accidents, which may result in serious personal injuries. The resulting types and/or amounts of damages may be excluded by or exceed the amount of insurance coverage maintained by the third-party carrier. Although these drivers are not our employees and all of these drivers are employees, owner-operators, or independent contractors working for the third-party carriers, from time to time, claims may be asserted against us for their actions or for our actions in retaining them. Claims against us may exceed the amount of our insurance coverage or may not be covered by insurance at all. A material increase in the frequency or severity of accidents, liability claims or workers’ compensation claims, or unfavorable resolutions of claims could materially and adversely affect our operating results. In addition, significant increases in insurance costs or the inability to purchase insurance as a result of these claims could reduce our profitability. Our involvement in the transportation of certain goods, including but not limited to, hazardous materials, could also increase our exposure in the event one of our third-party carriers is involved in an accident resulting in injuries or contamination.
In North America, as a property freight broker, we are not legally liable for loss or damage to our customers' cargo. In our customer contracts, we may agree to assume cargo liability up to a stated maximum. We typically do not assume cargo liability to our customers above minimum industry standards in our international freight forwarding, ocean transportation, or air freight businesses on international or domestic air shipments. Although we are not legally liable for loss or damage to our customers' cargo, from time to time, claims may be asserted against us for cargo losses.
From time to time, we are involved in lawsuits and are subject to various claims that could result in significant expenditures and impact our operations.
The nature of our business exposes us to the potential for various types of claims and litigation. We are subject to claims and litigation related to independent contractor classification, labor and employment, personal injury, vehicular accidents, cargo and other property damage, commercial disputes, environmental liability and other matters, including with respect to claims asserted under various other theories of agency or employer liability. Claims against us may exceed the amount of insurance coverage that we have or may not be covered by insurance at all. Businesses that we acquire also increase our exposure to litigation. Material increases in liability claims or workers’ compensation claims, or the unfavorable resolution of claims, or our failure to recover, in full or in part, under indemnity provisions could materially and adversely affect our operating results. In addition, significant increases in insurance costs or the inability to purchase insurance as a result of these claims could reduce our profitability.
Our third-party carriers are subject to increasingly stringent laws protecting the environment, including transitional risks relating to climate change, which could directly or indirectly have a material adverse effect on our business.
Future and existing environmental regulatory requirements, including evolving transportation technology, in the United States and abroad could adversely affect operations and increase operating expenses, which in turn could increase our purchased transportation costs or further exacerbate shortages of trucking equipment. If we are unable to retain compliant third-party carriers or pass such operating expenses along to our customers, our business could be materially and adversely affected. Even without any new legislation or regulation, increased public concern regarding greenhouse gases emitted by transportation carriers could harm the reputations of companies operating in the transportation industry and shift consumer demand toward more locally sourced products and away from our services.
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We are subject to governmental regulations and political conditions, which could negatively impact our business.
Our operations are regulated and licensed by various governmental agencies at the local, state and federal levels in the United States and in the foreign countries where we operate. These regulatory agencies have authority and oversight of domestic and international activities. Our subsidiaries must also comply with applicable regulations and requirements of various agencies.
The regulatory landscape in which we operate is constantly evolving and subject to significant change, including as a result of evolving political and social attitudes. Future laws, regulations and regulatory reforms, including without limitation future laws and regulations related to increased minimum wages, the expansion of union organization rights or changes in the classification of employees and independent contractors, may be more stringent and may require changes to our operating practices that influence the demand for our services or require us to incur significant additional costs. For instance, recent regulatory proposals and statements by the Biden administration suggest that certain regulatory bodies, including the National Labor Relations Board, Occupational Safety and Health Administration and the Equal Employment Opportunity Commission, may promulgate regulations that could limit our operational flexibility. We are unable to predict the impact that recently enacted and future regulations may have on our business. If higher costs are incurred by us as a result of future changes in regulations, this could adversely affect our results of operations to the extent we are unable to obtain a corresponding increase in price from our customers.
Furthermore, political conditions may increase the level of intensity of regulations that impact our business, may require changes to our operating practices, may influence demand for our services, or may require us to incur significant additional costs, any of which could negatively impact our business.
Risks Related to Our Strategy and Operations
We depend on our ability to attract and retain qualified employees and temporary workers.
We depend on our ability to attract and retain qualified talent, including temporary, part-time and full-time team members; sales representatives; brokerage agents; managers; and executive officers. If we are unable to attract and retain such individuals, we may be unable to maintain our current competitive position within the industry, meet our customers’ expectations or successfully expand and grow our business.
In addition to our permanent employees, our ability to meet customer demands and expectations, especially during periods of peak volume, is substantially dependent on our ability to recruit and retain qualified temporary workers. Increased demand for temporary workers, low unemployment or changes in federal or state minimum wage laws may increase the costs of temporary labor, and any such increases in labor costs could adversely affect our business, results of operations, cash flows and financial condition. Moreover, our inability to recruit a qualified temporary workforce may result in our inability to meet our customers’ performance targets.
Failure to successfully implement our cost and revenue initiatives could cause our future financial results to suffer.
We are implementing various cost and revenue initiatives to further increase our profitability, including advanced pricing analytics and revenue management tools, our digital brokerage platform, our shared distribution network, cross-selling to strategic accounts, workforce productivity and further back-office optimization. If we are not able to successfully implement these cost and revenue initiatives, our future financial results may suffer.
We may not successfully manage our growth.
We have grown rapidly and substantially over prior years, including by expanding our internal resources, making acquisitions and entering into new markets, and we intend to continue to focus on rapid growth, including organic growth and potentially additional acquisitions. We may experience difficulties and higher-than-expected expenses in executing this strategy as a result of unfamiliarity with new markets, changes in revenue and business models, entry into new geographic areas and increased pressure on our existing infrastructure and information technology systems.
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Our growth will place a significant strain on our management, operational, financial and information technology resources. We will need to continually improve existing procedures and controls, as well as implement new transaction processing, operational and financial systems, and procedures and controls to expand, train and manage our employee base. Our working capital needs will continue to increase as our operations grow. Failure to manage our growth effectively, or obtain necessary working capital, could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Our inability to successfully manage the costs and operational difficulties of adding new customers or more volume from existing customers may negatively affect our financial condition and operations.
Establishing new customer relationships or adding operational sites for existing customers requires a significant amount of time, operational focus and capital. Although we typically partner with our new customers to ensure that onboarding is smooth and allocate costs appropriately, our inability to integrate new customers or operational sites into our technology systems or recruit additional employees to manage new customer relationships, or higher than anticipated costs to onboard new customers may negatively affect our financial condition or operations.
We derive a significant portion of our total revenue from our largest customers.
Our top five customers comprised approximately 19% of our consolidated total revenue for the year ended December 31, 2021. Our largest customer comprised approximately 8% of our consolidated total revenue for the year ended December 31, 2021. The sudden loss of one or more major customers could materially and adversely affect our operating results.
The contractual terms between us and our customers could expose us to penalties and costs in the event we do not meet the contractually prescribed performance levels.
We maintain long-term contracts with the majority of our customers, many of which include performance-based minimum levels of service. Although we manage our business to exceed prescribed performance levels, our inability to meet these service levels, due to labor shortages, volume peaks, our inability to procure temporary labor, technological malfunctions or other events that may or may not be within our control, may expose us to penalties or incremental costs or lead to the termination of customer contracts, all of which could negatively affect our business and financial condition.
Damage to our reputation through unfavorable publicity or the actions of our employees or independent contractors could adversely affect our financial condition.
Our success depends on our ability to consistently deliver operational excellence and strong customer service. Our inability to deliver our services and solutions as promised on a consistent basis, or our customers having a negative experience or otherwise becoming dissatisfied, can negatively impact our relationships with new or existing customers and adversely affect our brand and reputation, which could, in turn, adversely affect revenue and earnings growth. Adverse publicity (whether or not justified) relating to activities by our employees, contractors, agents or others with whom we do business, such as customer service mishaps or noncompliance with laws, could tarnish our reputation and reduce the value of our brand. With the increase in the use of social media outlets, adverse publicity can be disseminated quickly and broadly, making it increasingly difficult for us to effectively respond. This unfavorable publicity could also require us to allocate significant resources to rebuild our reputation.
If we determine that our goodwill has become impaired, we may incur impairment charges, which would negatively impact our operating results.
As of December 31, 2021, we had $630 million of goodwill on our consolidated balance sheet. Goodwill represents the excess of cost over the fair value of net assets acquired in business combinations. We assess potential impairment of our goodwill annually, or more frequently if an event or circumstance indicates an impairment loss may have been incurred. Impairment may result from significant changes in the manner or use of the acquired assets, in connection with the sale, spin off or other divestiture of a business unit, negative industry or economic trends and/or significant underperformance relative to historic or projected operating results. For a discussion of our goodwill
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impairment testing, see “Critical Accounting Policies—Evaluation of Goodwill” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Any acquisitions that we may complete in the future may be unsuccessful or result in other risks or developments that adversely affect our financial condition and results.
While we intend for acquisitions to improve our competitiveness and profitability, we cannot be certain that any future acquisitions will be accretive to earnings or otherwise meet our operational or strategic expectations. Special risks, including accounting, regulatory, compliance, information technology or human resources issues, may arise in connection with, or as a result of, the acquisition of an existing company, including the assumption of unanticipated liabilities and contingencies, difficulties in integrating acquired businesses, possible management distractions, or the inability of the acquired business to achieve the levels of revenue, profit, productivity or synergies we anticipate or otherwise perform as we expect on the timeline contemplated.
If the performance of a business we acquire varies from our projections or assumptions, or if estimates about the future profitability of business we acquire changes, our revenues, earnings or other aspects of our financial condition could be adversely affected. We may also experience difficulties in connection with integrating any company we may acquire into our existing businesses and operations, including our existing infrastructure and information technology systems. The infrastructure and information technology systems of acquired companies could present issues that we were unable to identify prior to the acquisition and that could adversely affect our financial condition and results. Also, we may not realize all of the synergies we anticipate from potential future acquisitions. Any of these events could adversely affect our financial condition and results of operations.
We may not realize all of the anticipated benefits of any divestitures we may make in the future, or the benefits of any such divestitures may take longer to realize than expected.
We may in the future sell certain businesses or exit particular markets. Any such divestitures may not yield the targeted improvements in our business. Divestitures involve risks, including difficulties in the separation of operations, services, and personnel, disruption in our operations or businesses, finding a suitable purchaser, and the diversion of management’s attention from our other businesses. Any impairments and losses on divestiture resulting from this process may cause us to record significant charges, including those related to goodwill and other intangible assets. Any charges that we are required to record or the failure to achieve the intended financial results associated with divestitures of businesses or assets could have a material adverse effect on our business, financial condition or results of operations.
Risks Related to the Separation and Distribution
We have no history of operating as an independent company, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and may not be a reliable indicator of our future results.
The historical information about RXO in this information statement refers to the RXO Businesses as operated by and integrated with XPO. Our historical financial information included in this information statement is derived from XPO’s accounting records and is presented on a standalone basis as if the RXO Businesses have been conducted independently from XPO. Additionally, the pro forma financial information included in this information statement is derived from our historical financial information and (i) gives effect to the separation and (ii) reflects RXO’s anticipated post-separation capital structure, including the assignment of certain assets and assumption of certain liabilities not included in the historical financial statements. Accordingly, the historical and pro forma financial information does not necessarily reflect the financial condition, results of operations or cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future primarily as a result of the factors described below:
•Generally, our working capital requirements and capital for our general corporate purposes, including capital expenditures and acquisitions, have historically been satisfied as part of the corporate-wide cash management policies of XPO. Following the completion of the distribution, our results of operations and cash flows are likely to be more volatile, and we may need to obtain additional financing from banks,
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through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, which may or may not be available and may be more costly.
•Prior to the distribution, our business has been operated by XPO as part of its broader corporate organization, rather than as an independent company. XPO or one of its affiliates performed various corporate functions for us, such as legal, treasury, accounting, auditing, human resources, investor relations, and finance. Our historical and pro forma financial results reflect allocations of corporate expenses from XPO for such functions, which may be less than the expenses we would have incurred had we operated as a separate, publicly traded company.
•Currently, our business is integrated with the other businesses of XPO. Historically, we have shared economies of scope and scale in costs, employees, vendor relationships and customer relationships. While we have sought to minimize the impact on RXO when separating these arrangements, there is no guarantee these arrangements will continue to capture these benefits in the future.
•As a current part of XPO, we take advantage of XPO’s overall size and scope to obtain more advantageous procurement terms. After the distribution, as a standalone company, we may be unable to obtain similar arrangements to the same extent that XPO did, or on terms as favorable as those XPO obtained, prior to completion of the distribution.
•After the completion of the distribution, the cost of capital for our business may be higher than XPO’s cost of capital prior to the distribution.
•Our historical financial information does not reflect the debt that we will incur as part of the distribution.
•As an independent public company, we will separately become subject to, among other things, the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the regulations of the NYSE and will be required to prepare our standalone financial statements according to the rules and regulations required by the SEC. These reporting and other obligations will place significant demands on our management and administrative and operational resources. Moreover, to comply with these requirements, we anticipate that we will need to migrate our systems, including information technology systems, implement additional financial and management controls, reporting systems and procedures and hire additional accounting and finance staff. We expect to incur additional annual expenses related to these steps, and those expenses may be significant. If we are unable to implement our financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired.
Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from XPO. For additional information about the past financial performance of our business and the basis of presentation of the historical combined financial statements and the unaudited pro forma condensed combined financial statements of our business, see “Unaudited Pro Forma Condensed Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the historical financial statements and accompanying notes included elsewhere in this information statement.
Following the separation and distribution, our financial profile will change, and we will be a smaller, less diversified company than XPO prior to the separation.
The separation will result in each of XPO and RXO being smaller, less diversified companies with more limited businesses concentrated in their respective industries. As a result, our company may be more vulnerable to changing market conditions, which could have a material adverse effect on our business, financial condition and results of operations. In addition, the diversification of our revenues, costs, and cash flows will diminish as a standalone company, such that our results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and, as we will no longer be able to use cash flow from XPO to fund our investments and
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operations, our ability to fund capital expenditures and investments, pay dividends and service debt may be diminished.
We may not achieve some or all of the expected benefits of the separation and distribution, and the separation and distribution may materially adversely affect our business.
We may not be able to achieve the full strategic and financial benefits expected to result from the separation and distribution, or such benefits may be delayed or not occur at all. The distribution is expected to provide a number of benefits, including those described elsewhere in this information statement.
We may not achieve these and other anticipated benefits for a variety of reasons, including, among others: (i) the separation will demand significant management resources and require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business; (ii) following the separation, we may be more susceptible to market fluctuations and other adverse events than if we were still a part of XPO because our business will be less diversified than XPO’s business prior to the completion of the separation; (iii) after the separation, as a standalone company, we may be unable to obtain certain goods, services and technologies at prices or on terms as favorable as those XPO obtained prior to completion of the separation; (iv) in connection with the separation and transition to being a standalone public company, we will incur costs that will, in the aggregate, be substantial, and these costs may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management and personnel new to RXO, tax costs and costs to separate information systems; (v) under the terms of the tax matters agreement that we will enter into with XPO, we will be restricted from taking certain actions that could cause the distribution or certain related transactions (or certain transactions undertaken as part of the internal reorganization) to fail to qualify as tax-free, and these restrictions may limit us for a period of time from pursuing certain strategic transactions and equity issuances or engaging in other transactions that might increase the value of our business; and (vi) after the separation, we cannot predict the trading prices of RXO common stock or know whether the combined value of one share of our common stock and one share of XPO common stock will be less than, equal to or greater than the market value of one share of XPO common stock prior to the distribution. If we fail to achieve some or all of the benefits expected to result from the separation, or if such benefits are delayed, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.
XPO’s plan to separate into two independent, publicly traded companies is subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.
XPO’s separation into two independent, publicly traded companies is complex in nature, and unanticipated developments or changes, including changes in the law, the macroeconomic environment, competitive conditions of XPO’s markets, regulatory approvals or clearances, the uncertainty of the financial markets and challenges in executing the separation, could delay or prevent the completion of the proposed separation, or cause the separation to occur on terms or conditions that are different or less favorable than expected. Additionally, the XPO board of directors, in its sole and absolute discretion, may decide not to proceed with the distribution at any time prior to the distribution date.
The process of completing the proposed separation has been and is expected to continue to be time-consuming and involves significant costs and expenses. The separation costs may be significantly higher than what we currently anticipate and may not yield a discernible benefit if the separation is not completed or is not well executed, or the expected benefits of the separation are not realized. Executing the proposed separation will also require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business. Other challenges associated with effectively executing the separation include attracting, retaining and motivating employees during the pendency of the separation and following its completion; addressing disruptions to our procurement, sales and distribution, and other operations resulting from separating XPO into two independent companies; and separating XPO’s information systems.
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Challenges in the commercial and credit environment may adversely affect the expected benefits of the separation, the expected plans or anticipated timeline to complete the separation and our future access to capital on favorable terms.
Volatility in the world financial markets could increase borrowing costs or affect our ability to access the capital markets. Our ability to issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our services or in the financial health of our customers or suppliers or if there are other significantly unfavorable changes in economic conditions. These conditions may adversely affect our anticipated timeline to complete the separation and the expected benefits of the separation, including by increasing the time and expense involved in the separation.
We intend to incur, and may in the future incur, additional debt obligations, that could adversely affect our business and profitability and our ability to meet other obligations.
We anticipate issuing $350 million in aggregate principal amount of senior notes and $100 million in aggregate principal amount of term loans. We also anticipate entering into a revolving credit facility in aggregate principal amount of up to $500 million. We expect to transfer all or a portion of the net proceeds of the notes and the term loans to XPO, which will use such cash to repay existing indebtedness prior to the 12-month anniversary of the distribution. As a result of such transactions, we anticipate having approximately $450 million of indebtedness upon completion of the distribution. See “Description of Material Indebtedness.” We may also incur additional indebtedness in the future.
This significant amount of debt could potentially have important consequences to us and our debt and equity investors, including:
•requiring a substantial portion of our cash flow from operations to make interest payments;
•making it more difficult to satisfy debt service and other obligations;
•increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;
•increasing our vulnerability to adverse economic and industry conditions;
•reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business;
•limiting our flexibility in planning for, or reacting to, changes in our business and the industry;
•placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt; and
•limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase common shares.
To the extent that we incur additional indebtedness, the foregoing risks could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt.
We could experience temporary interruptions in business operations and incur additional costs as we build our information technology infrastructure and transition our data to our own systems.
We are in the process of creating our own, or engaging third parties to provide, information technology infrastructure and systems to support our critical business functions, including accounting and reporting, in order to replace many of the systems XPO currently provides to us. We may incur temporary interruptions in business operations if we cannot transition effectively from XPO’s existing operating systems, databases and programming
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languages that support these functions to our own systems. Our failure to implement the new systems and transition our data successfully and cost-effectively could disrupt our business operations and have a material adverse effect on our profitability. In addition, our costs for the operation of these systems may be higher than the amounts reflected in our historical combined financial statements.
Our accounting, tax and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject as a standalone, publicly traded company following the separation and distribution.
Our financial results previously were included within the consolidated results of XPO, and we believe that our reporting and control systems were appropriate for those of subsidiaries of a public company. However, we were not directly subject to the reporting and other requirements of the Exchange Act. As a result of the distribution, we will be directly subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act, which, beginning with our second required annual report on Form 10-K, will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These reporting and other obligations will place significant demands on our management and administrative and operational resources, including accounting resources. We may not have sufficient time following the separation to meet these obligations by the applicable deadlines.
Moreover, to comply with these requirements, we anticipate that we will need to migrate our systems, including information technology systems, implement additional financial and management controls, reporting systems and procedures and hire additional accounting, tax and finance staff. We expect to incur additional annual expenses related to these steps, and those expenses may be significant. If we are unable to implement our financial and management controls, reporting systems, information technology and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired. In the event we are unable to implement a sufficient tax reporting system and related processes, we may be unable to comply with tax law and face penalties associated with our lack of compliance. Any failure to achieve and maintain effective internal controls could result in adverse regulatory consequences and/or loss of investor confidence, which could limit RXO’s ability to access the global capital markets and could have a material adverse effect on our business, financial condition, results of operations, cash flows or the market price of RXO securities.
In connection with the separation into two public companies, each of XPO and RXO will indemnify each other for certain liabilities. If we are required to pay under these indemnities to XPO, our financial results could be negatively impacted. The XPO indemnities may not be sufficient to hold us harmless from the full amount of liabilities for which XPO will be allocated responsibility, and XPO may not be able to satisfy its indemnification obligations in the future.
Pursuant to the separation agreement and certain other agreements between XPO and RXO, each party will agree to indemnify the other for certain liabilities, in each case for uncapped amounts, as discussed further in the section titled “Certain Relationships and Related Party Transactions—Separation Agreement” of this information statement. Indemnities that we may be required to provide XPO are not subject to any cap, may be significant and could negatively impact our business. Third parties could also seek to hold us responsible for any of the liabilities that XPO has agreed to retain. Any amounts we are required to pay pursuant to these indemnification obligations and other liabilities could require us to divert cash that would otherwise have been used in furtherance of our operating business. Further, the indemnities from XPO for our benefit may not be sufficient to protect us against the full amount of such liabilities, and XPO may not be able to fully satisfy its indemnification obligations.
Moreover, even if we ultimately succeed in recovering from XPO any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, results of operations and financial condition.
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XPO may fail to perform under various transaction agreements that will be executed as part of the separation, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.
In connection with the separation and prior to the distribution, RXO and XPO will enter into the separation agreement and will also enter into various other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property license agreement. The separation agreement, the tax matters agreement, the employee matters agreement and the intellectual property license agreement, together with the documents and agreements by which the internal reorganization will be effected, will determine the allocation of assets and liabilities between the companies following the separation for those respective areas and will include any necessary indemnifications related to liabilities and obligations. The transition services agreement will provide for the performance of certain services by each company for the benefit of the other for a period of time after the separation. RXO will rely on XPO to satisfy its performance and payment obligations under these agreements. If XPO is unable or unwilling to satisfy its obligations under these agreements, including its indemnification obligations, we could incur operational difficulties and/or losses. If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services once certain transaction agreements expire, we may not be able to operate our business effectively, and our profitability may decline. We are in the process of creating our own, or engaging third parties to provide, systems and services to replace many of the systems and services that XPO currently provides to us. However, we may not be successful in implementing these systems and services in a timely manner or at all, we may incur additional costs in connection with, or following, the implementation of these systems and services, and we may not be successful in transitioning data from XPO’s systems to ours.
We may be held liable to XPO if we fail to perform certain services under the transition services agreement, and the performance of such services may negatively impact our business and operations.
In connection with the separation, RXO and XPO will enter into a transition services agreement that will provide for the performance of certain services by each company for the benefit of the other for a period of time after the separation. If we do not satisfactorily perform our obligations under the agreement, we may be held liable for any resulting losses suffered by XPO, subject to certain limits. In addition, during the transition services periods, our management and employees may be required to divert their attention away from our business in order to provide services to XPO, which could adversely affect our business.
The terms we will receive in our agreements with XPO could be less beneficial than the terms we may have otherwise received from unaffiliated third parties.
The agreements we will enter into with XPO in connection with the separation, including the separation agreement, a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property license agreement, were prepared in the context of the separation while we were still a wholly owned subsidiary of XPO. Accordingly, during the period in which the terms of those agreements were prepared, we did not have an independent board of directors or a management team that was independent of XPO. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. See “Certain Relationships and Related Party Transactions.”
If the distribution, together with certain related transactions, does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we, as well as XPO and XPO’s stockholders, could be subject to significant tax liabilities, and, in certain circumstances, we could be required to indemnify XPO for material amounts of taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement. In addition, if certain internal restructuring transactions were to fail to qualify as transactions that are generally tax-free for U.S. federal or non-U.S. income tax purposes, we, as well as XPO, could be subject to significant tax liabilities.
It is a condition to the distribution that XPO receives an opinion of its outside counsel, satisfactory to the XPO board of directors, regarding the qualification of the distribution, together with certain related transactions, as a “reorganization” within the meaning of Sections 355 and 368(a)(1)(D) of the Code. The opinion of counsel will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations,
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statements and undertakings of XPO and RXO, including those relating to the past and future conduct of XPO and RXO. If any of these facts, assumptions, representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if XPO or RXO breaches any of its representations or covenants contained in the separation agreement and certain other agreements and documents or in any documents relating to the opinion of counsel, the opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.
Notwithstanding receipt of the opinion of counsel, the U.S. Internal Revenue Service (the “IRS”) could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which the opinion of counsel was based are false or have been violated. In addition, the opinion of counsel will represent the judgment of such counsel and will not be binding on the IRS or any court, and the IRS or a court may disagree with the conclusions in the opinion of counsel. Accordingly, notwithstanding receipt of the opinion of counsel, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, we, as well as XPO and XPO’s stockholders, could be subject to significant U.S. federal income tax liability.
If the distribution, together with certain related transactions, were to fail to qualify as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, XPO would recognize taxable gain as if it had sold the RXO common stock in a taxable sale for its fair market value (unless XPO and we jointly make an election under Section 336(e) of the Code with respect to the distribution, in which case, in general, (a) the XPO group would recognize taxable gain as if we had sold all of our assets in a taxable sale in exchange for an amount equal to the fair market value of RXO common stock and the assumption of all our liabilities and (b) we would obtain a related step-up in the tax basis of our assets), and XPO stockholders who receive such RXO shares in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares. For more information, see “Material U.S. Federal Income Tax Consequences.”
In addition, as part of the separation, and prior to the distribution, XPO and its subsidiaries expect to complete the internal reorganization, and XPO, RXO and their respective subsidiaries expect to incur certain tax costs in connection with the internal reorganization, including non-U.S. tax costs resulting from transactions in non-U.S. jurisdictions, which may be material. With respect to certain transactions undertaken as part of the internal reorganization, XPO intends to obtain opinions of external tax advisors, in each case, regarding the tax treatment of such transactions. Such opinions will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of XPO, RXO or their respective subsidiaries. If any of these representations or statements is, or becomes, inaccurate or incomplete, or if XPO, RXO or their respective subsidiaries do not fulfill or otherwise comply with any such undertakings or covenants, such opinions may be invalid or the conclusions reached therein could be jeopardized. Further, notwithstanding receipt of any such tax opinions, there can be no assurance that the relevant taxing authorities will not assert that the tax treatment of the relevant transactions differs from the conclusions reached in the relevant tax opinions. In the event the relevant taxing authorities prevail with any challenge in respect of any relevant transaction, XPO, RXO and their subsidiaries could be subject to significant tax liabilities.
Under the tax matters agreement to be entered into between XPO and RXO in connection with the separation, we generally would be required to indemnify XPO for any taxes resulting from the separation (and any related costs and other damages) to the extent such amounts resulted from: (i) an acquisition of all or a portion of the equity securities or assets of RXO, whether by merger or otherwise (and regardless of whether we participated in or otherwise facilitated the acquisition), (ii) certain other actions or failures to act by RXO, or (iii) any breach of RXO’s covenants or undertakings contained in the separation agreement and certain other agreements and documents. Further, under the tax matters agreement, we generally would be required to indemnify XPO for a specified portion of any taxes (and any related costs and other damages) arising as a result of the failure of the distribution and certain related transactions to qualify as a transaction that is generally tax-free (including as a result of Section 355(e) of the Code) or a failure of any internal distribution that is intended to qualify as a transaction that is generally tax-free to so qualify, in each case, to the extent such amounts did not result from a disqualifying action
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by, or acquisition of equity securities of, XPO or RXO. Any such indemnity obligations could be material. For a more detailed discussion, see “Certain Relationships and Related Party Transactions—Tax Matters Agreement.”
We may not be able to engage in desirable capital-raising or strategic transactions following the separation.
Under current U.S. federal income tax law, a spin-off that otherwise qualifies for tax-free treatment can be rendered taxable to the parent corporation and its stockholders as a result of certain post-spin-off transactions, including certain acquisitions of shares or assets of the spun-off corporation. For example, a spin-off may result in taxable gain to the parent corporation under Section 355(e) of the Code if it were later deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50 percent or greater interest (by vote or value) in the spun-off corporation. To preserve the U.S. federal income tax treatment of the separation and distribution, and in addition to our indemnity obligation described above, the tax matters agreement will restrict us, for the two-year period following the distribution, except in specific circumstances, from, among other things: (i) ceasing to actively conduct certain of our businesses; (ii) entering into certain transactions or series of transactions pursuant to which all or a portion of the shares of RXO stock would be acquired, whether by merger or otherwise; (iii) liquidating or merging or consolidating with any other person; (iv) issuing equity securities beyond certain thresholds; (v) repurchasing shares of RXO stock other than in certain open-market transactions; or (vi) taking or failing to take any other action that would jeopardize the expected U.S. federal income tax treatment of the distribution and certain related transactions. Further, the tax matters agreement will impose similar restrictions on us and our subsidiaries during the two-year period following the distribution that are intended to prevent certain transactions undertaken as part of the internal reorganization from failing to qualify as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code or for applicable non-U.S. income tax purposes. These restrictions may limit our ability to pursue certain equity issuances, strategic transactions, repurchases or other transactions that we may otherwise believe to be in the best interests of our stockholders or that might increase the value of our business. Also, we may be responsible for liabilities arising from the failure of the distribution, together with certain related transactions, to qualify for tax-free treatment (see the discussion under the section titled “Certain Relationships and Related Party Transactions—Tax Matters Agreement”), and our indemnity obligations for such liabilities under the tax matters agreement, may discourage, delay, or prevent certain third parties from acquiring us. For more information, see the sections titled “Certain Relationships and Related Party Transactions—Tax Matters Agreement” and “Material U.S. Federal Income Tax Consequences.”
The transfer to us of certain contracts, permits and other assets and rights may require the consents or approvals of, or provide other rights to, third parties and governmental authorities. If such consents or approvals are not obtained, we may not be entitled to the benefit of such contracts, permits and other assets and rights, which could increase our expenses or otherwise harm our business and financial performance.
The separation agreement will provide that certain contracts, permits and other assets and rights are to be transferred from XPO or its subsidiaries to RXO or its subsidiaries in connection with the separation. The transfer of certain of these contracts, permits and other assets and rights may require consents or approvals of third parties or governmental authorities or provide other rights to third parties. In addition, in some circumstances, we and XPO are joint beneficiaries of contracts, and we and XPO may need the consents of third parties in order to split or separate the existing contracts or the relevant portion of the existing contracts to us or XPO.
Some parties may use consent requirements or other rights to seek to terminate contracts or obtain more favorable contractual terms from us, which, for example, could take the form of adverse price changes, require us to expend additional resources in order to obtain the services or assets previously provided under the contract or require us to seek arrangements with new third parties or obtain letters of credit or other forms of credit support. If we are unable to obtain required consents or approvals, we may be unable to obtain the benefits, permits, assets and contractual commitments that are intended to be allocated to us as part of our separation from XPO, and we may be required to seek alternative arrangements to obtain services and assets which may be more costly and/or of lower quality. The termination or modification of these contracts or permits or the failure to timely complete the transfer or separation of these contracts or permits could negatively impact our business, financial condition, results of operations and cash flows.
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Following the distribution, certain of our directors and employees may have actual or potential conflicts of interest because of their positions with or financial interests in XPO.
Because of their current or former positions with XPO, certain of our expected executive officers and directors will continue to own equity interests in XPO following the distribution. In addition, we currently expect Mr. Jacobs to serve as executive chairman of XPO while also serving as chairman of our board of directors. These factors could create, or appear to create, potential conflicts of interest to the extent that we and XPO face decisions that could have different implications for the two companies. For example, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between XPO and our company regarding the terms of the agreements governing the separation and the relationship thereafter between the companies.
Until the distribution occurs, the XPO board of directors has sole and absolute discretion to change the terms of the separation and distribution in ways that may be unfavorable to us.
Until the distribution occurs, RXO will be a wholly-owned subsidiary of XPO. Accordingly, the XPO board of directors will have the sole and absolute discretion to determine and change the terms of the separation, including the establishment of the record date for the distribution and the distribution date. These changes could be unfavorable to us. In addition, the XPO board of directors, in its sole and absolute discretion, may decide not to proceed with the distribution at any time prior to the distribution date.
No vote of XPO stockholders is required in connection with the distribution. As a result, if you do not want to receive our common stock in the distribution, your sole recourse will be to divest yourself of your XPO common stock prior to the record date for the distribution.
No vote of XPO stockholders is required in connection with the distribution. Accordingly, if you do not want to receive our common stock in the distribution, your only recourse will be to divest yourself of your XPO common stock prior to the record date for the distribution.
Risks Related to Our Common Stock
We cannot be certain that an active trading market for our common stock will develop or be sustained after the distribution and, following the distribution, our stock price may fluctuate significantly.
A public market for our common stock does not currently exist. We anticipate that shortly before the distribution date, trading of shares of our common stock will begin on a “when-issued” basis and will continue up to the distribution date. However, we cannot guarantee that an active trading market will develop or be sustained for our common stock after the distribution, nor can we predict the prices at which shares of our common stock may trade after the distribution. Similarly, we cannot predict the effect of the distribution on the trading prices of our common stock.
Until the market has fully evaluated XPO’s businesses without RXO, the price at which each share of XPO common stock trades may fluctuate more significantly than might otherwise be typical, even with other market conditions, including general volatility, held constant. Similarly, until the market has fully evaluated our business as a standalone entity, the prices at which shares of our common stock trade may fluctuate more significantly than might otherwise be typical, even with other market conditions, including general volatility, held constant. The increased volatility of our stock price following the distribution may have a material adverse effect on our business, financial condition and results of operations. The market price of our common stock may fluctuate significantly due to a number of factors, some of which may be beyond our control, including:
•actual or anticipated fluctuations in our operating results;
•changes in earnings estimated by securities analysts or our ability to meet those estimates;
•the operating and stock price performance of comparable companies;
•changes to the regulatory and legal environment under which we operate;
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•actual or anticipated fluctuations in commodities prices; and
•domestic and worldwide economic conditions.
The combined post-separation value of one share of XPO common stock and one share of RXO common stock may not equal or exceed the pre-distribution value of one share of XPO common stock.
As a result of the separation, we expect the trading price of shares of XPO common stock immediately following the separation to be different from the “regular-way” trading price of XPO common shares immediately prior to the separation because the trading price will no longer reflect the value of the RXO Businesses. There can be no assurance that the aggregate market value of one share of XPO common stock and one share of RXO common stock following the separation will be higher than, lower than or the same as the market value of a share of XPO common stock if the separation did not occur.
There may be substantial and rapid changes in our stockholder base, which may cause our stock price to fluctuate significantly.
Many investors holding shares of XPO common stock may hold that stock because of a decision to invest in a company with XPO’s profile. Following the distribution, the shares of RXO common stock held by those investors will represent an investment in a company with a different profile. This may not be aligned with a holder’s investment strategy and may cause the holder to sell the shares rapidly. As a result, the price of RXO common stock may decline or experience volatility as RXO’s stockholder base changes.
A significant number of shares of our common stock may be sold following the distribution, which may cause our stock price to decline.
Any sales of substantial amounts of our common stock in the public market or the perception that such sales might occur, in connection with the distribution or otherwise, may cause the market price of our common stock to decline. Upon completion of the distribution, we expect that we will have an aggregate of approximately [     ] shares of our common stock issued and outstanding. Shares distributed to XPO stockholders in the separation will generally be freely tradeable without restriction or further registration under the U.S. Securities Act of 1933, as amended (the “Securities Act”), except for shares owned by one of our “affiliates,” as that term is defined in Rule 405 under the Securities Act.
We are unable to predict whether large amounts of our common stock will be sold in the open market following the distribution. We are also unable to predict whether a sufficient number of buyers of our common stock to meet the demand to sell shares of our common stock at attractive prices would exist at that time.
Any stockholder’s percentage of ownership in RXO may be diluted in the future at any given time.
In the future, your percentage ownership in RXO may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including any equity awards that we will grant to our directors, officers and employees. Our employees will have stock-based awards that correspond to shares of our common stock after the distribution as a result of conversion of their XPO stock-based awards. We anticipate that the compensation committee of our board of directors will grant additional stock-based awards to our employees after the distribution. Such awards will have a dilutive effect on the number of RXO shares outstanding, and therefore on our earnings per share, which could adversely affect the market price of our common stock. From time to time, we will issue additional stock-based awards to our employees under our employee benefits plans.
We cannot guarantee the timing, amount or payment of any dividends on our common stock.
The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of RXO’s board of directors. The board of directors’ decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our debt, industry practice, legal requirements, regulatory constraints and other factors that our board of directors deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or
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continue to pay any dividends if and when we commence paying dividends. For more information, see “Dividend Policy.”
Certain provisions in RXO’s amended and restated certificate of incorporation and bylaws, and of Delaware law, may prevent or delay an acquisition of RXO, which could decrease the trading price of RXO’s common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws will contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions are expected to include, among others:
•the ability of our remaining directors to fill vacancies on our board of directors;
•limitations on stockholders’ ability to call a special stockholder meeting or act by written consent;
•rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
•the right of our board of directors to issue preferred stock without stockholder approval; and
•a classified board of directors, with each class serving a staggered three-year term, which could have the effect of making the replacement of incumbent directors more time consuming and difficult.
In addition, we expect to be subject to Section 203 of the Delaware General Corporate Law (the “DGCL”), which could have the effect of delaying or preventing a change of control that you may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with persons that acquire, more than 15% of the outstanding voting stock of a Delaware corporation may not engage in a business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or any of its affiliates becomes the holder of more than 15% of the corporation’s outstanding voting stock.
We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make RXO immune from takeovers; however, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of RXO and our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors. See “Description of Capital Stock.”
In addition, an acquisition or further issuance of our common stock could trigger the application of Section 355(e) of the Code, causing the distribution to be taxable to XPO. For a discussion of Section 355(e) of the Code, see “Material U.S. Federal Income Tax Consequences.” Under the tax matters agreement, we would be required to indemnify XPO for the resulting tax, and this indemnity obligation might discourage, delay or prevent a change of control that our stockholders may consider favorable.
RXO’s amended and restated certificate of incorporation will contain an exclusive forum provision that may discourage lawsuits against RXO and RXO’s directors and officers.
Our amended and restated certificate of incorporation will provide that unless the board of directors otherwise determines, the state courts within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of RXO, any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee or stockholder of RXO in such capacity to RXO or to RXO stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, any action asserting a claim against RXO or any current or former director or officer or other employee or stockholder of RXO in such capacity arising pursuant to any provision of the DGCL or our amended
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and restated certificate of incorporation or amended and restated bylaws, any action asserting a claim relating to or involving RXO governed by the internal affairs doctrine, or any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL.
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation will further provide that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty of liability created by the Exchange Act or the rules and regulations thereunder, and as a result, the exclusive forum provision does not apply to actions arising under the Exchange Act or the rules and regulations thereunder. While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our federal forum provision described above. Our stockholders will not be deemed to have waived compliance with the federal securities laws and the rules and regulations thereunder.
This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with RXO or our directors or officers, which may discourage such lawsuits against RXO and our directors and officers. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect our business, results of operations and financial condition.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This information statement and other materials XPO and RXO have filed or will file with the SEC (and oral communications that XPO or RXO may make) contain or incorporate by reference forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” “trajectory” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by the company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors (including risks, uncertainties and assumptions) that might cause or contribute to a material difference include, but are not limited to:
•competition and pricing pressures;
•economic conditions generally;
•the severity, magnitude, duration and aftereffects of the COVID-19 pandemic and government responses to the COVID-19 pandemic;
•fluctuations in fuel prices;
•increased carrier prices;
•severe weather, natural disasters, terrorist attacks or similar incidents that cause material disruptions to our operations or the operations of the third-party carriers and independent contractors with which we contract;
•our dependence on third-party carriers and independent contractors;
•labor disputes or organizing efforts affecting our workforce and those of our third-party carriers;
•legal and regulatory challenges to the status of the third-party carriers with which we contract, and their delivery workers, as independent contractors, rather than employees;
•litigation that may adversely affect our business or reputation;
•increasingly stringent laws protecting the environment, including transitional risks relating to climate change, that impact our third-party carriers;
•governmental regulation and political conditions;
•our ability to develop and implement suitable information technology systems and prevent failures in or breaches of such systems;
•the impact of potential cyber-attacks and information technology or data security breaches;
•issues related to our intellectual property rights;
•our ability to attract and retain qualified personnel;
•our ability to successfully implement our cost and revenue initiatives and other strategies;
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•our ability to successfully manage our growth;
•our reliance on certain large customers for a significant portion of our revenue;
•damage to our reputation through unfavorable publicity;
•our failure to meet performance levels required by our contracts with our customers;
•the inability to achieve the level of revenue growth, cash generation, cost savings, improvement in profitability and margins, fiscal discipline, or strengthening of competitiveness and operations anticipated or targeted;
•the expected benefits and timing of the separation, and uncertainties regarding the planned separation, including the risk that conditions to the separation will not be satisfied and that it will not be completed pursuant to the targeted timing, asset perimeters, and other anticipated terms, if at all, and that the separation will not produce the desired benefits;
•a determination by the IRS that the distribution or certain related transactions should be treated as taxable transactions;
•the possibility that any consents or approvals required in connection with the separation will not be received or obtained within the expected time frame, on the expected terms or at all;
•expected financing transactions undertaken in connection with the separation and risks associated with additional indebtedness;
•the risk that dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the separation will exceed our estimates; and
•the impact of the separation on our businesses, our operations, our relationships with customers, suppliers, employees and other business counterparties, and the risk that the businesses will not be separated successfully or that such separation may be more difficult, time-consuming or costly than expected, which could result in additional demands on our resources, systems, procedures and controls, disruption of our ongoing business, and diversion of management’s attention from other business concerns.
There can be no assurance that the separation, distribution or any other transaction described above will in fact be consummated in the manner described or at all. There can also be no assurance that XPO’s planned divesture of the European transportation business will occur, or of the terms or timing of the divestiture. Where required by law, no binding decision will be made with respect to the divestiture of the European transportation business other than in compliance with applicable employee information and consultation requirements.
The above list of factors is not exhaustive or necessarily in order of importance. For additional information on identifying factors that may cause actual results to vary materially from those stated in forward-looking statements, see the discussions under “Risk Factors” in this information statement. Any forward-looking statement speaks only as of the date on which it is made, and each of XPO and RXO assumes no obligation to update or revise such statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
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THE SEPARATION AND DISTRIBUTION
Overview
On March 8, 2022, XPO announced its intention to separate into two independent, publicly traded companies. The separation will occur through a pro rata distribution to the XPO stockholders of all of the shares of common stock of RXO, which was formed to hold the RXO Businesses.
In connection with the distribution, we expect that:
•XPO will complete the internal reorganization, which will result in RXO becoming the parent company of the XPO operations comprising, and the entities that will conduct, the RXO Businesses;
•RXO will incur approximately $450 million of indebtedness, as described under “Description of Material Indebtedness;” and
•RXO will use all or a portion of the proceeds from one or more financing transactions at or prior to the completion of the distribution and cash on hand to transfer approximately $554 million of cash to XPO, which XPO will use to repay existing indebtedness prior to the 12-month anniversary of the distribution.
On [                    ], 2022, the XPO board of directors approved the distribution of [     ] shares of RXO common stock, on the basis of one share of RXO common stock for every share of XPO common stock held as of the close of business on [                    ], 2022, the record date for the distribution.
At 12:01 a.m., Eastern Time, on [                    ], 2022, the distribution date, each XPO stockholder will receive one share of RXO common stock for every share of XPO common stock held at the close of business on the record date for the distribution, as described below. Upon completion of the separation, each RXO stockholder as of the record date will continue to own shares of XPO and will receive a proportionate share of the outstanding common stock of RXO to be distributed. You will not be required to make any payment, surrender or exchange your XPO common stock or take any other action to receive your shares of RXO common stock in the distribution. The distribution of RXO common stock as described in this information statement is subject to the final approval of the XPO board of directors and the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “The Separation and Distribution—Conditions to the Distribution.”
Reasons for the Separation
The XPO board of directors believes that the separation of XPO into two independent, publicly traded companies through the separation of the RXO Businesses from XPO is in the best interests of XPO and its stockholders for a number of reasons, including:
•Enhanced Management Focus on Core Businesses. The separation will create two companies more fit for purpose, and give each company’s management team an undiluted focus on their specific operating and strategic priorities and customer requirements. The separation will enable the management teams of each company to better focus on strengthening its core businesses and operations, to more effectively address unique operating and other needs, and to pursue distinct and targeted opportunities for long-term growth and profitability. The separation will enable each company to deepen its competitive differentiation by having its technology team focus on enhancing the proprietary software developed for its specific service offerings, including XPO’s LTL technology platform and RXO’s digital brokerage platform.
•Clear-Cut Investment Identities. The separation will allow investors to more clearly understand the separate business models, financial profiles and investment identities of the two companies and to invest in each company based on a better appreciation of these characteristics. The separation will also provide an opportunity to allow each company to have less debt relative to its market capitalization. To the extent that enhanced investor understanding of each business model and demonstrated deleveraging result in greater investor demand for shares of XPO stock and/or RXO stock, it could cause each company to be valued at multiples higher than XPO’s current multiple, and higher than its publicly traded peers. Any such increase
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in the aggregate market value of XPO and RXO following the separation, relative to XPO’s current market value, would benefit XPO, RXO and their respective stakeholders.
•Creation of Independent Equity Currencies and Enhanced Strategic Opportunities. The separation will provide each of XPO and RXO with its own pure-play equity currency that can be used to facilitate raising capital and to pursue M&A opportunities that are more closely aligned with each company’s strategic goals and expected growth opportunities. To the extent that the separate equity currencies are more attractively valued, this would further increase these benefits to XPO and RXO.
•Improved Alignment of Management Incentives and Performance. The separation will allow each company to more effectively recruit, retain and motivate employees through the use of equity-based compensation that more closely aligns management and employee incentives with specific growth objectives, financial goals and business attributes. To the extent that the separate equity currencies are more attractively valued, this would further benefit XPO and RXO.
•Separate Capital Structures and Allocation of Financial Resources. The separation will permit each company to allocate its financial resources to meet the unique needs of its business and intensify the focus on its distinct operating and strategic priorities, including by investing in enhancements to the proprietary software developed for its service offerings. The separation will also give each business its own capital structure and allow it to manage capital allocation and capital return strategies with greater agility in response to changes in the operating environment and industry landscape. Further, the separation will eliminate internal competition for capital between the two businesses and enable each business to implement a capital structure tailored to its strategy and business needs.
The XPO board of directors also considered a number of potentially negative factors in evaluating the separation, including:
•Risk of Failure to Achieve Anticipated Benefits of the Separation. We may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: the separation will demand significant management resources and require significant amounts of management’s time and effort, which may divert management’s attention from operating our business; following the separation, we may be more susceptible to market fluctuations, and other events may be more disadvantageous for us than if we were still part of XPO, because our business would be less diversified than XPO’s business is prior to the completion of the separation.
•Disruptions and Costs Related to the Separation. The actions required to separate the RXO Businesses from XPO could disrupt our operations. In addition, in connection with the separation and the transition to being a standalone public company, we will incur costs that will, in the aggregate, be substantial. These costs may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management personnel who are new to RXO, tax costs, and costs to separate information systems.
•Loss of Scale and Increased Administrative Costs. Prior to the separation, RXO is able to take advantage of XPO’s size and purchasing power in procuring certain goods, services and technologies. After the separation, as a standalone company, we may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those XPO obtained prior to completion of the separation. In addition, as part of XPO, RXO benefits from certain functions performed by XPO, such as accounting, tax, legal, human resources and other general and administrative functions. After the separation, XPO will not perform these functions for us, other than certain functions that will be provided for a limited time pursuant to the transition services agreement, and, because of our smaller scale as a standalone company, our cost of performing such functions could be higher than the amounts reflected in our historical financial statements, which would cause our profitability to decrease.
•Limitations on Strategic Transactions. Under the terms of the tax matters agreement that we will enter into with XPO, we will be restricted from taking certain actions that could cause the distribution or certain related transactions (or certain transactions undertaken as part of the internal reorganization) to fail to
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qualify as tax-free under applicable law. These restrictions may limit, for a period of time, our ability to pursue certain strategic transactions and equity issuances or engage in other transactions that might increase the value of our business.
•Uncertainty Regarding Stock Prices. We cannot predict with certainty the effect of the separation on the trading prices of RXO or XPO common stock or know whether the combined market value of one share of our common stock and one share of XPO common stock will be less than, equal to or greater than the market value of one share of XPO common stock prior to the distribution.
In determining whether to pursue the separation, the XPO board of directors concluded the potential benefits of the separation outweighed the potential negative factors. See the sections titled “The Separation and Distribution—Reasons for the Separation” and “Risk Factors” included elsewhere in this information statement.
Formation of RXO
RXO, LLC was formed as a Delaware limited liability company in May 2022 for the purpose of holding the RXO Businesses and will be converted into a Delaware corporation prior to the separation and distribution. As part of XPO’s plan to separate the RXO Businesses from the remainder of its business, in connection with the internal reorganization, XPO plans to transfer the equity interests of certain entities that are expected to operate the RXO Businesses and the assets and liabilities of the RXO Businesses to RXO prior to the distribution. For additional information, see “The Separation and Distribution—Internal Reorganization.”
When and How You Will Receive the Distribution
With the assistance of AST, XPO expects to distribute RXO common stock at 12:01 a.m., Eastern Time, on [                    ], 2022, the distribution date, to all holders of outstanding XPO common stock as of the close of business on [                    ], 2022, the record date for the distribution. AST will serve as the settlement and distribution agent in connection with the distribution and the transfer agent and registrar for RXO common stock.
If you own XPO common stock as of the close of business on the record date for the distribution, RXO common stock that you are entitled to receive in the distribution will be issued electronically, as of the distribution date, to you in direct registration form or to your bank or brokerage firm on your behalf. If you are a registered holder, AST will then mail you a direct registration account statement that reflects your shares of RXO common stock. If you hold your XPO shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for the RXO shares. Direct registration form refers to a method of recording share ownership when no physical share certificates are issued to stockholders, as is the case in this distribution. If you sell XPO common stock in the “regular-way” market up to and including the distribution date, you will be selling your right to receive shares of RXO common stock in the distribution.
Commencing on or shortly after the distribution date, if you hold physical share certificates that represent your XPO common stock and you are the registered holder of the shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of RXO common stock that have been registered in book-entry form in your name.
Most XPO stockholders hold their common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm is said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your XPO common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the RXO common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in “street name,” please contact your bank or brokerage firm.
Transferability of Shares You Receive
Shares of RXO common stock distributed to holders in connection with the distribution will be transferable without registration under the Securities Act, except for shares received by persons who may be deemed to be our affiliates. Persons who may be deemed to be our affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with us, which may include certain of our
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executive officers or directors. Securities held by our affiliates will be subject to resale restrictions under the Securities Act. Our affiliates will be permitted to sell shares of our common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.
Number of Shares of RXO Common Stock You Will Receive
For every share of XPO common stock that you own at the close of business on [                    ], 2022, the record date for the distribution, you will receive one share of RXO common stock on the distribution date. XPO will not distribute any fractional shares of RXO common stock to its stockholders.
Treatment of Equity-Based Compensation
The employee matters agreement will provide for the adjustment of XPO equity-based compensation awards that are outstanding immediately prior to the separation and distribution to reflect the impact of the separation. Such adjustments are summarized below. Prior to the effective time of the distribution, the XPO Compensation Committee may provide for different adjustments with respect to certain XPO equity-based compensation awards to the extent that the XPO Compensation Committee deems such adjustments necessary and appropriate.
It is anticipated that XPO equity-based compensation awards outstanding as of [     ], 2022 (i) relating to up to approximately [     ] shares of XPO common stock will be converted, using the methodologies described below, into awards relating solely to RXO common stock and (ii) relating to up to approximately [     ] shares of XPO common stock will be adjusted, using the methodologies described below, into two awards, the original XPO equity-based award and a new award relating to RXO common stock.
Treatment of XPO Equity-Based Awards held by RXO Employees and Transferring Directors
Outstanding XPO equity awards held by RXO employees and XPO non-employee directors who are transferring to the RXO board on the distribution date (“Transferring Directors”) are expected to be treated as shown in the table below:
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Award TypeTreatment
Restricted Stock Units
As of the effective time of the distribution, each outstanding XPO restricted stock unit award held by an RXO employee (other than Mr. Wilkerson) or a Transferring Director will be converted into an award of restricted stock units relating to RXO common stock, with the number of shares subject to the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original XPO award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distribution (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted RXO restricted stock unit award will generally be subject to the same terms and vesting conditions that applied to the original XPO award immediately before the effective time of the distribution.
XPO restricted stock unit awards held by Mr. Wilkerson will be treated as described below.
Performance-Based Restricted Stock Units
As of the effective time of the distribution, each outstanding XPO performance-based restricted stock unit award held by an RXO employee (including the Wilkerson Incentive Grant (as defined below in the section entitled “Executive Compensation”) held by Mr. Wilkerson) will be converted into an RXO performance-based restricted stock unit award relating to RXO common stock, with the number of shares subject to the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original XPO award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distribution (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted RXO performance-based restricted stock unit award will generally be subject to the same terms and vesting conditions that applied to the original XPO award immediately before the effective time of the distribution, provided that the XPO Compensation Committee may modify the applicable performance-based vesting conditions prior to the effective time (including by deeming the applicable performance-based vesting conditions to be achieved at a designated performance level).
Treatment of XPO Equity-Based Awards Held by XPO Employees, Former Employees, XPO Directors and Mr. Wilkerson
Outstanding XPO equity awards held by XPO employees, former employees of XPO as of the distribution date (“Former Employees”), XPO non-employee directors who are remaining on the XPO Board of Directors on the distribution date (“XPO Directors”) and Mr. Wilkerson (other than the Wilkerson Incentive Grant) are expected to be treated as shown in the table below. In general, the treatment for active XPO employees varies depending on
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whether such employees are employed in XPO’s LTL business (such employees, the “Concentration Treatment Employees”) or XPO’s other businesses and corporate office (such employees, the “Basket Treatment Employees”).
Award TypeTreatment
Restricted Stock Units
As of the effective time of the distribution, each outstanding XPO restricted stock unit award held by a Concentration Treatment Employee, a Former Employee, or an XPO Director will continue to relate to XPO common stock, with the number of shares subject to the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original XPO award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distribution (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted XPO restricted stock unit award will generally be subject to the same terms and vesting conditions that applied to the original XPO award immediately before the effective time of the distribution.
As of the effective time of the distribution, each outstanding XPO restricted stock unit award held by a Basket Treatment Employment or Mr. Wilkerson will be converted into an award in respect of both shares of XPO common stock and shares of RXO common stock. The number of shares of XPO common stock subject to each award will be the same as the number subject to the award prior to the distribution, while the number of shares of RXO common stock subject to the award will equal the number of shares of XPO common stock subject to the award, multiplied by the distribution ratio. The adjusted restricted stock unit awards will be subject to the same terms and vesting conditions that applied to the original XPO award immediately before the distribution.
Performance-Based Restricted Stock Units
As of the effective time of the distribution, each outstanding XPO performance-based restricted stock unit award held by a Concentration Treatment Employee or Former Employee (other than any former employee of XPO who is being paid for consulting services by XPO as of the effective time (a “Consultant”)) will continue to relate to XPO common stock, with the number of shares subject to the award to be adjusted in a manner intended to preserve the aggregate intrinsic value of the original XPO award immediately after the distributions when compared to the aggregate intrinsic value immediately prior to the distribution (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Each adjusted XPO performance-based restricted stock unit award will generally be subject to the same terms and vesting conditions that applied to the original XPO award immediately before the distribution, provided that the XPO Compensation Committee may modify the applicable performance-based vesting conditions prior to the effective time (including by deeming the applicable performance-based vesting conditions to be achieved at a designated performance level).
As of the effective time of the distribution, each outstanding XPO performance-based restricted stock unit award held by a Basket Treatment Employee, a Consultant or Mr. Wilkerson (other than the Wilkerson Incentive Grant) will be converted into an award in respect of both shares of XPO common stock and shares of RXO common stock. The number of shares of XPO common stock subject to each award will be the same as the number subject to the award prior to the distribution, while the number of shares of RXO common stock subject to the award will equal the number of shares of XPO common stock subject to the award, multiplied by the distribution ratio. The adjusted performance-based restricted stock unit awards will be subject to the same terms and vesting conditions that applied to the original XPO award immediately before the distribution, provided that the XPO Compensation Committee may modify the applicable performance-based vesting conditions prior to the effective time (including by deeming the applicable performance-based vesting conditions to be achieved at a designated performance level).
Internal Reorganization
As part of the separation, and prior to the distribution, XPO and its subsidiaries expect to complete an internal reorganization in order to transfer to RXO the RXO Businesses that it will hold following the separation. Among
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other things, and subject to limited exceptions, the internal reorganization is expected to result in RXO owning, directly or indirectly, the operations comprising, and the entities that conduct, the RXO Businesses.
The internal reorganization is expected to include various restructuring transactions pursuant to which: (i) the operations, assets (including certain digital brokerage technology) and liabilities of XPO and its subsidiaries used to conduct the RXO Businesses will be separated from the operations, assets and liabilities of XPO and its subsidiaries used to conduct XPO’s other businesses, and (ii) such RXO Business operations, assets (including certain digital brokerage technology) and liabilities will be contributed, transferred or otherwise allocated to RXO or one of its direct or indirect subsidiaries. These restructuring transactions may take the form of asset transfers, dividends, contributions and similar transactions, and may involve the formation of new subsidiaries in U.S. and non-U.S. jurisdictions to own and operate the RXO Businesses in such jurisdictions.
As part of this internal reorganization, XPO will contribute, directly or indirectly, to RXO certain liabilities and certain assets, including certain digital brokerage technology and including equity interests in entities that are expected to conduct the RXO Businesses.
Following the completion of the internal reorganization and immediately prior to the distribution, RXO will be the parent company of the entities that are expected to conduct the RXO Businesses and XPO will remain the parent company of the entities that currently conduct all of XPO’s operations except the RXO Businesses.
Results of the Distribution
After the distribution, RXO will be an independent, publicly traded company. The actual number of shares to be distributed will be determined at the close of business on [     ], 2022, the record date for the distribution, and will reflect any exercise of XPO options between the date the XPO board of directors declares the distribution and the record date for the distribution. The distribution will not affect the number of outstanding shares of XPO common stock or any rights of XPO stockholders. XPO will not distribute any fractional shares of RXO common stock.
We will enter into a separation agreement and other related agreements with XPO to effect the separation and to provide a framework for our relationship with XPO after the separation, and will enter into certain other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement, and an intellectual property license agreement. These agreements will provide for the allocation between RXO and XPO of the assets, employees, liabilities and obligations (including, among others, investments, property and employee benefits, insurance and tax-related assets and liabilities) of XPO and its subsidiaries attributable to periods prior to, at and after RXO’s separation from XPO and will govern the relationship between RXO and XPO subsequent to the completion of the separation. For additional information regarding the separation agreement and other transaction agreements, see the sections titled “Risk Factors—Risks Related to the Separation and Distribution” and “Certain Relationships and Related Party Transactions.”
Market for RXO Common Stock
There is currently no public trading market for RXO common stock. RXO intends to list its common stock on the NYSE under the symbol “RXO.” RXO has not and will not set the initial price of its common stock. The initial price will be established by the public markets.
We cannot predict the price at which RXO common stock will trade after the distribution. In fact, the combined trading prices, after the distribution, of the shares of RXO common stock that each XPO stockholder will receive in the distribution, together with the XPO common stock held at the record date for the distribution, may not equal the “regular-way” trading price of the XPO common stock immediately prior to the distribution. The price at which RXO common stock trades may fluctuate significantly, particularly until an orderly public market develops. Trading prices for RXO common stock will be determined in the public markets and may be influenced by many factors. See “Risk Factors—Risks Related to Our Common Stock.”
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Incurrence of Debt
RXO anticipates issuing $350 million in aggregate principal amount of senior notes and $100 million in aggregate principal amount of term loans. We also anticipate entering into a revolving credit facility in aggregate principal amount of up to $500 million. We expect to transfer all or a portion of the net proceeds of the notes and the term loans to XPO, which intends to use such cash to repay existing indebtedness prior to the 12-month anniversary of the distribution. As a result of such transactions, RXO anticipates having approximately $450 million of indebtedness upon completion of the distribution. For more information, see “Description of Material Indebtedness.”
Trading Between the Record Date and the Distribution Date
Beginning three trading days before the distribution date and continuing up to the distribution date, XPO expects that there will be two markets in XPO common stock: a “regular-way” market and an “ex-distribution” market. XPO common stock that trades on the “regular-way” market will trade with an entitlement to RXO common stock distributed in the distribution. XPO common stock that trades on the “ex-distribution” market will trade without an entitlement to RXO common stock distributed in the distribution. Therefore, if you sell shares of XPO common stock in the “regular-way” market up to the distribution date, you will be selling your right to receive shares of RXO common stock in the distribution. If you own XPO common stock at the close of business on the record date and sell those shares on the “ex-distribution” market up to the distribution date, you will receive the shares of RXO common stock that you are entitled to receive pursuant to your ownership of shares of XPO common stock as of the record date.
Furthermore, beginning three trading days before the distribution date and continuing up to and including the distribution date, RXO expects that there will be a “when-issued” market in its common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for RXO common stock that will be distributed to holders of XPO common stock on the distribution date. If you owned XPO common stock at the close of business on the record date for the distribution, you would be entitled to RXO common stock distributed pursuant to the distribution. You may trade this entitlement to shares of RXO common stock, without trading the XPO common stock you own, on the “when-issued” market. On the distribution date, “when-issued” trading with respect to RXO common stock will end, and “regular-way” trading with respect to RXO common stock will begin.
Conditions to the Distribution
The distribution will be effective at 12:01 a.m., Eastern Time, on [     ], 2022, which is the distribution date, subject to final approval by the XPO board of directors, as well as to the satisfaction (or waiver by XPO in its sole and absolute discretion), of a number of conditions set forth in the separation agreement, including, among others:
•the SEC declaring effective the registration statement of which this information statement forms a part; there being no order suspending the effectiveness of the registration statement; and no proceedings for such purposes having been instituted or threatened by the SEC;
•this information statement (or notice of internet availability of the information statement) having been made available to XPO stockholders;
•the receipt by XPO and continuing validity of an opinion of its outside counsel, satisfactory to the XPO board of directors, regarding the qualification of the distribution, together with certain related transactions, as a “reorganization” within the meaning of Sections 355 and 368(a)(1)(D) of the Code;
•the separation and other transactions contemplated by the separation agreement and by the plan of reorganization included in the separation agreement, to occur prior to the distribution having been completed in accordance with the plan of reorganization;
•an independent appraisal firm acceptable to the XPO board of directors having delivered one or more opinions to the XPO board confirming the solvency and financial viability of XPO before the completion of, and after giving effect to, the distribution, in each case in a form and substance acceptable to the XPO board in its sole and absolute discretion;
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•all actions and filings necessary or appropriate under applicable U.S. federal, state or other securities or blue sky laws and the rules and regulations thereunder relating to the separation and distribution having been taken or made and, where applicable, having become effective or been accepted;
•the transaction agreements relating to the separation and distribution having been duly executed and delivered by the parties thereto;
•no order, injunction or decree issued by any government authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions being in effect;
•the shares of RXO common stock to be distributed having been approved for listing on the NYSE, subject to official notice of distribution;
•XPO having received certain proceeds from the financing arrangements described under “Description of Material Indebtedness” and being satisfied in its sole and absolute discretion that, as of the effective time of the distribution, it will have no further liability under such arrangements; and
•no other event or development existing or having occurred that, in the judgment of XPO’s board of directors, in its sole and absolute discretion, makes it inadvisable to effect the separation, the distribution or the other related transactions.
XPO will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the record date for the distribution, the distribution date and the distribution ratio. XPO will also have sole and absolute discretion to waive any of the conditions to the distribution. As of the date of this information statement, XPO does not intend to waive any of the conditions of the distribution. XPO does not intend to notify its stockholders of any modifications to the terms of the separation or distribution, including the waiver of any conditions to the spin-off, that, in the judgment of its board of directors, are not material. However, the XPO board would likely consider material such matters as significant changes to the distribution ratio, or the assets to be contributed or the liabilities to be assumed in the separation, as well as the waiver of the condition that the XPO board receives a tax opinion with respect to the spin-off. To the extent that the XPO board determines that any modification by XPO materially changes the material terms of the distribution, including through the waiver of a condition to the distribution, XPO will notify its stockholders in a manner reasonably calculated to inform them about the modification as may be required by law, by, for example, publishing a press release, filing a current report on Form 8-K or circulating a supplement to this information statement.
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DIVIDEND POLICY
The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of RXO’s board of directors. The board’s decisions regarding the payment of dividends will depend on many factors, such as our financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in our debt, industry practice, legal requirements, regulatory constraints and other factors that our board deems relevant. Our ability to pay dividends will depend on our ongoing ability to generate cash from operations and on our access to the capital markets. We cannot guarantee that we will pay a dividend in the future or continue to pay any dividends if and when we commence paying dividends.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2022, on an unaudited historical basis and on a pro forma basis to give effect to the pro forma adjustments included in our Unaudited Pro Forma Condensed Combined Financial Information. The information below is not necessarily indicative of what our capitalization would have been had the spin-off, distribution and related financing transactions been completed as of June 30, 2022. In addition, it is not indicative of our future capitalization. This table should be read in conjunction with “Unaudited Pro Forma Condensed Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Combined Financial Statements and accompanying notes included elsewhere in this information statement.
As of June 30, 2022
(In millions, except per share data)HistoricalPro Forma
Cash
Cash and cash equivalents$212 $100 
Debt
Short-term borrowings$— $— 
Long-term debt (a)
— 442 
Total indebtedness— 442 
Equity
Common stock, par value $0.01— 1 
Additional paid-in capital— 646 
XPO investment1,201 — 
Accumulated other comprehensive income (loss)(2)(2)
Total equity1,199 645 
Total capitalization
$1,199 $1,087 
_________________
(a)Reflects the incurrence of $450 million of indebtedness, net of debt issuance costs of $8 million.
It is anticipated that, on the distribution date, RXO will have approximately $100 million of cash. The separation agreement will provide for an adjustment payment to potentially be made following the distribution from RXO to XPO, or from XPO to RXO, so that RXO’s final cash balance as of the effective time of the distribution is equal to $100 million.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Combined Financial Information of RXO consists of the Unaudited Pro Forma Condensed Combined Statement of Operations for the six months ended June 30, 2022 and 2021 and the year ended December 31, 2021, and the Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2022, which have been derived from our historical Combined Financial Statements included elsewhere in this information statement.
The Unaudited Pro Forma Condensed Combined Statement of Operations gives effect to the Pro Forma Transactions (as defined below) as if they occurred on January 1, 2021, the beginning of the most recently completed fiscal year. The Unaudited Pro Forma Condensed Combined Balance Sheet gives effect to the Pro Forma Transactions as if they occurred as of June 30, 2022, our latest balance sheet date.
The pro forma adjustments include transaction accounting adjustments that reflect the accounting for transactions in accordance with GAAP, and autonomous entity adjustments that reflect certain incremental expense or other changes necessary, if any, to reflect the financial condition and results of operations as if RXO was a standalone entity. The following Unaudited Pro Forma Condensed Combined Financial Information illustrates the effects of the following transactions (collectively, the “Pro Forma Transactions”):
•The separation of the assets (including the equity interests of certain subsidiaries) and liabilities related to the RXO Businesses from XPO and the transfer of those assets (including the equity interests of certain subsidiaries) and liabilities to RXO;
•The distribution of all of our issued and outstanding common stock by XPO in connection with the spin-off;
•The effect of our anticipated post-spin-off capital structure, including the incurrence of indebtedness of $450 million, and the distribution of approximately $554 million of cash to XPO; and
•The impact of, and transactions contemplated by, the separation agreement, the transition services agreement, the tax matters agreement, the employee matters agreement and the intellectual property license agreement between us and XPO and the provisions contained therein.
The operating expenses reported in our historical Combined Statement of Operations include allocations of certain XPO costs. These costs include allocation of XPO corporate costs that benefit us, including corporate governance, executive management, finance, legal, information technology, human resources, other general and administrative costs, shared services and depreciation on shared XPO assets.
To operate as an independent publicly traded company, we expect our recurring costs for these services to be higher than the expenses historically allocated to us from XPO as presented in our historical Combined Statement of Operations. The significant assumptions involved in determining our estimates of the recurring costs of being an independent, publicly traded company include:
•Costs to perform financial reporting, tax, regulatory compliance, corporate governance, treasury, legal, internal audit and investor relations activities;
•Compensation, including equity-based awards, and benefits with respect to new and existing positions and the board of directors; and
•Incremental third-party costs with respect to insurance, audit services, tax services, employee benefits and legal services.
We estimate that the net impact of these costs as compared to our historical Combined Statement of Operations would have been an increase in Sales, general and administrative expense of between approximately $6 million and $11 million for the six months ended June 30, 2022. The estimated net impact of these costs as compared to our historical Combined Statement of Operations would have been an increase in Sales, general and administrative expense of between approximately $11 million and $21 million for the year ended December 31, 2021. Certain
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factors could impact these standalone public company costs, including the finalization of our staffing and infrastructure needs. A pro forma adjustment has not been made to the accompanying Unaudited Pro Forma Condensed Combined Statement of Operations to reflect the anticipated adjustment in the level of these expenses, as they are projected amounts based on estimates.
The pro forma adjustments are based on available information and assumptions our management believes are reasonable; however, such adjustments are subject to change as transaction-related agreements are finalized and the costs of operating as a standalone company are determined. In addition, such adjustments are estimates and may not prove to be accurate. The Unaudited Pro Forma Condensed Combined Financial Information is based on information and assumptions which are described in the accompanying notes.
The Unaudited Pro Forma Condensed Combined Financial Information should be read in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Combined Financial Statements and accompanying notes and our Condensed Combined Financial Statements and accompanying notes included elsewhere in this information statement. The Unaudited Pro Forma Condensed Combined Financial Information constitutes forward-looking information and is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this information statement.
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RXO
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2022
(In millions, except per share data)
HistoricalTransaction Accounting AdjustmentsAutonomous Entity AdjustmentsPro Forma
ASSETS
Current assets
Cash and cash equivalents$212 $(112)(a) (b)$— $100 
Accounts receivable, net of allowances1,107 — — 1,107 
Other current assets32 — — 32 
Total current assets
1,351 (112)— 1,239 
Long-term assets
Property and equipment, net114 — — 114 
Operating lease assets170 — 4 (j)174 
Goodwill630 — — 630 
Identifiable intangible assets, net90 — — 90 
Other long-term assets17 — — 17 
Total long-term assets
1,021 — 4 1,025 
Total assets
$2,372 $(112)$4 $2,264 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$615 $— $— $615 
Accrued expenses291 — — 291 
Short-term operating lease liabilities47 — 1 (j)48 
Other current liabilities4 — — 4 
Total current liabilities
957 — 1 958 
Long-term liabilities
Long-term debt— 442 (b)— 442 
Deferred tax liability51 — — 51 
Long-term operating lease liabilities127 — 3 (j)130 
Other long-term liabilities38 — — 38 
Total long-term liabilities
216 442 3 661 
Equity
Common stock, par value $0.01— 1 (d)— 1 
Additional paid-in capital— 646 (i)— 646 
XPO investment1,201 (1,201)(d)— — 
Accumulated other comprehensive loss(2)— — (2)
Total equity
1,199 (554)— 645 
Total liabilities and equity
$2,372 $(112)$4 $2,264 
See accompanying notes to unaudited pro forma condensed combined financial statements.
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RXO
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2022
(In millions, except per share data)
HistoricalTransaction Accounting AdjustmentsAutonomous Entity AdjustmentsPro Forma
Revenue
$2,538 $— $— $2,538 
Cost of transportation and services (exclusive of depreciation and amortization)
1,925 — — 1,925 
Direct operating expense (exclusive of depreciation and amortization)
111 — — 111 
Sales, general and administrative expense
327 — 3 (j) (k)330 
Depreciation and amortization expense42 — — 42 
Transaction and integration costs21 — — 21 
Restructuring costs3 — — 3 
Operating income
109 — (3)106 
Other income
(1)— — (1)
Interest expense
— 18 (e)— 18 
Income before income taxes
110 (18)(3)89 
Income tax provision27 (5)(c)(1)(c)21 
Net income
$83 $(13)$(2)$68 
Earnings per share:
Basic
$0.59 (f)
Diluted
$0.59 (g)
Weighted average common shares outstanding:
Basic
115 (f)
Diluted
116 (g)
See accompanying notes to unaudited pro forma condensed combined financial statements.
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RXO
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2021
(In millions, except per share data)
HistoricalTransaction Accounting AdjustmentsAutonomous Entity AdjustmentsPro Forma
Revenue
$2,164 $— $— $2,164 
Cost of transportation and services (exclusive of depreciation and amortization)
1,672 — — 1,672 
Direct operating expense (exclusive of depreciation and amortization)
95 — — 95 
Sales, general and administrative expense
257 — 6 (j) (k) (l)263 
Depreciation and amortization expense40 — — 40 
Transaction and integration costs1 4 (h)— 5 
Operating income
99 (4)(6)89 
Other expense
1 — — 1 
Interest expense
— 18 (e)— 18 
Income before income taxes
98 (22)(6)70 
Income tax provision23 (5)(c)(1)(c)17 
Net income
$75 $(17)$(5)$53 
Earnings per share:
Basic
$0.49 (f)
Diluted
$0.47 (g)
Weighted average common shares outstanding:
Basic
109 (f)
Diluted
113 (g)
See accompanying notes to unaudited pro forma condensed combined financial statements.
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RXO
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2021
(In millions, except per share data)
HistoricalTransaction Accounting AdjustmentsAutonomous Entity AdjustmentsPro Forma
Revenue
$4,689 $— $— $4,689 
Cost of transportation and services (exclusive of depreciation and amortization)
3,681 — — 3,681 
Direct operating expense (exclusive of depreciation and amortization)
192 — — 192 
Sales, general and administrative expense
539 — 8 (j) (k) (l)547 
Depreciation and amortization expense81 — — 81 
Transaction and integration costs2 5 (h)— 7 
Restructuring costs2 — — 2 
Operating income
192 (5)(8)179 
Other expense
1 — — 1 
Interest expense
— 35 (e)— 35 
Income before income taxes
191 (40)(8)143 
Income tax provision41 (10)(c)(2)(c)29 
Net income
$150 $(30)$(6)$114 
 
Earnings per share:
Basic
$1.02 (f)
Diluted
$1.00 (g)
Weighted average common shares outstanding:
Basic
112 (f)
Diluted
114 (g)
See accompanying notes to unaudited pro forma condensed combined financial statements.
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Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Transaction Accounting Adjustments
(a)Reflects an adjustment to provide RXO with $100 million of pro forma cash at June 30, 2022. The cash amount presented reflects the distribution of approximately $554 million of cash to XPO. Cash adjustments are summarized as follows:
(in millions)
Cash payment to XPO (a)
$(554)
Proceeds from incurrence of debt, net of debt issuance costs (b)
442 
Total
(112)
(b)Reflects the incurrence of $450 million of indebtedness, net of debt issuance costs of $8 million. The indebtedness is assumed to consist of $350 million in senior unsecured notes and a $100 million term loan, with a weighted average interest rate of 7.15%. A 0.125% change to the annual interest rate on variable rate indebtedness would have no material impact on pro forma interest expense or net income for the year ended December 31, 2021. The terms of such indebtedness are subject to change and will be finalized prior to the closing of the separation and distribution, and the pro forma adjustments may change accordingly. We also expect to enter into a revolving credit facility; however, the facility is not expected to be utilized at the closing of the separation and distribution.
(c)Reflects the income tax impact of the pro forma adjustments. For the six months ended June 30, 2022 and 2021, the tax impact was calculated using a forecasted full-year effective tax rate of approximately 25.1% and 24.8%, respectively. For December 31, 2021, the tax impact was calculated using the jurisdictional tax rate associated with each adjustment. The final income tax impact may be materially different, as more detailed information will become available after the consummation of the spin-off and related transactions.
(d)Represents the reclassification of XPO’s net investment in RXO, including the additional net assets expected to be contributed by XPO and other pro forma adjustments, into Additional paid-in capital and Common stock, par value $0.01, to reflect the number of shares of RXO common stock expected to be outstanding at the distribution date.
(e)Reflects the adjustment to interest expense included in the Unaudited Pro Forma Condensed Combined Statement of Operations of $18 million for each of the six months ended June 30, 2021 and 2022, respectively, and $35 million for the year ended December 31, 2021, for the issuance of the senior unsecured notes and term loan.
(f)Reflects the number of shares of RXO common stock which are expected to be outstanding upon completion of the distribution. We have assumed the number of outstanding shares of common stock based on the number of XPO common shares outstanding at June 30, 2022 and an assumed pro-rata distribution ratio of one share of RXO common stock for each share of XPO common stock. The actual number of shares of RXO common stock outstanding upon completion of the distribution may be different from this estimated amount.
(g)Reflects the estimated number of shares of RXO common stock that are expected to be outstanding upon completion of the distribution and reflects the potential issuance of shares of our common stock under our equity plans, based on the distribution ratio of one share of RXO common stock for each share of XPO common stock. The actual number of shares of RXO common stock outstanding upon completion of the distribution may be different from this estimated amount.
(h)All transaction costs incurred in 2021 and the first six months of 2022 related to the separation and distribution are included in our historical combined financial statements. We expect to incur an additional $5 million to $10 million in transaction costs related to branding and other transitional costs, such as those to convert to a standalone public company, between June 30, 2022 and twelve months after the separation
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and distribution. We have included an adjustment of $5 million related to this estimate for the year ended December 31, 2021. Adjustments for the six months ended June 30, 2021 include estimates for additional charges we expect to incur between June 30, 2022 and six months after the separation and distribution. We have included an adjustment of $4 million related to this estimate for the six months ended June 30, 2021. An adjustment has not been made for the six months ended June 30, 2022 as a reasonable estimate of transaction costs we expect to incur in the first six months of the second year after the separation cannot be made at this time. Actual amounts may differ from these estimates.
(i)The additional paid-in capital adjustments are summarized below:
(in millions)
Cash payment to XPO (a)
$(554)
Net parent investment (d)
1,201 
Common stock issuance (d)
(1)
Total
646 
Autonomous Entity Adjustments
(j)Reflects the impact of new lease agreements for RXO corporate offices. These adjustments recognize operating lease assets and liabilities of $4 million based on the estimated present value of the lease payments over the lease term. Additionally, adjustments were made to increase Sales, general and administrative expense by $1 million for each of the six months ended June 30, 2021 and 2022 and for the year ended December 31, 2021 for the associated lease expense.
(k)Reflects the net impact of new compensation agreements for current executives of RXO. These adjustments relate primarily to increases in salary, bonus and stock-based compensation of $4 million, $2 million, and $6 million for the six months ended June 30, 2021, six months ended June 30, 2022, and the year ended December 31, 2021, respectively.
(l)Reflects the impact of the transition services agreement, which results in incremental corporate and administrative costs not included in RXO’s historical Combined Financial Statements. An adjustment of $1 million to increase Sales, general and administrative expense was recorded for each of the six months ended June 30, 2021 and the year ended December 31, 2021.
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BUSINESS
This section discusses RXO’s business assuming the completion of all of the transactions described in this information statement, including the separation. All monetary amounts discussed in this section are in millions of U.S. dollars, unless otherwise indicated.
Company Overview
RXO is a high-performing brokered transportation platform defined by cutting-edge technology and a nimble, asset-light business model, with the largest component being our core truck brokerage business. We are the fourth largest broker of full truckload freight transportation in the United States, with approximately 4% share of the entire $88 billion brokered truckload industry as of 2021. Over 80% of our operating income in 2021 was generated by truck brokerage; the remainder was comprised of our brokered services for managed transportation, last mile and freight forwarding. RXO is led by Drew Wilkerson, chief executive officer, and Jamie Harris, chief financial officer. These executives have deep experience in their respective fields, having previously served in senior roles with industry leaders.
Our truck brokerage business has a variable cost structure with robust free cash flow conversion and a long track record of generating a high return on invested capital. Shippers create demand for our service, and we place their freight with qualified independent carriers using our technology. We price our service on either a contract or a spot basis.
Notable factors driving growth and margin expansion in our business include our ability to access massive truckload capacity for shippers through our carrier relationships, our proprietary, cutting-edge technology, our strong management expertise and favorable industry tailwinds. As of June 30, 2022, we had approximately 98,000 carriers in our North American truck brokerage network, and access to over one and a half million trucks.
We provide our customers with highly efficient access to capacity through our RXO ConnectTM digital brokerage technology. This proprietary platform is a major differentiator for our truck brokerage business, and together with our pricing technology, we believe it can unlock incremental profitable growth well beyond our current levels. All of our services utilize our proprietary platform.
Drivers of Value Creation
We have identified five key drivers of value creation in our truck brokerage business:
•Critical Scale in an Expanding Industry with Low Penetration: We are the fourth largest broker of full truckload freight transportation in the United States, with a carrier pool that gives us access to vast truck capacity to serve high shipper demand for transportation. We are also well-established as a truckload broker of choice across diversified industry sectors, with a notable presence in the e-commerce and retail sectors. Despite our scale, we have just 4% of the brokered truckload industry revenue, which includes LTL and full truckload transportation provided direct to shippers and via managed transportation providers, and expect to benefit from both overall industry growth in demand for truckload transportation, and a long runway for increased broker penetration of for-hire trucking.
•Proprietary Technology: We believe we are strongly differentiated by our technology as a leading innovator of sophisticated brokerage solutions that enhance visibility, reliability, speed, accuracy and cost effectiveness, and by the fully automated transactional capabilities of our digital platform. As more and more shippers outsource their road freight needs to brokers, they increasingly prefer brokers that have the digital capabilities we offer.
•Long-Tenured, Blue-Chip Customer Relationships in Attractive Verticals: Our customer base includes numerous long-term relationships with market leaders and other world-class companies across a diversified array of customer verticals, with a significant presence in consumer-facing sectors. Our tiered sales organization tailors its approach to each prospective customer based on size and profitability potential.
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•Asset-Light Model Generates High Returns and Substantial Free Cash Flow: We utilize an asset-light business model that gives us agility and generates strong free cash flow.
•Experienced and Cohesive Leadership and Strong Company Values: Our business operations are led by highly experienced executives who are recognized as leading truck brokerage experts and technologists. These executives have worked together for many years, creating value through operational excellence, data science and a people-centric culture.
In summary, we believe we are well-positioned to capitalize on the significant growth drivers in our industry through our unique combination of scale, technology, expertise and business excellence.
Pro FormaHistorical
Six Months Ended
June 30,		Year Ended
December 31,		Six Months Ended
June 30,		Years Ended
December 31,
(in millions)20222021202120222021202120202019
Revenue$2,538 $2,164 $4,689 $2,538 $2,164 $4,689 $3,357 $3,141 
Operating income106 89 179 109 99 192 60 82 
Adjusted EBITDA173 $133 268 176 138 277 157 168 
Critical Scale in an Expanding Industry with Low Penetration
Our truck brokerage business operates in a growing, $88 billion brokered truckload industry in the United States, within a total addressable for-hire trucking opportunity of approximately $400 billion in 2021. The brokered truckload industry size includes $8 billion from managed transportation services, which represents approximately one third of the total managed transportation industry in the United States. We expect that our industry will continue to grow faster than GDP, propelled by strong secular tailwinds, such as a trend toward outsourcing freight transportation, increased brokerage penetration of for-hire truckload transportation and adoption of digital brokerage technologies by shippers and carriers. In addition, given our size in our industry, we see a significant opportunity to increase our market share through ongoing shipper and carrier adoption of our proprietary RXO ConnectTM platform.
Our best-in-class truck brokerage business has a long track record of outperforming our industry and peers in key metrics. For the full year 2021, compared with 2020 and 2019, respectively: our revenue growth in truck brokerage was 63% and 100%, and our load growth was 29% and 40%, including 38% and 84% load growth from our top 20 customers. Additionally, we grew our 2021 margin dollars, which represent our revenue less the cost of transportation and services (exclusive of depreciation and amortization), by 49% and 86% compared with 2020 and 2019, respectively. From 2013 to 2021, our truck brokerage revenue CAGR was 27% — approximately three times
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the U.S. brokered truckload industry growth rate, and notably, over 90% of our revenue growth over this period was organic. Over the last three years, we increased our productivity, measured by loads per head per day, by 50%.
business1a.jpg
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(1)U.S. brokered truckload industry size; reflects brokered component of ~$400 billion total addressable truckload opportunity
The growing complexity of supply chains, the advent of brokerage technology and the increase in risk aversion by supply chain operators have encouraged shippers to seek out large, third-party transportation partners with on-demand access to trucks and drivers, real-time pricing and continuous visibility into the movement of their goods. This has led to a sustained shift toward utilizing outsourced transportation brokers such as RXO that have a strong technology offering and provide data for better decision-making.
Broker penetration of for-hire truckload transportation has doubled in the last 15 years, and is still less than 25%. The penetration rate is expected to continue a steady climb, with industry forecasts predicting ongoing increases.
informationstatementsummara.jpg
Proprietary Technology
Our first-mover advantage in brokerage technology dates back to the start of XPO in 2011, when we foresaw the technological potential in the brokerage model. RXO is capitalizing on that advantage.
A decade ago, truck brokerage was conducted largely by telephone through manual interactions between customers and brokers. This limited the industry’s ability to realize efficiencies and made it challenging for many brokers to maintain high levels of customer service as they grew in scale.
We established our competitive advantage with significant investments in proprietary brokerage technology that harnesses data science. We began matching shippers to carriers using the visibility provided by our Freight Optimizer system. We then developed our RXO ConnectTM digital brokerage platform architecture, which incorporates machine learning and fully automates the brokerage process, making transactions more efficient for all parties involved. Over the past 10 years, we have spent approximately $300 million on developing our technology.
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Today, digital brokerage platforms are changing the face of the truck brokerage industry and are expected to continue to grow in importance as shippers increasingly value the efficiencies of automation. Approximately 80% of RXO’s brokerage orders are currently created or covered digitally, and we expect the digital nature of our transactions to increase to 95% or higher over time.
Long-Tenured, Blue-Chip Customer Relationships in Attractive Verticals
We have a large opportunity to grow our share in key verticals with durable fundamentals, where we have strong partnerships with preeminent customers and extensive expertise. Our revenue is well-diversified across customers with different demand patterns and seasonality, including more than half of the Fortune 100 companies. In 2021, our revenue profile reflected a strong mix of both verticals and customers, with low concentration risk:
informationstatementsummarc.jpg
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(1)Before eliminations
Our value proposition is a combination of massive carrier capacity, highly efficient technology, deep expertise and the agility to not only solve supply chain challenges, but also proactively improve results — these are benefits that resonate with truck brokerage customers of all sizes. The average relationship tenure of our top 10 customers company-wide, based on revenue, is approximately 16 years, and the average relationship tenures of our top 10 and top 20 truck brokerage customers, based on revenue, are approximately 14 years.
Our tiered sales organization tailors its approach to each prospective customer based on size and profitability potential and has dedicated teams targeting enterprise customers, national customers and emerging growth companies. Our sales organization draws upon vertical-specific experience and leverages internal resources, including the self-service capabilities of RXO Connect™, in order to meet each customer’s needs.
Asset-Light Model Generates High Returns and Substantial Free Cash Flow
RXO’s asset-light business model historically has generated a high return on invested capital across cycles and robust free cash flow. We do not own the great majority of trucks and other assets used to perform our services, and, for the year ended December 31, 2021, only 13% of our costs were fixed. This limits our capital requirements and gives our business substantial flexibility, compared with asset-based transportation providers.
Our largest capital expenditure is technology, which allows us to continually enhance our financial and operational agility. Labor is a significant cost; however, a large part of our labor cost is related to sales commissions. This variable cost structure automatically decreases costs at times of lower demand and increases revenue and
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margin faster than costs as demand returns. The resilience inherent in our business model reduces risk in all macroeconomic environments.
For example, when the market is poised to tighten, our business model gives us the ability to review rates with our top customers, hire employees to increase capacity, onboard more carriers and backstop rates. When the market is poised to loosen, we are able to look for opportunities to reduce carrier costs to expand margins, slow hiring, lean into contractual business and offer dedicated solutions to ensure reliable capacity for key customers. The resilience inherent in our business model reduces risk and facilitates succeeding in all macroeconomic environments.
Experienced and Cohesive Leadership and Strong Company Values
RXO is led by Drew Wilkerson, chief executive officer, and Jamie Harris, chief financial officer. These executives have deep experience in their respective fields, having previously served in senior roles with XPO and other industry leaders.
Mr. Wilkerson is a transportation industry veteran with 16 years of experience in brokerage operations. He joined XPO in May 2012 to spearhead the growth of the company’s flagship truck brokerage hub in Charlotte, North Carolina. In May 2014, he was promoted to regional vice president, with responsibility for major brokerage operations, and served as the key liaison for strategic accounts. In March 2017, he was named president of XPO’s North American brokerage business; and in February 2020, he was named president of XPO’s North American transportation division, with P&L responsibility for truck brokerage, expedite, intermodal, drayage, managed transportation, last mile and freight forwarding. He has served in this role until the separation. Prior to XPO, Mr. Wilkerson held leadership positions in sales, operations, and customer and carrier relationship management with C.H. Robinson Worldwide.
Mr. Harris is a career CFO with 35 years of experience in B2B sectors, including two decades with public companies. He has served as chief financial officer of XPO’s North American transportation division from September 2022 until the separation. Prior to XPO, he was CFO and treasurer of SPX Technologies and earlier held positions as CFO and then interim CEO of Elevate Textiles, Inc. Previously, Mr. Harris held various executive roles with Coca-Cola Consolidated, the largest independent Coca-Cola franchisee in the United States, including eight years as CFO and two years as executive vice president, business transformation.
Our leadership team also provides executive support for our culture, which is defined by our environmental, social and governance framework, and by our values: safe, entrepreneurial, respectful, innovative and inclusive. We strive to move goods most efficiently through supply chains in a way that maximizes value for all our stakeholders. For example, our technology platform is designed to help us operate with minimal waste and reduce the carbon footprint of shipper supply chains, while also reducing “empty miles” for the carriers that provide the transportation. In April 2022, we enhanced the environmental sustainability of our truck brokerage offering with the launch of our Ship Net-Zero program, which gives shippers a way to negate the carbon footprint of their freight by purchasing carbon offsets for the sustainability projects of their choice.
Relationship-Based Operating Structure
Our truck brokerage business operates as an intermediary between shippers and carriers (truck and fleet owners), connecting truckload supply and demand. Our value proposition is based on our ability to access truck capacity on a massive scale; give shippers and carriers the benefits of our proprietary digital freight marketplace; and solve transportation challenges for our customers by utilizing the bench strength of our business — namely, the expertise of our brokerage leaders, technologists and employees.
Our asset-light business model relies on our business relationships with independent motor carriers for the transportation of our customers’ freight. We typically sign a non-exclusive, one-year, renewable agreement with carriers; this agreement establishes the carrier’s role as an independent contractor and provides that the carrier is solely responsible for aspects of their service, such as insurance, equipment maintenance and inspection and claims for freight loss or damage. In 2021, more than 96% of our truck brokerage revenue was generated from independent contractor services provided to truck brokerage customers, with the balance provided to customers of other RXO businesses through co-brokerage agreements.
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We conduct our truck brokerage operations by striving to best utilize our resources of people, technology and data:
•Our sales representatives communicate with customers about truckload freight that needs to be shipped, and we locate trucks with available capacity using our RXO ConnectTM technology platform. We have proprietary algorithms that use machine learning to price these transactions, taking into account current market conditions, historical data and future indicators.
•Our technology interfaces give customers the ability to post their freight loads and tap into truck capacity on our platform. They can buy capacity online or through system integrations, leverage data for decision-making and see the real-time status of freight in transit. On the supply side, truck drivers and fleet owners use our carrier interfaces to find loads and better utilize their assets. Carriers can bid and book loads online and through our platform’s mobile app.
Our brokerage platform synergizes these operating strengths within a single digital freight marketplace. Approximately 80% of our truck brokerage transactions have a digital profile — and, as that percentage continues to grow, we are able to process more volume per head over time.
Our Strategy
Our strategy is designed to deliver value through our resources, including extensive carrier relationships, automated shipper-carrier interactions, end-to-end digital tracking and data analyses generated by our proprietary algorithms. Our services are both highly responsive to customer needs and proactive in identifying potential improvements. Furthermore, we have instilled a culture that defines success as mutually beneficial results for our stockholders and other stakeholders.
Management’s growth and optimization strategy is to:
•Market our brokerage capabilities and value-added services to new and existing customers of all sizes, using a partnership approach that creates enduring relationships;
•Leverage our positioning to increasingly capitalize on secular trends in demand, such as the increasing broker penetration of the for-hire truckload industry and the growing shipper preference for digital brokerage services;
•Continue to recruit and retain talented customer and carrier sales representatives, and continuously improve their productivity with our state-of-the-art technology;
•Continue to attract high-caliber independent carriers to provide third-party transportation services for our customers; and
•Capitalize on our first-mover technology advantage to continue to gain share of the truck brokerage industry by optimizing brokerage processes and pricing for customers and carriers, and by enhancing the productivity of our operations.
Technology and Intellectual Property
We benefit from two interrelated industry trends — more shippers are relying on brokers for freight transportation, rather than deal directly with carriers, and at the same time, more shippers want brokers with digital capabilities that leverage data for the best outcomes. RXO benefits from first-mover advantage in brokerage technology, and we continue to innovate to stay at the forefront of the technological evolution of our industry.
Overview of Our Digital Brokerage Platform
Our self-learning RXO ConnectTM digital brokerage platform (known as XPO Connect® prior to the completion of the separation and distribution) gives us a scalable framework to continually enhance our service, capture share and reduce costs. This fully automated, cloud-based platform encompasses Freight Optimizer, as well as our mobile
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app, API integrations, self-service dashboards and real-time functionality for transacting and tracking freight shipments.
The technology gives shippers access to our growing transportation network and our valuable market data, and it gives independent truck drivers the ability to secure loads through our mobile app. As of June 30, 2022, we had nearly 800,000 cumulative truck driver downloads of the app.
Importantly, our digital brokerage platform creates ongoing value for RXO in four key areas:
•Increases share and revenue generation by providing real-time visibility into available supply and demand for current and future time periods, leading to optimal transportation management;
•Ensures competitive rates by engaging customers and carriers through user-friendly interfaces underpinned by cutting-edge pricing technology;
•Optimizes for value and margin with dynamic pricing algorithms that use machine learning, and generates superior, real-time market intelligence harvested from load-matching data; and
•Improves productivity by facilitating transactions through cost-efficient automated processes and messaging, increasing the productivity of RXO’s customer and carrier representatives, and enabling our business to manage more volume without a commensurate increase in expense.
Other Brokered Transportation Services
In addition to our core truck brokerage business, we also offer asset-light services for managed transportation, last mile for heavy goods and freight forwarding. We believe this comprehensive suite of brokered transportation solutions, provided through a single source, is a differentiator for RXO and capitalizes on synergy opportunities between the services in the form of cross-selling and shared technology. In 2021, over 60% of our revenue was related to customers that did business with more than one of our services.We estimate that the total addressable industry opportunity for the range of services we offer was over $750 billion in 2021. This includes the $400 billion U.S. for-hire truckload industry.
Managed Transportation
Our managed transportation service provides asset-light solutions for shippers who outsource their freight transportation to gain reliability, visibility and cost savings. This service uses proprietary technology to enhance revenue synergies with truck brokerage, last mile and freight forwarding. We are the sixth largest provider of managed transportation services in the United States and have grown our freight under management by more than 80% since 2019. In 2021, we had approximately 3% revenue share of the U.S. managed transportation industry, and, for the twelve months ended June 30, 2022, approximately $3.9 billion of freight under management. We estimate that the market growth rate of the total addressable market for the managed transportation services we offer will be 10% from 2021 to 2026.
Our managed transportation offering includes bespoke load planning and procurement, complex solutions tailored to specific challenges, performance monitoring, engineering and data analytics, among other services. Our control tower solution leverages the expertise of a dedicated team focused on continuous improvement, and digital, door-to-door visibility into order status and freight in transit. In 2021, we managed more than 2.8 million shipments using control tower technology. In addition, we offer technology-enabled managed expedite services that automate transportation procurement for time-critical freight moved by independent road and air charter carriers.
Last Mile
Our last mile offering is an asset-light service that facilitates the delivery of heavy goods to consumers, performed by highly qualified third-party contractors; this gives us daily access to over 7,000 trucks. We are the largest provider of outsourced last mile service for heavy goods in the United States, with approximately 7% market share and a network that is positioned within 125 miles of the vast majority of the U.S. population. In 2021, we facilitated over 11 million last mile deliveries and installations for omnichannel and e-commerce retailers and direct-
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to-consumer manufacturers. We estimate that the market growth rate for the total addressable market for the last mile services we offer will be 10% from 2021 to 2026.
We operate our last mile business using a proprietary technology platform we developed specifically for the last mile consumer experience, integrated with RXO Connect™. This enables real-time tracking and on-demand delivery updates and rescheduling, customized notifications and signature-less release upon delivery. Approximately 50% of our eligible last mile orders are now self-scheduled by the consumer via the web or automated calls, and all data regarding a shipment’s progress is visible in one place. Our automation capabilities are a major lever in driving superior customer satisfaction and a 30% reduction in calls per delivery since 2018.
Freight Forwarding
Our freight forwarding service is a scalable, asset-light offering managed with advanced technology that facilitates ocean, road and air transportation and assists with customs brokerage. We are a U.S.-based freight forwarder with a global network of company-owned and partner-owned locations and coverage of key trade lanes that reach approximately 160 countries and territories through more than 2,500 domestic and 400 international carriers. We estimate that the market growth rate for the total addressable market for the freight forwarding services we offer will be 3% from 2021 to 2026.
Our freight forwarding service provides valuable support to other RXO operations by providing centralized procurement for domestic and cross-border capacity management. We leverage economies of scale, carrier relationships and local market expertise at thousands of destinations to connect key production and consumption centers hundreds or thousands of miles apart. Our freight forwarding business model is nimble and resilient to changes in demand; we can readily increase capacity to manage volume, while retaining inherent flexibility in capital expenditures.
Customers and End-Markets
RXO provides services to approximately 10,000 customers ranging in size from small businesses to Fortune 100 companies and sector leaders. The diversification of our customer base minimizes concentration risk: in 2021, our top 20 customers in total and our top five customers in total accounted for approximately 35% and 19% of our revenue, respectively, with our largest customer accounting for approximately 8% of revenue.
Our customer end-markets are also highly diversified; we derive our revenue from a robust mix of verticals for retail and e-commerce, automotive, food and beverage, industrial and manufacturing, agriculture and chemicals, logistics and transportation and consumer goods.
Competition
RXO operates in a highly fragmented industry with thousands of companies competing to provide brokered transportation services for customer freight. We compete on quality of service, depth of capacity, technological capabilities, reliability, expertise and price.
Our competitors include local, regional, national and international companies operating in North America that offer the same services we provide; some have larger customer bases, significantly more resources and more experience than we have. Some of our competitors include C.H. Robinson, Convoy, Coyote, Echo, Expeditors, Forward Air, Flexport, J.B. Hunt, Landstar System, Total Quality Logistics, Transfix and Uber Freight. Due to the competitive nature of our industry, we strive to strengthen existing business relationships and forge new relationships.
The health of the freight transportation industry overall will continue to be a function of economic growth, as well as secular trends that stem from shipper and consumer behaviors independent of economic conditions. We believe that RXO is strongly positioned to benefit from these trends, including consumer demand for e-commerce, shipper demand for strong outsourcing partners and the growing adoption of digital capabilities by industry customers and carriers.
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Properties
As of June 30, 2022, we operated 196 locations, primarily in North America.
LocationLeased FacilitiesOwned Facilities
Customer Facilities(1)
Total
North America168 2 13 183 
Asia9 — — 9 
Corporate4 — — 4 
Total
181 2 13 196 
_________________
(1)Locations owned or leased by customers.
We lease our current executive office located in Charlotte, North Carolina. We believe that our facilities are sufficient for our current needs.
Regulation
Our operations are regulated and licensed by various governmental agencies in the United States and in other countries where we conduct business. These regulations impact us directly in the various subsidiary operating companies’ respective capacity as transportation service providers and, to some extent, also indirectly when they regulate third-party providers we arrange and/or contract with to transport freight for our customers.
Regulations Affecting Motor Carriers. In the United States, our subsidiaries that operate as motor carriers are licensed by the Federal Motor Carrier Safety Administration (“FMCSA”) of the U.S. Department of Transportation (“DOT”). Our motor carrier subsidiaries must comply with the safety and fitness regulations of the DOT, including those related to, without limitation, controlled substances and alcohol, hours-of service compliance, vehicle maintenance, hazardous materials compliance, driver fitness, unsafe driving, and minimum insurance requirements. These carriers are subject to the FMCSA’s Compliance Safety Accountability (“CSA”) program, which uses a Safety Measurement System (“SMS”) to rank motor carriers on seven categories of safety-related data, known as Behavioral Analysis and Safety Improvement Categories (“BASICs”). Other federal agencies, such as the Pipeline and Hazardous Materials Safety Administration, the U.S. Food and Drug Administration (“FDA”), and the U.S. Department of Homeland Security (“DHS”), also regulate aspect of our operations.
In addition, our motor carriers that engage independent contractor owner-operators to provide transportation and delivery services are subject to the Federal Leasing Regulations, which are applicable to written agreements between the carriers and those owner-operators. Also, separate from regulatory requirements, the use of independent contractors within the transportation industry continues to face legal changes from regulatory agencies and private litigants. This risk is addressed in greater detail below.
Our motor carriers are also subject to various state regulations, including state operating authority requirements where intrastate motor carriage is regulated, emission-compliance standards such as those promulgated by the California Air Resources Board, and vehicle registration and licensing requirements in certain states and local jurisdictions where we operate. In addition, motor carriers that move freight to and from ports are subject to various registration requirements. In foreign jurisdictions where we operate, our operations are regulated by the appropriate governmental authorities. We may become subject to new or more restrictive regulations relating to emissions, drivers’ hours-of-service, independent contractor eligibility requirements, onboard reporting of operations, air cargo security and other matters affecting safety or operating methods.
Regulations, Private Causes of Action Affecting Ground Property Brokers and Freight Forwarders. In the United States, our subsidiaries that operate as ground property brokers and freight forwarders (collectively, “brokers”) are licensed by the FMCSA. Our brokers must comply with certain federal bonding requirements. In a limited number of states that regulate intrastate property brokerage and/or freight forwarding, our brokers are subject to licensing requirements.
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Separate from regulatory requirements, private litigants are more regularly adding brokers as defendants in lawsuits arising from highway accidents, including on the grounds that brokers were negligent in selecting unsafe carriers to which they tender freight. “Negligent selection,” as the cause of action has come to be known, is an allegation, under state law, that the broker failed to act reasonably in deciding whether to hire a carrier. Because the cause of action is based on state law, and because what constitutes “negligence” is a question of fact that is decided by the jury, caselaw has not developed hard and fast rules regarding what constitutes lack of reasonable care in a carrier selection decision.
Regulations Affecting Warehouse Operators. Our subsidiaries in the United States that operate warehouses are subject to various state permitting and licensing requirements relating to either general warehousing operations or the freight maintained at the warehouse.
Regulations Affecting Our Subsidiaries Providing Ocean and Air Transportation. One of our subsidiaries is licensed as a U.S. Customs broker by the U.S. Customs and Border Protection (the “CBP”) of the DHS in each U.S. district where it performs services. All U.S. Customs brokers are required to maintain prescribed records and are subject to periodic audits by the CBP. In non-U.S. jurisdictions where we perform customs brokerage services, our operations are licensed, where necessary, by the appropriate governmental authorities.
Our subsidiaries that offer air freight and expedited air charter transportation services are subject to regulation by the Transportation Security Administration (“TSA”) of the DHS governing air cargo security for all loads, regardless of origin or destination. Some of our subsidiaries are regulated as “indirect air carriers” by the TSA. The CBP, TSA and relevant non-U.S. governmental agencies provide requirements and guidance and, in some cases, administer licensing requirements and processes applicable to the air freight forwarding industry.
To facilitate our international operations, RXO is a member of the Cargo Network Services Corp., which is a representative of International Air Transportation Association (“IATA”), a voluntary association of airlines and air freight forwarders that outlines operating procedures for forwarders acting as agents or third-party intermediaries for IATA members. A substantial portion of our international air freight business is transacted with other IATA members.
Additionally, some of our subsidiaries are licensed as an Ocean Transportation Intermediary (“OTI”), since they operate as a non-vessel-operating common carrier (“NVOCC”), and/or as an Ocean Freight Forwarder (“OFF”) licensed by the U.S. Federal Maritime Commission (“FMC”), which establishes the qualifications, regulations, licensing and bonding requirements for arranging international transportation to or from the United States as an OTI.
Other Regulations. We are subject to a variety of other U.S. and foreign laws and regulations, including, but not limited to, the Foreign Corrupt Practices Act and other anti-bribery and anti-corruption statutes, and export sanction laws. We are also subject to state and U.S. federal laws and regulations addressing some types of cargo transported or stored by our subsidiaries, or transported pursuant to a government contract or subcontract.
Classification of Independent Contractors. U.S. tax and other federal and state regulatory authorities, as well as private litigants, continue to assert that independent contractors in the trucking industry are employees rather than independent contractors, while applying a variety of standards in their determinations of independent contractor status. Federal legislators have introduced legislation in the past to make it easier for tax and other authorities to reclassify independent contractors as employees, including legislation to increase the recordkeeping requirements and heighten the penalties for companies that misclassify workers and are found to have violated overtime or wage requirements. Additionally, federal legislators have sought to abolish the current safe harbor, which allows taxpayers that meet certain criteria to treat individuals as independent contractors if they are following a longstanding, recognized practice. Federal legislators also sought to expand the Fair Labor Standards Act to cover “non-employees” who perform labor or services for businesses, even if said non-employees are properly classified as independent contractors; require taxpayers to provide written notice to workers based upon their classification as either an employee or a non-employee; and impose penalties and fines for violations of the notice requirement or for misclassifications. Some states have launched initiatives to increase tax revenues from items such as unemployment, workers’ compensation and income taxes, and the reclassification of independent contractors as employees could help states increase these revenues. In addition to these possible legislative changes, the National Labor Relations
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Board (“NLRB”) and NLRB’s general counsel have signaled the desire to reverse several pro-employer precedents, to make it more difficult for a worker to be classified as an independent contractor by changing the factors used in determining worker classification. The NLRB has also entered into a Memorandum Of Understanding with the U.S. Department of Labor regarding the exchange of information and cooperation in enforcement activities regarding the misclassification of employees as independent contractors. If the independent contractor drivers that provide services to RXO are determined to be our employees, we could incur additional exposure under some or all of the following: federal and state employer taxes, workers’ compensation, unemployment benefits, and labor, employment and tort laws, including for prior periods, as well as potential liability for employee benefits and tax withholdings.
Environmental Regulations. Our operations and the independent contractors with which we contract are subject to various environmental laws and regulations in the jurisdictions where we operate. In the United States, these laws and regulations deal with the hauling, handling and disposal of hazardous materials, emissions from vehicles, engine-idling, fuel tanks and related fuel spillage and seepage, discharge and retention of storm water, and other environmental matters that involve inherent environmental risks. We may be responsible for the cleanup of any spill or other incident involving hazardous materials caused by our business. In the past, we have been responsible for the cost to clean up diesel fuel spills caused by traffic accidents or other events, and none of these incidents materially affected our business or operations. We generally transport only hazardous materials rated as low-to-medium-risk, and only a small percentage of our total loads contain hazardous materials.
We believe that our operations are in substantial compliance with current laws and regulations, and we do not know of any existing environmental condition that reasonably would be expected to have a material adverse effect on our business or operating results.
Seasonality
Our volumes are typically higher in the fourth quarter due to peak season demand for our services from our customers in consumer sectors.
Human Capital Management
At RXO, every action we take is based on our values – we are safe, entrepreneurial, respectful, innovative and inclusive. Our values shape our approach to human capital management and ensure we provide an excellent work environment for our employees. Our success relies heavily on our strong governance structure, Code of Business Ethics, good corporate citizenship and commitment to employee engagement.
As a customer-centric company with a strong service culture, we continually strive to be an employer of choice. This requires an unwavering commitment to workplace inclusion and safety, professional growth opportunities and competitive total compensation that meets the needs of our employees and their families.
Employee Base Profile
As of June 30, 2022, we operated with approximately 7,400 team members (comprised of approximately 5,600 full-time and part-time employees and 1,800 temporary workers), and 49% were in hourly roles and 51% were in salaried positions. None of our employees were covered by collective bargaining agreements. By gender, approximately 41% of our employees are female.
We have made significant investments in the safety, well-being and satisfaction of our employees in the following areas, among others:
Diversity, Equity and Inclusion
We take pride in having an inclusive workplace that encourages a diversity of backgrounds and perspectives and mandates fair treatment for all individuals — these attributes of our culture make us a stronger organization and a better partner to all RXO stakeholders. We welcome employees of every gender identity, sexual orientation, race, ethnicity, national origin, religion, life experience, veteran status and disability.
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Health and Safety
The physical and emotional safety of our employees is our top priority, and we have numerous protocols in place to ensure a safe work environment. We aim to maintain an Occupational Safety and Health Administration total recordable incident rate (“TRIR”) that is less than half the published rate for the Truck Transportation industry based on the “Industry Injury and Illness Data” from the U.S. Bureau of Labor Statistics. In 2021, our North American Transport business unit exceeded our target expectation with a TRIR 2.63 points lower than the BLS national benchmark.
Throughout the COVID-19 pandemic, we have continued to prioritize employee physical and mental health and have aimed to balance protecting employee health while creating a comfortable work environment. We remain diligent in upholding RXO’s COVID-19 safety protocols, including daily health attestations and access to mental health counseling services for employees and their dependents. We continue to offer pandemic paid sick leave to provide employees up to an additional two weeks of fully-paid sick leave.
Talent Development and Engagement
Our employees are critically important to our ability to provide best-in-class service. We ask our employees for feedback through engagement surveys, roundtables and town halls, and we use periodic engagement surveys to gauge our progress, assess satisfaction and ask for constructive suggestions. In this way, our employees help drive the continuous improvement of our business. We seek to identify top talent in all aspects of the recruitment process, and we emphasize training and development.
We tailor our recruitment efforts by geography and job function using an array of channels to ensure a diverse candidate pool. Our talent development infrastructure provides resources to employees throughout their career path, such as tailored skills development, training and mentoring for employees who aspire to grow into higher-paying positions with more responsibility. In addition, we maintain a robust pipeline of future operations leaders by using structured sponsorships and incidental learning techniques to develop internal candidates who demonstrate high potential in supervisory roles into positions as site leaders. The programs also help retain top talent by defining personalized development paths, and they attract new talent by differentiating RXO from its competitors.
Expansive Total Rewards
We appreciate that our employees choose to work for RXO from among many options inside and outside our industry. We offer a total compensation package that is both competitive and progressive to attract and retain outstanding talent. We offer competitive wages and a comprehensive suite of health and welfare benefit programs to support employees and their families.
Legal Proceedings
In the ordinary course of conducting our business activities, we and our subsidiaries become involved in judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. These proceedings include insured and uninsured matters that are brought on an individual, collective, representative and class action basis, and other proceedings involving personal injury claims arising from the transportation and handling of goods, contractual disputes, employment-related claims, including alleged violations of wage and hour laws, and general and commercial liability matters.
Based on facts currently available, we do not expect any of these proceedings to have a material effect, individually or in the aggregate, on our reputation, business, financial position, results of operations or cash flows; however, we can give no assurance that the results of any such proceedings will not materially affect our reputation, business, financial position, results of operations and cash flows.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in conjunction with the unaudited Condensed Combined Financial Statements and the audited Combined Financial Statements and accompanying notes included elsewhere in this information statement. This MD&A contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those projected or implied in the forward-looking statements. Please see “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
Business Overview
RXO is a high-performing brokered transportation platform defined by cutting-edge technology and a nimble, asset-light business model, with the largest component being our core truck brokerage business. We are the fourth largest broker of full truckload freight transportation in the United States, and have approximately 4% share of the entire $88 billion brokered truckload industry. In 2021, over 80% of our operating income was generated by truck brokerage; the remainder was comprised of our brokered services for managed transportation, last mile and freight forwarding.
Our truck brokerage business has a variable cost structure with robust free cash flow conversion and a long track record of generating a high return on invested capital. Shippers create demand for our service, and we place their freight with qualified independent carriers using our technology. We price our service on either a contract or a spot basis.
Notable factors driving growth and margin expansion in our business include our ability to access massive truckload capacity for shippers through our carrier relationships, our proprietary, cutting-edge technology, our strong management expertise and favorable industry tailwinds. As of June 30, 2022, we had approximately 98,000 carriers in our North American truck brokerage network, and access to approximately one and a half million trucks.
We provide our customers with highly efficient access to capacity through our digital brokerage technology. This proprietary platform is a major differentiator for our truck brokerage business, and together with our pricing technology, we believe it can unlock incremental profitable growth well beyond our current levels. Our other brokered transportation services for managed transportation, last mile and freight forwarding also utilize our digital brokerage technology — these services are described below.
Our managed transportation service provides asset-light solutions for shippers who outsource their freight transportation to gain reliability, visibility and cost savings. The service uses proprietary technology to enhance our revenue synergy, with cross-selling to truck brokerage, last mile and freight forwarding.
Our last mile offering is an asset-light service that facilitates consumer deliveries performed by highly qualified third-party contractors. We are the largest provider of outsourced last mile for heavy goods in the United States, positioned within 125 miles of the vast majority of the U.S. population and serving a customer base of omnichannel and e-commerce retailers and direct-to-consumer manufacturers.
Our freight forwarding service is a scalable, asset-light offering managed with advanced technology that facilitates ocean, road and air transportation and assists with customs brokerage. We are a global freight forwarder with a network of company-owned and partner-owned locations and coverage of key trade lanes that reach approximately 160 countries and territories.
Impacts of COVID-19 and Other Notable External Conditions
As a leading provider of freight transportation services, our business can be impacted to varying degrees by factors beyond our control. The COVID-19 pandemic that emerged in 2020 affected, and may continue to affect, economic activity broadly and customer sectors served by our industry. Labor shortages, particularly a shortage of
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truck drivers, and equipment shortages continue to present challenges to many transportation-related industries. Additionally, disruptions in supply chains for industrial materials and supplies, such as semiconductor chips, have impacted some of the end-market activities that create demand for our services. We cannot predict how long these dynamics will last in the economic recovery, or whether future challenges, if any, will adversely affect our results of operations. To date, the totality of the actions we have taken during the pandemic, and continue to take in the recovery, have mitigated the impact on our profitability relative to the impact on our revenue and volumes, while our strong liquidity and disciplined capital management enable us to continue to invest in growth initiatives.
Additionally, economic inflation can have a negative impact on our operating costs. A prolonged period of inflation could cause interest rates, fuel, wages and other costs to continue to increase, which would adversely affect our results of operations unless our pricing to our customers correspondingly increases. During 2021 and the three and six months ended June 30, 2022, the transportation industry’s truck driver shortage, together with rising fuel prices, resulted in higher transportation procurement costs to meet growing demand, which costs were largely offset by mechanisms in our customer contracts, including fuel surcharge clauses and general rate increases. An economic recession could depress activity levels and adversely affect our results of operations.
Regarding the war between Russia and Ukraine, we have no direct exposure to those geographies. We cannot predict how global supply chain activities or the economy at large may be impacted by a prolonged war in Ukraine or sanctions imposed in response to the war, or whether future conflicts, if any, may adversely affect our results of operations.
Basis of Presentation
The Combined Financial Statements of the Company were prepared on a standalone basis and have been derived from the consolidated financial statements and accounting records of XPO. Historically, separate financial statements have not been prepared for the Company, and it has not operated as a standalone business separate from XPO. The Combined Financial Statements include certain assets and liabilities that have historically been held by XPO or by other XPO subsidiaries but are specifically identifiable or otherwise attributable to the Company. Significant intercompany balances and transactions between the operations of the RXO legal entities have been eliminated in the accompanying Combined Financial Statements. All significant related party transactions between RXO and XPO have been included in these Combined Financial Statements as components of XPO investment. We prepare our Combined Financial Statements in accordance with GAAP, which requires us to make estimates and assumptions that impact the amounts reported and disclosed in our Combined Financial Statements and the accompanying notes. We prepared these estimates based on the most current and best available information, but actual results could differ materially from these estimates and assumptions.
The Combined Balance Sheets include certain assets and liabilities directly attributable to RXO, and the Combined Statements of Operations include allocations of XPO costs and expenses, as described below. XPO’s third-party debt and the related interest expense were not allocated to us for any of the periods presented as XPO’s borrowings are not our legal obligation.
XPO’s corporate function (“Corporate”) incurs a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications. For purposes of the Combined Statements of Operations, an allocation of these expenses is included to burden all business units comprising XPO’s historical operations. The charges reflected have either been specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), which we define as net income before interest expense, income tax, depreciation and amortization expense, transaction and integration costs, restructuring costs and other adjustments, or headcount. These allocated costs are recorded in Sales, general and administrative expense (“SG&A”), Depreciation and amortization expense, Transaction and integration costs and Restructuring costs in the Combined Statements of Operations. We believe the assumptions regarding allocations of XPO corporate expenses are reasonable. Nevertheless, the Combined Financial Statements may not reflect the combined results of operations, financial position and cash flows had the Company been a standalone entity during the periods presented.
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Cost of transportation and services (exclusive of depreciation and amortization) primarily includes the cost of providing or procuring freight transportation for RXO customers.
Direct operating expenses (exclusive of depreciation and amortization) are comprised of both fixed and variable expenses and consist mainly of personnel costs, facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, costs of materials and supplies, information technology expenses, and gains and losses on sales of property and equipment.
SG&A, including the allocated costs of XPO, primarily consists of salaries and commissions for the sales function, salary and benefit costs for executive and certain administration functions, third-party professional fees, facility costs, bad debt expense and legal costs.
XPO investment represents XPO’s historical investment in RXO, and includes the net effects of transactions with and allocations from XPO, as well as RXO’s accumulated earnings. Certain transactions between RXO and XPO, including XPO’s non-RXO subsidiaries, have been included in these Combined Financial Statements, and are considered to be effectively settled at the time the transaction is recorded. The total net effect of the cash settlement of these transactions is reflected in the Combined Statements of Cash Flows as a financing activity and in the Combined Balance Sheets as XPO investment. The components of the net transfers to and from XPO include certain costs allocated from Corporate functions, income tax expense, certain cash receipts and payments made on behalf of RXO and general financing activities.
RXO has a single reportable segment.
Combined Summary Financial Results for the Three and Six Months Ended June 30, 2022 and 2021
Three Months Ended June 30,Percent of RevenueSix Months Ended June 30,Percent of Revenue
(In millions)20222021202220212022202120222021
Revenue
$1,226 $1,099 100.0 %100.0 %$2,538 $2,164 100.0 %100.0 %
Cost of transportation and services (exclusive of depreciation and amortization)904 860 73.7 %78.3 %1,925 1,672 75.8 %77.3 %
Direct operating expense (exclusive of depreciation and amortization)56 48 4.6 %4.4 %111 95 4.4 %4.4 %
Sales, general and administrative expense166 124 13.5 %11.3 %327 257 12.9 %11.9 %
Depreciation and amortization expense21 20 1.7 %1.8 %42 40 1.7 %1.8 %
Transaction and integration costs18 — 1.5 %— %21 1 0.8 %— %
Restructuring costs3 — 0.2 %— %3 — 0.1 %— %
Operating income
$58 $47 4.7 %4.3 %$109 $99 4.3 %4.6 %
Other (income) expense(1)(1)(0.1)%(0.1)%(1)1 — %— %
Income before income taxes
$59 $48 4.8 %4.4 %$110 $98 4.3 %4.5 %
Income tax provision15 13 1.2 %1.2 %27 23 1.1 %1.1 %
Net income
$44 $35 3.6 %3.2 %$83 $75 3.3 %3.5 %
Our revenue increased 11.6% to $1.2 billion in the second quarter of 2022, compared with $1.1 billion for the same quarter in 2021. Revenue for the first six months of 2022 increased 17.3% to $2.5 billion compared with $2.2 billion for the same period in 2021. The year-over-year increases in revenue in the second quarter and first six months of 2022 primarily reflect an increase in North American truck brokerage loads, facilitated by our digital platform, as well as strong pricing across our service offerings. Of the $0.1 billion increase in revenue in the second quarter of 2022, compared with the same quarter in 2021, 73% was driven by volume increases and 31% was driven by pricing increases, partially offset by a 4% reduction from changes in mix. Of the $0.4 billion increase in revenue in the first six months of 2022, compared with the same period in 2021, 58% was driven by volume increases, 41% was driven by pricing increases, and 1% was driven by changes in mix.
As pandemic-related supply chain constraints continue to diminish, we expect transportation pricing and freight volumes to normalize, driving revenue growth at a more moderate rate. Year-over-year revenue performance should
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become more directly comparable – for example, our 39.7% revenue increase in 2021 reflected a year of uneven recovery measured against 2020, a year of severe economic disruption; whereas full year 2022 will be more directly comparable to full year 2021, and should be increasingly so going forward. Further, we expect convergence in revenue growth rates across our operating segments as they benefit more equally from shared secular tailwinds in freight transportation, such as the shipper trend toward outsourcing to brokers, and increased industry adoption of digital capabilities in RXO’s company-wide technology ecosystem.
Cost of transportation and services (exclusive of depreciation and amortization) for the second quarter of 2022 was $904 million, or 73.7% of revenue, compared with $860 million or 78.3% of revenue, for the same quarter in 2021. Cost of transportation and services (exclusive of depreciation and amortization) for the first six months of 2022 was $1.9 billion, or 75.8% of revenue, compared with $1.7 billion or 77.3% of revenue, for the same period in 2021. Third party transportation costs as a percentage of revenue decreased year-over-year by 3.9 and 0.9 percentage points for the second quarter and first six months of 2022, respectively. The year-over-year decreases in both 2022 periods were due primarily to our ability to purchase services at lower cost as the transportation market softened, while the majority of our revenue reflected fixed terms on customer contracts established in stronger rate environments prior to 2022.
Direct operating expense (exclusive of depreciation and amortization) for the second quarter of 2022 was $56 million, or 4.6% of revenue, compared with $48 million, or 4.4% of revenue, for the same quarter in 2021. Direct operating expense (exclusive of depreciation and amortization) for the first six months of 2022 was $111 million, or 4.4% of revenue, compared with $95 million, or 4.4% of revenue, for the same period in 2021. The year-over-year increase as a percentage of revenue in the second quarter of 2022 was primarily a result of higher compensation-related costs which increased as a percentage of revenue by approximately 0.2 percentage points.
SG&A was $166 million for the second quarter of 2022, or 13.5% of revenue, compared with $124 million, or 11.3% of revenue, for the same quarter in 2021. SG&A was $327 million for the first six months of 2022, or 12.9% of revenue, compared with $257 million, or 11.9% of revenue, for the same period in 2021. The year-over-year increases in SG&A as a percentage of revenue primarily resulted from: i) higher compensation-related costs of 1.4 and 0.5 percentage points, respectively, for the second quarter and first six months of 2022; and ii) higher allocated corporate overhead costs of 0.4 and 0.1 percentage points, respectively, for the second quarter and first six months of 2022, compared with the same periods in 2021.
Depreciation and amortization expense for the second quarter of 2022 was $21 million, compared with $20 million for the same quarter in 2021. Depreciation and amortization expense for the first six months of 2022 was $42 million, compared with $40 million for the same period in 2021. Depreciation and amortization expense for both the second quarter of 2022 and 2021 included amortization of acquisition-related intangible assets of $6 million. Depreciation and amortization expense included amortization of acquisition-related intangible assets of $11 million and $12 million for the first six months of 2022 and 2021, respectively.
Transaction and integration costs for the second quarter and first six months of 2022 were $18 million and $21 million, respectively, and are primarily comprised of spin-off related costs.
Our effective income tax rates were 24.3% and 25.7% for the second quarter of 2022 and 2021, respectively, and 24.3% and 23.3% for the first six months of 2022 and 2021, respectively. The effective tax rates for the second quarter and six month periods of 2022 and 2021 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented. There were no material items impacting the effective tax rate for the second quarter of 2022 or 2021. The primary item impacting the effective tax rate for the first six months of 2022 was a tax benefit of $1 million from stock-based compensation. The primary items impacting the effective tax rate for the first six months of 2021 were tax benefits of $1 million from stock-based compensation and $2 million from revaluing state deferred tax assets.
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Combined Summary Financial Results for the Years Ended December 31, 2021, 2020 and 2019
Years Ended December 31,Percent of Revenue
(In millions)202120202019202120202019
Revenue
$4,689 $3,357 $3,141 100.0 %100.0 %100.0 %
Cost of transportation and services (exclusive of
depreciation and amortization)
3,681 2,568 2,414 78.5 %76.5 %76.9 %
Direct operating expense (exclusive of
depreciation and amortization)
192 174 162 4.1 %5.2 %5.2 %
Sales, general and administrative expense539 455 399 11.5 %13.6 %12.7 %
Depreciation and amortization expense81 76 74 1.7 %2.3 %2.4 %
Transaction and integration costs2 14 1 — %0.4 %— %
Restructuring costs2 10 9 — %0.3 %0.3 %
Operating income
192 60 82 4.1 %1.8 %2.6 %
Other (income) expense1 3 (2)— %0.1 %(0.1)%
Income before income taxes
191 57 84 4.1 %1.7 %2.7 %
Income tax provision41 14 22 0.9 %0.4 %0.7 %
Net income
$150 $43 $62 3.2 %1.3 %2.0 %
Year Ended December 31, 2021 Compared with Year Ended December 31, 2020
Our combined revenue for 2021 increased by 39.7% to $4.7 billion, from $3.4 billion in 2020. The increase primarily reflects an increase in North American truck brokerage loads per day facilitated by our digital platform, as well as strength in other brokerage services, in part due to strong pricing and improving market conditions in the economic recovery from the COVID-19 pandemic. These gains were partially offset by the impact of the global semiconductor shortage, which constrained customer demand for freight transportation services in North America. Of the $1.3 billion year-over-year increase in revenue, 51% was driven by volume increases, 37% was driven by pricing increases, and 12% was driven by changes in mix.
Cost of transportation and services (exclusive of depreciation and amortization) in 2021 was $3.7 billion, or 78.5% of revenue, compared with $2.6 billion, or 76.5% of revenue in 2020. The year-over-year increase as a percentage of revenue reflects the constrained labor market, which resulted in higher third-party transportation costs of approximately 2.2% as a percentage of revenue.
Direct operating expense (exclusive of depreciation and amortization) in 2021 was $192 million, or 4.1% of revenue, compared with $174 million, or 5.2% of revenue, in 2020. The year-over-year decrease as a percentage of revenue was primarily driven by the leveraging of compensation-related costs, including third-party contractor costs, and facilities costs across a larger revenue base, which in aggregate decreased direct operating expense by approximately 0.8% as a percentage of revenue.
SG&A was $539 million in 2021, or 11.5% of revenue, compared with $455 million, or 13.6% of revenue, in 2020. The year-over-year decrease in SG&A as a percentage of revenue primarily resulted from lower compensation costs and bad debt expense, which decreased SG&A by approximately 1.0% and 0.6%, respectively, as a percentage of revenue.
Depreciation and amortization expense in 2021 was $81 million, compared with $76 million in 2020. Depreciation and amortization expense included amortization of acquisition-related intangible assets of $24 million in 2021, compared to $25 million in 2020.
Transaction and integration costs in 2021 were $2 million, compared with $14 million in 2020. Transaction and integration costs for 2020 included third-party professional fees related to XPO’s exploration of strategic alternatives that was terminated in March 2020.
Restructuring costs in 2021 were $2 million, compared with $10 million in 2020. We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in response to
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COVID-19. For further information on our restructuring actions, see Note 4—Restructuring Charges to the Combined Financial Statements. We do not expect any significant savings from these initiatives.
Our consolidated income before income taxes in 2021 was $191 million, compared with $57 million in 2020. The increase was primarily driven by higher operating income. With respect to our U.S. operations, income before income taxes was $169 million in 2021, compared with $45 million in 2020. With respect to our non-U.S. operations, income before income taxes was $22 million in 2021, compared with $12 million in 2020. The year-over-year increase for both our U.S. and foreign operations was primarily due to higher revenue, partially offset by higher third-party transportation and personnel costs, in part due to the negative impact of COVID-19 in 2020.
Our effective income tax rate was 21.4% and 24.7% in 2021 and 2020, respectively. The decrease in our effective income tax rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily driven by discrete tax benefits of $5 million resulting from changes in reserves for uncertain tax positions for the year ended December 31, 2021. There were no material items impacting the effective tax rate for the year ended December 31, 2020.
Year Ended December 31, 2020 Compared with Year Ended December 31, 2019
Our combined revenue for 2020 increased by 6.9% to $3.4 billion, from $3.1 billion in 2019. The increase in revenue primarily reflected an increase in volume for truck brokerage, partially offset by the impact of COVID-19 and lower fuel revenue due to a reduction in diesel fuel rates. Of the $0.2 billion year-over-year increase in revenue, 52% was driven by pricing increases, 39% was driven by volume increases, and 9% was driven by changes in mix.
Cost of transportation and services (exclusive of depreciation and amortization) in 2020 was $2.6 billion, or 76.5% of revenue, compared with $2.4 billion, or 76.9% of revenue in 2019. The year-over-year decrease as a percentage of revenue primarily reflects lower payroll costs, which decreased cost of transportation and services by approximately 0.2% as a percentage of revenue.
Direct operating expense (exclusive of depreciation and amortization) in 2020 was $174 million, or 5.2% of revenue, compared with $162 million, or 5.2% of revenue, in 2019. As a percentage of revenue, direct operating expense was flat year-over-year with no significant fluctuations.
SG&A was $455 million in 2020, or 13.6% of revenue, compared with $399 million, or 12.7% of revenue, in 2019. The year-over-year increase in SG&A as a percentage of revenue primarily resulted from higher allocated corporate overhead and bad debt expense, which increased SG&A by approximately 0.4% and 0.4%, respectively, as a percentage of revenue.
Depreciation and amortization expense in 2020 was $76 million, compared with $74 million in 2019. Depreciation expense grew by approximately $12 million in 2020 primarily due to an increase in internally-developed software. Partially offsetting this increase was a decrease in amortization expense, which included amortization of acquisition-related intangible assets of $25 million in 2020, compared to $34 million in 2019. Amortization expense in 2019 included $6 million related to the impairment of customer relationship intangibles associated with our direct postal injection business.
Transaction and integration costs in 2020 were $14 million, compared with $1 million in 2019. Transaction and integration costs in 2020 included third-party professional fees related to XPO’s exploration of strategic alternatives that was terminated in March 2020.
Restructuring costs in 2020 were essentially flat compared to 2019. We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in response to COVID-19. Additionally, a portion of the restructuring charge recorded in 2019 related to a customer downsizing its business with us.
Other (income) expense was an expense of $3 million for 2020, compared with income of $2 million in 2019. The fluctuation primarily resulted from $2 million higher foreign currency losses in 2020 and other insignificant items in 2019.
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Our consolidated income before income taxes in 2020 was $57 million, compared with $84 million in 2019. The decrease primarily was driven by lower operating income. With respect to our U.S. operations, income before income taxes was $45 million, compared with $71 million in 2019. The decrease was primarily due to the impact of COVID-19. With respect to our non-U.S. operations, income before income taxes was $12 million in 2020, compared to $13 million in 2019.
Our effective income tax rate was 24.7% and 27.0% in 2020 and 2019, respectively. The decrease in our effective income tax rate for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily driven by a discrete tax expense of $3 million from provision to return adjustments for the year ended December 31, 2019. There were no material items impacting the effective tax rate for the year ended December 31, 2020.
The U.S. Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) enacted in March 2020 provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. We have applied the provisions of the CARES Act relating to income taxes and there was no material income tax benefit on our Combined Statements of Operations in 2020. Additionally, our 2020 cash flows benefited from the ability to defer the payment of certain payroll taxes that would otherwise have been due in 2020. We have not applied for any government loans under the CARES Act or similar laws.
Liquidity and Capital Resources
Our principal existing sources of cash are cash generated from operations and funding from XPO.
Treasury activities at XPO are generally centralized, while certain balances are managed locally. To the extent cash and cash equivalents are legally owned by RXO, they are reflected in the Combined Financial Statements.
Following our spin-off from XPO, our capital structure and sources of liquidity will change from our historical capital structure because we will no longer participate in XPO’s centralized cash management program. Additionally, we expect to incur $450 million of new debt. See “Description of Material Indebtedness” and “Capitalization” for further information.
We continually evaluate our liquidity requirements in light of our operating needs, growth initiatives and capital resources. We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months. In conjunction with the planned spin-off, we expect to further evaluate our liquidity needs, capital structure and sources of capital on a standalone basis.
Financial Condition
The following table summarizes our asset and liability balances as of June 30, 2022, December 31, 2021 and December 31, 2020:
As of June 30,As of December 31,
(In millions)202220212020
Total current assets $1,351 $1,083 $862 
Total long-term assets 1,021 985 1,008 
Total current liabilities 957 816 629 
Total long-term liabilities 216 182 173 
Total assets increased by $198 million from December 31, 2020 to December 31, 2021, primarily due to an increase in accounts receivable related to higher revenue in 2021, partially offset by lower cash and cash equivalents. Total liabilities increased by $196 million from December 31, 2020 to December 31, 2021, primarily due to higher accounts payable consistent with higher revenue, and, to a lesser extent, an increase in accrued expenses, primarily due to higher third-party transportation costs in 2021.
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Total assets increased by $304 million from December 31, 2021 to June 30, 2022 primarily due to an increase in cash and accounts receivable in 2022. Total liabilities increased by $175 million from December 31, 2021 to June 30, 2022, primarily due to higher accounts payable, and, to a lesser extent, an increase in accrued expenses in 2022. These changes in working capital were primarily driven by a sequential increase in volume during the first six months of 2022.
Cash Flow Activity for the Six Months Ended June 30, 2022 and 2021
Our cash flows from operating, investing and financing activities, as reflected on our Condensed Combined Statements of Cash Flows, are summarized as follows:
Six Months Ended June 30,
(In millions)20222021
Net cash provided by operating activities$177 $96 
Net cash used in investing activities(24)(18)
Net cash provided by (used in) financing activities30 (88)
During the first six months of 2022, we: (i) generated cash from operating activities of $177 million and (ii) received $30 million of net transfers from XPO. We used cash during this period primarily to purchase $24 million of property and equipment.
During the first six months of 2021, we generated cash from operating activities of $96 million. We used cash during this period primarily to: (i) purchase property and equipment of $19 million and (ii) make net transfers to XPO of $89 million.
Net cash provided by operating activities for the first six months of 2022 increased by $81 million, compared with the first six months of 2021. The increase reflects favorable changes in working capital in the first six months of 2022, primarily related to accounts payable generating $95 million of cash, compared to using $40 million during the same period in 2021. This impact was partially offset by accounts receivable utilizing $102 million in cash during the first six months of 2022 compared to generating $4 million in cash for the same period in 2021. These changes in working capital were primarily driven by an increase in volume during the first six months of 2022.
Investing activities used $24 million of cash to purchase property and equipment for the first six months of 2022, compared with $18 million resulting primarily from the purchase property and equipment for the same period in 2021.
Financing activities generated $30 million of cash for the first six months of 2022 from net transfers from XPO, compared with using $88 million of cash for the same period in 2021. The primary use of cash from financing activities for the first six months of 2021 was $89 million in net transfers to XPO.
During the six months ended June 30, 2022, there were no material changes to our December 31, 2021 contractual obligations.
Cash Flow Activity for the Years Ended December 31, 2021, 2020 and 2019
Our cash flows from operating, investing and financing activities, as reflected on our Combined Statements of Cash Flows, are summarized as follows:
Years Ended December 31,
(In millions)202120202019
Net cash provided by operating activities$155 $25 $123 
Net cash used in investing activities(38)(39)(55)
Net cash provided by (used in) financing activities(158)32 (47)
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During 2021, we generated cash from operating activities of $155 million and used cash during this period primarily to: (i) purchase property and equipment of $39 million and (ii) make net transfers to XPO of $159 million.
During 2020, we: (i) generated cash from operating activities of $25 million and (ii) received net transfers from XPO of $32 million. We used cash during this period primarily to purchase property and equipment of $47 million.
During 2019, we generated cash from operating activities of $123 million and used cash during this period primarily to: (i) purchase property and equipment of $56 million and (ii) make net transfers to XPO of $42 million.
Cash flows from operating activities for 2021 increased by $130 million compared with 2020. The increase primarily reflects higher net income and accounts payable generating more cash for 2021 compared with 2020, partially offset by the payment of certain payroll taxes that were deferred in 2020 as allowed by the CARES Act.
Cash flows from operating activities for 2020 decreased by $98 million compared with 2019. The decrease reflects the impact of operating assets and liabilities using $60 million more in cash in 2020 and lower net income. Within operating assets and liabilities, accounts receivable utilized $264 million of cash in 2020 as compared to generating $24 million in 2019 as a result of higher revenues in 2020. This increase in cash usage was partially offset by an increase in accounts payable and compensation and purchased transportation accruals, as well as the deferral of certain payroll tax payments in 2020 as allowed by the CARES Act.
As of December 31, 2021, we had $147 million of operating lease and related interest payment obligations, of which $47 million is due within the next twelve months. Additionally, we had operating leases that have not yet commenced with future undiscounted lease payments of $10 million. These operating leases will commence in 2022 with initial lease terms of 3 years to 7 years. For further information on our operating leases and their maturities, see Note 6—Leases to our Combined Financial Statements.
Investing activities used $38 million of cash in 2021, compared with $39 million used in 2020 and $55 million used in 2019. The primary use of cash from investing activities was purchases of property and equipment of $39 million, $47 million and $56 million in 2021, 2020 and 2019, respectively. We anticipate net capital expenditures to be between $40 million and $50 million in 2022, funded by cash on hand and available liquidity.
Financing activities used $158 million of cash in 2021, compared with $32 million generated in 2020 and $47 million used in 2019. The primary use of cash from financing activities was net transfers to XPO of $159 million and $42 million in 2021 and 2019, respectively. The primary source of cash from financing activities in 2020 was net transfers from XPO of $32 million.
Critical Accounting Policies
We prepare our Combined Financial Statements in accordance with GAAP. The methods, assumptions, and estimates that we use in applying our accounting policies may require us to apply judgments regarding matters that are inherently uncertain and may change based on changing circumstances or changes in our analysis. Material changes in these assumptions, estimates and/or judgments have the potential to materially alter our results of operations. Identified below are our accounting policies that we believe could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. Although actual results may differ from estimated results, we believe the estimates are reasonable and appropriate.
Corporate Expense Allocation
The Combined Financial Statements of RXO include general corporate expenses for certain support functions that are provided on a centralized basis, such as expenses related to information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications. For purposes of the Combined Statements of Operations, an allocation of these expenses is included to burden all business units comprising XPO’s historical operations. The charges reflected have either been specifically identified or allocated using drivers including proportional adjusted EBITDA that includes adjustments for transaction and integration costs, as well as restructuring costs and other adjustments, or headcount. All such
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costs have been deemed to have been incurred and settled through XPO investment in the period when the costs were recorded.
Evaluation of Goodwill
We measure goodwill as the excess of consideration transferred over the fair value of net assets acquired in business combinations. We allocate goodwill to our reporting units for the purpose of impairment testing. We evaluate goodwill for impairment annually, or more frequently if an event or circumstance indicates an impairment loss may have been incurred. We measure goodwill impairment, if any, at the amount a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. Our reporting units are our operating segments or one level below our operating segments for which discrete financial information is prepared and regularly reviewed by segment management. We have six reporting units. Application of the goodwill impairment test requires judgment, including the identification of the reporting units, the assignment of assets and liabilities to the reporting units, the assignment of goodwill to the reporting units, and a determination of the fair value of the reporting units.
For our 2021 goodwill assessment, we performed a quantitative analysis for our reporting units using a market approach. All of our reporting units had fair values in excess of their carrying values, resulting in no impairment of goodwill. The market approach of determining fair value is based on comparable market multiples for companies engaged in similar businesses, as well as recent transactions within our industry. We believe this approach provides a reasonable basis for estimating fair value.
For our 2020 goodwill assessment, we performed a step-zero qualitative analysis for our reporting units. Accounting guidance allows entities to perform a qualitative assessment (a “step-zero” test) before performing a quantitative analysis. If an entity determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the entity does not need to perform a quantitative analysis for that reporting unit. Qualitative assessments consider macroeconomic conditions, industry and market considerations, internal cost factors, and overall financial performance, among other factors. Based on the qualitative assessments performed, we concluded that it was not more-likely-than-not that the fair value of each of our reporting units was less than their carrying amounts, and, therefore, further quantitative analysis was not performed, and we did not recognize any goodwill impairment.
Many of the factors used in assessing fair value are outside the control of management, and assumptions and estimates may change in future periods. Changes in assumptions or estimates could materially affect the estimate of the fair value of a reporting unit, and therefore could affect the likelihood and amount of any potential impairment.
Self-Insurance
We participate in self-insurance programs that are managed by XPO to provide for the costs of medical, general liability, vehicular and workers’ compensation. XPO periodically evaluates our level of insurance coverage and adjusts our insurance levels based on risk tolerance and premium expense.
Liabilities for the risks we retain, including estimates of claims incurred but not reported, are not discounted and are estimated, in part, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels. Additionally, claims may emerge in future years for events that occurred in a prior year at a rate that differs from previous actuarial projections. Changes in these assumptions and factors can impact actual costs paid to settle the claims and those amounts may be different than estimates.
New Accounting Standards
Information related to new accounting standards is included in Note 2—Basis of Presentation and Significant Accounting Policies to the Combined Financial Statements and Note 2—Basis of Presentation to the Condensed Combined Financial Statements.
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Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk related to changes in commodity prices and in the price of diesel fuel purchased for use by third-party carriers who perform the physical freight movements we arrange. We include fuel price adjustment clauses or cost-recovery mechanisms in many of our customer contracts, enabling us to pass on to these customers substantially all of the fluctuations in the price of diesel fuel, except for short-term economic fluctuations, in the price for our services. Therefore, a hypothetical 10% change in the price of diesel fuel would not be expected to materially affect our financial performance.
Additionally, a portion of our net assets and income are in non-U.S. dollar currencies and, as such, we are exposed to currency risk from potential changes in the functional currency values of our foreign currency denominated assets, liabilities and cash flows. We believe that this foreign currency exchange rate risk will not have a material impact on our financial results.
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MANAGEMENT
Executive Officers Following the Distribution
The following table sets forth information regarding the individuals who are expected to serve as executive officers of RXO following the completion of the distribution.
NameAgePosition
Drew Wilkerson39Chief Executive Officer
Jamie Harris60Chief Financial Officer
Jeff Firestone52Chief Legal Officer
Drew Wilkerson is a transportation industry veteran with 16 years of experience in brokerage operations. He joined XPO in May 2012 to spearhead the growth of the company’s flagship truck brokerage hub in Charlotte, North Carolina. In May 2014, he was promoted to regional vice president, with responsibility for major brokerage operations, and served as the key liaison for strategic accounts. In March 2017, he was named president of XPO’s North American brokerage business; and in February 2020, he was named president of XPO’s North American transportation division, with P&L responsibility for truck brokerage, expedite, intermodal, drayage, managed transportation, last mile and freight forwarding. He has served in this role until the separation. Prior to XPO, Mr. Wilkerson held leadership positions in sales, operations, and customer and carrier relationship management with C.H. Robinson Worldwide.
Jamie Harris is a career CFO with 35 years of experience in B2B sectors, including two decades with public companies. He has served as chief financial officer of XPO’s North American transportation division from September 2022, until the separation. Prior to XPO, he was CFO and treasurer of SPX Technologies from August 2020 to September 2022, and earlier held positions as CFO and then interim CEO of Elevate Textiles, Inc. from April 2019 to August 2020. From 2008 to 2018, he held various executive roles with Coca-Cola Consolidated, the largest independent Coca-Cola franchisee in the United States, including eight years as CFO and two years as executive vice president, business transformation. From 2003 to 2008, he served on the board of directors of Coca-Cola Consolidated. Mr. Harris began his career with Ernst & Young LLP. He serves on the board of trustees of Appalachian State University.
Jeff Firestone has served as chief legal officer of XPO’s North American transportation division since August 2022, until the separation. Prior to XPO, he held senior legal positions with United Parcel Service during a 22-year tenure, including executive legal responsibility for corporate matters, litigation, governance, compliance and risk mitigation. This included UPS positions as deputy general counsel, regulatory compliance and risk from February 2022 to August 2022, senior vice president, business unit finance from August 2020 to January 2022, and senior vice president, domestic finance, business analytics and transformation from August 2018 to July 2020. Earlier, Mr. Firestone practiced law with Gibson, Dunn & Crutcher LLP.
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DIRECTORS
Board Structure and Directors Following the Distribution
Our amended and restated certificate of incorporation will provide for a classified board of directors, with members of each class serving staggered three-year terms. We will have three directors in Class I, three directors in Class II and three directors in Class III. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. The terms of directors in Classes I, II and III end at the annual meetings in 2023, 2024 and 2025, as indicated below.
At the first annual meeting of stockholders following the completion of the distribution, Class I directors will be elected at the annual meeting of stockholders held in the year in which the term for that class expires and thereafter will serve for a term of three years. Commencing with the second annual meeting of stockholders after the completion of the distribution, directors for each class will be elected at the annual meeting of stockholders held in the year in which the term for that class expires and thereafter each director will serve for a term of one year and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Consequently, starting at the 2026 annual meeting of stockholders, all of our directors will stand for election each year for one-year terms, and our board will therefore no longer be divided into three classes.
The following table sets forth information regarding the individuals who are expected to serve on RXO’s board of directors following completion of the distribution and until their respective successors are duly elected and qualified.
NameAgePositionClass
Brad Jacobs66Chairman of the BoardClass III - Expiring 2025
Michelle Nettles50Lead Independent DirectorClass III - Expiring 2025
Mary Kissel45Vice ChairmanClass III - Expiring 2025
Drew Wilkerson39Chief Executive Officer and DirectorClass I - Expiring 2023
Christine Breves66DirectorClass II - Expiring 2024
AnnaMaria DeSalva54DirectorClass II - Expiring 2024
Adrian Kingshott62DirectorClass II - Expiring 2024
Stephen Renna64DirectorClass I - Expiring 2023
Thomas Szlosek58DirectorClass I - Expiring 2023
Brad Jacobs has started five companies from scratch and led each of them to become a billion-dollar or multibillion-dollar enterprise. These include XPO Logistics (NYSE: XPO), which he has led as chairman and chief executive officer since September 2011, and two other publicly traded companies: United Rentals (NYSE: URI) and United Waste Systems. XPO and United Rentals were among the 10 best-performing stocks of the last decade. Prior to XPO, Mr. Jacobs founded United Rentals in 1997 and led the company for 10 years as chairman, including six years as chief executive officer. He founded United Waste Systems in 1989 and served eight years as chairman and chief executive officer. Additionally, since August 2021, he has served as non-executive chairman of the board of directors of GXO Logistics (NYSE: GXO). Mr. Jacobs is remaining with XPO as executive chairman following the separation.
Michelle Nettles has served as global chief people and culture officer for ManpowerGroup since July 2019, with responsibility for global human resources, learning, culture and diversity. Previously, over a 20-year tenure with Molson Coors Brewing Company, Ms. Nettles held various leadership roles across all aspects of human resources, including executive compensation, talent management, diversity and inclusion, culminating in chief people and diversity officer from October 2016 to July 2019. She additionally served in several roles as assistant general counsel, including responsibility for leading the company’s labor and employment practice. Ms. Nettles is a member of the boards of St. Paul’s Cathedral Trust in America and the Thurgood Marshall College Fund, and is the board chair for Dr. Howard Fuller Collegiate Academy. Ms. Nettles brings to the board extensive expertise in
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corporate culture-building, ESG matters and human resources, including experience in executive compensation, talent management, and diversity and inclusion.
Mary Kissel has served as a director of XPO since August 2021, until the separation. She has been executive vice president and senior policy advisor with Stephens Inc. since March 2021. Previously, from October 2018 to January 2021, Ms. Kissel served as senior advisor to the U.S. Secretary of State. From November 2005 to October 2018, she was a member of The Wall Street Journal editorial board in New York, where she was chief foreign policy writer, and editorial page editor for Asia-Pacific, based in Hong Kong. Ms. Kissel serves as an advisory board member of the Marathon Initiative in Washington, D.C. She is a member of the Council on Foreign Relations and the Nixon Seminar on Conservative Realism and National Security. Ms. Kissel brings to the board deep expertise in geopolitics, risk advisory, public policy and its impact on the business environment, and extensive experience in strategic communications, media and government affairs.
Drew Wilkerson’s background and experience is described above under “Management”. Mr. Wilkerson brings to the board in-depth knowledge of the company's strategy, operations, customers and markets, and a deep understanding of the broader brokered transportation industry.
Christine Breves is executive vice president, business transformation with United States Steel Corporation, where she has held senior roles since 2013. Prior to her current position, she served as U.S. Steel’s chief financial officer from November 2019 to August 2022, and earlier held roles as senior vice president, manufacturing support, chief supply chain officer and chief procurement officer. Previously, Ms. Breves was with Alcoa Corporation for 14 years, where she held various leadership positions in the company’s global procurement organization, including chief procurement officer from 2004 to 2012. She has served on the board of directors of Sylvamo Corporation since October 2021 and is a member of the audit committee. Ms. Breves brings to the board executive experience with strategy development and business transformation, as well as expertise with financial systems management, risk management, procurement and manufacturing operations.
AnnaMaria DeSalva has served as a director of XPO since September 2017, and vice chairman of the XPO board since February 2019, until the separation. Ms. DeSalva is the global chairman and chief executive officer of Hill+Knowlton Strategies, a position she has held since June 2019; in this role, she serves on the executive committee of parent company WPP plc. Previously, she served as chief communications officer of E.I. du Pont de Nemours & Co. (DuPont) from March 2014 to January 2018; and then as senior advisor to the CEO of DowDuPont until February 2019. Earlier, Ms. DeSalva served as vice president of corporate affairs for biopharmaceutical innovation at Pfizer, was an advisor to the U.S. Food and Drug Administration, and led the global healthcare practice of Hill & Knowlton. For Bristol-Myers Squibb, she led global public affairs for the oncology business and served as the director of the Bristol-Myers Squibb Foundation. Ms. DeSalva served on the board of governors of Argonne National Laboratory of the U.S. Department of Energy from February 2015 to September 2022, where she was a member of the compensation and nominating committees. She is a trustee of the Committee for Economic Development of The Conference Board, and serves on the board of the Raymond A. Mason School of Business at The College of William & Mary. Ms. DeSalva brings to the board global perspective as the chief executive officer of a multinational advisory company serving clients across almost every geography and industrial sector. She also has significant corporate affairs experience, having served in related senior leadership roles at several public companies.
Adrian Kingshott has served as a director of XPO since September 2011, until the separation. Mr. Kingshott is a managing director of Spotlight Advisors, LLC, a position he has held since September 2015. Previously, Mr. Kingshott was the chief executive officer of AdSon, LLC from October 2005 to November 2021, a member of the board of directors of Centre Lane Investment Corp. from May 2011 to March 2021, and a senior advisor to Headwaters Merchant Bank from 2013 to June 2018. Previously, with Goldman Sachs, he was co-head of the firm’s Global Leveraged Finance business and held various other positions over a 17-year tenure. More recently, Mr. Kingshott was a managing director and portfolio manager at Amaranth Advisors, LLC. He is an adjunct professor of Global Capital Markets and Investments at Fordham University’s Gabelli School of Business. Mr. Kingshott brings to the board more than 25 years of experience in the investment banking and investment management industries, and expertise with respect to corporate governance, acquisition transactions, debt and equity financing and corporate financial management.
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Stephen Renna is a senior managing director with Ankura Consulting Group’s Global Strategic Advisory practice, a position he has held since May 2021. Prior to joining Ankura, Mr. Renna served as the chief banking officer of the U.S. Export Import Bank (“EXIM”), the official export credit agency of the United States. In that role, from August 2019 to January 2021, he oversaw the execution of EXIM trade financing arrangements offered to exporters of U.S. goods and services. Previously, Mr. Renna was executive director of The Advocacy Center at the U.S. Department of Commerce from September 2017 to August 2019, and president and chief executive officer of the Commercial Real Estate Finance Council from May 2011 to April 2016. Earlier, he was president of the National Association of Real Estate Investment Managers. Mr. Renna brings to the board more than 30 years of executive experience in the public and private sectors, notably in finance, investment structuring, business planning, capital formation and the functions of federal agencies.
Thomas Szlosek is chief financial officer of Avantor, Inc., a global partner to customers in the biopharma, healthcare, education and government, and advanced technologies and applied materials industries. He joined Avantor in December 2018 following a 14-year tenure with Honeywell, where he most recently served as CFO from April 2014 to December 2018. Earlier, during eight years with GE Corporation, Mr. Szlosek held various finance leadership roles, including CFO of GE Medical Systems Asia, based in Japan, and CFO of GE Consumer Finance Europe, based in Ireland. He is a certified public accountant, and began his career in the audit practice of Price Waterhouse (now PwC). Mr. Szlosek has served as a director and a member of the audit committee of Janus International Group, Inc. since June 2021. Mr. Szlosek brings to the board more than two decades of financial management experience across a number of different sectors, including medical, technology and manufacturing, and has extensive public company experience as a current and former chief financial officer of Fortune 500 companies.
Director Independence
Under our Corporate Governance Guidelines (the “Guidelines”), our board of directors will be responsible for making independence determinations annually with the assistance of the Nominating, Governance and Sustainability Committee. Such independence determinations will be made by reference to the independence standard under the Guidelines and the definition of “independent director” under Section 303A.02 of the NYSE Listed Company Manual.
In addition to the independence standards provided in the Guidelines, our board will be responsible for determining that each director who serves on our Audit Committee satisfies standards established by the SEC providing that, to qualify as “independent” for the purposes of membership on that committee, members of audit committees may not: (i) accept directly or indirectly any consulting, advisory or other compensatory fee from RXO other than their director compensation, or (ii) be an affiliated person of RXO or any of its subsidiaries. Our board of directors will also determine that each member of the Compensation Committee satisfies the NYSE standards for independence. Additionally, our board of directors will determine that each member of the Nominating, Governance and Sustainability Committee satisfies the applicable NYSE standards for independence. In making the independence determinations for each director, our board of directors and the Nominating, Governance and Sustainability Committee will analyze certain relationships of the directors that are not required to be disclosed pursuant to Item 404(a) of Regulation S-K.
The board is expected to affirmatively determine that all the directors are independent except Mr. Jacobs and Mr. Wilkerson. In the course of its determination regarding independence, the board is expected not to find any material relationships between RXO and any of the directors, other than Brad Jacobs’s role as the executive chairman of XPO and Drew Wilkerson’s role as the Chief Executive Officer of RXO.
Committees of the Board of Directors
Effective upon the completion of the distribution, our board of directors will have the following three standing committees: an Audit Committee, a Compensation Committee, and a Nominating, Governance and Sustainability Committee. The board is expected to adopt written charters for each committee, which will be available on our website.
Each of the Audit Committee, the Compensation Committee, and the Nominating, Governance and Sustainability Committee is expected to be comprised solely of directors who have been determined by the board to
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be independent in accordance with SEC regulations, NYSE listing standards and the independence standards under our Guidelines (including the heightened independence standards for members of the Audit Committee and the Compensation Committee).
Audit Committee. Following the completion of the distribution, the members of the Audit Committee are expected to be Thomas Szlosek (chair), Christine Breves and Adrian Kingshott. RXO’s board of directors is expected to determine that Mr. Szlosek is an “audit committee financial expert” for purposes of the rules of the SEC, and that each member of the Audit Committee is financially literate as required by the rules of the NYSE. Our Audit Committee will be established in accordance with Section 3(a)(58)(A) of the Exchange Act, to assist our board in fulfilling its responsibilities in a number of areas, including, without limitation, oversight of: (i) our accounting and financial reporting processes, including our systems of internal controls and disclosure controls, (ii) the integrity of our financial statements, (iii) our compliance with legal and regulatory requirements, (iv) the qualifications and independence of our independent registered public accounting firm, (v) the performance of our independent registered public accounting firm and internal audit function, and (vi) related party transactions. Each member of the Audit Committee will be required to: (i) satisfy all applicable independence standards, (ii) not have participated in the preparation of our financial statements at any time during the past three years, and (iii) be able to read and understand fundamental financial statements.
Compensation Committee. Following the completion of the distribution, the members of the Compensation Committee are expected to be Michelle Nettles (chair), Mary Kissel and Stephen Renna. RXO’s board of directors is expected to determine that each member of the Compensation Committee will be independent, as defined by the rules of the NYSE and in accordance with our Guidelines. The primary responsibilities of the Compensation Committee will be, among other things: (i) to oversee the administration of our compensation programs, (ii) to review and approve the compensation of our executive management, (iii) to review and make recommendations concerning director compensation, (iv) to prepare any report on executive compensation required by SEC rules and regulations, and (v) to retain independent compensation consultants and oversee the work of such consultants.
Nominating, Governance and Sustainability Committee. Following the completion of the distribution, the members of the Nominating, Governance and Sustainability Committee are expected to be AnnaMaria DeSalva (chair), Adrian Kingshott and Stephen Renna. RXO’s board of directors is expected to determine that each of the members of the Nominating, Governance and Sustainability Committee will be independent, as defined by the rules of the NYSE and in accordance with our Guidelines. The primary responsibilities of the Nominating, Governance and Sustainability Committee will be, among other things: (i) to identify individuals qualified to become directors and recommend that our board select such individuals to be presented for stockholder consideration at the annual meeting or to be appointed by the board to fill a vacancy, (ii) to make recommendations to our board concerning committee appointments, (iii) to develop, recommend to our board and annually review the Guidelines and oversee corporate governance matters, (iv) to oversee an annual evaluation of our board and committees, and (v) to support our board in its oversight of our sustainability strategies, performance and external disclosures.
How We Make Pay Decisions and Assess Our Compensation Programs
During our fiscal year ended December 31, 2021, RXO was not an independent company and did not have a compensation committee or any other committee serving a similar function. Decisions as to the compensation of those who currently serve as our executive officers were made by XPO, as described in the section of this information statement titled “Executive Compensation—Compensation Discussion & Analysis.”
Corporate Governance
Our Commitment to Sound Corporate Governance
RXO will be committed to strong corporate governance practices designed to maintain high standards of independent oversight, accountability, integrity and ethics, while promoting long-term value creation for our stockholders and other stakeholders.
Our governance structure will enable independent, experienced and accomplished directors to provide advice, insight and oversight to advance the interests of RXO and our stockholders. RXO will strive to maintain sound
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governance standards, to be reflected in our Code of Business Ethics, our Guidelines, our systematic approach to risk management and our commitment to transparent financial reporting and strong internal controls.
The following documents, as well as additional corporate governance information and materials, will be available on our website at [     ]:
•Amended and Restated Certificate of Incorporation
•Amended and Restated Bylaws
•Corporate Governance Guidelines
•Code of Business Ethics
In addition, the following documents will be available on our website at [     ]:
•Charters of each of our board committees
Copies of these documents will also available in print form at no charge by sending a request to RXO, Inc., 11215 North Community House Road, Charlotte, NC 28277, Attention: Investor Relations.
The RXO website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.
Role of the Board and Board Leadership Structure
The Nominating, Governance and Sustainability Committee is expected to routinely review our governance practices and board leadership structure to ensure that it continues to serve RXO’s best interests and the best interests of our stockholders.
As of the completion of the distribution, it is expected that Brad Jacobs will serve as RXO’s chairman. To ensure independent oversight and decision-making, RXO will also have a lead independent director and a vice chairman.
Under the Guidelines to be adopted in connection with the distribution, the independent directors will designate a lead independent director to, among other things, preside over meetings of the board of directors at which the chairman is not present and at executive sessions of the independent directors, and to serve as a liaison between the chairman and the independent directors. It is expected that Michelle Nettles will serve as the lead independent director as of the completion of the distribution.
Additionally, the board of directors will appoint a vice chairman responsible for, among other things, presiding at meetings of the board of directors where the chairman and lead independent director are not present; assisting the chairman, when appropriate, in carrying out his or her duties; assisting the lead independent director, when appropriate, in carrying out his or her duties; and such other duties, responsibilities and assistance as the board of directors or the chairman may determine. It is expected that Mary Kissel will serve as the vice chairman as of the completion of the distribution.
Executive Sessions
Following the completion of the distribution, our board of directors will hold regular and special meetings throughout each calendar year. In conjunction with those meetings, executive sessions, which are meetings of the independent directors, will be regularly scheduled throughout the year. Our lead independent director will preside over the executive sessions of the board.
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Board, Committee and Director Evaluations
The board will annually assess the effectiveness of the full board, the operations of its committees and the contributions of director nominees. The Nominating, Governance and Sustainability Committee will oversee the evaluation of the board as a whole and its committees, as well as individual evaluations of those directors who are being considered for possible re-nomination to the board.
Director Selection Process
The Nominating, Governance and Sustainability Committee will be responsible for recommending to our board all nominees for election to the board, including nominees for re-election to the board, in each case, after consultation with the chairman of the board. Subject to the foregoing, in considering new nominees for election to our board, the Nominating, Governance and Sustainability Committee will consider, among other things, breadth of experience, financial expertise, wisdom, integrity, an ability to make independent analytical inquiries, an understanding of our company’s business environment, knowledge and experience in such areas as technology and marketing, and other disciplines relevant to our company’s businesses, the nominee’s ownership interest in our company, and a willingness and ability to devote adequate time to board duties, all in the context of the needs of the board at that point in time and with the objective of ensuring diversity in the background, experience and viewpoints of board members. When searching for new directors, our board will endeavor to actively seek out highly qualified women and individuals from underrepresented minorities to include in the pool from which board nominees are chosen. Our board will aim to create a team of directors with diverse experiences and perspectives to provide our company with thoughtful and engaged board oversight. The Nominating, Governance and Sustainability Committee will assess the effectiveness of its diversity efforts through periodic evaluations of the board’s composition.
The Nominating, Governance and Sustainability Committee will be able to identify potential nominees for election to our board from a variety of sources, including recommendations from current directors or management, recommendations from our stockholders or any other source the committee deems appropriate, including engaging a third-party consulting firm to assist in identifying independent director nominees.
Our board will consider nominees submitted by our stockholders, subject to the same factors that are brought to bear when it considers nominees referred by other sources. Our stockholders will be permitted to nominate candidates for election as directors by following the procedures set forth in our amended and restated bylaws, which are summarized in the section “Description of Capital Stock” below.
Board Risk Oversight
Our board of directors will provide overall risk oversight, with a focus on the most significant risks facing our company. In addition, our board will be responsible for ensuring that appropriate crisis management and business continuity plans are in place. The management of risks to our business, and the execution of contingency plans, will be primarily the responsibility of our senior management team.
Our board and senior management team will regularly discuss the company’s business strategy, operations, policies, controls, prospects and current and potential risks. Our board will delegate responsibility for the oversight of specific risks to board committees as follows:
Audit Committee. The Audit Committee will oversee the policies that govern the process by which our exposure to risk is assessed and managed by management. In that role, the Audit Committee will be responsible for discussing with our management major financial risk exposures and the steps taken by management to monitor and control these exposures. The Audit Committee will also be responsible for reviewing risks arising from related party transactions involving our company and for overseeing our company-wide Code of Business Ethics and overall compliance with legal and regulatory requirements.
Compensation Committee. The Compensation Committee will monitor the risks associated with our compensation philosophy and programs to ensure that the company has a compensation structure that strikes an appropriate balance between motivating our senior executives to deliver long-term results for the company’s stockholders and simultaneously holding our senior leadership team accountable.
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Nominating, Governance and Sustainability Committee. The Nominating, Governance and Sustainability Committee will oversee risks related to our governance structure and processes.
Corporate Governance Guidelines and Code of Business Ethics
Our board of directors will remain committed to sound corporate governance principles and practices. The chairman of the board will provide support on key governance matters and stockholder engagement to the board, as well as providing strategic guidance to RXO’s executive management team.
The Guidelines will serve as a framework within which our board will conduct its operations. Among other things, the Guidelines will include criteria for determining the qualifications and independence of the members of our board, requirements for the standing committees of our board, responsibilities for members of our board and an annual evaluation of the effectiveness of our board and its committees. The Nominating, Governance and Sustainability Committee will be responsible for reviewing the Guidelines annually, or more frequently as appropriate, and recommending to our board appropriate changes in light of applicable laws and regulations, the governance standards identified by leading governance authorities and our company’s evolving needs.
Our Code of Business Ethics will apply to our directors and executive officers. This code will be designed to deter wrongdoing, to promote the honest and ethical conduct of all employees and to promote compliance with applicable governmental laws, rules and regulations, as well as to provide clear channels for reporting concerns. The Code of Business Ethics will constitute a “code of ethics” as defined in Item 406(b) of Regulation S-K. We intend to satisfy the disclosure requirements under applicable SEC rules relating to amendments to the Code of Business Ethics or waivers from any provision thereof applicable to our principal executive officer, our principal financial officer and our principal accounting officer by posting such information on our website pursuant to SEC rules.
The Guidelines and our Code of Business Ethics will be available on our website at [     ]. Copies of these documents will also be available in print form at no charge by sending a request to RXO, Inc., 11215 North Community House Road, Charlotte, NC 28277, Attention: Investor Relations.
Stockholder Communication with the Board
The Guidelines will include the policy on stockholder communications with the Board. Our website (at [     ]) will include procedures by which stockholders and other interested parties may communicate with our board of directors, any board committee, any individual director, including our lead independent director and vice chairman, or any group of directors (such as our independent directors) by sending written correspondence to: Board of Directors c/o Secretary, RXO, Inc., 11215 North Community House Road, Charlotte, NC 28277. We will not forward communications to the board that qualify as spam, junk mail, mass mailings, resumes or other forms of job inquiries, surveys, business solicitations or advertisements.
Procedures for Approval of Related Person Transactions
RXO will have a written Related Party Transaction Policy regarding the review, approval and ratification of transactions between RXO and related persons. The policy will apply to any transaction in which RXO or a RXO subsidiary is a participant, the amount involved exceeds $120,000 and a related person has a direct or indirect material interest. A related person will mean any director or executive officer of RXO, any nominee for director, any stockholder known to RXO to be the beneficial owner of more than 5% of any class of RXO’s voting securities, and any immediate family member of any such person.
Under this policy, reviews will be conducted by management to determine which transactions or relationships should be referred to the Audit Committee for consideration. The Audit Committee will then review the material facts and circumstances regarding a transaction and determine whether to approve, ratify, revise or reject a related person transaction, or to refer it to the full board or another committee of the board for consideration. RXO’s Related Party Transaction Policy will operate in conjunction with other aspects of RXO’s compliance program, including its Code of Business Ethics, which will require that all directors, officers and employees have a duty to be free from the influence of any conflict of interest when they represent RXO in negotiations or make recommendations with respect to dealings with third parties, or otherwise carry out their duties with respect to RXO.
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The board is expected to consider the following types of potential related person transactions and pre-approve them under RXO’s Related Party Transaction Policy as not presenting material conflicts of interest:
•employment of RXO executive officers (except employment of a RXO executive officer that is an immediate family member of another RXO executive officer, director, or nominee for director) as long as the Compensation Committee has approved the executive officers’ compensation;
•director compensation that the board has approved;
•transactions, such as the receipt of dividends, in which all stockholders receive proportional benefits;
•indebtedness arising from ordinary-course transactions such as the purchases of goods and services at market prices;
•transactions involving competitive bids;
•transactions involving the rendering of services as a common or contract carrier, or public utility, at rates or charges fixed in conformity with law or governmental authority; and
•ordinary course transactions involving the provision of certain financial services (e.g., by a bank depositary of funds, transfer agent, registrar, trustee under a trust indenture or similar services).
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EXECUTIVE COMPENSATION
As discussed elsewhere in this information statement, XPO is separating into two publicly traded companies, XPO and RXO. RXO is currently a subsidiary of XPO and is not yet an independent company, and its compensation committee has not yet been formed. Following the separation and distribution, RXO will have its own executive officers and its own compensation committee of the RXO board of directors(the “RXO Compensation Committee”). As of the date of this information statement, the following individuals are expected to serve as executive officers of RXO in the positions set forth below effective as of the separation and distribution:
•Drew Wilkerson, Chief Executive Officer
•Jamie Harris, Chief Financial Officer
•Jeff Firestone, Chief Legal Officer
If additional executive officers of RXO are identified prior to the effectiveness of the registration statement of which this information statement forms a part, then the disclosure in this section will be updated to include such identified executive officers.
This section discusses the compensation policies and practices that are expected to apply to the RXO executive officers after the separation and distribution. These policies and practices remain subject to the review and approval by the RXO Compensation Committee after the separation and distribution. This section also contains a description of certain RXO executive compensation arrangements that are expected to become effective upon the occurrence of separation and distribution.
Compensation Discussion & Analysis
Compensation Philosophy and Executive Compensation Program Objectives
XPO’s executive compensation philosophy is founded on the following core objectives, which we expect to be the core objectives of RXO’s compensation philosophy:
•Attract high-impact, results-oriented executives in a competitive job market who will contribute to XPO’s strategic goals, including maximizing stockholder value.
•Ensure that each executive receives total compensation that encourages his or her long-term retention through business and individual performance assessments.
•Maintain executive focus on the company’s top priorities of profitable growth, innovation, operational excellence and customer satisfaction, as well as increased focus on environmental, social and governance (“ESG”) matters, including employee safety and engagement.
•Set ambitious targets that incentivize our executives to responsibly drive long-term stockholder value creation.
•Align the interests of our executives with those of our stockholders by emphasizing high growth and high returns in our long-term, performance-based incentives.
•Incorporate stockholder feedback into the decision-making process of compensation committee of XPO (the “XPO Compensation Committee”).
Executive Compensation Governance Framework
Stock Ownership Policies
We believe that executive equity ownership in the company mitigates a number of risks, including risks related to executive attrition and undue risk-taking. It is expected that RXO’s executive stock ownership guidelines will
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initially be consistent with XPO’s executive stock ownership guidelines and will therefore be expressed as a multiple of each RXO named executive officer’s annual base salary as follows:
•Chief Executive Officer: 6x annual base salary
•Other RXO Named Executive Officers: 3x annual base salary
Compliance with RXO’s stock ownership guidelines will be determined using the aggregate count of shares of common stock held directly or indirectly by the RXO named executive officer, plus unvested restricted stock units subject solely to time-based vesting. Stock options, whether vested or unvested, and equity-based awards subject to performance-based vesting conditions, will not be counted toward meeting stock ownership guidelines until they have settled or been exercised, as applicable.
Until the stock ownership guidelines are met, a named executive officer is required to retain 70% of the net shares (after tax withholding) received upon settlement of equity-based awards. A newly appointed executive is required to reach his or her stock ownership guideline no later than five years from the date of appointment.
Process for Determining Executive Compensation
Role of the Compensation Committee
We expect that the RXO Compensation Committee will adopt a similar role to the role of the “XPO Compensation Committee” following the separation and distribution. The XPO Compensation Committee is responsible for approving XPO’s compensation practices and overseeing XPO’s executive compensation program in a manner consistent with XPO's compensation philosophy. The XPO Compensation Committee is tasked with: (i) reviewing the annual and long-term performance goals for XPO Executive Officers; (ii) approving awards under incentive compensation and equity-based plans; and (iii) approving all other compensation and benefits for XPO’s named executive officers. The XPO Compensation Committee acts independently but works closely with the full board of directors of XPO and executive management in making many of its decisions. To assist it in discharging its responsibilities, the XPO Compensation Committee has retained the services of an independent compensation consultant.
Role of Management
We expect RXO management will adopt a similar role in determination of executive compensation to the role of XPO management following the separation and distribution. Executive management provides input to the XPO Compensation Committee, including with respect to the XPO Compensation Committee's evaluation of executive compensation practices. The XPO Compensation Committee carefully and independently reviews the recommendations of management without members of management present and consults its independent advisor before making final determinations. XPO believes this process ensures that its executive compensation program effectively aligns with XPO's compensation philosophy and stockholder interests.
Peer Group
It is expected that the initial RXO peer group will be as set forth below, subject to the review and approval of the RXO Compensation Committee after the separation and distribution. This peer group reflects a group of companies with similar or adjacent business models, and that source talent from the same labor pools as RXO. In determining the peer group, the following criteria were used to identify the list of peer companies: (i) company is operating within the trucking, air freight or logistics industry and is competitive with RXO, (ii) company’s business includes brokerage, (iii) company is publicly-traded on a major U.S. stock exchange, and (iv) whether company is
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within a reasonable size range of RXO, with certain companies falling outside of that range based on industry relevance.
C. H. Robinson Worldwide, Inc.
Schneider National, Inc.
Uber Technologies, Inc. Old Dominion Freight Line, Inc.
Expeditors International of Washington, Inc.
Hub Group, Inc.
J.B. Hunt Transport Services, Inc.
Atlas Air Worldwide Holdings, Inc.
Ryder System, Inc.
ArcBest Corporation
Landstar System, Inc.
Lyft, Inc.
Knight-Swift Transportation Holdings Inc.
Werner Enterprises, Inc.
Executive Compensation Elements
It is expected that RXO’s executive compensation program will consist of four principal elements: (1) annual base salary, (2) annual short-term incentive, (3) long-term incentives, and (4) employee benefits and limited executive perquisites.
Annual Base Salary
Annual base salary provides a fixed incentive that corresponds to an executive’s experience and job scope. We expect that the RXO Compensation Committee will review annual base salaries for RXO’s executive officers each year in order to ensure alignment with current market levels. The annual base salary of each identified RXO executive officer that is expected to be in effect as of immediately following the distribution is set forth in the table below.
Executive OfficerAnnual Base Salary
Drew Wilkerson, Chief Executive Officer$650,000
Jamie Harris, Chief Financial Officer$600,000
Jeff Firestone, Chief Legal Officer$525,000
Annual Short-Term Incentive
Each RXO named executive officer is eligible for an annual short-term incentive payment. The table below reflects the 2023 annual short-term incentive opportunity of each identified RXO executive officer.
Executive OfficerBase SalaryTarget Opportunity (as a percentage of base salary)Target OpportunityMaximum Bonus Opportunity
Drew Wilkerson, Chief Executive Officer$650,000135%$877,5002x target
Jamie Harris, Chief Financial Officer$600,000100%$600,0002x target
Jeff Firestone, Chief Legal Officer$525,000100%$525,0002x target
We expect that, subject to review and approval by the RXO Compensation Committee, RXO will maintain a 2023 short-term incentive program that utilizes a balanced scorecard of weighted company performance metrics, currently anticipated to consist of:
•70% weighted, adjusted EBITDA growth (year-over-year); and
•30% weighted, volume growth (year-over-year).
We expect that for the 2023 performance year, each performance metric must equal or exceed 90% of target performance in order for each named executive officer to become eligible for a short term incentive award, assuming they remained employed on the payment date. We expect that 2023 short-term incentives would pay out at 50% of
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the target opportunity at a 90% target performance level with upward potential up to a maximum of 200% of the target opportunity for a 120% target performance level. The actual performance goals for each metric and the corresponding payout curve will be confirmed by the RXO Compensation Committee after the separation and distribution.
Long-Term Incentives
In May 2022, Mr. Wilkerson was granted an XPO equity award consisting of performance-based stock units relating to XPO common stock (the “Wilkerson Incentive Grant”) with a grant value of $7,500,000 that will vest in installments over the five-year period following the grant date, contingent upon (i) the occurrence of the separation and distribution by December 31, 2022 (which date was subsequently changed to March 31, 2023 through an amendment of the award terms) and (ii) Mr. Wilkerson’s continuous employment with XPO (and RXO after the separation and distribution) through each applicable vesting date. In connection with commencement of employment with XPO, Mr. Harris received a performance-based restricted stock unit award with a grant value of $4,000,000 (the “Harris Incentive Grant”) and Mr. Firestone received a performance-based restricted stock unit award with a grant value of $2,000,000 (the “Firestone Incentive Grant”), in each case, with the same terms and conditions as the Wilkerson Incentive Grant (including the requirement that the separation and distribution occur by March 31, 2023).
Treatment of such XPO performance-based restricted stock unit awards in connection with the separation and distribution is described under “The Separation and Distribution—Treatment of Equity-Based Compensation.”
It is expected that Mr. Wilkerson and other executive officers of RXO will be eligible for additional long-term incentive awards, to be determined and approved by the RXO Compensation Committee following the separation and distribution. Pursuant to their offer letters, Mr. Harris and Mr. Firestone are eligible for annual long-term incentive awards in the amount of $1,350,000 for Mr. Harris and $1,000,000 for Mr. Firestone.
Employee Benefits and Limited Executive Perquisites
We expect RXO to offer a variety of health and welfare programs to all eligible employees, including the RXO named executive officers. The RXO named executive officers will be eligible for the same health and welfare benefit programs that apply to, on the same basis as, the rest of our employees, including medical and dental care coverage, life insurance coverage and short and long-term disability.
We expect to limit the use of perquisites as a method of compensation and provide executive officers with only those perquisites that we believe are reasonable and consistent with our compensation goal of enabling us to attract and retain superior executives for key positions.
Going Forward RXO Compensation Arrangements
XPO has entered into, or expects to enter into, an offer letter with each of the identified RXO executive officers. These offer letters will be assigned to RXO and will become effective as of the separation and distribution. The material terms of these letters are described below.
In connection with the separation and distribution, it is expected that RXO will adopt an executive severance plan (described below) and the 2022 Omnibus Incentive Compensation Plan (which is described in this information statement under the heading “RXO 2022 Omnibus Incentive Compensation Plan”), each of which will be effective for RXO upon the separation and distribution. Following the separation and distribution, the RXO Compensation Committee will consider and develop RXO’s compensation programs, plans, philosophy and practices, consistent with RXO’s business needs and goals.
Offer Letter with RXO Chief Executive Officer
The offer letter with Drew Wilkerson would become effective upon, and subject to the occurrence of, the separation and distribution and provides for Mr. Wilkerson to serve as Chief Executive Officer of RXO and to receive an annual compensation package consisting of a base salary of $650,000 and a target annual bonus award of 135% of base salary. In addition, the offer letter refers to the grant of the Wilkerson Incentive Grant and
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contemplates eligibility for additional long-term incentive awards, the amount, form and timing of which will be determined by the RXO Compensation Committee following the separation and distribution.
Offer Letter with RXO Chief Financial Officer
XPO has entered into an offer letter with Jamie Harris that provides that Mr. Harris will serve, (i) initially, as Chief Financial Officer, NAT at XPO and (ii) effective upon, and subject to the occurrence of, the separation and distribution, as Chief Financial Officer of RXO. The offer letter provides for Mr. Harris to receive an annual compensation package consisting of a base salary of $600,000 and a target annual bonus award of 100% of base salary. In addition, the offer letter refers to the grant of the Harris Incentive Grant and contemplates eligibility for additional long-term incentive awards with a target grant value of $1,350,000, the form and timing of which will be determined by the RXO Compensation Committee following the separation and distribution.
Offer Letter with RXO Chief Legal Officer
XPO has entered into an offer letter with Jeff Firestone that provides that Mr. Firestone will serve, (i) initially, as Chief Legal Officer, NAT at XPO and (ii) effective upon, and subject to the occurrence of, the separation and distribution, as Chief Legal Officer of RXO. The offer letter provides for Mr. Firestone to receive an annual compensation package consisting of a base salary of $525,000 and a target annual bonus award of 100% of base salary. In addition, the offer letter refers to the grant of the Firestone Incentive Grant and contemplates eligibility for additional long-term incentive awards with a target grant value of $1,000,000, the form and timing of which will be determined by the RXO Compensation Committee following the separation and distribution.
RXO Severance Plan
It is expected that RXO will adopt a severance plan that will become effective upon, and subject to, the occurrence of, the separation and distribution. The eligible participants under the severance plan would include the named executive officers of RXO and its other executive officers and key members of executive management.
Pursuant to the severance plan, any RXO executive officer whose employment is terminated without “cause” at any time other than within the two years following a “change in control” (as such terms are defined in the severance plan) of RXO, would be entitled to receive (subject to the officer’s execution of a release of claims in favor of RXO and continuing compliance with the officer’s confidential information protection agreement that includes restrictive covenants relating to confidentiality, ownership of intellectual property, non-hire and non-solicitation of employees, non-solicitation of customers, non-competition and non-disparagement):
•continuation of annual base salary for 18 months (for the Chief Executive Officer) or 12 months (for other executive officers);
•a prorated target annual bonus for the year of termination (the “Prorated Bonus”); and
•up to 18 months (for the Chief Executive Officer) or 12 months (for other executive officers) of healthcare benefit coverage continuation at the active employee rate for healthcare benefit coverage or a cash payment in lieu thereof (the “Healthcare Benefit”).
Pursuant to the severance plan, any RXO executive officer whose employment is terminated without “cause” or who resigns for “good reason” on, or within the two years following, a “change in control” (as such terms are defined in the severance plan) of RXO, would be entitled to receive (subject to the officer’s execution of a release of claims in favor of RXO and continuing compliance with the officer’s confidential information protection agreement, service agreement, or other similar contractual obligations):
•a lump sum cash severance payment equal to two and one-half times (for the Chief Executive Officer) and two times (for other executive officers) the sum of (a) the officer’s annual base salary and (b) the officer’s target annual bonus;
•the Prorated Bonus; and
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•the Healthcare Benefit.
The severance plan provides that, in the event that the payments and benefits to a named executive officer in connection with a change in control, whether pursuant to the severance plan or otherwise, would be subject to the golden parachute excise tax imposed under Sections 280G and 4999 of the Code, then the officer will either receive all such payments and benefits and pay the excise tax, or such payments and benefits will be reduced to the extent necessary so that the excise tax does not apply, whichever approach results in a higher after-tax amount of the payments and benefits being retained by the officer.
Cash severance payable under the severance plan will be offset by any other severance payments to which the officer is entitled in respect of the applicable termination of employment, including pursuant to the RXO confidential information protection agreement, as applicable, which provides for payments of the RXO executive officer’s base salary for the duration of his or her post-termination non-compete period.
Executive Compensation Tables
As none of our executive officers were previously serving as executive officers of XPO in 2021, there are no executive compensation tables provided.
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DIRECTOR COMPENSATION
The initial RXO non-employee director compensation program is designed to enable ongoing attraction and retention of highly qualified directors and to address the time, effort, expertise and accountability required of active RXO board membership. This program is described in further detail below. Following the separation and distribution, the director compensation program will be subject to the review and approval of the board of directors or a committee thereof.
Treatment of outstanding XPO equity-based compensation awards held by RXO non-employee directors in connection with the distribution is described under “The Separation and Distribution—Treatment of Equity-Based Compensation.”
The RXO annual non-employee director compensation program will initially consist of the following: (i) an annual cash retainer of $80,000, payable quarterly in arrears, and (ii) an annual grant of time-based restricted stock units with a target value of $190,000, which will generally be granted on the first business day of the calendar year (starting with calendar year 2023) and vest on the later of the first anniversary of grant or the first business day of the following calendar year, subject to continued service on RXO’s board of directors on the vesting date. It is expected that the number of shares of RXO common stock subject to each award will be determined by dividing $190,000 by the average of the closing prices of RXO’s common stock on the ten trading days immediately preceding the grant date.
The vice chairman of the board of directors will receive an additional annual cash retainer of $25,000, payable quarterly in arrears. The lead independent director also will receive an additional $25,000 annual cash retainer, payable quarterly in arrears. The chairperson of each of the board’s Audit Committee, Compensation Committee, and Nominating, Governance and Sustainability Committee will receive an additional cash retainer of $25,000, $20,000 and $20,000, respectively, payable quarterly in arrears.
No other fees will be paid to directors for their attendance at or participation in meetings of the RXO board of directors or its committees. RXO will reimburse directors for expenses incurred in the performance of their duties, including reimbursement for air travel and hotel expenses.
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RXO 2022 OMNIBUS INCENTIVE COMPENSATION PLAN
The material terms of the RXO 2022 Omnibus Incentive Compensation Plan (the “Plan”) are summarized below. This summary does not contain all information about the Plan. This summary is qualified in its entirety by reference to, and should be read together with the full text of the Plan.
Types of Awards
The Plan provides for the grant of options intended to qualify as incentive stock options (“ISOs”) under Section 422 of the Code, nonqualified stock options (“NSOs”), stock appreciation rights (“SARs”), restricted share awards, restricted stock units (“RSUs”), performance awards, cash incentive awards, deferred share units and other equity-based and equity-related awards, as well as cash-based awards.
Plan Administration
The Plan is administered by the RXO Compensation Committee or such other committee the RXO board of directors designates to administer the Plan (the “Committee”). Subject to the terms of the Plan and applicable law, the Committee has sole authority to administer the Plan, including, but not limited to, the authority to (1) designate plan participants, (2) determine the type or types of awards to be granted to a participant, (3) determine the number of shares of RXO common stock to be covered by awards, (4) determine the terms and conditions of awards, (5) determine the vesting schedules of awards and, if certain performance criteria were required to be attained in order for an award to vest or be settled or paid, establish such performance criteria and certify whether, and to what extent, such performance criteria have been attained, (6) interpret, administer, reconcile any inconsistency in, correct any default in and/or supply any omission in, the Plan, (7) establish, amend, suspend or waive such rules and regulations and appoint such agents as it should deem appropriate for the proper administration of the Plan, (8) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, awards, and (9) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
Shares Available For Awards
Subject to adjustment for changes in capitalization, there are [           ] shares of RXO common stock, in the aggregate, that are currently authorized for delivery pursuant to awards granted under the Plan, [           ] shares of which may be granted pursuant to ISOs. Awards that are settled in cash do not reduce the number of shares available for delivery under the Plan. If any award granted under the Plan is forfeited, or otherwise expires, terminates or is canceled without the delivery of all shares subject thereto, then the number of shares subject to such award that were not issued are not treated as issued for purposes of reducing the maximum aggregate number of shares that may be delivered pursuant to the Plan.
Notwithstanding the foregoing, and for the avoidance of doubt, shares that were surrendered or tendered to us in payment of the exercise price of an award (including with respect to stock-settled SARs) or any taxes required to be withheld in respect of an award and awards based on the fair market value of a share that are settled other than by the delivery of shares (including cash settlement) do not become available again to be delivered pursuant to awards under the Plan or increase the number of shares that may be delivered pursuant to ISOs under the Plan. The maximum value of shares of RXO common stock that are available to be granted pursuant to awards to any non-employee director in the Plan in any fiscal year is $[          ] as of the date of grant, provided that such limit will not apply to equity-based compensation awards issued in connection with the adjustment of outstanding XPO equity-based compensation awards upon the distribution.
Changes in Capitalization
In the event of any extraordinary dividend or other extraordinary distribution, recapitalization, rights offering, stock split, reverse stock split, split-up or spin-off affecting the shares of RXO common stock, the Committee shall make equitable adjustments and other substitutions to the Plan and awards under the Plan in the manner it determined to be appropriate or desirable. In the event of any reorganization, merger, consolidation, combination, repurchase or exchange of RXO common stock or other similar corporate transactions, the Committee in its
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discretion is permitted to make such adjustments and other substitutions to the Plan and awards under the Plan as it deems appropriate or desirable.
Substitute Awards
The Committee is permitted to grant awards in assumption of, or in substitution for, outstanding awards previously granted by RXO or any of its affiliates or a company that RXO acquired or with which RXO combined. Any shares issued by RXO through the assumption of or substitution for outstanding awards granted by a company that RXO acquired do not reduce the aggregate number of shares of RXO common stock available for awards under the Plan, except that awards issued in substitution for ISOs will reduce the number of shares of RXO common stock available for ISOs under the Plan.
Source of Shares
Any shares of RXO common stock issued under the Plan consist, in whole or in part, of authorized and unissued shares or of treasury shares.
Eligible Participants
Directors, officers, employees and consultants (including any prospective directors, officers, employees and consultants) of RXO and its affiliates are eligible to receive awards under the Plan.
Stock Options
The Committee is permitted to grant both ISOs and NSOs under the Plan. The exercise price for stock options may not be less than the fair market value (as defined in the Plan) of RXO common stock on the grant date. The Committee may not reprice any stock option granted under the Plan without the approval of RXO stockholders. All stock options granted under the Plan are NSOs unless the applicable award agreement expressly stated that the stock option was intended to be an ISO. Subject to the provisions of the Plan (including the minimum vesting period described below) and the applicable award agreement, the Committee determines, at or after the grant of a stock option, the vesting criteria, term, methods of exercise and any other terms and conditions of any stock option. Unless otherwise set forth in the applicable award agreement, each stock option expires upon the earlier of (i) the tenth anniversary of the date the stock option was granted and (ii) three months after the participant who was holding the stock option ceased to be a director, officer, employee or consultant for RXO, or one of its affiliates. The exercise price is permitted to be paid with cash (or its equivalent) or, in the sole discretion of the Committee, with previously acquired shares of RXO common stock or through delivery of irrevocable instructions to a broker to sell RXO common stock otherwise deliverable upon the exercise of the stock option (provided that there was a public market for RXO common stock at such time), or, in the sole discretion of the Committee, a combination of any of the foregoing, provided that the combined value of all cash and cash equivalents and the fair market value of any such shares so tendered to us as of the date of such tender, together with any shares withheld by us in respect of taxes relating to a stock option, was at least equal to such aggregate exercise price.
Stock Appreciation Rights
The Committee is permitted to grant SARs under the Plan. The exercise price for SARs may not be less than the fair market value (as defined in the Plan) of RXO common stock on the grant date. The Committee may not reprice any SAR granted under the Plan without the approval of RXO stockholders. Upon exercise of a SAR, the holder receives cash, shares of RXO common stock, other securities, other awards, other property or a combination of any of the foregoing, as determined by the Committee, equal in value to the excess, if any, of the fair market value of a share of RXO common stock on the date of exercise of the SAR over the exercise price of the SAR. Subject to the provisions of the Plan (including the minimum vesting period described below) and the applicable award agreement, the Committee determines, at or after the grant of a SAR, the vesting criteria, term, methods of exercise, methods and form of settlement and any other terms and conditions of any SAR. Unless otherwise set forth in the applicable award agreement, each SAR expires upon the earlier of (i) the tenth anniversary of the date the SAR was granted and (ii) three months after the participant who was holding the SAR ceased to be a director, officer, employee or consultant for RXO or one of its affiliates. Under certain circumstances, the Committee has the ability to substitute,
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without the consent of the affected participant, SARs for outstanding NSOs. No SAR granted under the Plan could be exercised more than 10 years after the date of grant.
Restricted Shares and Restricted Stock Units
Subject to the provisions of the Plan, the Committee is permitted to grant restricted shares and RSUs. Restricted shares and RSUs are not permitted to be sold, assigned, transferred, pledged or otherwise encumbered except as provided in the Plan or the applicable award agreement, except that the Committee may determine that restricted shares and RSUs are permitted to be transferred by the participant for no consideration. Restricted shares may be evidenced in such manner as the Committee determines.
An RSU is granted with respect to one share of RXO common stock or has a value equal to the fair market value of one such share. Upon the lapse of restrictions applicable to an RSU, the RSU may be paid in cash, shares of RXO common stock, other securities, other awards or other property, as determined by the Committee, or in accordance with the applicable award agreement. In connection with each grant of restricted shares, except as provided in the applicable award agreement, the holder is entitled to the rights of a stockholder (including the right to vote and receive dividends) in respect of such restricted shares. The Committee is permitted to, on such terms and conditions as it might determine, provide a participant who holds RSUs with dividend equivalents, payable in cash, shares of RXO common stock, other securities, other awards or other property.
Performance Awards
Subject to the provisions of the Plan, the Committee is permitted to grant awards under the Plan that are conditioned on the achievement of performance goals established by the Committee. In its discretion, the Committee sets performance goals that, depending on the extent to which they were met during a specified performance period, determine the number of shares of RXO common stock and/or amount of cash or other property that are paid out to the participant. The Committee, in its sole discretion, is permitted to pay earned performance awards in the form of cash, shares of RXO common stock or other property or any combination thereof that has an aggregate fair market value equal to the value of the earned performance units at the close of the applicable performance period. The determination of the Committee with respect to the form and timing of payout of performance units is set forth in the applicable award agreement. The Committee is permitted to, on such terms and conditions as it might determine, provide a participant who holds performance units with dividends or dividend equivalents, payable in cash, shares of RXO common stock, other securities, other awards or other property.
Cash Incentive Awards
Subject to the provisions of the Plan, the Committee is permitted to grant cash incentive awards to participants. In its discretion, the Committee determines the number of cash incentive awards to be awarded, the duration of the period in which, and any condition under which, the cash incentive awards vest or are forfeited, and any other terms and conditions applicable to the cash incentive awards. Subject to the provisions of the Plan, the holder of a cash incentive award may receive payment based on the number and value of the cash incentive award earned, which is determined by the Committee, in its discretion, based on the extent to which performance goals or other conditions applicable to the cash incentive award have been achieved.
Other Stock-Based Awards
Subject to the provisions of the Plan, the Committee is permitted to grant to participants other equity-based or equity-related compensation awards, including vested stock, which shall be granted pursuant to the five percent limit described below under the header “Minimum Vesting Period.” The Committee is permitted to determine the amounts and terms and conditions of any such awards.
Assumed XPO Awards
Notwithstanding any provisions in the Plan to the contrary, each XPO equity award that is assumed by RXO in the distribution shall be subject to the terms and conditions of the equity compensation plan and award agreement to
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which such equity award was subject immediately prior to the distribution, subject to the adjustment of such equity award by the XPO Compensation Committee and the terms of the Employee Matters Agreement.
Clawbacks
The Company may clawback awards provided to eligible employees to the extent required by applicable law and as otherwise determined by the Compensation Committee and set forth in an award agreement.
Minimum Vesting Period
The Plan is subject to a designated vesting period of at least one year following the date of grant, except that up to five percent of shares available for grant under the Plan may be granted without regard to this requirement. Such minimum vesting period does not apply to equity-based compensation awards issued in connection with the adjustment of outstanding XPO equity-based compensation awards upon the distribution.
Amendment and Termination
Subject to any applicable law or government regulation and to the rules of the applicable national stock exchange or quotation system on which the shares of RXO common stock may be listed or quoted, the Plan may be amended, modified or terminated by the RXO Board without the approval of RXO stockholders, except that stockholder approval is required for any amendment that: (i) increases the maximum number of shares of RXO common stock available for awards under the Plan or increases the maximum number of shares of RXO common stock that could be delivered pursuant to ISOs granted under the Plan, (ii) changes the class of employees or other individuals eligible to participate in the Plan, (iii) amends or decreases the exercise price of any option or SAR, (iv) cancels or exchanges any option or SAR at a time when its exercise price exceeds the fair market value of the underlying shares, (v) allows repricing of any option or SAR without stockholder approval, or (vi) constitutes a material increase in the benefits to be provided to eligible employees within the meaning of the NYSE rules as of the date hereof. Under these provisions, stockholder approval is not to be required for all possible amendments that might increase the cost of the Plan. No modification, amendment or termination of the Plan that materially and adversely impairs the rights of any participant is effective without the consent of the affected participant, unless otherwise provided by the Committee in the applicable award agreement.
The Committee is permitted to waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate any award previously granted under the Plan, prospectively or retroactively. However, unless otherwise provided by the Committee in the applicable award agreement or in the Plan, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that materially and adversely impairs the rights of any participant to any award previously granted is not effective without the consent of the affected participant.
The Committee is authorized to make adjustments in the terms and conditions of awards in the event of any unusual or nonrecurring corporate event (including the occurrence of a change of control of RXO) affecting RXO, any of its affiliates or the financial statements of RXO or any of its affiliates, or of changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange, accounting principles or law whenever the RXO Committee, in its discretion, determined that those adjustments were appropriate or desirable, including providing for the substitution or assumption of awards, accelerating the exercisability of, lapse of restrictions on, or termination of, awards or providing for a period of time for exercise prior to the occurrence of such event and, in its discretion, the RXO Committee is permitted to provide for a cash payment to the holder of an award in consideration for the cancellation of such award.
Change of Control
The Plan provides that, unless otherwise provided in an award agreement, in the event of a change of control of RXO, awards will be assumed and replaced by awards of equivalent value in connection with the change of control and such assumed awards will have so-called “double trigger” vesting provisions, such that the awards will vest in full and become immediately exercisable upon qualifying terminations of employment during the two-year period
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following the change of control. However, in the event that awards are not replaced with awards of equivalent value the vesting of the awards will generally accelerate immediately prior to the change of control.
Unless otherwise provided pursuant to an award agreement, a change of control is defined to mean any of the following events, generally:
•during any period, a change in the composition of a majority of the board of directors, as constituted on the first day of such period, that was not supported by a majority of the incumbent board of directors;
•consummation of certain mergers or consolidations of RXO with any other corporation following which RXO stockholders hold 50% or less of the combined voting power of the surviving entity;
•the stockholders approve a plan of complete liquidation or dissolution of RXO; or
•an acquisition by any individual, entity or group of beneficial ownership of a percentage of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors that was equal to or greater than 30%.
Although award agreements may provide for a different definition of change of control than is provided for in the Plan, except in the case of a transaction described in the third bullet above, any definition of change of control set forth in any award agreement must provide that a change of control will not occur until consummation or effectiveness of a change of control of RXO, rather than upon the announcement, commencement, stockholder approval or other potential occurrence of any event or transaction that, if completed, will result in a change of control of RXO.
Term of the Plan
Prior to the distribution, the Plan was approved by the RXO Board and by XPO as the sole shareowner of RXO. No award may be granted under the Plan more than ten years after the distribution and no ISO may be granted after the tenth anniversary of shareholder approval.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Agreements with XPO
Following the separation and distribution, RXO and XPO will each operate separately as an independent public company. In connection with the separation, RXO will enter into a separation agreement with XPO to effect the separation and to provide a framework for RXO’s relationship with XPO after the separation and will enter into certain other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement and an intellectual property license agreement. These agreements will provide for the allocation between RXO and XPO of the assets, employees, liabilities and obligations (including, among others, investments, property and employee benefits, insurance and tax-related assets and liabilities) of XPO and its subsidiaries attributable to periods prior to, at and after the separation and will govern the relationship between RXO and XPO subsequent to the completion of the separation.
The material agreements described below will be filed as exhibits to the registration statement on Form 10 of which this information statement is a part. The summaries of each of these agreements set forth below are qualified in their entireties by reference to the full text of the applicable agreements, which are incorporated by reference into this information statement.
Separation Agreement
Transfer of Assets and Assumption of Liabilities
The separation agreement will identify the assets to be transferred, the liabilities to be assumed and the contracts to be transferred to each of RXO and XPO as part of the separation of XPO into two independent companies, and will provide for when and how these transfers and assumptions will occur. In particular, the separation agreement will provide that, among other things, subject to the terms and conditions contained therein:
•certain assets related to the RXO Businesses (“RXO Assets”) will be retained by or transferred to RXO or one of its subsidiaries, including:
◦equity interests in certain RXO subsidiaries that hold assets of the RXO Businesses;
◦the RXO brands, certain other trade names and trademarks, and certain other intellectual property (including patents, know-how and trade secrets), software, information and technology allocated to RXO pursuant to the separation agreement;
◦certain real property either owned or leased by XPO, RXO or one of their subsidiaries set forth in the separation agreement;
◦certain contracts exclusively related to the RXO Businesses;
◦other assets and rights expressly allocated to RXO pursuant to the terms of the separation agreement or certain other agreements entered into in connection with the separation;
◦permits that are primarily used or held for use in the RXO Businesses; and
◦other assets that are included in RXO’s pro forma balance sheet, included in RXO’s Unaudited Pro Forma Condensed Combined Financial Information, which appear in the section titled “Unaudited Pro Forma Condensed Combined Financial Information”;
•certain liabilities related to the RXO Businesses or the RXO Assets, which we refer to as the “RXO Liabilities,” will be retained by or transferred to RXO; and
•all of the assets (including cash and cash equivalents) and liabilities (including whether accrued, contingent or otherwise) other than the RXO Assets and the RXO Liabilities (such assets and liabilities, other than the RXO Assets and the RXO Liabilities, we refer to as the “XPO Assets” and “XPO Liabilities,” respectively) will be retained by or transferred to XPO.
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Except as expressly set forth in the separation agreement or any ancillary agreement, neither of RXO nor XPO will make any representation or warranty as to the assets, business or liabilities transferred or assumed as part of the separation, as to any approvals or notifications required in connection with the transfers, as to the value of or the freedom from any security interests of any of the assets transferred, as to the absence or presence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other asset of either of RXO or XPO, or as to the legal sufficiency of any document or instrument delivered to convey title to any asset or thing of value to be transferred in connection with the separation. All assets will be transferred on an “as is,” “where is” basis, and the respective transferees will bear the economic and legal risks that any conveyance will prove to be insufficient to vest in the transferee good and marketable title, free and clear of all security interests, that any necessary consents or governmental approvals are not obtained, or that any requirements of law, agreements, security interests or judgments are not complied with.
Information in this information statement with respect to the assets and liabilities of the parties following the distribution is presented based on the allocation of such assets and liabilities pursuant to the separation agreement, unless the context otherwise requires. The separation agreement will provide that in the event that the transfer of certain assets and liabilities (or a portion thereof) to RXO or XPO, as applicable, does not occur prior to the separation, then until such assets or liabilities (or a portion thereof) are able to be transferred, RXO or XPO, as applicable, will hold such assets on behalf and for the benefit of the transferee at the expense of the transferee.
The Distribution
The separation agreement will also govern the rights and obligations of the parties regarding the distribution following the completion of the separation. On the distribution date, XPO will distribute to its stockholders that hold XPO common stock as of the record date for the distribution of all of the issued and outstanding shares of RXO common stock on a pro rata basis. XPO will not distribute any fractional shares of RXO common stock.
Conditions to the Distribution
The separation agreement will provide that the distribution is subject to satisfaction (or waiver by XPO in its sole and absolute discretion) of certain conditions. These conditions are described under “The Separation and Distribution—Conditions to the Distribution.” XPO will have the sole and absolute discretion to determine (and change) the terms of, and to determine whether to proceed with, the distribution and, to the extent that it determines to so proceed, to determine the record date for the distribution, the distribution date and the distribution ratio.
Claims
In general, each party to the separation agreement will assume liability for all pending, threatened and unasserted legal matters related to its own business or its assumed or retained liabilities and will indemnify the other party for any liability to the extent arising out of or resulting from such assumed or retained legal matters.
Releases
The separation agreement will provide that, except as expressly set forth in the separation agreement, RXO and its affiliates will release and discharge XPO and its affiliates from all liabilities assumed by RXO as part of the separation, all liabilities arising from or in connection with the transactions and activities to implement the separation and distribution, and all liabilities arising out of acts and events occurring or failing to occur, and all conditions existing, on or before the effective time of the distribution, in each case to the extent relating to the RXO Businesses, the assets transferred to RXO as part of the separation or the liabilities assumed by RXO as part of the separation. The separation agreement will further provide that, except as expressly set forth in the separation agreement, XPO and its affiliates will release and discharge RXO and its affiliates from all liabilities retained by XPO as part of the separation, all liabilities arising from or in connection with the transactions and activities to implement the separation and distribution, and from all liabilities arising out of acts and events occurring or failing to occur, and all conditions existing, on or before the effective time of the distribution, in each case to the extent relating to the businesses conducted by XPO, except the RXO Businesses, the assets retained by XPO as part of the separation or the liabilities retained by XPO as part of the separation.
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These releases will not extend to obligations or liabilities under any agreements between the parties that remain in effect or are entered into between the parties following the separation, which agreements include the separation agreement and the other agreements described under “Certain Relationships and Related Party Transactions.”
Indemnification
In the separation agreement, RXO will agree to indemnify, defend and hold harmless XPO, each of XPO’s controlled affiliates and each of their respective directors, officers and employees, from and against all liabilities to the extent relating to, arising out of or resulting from:
•the RXO Liabilities;
•RXO’s failure or the failure of any other person to pay, perform or otherwise promptly discharge in accordance with their respective terms any of the RXO Liabilities, whether prior to, at or after the effective time of the distribution;
•any guarantee, indemnification or contribution obligation in respect of a RXO Liability that is provided by XPO for the benefit of RXO and that survives the distribution;
•any breach by RXO of the separation agreement or any of the ancillary agreements; and
•any untrue statement or alleged untrue statement or omission or alleged omission of material fact in the Form 10 or in this information statement (as amended or supplemented), except for any such statements or omissions made explicitly in XPO’s name.
XPO will agree to indemnify, defend and hold harmless RXO, each of RXO’s controlled affiliates and each of their respective directors, officers and employees from and against all liabilities to the extent relating to, arising out of or resulting from:
•the XPO Liabilities;
•the failure of XPO or any other person to pay, perform or otherwise promptly discharge in accordance with their respective terms any of the XPO Liabilities, whether prior to, at or after the effective time of the distribution;
•any guarantee, indemnification or contribution obligation in respect of an XPO Liability that is provided by RXO for the benefit of XPO and that survives the distribution;
•any breach by XPO of the separation agreement or any of the ancillary agreements; and
•any untrue statement or alleged untrue statement or omission or alleged omission of a material fact made explicitly in XPO’s name in the Form 10 or in this information statement (as amended or supplemented).
The separation agreement will also establish procedures with respect to claims subject to indemnification and related matters.
Indemnification with respect to taxes, and the procedures related thereto, will be governed by the tax matters agreement.
Non-Compete
The separation agreement will contain a covenant not to compete, prohibiting, subject to certain customary exceptions: (i) RXO and its subsidiaries from engaging in the XPO retained businesses, and (ii) XPO and its subsidiaries from engaging in the RXO Businesses, in each case for a period of two years following the distribution date.
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Insurance
The separation agreement will provide for the allocation between the parties of rights and obligations under existing insurance policies with respect to claims covered by XPO’s insurance prior to the distribution and set forth procedures for the administration of insured claims and related matters.
Further Assurances
In addition to the actions specifically provided for in the separation agreement, except as otherwise set forth therein or in any ancillary agreement, RXO and XPO will agree in the separation agreement to use reasonable best efforts, prior to, on and after the distribution date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by the separation agreement and the ancillary agreements.
Dispute Resolution
The separation agreement will contain provisions that govern, except as otherwise provided in any ancillary agreement, the resolution of disputes, controversies or claims that may arise between RXO and XPO related to the separation or distribution and that are unable to be resolved through good faith negotiations between RXO and XPO. These provisions will contemplate that efforts will be made to resolve disputes, controversies and claims by escalation of the matter to executives of the parties in dispute. If such efforts are not successful, one of the parties in dispute may submit the dispute, controversy or claim to binding alternative dispute resolution, subject to the provisions of the separation agreement.
Expenses
Except as expressly set forth in the separation agreement or in any ancillary agreement, XPO will be responsible for all costs and expenses incurred in connection with the separation incurred prior to the distribution date, including costs and expenses relating to legal and tax counsel, financial advisors and accounting advisory work related to the separation. Except as expressly set forth in the separation agreement or in any ancillary agreement, or as otherwise agreed in writing by RXO and XPO, all costs and expenses incurred in connection with the separation after the distribution will be paid by the party incurring such cost and expense.
Amendment and Termination
The separation agreement will provide that it may be terminated, and the separation and distribution may be modified or abandoned, at any time prior to the distribution date in the sole and absolute discretion of the XPO board of directors without the approval of any person, including RXO or XPO stockholders. In the event of a termination of the separation agreement, no party, nor any of its directors, officers or employees, will have any liability of any kind to the other parties or any other person. After the distribution date, the separation agreement may not be amended or terminated, except by an agreement in writing signed by both RXO and XPO.
Transition Services Agreement
RXO and XPO will enter into a transition services agreement in connection with the separation pursuant to which RXO and XPO and their respective affiliates will provide each other, on an interim, transitional basis, various services, such as, employee benefits administration, information technology services, regulatory services, accounting support, general administrative services and other support services. The agreed-upon charges for such services are generally intended to allow the servicing party to charge a price comprised of out-of-pocket costs and expenses and a predetermined profit in the form of a mark-up of such out-of-pocket expenses. The party receiving each transition service will be provided with reasonable information that supports the charges for such transition service by the party providing the service.
The services generally will commence on the distribution date and terminate no later than eight months following the distribution date, subject in certain circumstances to an extension of up to three months. The receiving party may terminate any services by giving prior written notice to the provider of such services and paying any applicable wind-down charges.
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Subject to certain exceptions, the liabilities of each party providing services under the transition services agreement will generally be limited to the aggregate charges actually paid to such party by the other party pursuant to the transition services agreement. The transition services agreement also will provide that the provider of a service will not be liable to the recipient of such service for any special, indirect, incidental or consequential damages.
Tax Matters Agreement
In connection with the separation, RXO and XPO will enter into a tax matters agreement that will govern the parties’ respective rights, responsibilities and obligations with respect to taxes (including responsibility for taxes, entitlement to refunds, allocation of tax attributes, preparation of tax returns, control of tax contests and other tax matters).
Under the tax matters agreement, XPO generally will be responsible for all U.S. federal income taxes imposed on the XPO consolidated tax return group and state and foreign income, franchise, capital gain, withholding and similar taxes imposed on a consolidated, combined or unitary tax return group (or similar tax group under non-U.S. law) that includes XPO or one of its subsidiaries with respect to taxable periods (or portions thereof) that end on or prior to the distribution date, except: (i) special rules will apply with respect to certain taxes imposed in connection with the internal reorganization or the separation and distribution, and (ii) RXO will be responsible for taxes resulting from any breach of certain covenants made by RXO in the tax matters agreement or other separation-related agreements. RXO generally will be responsible for all federal, state, or foreign income, franchise, capital gain, withholding or similar taxes imposed on a separate return basis on RXO (or any of its subsidiaries or any subgroup consisting solely of RXO and its subsidiaries), as applicable, with respect to taxable periods (or portions thereof) that end on or prior to the date of the relevant distribution, except: (i) special rules will apply with respect to certain taxes imposed in connection with the internal reorganization or the separation and distribution, and (ii) XPO will be responsible for taxes resulting from any breach of any covenant made by XPO in the tax matters agreement or other separation-related agreements.
The tax matters agreement will provide special rules that allocate tax liabilities in the event either: (i) the distribution, together with certain related transactions, fails to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, or (ii) any internal separation transaction that is intended to qualify as a transaction that is generally tax-free fails to so qualify. Under the tax matters agreement, each party will be responsible for any taxes and related amounts imposed on XPO or RXO as a result of the failure to so qualify, to the extent that the failure to so qualify is attributable to actions, events or transactions relating to such party’s respective stock, assets or business, or a breach of the relevant covenants made by that party in the tax matters agreement. Further, under the tax matters agreement, each of XPO and RXO would be responsible for a specified portion of any taxes (and any related costs and other damages) arising as a result of the failure of the distribution and certain related transactions to qualify as a transaction that is generally tax-free (including as a result of Section 355(e) of the Code) or a failure of any internal separation transaction that is intended to qualify as a transaction that is generally tax-free to so qualify, in each case, to the extent such amounts did not result from a disqualifying action by, or acquisition of equity securities of, XPO or RXO.
In addition, the tax matters agreement will impose certain restrictions on RXO and its subsidiaries during the two-year period following the distribution that will be intended to prevent the distribution, together with certain related transactions, from failing to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. Specifically, during such period, except in specific circumstances, RXO and its subsidiaries will be prohibited from: (i) ceasing to conduct certain businesses, (ii) entering into certain transactions or series of transactions pursuant to which all or a portion of the shares of RXO common stock would be acquired or all or a portion of certain assets of RXO and its subsidiaries would be acquired, (iii) liquidating, merging or consolidating with any other person; (iv) issuing equity securities beyond certain thresholds; (v) repurchasing RXO stock other than in certain open-market transactions, or (vi) taking or failing to take any other action that would cause the distribution, together with certain related transactions, to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. Further, the tax matters agreement will impose similar restrictions on us and our subsidiaries during the two-year period following the distribution that are intended to prevent certain transactions undertaken as part of the
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internal reorganization from failing to qualify as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code or for applicable non-U.S. income tax purposes.
Employee Matters Agreement
RXO and XPO will enter into an employee matters agreement in connection with the separation to allocate liabilities and responsibilities relating to employment matters, employee compensation and benefits plans and programs, and other related matters. The employee matters agreement will govern certain compensation and employee benefit obligations with respect to current and former employees and non-employee directors of each company.
The employee matters agreement will provide that, unless otherwise specified, each party will be responsible for liabilities associated with current employees of such party and its subsidiaries and former employees of such party’s business for purposes of post-separation compensation and benefit matters. The employee matters agreement will also provide, subject to customary exceptions, that neither XPO nor RXO nor their respective subsidiaries will solicit for employment or hire any individual who is a salaried employee of the other party or its subsidiaries for a period of two years following the distribution date.
The employee matters agreement will also govern the terms of equity-based awards granted by XPO prior to the separation. See “The Separation and Distribution—Treatment of Equity-Based Compensation.”
Intellectual Property License Agreement
XPO and a subsidiary of RXO will enter into an intellectual property license agreement in connection with the separation to facilitate and provide for an orderly transition in connection with the transaction. The intellectual property license agreement will provide such RXO subsidiary a non-exclusive license to certain XPO software platforms for use in the operation of the RXO Businesses, and XPO will have non-exclusive licenses to certain software platforms and patents owned by RXO subsidiaries for use in the operation of XPO’s retained businesses. The intellectual property license agreement will also provide the parties with reciprocal, non-exclusive licenses under certain intellectual property rights owned by RXO subsidiaries and certain intellectual property rights retained by XPO in order to provide the parties freedom to operate their respective businesses. We believe that there will be relatively little use of the software platforms and other intellectual property rights owned by RXO subsidiaries in XPO’s retained businesses and therefore little impact on the RXO Businesses. In addition, we believe there will be relatively little use of the software platforms and other intellectual property rights retained by XPO in the RXO Businesses and, as a result, that such use should have little impact on the RXO Businesses.
Registration Rights Agreement
RXO will enter into a registration rights agreement (the “Registration Rights Agreement”) with Jacobs Private Equity, LLC, an affiliate of Brad Jacobs, RXO’s chairman. The Registration Rights Agreement provides certain holders of shares of RXO common stock, with certain rights to cause RXO to register the sale of their common stock, other than any such securities that are then freely transferable without registration pursuant to Rule 144 under the Securities Act, without limitation as to volume, manner of sale or other restrictions under Rule 144. The Registration Rights Agreement also contains customary provisions relating to expenses and indemnification.
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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of material U.S. federal income tax consequences of the distribution to “U.S. holders” (as defined below) of XPO common stock. This discussion is based on the Code, Treasury Regulations promulgated thereunder, rulings and other administrative pronouncements issued by the Internal Revenue Service (“IRS”), and judicial decisions, in each case as in effect and available as of the date of this information statement and all of which are subject to differing interpretations and change at any time, possibly with retroactive effect. Any such change could affect the accuracy of the statements and conclusions set forth in this document. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below.
This discussion applies only to U.S. holders of shares of XPO common stock who hold such shares as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion is based upon the assumption that the separation and the distribution, together with certain related transactions, were or will be consummated in accordance with the separation agreement and the other agreements related to the separation and as described in this information statement. Holders of XPO common stock that are not U.S. holders should consult their own tax advisors as to the tax consequences of the distribution.
This summary is for general information only and does not constitute tax advice or an opinion of counsel. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to particular holders of XPO common stock in light of their particular circumstances nor does it address tax consequences applicable to holders that are or may be subject to special treatment under the U.S. federal income tax laws (such as, for example, insurance companies, tax‑exempt organizations, financial institutions, mutual funds, certain former U.S. citizens or long‑term residents of the United States, broker‑dealers, entities or arrangements treated as partnerships for U.S. federal income tax purposes, or other pass‑through entities or owners thereof, traders in securities who elect a mark‑to‑market method of accounting, holders who hold their XPO common stock as part of a “hedge,” “straddle,” “conversion,” “synthetic security,” “integrated investment” or “constructive sale transaction,” holders who acquired XPO common stock upon the exercise of employee stock options or otherwise as compensation, or holders whose functional currency is not the U.S. dollar). This discussion also does not address any tax consequences arising under the alternative minimum tax, the Medicare tax on net investment income or the Foreign Account Tax Compliance Act (including the Treasury Regulations promulgated thereunder and intergovernmental agreements entered into pursuant thereto or in connection therewith). In addition, no information is provided with respect to any tax consequences under state, local, or foreign laws or U.S. federal laws other than those pertaining to the U.S. federal income tax. This discussion does not address the tax consequences to any person who actually or constructively owns 5% or more of the outstanding shares of XPO common stock.
If any entity or arrangement treated as a partnership for U.S. federal income tax purposes holds XPO common stock, the tax treatment of a partner in such partnership will generally depend upon the status of the partner and the activities of the partnership. Holders of XPO common stock that are partnerships and partners in such partnerships should consult their own tax advisors as to the tax consequences of the distribution.
For purposes of this discussion, a “U.S. holder” is a beneficial owner of XPO common stock that is, for U.S. federal income tax purposes:
•an individual who is a citizen or resident of the United States;
•a corporation (or any other entity treated as a corporation) 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 its administration and one or more U.S. persons have the authority to control all of the substantial decisions of such trust, or (ii) it has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
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THE FOLLOWING DISCUSSION IS A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS FOR GENERAL INFORMATION ONLY. ALL HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE DISTRIBUTION, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND NON-U.S. AND OTHER TAX LAWS, IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES AND THE EFFECT OF POSSIBLE CHANGES IN LAW THAT MIGHT AFFECT THE TAX CONSEQUENCES DESCRIBED HEREIN.
It is expected that, prior to the distribution, XPO will receive an opinion of its outside counsel, satisfactory to the XPO board of directors, to the effect that, among other things, the distribution, together with certain related transactions, will qualify as a “reorganization” within the meaning of Sections 355 and 368(a)(1)(D) of the Code and therefore will qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under those sections. Receipt of such opinion of counsel is a condition to the distribution. The opinion of counsel will be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of RXO and XPO (including those relating to the past and future conduct of RXO and XPO). If any of these facts, assumptions, representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if RXO or XPO breaches any of its respective representations or covenants contained in the separation agreement and certain other separation-related agreements and documents or in any documents relating to the opinion of counsel, such opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.
Notwithstanding receipt by XPO of the opinion of counsel, the IRS could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the facts, representations, assumptions, statements or undertakings upon which the opinion of counsel was based is false or has been violated, or that the distribution and/or certain related transactions should be taxable for other reasons, including as a result of certain transactions occurring after the distribution. In addition, an opinion of counsel represents the judgment of such counsel and is not binding on the IRS or any court and the IRS or a court may disagree with the conclusions in the opinion of counsel. Accordingly, notwithstanding receipt by XPO of the opinion of counsel, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, XPO, RXO and XPO stockholders could be subject to significant U.S. federal income tax liability or tax indemnification obligations. Please refer to “—Material U.S. Federal Income Tax Consequences if the Distribution Is Taxable” below.
Material U.S. Federal Income Tax Consequences if the Distribution, Together with Certain Related Transactions, Qualifies as a Transaction That is Generally Tax-Free under Sections 355 and 368(a)(1)(D) of the Code.
If the distribution, together with certain related transactions, qualifies as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, the U.S. federal income tax consequences of the distribution generally are as follows:
•no gain or loss will be recognized by (and no amount will be includible in the income of) XPO as a result of the distribution, other than gain or income arising in connection with certain internal restructurings undertaken in connection with the separation and distribution (including with respect to any portion of the borrowing proceeds transferred to XPO from RXO that is not used for qualifying purposes);
•no gain or loss will be recognized by (and no amount will be includible in the income of) U.S. holders of XPO common stock upon the receipt of RXO common stock in the distribution;
•the aggregate tax basis in the XPO common stock and the RXO common stock received in the distribution in the hands of each U.S. holder of XPO common stock immediately after the distribution will equal the aggregate basis of XPO common stock held by such U.S. holder immediately before the distribution, allocated between the XPO common stock and the RXO common stock in proportion to the relative fair market value of each on the date of the distribution; and
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•the holding period of RXO common stock received by each U.S. holder of XPO common stock in the distribution will include the holding period at the time of the distribution for the XPO common stock with respect to which the distribution is made.
If a U.S. holder of XPO common stock holds different blocks of XPO common stock (generally shares of XPO common stock acquired on different dates or at different prices), such holder should consult its own tax advisor regarding the determination of the basis and holding period of shares of RXO common stock received in the distribution in respect of particular blocks of XPO common stock.
Material U.S. Federal Income Tax Consequences if the Distribution Is Taxable.
As discussed above, notwithstanding receipt by XPO of an opinion of counsel, the IRS could assert that the distribution does not qualify for tax-free treatment for U.S. federal income tax purposes. If the IRS were successful in taking this position, some or all of the consequences described above would not apply, and XPO, RXO and XPO stockholders could be subject to significant U.S. federal income tax liability. In addition, certain events that may or may not be within the control of XPO or RXO could cause the distribution and certain related transactions not to qualify for tax-free treatment for U.S. federal income tax purposes.
If the distribution, together with certain related transactions, were to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes under Section 355 and 368(a)(1)(D) of the Code, in general, for U.S. federal income tax purposes, XPO would recognize taxable gain as if it had sold the RXO common stock in a taxable sale for its fair market value (unless XPO and RXO jointly make an election under Section 336(e) of the Code with respect to the distribution, in which case, in general: (i) the XPO group would recognize taxable gain as if RXO had sold all of its assets in a taxable sale in exchange for an amount equal to the fair market value of the RXO common stock and the assumption of all RXO’s liabilities and (ii) RXO would obtain a related step up in the basis of its assets), and XPO stockholders who receive shares of RXO common stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares.
Even if the distribution, together with certain related transactions, were otherwise to qualify as a tax-free transaction under Sections 355(a) and 368(a)(1)(D) of the Code, the distribution may result in taxable gain to XPO (but not its stockholders) under Section 355(e) of the Code if the distribution, together with certain related transactions, were deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquire, directly or indirectly, shares representing a 50% or greater interest (by vote or value) in XPO or RXO. For this purpose, any acquisitions of XPO or RXO shares within the period beginning two years before, and ending two years after, the distribution are presumed to be part of such a plan, although XPO or RXO may be able to rebut that presumption (including by qualifying for one or more safe harbors under applicable Treasury Regulations).
In connection with the distribution, RXO and XPO will enter into a tax matters agreement that, among other things, will allocate between RXO and XPO the responsibility for tax liabilities incurred by them as a result of the failure of the distribution, together with certain related transactions (or certain transactions undertaken as part of the internal reorganization), to qualify for tax-free treatment. For a discussion of the tax matters agreement, see “Certain Relationships and Related Party Transactions—Tax Matters Agreement.”
THE FOREGOING IS INTENDED ONLY AS A SUMMARY OF MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW. IT IS NOT A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX CONSEQUENCES THAT MAY BE IMPORTANT TO PARTICULAR HOLDERS. ALL HOLDERS OF XPO COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE DISTRIBUTION, INCLUDING THE APPLICATION AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, NON‑U.S. AND OTHER TAX LAWS.
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DESCRIPTION OF MATERIAL INDEBTEDNESS
The terms of the indebtedness described below are subject to change and market conditions and will be finalized prior to the consummation of the separation and distribution.
Notes
We expect to issue $350 million in aggregate principal amount of senior notes. The notes are expected to be issued pursuant to an indenture between RXO and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”).
The notes are expected to be offered in the United States only to qualified institutional buyers in reliance on Rule 144A under the Securities Act, and, outside the United States, only to non-U.S. investors pursuant to Regulation S under the Securities Act. The offering of the notes is not expected to be registered under the Securities Act or any state securities laws and the notes may not be offered or sold in the United States absent an effective registration statement or an applicable exemption from registration requirements or in a transaction not subject to the registration requirements of the Securities Act or any state securities laws.
We expect the notes to accrue interest at a rate to be set forth therein, payable semi-annually. We expect the notes to mature approximately 5 to 10 years following the date of issuance, unless earlier redeemed or repurchased, if applicable. We expect that RXO will be permitted to redeem some or all of the notes prior to their maturity at redemption prices described in the indenture.
The indenture will contain customary events of default with respect to the notes, including failure to make required payments, failure to comply with certain agreements or covenants and certain events of bankruptcy and insolvency.
Upon the closing of the notes offering, which will occur prior to the distribution, the net proceeds from the notes may either be (x) distributed to RXO or (y) placed in an escrow account, to be released, subject to the satisfaction of certain terms and conditions, which we expect to occur on the day prior to the consummation of the distribution. RXO expects to use the net proceeds of the notes to (i) transfer all, or a portion of, such proceeds and other cash and cash equivalents to XPO (which XPO intends to use to repay existing indebtedness prior to the 12-month anniversary of the distribution), (ii) pay fees, costs and expenses incurred in connection with the separation, distribution, such financing transactions and related transactions and/or (iii) provide working capital to RXO.
The foregoing description and the other information in this information statement regarding the notes is included in this information statement solely for informational purposes. Nothing in this information statement should be construed as an offer to sell, or the solicitation of an offer to buy, any such notes.
Revolving Credit Facility
We expect to enter into a revolving credit facility with Citibank, N.A., as administrative agent and certain other parties from time to time party thereto (the “Revolving Credit Facility”), prior to the distribution.
It is expected that the Revolving Credit Facility will be a five-year unsecured, multicurrency revolving facility. The obligations under the Revolving Credit Facility are expected to be guaranteed by RXO’s existing and future wholly-owned domestic material subsidiaries, subject to certain exceptions. If RXO achieves certain credit ratings, and certain other conditions are satisfied, it is expected that the guarantees will be released.
Initially, the aggregate commitment of all lenders under the Revolving Credit Facility is expected to be equal to $500 million, a portion of which will be available for the issuance of letters of credit. The initial availability of revolving loans and letters of credit under the Revolving Credit Facility will be subject to the satisfaction (or waiver) of certain conditions set forth therein, including the consummation of the distribution (such date of initial availability, the “Revolving Closing Date”).
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On and following the Revolving Closing Date, it is expected that RXO may, subject to certain conditions set forth in the Revolving Credit Facility, borrow, repay and reborrow revolving loans at any time prior to the fifth anniversary of the Revolving Closing Date. We expect that revolving loans and letters of credit initially will be available, at the option of RXO, Inc., in U.S. dollars or Canadian dollars.
Loans under the Revolving Credit Facility are expected to bear interest at a fluctuating rate per annum equal to (i) with respect to borrowings in Dollars, at RXO’s option the alternate base rate or a rate referencing the Secured Overnight Funding Rate and (ii) with respect to borrowings in Canadian Dollars, the reserve adjusted Canadian Dollar Offered Rate, in each case, plus an applicable margin calculated based on RXO’s credit ratings.
The Revolving Credit Facility is expected to contain representations and warranties, affirmative and negative covenants and events of default customary for unsecured financings of this type, including negative covenants that, among other things, after the distribution, will limit the ability of RXO and its subsidiaries to incur liens, limit the ability of RXO to make certain fundamental changes and limit the ability of certain of RXO’s subsidiaries to incur indebtedness, in each case subject to a number of important exceptions and qualifications. In addition, the Revolving Credit Facility is expected to require, after the distribution, RXO to maintain a maximum consolidated leverage ratio and a minimum interest coverage ratio.
Term Credit Facility
We expect to enter into a term credit facility with Citibank, N.A., as administrative agent and certain other parties from time to time party thereto (the “Term Credit Facility”), prior to the distribution.
It is expected that the Term Credit Facility will be an unsecured facility. The obligations under the Term Credit Facility are expected to be guaranteed by RXO’s existing and future wholly-owned domestic material subsidiaries, subject to certain exceptions. If RXO achieves certain credit ratings, and certain other conditions are satisfied, it is expected that the guarantees will be released.
The Term Credit Facility is expected to provide commitments in an aggregate principal amount of $100 million that may be borrowed by RXO in a single draw. The availability of term loans under the Term Credit Facility will be subject to the satisfaction (or waiver) of certain conditions set forth therein (such date of initial borrowing, which we expect to occur on the day prior to the consummation of the distribution, the “Term Closing Date”). The Term Credit Facility is expected to amortize by an amount customary for unsecured financings of this type.
Loans under the Term Credit Facility are expected to bear interest at a fluctuating rate per annum equal to, at RXO’s option, the alternate base rate or a rate referencing the Secured Overnight Funding Rate, in each case, plus an applicable margin calculated based on RXO’s credit ratings.
The Term Credit Facility is expected to contain representations and warranties, affirmative and negative covenants and events of default customary for unsecured financings of this type, including negative covenants that, among other things, after the distribution, will limit the ability of RXO and its subsidiaries to incur liens, limit the ability of RXO to make certain fundamental changes and limit the ability of certain of RXO’s subsidiaries to incur indebtedness, in each case subject to a number of important exceptions and qualifications. In addition, the Term Credit Facility is expected to require, after the distribution, RXO to maintain a maximum consolidated leverage ratio and a minimum interest coverage ratio.
RXO expects to transfer all, or a portion of, the net proceeds of the Term Credit Facility and other cash and cash equivalents to XPO (which XPO intends to use to repay existing indebtedness prior to the 12-month anniversary of the distribution) and/or use such proceeds for general corporate purposes.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Before the separation and distribution, all of the outstanding shares of RXO common stock will be owned beneficially and of record by XPO. Following the separation and distribution, RXO expects to have outstanding an aggregate of approximately [     ] shares of common stock based upon approximately [     ] shares of XPO common stock issued and outstanding on [     ], 2022, excluding treasury shares, assuming no exercise of XPO options and applying the distribution ratio.
Stock Ownership of Certain Beneficial Owners
The following table shows all holders known to RXO that are expected to be beneficial owners of more than 5% of the outstanding shares of RXO common stock immediately following the completion of the distribution, based on information available as of [     ], 2022 and based upon the assumptions that for every share of XPO common stock held by such persons, they will receive one share of RXO common stock.
Name and Address of Beneficial OwnerAmount and Nature of Beneficial OwnershipPercent of Class
MFN Partners, LP(1)
c/o MFN Partners Management, LP
222 Berkeley Street, 13th Floor
Boston, MA 02116
[     ][     ]%
Orbis Investment Management Limited(2)
Orbis House, 25 Front Street
Hamilton Bermuda HM11
[     ][     ]%
BlackRock, Inc.(3)
55 East 52nd Street
New York, NY 10055
[     ][     ]%
The Vanguard Group(4)
100 Vanguard Blvd.
Malvern, PA 19355
[     ][     ]%
_________________
(1)Based on the Schedule 13G filed on March 21, 2022 by: (i) MFN Partners, LP (the “Partnership”), (ii) MFN Partners GP, LLC (“MFN GP”), as the general partner of the Partnership, (iii) MFN Partners Management, LP (“MFN Management”), as the investment adviser to the Partnership, (iv) MFN Partners Management, LLC (“MFN LLC”), as the general partner of MFN Management, (v) Michael F. DeMichele, as a managing member of MFN GP and of MFN LLC, and (vi) Farhad Nanji, as a managing member of MFN GP and of MFN LLC, which reported that, as of March 9, 2022, the group beneficially owned, has sole voting power and has sole dispositive power over 6,075,369 shares of XPO common stock.
(2)Based on Amendment No. 9 to the Schedule 13G filed on February 14, 2022 by Orbis Investment Management Limited (“OIML”), Orbis Investment Management (U.S.), L.P. (“OIMUS”) and Allan Gray Australia Pty Ltd (“AGAPL”), which reported that, as of December 31, 2021, OIML beneficially owned 10,952,444 shares of XPO common stock, OIMUS beneficially owned 148,734 shares of XPO common stock, and AGAPL beneficially owned 2,895 shares of XPO common stock. The group has sole voting and sole dispositive power over such shares of XPO common stock.
(3)Based on Amendment No. 3 to the Schedule 13G filed on February 2, 2022 by BlackRock, Inc., which reported that, as of December 31, 2021, BlackRock, Inc. beneficially owned 9,143,216 shares of our common stock, with sole voting power over 8,609,357 shares of XPO common stock and sole dispositive power over 9,143,216 shares of XPO common stock.
(4)Based on Amendment No. 7 to the Schedule 13G filed on February 9, 2022 by The Vanguard Group, which reported that, as of December 31, 2021, The Vanguard Group beneficially owned 9,032,676 shares of XPO common stock with shared voting power over 73,635 shares of XPO common stock, sole dispositive power over 8,819,286 shares of XPO common stock and shared dispositive power over 213,390 shares of XPO common stock.
Stock Ownership of Directors and Executive Officers
The following table shows the ownership of RXO common stock and restricted share units expected to be beneficially owned by our directors, named executive officers, and our directors and current executive officers as a group immediately following the completion of the distribution, based on information available as of [     ], 2022 and
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based on the assumption that, for every share of XPO common stock held by such persons, they will receive one share of RXO common stock.
Name of Beneficial OwnerShares of Common Stock Beneficially OwnedPercentage of Common Stock Outstanding
Directors:
Brad Jacobs
Christine Breves

AnnaMaria DeSalva

Adrian Kingshott
Mary Kissel
Michelle Nettles
Stephen Renna
Thomas Szlosek
NEOs:
Drew Wilkerson+
Jamie Harris
Jeff Firestone
Directors and Officers as a Group (11 persons)
_______________
*Less than 1%
+       Director and Executive Officer
(1)Mr. Jacobs has indirect beneficial ownership of the shares of XPO common stock (1,300,701) beneficially owned by JPE as a result of being JPE’s managing member. Also includes 387,416 shares of XPO common stock held directly by Mr. Jacobs following the vesting of equity incentive awards and exercise of stock options.
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DESCRIPTION OF CAPITAL STOCK
RXO’s certificate of incorporation and bylaws will be amended and restated prior to the distribution. The following briefly summarizes the material terms of our capital stock that will be contained in our amended and restated certificate of incorporation and amended and restated bylaws. These summaries do not describe every aspect of these securities and documents and are subject to all the provisions of our amended and restated certificate of incorporation or amended and restated bylaws that will be in effect at the time of the distribution, and are qualified in their entirety by reference to these documents, which you should read (along with the applicable provisions of Delaware law) for complete information on our capital stock as of the time of the distribution. The amended and restated certificate of incorporation and amended and restated bylaws, each in a form expected to be in effect at the time of the distribution, will be included as exhibits to RXO’s registration statement on Form 10, of which this information statement forms a part. We will include our amended and restated certificate of incorporation and amended and restated bylaws, as in effect at the time of the distribution, in a Current Report on Form 8-K filed with the SEC. The following also summarizes certain relevant provisions of the Delaware General Corporation Law (the “DGCL”). Since the terms of the DGCL are more detailed than the general information provided below, you should read the actual provisions of the DGCL for complete information.
General
RXO’s authorized capital stock will consist of [     ] shares of common stock, par value $0.01 per share, and [     ] shares of preferred stock, par value $0.01 per share.
Immediately following the distribution, we expect that approximately [     ] shares of our common stock will be issued and outstanding, based on approximately [     ] shares of XPO common stock issued and outstanding on [     ], 2022, and that no shares of our preferred stock will be issued and outstanding.
RXO’s common stock is expected to be listed on the NYSE under the symbol “RXO.”
Common Stock
Immediately following the distribution, we expect that approximately [     ] shares of our common stock will be issued and outstanding, all of which will be fully paid and non-assessable.
Common stockholders will be entitled to one vote for each share held on all matters submitted to a vote of stockholders. Except as otherwise required by law and except for director elections (see below), whenever any corporate action is to be taken, such action will be authorized by a majority of the shares present in person or represented by proxy at the meeting and entitled to vote thereon.
Common stockholders will be entitled to share equally in the dividends, if any, that may be declared by RXO’s board of directors out of funds that are legally available to pay dividends, but only after payment of any dividends required to be paid on outstanding preferred stock, if any. Upon any voluntary or involuntary liquidation, dissolution or winding up of RXO, the common stockholders will be entitled to share ratably in all assets of RXO remaining after we pay all of our debts and other liabilities and any amounts we may owe to the holders of our preferred stock, if any.
Common stockholders will not have any preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of common stockholders will be subject to the rights of the stockholders of any series of preferred stock that we will or may designate and issue.
Our amended and restated bylaws will provide that our shares will be uncertificated, which is permitted under Delaware law.
Preferred Stock
Pursuant to Delaware law and our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by the stockholders, to issue shares of preferred stock in one or more series, and to fix the rights, preferences and privileges (including voting rights, dividend rights, conversion rights,
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redemption privileges and liquidation preferences) of each series, which may be greater than the rights of the common stock.
Immediately following the distribution, we expect no shares of our preferred stock to be issued and outstanding.
Corporate Governance
We will institute strong corporate governance practices, as described below and elsewhere in this information statement. Responsible and appropriate corporate governance will ensure that our management keeps stockholder interests in mind when crafting value-creating strategies at all levels of the organization.
Single Class Capital Structure. We will have a single class share capital structure with all stockholders entitled to vote for director nominees and each holder of common stock entitled to one vote per share.
Director Elections. The election of directors in an uncontested election will require the affirmative vote of a majority of the votes cast (the number of shares voted “for” a director’s election exceeds 50% of the total number of votes cast with respect to that director’s election) by holders of shares of our common stock at the meeting at which a quorum is present. Votes cast shall include the shares voted “for” and “against” a director’s election in each case with respect to that director’s election. If any incumbent director standing for re-election receives a greater number of votes “against” his or her election than votes “for” such election, our amended and restated bylaws will require that such person promptly tender his or her resignation to our board of directors. Once an election is determined to be a contested election, directors will be elected by a plurality of the votes cast at the meeting at which a quorum is present.
Classified Board. As discussed in the section of this information statement captioned “Directors” and as further discussed below, upon completion of the separation, we expect to have a classified board until 2026.
Majority Vote for Mergers and Other Business Combinations. Mergers and other business combinations involving RXO will generally be required to be approved by a majority of our outstanding shares of common stock where such stockholder approval is required.
Other Expected Corporate Governance Features. Governance features related to our board of directors are set forth in the section of this information statement captioned “Directors.” In addition to the foregoing, it is expected that we will implement stock ownership guidelines for directors and senior executive officers, annual board performance evaluations, clawback, anti-hedging policies and anti-pledging policies, prohibitions on option repricing in equity plans without stockholder approval, risk oversight procedures and other practices and protocols.
Anti-Takeover Effects of Various Provisions of Delaware Law, our Amended and Restated Certificate of Incorporation, and our Amended and Restated Bylaws
Provisions of the DGCL, our amended and restated certificate of incorporation and our amended and restated bylaws could make it more difficult to acquire RXO by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of RXO to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure RXO outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
Delaware Anti-Takeover Statute. Section 203 of the DGCL, an anti-takeover statute, generally prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. A “business combination” generally includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An “interested stockholder” generally is a person who, together with affiliates and associates, owns (or within three years prior to the determination of
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interested stockholder status did own) 15 percent or more of a corporation’s voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by our board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock. A corporation may “opt out” of Section 203 of the DGCL in its certificate of incorporation. RXO will not “opt out” of, and will thus be subject to, Section 203 of the DGCL.
Classified Board. As described above in the section of this information statement captioned “Directors”, upon completion of the separation, our board of directors will initially be divided into three classes, with Class I composed of three directors, Class II composed of three directors and Class III composed of three directors. The directors designated as Class I directors will have terms expiring at the first annual meeting of stockholders following the distribution, which we expect to hold in 2023. The directors designated as Class II directors will have terms expiring at the following year’s annual meeting of stockholders, which we expect to hold in 2024, and the directors designated as Class III directors will have terms expiring at the following year’s annual meeting of stockholders, which we expect to hold in 2025. At the first annual meeting of stockholders following the distribution, the successors of Class I directors will be elected to serve for a term of three years each. Commencing with the second annual meeting of stockholders following the separation, directors for each class will be elected at the annual meeting of stockholders held in the year in which the term for that class expires and thereafter each director will serve for a term of one year and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Consequently, starting at the 2026 annual meeting of stockholders, all of our directors will stand for election each year for one year terms, and our board will therefore no longer be divided into three classes. Before our board of directors is declassified, it would take at least two elections of directors for any individual or group to gain control of our board of directors. Accordingly, while the classified board is in effect, these provisions could discourage a third-party from initiating a proxy contest, making a tender offer or otherwise attempting to gain control of our company.
Size of Board and Vacancies. Our amended and restated certificate of incorporation will provide that the number of directors on our board of directors will be fixed exclusively by our board of directors pursuant to a resolution adopted by the board of directors. Our amended and restated certificate of incorporation will also provide that the size of the board of directors will be not less than one nor more than twelve members. Any vacancies created in the board of directors resulting from any increase in the authorized number of directors or the death, resignation, retirement, disqualification, removal from office or other cause will be filled by a majority of the board of directors then in office, even if less than a quorum is present, or by a sole remaining director. Any director appointed to fill a vacancy on our board of directors will be appointed for a term expiring at the next annual meeting of stockholders, and until his or her successor has been elected and qualified.
Director Removal. Our amended and restated certificate of incorporation and our amended and restated bylaws will provide that: (i) prior to the board being fully declassified, as discussed above, stockholders will be permitted to remove a director only for cause, and (ii) after the board has been fully declassified, stockholders may remove a director with or without cause. Removal will require the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote generally for the election of directors.
Stockholder Action by Written Consent. Our amended and restated certificate of incorporation will expressly eliminate the right of our stockholders to act by written consent effective as of the distribution. Stockholder action must take place at the annual or at a special meeting of RXO stockholders.
Special Stockholder Meetings. Our amended and restated certificate of incorporation will provide that the chairman of the board of directors or the board of directors pursuant to a resolution adopted by a majority of the entire board of directors may call special meetings of our stockholders. Stockholders may not call special meetings of stockholders.
Requirements for Advance Notification of Stockholder Nominations and Proposals. Our amended and restated certificate of incorporation will mandate that stockholder nominations for the election of directors be made in accordance with the bylaws. Our amended and restated bylaws will establish advance notice procedures with respect to stockholder proposals and nomination of candidates for election as directors as well as other requirements for stockholders making the proposals or nominations.
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Our amended and restated bylaws will provide that a stockholder who wishes to nominate an individual for election as a director at our annual meeting must give us advance written notice. The notice will be required to be delivered to or mailed and received by the secretary of our company not less than 90 days, and not more than 120 days, prior to the earlier of the date of the annual meeting and the first anniversary of the preceding year’s annual meeting. As more specifically provided in our amended and restated bylaws, any nomination will be required to include, among other information: (i) the nominator’s name and address and the number of shares of each class of our capital stock that the nominator owns, (ii) the name and address of any person with whom the nominator is acting in concert and the number of shares of each class of our capital stock that any such person owns, (iii) the information with respect to each such proposed director nominee that would be required to be provided in a proxy statement prepared in accordance with applicable SEC rules, and (iv) the consent of the proposed candidate to serve as a member of our board. Additionally, our amended and restated bylaws will require that candidates for election as director disclose their qualifications and make certain representations.
Any stockholder who wishes to nominate a potential director candidate will be required to follow the specific requirements set forth in our amended and restated bylaws, a copy of which will be available on our website at [     ] and in print form at no charge by sending a request to RXO, Inc., 11215 North Community House Road, Charlotte, NC 28277, Attention: Investor Relations.
Proxy Access. Our amended and restated bylaws will allow one or more stockholders (up to 20 stockholders, collectively), owning at least 3% of the voting power of our outstanding shares continuously for at least three years, to nominate for election to our board of directors the greater of two individuals or 20% of our board of directors, and include those nominees in our proxy materials, provided that proper notice is delivered to our principal executive offices and addressed to our company’s secretary.
No Cumulative Voting. The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation will specifically deny cumulative voting.
Undesignated Preferred Stock. Our amended and restated certificate of incorporation will authorize [     ] shares of undesignated preferred stock. As a result, our board of directors will be permitted, without the approval of holders of our common stock, to issue shares of our preferred stock with super voting, special approval, dividend or other rights or preferences on a discriminatory basis that could impede the success of any attempt to acquire RXO. These and other provisions may have the effect of deferring, delaying or discouraging hostile takeovers or changes in control or management of RXO.
Limitation of Liability and Indemnification of Officers and Directors
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors, and our amended and restated certificate of incorporation will include such an exculpation provision. Our amended and restated certificate of incorporation and amended and restated bylaws will include provisions that indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as a director or officer of RXO, or for serving at our request as a director or officer or in another position at another corporation or enterprise, as the case may be. Our amended and restated certificate of incorporation and amended and restated bylaws will also provide that we must indemnify and advance expenses to our directors and officers, subject to our receipt of an undertaking from the indemnitee as may be required under the DGCL. We will also be expressly authorized to, and intend to, carry directors’ and officers’ insurance to protect RXO and our directors, officers, employees and agents from certain liabilities.
The limitation of liability and indemnification provisions that will be in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. We may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
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Authorized but Unissued Shares of Common and Preferred Stock
Authorized but unissued shares of our common stock and preferred stock will be available for future issuance without approval by the holders of our common stock. We will be permitted to use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, employee benefit plans and as consideration for or to finance future acquisitions, investments or other purposes. The existence of authorized but unissued shares of our common stock and preferred stock could render more difficult or discourage an attempt to obtain control of RXO by means of a proxy contest, tender offer, merger or otherwise.
Exclusive Forum
Our amended and restated certificate of incorporation will provide that unless our board of directors otherwise determines, the state courts within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for: (i) any derivative action or proceeding brought on behalf of RXO, (ii) any action asserting a claim for or based on a breach of a fiduciary duty owed by any current or former director or officer or other employee or stockholder of RXO in such capacity to RXO or to RXO stockholders, including a claim alleging the aiding and abetting of such a breach of fiduciary duty, (iii) any action asserting a claim against RXO or any current or former director or officer or other employee or stockholder of RXO in such capacity arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws, (iv) any action asserting a claim relating to or involving RXO governed by the internal affairs doctrine, or (v) any action asserting an “internal corporate claim” as such term is defined in Section 115 of the DGCL.
Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated certificate of incorporation will further provide that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty of liability created by the Exchange Act or the rules and regulations thereunder, and as a result, the exclusive forum provision does not apply to actions arising under the Exchange Act or the rules and regulations thereunder. While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our federal forum provision described above. Our stockholders will not be deemed to have waived compliance with the federal securities laws and the rules and regulations thereunder.
Listing
We expect to list our shares of common stock on the NYSE under the symbol “RXO.”
Transfer Agent and Registrar
After the distribution, the transfer agent and registrar for our common stock will be AST.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form 10 with the SEC with respect to the shares of our common stock being distributed as contemplated by this information statement. This information statement is a part of, and does not contain all of the information set forth in, the registration statement and the exhibits and schedules to the registration statement. For further information with respect to RXO and RXO common stock, please refer to the registration statement, including its exhibits and schedules. Statements made in this information statement relating to any contract or other document filed as an exhibit to the registration statement include the material terms of such contract or other document. However, such statements are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement, including its exhibits and schedules, on the internet website maintained by the SEC at www.sec.gov. Information contained on or connected to any website referenced in this information statement is not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.
As a result of the distribution, RXO will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, will file periodic reports, proxy statements and other information with the SEC.
We intend to furnish holders of our common stock with annual reports containing combined financial statements prepared in accordance with U.S. generally accepted accounting principles and audited and reported on, with an opinion expressed, by an independent registered public accounting firm.
You should rely only on the information contained in this information statement or to which this information statement has referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this information statement.
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INDEX TO FINANCIAL STATEMENTS
Page
Page
F-1

Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
XPO Logistics, Inc.:
Opinion on the Combined Financial Statements
We have audited the accompanying combined balance sheets of RXO (formerly known as NAT SpinCo) (the Company) as of December 31, 2021 and 2020, the related combined statements of operations, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the combined financial statements). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these combined 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 combined 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 combined 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 combined 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 the combined financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the combined financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the combined financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the combined financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Liabilities for self-insured claims
As discussed in Note 2 to the combined financial statements, the Company uses a combination of self-insurance programs and purchased insurance to provide for the costs of liability, vehicular, and workers’ compensation claims (self-insured claims). The Company records estimates of the undiscounted liability associated with claims incurred as of the balance sheet date, including estimates of claims incurred but not reported, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels. These liabilities are recorded within accrued liabilities and other long-term liabilities as of December 31, 2021.
We identified the assessment of the estimated liabilities for self-insured claims as a critical audit matter. The evaluation of the uncertainty in the amounts that will ultimately be paid to settle these claims required subjective auditor judgment. Assumptions that may affect the estimated liability of claims include the consideration of
F-2

historical cost experience, severity factors, and judgments about current and expected levels of cost per claims and retention levels that have uncertainty related to future occurrences or events and conditions. Additionally, the Company’s liabilities for self-insured claims included estimates for expenses of claims that have been incurred but have not been reported, and specialized skills were needed to evaluate the actuarial methods and assumptions used to assess these estimates.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s self-insurance process. This included controls over the assumptions used in estimating the liabilities for self-insured claims. In addition, we compared the Company’s estimates of liabilities for individual self-insured claims to current available information, which included legal claims, incident and case reports, current and historical cost experience, or other evidence. We involved an actuarial professional with specialized skills and knowledge, who assisted in:
•comparing the Company’s actuarial reserving methodologies with accepted actuarial methods and procedures
•evaluating assumptions used in determining the liability, including expected level of cost per claim and retention levels, in relation to recent historical loss payment trends and severity factors
•developing an independent expected range of liabilities, including liabilities for claims that have been incurred but have not been recorded, based on actuarial methodologies
•comparing the Company’s recorded liability to the independently developed liability range.

/s/ KPMG LLP

We have served as the Company’s auditor since 2022.
Stamford, Connecticut
June 1, 2022
F-3

RXO
Combined Balance Sheets
December 31,
(In millions)20212020
ASSETS
Current assets
Cash and cash equivalents$29 $70 
Accounts receivable, net of allowances of $9 and $10, respectively
1,010 772 
Other current assets44 20 
Total current assets
1,083 862 
Long-term assets
Property and equipment, net of $219 and $181 in accumulated depreciation, respectively
111 125 
Operating lease assets128 111 
Goodwill630 630 
Identifiable intangible assets, net of $217 and $197 in accumulated amortization, respectively
100 124 
Other long-term assets16 18 
Total long-term assets985 1,008 
Total assets
$2,068 $1,870 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$520 $390 
Accrued expenses248 204 
Short-term operating lease liabilities42 30 
Other current liabilities6 5 
Total current liabilities
816 629 
Long-term liabilities
Deferred tax liability52 49 
Long-term operating lease liabilities93 86 
Other long-term liabilities37 38 
Total long-term liabilities
182 173 
Equity
XPO investment1,072 1,070 
Accumulated other comprehensive loss
(2)(2)
Total equity
1,070 1,068 
Total liabilities and equity
$2,068 $1,870 
See accompanying notes to combined financial statements.
F-4

RXO
Combined Statements of Operations
Years Ended December 31,
(In millions)202120202019
Revenue
$4,689 $3,357 $3,141 
Cost of transportation and services (exclusive of
depreciation and amortization)
3,681 2,568 2,414 
Direct operating expense (exclusive of depreciation and
amortization)
192 174 162 
Sales, general and administrative expense539 455 399 
Depreciation and amortization expense81 76 74 
Transaction and integration costs2 14 1 
Restructuring costs2 10 9 
Operating income
192 60 82 
Other (income) expense1 3 (2)
Income before income taxes
191 57 84 
Income tax provision41 14 22 
Net income
$150 $43 $62 
See accompanying notes to combined financial statements.
F-5

RXO
Combined Statements of Comprehensive Income
Years Ended December 31,
(In millions)202120202019
Net income
$150 $43 $62 
Other comprehensive income, net of tax
Foreign currency translation gain, net of tax effect of $—, $— and $—
$— $1 $1 
Other comprehensive income
— 1 1 
Comprehensive income
$150 $44 $63 
See accompanying notes to combined financial statements.
F-6

RXO
Combined Statements of Cash Flows
Years Ended December 31,
(In millions)202120202019
Operating activities
Net income
$150 $43 $62 
Adjustments to reconcile net income to net cash from operating activities
Depreciation, amortization and net lease activity81 76 74 
Stock compensation expense8 8 9 
Deferred tax expense (benefit)
3 (9)20 
Other3 14 5 
Changes in assets and liabilities
Accounts receivable(242)(264)24 
Other assets(4)(5)(5)
Accounts payable129 87 (36)
Accrued expenses and other liabilities27 75 (30)
Net cash provided by operating activities
155 25 123 
Investing activities
Payment for purchases of property and equipment(39)(47)(56)
Proceeds from sale of property and equipment1 8 1 
Net cash used in investing activities
(38)(39)(55)
Financing activities
Repayment of debt and finance leases— — (5)
Net transfers (to) from XPO(159)32 (42)
Other1 — — 
Net cash provided by (used in) financing activities
(158)32 (47)
Effect of exchange rates on cash, cash equivalents and restricted cash— 1 1 
Net increase (decrease) in cash, cash equivalents and restricted cash
(41)19 22 
Cash, cash equivalents and restricted cash, beginning of year
70 51 29 
Cash, cash equivalents and restricted cash, end of year
$29 $70 $51 
Supplemental disclosure of cash flow information:
Cash paid for income taxes$5 $2 $2 
See accompanying notes to combined financial statements.
F-7

RXO
Combined Statements of Changes in Equity
For the Three Years Ended December 31, 2021, 2020 and 2019
(In millions)XPO InvestmentAccumulated Other Comprehensive LossTotal Equity
Balance as of December 31, 2018
$946 $(4)$942 
Net income62 — 62 
Other comprehensive income— 1 1 
Stock compensation expense9 — 9 
Net transfers to XPO(35)— (35)
Balance as of December 31, 2019
$982 $(3)$979 
Net income43 — 43 
Other comprehensive income— 1 1 
Stock compensation expense8 — 8 
Net transfers from XPO37 — 37 
Balance as of December 31, 2020
$1,070 $(2)$1,068 
Net income150 — 150 
Stock compensation expense8 — 8 
Net transfers to XPO(156)— (156)
Balance as of December 31, 2021
$1,072 $(2)$1,070 
See accompanying notes to combined financial statements.
F-8

RXO
Notes to Combined Financial Statements
Years Ended December 31, 2021, 2020 and 2019
1.Organization
Nature of Operations
RXO, LLC (formerly known as NAT Holdings, LLC (“NAT SpinCo”)) (“RXO”, the “Company” or “we”) is a brokered transportation platform defined by cutting-edge technology and an asset-light business model, with the largest component being our core truck brokerage business. Our operations also include three asset-light, brokered transportation services, all of which are complementary to our truck brokerage business: managed transportation, last mile and freight forwarding. We present our operations in the Combined Financial Statements as one reportable segment. See Note 2—Basis of Presentation and Significant Accounting Policies for additional information on our determination of our reportable segment.
The Proposed Distribution
On March 8, 2022, the board of directors of our parent company, XPO Logistics, Inc. (together with its subsidiaries, “XPO”), approved a plan to pursue a spin-off of its tech-enabled brokered transportation platform in North America as a publicly traded company named RXO. The spin-off is expected to be completed through a distribution of shares of RXO common stock to XPO stockholders (the “Distribution”). Completion of the transaction is subject to a number of customary market, regulatory and other closing conditions including the approval of XPO’s board of directors. References to RXO or the Company include the subsidiaries of XPO that will be subsidiaries of RXO at the time of the Distribution.
2.Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The Combined Financial Statements of RXO were prepared on a standalone basis and have been derived from the consolidated financial statements and accounting records of XPO. These financial statements reflect the combined historical results of operations, financial position and cash flows of RXO in accordance with U.S. generally accepted accounting principles (“GAAP”).
Historically, separate financial statements have not been prepared for the Company and it has not operated as a standalone business separate from XPO. The Combined Financial Statements include certain assets and liabilities that have historically been held by XPO or by other XPO subsidiaries but are specifically identifiable or otherwise attributable to the Company. All significant intercompany transactions between XPO and the Company have been included as components of XPO investment in the Combined Financial Statements, as they are to be considered effectively settled upon effectiveness of the Distribution. The Combined Financial Statements are presented as if the RXO businesses had been combined for all periods presented. The assets and liabilities in the Combined Financial Statements have been reflected on a historical cost basis, as immediately prior to the Distribution all of the assets and liabilities presented are wholly-owned by XPO and are being transferred to RXO at a carry-over basis.
The Combined Balance Sheets include certain assets and liabilities directly attributable to RXO, and the Combined Statements of Operations include allocations of XPO costs and expenses, as described below. XPO’s third-party debt and the related interest expense were not allocated to us for any of the periods presented as XPO’s borrowings are not our legal obligation.
XPO’s corporate function (“Corporate”) incurs a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications. For purposes of the Combined Statements of Operations, an allocation of these expenses is included to burden all business units comprising XPO’s historical operations. The charges reflected have either been specifically identified or allocated using drivers including proportional adjusted earnings
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before interest, taxes, depreciation and amortization (“adjusted EBITDA”), which we define as net income before interest expense, income tax, depreciation and amortization expense, transaction and integration costs, restructuring costs and other adjustments, or headcount. These allocated costs are recorded in Sales, general and administrative expense (“SG&A”), Depreciation and amortization expense, Transaction and integration costs and Restructuring costs in the Combined Statements of Operations. We believe the assumptions regarding allocations of XPO corporate expenses are reasonable. Nevertheless, the Combined Financial Statements may not reflect the combined results of operations, financial position and cash flows had the Company been a standalone entity during the periods presented.
Cost of transportation and services (exclusive of depreciation and amortization) primarily includes the cost of providing or procuring freight transportation for RXO customers.
Direct operating expenses (exclusive of depreciation and amortization) are comprised of both fixed and variable expenses and consist mainly of personnel costs, facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, costs of materials and supplies, information technology expenses, and gains and losses on sales of property and equipment.
SG&A, including the allocated costs of XPO, primarily consists of salaries and commissions for the sales function, salary and benefit costs for executive and certain administration functions, third-party professional fees, facility costs, bad debt expense and legal costs.
XPO investment represents XPO’s historical investment in RXO, and includes the net effects of transactions with and allocations from XPO, as well as RXO’s accumulated earnings. Certain transactions between RXO and XPO, including XPO’s non-RXO subsidiaries, have been included in these Combined Financial Statements, and are considered to be effectively settled at the time the transaction is recorded. The total net effect of the cash settlement of these transactions is reflected in the Combined Statements of Cash Flows as a financing activity and in the Combined Balance Sheets as XPO investment. The components of the net transfers to and from XPO include certain costs allocated from Corporate functions, income tax expense, certain cash receipts and payments made on behalf of RXO and general financing activities.
Principles of Combination
The Combined Financial Statements include the accounts and business activities distributed across the legal entities of RXO. Significant intercompany balances and transactions among the operations of the RXO legal entities have been eliminated in the Combined Financial Statements. All significant related party transactions between RXO and XPO have been included in these Combined Financial Statements as components of XPO investment. The preparation of the Combined Financial Statements in accordance with GAAP requires us to make estimates and assumptions that impact the amounts reported and disclosed in our Combined Financial Statements and the accompanying notes. We prepared these estimates based on the most current and best available information, but actual results could differ materially from these estimates and assumptions.
Significant Accounting Policies
Revenue Recognition
We recognize revenue when we transfer control of promised products or services to customers in an amount equal to the consideration we expect to receive for those products or services.
Performance Obligations
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied.
We generate revenue by providing truck brokerage and other transportation services for our customers. Additional services may be provided to our customers under their transportation contracts, including unloading and other incidental services. The transaction price is based on the consideration specified in the customer’s contract.
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A performance obligation is created when a customer under a transportation contract submits a bill of lading for the transport of goods from origin to destination. These performance obligations are satisfied as the shipments move from origin to destination. We recognize transportation revenue proportionally as a shipment moves from origin to destination and the related costs are recognized as incurred. Some of our customer contracts contain our promise to stand ready to provide transportation services. For these contracts, we recognize revenue on a straight-line basis over the term of the contract because the pattern of benefit to the customer, and our efforts to fulfill the contract, are generally distributed evenly throughout the period. Performance obligations are generally short-term, with transit times usually less than one week. Generally, customers are billed on shipment of the freight or on a weekly or monthly basis and make payment according to approved payment terms. When we do not control the specific services, we recognize revenue as the difference between the amount the customer pays us for the service less the amount we are charged by third parties who provide the service.
Generally, we can adjust our pricing based on contractual provisions related to achieving agreed-upon performance metrics, changes in volumes, services and market conditions. The estimate of variable consideration is determined by the expected value or most likely amount method and factors in current, past and forecasted experience with the customer. Customers are billed based on terms specified in the revenue contract and they pay us according to approved payment terms.
Cash, Cash Equivalents and Restricted Cash
We consider all highly liquid investments with an original maturity of three months or less on the date of purchase to be cash equivalents. As of December 31, 2021 and 2020, there were no cash equivalents or restricted cash. Treasury activities at XPO are generally centralized, while certain balances are managed locally. To the extent cash and cash equivalents are legally owned by RXO, they are reflected in the Combined Financial Statements.
Accounts Receivable and Allowance for Credit Losses
We record accounts receivable at the contractual amount, and we record an allowance for credit losses for the amount we estimate we may not collect. In determining the allowance for credit losses, we consider historical collection experience, the age of the accounts receivable balances, the credit quality and risk of our customers, any specific customer collection issues, current economic conditions, and other factors that may impact our customers’ ability to pay. Commencing in 2020 and in accordance with Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, we also consider reasonable and supportable forecasts of future economic conditions and their expected impact on customer collections in determining our allowance for credit losses. We write off accounts receivable balances once the receivables are no longer deemed collectible.
The roll-forward of the allowance for credit losses was as follows:
Years Ended December 31,
(In millions)202120202019
Beginning balance$10 $7 $6 
Provision charged to expense6 11 6 
Write-offs, less recoveries, and other adjustments(7)(8)(5)
Ending balance$9 $10 $7 
Property and Equipment
We generally record property and equipment at cost, or in the case of acquired property and equipment, at fair value at the date of acquisition. Maintenance and repair expenditures are charged to expense as incurred. For internally-developed computer software, all costs incurred during planning and evaluation are expensed as incurred. Costs incurred during the application development stage are capitalized and included in property and equipment. Capitalized software also includes the fair value of acquired internally-developed technology.
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We compute depreciation expense on a straight-line basis over the estimated useful lives of the assets as follows:
ClassificationEstimated Useful Life
Buildings and leasehold improvementsTerm of lease to 40 years
Vehicles, tractors, trailers and tankers3 to 14 years
Machinery and equipment3 to 10 years
Computer software and equipment3 to 5 years
Leases
We determine if an arrangement is a lease at inception. We recognize operating lease right-of-use assets and liabilities at the lease commencement date based on the estimated present value of the lease payments over the lease term. As most of our leases do not provide an implicit rate, we use the incremental borrowing rates of XPO based on the information available at commencement date to determine the present value of future lease payments. This rate is determined from a hypothetical yield curve that takes into consideration market yield levels of XPO’s relevant debt outstanding as well as the index that matches XPO’s credit rating, and then adjusts as if the borrowings were collateralized.
We include options to extend or terminate a lease in the lease term when we are reasonably certain to exercise such options. We exclude variable lease payments (such as payments based on an index or reimbursements of lessor costs) from our initial measurement of the lease liability. We recognize leases with an initial term of 12 months or less as lease expense over the lease term, and those leases are not recorded on our Combined Balance Sheets. We account for lease and non-lease components within a contract as a single lease component for our real estate leases.
Net operating lease activity, including the reduction of the operating lease asset and the accretion of the operating lease liability, are reflected in Depreciation, amortization and net lease activity on our Combined Statements of Cash Flows. For additional information on our leases, see Note 6—Leases.
Segment Reporting
We conduct our business and track our results as one reportable segment based upon the aggregation of our operating segments. Our chief operating decision maker (“CODM”) regularly reviews financial information at the operating segment level to allocate resources and assess performance. We have determined that all our operating segments share the following similar economic and qualitative characteristics and therefore meet the criteria established in Accounting Standards Codification (“ASC”) 280–Segment Reporting for operating segments to be aggregated into one reportable segment:
•The operating segments have similar economic characteristics (e.g., comparable adjusted EBITDA margins, our measure of segment profitability), and similar long-term financial models;
•The nature of the services offered by each operating segment is similar: all the services leverage technology and an asset-light infrastructure to arrange for the transportation of customer goods by qualified independent carriers;
•The operating segments all operate within the transportation industry and in primarily the same geography (North America);
•All operating segments provide business-to-business services, with no segment transacting directly with the end-user customer;
•Each operating segment’s customer base spans diversified industry verticals that overlap with other operating segments and have a common salesforce engaged in significant cross-selling activities; and
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•All operating segments conduct business in a similar regulatory environment applicable to the transportation industry, including regulation and licensing by various governmental agencies; most notably, the Federal Motor Carrier Safety Administration of the U.S. Department of Transportation.
All of our operating segments can be expected to have similar future prospects as they have similar economic attributes. The causes for fluctuations in operating and financial performance are generally the same among the operating segments and include such factors as: (i) changes in overall demand for outsourced freight transportation services, (ii) changes in prices charged by third-party carriers, (iii) decisions by customers to develop or expand internal transportation capabilities, and (iv) macroeconomic impacts on supply chains for materials, parts and finished goods.
Goodwill
We measure goodwill as the excess of consideration transferred over the fair value of net assets acquired in business combinations that were pushed down to RXO. We allocate goodwill to our reporting units for the purpose of impairment testing. We evaluate goodwill for impairment annually, or more frequently if an event or circumstance indicates an impairment loss may have been incurred. We measure goodwill impairment, if any, at the amount a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. Our reporting units are our operating segments or one level below our operating segments for which discrete financial information is prepared and regularly reviewed by segment management. We have six reporting units.
For our 2021 goodwill assessment, we performed a quantitative analysis for our reporting units using a market approach. The market approach of determining fair value is based on comparable market multiples for companies engaged in similar businesses, as well as recent transactions within our industry. All of our reporting units had fair values in excess of their carrying values, resulting in no impairment of goodwill.
For our 2020 goodwill assessment, we performed a step-zero qualitative analysis for our reporting units. Accounting guidance allows entities to perform a qualitative assessment (a “step-zero” test) before performing a quantitative analysis. If an entity determines that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the entity does not need to perform a quantitative analysis for that reporting unit. Qualitative assessments consider macroeconomic conditions, industry and market considerations, internal cost factors, and overall financial performance, among other factors. Based on the qualitative assessments performed, we concluded that it was not more-likely-than-not that the fair value of each of our reporting units was less than their carrying amounts, and, therefore, further quantitative analysis was not performed, and we did not recognize any goodwill impairment.
Intangible Assets
Our intangible assets subject to amortization consist of customer relationships. We review long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An asset is considered to be impaired if the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset group is less than its carrying amount. An impairment loss is measured as the amount by which the carrying amount of the asset group exceeds the fair value of the asset. We estimate fair value using the expected future cash flows discounted at a rate comparable with the risks associated with the recovery of the asset. We amortize intangible assets on a straight-line basis or on a basis consistent with the pattern in which the economic benefits are realized. The estimated useful life for customer relationships is 9 to 16 years.
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Accrued Expenses
The components of accrued expenses are as follows:
As of December 31,
(In millions)20212020
Accrued transportation and facility charges$118 $84 
Accrued salaries and wages49 55 
Other accrued expenses81 65 
Total accrued expenses$248 $204 
Insurance
We participate in a combination of self-insurance programs and purchased insurance that are managed by XPO to provide for the costs of medical, casualty, liability, vehicular, cargo, workers’ compensation, cyber risk and property claims. XPO periodically evaluates our level of insurance coverage and adjusts our insurance levels based on risk tolerance and premium expense.
Liabilities for the risks we retain, including estimates of claims incurred but not reported, are not discounted and are estimated, in part, by considering historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim and retention levels. Changes in these assumptions and factors can impact actual costs paid to settle the claims and those amounts may be different than estimates. At December 31, 2021 and 2020, our insurance liabilities amounted to $55 million and $48 million, respectively, and were included in accrued expenses and other long-term liabilities on our Combined Balance Sheets.
Advertising Costs
Advertising costs are expensed as incurred and are not material.
Income Taxes
During the periods presented in the Combined Financial Statements, the operations of the Company were included in the consolidated U.S. federal and certain state and local and foreign income tax returns filed by XPO, where applicable. Income tax expense and other income tax related information contained in the Combined Financial Statements are presented on a separate return basis as if the Company had filed its own tax returns. As a result, actual tax transactions included in the consolidated financial statements of XPO may not be included in the Combined Financial Statements. Similarly, the tax treatment of certain items reflected in the Combined Financial Statements may not be reflected in the consolidated financial statements and tax returns of XPO. Therefore, portions of items such as net operating losses (“NOLs”), credit carryforwards, other deferred taxes, and valuation allowances may exist in the Combined Financial Statements that may or may not exist in XPO’s consolidated financial statements and vice versa. In addition, although deferred tax assets have been recognized for NOLs and tax credits in accordance with the separate return method, certain NOLs and credits will not carry over with the Company in connection with the Distribution. The income taxes of the Company as presented in the Combined Financial Statements may not be indicative of the income taxes that the Company will incur in the future. In jurisdictions where the Company has been included in tax returns filed by XPO, any income tax receivables or payables resulting from the related income tax provisions have been reflected in the Combined Balance Sheets within XPO investment.
We adopted the separate return approach for the purpose of presenting the Combined Financial Statements, including the income tax provisions (benefits) and the related deferred tax assets and liabilities. The historic operations of the Company reflect a separate return approach for each jurisdiction in which the Company had a presence and XPO filed a tax return.
We account for income taxes using the asset and liability method on a legal entity and jurisdictional basis, under which we recognize the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our financial statements or tax returns. Our calculation relies on several factors, including pre-tax earnings, differences between tax laws and
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accounting rules, statutory tax rates, tax credits, uncertain tax positions, and valuation allowances. We use judgment and estimates in evaluating our tax positions. Valuation allowances are established when, in our judgment, it is more likely than not that our deferred tax assets will not be realized based on all available evidence. We record global intangible low-taxed income tax as a period cost. We recognize tax benefits from uncertain tax positions only if (based on the technical merits of the position) it is more likely than not that the tax positions will be sustained on examination by the tax authority. We adjust these tax liabilities, including related interest and penalties, based on the current facts and circumstances. We report tax-related interest and penalties as a component of income tax expense.
Foreign Currency Translation and Transactions
The assets and liabilities of our foreign subsidiaries that use their local currency as their functional currency are translated to U.S. dollars (“USD”) using the exchange rate prevailing at each balance sheet date, with balance sheet currency translation adjustments recorded in accumulated other comprehensive income (loss) (“AOCI”) on our Combined Balance Sheets. The assets and liabilities of our foreign subsidiaries whose local currency is not their functional currency are remeasured from their local currency to their functional currency and then translated to USD. The results of operations of our foreign subsidiaries are translated to USD using average exchange rates prevailing for each period presented.
We convert foreign currency transactions recognized on our Combined Statements of Operations to USD by applying the exchange rate prevailing on the date of the transaction. Gains and losses arising from foreign currency transactions and the effects of remeasuring monetary assets and liabilities are recorded in Other (income) expense in our Combined Statements of Operations and were not material for any of the periods presented.
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. The levels of inputs used to measure fair value are:
•Level 1—Quoted prices for identical instruments in active markets;
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.
We base our fair value estimates on market assumptions and available information. The carrying values of cash, accounts receivable, accounts payable and accrued expenses approximated their fair values as of December 31, 2021 and 2020 due to their short-term nature and/or being receivable or payable on demand.
Stock-Based Compensation
XPO’s compensation programs include grants of stock-based compensation awards to directors, officers and key employees under XPO’s share-based payment programs. These awards include stock options, restricted stock, restricted stock units, performance-based units, cash incentive awards and other equity-related awards. Our Combined Statements of Operations include all of the share-based payment expenses directly attributable to RXO, as well as an allocation of any related XPO Corporate costs. Our stock-based compensation expense is recorded in SG&A on our Combined Statements of Operations.
We account for stock-based compensation based on the equity instrument’s grant date fair value. For grants of restricted stock units subject to service-based or performance-based vesting conditions only, the fair value is established based on the market price of XPO’s stock on the date of the grant.
We recognize the grant date fair value of equity awards as compensation cost over the requisite service period. We recognize expense for our performance-based restricted stock units over the awards’ requisite service period
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based on the number of awards expected to vest with consideration to the actual and expected financial results. We do not recognize expense until achievement of the performance targets for a performance-based restricted stock unit award is considered probable.
Related-Party Transactions
Transactions between the Company and XPO, and other non-RXO subsidiaries of XPO, are deemed related-party transactions. Related-party transactions are comprised of the following: (i) those that have been effectively settled or are expected to be settled for cash, and (ii) those which have historically not been settled and which have or are expected to be forgiven by either party. For those that have been or are expected to be cash settled, we have recorded related-party receivables (assets) or payables (liabilities) in the Combined Balance Sheets as of December 31, 2021 and 2020. For those that have been or are expected to be forgiven, the amounts have been recorded as an adjustment of XPO Investment in the Combined Balance Sheets as of December 31, 2021 and 2020.
Adoption of New Accounting Standards
In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also clarifies and amends existing guidance to enhance consistency and comparability among reporting entities. We adopted this standard on January 1, 2021 on a prospective basis. The adoption did not have a material effect on our Combined Financial Statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU, as subsequently modified, amends the incurred losses impairment method with a method that reflects expected credit losses on certain types of financial instruments, including trade receivables. We adopted this standard on January 1, 2020. The adoption did not have a material effect on our Combined Financial Statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Under the guidance, any capitalized implementation costs would be included in prepaid expenses, amortized over the term of the hosting arrangement on a straight-line basis and presented in the same line items in the Combined Statement of Operations as the expense for fees of the associated hosting arrangements. We adopted this standard on January 1, 2020 on a prospective basis. The adoption did not have a material effect on our Combined Financial Statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. The core principle of ASU 2016-02 is that a lessee should recognize on its Combined Balance Sheets the assets and liabilities that arise from leases, including operating leases. Under the new requirements, a lessee recognizes on the balance sheet the right-of-use asset representing the right to use the underlying asset and the lease liability representing the present value of future lease payments. We utilized a comprehensive approach to assess the impact of ASU 2016-02 on our financial statements and related disclosures. In particular, we completed a robust review of our lease portfolio and enhanced our internal controls, including those related to the identification, monitoring of, measurement and disclosure of our lease portfolio. We also implemented a new software solution to facilitate compliance with the new guidance. We adopted ASU 2016-02 and its related amendments (Topic 842) on January 1, 2019 on a prospective basis. The adoption did not have a material effect on our Combined Financial Statements. For additional information on our leases, see Note 6—Leases.
Accounting Pronouncements Issued but Not Yet Effective
In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.” The ASU increases the transparency surrounding government assistance by requiring disclosure of: (i) the types of assistance received, (ii) an entity’s accounting for the assistance
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and (iii) the effect of the assistance on the entity’s financial statements. This ASU is effective for fiscal years beginning after December 15, 2021. Early adoption is permitted. We are currently evaluating the impact of the new guidance, which is limited to financial statement disclosures.
3.Revenue Recognition
Disaggregation of Revenues
We disaggregate our revenue by geographic area, service offering and industry sector. The majority of our revenue, based on sales office location, is generated in the U.S. Approximately 9%, 8% and 6% of our revenues were generated outside the U.S. (primarily in North America, excluding the U.S., and Asia) for the years ended December 31, 2021, 2020 and 2019, respectively.
Our revenue disaggregated by service offering was as follows:
Years Ended December 31,
(In millions)202120202019
Revenue
Truck brokerage$2,749 $1,684 $1,372 
Last mile1,016 908 873 
Managed transportation603 582 783 
Freight forwarding434 225 202 
Eliminations(113)(42)(89)
Total
$4,689 $3,357 $3,141 
Our revenue by industry sector, before eliminations, was approximately as follows: retail/e-commerce (37%, 37% and 35% for 2021, 2020 and 2019, respectively); food and beverage (12%, 12% and 10% for 2021, 2020 and 2019, respectively); industrial/manufacturing (16%, 16% and 23% for 2021, 2020 and 2019, respectively); logistics and transportation (7%, 7% and 5% for 2021, 2020 and 2019, respectively); automotive (6%, 7% and 8% for 2021, 2020 and 2019, respectively); and other (22%, 21% and 19% for 2021, 2020 and 2019, respectively).
Performance Obligations
Remaining performance obligations represent firm contracts for which services have not been performed and future revenue recognition is expected. As permitted in determining the remaining performance obligation, we omit obligations that: (i) have original expected durations of one year or less or (ii) contain variable consideration. On December 31, 2021, the fixed consideration component of our remaining performance obligation was approximately $124 million, and we expect approximately 86% of that amount to be recognized over the next three years and the remainder thereafter. We estimate remaining performance obligations at a point in time and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations.
4.Restructuring Charges
We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in response to COVID-19. These actions generally include severance and facility-related costs, including impairment of operating lease assets, and are intended to improve our efficiency and profitability. Additionally, a portion of the restructuring charge recorded in 2019 related to a customer downsizing its business with us.
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Our restructuring-related activity was as follows:
Year Ended December 31, 2021
(In millions)Reserve Balance
as of
December 31, 2020		Charges IncurredPaymentsOtherReserve Balance
as of
December 31, 2021
Severance$— $2 $— $(2)$— 
Facilities5 — (3)— 2 
Total
$5 $2 $(3)$(2)$2 
Year Ended December 31, 2020
(In millions)Reserve Balance
as of
December 31, 2019		Charges IncurredPaymentsOtherReserve Balance
as of
December 31, 2020
Severance$3 $5 $(6)$(2)$— 
Facilities— 5 — — 5 
Total
$3 $10 $(6)$(2)$5 
We expect the majority of the cash outlays related to the charges incurred in 2021 will be complete within twelve months. The majority of the cash outlays related to the charges incurred in 2020 were substantially complete by the middle of 2021.
5.Property and Equipment
The following table summarizes our property and equipment:
December 31,
(In millions)20212020
Property and equipment
Buildings and leasehold improvements$17 $16 
Vehicles, tractors, trailers and tankers18 28 
Machinery and equipment38 33 
Computer software and equipment257 229 
330 306 
Less: accumulated depreciation and amortization(219)(181)
Total property and equipment, net$111 $125 
Net book value of capitalized internally-developed software included in property and equipment, net$75 $88 
Depreciation of property and equipment and amortization of computer software was $58 million, $51 million and $39 million for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021 and 2020, our long-lived tangible assets outside of the U.S. were insignificant.
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6.Leases
Most of our leases are operating leases and consist of real estate leases. In addition, we lease trucks, tractors, trailers and chassis. The components of our operating lease expense were as follows:
Years Ended December 31,
(In millions)202120202019
Operating lease cost$46 $45 $38 
Short-term lease cost8 9 12 
Variable lease cost12 11 10 
Total operating lease cost$66 $65 $60 
Supplemental balance sheet information related to our operating leases was as follows:
December 31,
(In millions)20212020
Operating lease assets$128 $111 
Short-term operating lease liabilities$42 $30 
Operating lease liabilities93 86 
Total operating lease liabilities$135 $116 
Weighted-average remaining lease term4 years4 years
Weighted-average discount rate4.62 %5.40 %
Supplemental cash flow information related to our operating leases was as follows:
Years Ended December 31,
(In millions)202120202019
Cash paid from operating activities for amounts included in the measurement of operating lease liabilities$41 $44 $37 
Operating lease assets obtained in exchange for new operating lease obligations55 37 42 
Maturities of operating lease liabilities as of December 31, 2021 were as follows:
(In millions)
2022$47 
202341 
202428 
202515 
20267 
Thereafter9 
Total lease payments$147 
Less: interest(12)
Present value of lease liabilities$135 
As of December 31, 2021, we had additional operating leases that have not yet commenced with future undiscounted lease payments of $10 million. These operating leases will commence in 2022 with initial lease terms of 3 years to 7 years.
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7.Goodwill and Intangible Assets
There are no cumulative goodwill impairments as of December 31, 2021.
Our identifiable intangible assets consist entirely of customer relationships, all of which are definite-lived. We did not recognize any impairment of our identified intangible assets in 2021 and 2020. We recorded a non-cash, pre-tax charge of $6 million in 2019 related to the impairment of customer relationships intangibles associated with exiting our direct postal injection business.
Estimated future amortization expense for amortizable intangible assets for the next five years and thereafter is as follows:
(In millions)20222023202420252026Thereafter
Estimated amortization expense$21 $13 $12 $11 $11 $32 
Actual amounts of amortization expense may differ from estimated amounts due to changes in foreign currency exchange rates, additional intangible asset acquisitions, future impairment of intangible assets, accelerated amortization of intangible assets and other events.
Intangible asset amortization expense was $24 million, $25 million and $34 million for the years ended December 31, 2021, 2020 and 2019, respectively.
8.Employee Benefit Plans
Defined Contribution Retirement Plans
XPO sponsors qualified defined contribution plans, in which RXO is one of a number of companies that participate. Contributions for employees of RXO for the years ended December 31, 2021, 2020, and 2019 were $7 million, $6 million, and $5 million, respectively. The majority of the expense is recorded in SG&A in the Combined Statements of Operations.
Postretirement Medical Plan
XPO also sponsors a postretirement medical plan that provides health benefits to certain non-contractual employees who are at least 55 years of age with at least 10 years of service (the “Postretirement Plan”). The Postretirement Plan does not provide employer-subsidized retiree medical benefits for employees hired on or after January 1, 1993. Our costs related to this plan were not material for the years ended December 31, 2021, 2020 and 2019.
9.Income Taxes
The tax provisions have been prepared on a separate return basis as if RXO was a separate group of companies under common ownership. The operations have been combined as if RXO was filing on a combined basis for U.S. federal, U.S. state and non-U.S. income tax purposes, where allowable by law. RXO is subject to regulation under a wide variety of U.S. federal, U.S. state and non-U.S. tax laws, regulations and policies. Changes to these laws or regulations may affect our tax liability, return on investments and business operations.
Income before taxes related to our U.S. and foreign operations was as follows:
Years Ended December 31,
(In millions)202120202019
U.S.$169 $45 $71 
Foreign22 12 13 
Income before income tax provision$191 $57 $84 
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The income tax provision is comprised of the following:
Years Ended December 31,
(In millions)202120202019
Current:
U.S. federal$30 $15 $(1)
State6 3 1 
Foreign2 5 2 
Total current income tax provision$38 $23 $2 
Deferred:
U.S. federal$4 $(6)$18 
State(1)(2)3 
Foreign— (1)(1)
Total deferred income tax provision (benefit)$3 $(9)$20 
Total income tax provision$41 $14 $22 
The tax expense reconciliations were as follows:
Years Ended December 31,
202120202019
Tax expense at U.S. federal statutory tax rate$40 $12 $18 
State taxes, net of U.S. federal benefit4 1 2 
Foreign rate differential1 1 1 
Foreign operations(1)
1 — (1)
Changes in uncertain tax positions(5)— (1)
Provision to return adjustments— — 3 
Total income tax provision$41 $14 $22 
__________________
(1)Foreign operations include the net impact of changes to valuation allowances, the cost of inclusion of foreign income in the U.S. net of foreign taxes, and permanent items related to foreign operations.
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Components of the Net Deferred Tax Asset or Liability
The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability were as follows:
Years Ended December 31,
(In millions)20212020
Deferred tax asset
Net operating loss and other tax attribute carryforwards$3 $4 
Accrued expenses— 7 
Other15 13 
Total deferred tax asset18 24 
Valuation allowances(1)(2)
Total deferred tax asset, net17 22 
Deferred tax liability
Intangible assets(39)(40)
Property and equipment(27)(28)
Other(1)(1)
Total deferred tax liability(67)(69)
Net deferred tax liability$(50)$(47)
The deferred tax asset and deferred tax liability above are reflected on our Combined Balance Sheets as follows:
December 31,
(In millions)20212020
Other long-term assets$2 $2 
Deferred tax liability(52)(49)
Net deferred tax liability$(50)$(47)
Operating Loss and Tax Credit Carryforwards
Our operating loss and tax credit carryforwards were as follows:
December 31,
(In millions)Expiration Date20212020
Tax effect (before federal benefit) of state net operating
losses
Various times starting in 2022(1)
1 2 
Foreign net operating losses available to offset future
taxable income
Various times starting in 2022(1)
5 7 
______________
(1)Some credits and losses have unlimited carryforward periods.
Valuation Allowances
We established a valuation allowance for some of our deferred tax assets, as it is more likely than not that these assets will not be realized in the foreseeable future. We concluded that the remaining deferred tax assets will more likely than not be realized, though this is not assured, and as such no valuation allowance have been provided on these assets.
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The balances and activity related to our valuation allowance were as follows:
(In millions)Beginning BalanceAdditionsReductionsEnding Balance
Year Ended December 31, 2021$2 $— $(1)$1 
Year Ended December 31, 20202 — — 2 
Year Ended December 31, 20193 — (1)2 
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Years Ended December 31,
(In millions)202120202019
Beginning balance
$4 $4 $6 
Reductions for tax positions of prior years— — (2)
Reductions due to the statute of limitations(3)— — 
Ending balance
1 4 4 
Interest and penalties2 3 3 
Gross unrecognized tax benefits
$3 $7 $7 
Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year$1 $4 $4 
We could reflect a reduction to unrecognized tax benefits of up to $1 million over the next 12 months due to the statute of limitations lapsing on positions or because tax positions are sustained on audit.
We are subject to taxation in the United States and various states and foreign jurisdictions. As of December 31, 2021, we have no tax years under examination by the IRS or in any foreign jurisdictions. We have various U.S. state and local examinations in process. The U.S. federal tax returns after 2008, state and local returns after 2015, and non-U.S. returns after 2009 are open under relevant statutes of limitations and are subject to audit.
10.Commitments and Contingencies
We are involved, and will continue to be involved, in numerous proceedings arising out of the conduct of our business. These proceedings may include claims for property damage or personal injury incurred in connection with the transportation of freight, environmental liability, commercial disputes, and employment-related claims, including claims involving asserted breaches of employee restrictive covenants. These matters also include several class action and collective action cases involving claims that the contract carriers with which we contract for performance of delivery services, or their delivery workers, should be treated as employees, rather than independent contractors (“misclassification claims”) and may seek substantial monetary damages (including claims for unpaid wages, overtime, unreimbursed business expenses, deductions from wages, penalties and other items), injunctive relief, or both.
We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We review and adjust accruals for loss contingencies quarterly and as additional information becomes available. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, we disclose the estimate of the possible loss or range of loss if it is material and an estimate can be made, or disclose that such an estimate cannot be made. The determination as to whether a loss can reasonably be considered to be possible or probable is based on our assessment, together with legal counsel, regarding the ultimate outcome of the matter.
We believe that we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. We do not believe that the ultimate resolution of any matters to which we are presently a party
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will have a material adverse effect on our results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our financial condition, results of operations or cash flows. Legal costs incurred related to these matters are expensed as incurred.
XPO carries liability and excess umbrella insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting our operations as a transportation company. The liability and excess umbrella insurance policies generally do not cover the misclassification claims described in this note. In the event we are required to satisfy a legal claim outside the scope of the coverage provided by insurance, our financial condition, results of operations or cash flows could be negatively impacted.
11.Related-Party Transactions
Transactions between the Company and XPO, and other non-RXO subsidiaries of XPO, are deemed related-party transactions.
Allocation of General Corporate Expenses
The Combined Statements of Operations include expenses for certain centralized functions and other programs provided and/or administered by XPO that are charged directly to the Company. In addition, for purposes of preparing these Combined Financial Statements, a portion of XPO’s total corporate expenses have been allocated to the Company. See Note 2 for a discussion of the methodology used to allocate such costs for purposes of preparing these Combined Financial Statements.
Costs of $72 million, $57 million and $37 million for the years ended December 31, 2021, 2020 and 2019, respectively, have been reflected in SG&A, Depreciation and amortization expense, Transaction and integration costs and Restructuring costs in our Combined Statements of Operations for our allocated share of XPO’s corporate overhead.
Transactions with XPO and its non-RXO Subsidiaries
Revenue and costs generated from related parties were as follows:
Years Ended December 31,
(In millions)202120202019
Revenue$181 $122 $96 
Costs79 77 71 
Balances with XPO and its non-RXO Subsidiaries
Assets and liabilities on the Combined Balance Sheets include the following related-party amounts that are expected to be cash settled:
December 31,
(In millions)20212020
Amounts due from XPO and its affiliates
Trade receivables(1)
$10 $16 
Amounts due to XPO and its affiliates
Trade payables(2)
6 11 
__________________
(1)Represents trade receivables generated from revenue with XPO.
(2)Represents trade payables due to XPO.
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RXO
Condensed Combined Balance Sheets
(Unaudited)
June 30,December 31,
(In millions)20222021
ASSETS
Current assets
Cash and cash equivalents$212 $29 
Accounts receivable, net of allowances of $11 and $9, respectively1,107 1,010 
Other current assets32 44 
Total current assets
1,351 1,083 
Long-term assets
Property and equipment, net of $233 and $219 in accumulated depreciation, respectively114 111 
Operating lease assets170 128 
Goodwill630 630 
Identifiable intangible assets, net of $227 and $217 in accumulated amortization, respectively90 100 
Other long-term assets17 16 
Total long-term assets
1,021 985 
Total assets
$2,372 $2,068 
LIABILITIES AND EQUITY
Current liabilities
Accounts payable$615 $520 
Accrued expenses291 248 
Short-term operating lease liabilities47 42 
Other current liabilities4 6 
Total current liabilities
957 816 
Long-term liabilities
Deferred tax liability51 52 
Long-term operating lease liabilities127 93 
Other long-term liabilities38 37 
Total long-term liabilities
216 182 
Equity
XPO investment1,201 1,072 
Accumulated other comprehensive loss
(2)(2)
Total equity
1,199 1,070 
Total liabilities and equity
$2,372 $2,068 
See accompanying notes to condensed combined financial statements.
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RXO
Condensed Combined Statements of Operations
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In millions)2022202120222021
Revenue
$1,226 $1,099 $2,538 $2,164 
Cost of transportation and services (exclusive of depreciation and amortization)904 860 1,925 1,672 
Direct operating expense (exclusive of depreciation and amortization)56 48 111 95 
Sales, general and administrative expense166 124 327 257 
Depreciation and amortization expense21 20 42 40 
Transaction and integration costs18 — 21 1 
Restructuring costs3 — 3 — 
Operating income
58 47 109 99 
Other (income) expense(1)(1)(1)1 
Income before income taxes
59 48 110 98 
Income tax provision15 13 27 23 
Net income
$44 $35 $83 $75 
See accompanying notes to condensed combined financial statements.
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RXO
Condensed Combined Statements of Comprehensive Income
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
(In millions)2022202120222021
Net income
$44 $35 $83 $75 
Other comprehensive (loss) income, net of tax
Foreign currency translation (loss) gain, net of tax effect of $—, $—, $—, and $—
$(2)$1 $— $1 
Other comprehensive (loss) income
(2)1 — 1 
Comprehensive income
$42 $36 $83 $76 
See accompanying notes to condensed combined financial statements.
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RXO
Condensed Combined Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
(In millions)20222021
Operating activities
Net income
$83 $75 
Adjustments to reconcile net income to net cash from operating activities
Depreciation, amortization and net lease activity42 40 
Stock compensation expense6 3 
Deferred tax expense
(1)— 
Other5 (1)
Changes in assets and liabilities
Accounts receivable(102)4 
Other assets11 (6)
Accounts payable95 (40)
Accrued expenses and other liabilities38 21 
Net cash provided by operating activities
177 96 
Investing activities
Payment for purchases of property and equipment(24)(19)
Proceeds from sale of property and equipment— 1 
Net cash used in investing activities
(24)(18)
Financing activities
Net transfers from (to) XPO30 (89)
Other— 1 
Net cash provided by (used in) financing activities
30 (88)
Effect of exchange rates on cash, cash equivalents and restricted cash— 1
Net increase (decrease) in cash, cash equivalents and restricted cash
183 (9)
Cash, cash equivalents, and restricted cash, beginning of period
29 70 
Cash, cash equivalents, and restricted cash, end of period
$212 $61 
Supplemental disclosure of cash flow information:
Leased assets obtained in exchange for new operating lease liabilities$40 $28 
Cash paid for income taxes$3 $3 
See accompanying notes to condensed combined financial statements.
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RXO
Condensed Combined Statements of Changes in Equity
(Unaudited)
(In millions)XPO InvestmentAccumulated Other Comprehensive LossTotal Equity
Balance as of March 31, 2022
$1,043 $— $1,043 
Net income44 — 44 
Other comprehensive loss— (2)(2)
Stock compensation expense4 — 4 
Net transfers from XPO110 — 110 
Balance as of June 30, 2022
$1,201 $(2)$1,199 
(In millions)XPO InvestmentAccumulated Other Comprehensive LossTotal Equity
Balance as of December 31, 2021
$1,072 $(2)$1,070 
Net income83 — 83 
Stock compensation expense6 — 6 
Net transfers from XPO40 — 40 
Balance as of June 30, 2022
$1,201 $(2)$1,199 
(In millions)XPO InvestmentAccumulated Other Comprehensive LossTotal Equity
Balance as of March 31, 2021
$1,127 $(2)$1,125 
Net income35 — 35 
Other comprehensive income— 1 1 
Stock compensation expense1 — 1 
Net transfers to XPO(103)— (103)
Balance as of June 30, 2021
$1,060 $(1)$1,059 
(In millions)XPO InvestmentAccumulated Other Comprehensive LossTotal Equity
Balance as of December 31, 2020
$1,070 $(2)$1,068 
Net income75 — 75 
Other comprehensive income— 1 1 
Stock compensation expense3 — 3 
Net transfers to XPO(88)— (88)
Balance as of June 30, 2021
$1,060 $(1)$1,059 
See accompanying notes to condensed combined financial statements.
F-29

RXO
Notes to Condensed Combined Financial Statements
(Unaudited)
1.Organization
Nature of Operations
RXO, LLC, formerly known as NAT Holdings, LLC (“RXO”, the “Company” or “we”), is a brokered transportation platform defined by cutting-edge technology and an asset-light business model, with the largest component being our core truck brokerage business. Our operations also include three asset-light, brokered transportation services, all of which are complementary to our truck brokerage business: managed transportation, last mile and freight forwarding. We present our operations in the Condensed Combined Financial Statements as one reportable segment.
The Proposed Distribution
On March 8, 2022, the board of directors of our parent company, XPO Logistics, Inc. (together with its subsidiaries, “XPO”), approved a plan to pursue a spin-off of its tech-enabled brokered transportation platform in North America as a publicly traded company named RXO. The spin-off is expected to be completed through a distribution of shares of RXO common stock to XPO stockholders (the “Distribution”). Completion of the transaction is subject to a number of customary market, regulatory and other closing conditions including the approval of XPO’s board of directors. References to RXO or the Company include the subsidiaries of XPO that will be subsidiaries of RXO at the time of the Distribution.
2.Basis of Presentation
The Condensed Combined Financial Statements of RXO were prepared on a standalone basis and have been derived from the consolidated financial statements and accounting records of XPO. These financial statements reflect the combined historical results of operations, financial position and cash flows of RXO in accordance with U.S. generally accepted accounting principles (“GAAP”).
Historically, separate financial statements have not been prepared for the Company and it has not operated as a standalone business separate from XPO. The Condensed Combined Financial Statements include certain assets and liabilities that have historically been held by XPO or by other XPO subsidiaries but are specifically identifiable or otherwise attributable to the Company. All significant intercompany transactions between XPO and the Company have been included as components of XPO investment in the Condensed Combined Financial Statements, as they are to be considered effectively settled upon effectiveness of the Distribution. The Condensed Combined Financial Statements are presented as if the RXO businesses had been combined for all periods presented. The assets and liabilities in the Condensed Combined Financial Statements have been reflected on a historical cost basis, as immediately prior to the Distribution all of the assets and liabilities presented are wholly-owned by XPO and are being transferred to RXO at a carry-over basis.
The Condensed Combined Balance Sheets include certain assets and liabilities directly attributable to RXO, and the Condensed Combined Statements of Operations include allocations of XPO costs and expenses, as described below. XPO’s third-party debt and the related interest expense were not allocated to us for any of the periods presented as XPO’s borrowings are not our legal obligation.
XPO’s corporate function (“Corporate”) incurs a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications. For purposes of the Condensed Combined Statements of Operations, an allocation of these expenses is included to burden all business units comprising XPO’s historical operations. The charges reflected have either been specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), which we define as net income before interest expense, income tax, depreciation and amortization expense, transaction and integration costs,
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restructuring costs and other adjustments, or headcount. These allocated costs are recorded in Sales, general and administrative expense (“SG&A”), Depreciation and amortization expense and Transaction and integration costs in the Condensed Combined Statements of Operations. We believe the assumptions regarding allocations of XPO corporate expenses are reasonable. Nevertheless, the Condensed Combined Financial Statements may not reflect the combined results of operations, financial position and cash flows had the Company been a standalone entity during the periods presented.
XPO investment represents XPO’s historical investment in RXO, and includes the net effects of transactions with and allocations from XPO as well as RXO’s accumulated earnings. Certain transactions between RXO and XPO, including XPO’s non-RXO subsidiaries, have been included in these Condensed Combined Financial Statements, and are considered to be effectively settled at the time the transaction is recorded. The total net effect of the cash settlement of these transactions is reflected in the Condensed Combined Statements of Cash Flows as a financing activity and in the Condensed Combined Balance Sheets as XPO investment. The components of the net transfers to and from XPO include certain costs allocated from Corporate functions, income tax expense, certain cash receipts and payments made on behalf of RXO and general financing activities.
Principles of Combination
The Condensed Combined Financial Statements include the accounts and business activities distributed across the legal entities of RXO. Significant intercompany balances and transactions among the operations of the RXO legal entities have been eliminated in the Condensed Combined Financial Statements. All significant related party transactions between RXO and XPO have been included in these Condensed Combined Financial Statements as components of XPO investment. The Condensed Combined Financial Statements reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.
Significant Accounting Policies
Cash, Cash Equivalents and Restricted Cash
We consider all highly liquid investments with an original maturity of three months or less on the date of purchase to be cash equivalents. As of June 30, 2022 and December 31, 2021, there were no cash equivalents or restricted cash. Treasury activities at XPO are generally centralized, while certain balances are managed locally. To the extent cash and cash equivalents are legally owned by RXO, they are reflected in the Condensed Combined Financial Statements.
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. The levels of inputs used to measure fair value are:
•Level 1—Quoted prices for identical instruments in active markets;
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.
We base our fair value estimates on market assumptions and available information. The carrying values of cash, accounts receivable, accounts payable and accrued expenses approximated their fair values as of June 30, 2022 and December 31, 2021 due to their short-term nature and/or being receivable or payable on demand.
F-31

Adoption of New Accounting Standards
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.” The ASU increases the transparency surrounding government assistance by requiring annual disclosure of (i) the types of assistance received, (ii) an entity’s accounting for the assistance and (iii) the effect of the assistance on the entity’s financial statements. We adopted this standard on January 1, 2022, on a prospective basis. The adoption did not have a material impact on our financial statement disclosures.
3.Revenue Recognition
Disaggregation of Revenues
We disaggregate our revenue by geographic area, service offering and industry sector. The majority of our revenue, based on sales office location, is generated in the U.S. Approximately 10% and 8% of our revenues were generated outside the U.S. (primarily in North America, excluding the U.S., and Asia) for the three months ended June 30, 2022 and 2021, respectively. Approximately 9% and 8% of our revenues were generated outside the U.S. (primarily in North America, excluding the U.S., and Asia) for the six months ended June 30, 2022 and 2021, respectively.
Our revenue disaggregated by service offering was as follows:
Three Months Ended June 30,
Six Months Ended June 30,
(In millions)2022202120222021
Revenue
Truck brokerage$755 $607 $1,579 $1,203 
Last mile274 269 520 515 
Managed transportation133 167 272 334 
Freight forwarding100 89 239 164 
Eliminations (36)(33)(72)(52)
Total
$1,226 $1,099 $2,538 $2,164 
Our revenue by industry sector, before eliminations, was approximately as follows: retail/e-commerce (35% and 38% for the three months ended June 30, 2022 and 2021, respectively); food and beverage (12% and 13% for the three months ended June 30, 2022 and 2021, respectively); industrial/manufacturing (17% and 16% for the three months ended June 30, 2022 and 2021, respectively); logistics and transportation (5% and 6% for the three months ended June 30, 2022 and 2021, respectively); automotive (8% and 6% for the three months ended June 30, 2022 and 2021, respectively); and other (23% and 21% for the three months ended June 30, 2022 and 2021, respectively).
Our revenue by industry sector, before eliminations, was approximately as follows: retail/e-commerce (35% and 37% the six months ended June 30, 2022 and 2021, respectively); food and beverage (12% and 13% for the six months ended June 30, 2022 and 2021, respectively); industrial/manufacturing (17% and 16% for the six months ended June 30, 2022 and 2021, respectively); logistics and transportation (6% and 7% for the six months ended June 30, 2022 and 2021, respectively); automotive (7% and 7% for the six months ended June 30, 2022 and 2021, respectively); and other (23% and 20% for the six months ended June 30, 2022 and 2021, respectively).
Performance Obligations
Remaining performance obligations represent firm contracts for which services have not been performed and future revenue recognition is expected. As permitted in determining the remaining performance obligation, we omit obligations that: (i) have original expected durations of one year or less or (ii) contain variable consideration. On June 30, 2022, the fixed consideration component of our remaining performance obligation was approximately $139 million, and we expect approximately 91% of that amount to be recognized over the next three years and the
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remainder thereafter. We estimate remaining performance obligations at a point in time and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations.
4.Restructuring Charges
We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure. These actions generally include severance and facility-related costs, including impairment of operating lease assets, as well as contract termination costs, and are intended to improve our efficiency and profitability going forward.
Our restructuring-related activity was as follows:
Six Months Ended June 30, 2022
(In millions)Reserve Balance
as of
December 31, 2021		Charges IncurredPaymentsOtherReserve Balance
as of
June 30, 2022
Severance$— $1 $— $— $1 
Facilities2 1 (1)— 2 
Contract termination$— $1 $— $— $1 
Total
$2 $3 $(1)$— $4 
We expect the majority of the cash outlays related to the charges incurred in the first six months of 2022 will be completed by June 30, 2023.
5.Commitments and Contingencies
We are involved, and will continue to be involved, in numerous proceedings arising out of the conduct of our business. These proceedings may include claims for property damage or personal injury incurred in connection with the transportation of freight, environmental liability, commercial disputes and employment-related claims, including claims involving asserted breaches of employee restrictive covenants. These matters also include several class action and collective action cases involving claims that the contract carriers with which we contract for performance of delivery services, or their delivery workers, should be treated as employees, rather than independent contractors (“misclassification claims”) and may seek substantial monetary damages (including claims for unpaid wages, overtime, unreimbursed business expenses, deductions from wages, penalties and other items), injunctive relief, or both.
We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We review and adjust accruals for loss contingencies quarterly and as additional information becomes available. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, we disclose the estimate of the possible loss or range of loss if it is material and an estimate can be made, or disclose that such an estimate cannot be made. The determination as to whether a loss can reasonably be considered to be possible or probable is based on our assessment, together with legal counsel, regarding the ultimate outcome of the matter.
We believe that we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. We do not believe that the ultimate resolution of any matters to which we are presently a party will have a material adverse effect on our results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our financial condition, results of operations or cash flows. Legal costs incurred related to these matters are expensed as incurred.
XPO carries liability and excess umbrella insurance policies that are deemed sufficient to cover potential legal claims arising in the normal course of conducting our operations as a transportation company. The liability and excess umbrella insurance policies generally do not cover the misclassification claims described in this note. In the
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event we are required to satisfy a legal claim outside the scope of the coverage provided by insurance, our financial condition, results of operations or cash flows could be negatively impacted.
6.Related-Party Transactions
Transactions between the Company and XPO, and other non-RXO subsidiaries of XPO, are deemed related-party transactions.
Allocation of General Corporate Expenses
The Condensed Combined Statements of Operations include expenses for certain centralized functions and other programs provided and/or administered by XPO that are charged directly to the Company. In addition, for purposes of preparing these Condensed Combined Financial Statements, a portion of XPO’s total corporate expenses have been allocated to the Company. See Note 2 for a discussion of the methodology used to allocate such costs for purposes of preparing these Condensed Combined Financial Statements.
Costs included in our Condensed Combined Statements of Operations for our allocated share of XPO’s corporate overhead are as follows:
Three Months Ended June 30,Six Months Ended June 30,
(In millions)2022202120222021
Sales, general and administrative expense$18 $12 $36 $28 
Depreciation and amortization expense3 2 5 3 
Transaction and integration costs18 — 21 1 
Total
$39 $14 $62 $32 
Transactions with XPO and its non-RXO Subsidiaries
Revenue and costs generated from related parties were as follows:
Three Months Ended June 30,Six Months Ended June 30,
(In millions)2022202120222021
Revenue$26 $39 $75 $74 
Cost of transportation and services (exclusive of depreciation and amortization) 15 20 32 39 
Balances with XPO and its non-RXO Subsidiaries
Assets and liabilities on the Condensed Combined Balance Sheets include the following related-party amounts that are expected to be cash settled:
June 30, December 31,
(In millions)20222021
Amounts due from XPO and its affiliates
Trade receivables(1)
$4 $10 
Amounts due to XPO and its affiliates
Trade payables(2)
8 6 
__________________
(1)Represents trade receivables generated from revenue with XPO.
(2)Represents trade payables due to XPO.
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Assignment of Operating Lease Assets and Liabilities
During the second quarter of 2022, the Company finalized the assignment of certain leased assets, primarily office buildings, between XPO and the Company. The leases assigned to the Company resulted in increases of $26 million, $5 million and $24 million to Operating lease assets, Short-term operating lease liabilities and Long-term operating lease liabilities, respectively, in the Condensed Combined Balance Sheets as of June 30, 2022. Costs associated with these leases are recorded in Sales, general and administrative expense in the Condensed Combined Statements of Operations for the three and six months ended June 30, 2022 and 2021.
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Exhibit 99.2
exhibit9921a.jpg
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D 91 38 7- P8 09 54 REGISTERED NON-VOTING INTERIM ***INFO*** See the reverse side for instructions on how to access materials. You are receiving this communication because you hold securities in XPO Logistics, Inc. (“XPO”). XPO has released informational materials regarding the separation of its wholly-owned subsidiary, RXO, Inc. ("RXO"), that are now available for your review. The materials consist of the Information Statement, including any supplements, that RXO has prepared in connection with the separation. This notice provides instructions on how to access these materials for informational purposes only. It is not a form for voting and XPO is not soliciting your proxy in connection with the separation. This notice presents only an overview of these materials, which contain important information and are available, free of charge, on the Internet or by mail. We encourage you to access and closely review these materials. To effect the separation, XPO will distribute all of the shares of RXO common stock on a pro rata basis to the holders of XPO common stock. Immediately following the distribution, which will be effective as of the date and time referenced in the Information Statement, RXO will be an independent, publicly traded company. You may view the materials online at www.materialnotice.com and easily request a paper or e-mail copy (see reverse side). To facilitate timely delivery, please make your request for a paper copy at least five business days prior to the distribution date referenced in the Information Statement. Important Notice Regarding the Availability of Materials XPO LOGISTICS, INC.


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D 91 38 8- P8 09 54 Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. How to View Online: Visit: www.materialnotice.com. Have the information that is printed in the box marked by the arrow above. How to Request and Receive a PAPER or E-MAIL Copy: If you want to receive a paper or e-mail copy of these materials, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET: www.materialnotice.com 2) BY TELEPHONE: 1-800-579-1639 3) BY E-MAIL*: sendmaterial@materialnotice.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow above in the subject line. Materials Available to VIEW or RECEIVE:


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D 91 38 9- P8 09 54 THIS NOTICE WILL ENABLE YOU TO ACCESS MATERIALS FOR INFORMATIONAL PURPOSES ONLY


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D 91 39 0- P8 09 54 THIS PAGE WAS INTENTIONALLY LEFT BLANK