FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to___________
Commission File Number 1-4471
XEROX CORPORATION
(Exact Name of Registrant as
specified in its charter)
New York 16-0468020 _
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
P.O. Box 1600
Stamford, Connecticut 06904-1600
(Address of principal executive offices)
(Zip Code)
(203) 968-3000 _
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31,1996
Common Stock 324,561,501 shares
This document consists of 28 pages.
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
Xerox Corporation
Form 10-Q
September 30, 1996
Table of Contents
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Income 4
Consolidated Balance Sheets 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Document Processing 12
Discontinued Operations 18
Capital Resources and Liquidity 22
Hedging Instruments 23
Part II - Other Information
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Exhibit Index
Computation of Net Income per Common Share 27
Computation of Ratio of Earnings to Fixed Charges 28
Restated Certificate
of Incorporation (filed in electronic form only)
Financial Data Schedule (filed in electronic form only)
For additional information about The Document Company Xerox,
please visit our World-wide Web site at http:\\www.xerox.com and
select "Investor Information"
PART I - FINANCIAL INFORMATION
Xerox Corporation
Consolidated Statements of Income
Three months ended Nine months ended
September 30, September 30,
(In millions, except per-share data) 1996 1995 1996 1995
Revenues
Sales $ 2,172 $ 2,066 $ 6,289 $ 6,011
Service and rentals 1,733 1,700 5,258 5,073
Finance income 253 246 756 749
Total Revenues 4,158 4,012 12,303 11,833
Costs and Expenses
Cost of sales 1,215 1,183 3,500 3,478
Cost of service and rentals 889 861 2,667 2,544
Equipment financing interest 131 123 386 378
Research and development expenses 261 242 779 707
Selling, administrative and general
expenses 1,256 1,145 3,691 3,411
Gain on affiliates' sales of stock, net (11) - (11) -
Other, net 34 43 65 121
Total Costs and Expenses 3,775 3,597 11,077 10,639
Income before Income Taxes, Equity Income
and Minorities' Interests 383 415 1,226 1,194
Income taxes 138 160 441 462
Equity in net income of unconsolidated
affiliates 30 38 92 102
Minorities' interests in earnings of
subsidiaries 25 37 97 137
Income from Continuing Operations 250 256 780 697
Discontinued Operations - (20) - (76)
Net Income $ 250 $ 236 $ 780 $ 621
Primary Earnings per Share
Continuing Operations $ 0.71 $ 0.74 $ 2.24 $ 2.01
Discontinued Operations - (.06) - (.23)
Primary Earnings per Share $ 0.71 $ 0.68 $ 2.24 $ 1.78
Fully Diluted Earnings per Share
Continuing Operations $ 0.68 $ 0.70 $ 2.14 $ 1.91
Discontinued Operations - (.05) - (.21)
Fully Diluted Earnings per Share $ 0.68 $ 0.65 $ 2.14 $ 1.70
See accompanying notes.
Xerox Corporation
Consolidated Balance Sheets
September 30, December 31,
(In millions, except share data in thousands) 1996 1995
Assets
Cash $ 136 $ 136
Accounts receivable, net 2,099 1,914
Finance receivables, net 4,101 4,069
Inventories 3,099 2,656
Deferred taxes and other current assets 1,032 1,095
Total Current Assets 10,467 9,870
Finance receivables due after one year, net 6,505 6,406
Land, buildings and equipment, net 2,180 2,105
Investments in affiliates, at equity 1,337 1,314
Goodwill 620 627
Other assets 933 876
Investment in discontinued operations 4,501 4,810
Total Assets $ 26,543 $ 26,008
Liabilities and Equity
Short-term debt and current portion of
long-term debt $ 3,276 $ 3,274
Accounts payable 483 578
Accrued compensation and benefit costs 631 731
Unearned income 184 228
Other current liabilities 1,997 2,216
Total Current Liabilities 6,571 7,027
Long-term debt 9,088 7,867
Postretirement medical benefits 1,033 1,018
Deferred taxes and other liabilities 2,389 2,437
Discontinued operations liabilities -
policyholders' deposits and other 2,350 2,810
Deferred ESOP benefits (547) (547)
Minorities' interests in equity of subsidiaries 823 755
Preferred stock 727 763
Common shareholders' equity 4,109 3,878
Total Liabilities and Equity $ 26,543 $ 26,008
Shares of common stock issued and outstanding 324,551 325,029
See accompanying notes.
Xerox Corporation
Consolidated Statements of Cash Flows
Nine months ended September 30 (In millions) 1996 1995
Cash Flows from Operating Activities
Income from Continuing Operations $ 780 $ 697
Adjustments required to reconcile income to cash
flows from operating activities:
Depreciation and amortization 528 528
Provisions for doubtful accounts 164 152
Provision for postretirement medical benefits 30 37
Charges against 1993 restructuring reserve (147) (258)
Minorities' interests in earnings of subsidiaries 97 137
Undistributed equity in income of affiliated companies (91) (99)
Increase in inventories (747) (871)
Increase in finance receivables (379) (123)
Increase in accounts receivable (242) (256)
(Decrease)Increase in accounts payable and accrued
compensation and benefit costs (223) 1
Net change in current and deferred income taxes 194 207
Other, net (287) (138)
Total (323) 14
Cash Flows from Investing Activities
Cost of additions to land, buildings and equipment (340) (274)
Proceeds from sales of land, buildings and equipment 30 35
Purchase of additional interest in Rank Xerox - (972)
Proceeds from sale of Constitution Re - 526
Total (310) (685)
Cash Flows from Financing Activities
Net change in debt 1,314 1,009
Dividends on common and preferred stock (330) (292)
Proceeds from sale of common stock 97 120
Repurchase of common and preferred stock (269) (65)
Dividends to minority shareholders (1) (64)
Proceeds received from minority shareholders - 20
Total 811 728
Effect of Exchange Rate Changes on Cash (2) (2)
Cash Provided by Continuing Operations 176 55
Cash Used by Discontinued Operations (176) (39)
Increase in Cash - 16
Cash at Beginning of Period 136 41
Cash at End of Period $ 136 $ 57
See accompanying notes.
Xerox Corporation
Notes to Consolidated Financial Statements
1. The consolidated financial statements presented herein have
been prepared by Xerox Corporation ("the Company") in accordance
with the accounting policies described in its 1995 Annual Report
to Shareholders and should be read in conjunction with the notes
thereto. Effective with 1996 reporting, the Company's China
operations are fully consolidated. The 1995 financial statements
presented herein have been restated to reflect this change and
several other accounting reclassifications to conform with the
1996 presentation. The impact of these changes is not material
and did not affect net income.
In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) which are necessary for a fair
statement of operating results for the interim periods presented
have been made. Interim financial data presented herein are
unaudited.
References herein to "we" or "our" refer to Xerox and
consolidated subsidiaries unless the context specifically
requires otherwise.
2. Inventories consist of (in millions):
September 30, December 31,
1996 1995
Finished products $ 1,893 $ 1,646
Work in process 114 88
Raw materials and supplies 399 295
Equipment on operating leases, net 693 627
Total $ 3,099 $ 2,656
3. Common shareholders' equity consists of (in millions):
September 30, December 31,
1996 1995
Common stock $ 331 $ 327
Additional paid-in-capital 1,293 1,334
Retained earnings 2,769 2,321
Net unrealized gain (loss) on
investment securities 2 (1)
Translation adjustments (215) (103)
Treasury stock (71) -
Total $ 4,109 $ 3,878
4. Our Consolidated Balance Sheet at September 30, 1996 includes
current and non-current accrued liabilities of $149 million and
$92 million, respectively, associated with the Document
Processing restructuring program announced in December 1993. At
December 31, 1995, the corresponding accrued liabilities
aggregated $395 million. During the nine month period ended
September 30, 1996, restructuring-related activity reduced the
accrued liability by $154 million. Management believes the
aggregate reserve balance of $241 million at September 30, 1996
is adequate for the completion of the restructuring program.
Additional information concerning the progress of the
restructuring program is included in the accompanying
Management's Discussion and Analysis on page 15.
5. Interest expense totaled $446 million and $452 million for
the nine months ended September 30, 1996 and 1995, respectively.
6. At our annual meeting on May 16, 1996, shareholders approved
an increase in the number of authorized shares of common stock,
from 350 million to 1.05 billion to effect a three-for-one stock
split. The effective date of the split was June 6 for
shareholders of record as of May 23. All share and per share
amounts have been restated to retroactively reflect the stock
split.
7. The Board of Directors has authorized the Company to
repurchase up to $1 billion of Xerox common stock. The stock
will be purchased from time to time on the open market depending
on market conditions. As of September 30, 1996, we have
repurchased 5 million shares for $232 million.
8. In the third quarter of 1996, we recognized an $11 million
pre-tax gain which reflects our proportionate share of the
increase in equity of certain small affiliated companies as a
result of recent sales by these affiliates of additional shares
of common stock in the open markets.
9. In January 1996, we announced agreements to sell all of our
remaining Talegen Holdings, Inc. (Talegen) insurance units
(Coregis Group, Inc., Crum & Forster Holdings, Inc., Industrial
Indemnity Holdings, Inc., Westchester Specialty Group, Inc. and
two insurance-related service companies) and The Resolution
Group, Inc. (TRG) to investor groups led by Kohlberg Kravis
Roberts & Co. (KKR) and Talegen/TRG management. In connection
with the transactions, we recorded in 1995 a $1.546 billion
after-tax charge. On September 11, 1996, we and KKR announced
that we had mutually agreed to terminate the transactions. No
additional charges are required as a result of the terminated
agreements. Steps have been initiated for the marketing of each
of the remaining Talegen units and TRG. We expect our strategy
of exiting the financial services business to be either fully
completed or substantially completed on or before the end of
1997.
Summarized operating results of Insurance follow:
Third Quarter Nine Months
(In millions) 1996 1995 1996 1995
Revenues
Insurance premiums earned $ 433 $ 464 $1,287 $1,497
Investment and other income 112 106 325 337
Total Revenues 545 570 1,612 1,834
Costs and Expenses
Insurance losses and loss expenses 349 406 1,054 1,261
Insurance acquisition costs and
other operating expenses 178 145 461 475
Interest expense 50 54 153 175
Administrative and general expenses 10 33 19 102
Total Costs and Expenses 587 638 1,687 2,013
Realized Capital Gains - 32 2 46
Income (loss) before income taxes (42) (36) (73) (133)
Income Tax Benefits 16 16 31 57
Income (loss) from Insurance $ (26)* $ (20) $ (42)* $ (76)
* The 1996 total insurance after-tax loss of $26 million in the third quarter
and $42 million in the first nine months was charged to reserves established
for this purpose and, therefore, does not impact the Company's earnings.
The net assets at September 30, 1996 and December 31, 1995 of the
Insurance businesses included in our consolidated balance sheets
as discontinued operations are as follows:
September 31, December 31,
1996 1995
Insurance Assets
Investments $ 8,042 $ 7,871
Reinsurance recoverable 2,450 2,616
Premiums and other receivables 1,111 1,191
Deferred taxes and other assets 1,324 1,450
Total Insurance assets $12,927 $13,128
Insurance Liabilities
Unpaid losses and loss expenses $ 8,571 $ 8,761
Unearned income 855 859
Notes payable 323 372
Other liabilities 1,314 1,458
Total Insurance liabilities $11,063 $11,450
Investment in Insurance, net $ 1,864 $ 1,678
10. Litigation
Continuing Operations
On March 10, 1994, a lawsuit was filed in the United States
District Court for the District of Kansas by two independent
service organizations (ISOs) in Kansas City and St. Louis and
their parent company. Plaintiffs claim damages predominately
resulting from the Company's alleged refusal to sell parts or
license diagnostic software for high volume copiers and printers
to plaintiffs prior to 1994 and the Company's alleged continued
refusal to sell parts at nonexclusionary prices or to license
diagnostic software on nonexclusionary terms. In addition to
monetary damages in excess of $10 million (to be trebled),
injunctive relief is sought. The Company's policies and
practices with respect to the sale of parts to ISOs were at issue
in an antitrust class action in Texas, which was settled by the
Company during 1994. Claims for individual lost profits of ISOs
who were not named parties, such as the plaintiffs in the Kansas
action, were not included in that class action. The Company has
asserted counterclaims against the plaintiffs alleging patent and
copyright infringement, misappropriation of Xerox trade secrets,
conversion and unfair competition and/or false advertising. On
December 11, 1995, the District Court issued a preliminary
injunction against the parent company for copyright infringement.
A trial date of April 15, 1997 has been set. The Company denies
any wrongdoing and intends to vigorously defend these actions and
pursue its counterclaims.
On August 5, 1996, the District Court dismissed the complaint of
20 different ISOs and the cross complaint of the Company against
those 20 ISOs as a result of a settlement between the parties.
The terms of the settlement will have no material effect on the
Company.
Discontinued Operations
Farm & Home Savings Association, now known as Roosevelt Bank,
(Farm & Home) and certain Talegen insurance companies (Insurance
Companies) entered into an agreement (Indemnification Agreement)
under which the Insurance Companies are required to defend and
indemnify Farm & Home from certain actual and punitive damage
claims being made against Farm & Home relating to the Brio
superfund site (Brio). In a number of lawsuits pending against
Farm & Home in the District Courts of Harris County, Texas,
several hundred plaintiffs seek both actual and punitive damages
allegedly relating to injuries arising out of the hazardous
substances at Brio. The Insurance Companies have been defending
these cases under a reservation of rights because it is unclear
whether certain of the claims fall under the coverage of either
the policies or the Indemnification Agreement. The Insurance
Companies have been successful in having some claims dismissed
which were brought by plaintiffs who were unable to demonstrate a
pertinent nexus to the Southbend subdivision. However, there are
numerous plaintiffs who do have a nexus to the Southbend
subdivision. The Insurance Companies have been in settlement
discussions with respect to claims brought by plaintiffs who have
or had a pertinent nexus to the Southbend subdivision. In
addition, Farm & Home presently has pending motions for summary
judgment which would dispose of many of the claims asserted. If
not settled or resolved by summary judgment, one or more of these
cases can be expected to be tried in 1997.
Xerox Corporation
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Document Processing
Income from Continuing Operations
Income from continuing operations declined 2 percent to $250
million in the 1996 third quarter and grew 12 percent to $780
million in the first nine months of 1996.
Although enterprise printing revenue growth accelerated in all
major geographic areas, overall revenue growth was adversely
affected by a modest decline in black-and-white copier revenues.
Our investments in sales coverage and promotion did not yield the
results we expected in the quarter. We expect some improvement in
the fourth quarter, with somewhat slower growth in costs and
expenses. We continue to be optimistic about 1997.
Primary earnings per share declined 4 percent to 71 cents in the
1996 third quarter and grew 12 percent to $2.24 in the first nine
months. Fully diluted earnings per share declined 3 percent to
68 cents and grew 12 percent to $2.14 for the first nine months.
All earnings per share amounts reflect the 3 for 1 stock split on
June 6, 1996.
Underlying Growth
To understand the trends in the business, we believe that it is
helpful to adjust revenue and expense growth (except for ratios)
to exclude the impact of changes in the translation of foreign
currencies into U.S. dollars. We refer to this adjusted growth
as "underlying growth."
A substantial portion of our consolidated revenues is derived
from operations outside of the United States in subsidiaries
where the U.S. dollar is not the functional currency, primarily
in Europe. When compared with the major European currencies, the
U.S. dollar was approximately 2 percent stronger in the 1996
third quarter than in the 1995 third quarter. As a result,
foreign currency translation had an unfavorable impact of 1
percentage point on total revenues in the 1996 third quarter.
Revenues denominated in currencies where the local currency is
the functional currency are not hedged for purposes of
translation into U.S. dollars.
Revenues
For the major product categories, the underlying revenue growth
rates are estimated as follows:
1996 1995 _
Q3 Q2 Q1 FY Q4 Q3 Q2 Q1
Total Revenues 5% 6% 4% 7% 2% 8% 8% 11%
Enterprise Printing 23 21 19 17 10 18 20 22
Black & White Copiers (4) - - 2 (2) 3 2 4
Third quarter enterprise printing revenue growth accelerated from
the second quarter in all major geographical areas. DocuTech and
color products revenue growth was excellent and printing systems
products growth was good. Revenues from enterprise printing
represented 30 percent of total revenues in the 1996 third
quarter compared with 29 percent in the 1996 second quarter and
25 percent for the 1995 full year.
Black-and-white copier revenues declined as a result of several
important factors, including price pressures and difficult
economic environments in Europe and a number of emerging markets.
In addition, there was a significant slowdown in growth in
Brazil, following two years of exceptional growth. Longer term
trends also continued of volume transferring to DocuTech
production publishing and document outsourcing. The trend to
document outsourcing has the effect of diverting revenues from
up-front equipment sales as well as service and finance income.
Revenues from black-and-white copying represented 56 percent of
total document processing revenues in the 1996 third quarter, 57
percent in the 1996 second quarter and 59 percent in the 1996
first quarter and for the 1995 full year.
Geographically, the underlying revenue growth rates are estimated
as follows:
1996 1995 _
Q3 Q2 Q1 FY Q4 Q3 Q2 Q1
Total Revenues 5% 6% 4% 7% 2% 8% 8% 11%
United States 5 6 5 3 (3) 5 5 8
Rank Xerox 2 2 (2) 8 10 2 5 13
Other Areas 6 10 11 16 2 27 25 17
Third quarter U.S. revenue growth was due to accelerated growth
in enterprise printing revenues and increased OEM printer engine
sales to IBM and Apple, partially offset by a decline in black-
and-white copier revenues and lower paper prices.
Rank Xerox (Rank Xerox Limited and related companies)
manufactures and markets Xerox products principally in Europe.
The modest revenue growth in Rank Xerox reflects good growth in
the U.K., a modest decline in France, essentially flat revenues
in Germany, modest growth in the rest of western Europe, and
declines in most of the eastern European markets.
Other Areas include operations principally in Latin America and
Canada. Lower revenue growth in the 1996 third quarter, compared
with the first and second quarters, was due primarily to a
significant slowdown in black-and-white copier revenue growth in
Brazil, following two years of exceptional growth. Cycles
consisting of strong growth, consolidation and then further
growth are not unusual in Brazil. Our 1995 revenues were
approximately $1.3 billion in Brazil and $200 million in Mexico.
We estimate that the components of underlying revenue growth were
as follows:
1996 1995 _
Q3 Q2 Q1 FY Q4 Q3 Q2 Q1
Total Revenues 5% 6% 4% 7% 2% 8% 8% 11%
Sales
Equipment* 6 9 7 6 (1) 12 8 8
Supplies 9 6 - 9 (1) 9 10 21
Paper (12) (7) (2) 39 22 42 42 54
Total 6 7 2 9 - 11 12 18
Service/Rentals/Outsourcing/Other
Service (2) (1) 1 2 1 1 4 3
Rentals 1 2 2 1 1 3 (2) 3
Document Outsourcing 51 51 48 46 51 44 43 46
Total 3 4 6 6 5 6 6 6
Finance Income 4 - 1 (4) (1) (7) (2) (4)
Memo: Revenues Excluding
Equipment Sales* 4 4 2 7 4 6 9 12
* Equipment sales to end-users only
Equipment sale revenue growth to end users of 6 percent in the
1996 third quarter reflects an acceleration in enterprise
printing equipment sales growth but lower copier sales
principally reflecting the slowdown in revenue growth in Brazil.
The 1996 second quarter growth of 9 percent included excellent
enterprise printing equipment sales growth and modest copier
growth.
Revenues from supplies, paper, service, rentals, document
outsourcing and other revenues, and income from customer
financing represented 67 percent of total revenues in the 1996
third quarter. Growth in these revenues is primarily a function
of the growth in our installed population of equipment, usage and
pricing.
Supplies sales: The improved growth in the 1996 third quarter
from prior quarters is due principally to continuing excellent
growth in enterprise printing and an increase in sales of OEM
printer cartridges.
Paper sales: Our strategy is to charge a spread over mill
wholesale prices to cover our costs and value added as a
distributor. The decline in the 1996 third quarter is due to
lower prices because of excess industry supply.
Service revenues: The decline in the 1996 third and second
quarters and the modest growth in the preceding quarters reflects
the increasing impact of customer preference for document
outsourcing as well as competitive price pressures.
Rental revenues: Rental revenues outside the U.S. continued the
long term trend of declining rentals and increasing equipment
sales. This decline has been more than offset by growth in the
U.S. where there has been an increasing trend toward cost-per-
copy rental plans, which adversely affects up-front equipment
sales, as well as service revenues and finance income.
Document Outsourcing: This growth reflects the trend of customers
to outsource their document processing requirements to Xerox. In
part, this has the effect of diverting revenues from up-front
equipment sales as well as service and finance income. This trend
reduces current period total revenues but increases revenues in
future periods.
Finance income: Our strategy for financing equipment sales is to
charge a spread over our cost of borrowing and to lock in that
spread by match-funding the notes receivable with borrowings of
similar maturities. The growth in the third quarter was due
primarily to continuing growth in the financing of equipment
sales in Latin America. U.S. interest income had modest growth,
reflecting higher interest rates, after several quarters of
decline resulting from lower average interest rates, and the
trends to document outsourcing and rental plans.
Productivity Initiatives
In 1993, we announced a restructuring program to significantly
reduce the cost base and to improve productivity. Our objectives
were to reduce our worldwide work force by more than 10,000
employees and to close or consolidate a number of facilities.
To date, the activities associated with the 1993 restructuring
program have reduced employment by 13,600, achieved pre-tax cost
reductions of approximately $350 million in 1994 and $650 million
in 1995, and we are on track towards achieving our restructuring
program objectives. A portion of the savings has been reinvested
to reengineer business processes, to support the expansion in
growth markets, and to mitigate pricing pressures.
As a result of hiring in our fast-growing document outsourcing
business, worldwide employment increased by 400 in the 1996 third
quarter to 87,000. Increases in sales and manufacturing were
offset by reductions due to productivity actions.
Gross Profit and Expenses
Gross profit increased 4 percent as a result of volume and an
improvement in gross margins.
The gross margins by revenue stream were as follows:
1996 1995 _
Q3 Q2 Q1 FY Q4 Q3 Q2 Q1_
Total Gross Margin 46.2% 47.9% 46.0% 46.1% 46.7% 46.0% 46.5% 45.2%
Sales 44.0 45.8 43.0 43.0 45.0 42.7 42.7 40.9
Service/Rental/
DocOut 48.7 50.3 48.9 49.6 48.9 49.3 50.8 49.3
Financing 48.3 49.5 49.0 49.7 50.1 50.1 48.3 50.4
Total gross margins improved by 0.2 percentage points in the 1996
third quarter from the 1995 third quarter, compared with a 1.4
percentage point improvement in the 1996 second quarter from the
1995 second quarter.
The improvement of 1.3 percentage points in the sales gross
margin from the 1995 third quarter was principally due to cost
reductions and favorable currency, partially offset by pricing
pressures. The erosion in the service and rentals gross margin
of 0.6 percentage points from the 1995 third quarter was largely
due to mix, pricing pressures and economic cost increases,
partially offset by the benefits from productivity initiatives.
Financing gross margins fluctuate due to country mix.
Research and development (R&D) expense increased 8 percent in the
1996 third quarter and 10 percent in the 1996 first nine months
reflecting increased investment in future product introductions.
The lower growth in the third quarter from earlier in 1996
reflects product program calendarization. We will continue to
invest in technological development to maintain our premier
position in the rapidly changing document processing market. We
expect to introduce a stream of new, technologically innovative
products in the coming months. Xerox R&D is strategically
coordinated with that of Fuji Xerox Co., Ltd., an unconsolidated
joint venture between Rank Xerox Limited and Fuji Photo Film
Company Limited. Fuji Xerox invested approximately $600 million
in R&D in 1995.
Selling, administrative and general expenses (SAG) increased 10
percent in the 1996 third quarter and 9 percent in the 1996 first
nine months. SAG was 30.2 percent of revenue in the third
quarter, an increase of 1.6 percentage points from the 1995 third
quarter. The growth was due to economic cost increases, and
investments to increase worldwide sales effectiveness, including
the expansion of direct sales coverage and indirect distribution
channels, new product advertising, marketing support, and systems
to improve productivity in various administrative functions. We
expect somewhat slower growth in the fourth quarter of 1996.
Gain on affiliates' sales of stock, net reflects our
proportionate share of the increase in equity of certain small
affiliated companies as a result of recent sales by these
affiliates of additional shares of common stock in the open
markets.
The $9 million decrease in other expenses, net, from the 1995
third quarter was due to reduced interest expense and currency
losses from balance sheet translation in our Latin American
operations. Other expenses, net are lower by $56 million for the
first nine months of 1996 reflecting lower interest expense and
the non-recurrence of several one-time charges in 1995.
Income Taxes, Equity in Net Income of Unconsolidated Affiliates
and Minorities' Interests in the Earnings of Subsidiaries
Income before income taxes, equity in net income of
unconsolidated affiliates and minorities' interests declined 8
percent to $383 million in the 1996 third quarter from $415
million in the 1995 third quarter.
The effective tax rate was 36.0 percent in the 1996 third quarter
and in the 1996 year to date compared with 38.5 percent in the
1995 third quarter and 38.7 percent in the 1995 year to date.
The decline was primarily due to a lower statutory tax rate in
Brazil and the mix of profits from our worldwide operations.
Equity in the net income of unconsolidated affiliates,
principally Fuji Xerox, decreased in the 1996 third quarter to
$30 million from $38 million in the 1995 third quarter and
declined for the first nine months to $92 million in 1996 from
$102 million in 1995. The underlying growth in Fuji Xerox income
was more than offset by the adverse impact of currency
translation and declines in income from smaller investments.
Minorities' interests in the earnings of subsidiaries was $25
million in the 1996 third quarter compared with $37 million in
the 1995 third quarter primarily due to lower Rank Xerox income.
Discontinued Operations
The net investment in the discontinued financial services
businesses which includes Insurance, Other Financial Services and
Third-Party / Real-Estate totaled $2.151 billion at September 30,
1996 compared with $2.000 billion at December 31, 1995. The
increase primarily includes scheduled funding of reinsurance
coverage to the Talegen companies by Ridge Reinsurance Limited
(Ridge Re) and interest for the period on the assigned debt,
partially offset by reductions in third-party assets (primarily
from sales and run-off activity). A discussion of the
discontinued businesses follows.
Insurance Segment
In January 1996, Xerox announced agreements to sell all of its
Remaining Talegen insurance units (Coregis Group, Inc., Crum &
Forster Holdings, Inc., Industrial Indemnity Holdings, Inc.,
Westchester Specialty Group, Inc. and two insurance-related
service companies) and The Resolution Group, Inc. (TRG) to
investor groups led by Kohlberg Kravis Roberts & Co. (KKR) and
Talegen/TRG management. In connection with the transactions,
Xerox recorded in 1995 a $1.546 billion after-tax charge.
On September 11, 1996, Xerox and KKR announced that they had
mutually agreed to terminate the transactions. Steps have been
initiated for the marketing of each of the Remaining Talegen
units and TRG with the objective of completing the individual
sale transactions as soon as possible. No additional charges are
considered necessary as a result of the aforementioned
termination of the transactions. The insurance segment has been
classified as a discontinued operation for all periods presented
and its operating results did not affect the Company's earnings
in the first nine months of 1996.
Insurance Operating Results
Operating results for the discontinued Insurance segment
(Talegen/TRG, Ridge Re and Xerox Financial Services, Inc. holding
company expenses, primarily assigned interest) in the third
quarter and first nine months of 1996 and 1995 follow:
Third Quarter Nine Months
(In millions) 1996 1995 1996 1995
Total Insurance Revenue $ 545 $ 557 $1,612 $1,588
Insurance Pre-Tax Income
Underwriting $ (92) $ (87) $ (226) $ (240)
Investment Income 112 101 323 299
Net Realized Capital Gains - 32 2 46
Interest Expense (50) (53) (153) (175)
Other Expenses (12) (26) (19) (53)
Insurance Pre-Tax
Income (Loss) $ (42) $ (33) $ (73) $ (123)
After-Tax Income
Insurance $ (26) $ (22) $ (42) $ (71)
Dispositioned Companies - 2 - (5)
Total After-Tax
Income (Loss) $ (26)* $ (20) $ (42)* $ (76)
* The 1996 total insurance after-tax loss of $26 million in the
third quarter and $42 million in the first nine months was
charged to reserves established for this purpose and, therefore,
does not impact the Company's earnings.
The preceding table's revenue and pre-tax income excludes the
results of Constitution Re Corporation (CRC) and Viking which
were sold during the second and third quarters of 1995,
respectively. The results of those units are shown on an after-
tax basis under the caption "Dispositioned Companies."
Revenues from Insurance totaled $545 million in the third quarter
of 1996 compared with $557 million in the third quarter of 1995.
A modest decline in earned premiums, which reflects competition
and pricing pressure in the industry, was partially offset by an
improvement in investment income. Revenues for the first nine
months of 1996 totaled $1.612 billion, a growth of 2 percent from
the first nine months of 1995 and included improvements in both
earned premiums and investment income.
The decline in 1996 third quarter Insurance pre-tax income
compared with 1995 primarily reflects the absence of capital
gains from the repositioning of the Talegen portfolio in the
third quarter, 1995 and a small deterioration in underwriting
results. Partially offsetting these declines are improvements in
investment income. Additionally, interest and other expenses,
which are primarily XFS holding company costs, were also lower
due to reduced debt levels and the absence of disengagement-
related provisions recorded in the third quarter, 1995. The
improvement in Insurance pre-tax income for the first nine months
of 1996 compared with 1995 primarily includes the previously
mentioned items plus the absence of the 1995 settlement between
Monsanto and Talegen which benefited underwriting results by $34
million on a year-over-year basis.
The investment at September 30, 1996 totaled $1.864 billion
compared with a restated balance of $1.678 billion at December
31, 1995. The increase primarily includes contractual payments
to Ridge Re for annual premium installments and associated
finance charges and interest on the insurance debt that will
continue until the closing of the sales of the Remaining Talegen
units and TRG.
Property and Casualty Operating Trends
The industry's profitability can be significantly affected by
cyclical competitive conditions, as well as by volatile and
unpredictable developments, including changes in the propensity
of courts to grant large awards, fluctuations in interest rates
and other changes in the investment environment (which affect
market prices of insurance companies' investments, the income
from those investments and inflationary pressures that may tend
to affect the size of losses), and judicial decisions affecting
insurers' liabilities. Talegen's operating results have
historically been influenced by these industry trends, as well as
by Talegen's exposure to uncollectible reinsurance, which had
been greater than most other insurers.
Disposal of Insurance Business
During the disposal process, we will continue to be subject to
all business risks and rewards of the insurance businesses. We
expect our strategy of exiting the insurance business to be
either fully completed or substantially completed on or before
the end of 1997; however, no assurances can be given as to the
timing of the disengagement process, the amount and timing of
proceeds of sales or other forms of disengagement from insurance
units or the ultimate impact the remaining insurance businesses
will have on the Company's total results from operations.
Our objective is to continue to obtain appropriate value from the
Insurance investments. The ultimate value will depend on the
success of the operational improvements, timing, the level of
interest rates, and the relative value of insurance properties.
Other Financial Services
The net investment in Other Financial Services (OFS) at September
30, 1996 was $99 million compared with a restated $114 million at
December 31, 1995. The decrease in the investment primarily
reflects the sale of the remaining portion of First Quadrant
Corp.
On June 1, 1995, Xerox Financial Services, Inc. (XFSI) completed
the sale of Xerox Financial Services Life Insurance Company and
related companies (Xerox Life Companies) to a subsidiary of
General American Life Insurance Company. After the sale, the
Xerox Life Companies names were changed to replace the name
"Xerox" in the corporate titles with the name "Cova" (Cova
Companies). OakRe Life Insurance Company (OakRe), an XFSI
subsidiary formed in 1994, has assumed responsibility for
existing Single Premium Deferred Annuity (SPDA) policies issued
by Xerox Life's Missouri and California companies via coinsurance
agreements (Coinsurance Agreements). The Coinsurance Agreements
include a provision for the assumption (at their election) by the
Cova Companies, of all of the SPDA policies at the end of their
current rate reset periods. A Novation Agreement with an
affiliate of the new owner provides for the assumption of the
liability under the Coinsurance Agreements for any SPDA policies
not so assumed by the Cova Companies. Other policyholders (of
Immediate, Whole Life, and Variable annuities as well as a minor
amount of SPDAs issued by Xerox Life New York) will continue to
be the responsibility of the Cova Companies.
As a result of the Coinsurance Agreements, at September 30, 1996,
OakRe retained approximately $2.1 billion of investment portfolio
assets (transferred from the Xerox Life Companies) and
liabilities related to the reinsured SPDA policies. Interest
rates on these policies are fixed and were established upon
issuance of the respective policies. Substantially all of these
policies will reach their rate reset periods within the next four
years and will be assumed under the Agreements as described
above. The Xerox Life Companies' portfolio was designed to
recognize that policy renewals extended liability "maturities",
thereby permitting investments with average duration somewhat
beyond the rate reset periods. OakRe's practice is to
selectively improve this match over time as market conditions
allow.
In connection with the aforementioned sale, XFSI established a
$500 million letter of credit and line of credit with a group of
banks to support OakRe's coinsurance obligations. The term of
this letter of credit is five years and it is unused and
available at September 30, 1996. Upon a drawing under the letter
of credit, XFSI has the option to cover the drawing in cash or to
draw upon the credit line.
Third-Party / Real-Estate
Third-party and real-estate assets at September 30, 1996 totaled
$460 million, a $29 million reduction from the December 31, 1995
level. The asset decrease includes a $82 million reduction in
third-party assets and a $53 million increase in reported real-
estate net assets. Assigned debt decreased to $222 million at
September 30, 1996, a $9 million decrease from the year-end 1995
level. The third-party asset decline primarily includes sales of
assets and run-off activity. The increase in reported real-
estate assets includes $47 million related to the Company's
decision to fund the retirement of certain debt of its
discontinued real-estate subsidiary with lower cost Company
financing. This increased the assets and assigned debt of
discontinued operations, but had no effect on the reported net
investment in discontinued operations. The $9 million assigned
debt decrease includes the previously mentioned increase in real-
estate debt, fully offset by reductions from the sales of third-
party sales and run-off activity.
Capital Resources and Liquidity
Total debt, including ESOP and Discontinued Operations debt not
shown separately in our consolidated balance sheets, increased to
$12,959 million at September 30, 1996, from $11,794 million at
December 31, 1995. The changes in consolidated indebtedness since
year end and versus the first nine months of 1995 are summarized
as follows:
(In millions) 1996 1995
Total Debt as of January 1 $11,794 $10,955
Non-Financing Businesses:
Document Processing Operations 553 515
Increased financial interest in Rank Xerox - 972
Discontinued Businesses 132 (421)
Total Non-Financing 685 1,066
Financing Businesses (15) (140)
Total Operations 670 926
Shareholder dividends 330 292
Exercise of stock options (97) (120)
Repurchase of common and preferred stock 269 65
Cash balance and other changes, net (7) 10
Total Debt as of September 30 $12,959 $12,128
For purposes of capital ratio analysis, total equity includes
common equity, preferred stock and minorities' interests in the
equity of subsidiaries.
The following table summarizes the changes in total equity during
the first nine months of 1996 and 1995:
(In millions) 1996 1995
Total equity as of January 1 $5,396 $6,042
Income from Continuing Operations 780 697
Shareholder dividends paid (330) (292)
Exercise of stock options 97 120
Repurchase of common and preferred stock (269) (65)
Change in unrealized gain on
investment securities 3 432
All Other, net (18) (219)
Balance as of September 30 $5,659 $6,715
On a consolidated basis, inclusive of deferred ESOP benefits, the
debt-to-capital ratio at September 30,1996 was 72 percent
compared with 71 percent at December 31, 1995.
Non-Financing Operations
The following table summarizes Document Processing non-financing
operations cash generation and borrowing for the nine months
ended September 30, 1996 and 1995:
Cash Generated/(Borrowed)
Nine Months Ended September 30,
(In millions) 1996 1995
Document Processing
Non-Financing:
Income $ 663 $ 534
Depreciation and Amortization 528 528
Restructuring Payments (147) (258)
Capital Expenditures (340) (274)
Working Capital/Other (1,257) (1,045)
Total $ (553) $ (515)
Nine-month cash usage of $553 million was $38 million greater
than in the first nine months of 1995 due primarily to increased
growth in capital spending related to facilities infrastructure
and new digital products, and lower accounts payable and accrued
compensation costs largely offset by higher net income, reduced
inventory growth, and lower restructuring payments.
Financing Businesses
Financing business debt was reduced by $15 million and $140
million during the first nine months of 1996 and 1995,
respectively. This smaller decline in 1996 reflects growth in
new customer financing contracts driven by higher equipment sales
activity.
Hedging Instruments
We have entered into certain financial instruments to manage
interest rate and foreign currency exposures. These instruments
are held solely for hedging purposes and include interest rate
swaps, forward foreign exchange contracts and foreign currency
swaps. We do not enter into derivative instrument transactions
for trading purposes and employ long-standing policies
prescribing that derivative instruments are only to be used to
achieve a set of very limited objectives:
Currency derivatives are primarily arranged in conjunction
with underlying transactions that give rise to foreign
currency-denominated payables and receivables: for example, an
option to buy foreign currency to settle the importation of
goods from suppliers, or a forward foreign-exchange contract
to fix the rate at which a dividend will be paid by a foreign
subsidiary. In addition, when cost-effective, currency
derivatives may be used to hedge balance sheet exposures in
hyperinflationary economies.
We do not hedge foreign currency-denominated revenues of our
foreign subsidiaries since these do not represent cross-border
cash flows.
With regard to interest rate hedging, virtually all customer
financing assets earn fixed rates of interest and, therefore,
we "lock in" an interest rate spread by arranging fixed-rate
liabilities with similar maturities as the underlying assets.
Additionally, customer financing assets in one currency are
consistently funded with liabilities in the same currency. We
refer to the effect of these conservative practices as "match
funding" customer financing assets. This practice effectively
eliminates the risk of a major decline in interest margins
resulting from a rising interest rate environment. Conversely,
this practice effectively eliminates opportunities to
materially increase margins when interest rates are declining.
More specifically, pay fixed-rate and receive variable-rate
swaps are typically used in place of more expensive fixed-rate
debt. Pay variable-rate and receive variable-rate swaps are
used to transform variable-rate medium-term debt into
commercial paper or local currency Libor obligations.
Additionally, pay variable-rate and receive fixed-rate swaps
are used from time to time to transform longer-term fixed-rate
debt into commercial paper or Libor-based rate obligations.
The transactions performed within each of these three
categories enable the cost effective management of interest
rate exposures. The potential risk attendant to this strategy
is the non-performance of swap counterparties. We address this
risk by arranging swaps with a diverse group of strong-credit
counterparties, regularly monitoring their credit ratings, and
determining the replacement cost, if any, of existing
transactions.
Our currency and interest rate hedging are typically unaffected
by changes in market conditions as forward contracts, options and
swaps are normally held to maturity consistent with our objective
to lock in currency rates and interest rate spreads on the
underlying transactions.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth under Note 10 contained in the "Notes
to Consolidated Financial Statements" on pages 10-11 of this
Quarterly Report, on Form 10-Q, is incorporated by reference in
answer to this item.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 3(a)(1) Restated Certificate of Incorporation of
Registrant filed by the Department of State of the State of
New York on October 29, 1996 (in electronic form only).
Exhibit 3(b) By-Laws of Registrant, as amended through
May 29, 1991. Incorporated by reference to Exhibit 3(b)(2)
to Registrant's Quarterly Report For the Quarter Ended
June 30, 1991.
Exhibit 11 Computation of Net Income per Common Share.
Exhibit 12 Computation of Ratio of Earnings to Fixed
Charges.
Exhibit 27 Financial Data Schedule (in electronic form
only).
(b) Current report on Form 8-K dated September 11, 1996
reporting Item 5 "Other Events" was filed during the quarter for
which this Quarterly Report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
XEROX CORPORATION
(Registrant)
/s/Philip Fishbach
Date: November 8, 1996 By Philip D. Fishbach
Vice President and Controller
(Principal Accounting Officer)
Exhibit 3(9)
RESTATED CERTIFICATE OF INCORPORATION
of
XEROX CORPORATION
Under Section 807 of the Business Corporation Law
RESTATED CERTIFICATE OF INCORPORATION
OF
XEROX CORPORATION
UNDER SECTION 807 OF THE
BUSINESS CORPORATION LAW
We, the undersigned, PAUL A. ALLAIRE and E. M. FILTER,
being respectively the Chairman of the Board and the Secretary
of XEROX CORPORATION, DO HEREBY CERTIFY that:
1. The name of the Corporation is "XEROX CORPORATION".
The name under which it was formed is "THE HALOID COMPANY".
2. The Certificate of Incorporation was filed in the
Office of the Secretary of State of the State of New York on
April 18, 1906.
3. This restatement of the Certificate of Incorporation
was authorized by a resolution adopted by the Board of
Directors of the Corporation at a meeting thereof duly called
and held and includes a change in the post office address for
service of process authorized by the Board of Directors of the
Corporation at the same meeting. The text of the Certificate
of Incorporation, as amended heretofore, is hereby restated to
read as herein set forth in full:
FIRST: The name of the Corporation is XEROX CORPORATION.
SECOND: The purposes for which it is formed are as
follows:
To engage in the invention, development, production,
operation, sale or lease of devices, papers and other
items, processes, and services, relating to the
communications, photographic, printing and image
reproduction arts;
To engage in any commercial, mercantile, manufacturing,
mining, industrial,importing, exporting or trading
business, venture, activity or service or other
business,venture, activity or service of a kind or type
described in these purposes;
To engage in scientific and technological research and
pursuits of every lawful kind and description and to
utilize, employ and exploit any and all knowledge
resulting therefrom;
To purchase, lease or otherwise acquire, own, hold,
sell, mortgage, charge or otherwise dispose of, invest,
trade and deal in and with real and personal property
of every kind and description.
THIRD: The office of the Corporation is to be located in
the City of Rochester, Monroe County, New York.
FOURTH: The aggregate number of shares which the
Corporation shall have the authority to issue is 1,050,000,000
shares of Common Stock, of the par value of $1.00 each
(hereinafter referred to as "Common Stock"), 600,000 shares of
Class B Stock of the par value of $1.00 each (hereinafter
referred to as "Class B Stock"), and 22,043,067 shares of
Cumulative Preferred Stock, of the par value of $1.00 each
(hereinafter referred to as "Cumulative Preferred Stock").
The designations, preferences, privileges and voting
powers of each class of stock of the Corporation, and the
restrictions and qualifications thereof, shall be as follows:
1. The Cumulative Preferred Stock may be issued from time
to time as follows:
(a) The Cumulative Preferred Stock may be issued from
time to time as shares of one or more series of Cumulative
Preferred Stock and the Board of Directors is expressly
authorized, prior to issuance, in the resolution or
resolutions providing for the issue of shares in each
particular series, to fix the following:
(i) the distinctive serial designation and
number of shares which shall constitute such series,
which number may be increased (except where otherwise
provided by the Board of Directors in creating such
series) or decreased (but not below the number of
shares thereof then outstanding) from time to time by
like action of the Board of Directors;
(ii) the annual dividend rate for such series,
and the date from which dividends on shares of such
series shall be cumulative;
(iii) the redemption provisions and price or
prices, if any, for such series, which may consist of
a redemption price or scale of redemption prices
applicable only to redemption for a sinking fund and
the same or a different redemption price or scale of
redemption prices applicable to any other redemption;
(iv) the amount or amounts which shall be paid
to the holders of the shares of such series in the
event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (but not
less than $1.00 in the case of involuntary
liquidation);
(v) the obligation, if any, of the Corporation
to retire shares of such series pursuant to a sinking
fund which shall be applied to the redemption of
shares of such series;
(vi) the terms and conditions (with or without
limitations), if any, on which shares of such series
shall be convertible into, or exchangeable for, shares
of stock of any other class or classes, including the
price or prices or at the rate or rates of conversion
or exchange and the terms and conditions of adjustment
thereof, if any; and
(vii) the voting rights, if any, in addition to
those specified herein, and any other preferences,
privileges and restrictions or qualifications of such
series.
(b) All shares of Cumulative Preferred Stock,
regardless of series, shall be of equal rank with each
other and shall be identical with each other in all
respects except as provided in or permitted by paragraph
(a) of this subdivision 1 and except as provided in
paragraph (b) of subdivision 6; and the shares of the
Cumulative Preferred Stock of any one series shall be
identical with each other in all respects except as to the
dates from and after which dividends thereon shall be
cumulative.
(c) In case the stated dividends and the amounts
payable on liquidation are not paid in full, the shares of
all series of the Cumulative Preferred Stock shall share
ratably in the payment of dividends (including
accumulations, if any) in accordance with the sums
which would be payable on said shares if all dividends
were declared and paid in full, and in any distribution of
assets other than by way of dividends in accordance with
the sums which would be payable on such distributions if
all sums payable were discharged in full.
2. The holders of the Cumulative Preferred Stock of each
series shall be entitled to receive, when and as declared by
the Board of Directors, but only out of funds legally available
for the payment of dividends, cumulative cash dividends at the
annual rate for such series (as fixed by the Board of Directors
in accordance with subdivision 1 in respect of any series), and
no more, payable quarter-yearly, on the first day of January,
April, July and October in each year, to shareholders of record
on the respective dates, not exceeding forty days preceding
such dividend payment dates, fixed for the purpose by the Board
of Directors in advance of payment of each particular dividend;
provided that if dividends on any shares of the Cumulative
Preferred Stock shall be cumulative from a date less than
thirty days prior to the first quarter-yearly dividend payment
date in respect of such shares, the dividends accrued on such
shares to such date shall not be payable on such date but shall
be payable on the next following quarter-yearly dividend
payment date. The holders of shares of the Cumulative
Preferred Stock shall not be entitled to receive any dividends
thereon other than the dividends referred to in this
subdivision 2.
As provided in paragraph (c) of subdivision 1, no
dividend shall be paid upon, or declared or set apart for, any
share of Cumulative Preferred Stock of any series for any
quarter-yearly dividend period (other than the first quarter-
yearly dividend period for any shares if the dividend on such
shares for such period shall not then be payable pursuant to
the provisions of subdivision 2) unless at the same time a like
proportionate dividend for the same quarter-yearly dividend
period, ratably in proportion to the respective annual dividend
rates fixed therefor, shall be paid upon, or declared and set
apart for, all shares of Cumulative Preferred Stock of all
series then issued and outstanding and entitled to receive the
dividend.
3. So long as any shares of the Cumulative Preferred
Stock are outstanding, no dividend whatever shall be paid or
declared at any time, and no distribution made, on any junior
stock (other than in junior stock) nor shall any shares of
junior stock be purchased or otherwise acquired for value or
redeemed at any time by the Corporation or any subsidiary:
(a) unless all dividends on the Cumulative Preferred
Stock of all series for all past quarter-yearly dividend
periods (other than the first quarter-yearly dividend
period for any shares if the dividend on such shares for
such period shall not then be payable pursuant to the
provisions of subdivision 2) shall have been paid and the
full dividends thereon for the then current quarter-yearly
dividend period shall have been paid or declared and a sum
sufficient for the payment thereof set apart; and
(b) unless the Corporation shall have redeemed,
retired or purchased all shares of each series of
Cumulative Preferred Stock required to have been redeemed,
retired or purchased at such time pursuant to the sinking
fund fixed for such series by the Board of Directors in
accordance with subdivision 1,
provided, however, that the foregoing restrictions in this
subdivision 3 shall not apply to the acquisition of any junior
stock solely in exchange for, or solely out of the proceeds of
sale of, any other junior stock.
Subject to the foregoing provisions of this
subdivision 3, and to any further limitations prescribed by the
Board of Directors in accordance with subdivision 1, and not
otherwise, such dividends (payable in cash, stock or otherwise)
as may be determined by the Board of Directors may be declared
and paid on any junior stock from time to time out of any funds
of the Corporation legally available therefor, and the
Cumulative Preferred Stock shall not be entitled to participate
in any such dividends.
4. Subject to the provisions of subdivision 5, the
Corporation at its option (expressed by resolution of the Board
of Directors) or for the purpose of any sinking fund therefor
may (except as otherwise provided by the Board of Directors in
accordance with subdivision 1 in respect of any series) redeem
the outstanding shares of Cumulative Preferred Stock, or of
any one or more series thereof, at any time in whole, or from
time to time in part, upon notice duly given as hereinafter
specified, at the applicable redemption price or prices for
such shares (as fixed in accordance with subdivision 1 in
respect of any series), including, in each case, an amount
equal to all accrued and unpaid dividends thereon to the date
fixed for redemption.
Notice of every such redemption of Cumulative Preferred
Stock of any series (a) if all the shares of such series are
held of record by not more than ten holders, shall be given by
mailing such notice not less than 30 nor more than 60 days
prior to the date fixed for such redemption to each holder of
record of shares of such series so to be redeemed at his
address as the same shall appear on the books of the
Corporation, or (b) if all the shares of such series are held
of record by more than ten holders, shall be given by
publication at least once in each of two successive calendar
weeks in a newspaper printed in the English language and
customarily published on each business day and of general
circulation in the Borough of Manhattan, The City of New York,
the first publication to be not less than 30 nor more than 60
days prior to the date fixed for such redemption, and notice of
such redemption shall also be mailed not less than 30 nor more
than 60 days prior to the date fixed for such redemption, to
each holder of record of shares of such series so to be
redeemed at his address as the same shall appear on the books
of the Corporation; but, if publication is required, no failure
to mail any such notice nor any defect therein or in the
mailing thereof shall affect the validity of the proceeding for
the redemption of any shares to be redeemed.
In case of redemption of a part only of the Cumulative
Preferred Stock of any series at the time outstanding, whether
for the sinking fund therefor or otherwise, the redemption may
(subject to any provision made by the Board of Directors in
accordance with subdivision 1 in respect of any series) be
either pro rata or by lot, as determined by the Board of
Directors. Subject to the foregoing, the Board of Directors
shall have full power and authority to prescribe the manner in
which the drawings by lot or the pro rata redemption shall be
conducted and, subject to the provisions contained in the
Certificate of Incorporation or provided by the Board of
Directors in accordance with subdivision 1, the terms and
conditions upon which the Cumulative Preferred Stock shall be
redeemed from time to time.
If any such notice of redemption shall have been duly
given and if, on or before the redemption date specified
therein, all funds necessary for such redemption shall have
been set aside by the Corporation, separate and apart from its
other funds, in trust for the pro rata benefit of the holders
of the shares so called for redemption, so as to be and
continue to be available therefor, then, notwithstanding that
any certificate for shares so called for redemption shall not
have been surrendered for cancellation, all shares so called
for redemption shall no longer be deemed outstanding on and
after such redemption date, and the right to receive dividends
thereon and all other rights with respect to such shares shall
forthwith on such redemption date cease and terminate, except
only the right of the holders thereof to receive the amount
payable on redemption thereof without interest, and the right
to exercise, on or before the date fixed for redemption, all
privileges of conversion or exchange, if any, not theretofore
expired.
If any such notice of redemption shall have been duly
given or if the Corporation shall have given to the bank or
trust company hereinafter referred to irrevocable written
authorization promptly to give or complete such notice, and if
on or before the redemption date specified therein the funds
necessary for such redemption shall have been deposited by the
Corporation with a bank or trust company in good standing,
designated in such notice, organized under the laws of the
United States of America or of the State of New York, doing
business in the Borough of Manhattan, The City of New York,
having a capital, surplus, and undivided profits aggregating at
least $5,000,000 according to its last published statement of
condition, in trust for the pro rata benefit of the holders of
the shares so called for redemption, then, notwithstanding that
any certificate for shares so called for redemption shall not
have been surrendered for cancellation, from and after the time
of such deposit all shares so called for redemption shall no
longer be deemed to be outstanding and all rights with respect
to such shares shall forthwith cease and terminate, except only
the right of the holders thereof to receive from such bank or
trust company at any time after the time of such deposit the
funds so deposited, without interest, and the right to
exercise, on or before the date fixed for redemption, all
privileges of conversion or exchange, if any, not theretofore
expired. Any interest accrued on such funds shall be paid
to the Corporation from time to time.
Any funds so set aside or deposited, as the case may
be, and unclaimed at the end of six years from such redemption
date shall be released or repaid to the Corporation, after
which the holders of the shares so called for redemption shall
look only to the Corporation for payment thereof; provided that
any funds so deposited which shall not be required for
redemption because of the exercise of any privilege of
conversion or exchange subsequent to the date of deposit shall
be repaid to the Corporation forthwith.
None of the shares of Cumulative Preferred Stock of any
series redeemed or retired pursuant to the sinking fund fixed
for such series by the Board of Directors in accordance with
subdivision 1, shall be reissued and all such shares shall, in
the manner provided by law, be eliminated from the authorized
capital stock of the Corporation. The Corporation shall not be
prohibited from reissuing any shares of Cumulative Preferred
Stock redeemed or retired (other than for the sinking fund
therefor) or converted into or exchanged for stock pursuant to
the provisions fixed by the Board of Directors in accordance
with subdivision 1, and after such redemption, retirement or
conversion of the Corporation may, in the manner provided by
law, restore such shares to the status of authorized but
unissued shares of Cumulative Preferred Stock undesignated as
to series.
5. If and so long as all dividends on the Cumulative
Preferred Stock of all series for all past quarter-yearly
dividend periods (other than the first quarter-yearly dividend
period for any shares if the dividend on such shares for such
period shall not then be payable pursuant to the provisions of
subdivision 2) shall not have been paid and the full dividends
thereon for the then current quarter-yearly dividend period
shall not have been paid or declared and a sum sufficient for
the payment thereof set apart, the Corporation shall not
redeem (for sinking fund or otherwise) less than all of the
Cumulative Preferred Stock at the time outstanding, and neither
the Corporation nor any subsidiary shall purchase or otherwise
acquire for value (for sinking fund or otherwise) any of the
Cumulative Preferred Stock at the time outstanding.
6. Unless the consent of the holders of a greater number
of shares shall then be required by law, the consent of the
holders of at least two-thirds of the shares of Cumulative
Preferred Stock at the time outstanding, given in person or by
proxy, either in writing or at any special or annual meeting
called for the purpose, at which the Cumulative Preferred
Stock shall vote separately as a class, shall be necessary to
permit, effect or validate any one or more of the following:
(a) The authorization of, or any increase in the
authorized amount of, any class of stock ranking prior to
the Cumulative Preferred Stock;
(b) The amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation, or of the
By-Laws of the Corporation which would affect adversely
any right, preference, privilege or voting power of the
Cumulative Preferred Stock or of the holders thereof;
provided, however, that if any such amendment, alteration
or repeal would affect adversely any right, preference,
privilege or voting power of one or more, but not all, of
the series of Cumulative Preferred Stock at the time
outstanding, the consent of the holders of at least two-
thirds of the outstanding shares of each such series so
affected, similarly given, shall be required in lieu of
(or if such consent is required by law, in addition to)
the consent of the holders of two-thirds of the shares of
the Cumulative Preferred Stock as a class; and
(c) The voluntary liquidation, dissolution or winding
up of the Corporation, or the sale, lease or conveyance
(other than by mortgage) of all or substantially all the
property or business of the Corporation, or the
consolidation or merger of the Corporation with or into
any other corporation, except any such consolidation or
merger wherein none of the rights, preferences, privileges
or voting powers of any series of the Cumulative Preferred
Stock or the holders thereof are adversely affected.
No consent of the holders of the Cumulative Preferred
Stock or of any series thereof which would otherwise be
required to permit, effect or validate any action of the
Corporation or a subsidiary pursuant to the provisions of this
subdivision 6 or pursuant to any provision fixed by the Board
of Directors in accordance with subdivision 1 shall be required
if, prior to or concurrently with such action, provision shall
be made in accordance with the provisions of the fourth
paragraph of subdivision 4 for the redemption of all
outstanding shares of Cumulative Preferred Stock or all
outstanding shares of such series, as the case may be, and all
funds necessary for such redemption shall be deposited in trust
in accordance with the provisions of such paragraph.
7. Unless and until six quarter-yearly dividends on the
Cumulative Preferred Stock of any series shall be in default,
in whole or in part, the entire voting power, except as
otherwise provided in the Certificate of Incorporation or By-
Laws, shall be vested exclusively in the Common Stock in
accordance with the provisions of, and except as otherwise
expressly provided in, the Certificate of Incorporation. If and
whenever six full quarter-yearly dividends (whether or not
consecutive) payable on the Cumulative Preferred Stock of any
series shall be in arrears, in whole or in part, the number of
Directors then constituting the Board of Directors shall be
increased by two and the holders of the Cumulative Preferred
Stock, voting separately as a class, regardless of series,
shall be entitled to elect the two additional directors at any
annual meeting of shareholders or special meeting held in place
thereof, or at a special meeting of the holders of the
Cumulative Preferred Stock called as hereinafter provided.
Whenever all arrears in dividends on the Cumulative Preferred
Stock then outstanding shall have been paid and dividends
thereon for the current quarter-yearly dividend period shall
have been paid or declared and set apart for payment, then the
right of the holders of the Cumulative Preferred Stock to elect
such additional two Directors shall cease (but subject always
to the same provisions for the vesting of such voting rights in
the case of any similar future arrearages in dividends), and
the terms of office of all persons elected as Directors by the
holders of the Cumulative Preferred Stock shall forthwith
terminate and the number of the Board of Directors shall be
reduced accordingly. At any time after such voting power shall
have been so vested in the Cumulative Preferred Stock, the
Secretary of the Corporation may, and upon the written request
of any holder of the Cumulative Preferred Stock (addressed to
the Secretary at the principal office of the Corporation)
shall, call a special meeting of the holders of the Cumulative
Preferred Stock for the election of the two Directors to be
elected by them as herein provided, such call to be made by
notice similar to that provided in the By-Laws for a special
meeting of the shareholders or as required by law. If any such
special meeting required to be called as above provided shall
not be called by the Secretary within twenty days after receipt
of any such request, then any holder of Cumulative Preferred
Stock may call such meeting, upon the notice above provided,
and for that purpose shall have access to the stock books of
the Corporation. The Directors elected at any such special
meeting shall hold office until the next annual meeting of the
shareholders or special meeting held in place thereof. In case
any vacancy shall occur among the Directors elected by the
holders of the Cumulative Preferred Stock, a successor shall be
elected to serve until the next annual meeting of the
shareholders or special meeting held in place thereof by the
then remaining Director elected by the holders of the
Cumulative Preferred Stock or the successor of such remaining
Director.
In any case in which the holders of Cumulative
Preferred Stock or any series thereof shall be entitled to vote
pursuant to the provisions of the Certificate of Incorporation
or pursuant to law, each holder of Cumulative Preferred Stock
or of such series, as the case may be, shall be entitled to one
vote for each share thereof held.
8. In the event of any liquidation, dissolution or
winding up of the Corporation, the holders of the Cumulative
Preferred Stock of each series shall be entitled to receive out
of the assets of the Corporation, before any distribution or
payment shall be made to the holders of any junior stock, (i)
if such liquidation, dissolution or winding up shall be
involuntary, the amount fixed by the Board of Directors in
accordance with subdivision 1 but not less than $1.00, and (ii)
if such liquidation, dissolution or winding up shall be
voluntary, the amount per share fixed by the Board of Directors
in accordance with the provisions of subdivision 1 in the case
of any series of Cumulative Preferred Stock, in effect at the
time thereof, together with, in each case, all accrued and
unpaid dividends thereon to the date fixed for the payment of
such distributive amounts; and the holders of the junior stock
shall be entitled, to the exclusion of the holders of the
Cumulative Preferred Stock of any and all series, to share
ratably in all the remaining assets of the Corporation in
accordance with their respective rights. As provided in
paragraph (c) of subdivision 1, if upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary
or involuntary, the assets available for distribution shall be
insufficient to pay the holders of all outstanding shares of
Cumulative Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of shares of
Cumulative Preferred Stock of all series shall share ratably in
any distribution of assets in accordance with the sums which
would be payable on such distribution if all sums payable were
discharged in full. Neither the consolidation or merger of the
Corporation with or into any other corporation, nor any sale,
lease or conveyance of all or any part of the property or
business of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation
within the meaning of this subdivision 8.
9. Except as otherwise expressly provided in the
Certificate of Incorporation and except as otherwise provided
by law, voting rights upon any and all matters shall be vested
exclusively in the holders of the Common Stock and the Class B
Stock (each share of Common Stock and of Class B Stock having
one vote).
10. No holder of Common Stock, Cumulative Preferred Stock
or Class B Stock shall be entitled as such, as a matter of
right, to subscribe for or purchase any part of any new or
additional issue of stock of any class whatsoever, or of any
obligations or other securities convertible into, or
exchangeable for, any stock of any class whatsoever, whether
now or hereafter authorized and whether issued for cash or
other consideration or by way of dividend.
11. The holders of Common Stock and of Class B Stock
shall possess equal voting rights and rights as to dividends or
distributions, and in the event of any liquidation, dissolution
or winding up of the Corporation. No dividend, distribution,
split-up, combination, reclassification, or other change in the
shares of Common Stock shall be made without the same being
made with respect to the Class B Stock.
12. For all purposes of the Certificate of Incorporation:
The term "accrued and unpaid dividends" when used
with reference to any share of any series of the Cumulative
Preferred Stock shall mean an amount computed at the annual
dividend rate for the shares of such series from the date on
which dividends on such share became cumulative to and
including the date to which such dividends are to be accrued,
less the aggregate amount of all dividends theretofore paid on
such share; but no interest shall be payable upon any
arrearages.
The term "Certificate of Incorporation" shall mean
the certificate of incorporation of the Corporation as amended
and supplemented by any certificate heretofore or hereafter
filed pursuant to law, including any certificate filed pursuant
to law with respect to, and providing for the issue of, any
series of Cumulative Preferred Stock.
The term "junior stock", when used with reference to
the Cumulative Preferred Stock, shall mean the Common Stock,
the Class B Stock and any other stock of the Corporation, now
or hereafter authorized, over which the Cumulative Preferred
Stock has preference or priority either in the payment of
dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Corporation.
The term "sinking fund", as applied to any series of
preferred stock, shall mean any fund or requirement for the
periodic redemption, retirement or purchase of shares of such
series.
The term "stock ranking prior to the Cumulative
Preferred Stock" shall mean any stock of the Corporation, now
or hereafter authorized, which has preference over the
Cumulative Preferred Stock either in the payment of dividends
or in any liquidation, dissolution or winding up of the
Corporation.
THE $5.45 CUMULATIVE PREFERRED STOCK
13. (a) The distinctive serial designation of the
initial series of Cumulative Preferred Stock is "$5.45
Cumulative Preferred Stock" (the "First Series"); and the
aggregate number of shares which shall constitute such
series is 8,875,000.
(b) The annual dividend rate for the First Series is
$5.45 per share and the date from and after which
dividends on each share of the First Series shall be
cumulative is January 11, 1983.
(c) The redemption price for the First Series
applicable to redemption for the mandatory and optional
sinking fund established by paragraph (e) below shall be
$50 per share and for the voluntary redemptions
established by paragraph (f) below as follows for
redemptions after the dates indicated:
April 1, 1988 $52.725
April 1, 1989 $52.180
April 1, 1990 $51.635
April 1, 1991 $51.090
April 1, 1992 $50.545
April 1, 1993 and thereafter $50.000
(d) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
the holders of the First Series shall be entitled to
receive out of the assets of the Corporation, before any
distribution or payment shall be made to the holders
of any junior stock, the per share redemption price of $50
plus an amount equal to all accrued and unpaid dividends
thereon to the date fixed for the payment of such
distributive amount.
(e) As and for a Sinking Fund for the shares of the
First Series, so long as any shares thereof are
outstanding, the Corporation shall redeem, on January 1 in
each of the years 1993 through 2003, inclusive
(hereinafter each called a "Sinking Fund Date"),
commencing on January 1, 1993, a number of shares of the
First Series equal to, on the Sinking Fund Dates in the
years 1993 through 2002, inclusive, 8.18% of the number of
shares of the First Series outstanding on January 1, 1993,
and, on the Sinking Fund Date in 2003, all shares of the
First Series then remaining outstanding (the Corporation's
obligation to redeem such number of shares on any Sinking
Fund Date being hereinafter referred to as the "Sinking
Fund Obligation" for such date). If the Corporation shall
fail to discharge its Sinking Fund Obligation on any
Sinking Fund Date for any reason, such Sinking Fund
Obligation to the extent not discharged shall become an
additional Sinking Fund Obligation on each succeeding
Sinking Fund Date until fully discharged, provided that
all outstanding shares of the First Series shall be
redeemed not later than January 1, 2003. The obligation
of the Corporation to redeem shares for the Sinking Fund
as aforesaid may, at the election of the Corporation, be
reduced and satisfied, in whole or in part, by the number
of shares of the First Series theretofore purchased,
redeemed or otherwise acquired by the Corporation
otherwise than through the operation of the Sinking Fund
and not theretofore made the basis for the reduction of a
Sinking Fund Obligation.
(f) The Board of Directors of the Corporation at any
time and from time to time after April 1, 1988 may redeem
all, or any number less than all, of the outstanding
shares of the First Series.
(g) The First Series is not convertible into, or
exchangeable for, shares of stock of any other class.
THE SERIES A CUMULATIVE PREFERRED STOCK
14. (a) The distinctive serial designation of the second
series of Cumulative Preferred Stock is "Series A
Cumulative Preferred Stock" (hereinafter called "Series A
Preferred Stock").
(b) The number of shares constituting the Series A
Preferred Stock is 1,500,000 shares.
(c) The quarterly dividend rate for the Series A
Preferred Stock is an amount per share (rounded to the
nearest cent) equal to the greater of (i) $10.00 or (ii)
subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all
cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all noncash dividends or other
distributions other than a dividend payable in shares of
Common Stock or Class B Stock or a subdivision of the
outstanding shares of Common Stock or Class B Stock (by
reclassification or otherwise), declared on the Common
Stock or Class B Stock of the Corporation since the
immediately preceding quarterly dividend payment date, or,
with respect to the first quarterly dividend payment date,
since the first issuance of any share or fraction of a
share of Series A Preferred Stock. In the event the
Corporation shall at any time after April 16, 1987 declare
or pay any dividend on Common Stock or Class B Stock
payable in shares of Common Stock or Class B Stock, or
effect a subdivision or combination or consolidation of
the outstanding shares of Common Stock or Class B Stock
(by reclassification or otherwise than by payment of a
dividend in shares of Common Stock or Class B Stock) into
a greater or lesser number of shares of Common Stock or
Class B Stock, then in each such case the amount to which
holders of Series A Preferred Stock were entitled
immediately prior to such event under clause (ii) of the
preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number
of shares of Common Stock or Class B Stock outstanding
immediately after such event and the denominator of which
is the number of shares of Common Stock or Class B Stock
that were outstanding immediately prior to such event.
The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided
in this paragraph (c) immediately after it declares a
dividend or distribution on the Common Stock or Class B
Stock; provided that, in the event no dividend or
distribution shall have been declared on the Common Stock
or Class B Stock during the period between any quarterly
dividend payment date and the next subsequent quarterly
dividend payment date, a dividend of $10.00 per share on
the Series A Preferred Stock shall nevertheless be payable
on such subsequent quarterly dividend payment date.
Dividends shall begin to accrue and be
cumulative on outstanding Series A Preferred Stock from
the date of issue of such shares of Series A Preferred
Stock.
(d) Except as prescribed by law and in addition to
the rights provided for in Section 7 of Article FOURTH of
the Certificate of Incorporation of the Corporation and in
paragraph (i) of this Section 14, and subject to the
provision for adjustment hereinafter set forth, the
holders of the Series A Preferred Stock shall be entitled
to one vote for each share held and shall be entitled to
exercise such voting rights with the holders of Common
Stock and Class B Stock, without distinction as to class,
at any annual or special meeting of shareholders for the
election of directors and on any other matter coming
before such meeting.
(e) Any Series A Preferred Stock purchased or
otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after
the acquisition thereof. All such shares shall upon their
cancellation become authorized but unissued Cumulative
Preferred Stock and may be reissued as part of a new
series of Cumulative Preferred Stock to be created by
resolution or resolutions of the Board of Directors,
subject to the conditions and restrictions on issuance set
forth herein.
(f) (i) Upon any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation, no distribution shall be made to the
holders of junior stock unless, prior thereto, the
holders of Series A Preferred Stock shall have
received the greater of (i) $100.00 per share, plus
an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to
the date of such payment, or (ii) an amount per share
which shall be determined by (A) dividing (1) the
value of the assets of the Corporation available for
distribution to shareholders, less the amount to
be paid upon liquidation, dissolution, or winding up
to the holders of all other series of stock ranking
on a parity with the Series A Preferred Stock, by (2)
the sum of the number of one-hundredths shares of
Series A Preferred Stock outstanding as of the date
of such event plus the number of shares of Common
Stock and Class B Stock, as adjusted by multiplying
such number of shares of Common Stock and Class B
Stock outstanding as of the date of such event by the
Adjustment Number (as defined below), and (B)
multiplying the result obtained in clause (A) by 100,
(the "Series A Preferred Stock Liquidation
Preference"). Following the payment of the full
amount of the Series A Preferred Stock Liquidation
Preference, no additional distributions shall be made
to the holders of shares of Series A Preferred Stock.
Following the payment of the full amount of the
Series A Preferred Stock Liquidation Preference in
respect of all outstanding shares of Series A
Preferred Stock holders of Common Stock and Class B
Stock shall receive their ratable and proportionate
share of the remaining assets to be distributed, on a
per share basis.
(ii) In the event, however, that there are not
sufficient assets available to permit payment in full
of the Series A Preferred Stock Liquidation
Preference and the liquidation preferences of all
other series of stock ranking on a parity upon
liquidation, dissolution or winding up with the
Series A Preferred Stock, then such remaining assets
shall be distributed ratably to the holders of the
Series A Preferred Stock and such other series of
parity stock in proportion to the total amounts to
which the holders of all such shares are entitled
upon liquidation, dissolution or winding up.
(iii) The Adjustment Number as of the date of
this Certificate of Amendment shall be one (1). In
the event the Corporation shall at any time after
April 16, 1987 declare or pay any dividend on Common
Stock payable in shares of Common Stock or Class B
Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common
Stock or Class B Stock (by reclassification or
otherwise than by payment of a dividend in shares of
Common Stock or Class B Stock) into a greater or
lesser number of shares of Common Stock or Class B
Stock, then in each such case the Adjustment Number
in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a
fraction, the numerator of which is the number of
shares of Common Stock and Class B Stock outstanding
immediately prior to such event and the denominator
of which is the number of shares of Common Stock and
Class B Stock that were outstanding immediately after
such event.
(iv) The merger or consolidation of the
Corporation with or into any other corporation or the
merger or consolidation of any other corporation with
or into the Corporation, or the sale, transfer,
exchange or conveyance by the Corporation of all or
substantially all the assets of the Corporation, as
an entirety, shall not be deemed to be a liquidation
for purposes of paragraph (f) of this Section 14.
(g) In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in
which the shares of Common Stock or Class B Stock are
exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the
Series A Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set
forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in
kind), as the case may be, into which or for which each
share of Common Stock or Class B Stock is changed or
exchanged. In the event the Corporation shall at any time
after April 16, 1987 declare or pay any dividend on Common
Stock or Class B Stock payable in shares of Common Stock
or Class B Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock
or Class B Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock or Class B
Stock) into a greater or lesser number of shares of Common
Stock or Class B Stock, then in each such case the amount
set forth in the preceding sentence with respect to the
exchange or change of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock
and Class B Stock outstanding immediately after such event
and the denominator of which is the number of shares of
Common Stock and Class B Stock that were outstanding
immediately prior to such event.
(h) The Series A Preferred Stock shall not be
redeemable.
(i) Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise
voting rights, receive dividends, participate in
liquidating distributions and to have the benefit of all
other rights of holders of Series A Preferred Stock.
(j) The Series A Preferred Stock is not convertible
into, or exchangeable for, shares of stock of any other
class.
THE $4.125 TWENTY-YEAR SINKING FUND PREFERRED STOCK
15. (a) The distinctive serial designation of the third
series of Cumulative Preferred Stock is "$4.125 Twenty-
Year Sinking Fund Preferred Stock" (hereinafter called
"Twenty-Year Preferred Stock"); and the number of shares
constituting the Twenty-Year Preferred Stock is 3,500,000
shares.
(b) The annual dividend rate for the Twenty-Year
Preferred Stock is $4.125 per share. Dividends shall begin
to accrue and be cumulative on outstanding Twenty-Year
Preferred Stock from the date of original issue of such
shares of Twenty-Year Preferred Stock.
(c) Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders
of the Twenty-Year Preferred Stock shall be entitled to
receive out of the assets of the Corporation, before any
distribution or payment shall be made to the holders of
any junior stock, the per share liquidation price of $50
plus an amount equal to all accrued and unpaid dividends
thereon to the date fixed for the payment of such
distributive amount.
(d) The Board of Directors of the Corporation at any
time and from time to time on or after April 1,1993 may
redeem all, or any number less than all, of the
outstanding shares of the Twenty-Year Preferred Stock.
The redemption price for the Twenty-Year Preferred Stock
applicable to redemption for the voluntary redemptions
shall be as follows for redemptions on or after the dates
indicated:
April 1, 1993 $54.125 April 1, 1998 $52.0625
April 1, 1994 $53.7125 April 1, 1999 $51.65
April 1, 1995 $53.30 April 1, 2000 $51.2375
April 1, 1996 $52.8875 April 1, 2001 $50.825
April 1, 1997 $52.475 April 1, 2002 $50.4125
April 1, 2003 and thereafter $50.00
(e) As and for a sinking fund for the shares of
Twenty-Year Preferred Stock, so long as any shares thereof
are outstanding, the Corporation shall redeem, on April 1
in each of the years 1994 through 2008, inclusive
(hereinafter each called a "Sinking Fund Date"),
commencing on April 1, 1994, a number of shares of the
Twenty-Year Preferred Stock equal to, on the Sinking Fund
Dates in the years 1994 through 2008, inclusive, 6 2/3% of
the number of shares of the Twenty-Year Preferred Stock
originally issued prior to April 1, 1993, and, on the
Sinking Fund Date in 2008, all shares of the Twenty-Year
Preferred Stock remaining outstanding (the Corporation's
obligation to redeem such number of shares on any Sinking
Fund Date being referred to as the "Sinking Fund
Obligation" for such date). The Corporation shall have the
option on any Sinking Fund Date to increase any sinking
fund payment by an amount not exceeding 100% of such
sinking fund payment. If the Corporation shall fail to
discharge its Sinking Fund Obligation on any Sinking Fund
Date for any reason, such Sinking Fund Obligation to the
extent not discharged shall become an additional Sinking
Fund Obligation on each succeeding Sinking Fund Date until
fully discharged, provided that all outstanding shares of
the Twenty-Year Preferred Stock shall be redeemed not
later than April 1, 2008. The obligation of the
Corporation to redeem shares for the Sinking Fund as
aforesaid may, at the election of the Corporation, be
reduced and satisfied, in whole or in part, by the number
of shares of the Twenty-Year Preferred Stock theretofore
purchased, redeemed or otherwise acquired by the
Corporation otherwise than through the operation of the
Sinking Fund and not theretofore made the basis for the
reduction of a Sinking Fund Obligation. The redemption
price which shall be applicable for the purposes of this
paragraph (e) shall be $50 per share. No shares of
Twenty-Year Preferred Stock shall be issued after March
31, 1993.
(f) The Twenty-Year Preferred Stock is not
convertible into, or exchangeable for, shares of stock of
any other class.
THE $3.6875 TEN-YEAR SINKING FUND PREFERRED STOCK
16. (a) The distinctive serial designation of the fourth
series of Cumulative Preferred Stock is "$3.6875 Ten-Year
Sinking Fund Preferred Stock" (hereinafter called "Ten-
Year Preferred Stock"); and the number of shares
constituting the Ten-Year Preferred Stock is 2,500,000
shares.
(b) The annual dividend rate for the Ten-Year
Preferred Stock is $3.6875 per share. Dividends shall
begin to accrue and be cumulative on outstanding Ten-Year
Preferred Stock from the date of original issue of such
shares of Ten-Year Preferred Stock.
(c) Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders
of the Ten-Year Preferred Stock shall be entitled to
receive out of the assets of the Corporation, before any
distribution or payment shall be made to the holders of
any junior stock, the per share liquidation price of $50
plus an amount equal to all accrued and unpaid dividends
thereon to the date fixed for the payment of such
distributive amount.
(d) The Ten-Year Preferred Stock is not redeemable
at the option of the Corporation, except pursuant to
paragraph (e) of this Section 16.
(e) As and for a Sinking Fund for the shares of Ten-
Year Preferred Stock, so long as any shares thereof are
outstanding, the Corporation shall redeem, on April 1 in
each of the years 1994 through 1998, inclusive
(hereinafter each called a "Sinking Fund Date"),
commencing on April 1, 1994, a number of shares of the
Ten-Year Preferred Stock equal to, on the Sinking Fund
Dates in the years 1994 through 1998, inclusive, 20% of
the number of shares of the Ten-Year Preferred Stock
originally issued prior to April 1, 1994 and, on the
Sinking Fund Date in 1998, all shares of the Ten-Year
Preferred Stock remaining outstanding (the Corporation's
obligation to redeem such number of shares on any Sinking
Fund Date being referred to as the "Sinking Fund
Obligation" for such date). The Corporation shall have the
option on any Sinking Fund Date to increase any sinking
fund payment by an amount not exceeding 100% of such
sinking fund payment. If the Corporation shall fail to
discharge its Sinking Fund Obligation on any Sinking Fund
Date for any reason, such Sinking Fund Obligation to the
extent not discharged shall become an additional Sinking
Fund Obligation on each succeeding Sinking Fund Date until
fully discharged, provided that all outstanding shares of
the Ten-Year Preferred Stock shall be redeemed not later
than April 1, 1998. The obligation of the Corporation to
redeem shares for the Sinking Fund as aforesaid may, at
the election of the Corporation, be reduced and satisfied,
in whole or in part, by the number of shares of the Ten-
Year Preferred Stock theretofore purchased, redeemed or
otherwise acquired by the Corporation otherwise than
through the operation of the Sinking Fund and not
theretofore made the basis for the reduction of a Sinking
Fund Obligation. The redemption price which shall be
applicable for the purposes of this paragraph (e) shall be
$50 per share. No shares of Ten-Year Preferred Stock
shall be issued after March 31, 1994.
(f) The Ten-Year Preferred Stock is not convertible
into, or exchangeable for, shares stock of any other
class.
THE SERIES B CONVERTIBLE PREFERRED STOCK
17. (a) The distinctive serial designation of the fifth
series of Cumulative Preferred Stock is "Series B
Convertible Preferred Stock" (hereinafter called "Series B
Preferred Stock"); and the number of shares constituting
the Series B Preferred Stock is 10,032,000 shares. Each
share of Series B Preferred Stock shall have a stated
value of $78.25 per share.
(b) Shares of Series B Preferred Stock shall be
issued only to the Trustee of the Employee Stock Ownership
Plan of the Corporation, as amended from time to time, or
any successor to such plan (the "Plan"). All references to
the holder of Series B Preferred Stock shall mean the
Trustee or any company with which or into which the
Trustee may merge or any successor trustee under the trust
agreement with respect to the Plan. In the event of any
transfer of record ownership of Series B Preferred Stock
to any person other than any successor trustee under the
Plan, the shares of Series B Preferred Stock so
transferred, upon such transfer and without any further
action by the Corporation or the holder thereof, shall be
automatically converted into shares of Common Stock on the
terms provided for the conversion of shares of Series B
Preferred Stock into shares of Common Stock pursuant to
subsection (f) of this subdivision 17 and no such
transferee shall have any of the voting powers,
preferences and relative, participating, optional or
special rights ascribed to the Series B Preferred Stock
hereunder but, rather, only the powers and rights
pertaining to the Common Stock into which such Series B
Preferred Stock shall be so converted. In the event of
such a conversion, the transferee of the Series B
Preferred Stock shall be treated for all purposes as the
record holder of the Common Stock into which such Series B
Preferred Stock has been automatically converted as of the
date of such transfer. Certificates representing Series B
Preferred Stock shall bear a legend to reflect the
foregoing provisions. Notwithstanding the foregoing
provisions of this subsection, shares of Series B
Preferred Stock (i) may be converted into shares of Common
Stock as provided herein and the shares of Common Stock
issued upon such conversion may be transferred by the
holder thereof as permitted by law and (ii) shall be
redeemable by the Corporation upon the terms and
conditions provided by subsections (g), (h) and (i) of
this subdivision 17.
(c) Subject to the provisions for adjustment
hereinafter set forth, the annual dividend rate for the
Series B Preferred Stock is $6.25 per share. Dividends on
the Series B Preferred Stock shall begin to accrue and be
cumulative on outstanding Series B Preferred Stock from
the date of original issuance of such shares of Series B
Preferred Stock. Series B Preferred Dividends shall
accrue on a daily basis whether or not the Corporation
shall have earnings or surplus at the time.
(d) Except as prescribed by law and in addition to
the rights provided for in subdivision 7 of Article FOURTH
of the Certificate of lncorporation, the holder of the
Series B Preferred Stock shall be entitled to one vote for
each share held and shall be entitled to exercise such
voting rights with the holders of Common Stock and Class B
Stock, without distinction as to class, at any annual or
special meeting of shareholders for the election of
directors and on any other matter coming before such
meeting.
(e) Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holder
of Series B Preferred Stock shall be entitled to receive
out of assets of the Corporation, before any distribution
shall be made to the holders of any junior stock the per
share liquidation price of $78.25 plus an amount equal to
all accrued and unpaid dividends thereon to the date fixed
for payments of such distribution amount. Neither the
merger or consolidation of the Corporation with or into
any other corporation, nor the merger or consolidation of
any other corporation with or into the Corporation, nor
the sale, lease, exchange or other transfer of all or any
portion of the assets of the Corporation, shall be deemed
to be a dissolution, liquidation or winding up of the
affairs of the Corporation for purposes of this subsection
(e), but the holder of Series B Preerred Stock shall
nevertheless be entitled in the event of any such merger
or consolidation to the rights provided by subsection (h)
hereof.
(f) (i) A holder of shares of Series B Preferred
Stock shall be entitled, at any time prior to the
close of business on the date fixed for redemption of
such shares pursuant to subsections (g), (h) and (i)
of this subdivision 17, to cause any or all of such
shares to be converted into shares of Common Stock,
initially at a conversion price equal to $78.25 per
share of Common Stock, with each share of Series B
Preferred Stock being valued at $78.25 for such
purpose, which price shall be adjusted as hereinafter
provided (and, as so adjusted, is hereinafter
sometimes referred to as the "Conversion Price").
The conversion rate initially shall be equivalent to
one (1) share of Common Stock for each share of
Series B Preferred Stock so converted, and shall be
subject to adjustment as the Conversion Price is
adjusted as hereinafter provided in subsection (i) of
this subdivision 17.
(ii) Any holder of shares of Series B Preferred
Stock desiring to convert such shares into shares of
Common Stock shall surrender the certificate or
certificates representing the shares of Series B
Preferred Stock being converted, duly assigned or
endorsed for transfer to the Corporation (or
accompanied by duly executed stock powers relating
thereto), and accompanied by written notice of
conversion, at the principal executive office of the
Corporation or the offices of the transfer agent for
the Series B Preferred Stock or such office or
offices in the continental United States of an agent
for conversion as may from time to time be designated
by notice to the holder of the Series B Preferred
Stock by the Corporation or the transfer agent for
the Series B Preferred Stock. Such notice of
conversion shall specify (i) the number of shares of
Series B Preferred Stock to be converted and the name
or names in which such holder wishes the certificate
or certificates for Common Stock and for any shares
of Series B Preferred Stock not to be so converted to
be issued and (ii) the address to which such holder
wishes delivery to be made of such new certificates
to be issued upon such conversion.
(iii) Upon surrender of a certificate
representing a share or shares of Series B Preferred
Stock for conversion, the Corporation shall issue and
send by hand delivery or, at its option, by first
class mail (postage prepaid) to the holder thereof or
to such holder's designee, at the address designated
by such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder
shall be entitled upon conversion. In the event that
there shall have been surrendered a certificate or
certificates representing Series B Preferred Stock,
only part of which are to be converted, the
Corporation shall issue and send to such holder or
such holder's designee, in the manner set forth in
the preceding sentence, a new certificate or
certificates representing the number of shares of
Series B Preferred Stock which shall not have been
converted.
(iv) The issuance by the Corporation of shares
of Common Stock upon a conversion of shares of Series
B Preferred Stock into shares of Common Stock made at
the option of the holder thereof shall be effective
as of the earlier of (1) the delivery to such holder
or such holder's designee of the certificates
representing the shares of Common Stock issued upon
conversion thereof or (2) the commencement of
business on the second Business Day after the proper
surrender of the certificate or certificates for the
Series B Preferred Stock to be converted, as provided
in subsection (f)(iii) above. On and after the
effective date of conversion, the person or persons
entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common
Stock, but no allowance or adjustment shall be made
in respect of dividends payable to holders of record
of Common Stock in respect of any period prior to
such effective date. The Corporation shall not be
obligated to pay any dividends which shall have been
declared prior to the effective date of conversion
and shall be payable to holders of shares of Series B
Preferred Stock subsequent to the effective date of
conversion of such shares.
(v) The Corporation shall not be obligated to
deliver to holders of Series B Preferred Stock any
fractional share of Common Stock issuable upon any
conversion of such Series B Preferred Stock, but in
lieu thereof may make a cash payment in respect
thereof in any manner permitted by law.
(vi) The Corporation shall at all times reserve
and keep available out of its authorized and unissued
Common Stock, solely for issuance upon the conversion
of Series B Preferred Stock as herein provided such
number of shares of Common Stock as shall from time
to time be issuable upon the conversion of all the
Series B Preferred Stock then outstanding. Nothing
contained herein shall preclude the Corporation from
issuing shares of Common Stock held in its treasury
upon the conversion of shares of Series B Preferred
Stock into Common Stock pursuant to the terms hereof.
(g) (i) The Board of Directors of the Corporation
at any time and from time to time on or after July
10, 1994 may redeem all, or any number less than all,
of the outstanding shares of the Series B Preferred
Stock. The redemption price per share for the Series
B Preferred Stock applicable for redemptions on or
after the dates indicated below shall be as follows,
plus accrued and unpaid dividends to the date fixed
for redemption:
July 10, 1994 81.375
July 10, 1995 80.750
July 10, 1996 80.125
July 10, 1997 79.500
July 10, 1998 78.875
July 10, 1999 and thereafter 78.250
Payment of the redemption price shall be made by the
Corporation in cash or shares of Common Stock, or a
combination thereof, as permitted by subsection (v)
of subsection (g) of this subdivision 17.
(ii) In the event of a change in any statute,
rule or regulation of the United States of America or
any administrative or judicial interpretation thereof
which (1) has the effect of limiting or making
unavailable to the Corporation all or any of the tax
deductions for amounts paid (including dividends) on
the Series B Preferred Stock when such amounts are
used as provided under Section 404(k)(2) of the
Internal Revenue Code of 1986, as amended, (other
than for purposes of determining alternative minimum
tax) and in effect on the date shares of Series B
Preferred Stock are initially issued, or (2) relates
to any aspect or qualification of the Plan which
increases by 20% or more the Corporation's cost of
maintaining the Plan, the Corporation may, in its
sole discretion and notwithstanding anything to the
contrary in this subsection (g), elect to redeem any
or all of such Series B Preferred Stock at a
redemption price per share equal to the higher of (1)
$78.25 and (2) the Fair Market Value (as defined in
subparagraph (vii) of subsection (i) hereof) of the
shares of Common Stock which would be issuable upon
the conversion of the shares of Series B Preferred
Stock being redeemed, plus in each case, accrued and
unpaid dividends to the date fixed for redemption.
The Corporation shall have the right to elect to
redeem shares of Series B Preferred Stock pursuant to
this subparagraph (ii) at any time prior to the last
day of the sixth month following the latest of: (1)
the date of the enactment of any such statute, rule,
regulation or judicial or administrative
interpretation, (2) the effective date of any such
statute, rule, regulation or judicial or
administrative interpretation, or (3) in the case of
any judicial or administrative proceeding in which
the Corporation contests in good faith the
applicability of any such statute, rule, regulation
or interpretation to the Corporation, the date of the
final determination of applicability.
(iii) In the event that shares of Series B
Preferred Stock are held by the trustee under an
employee benefit plan intended to qualify as an
employee stock ownership plan within the meaning of
Section 4975 of the Internal Revenue Code of 1986, as
amended, and such plan does not so qualify, the
Corporation may, in its sole discretion and
notwithstanding anything to the contrary in
subsection (g), elect to redeem any or all of such
shares of Series B Preferred Stock at a redemption
price per share equal to the higher of (1) $78.25 and
(2) the Fair Market Value (as defined in subparagraph
(vii) of subsection (i) hereof) of the shares of
Common Stock which would be issuable upon the
conversion of the shares of Series B Preferred Stock
being redeemed, plus in each case, accrued and unpaid
dividends to the date fixed for redemption.
(v) The Corporation may make payment of the
redemption price upon any redemption hereunder
required upon redemption of Series B Preferred Stock
in cash or in a combination of one share of Common
Stock for each share of Series B Preferred Stock
redeemed and cash, any such shares of Common Stock to
be valued for such purposes at their Fair Market
Value (as defined in subparagraph (vii) of subsection
(i) hereof).
(vi) Notwithstanding anything to the contrary
in this subsection (g), at any time and from time to
time upon notice to the Corporation given not less
than five (5) Business Days prior to the date fixed
by the holder in such notice for such redemption,
upon certification by such holder to the Corporation
that such redemption is necessary for such holder to
provide for distributions required to be made to
participants under, or to satisfy an investment
election provided to participants in accordance with,
the Plan, shares of Series B Preferred Stock shall be
redeemed by the Corporation at a redemption price per
share equal to the higher of (1) $78.25 and (2) the
Fair Market Value (as defined in subparagraph (viii)
of subsection (1) hereof) of the shares of Common
Stock which would be issuable upon conversion of the
shares of Series B Preferred Stock being redeemed,
plus in each case, accrued and unpaid dividends to
the date fixed for redemption.
(vii) In the event that the Plan is terminated
in accordance with its terms, and notwithstanding
anything to the contrary in this subsection (g), any
or all shares of Series B Preferred Stock may be
redeemed by the Corporation, as soon thereafter as
practicable, at a redemption price equal to the
greater of: (1) the Fair Market Value (as defined in
subparagraph (vii) of subsection (i) hereof) of the
shares of Common Stock which would be issuable upon
conversion of the shares of Series B Preferred Stock
being redeemed or (2) the following redemption prices
per share, plus in each case, accrued and unpaid
dividends to the date fixed for redemption:
During the Twelve-Month
Period Beginning July 10 Price Per Share
1989 $84.500
1990 83.875
1991 83.250
1992 82.625
1993 82.000
1994 81.375
1995 80.750
1996 80.125
1997 79.500
1998 78.875
1999 and thereafter 78.250
(h) (i) In the event the Corporation shall enter
into any agreement providing for any consolidation or
merger or similar business combination described in
subparagraph (iii) of this subsection (h), then the
Corporation shall as soon as practicable thereafter
(and in any event at least ten (10) Business Days
before consummation of such transaction) give notice
of such agreement and the material terms thereof to
each holder of shares of Series B Preferred Stock and
each such holder shall have the right to elect, by
written notice to the Corporation, to receive, upon
consummation of such transaction (if and when such
transaction is consummated), from the Corporation or
the successor of the Corporation, in redemption and
retirement of such Series B Preferred Stock, a cash
payment per share equal to the following amount per
share, plus accrued and unpaid dividends to the date
fixed for redemption:
During the Twelve-Month
Period Beginning July 10 Price Per Share
1989 $84.500
1990 83.875
1991 83.250
1992 82.625
1993 82.000
1994 81.375
1995 80.750
1996 80.125
1997 79.500
1998 78.875
1999 and thereafter 78.250
No such notice of redemption shall be effective
unless given to the Corporation prior to the close of
business on the second Business Day prior to
consummation of such transaction, unless the
Corporation or the successor of the Corporation shall
waive such prior notice, but any notice of redemption
so given prior to such time may be withdrawn by
notice of withdrawal given to the Corporation prior
to the close of business on the second Business Day
prior to consummation of such transaction.
(ii) In the event that the Corporation shall
consummate any consolidation or merger or similar
business combination, pursuant to which the
outstanding shares of Common Stock are by operation
of law exchanged solely for or changed, reclassified
or converted solely into stock of any successor or
resulting corporation (including the Corporation)
that constitutes "qualifying employer securities"
with respect to a holder of Series B Preferred Stock
within the meaning of Section 409(1) of the Internal
Revenue Code of 1986, as amended, and Section
407(d)(5) of the Employee Retirement Income Security
Act of 1974, as amended, or any successor provisions
of law, and, if applicable, for a cash payment in
lieu of fractional shares, if any, the shares of
Series B Preferred Stock of such holder shall, in
connection with such consolidation, merger or similar
business combination, be assumed by and shall become
preferred stock of such successor or resulting
corporation, having in respect of such corporation,
insofar as possible, the same powers, preferences and
relative, participating, optional or other special
rights (including the redemption rights provided by
subsections (f), (g) and (h) hereof), and the
qualifications, limitations or restrictions thereon,
that the Series B Preferred Stock had immediately
prior to such transaction, except that after such
transaction each share of Series B Preferred Stock
shall be convertible, otherwise on the terms and
conditions provided by subsection (f) hereof, into
the number and kind of qualifying employer securities
so receivable by a holder of the number of shares of
Common Stock into which such Series B Preferred Stock
could have been converted immediately prior to such
transaction; provided, however, that, at the election
of the Trustee in lieu of the Series B Preferred
Stock becoming preferred stock of such successor or
resulting corporation, if by virtue of the structure
of such transaction, a holder of Common Stock is
required to make an election with respect to the
nature and kind of consideration to be received in
such transaction, which election cannot practicably
be made by the holder of the Series B Preferred
Stock, then the shares of Series B Preferred Stock
shall, by virtue of such transaction and on the same
terms as apply to the holders of Common Stock, be
converted into or exchanged for the aggregate amount
of stock, securities, cash or other property (payable
in kind) receivable by a holder of the number of
shares of Common Stock into which such Series B
Preferred Stock could have been converted immediately
prior to such transaction if such holder of Common
Stock failed to exercise any rights of election to
receive any kind or amount of stock, securities, cash
or other property (other than such qualifying
employer securities and a cash payment, if
applicable, in lieu of fractional shares) receivable
upon such transaction (provided that, if the kind or
amount of qualifying employer securities receivable
upon such transaction is not the same for each non-
electing share, then the kind and amount so
receivable upon such transaction for each share of
Series B Preferred Stock shall be the kind and amount
so receivable per share by the plurality of the non-
electing shares). The rights of the Series B
Preferred Stock as preferred stock of such successor
or resulting corporation shall successively be
subject to adjustments pursuant to subsection (i)
hereof after any such transaction as nearly
equivalent as practicable to the adjustment provided
for by such section prior to such transaction. The
Corporation shall not consummate any such merger,
consolidation or similar transaction unless all then
outstanding Series B Preferred Stock shall be assumed
and authorized by the successor or resulting
corporation as aforesaid.
(iii) In the event that the Corporation shall
consummate any consolidation or merger or similar
business combination, pursuant to which the
outstanding shares of Common Stock are by operation
of law exchanged for or changed, reclassified or
converted into other stock or securities or cash or
any other property, or any combination thereof, other
than any such consideration which is constituted
solely of qualifying employer securities (as referred
to in subparagraph (ii) of this subsection (h)) and
cash payments, if applicable, in lieu of fractional
shares, outstanding shares of Series B Preferred
Stock shall, without any action on the part of the
Corporation or any holder thereof (but subject to
subparagraph (i) of this subsection (h)) be
automatically converted by virtue of such merger,
consolidation or similar transaction into the number
of shares of Common Stock into which such Series B
Preferred Stock could have been converted immediately
prior to such consummation so that each share of
Series B Preferred Stock shall, by virtue of such
transaction and on the same terms as apply to the
holders of Common Stock, be converted into or
exchanged for the aggregate amount of stock,
securities, cash or other property (payable in like
kind) receivable by a holder of the number of shares
of Common Stock into which such Series B Preferred
Stock could have been converted immediately prior to
such transaction; provided, however, that if by
virtue of the structure of such transaction, a holder
of Common Stock is required to make an election with
respect to the nature and kind of consideration to be
received in such transaction, which election cannot
practicably be made by the holder of the Series B
Preferred Stock, then the Series B Preferred Stock
shall, by virtue of such transaction and on the same
terms as apply to the holders of Common Stock, be
converted into or exchanged for the aggregate amount
of stock, securities, cash or other property (payable
in kind) receivable by a holder of the number of
shares of Common Stock into which such shares of
Series B Preferred Stock could have been converted
immediately prior to such transaction if such holder
of Common Stock failed to exercise any rights of
election as to the kind or amount of stock,
securities, cash or other property receivable upon
such transaction (provided that, if the kind or
amount of stock, securities, cash or other property
receivable upon such transaction is not the same for
each non-electing share, then the kind and amount of
stock, securities, cash or other property receivable
upon such transaction for each non-electing share of
Series B Preferred Stock shall be the kind and amount
so receivable per share by a plurality of the non-
electing shares).
(i) (i) In the event the Corporation shall, at any
time or from time to time while any shares of Series
B Preferred Stock are outstanding, (i) pay a dividend
or make a distribution in respect of the Common Stock
in shares of Common Stock, (ii) subdivide the
outstanding shares of Common Stock, or (iii) combine
the outstanding shares of Common Stock into a smaller
number of shares, in each case whether by
reclassification of shares, recapitalization of the
Corporation (including a recapitalization effected by
a merger or consolidation to which subsection (h)
hereof does not apply) or otherwise, subject to
subparagraphs (v) and (vi) of this subsection (i),
the Conversion Price in effect immediately prior to
such action shall be adjusted by multiplying such
Conversion Price by a fraction, the numerator of
which is the number of shares of Common Stock
outstanding immediately before such event, and the
denominator of which is the number of shares of
Common Stock outstanding immediately after such
event. An adjustment made pursuant to this
subparagraph shall be given effect, upon payment of
such a dividend or distribution, as of the record
date for the determination of shareholders entitled
to receive such dividend or distribution (on a
retroactive basis) and in the case of a subdivision
or combination shall become effective immediately as
of the effective date thereof.
(ii) In the event that the Corporation shall,
at any time or from time to time while any of the
shares of Series B Preferred Stock are outstanding,
issue to holders of shares of Common Stock as a
dividend or distribution, including by way of a
reclassification of shares or a recapitalization of
the Corporation, any right or warrant to purchase
shares of Common Stock (but not including as such a
right or warrant any security convertible into or
exchangeable for shares of Common Stock or any right
or warrant, if any are issued to the holder of shares
of Series B Preferred Stock as though converted into
such Common Stock) at a purchase price per share less
than the Fair Market Value (as defined in
subparagraph (vii) of subsection (i) hereof) of a
share of Common Stock on the date of issuance of such
right or warrant, then, subject to the provisions of
subparagraphs (v) and (vi) of this subsection (i),
the Conversion Price shall be adjusted by multiplying
such Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock
outstanding immediately before such issuance of
rights or warrants plus the number of shares of
Common Stock which could be purchased at the Fair
Market Value (as defined in subparagraph (vii) of
subsection (i) hereof) of a share of Common Stock at
the time of such issuance for the maximum aggregate
consideration payable upon exercise in full of all
such rights or warrants, and the denominator of which
shall be the number of shares of Common Stock
outstanding immediately before such issuance of
rights or warrants plus the maximum number of shares
of Common Stock that could be acquired upon exercise
in full of all such rights and warrants.
(iii) In the event the Corporation shall, at
any time or from time to time while any shares of
Series B Preferred Stock are outstanding, issue, sell
or exchange shares of Common Stock (other than
pursuant to any right or warrant to purchase or
acquire shares of Common Stock (including as such a
right or warrant any security convertible into or
exchangeable for shares of Common Stock) and other
than pursuant to any employee or director incentive
or benefit plan or arrangement, including any
employment, severance or consulting agreement, of the
Corporation or any subsidiary of the Corporation
heretofore or hereafter adopted) for a consideration
having a Fair Market Value (as defined in
subparagraph (vii) of subsection (i) hereof), on the
date of such issuance, sale or exchange, less than
the Fair Market Value (as defined in subparagraph
(vii) of subsection (i) hereof) of such shares of
Common Stock on the date of issuance, sale or
exchange, then, subject to the provisions of
subparagraphs (v) and (vi) of this subsection (i),
the Conversion Price shall be adjusted by multiplying
such Conversion Price by the fraction the numerator
of which shall be the sum of (1) the Fair Market
Value (as defined in subparagraph (vii) of subsection
(i) hereof) of all the shares of Common Stock
outstanding on the day immediately preceding the
first public announcement of such issuance, sale or
exchange plus (2) the Fair Market Value (as defined
in subparagraph (vii) of subsection (i) hereof) of
the consideration received by the Corporation in
respect of such issuance, sale or exchange of shares
of Common Stock, and the denominator of which shall
be the product of (a) the Fair Market Value (as
defined in subparagraph (vii) of subsection (i)
hereof) of a share of Common Stock on the day
immediately preceding the first public announcement
of such issuance, sale or exchange multiplied by (b)
the sum of the number of shares of Common Stock
outstanding on such day plus the number of shares of
Common Stock so issued, sold or exchanged by the
Corporation. In the event the Corporation shall, at
any time or from time to time while any shares of
Series B Preferred Stock are outstanding, issue, sell
or exchange any right or warrant to purchase or
acquire shares of Common Stock (including as such a
right or warrant any security convertible into or
exchangeable for shares of Common Stock), other than
any such issuance to holders of shares of Common
Stock as a dividend or distribution (including by way
of a reclassification of shares or a recapitalization
of the Corporation) and other than pursuant to any
employee or director incentive or benefit plan or
arrangement (including any employment, severance or
consulting agreement) of the Corporation or any
subsidiary of the Corporation heretofore or hereafter
adopted, for a consideration having a Fair Market
Value (as defined in subparagraph (vii) of subsection
(i) hereof), on the date of such issuance, sale or
exchange, less than the Non-Dilutive Amount (as
hereinafter defined), then, subject to the provisions
of subparagraphs (v) and (vi) of this subsection (i),
the Conversion Price shall be adjusted by multiplying
such Conversion Price by a fraction the numerator of
which shall be the sum of (I) the Fair Market Value
(as defined in subparagraph (vii) of subsection (i)
hereof) of all the shares of Common Stock outstanding
on the day immediately preceding the first public
announcement of such issuance, sale or exchange plus
(II) the Fair Market Value (as defined in
subparagraph (vii) of subsection (i) hereof) of the
consideration received by the Corporation in respect
of such issuance, sale or exchange of such right or
warrant plus (Ill) the Fair Market Value (as defined
in subparagraph (vii) of subsection (i) hereof) at
the time of such issuance of the consideration which
the Corporation would receive upon exercise in full
of all such rights or warrants, and the denominator
of which shall be the product of (i) the Fair Market
Value (as defined in subparagraph (vii) of subsection
(i) hereof) of a share of Common Stock on the day
immediately preceding the first public announcement
of such issuance, sale or exchange multiplied by (ii)
the sum of the number of shares of Common Stock
outstanding on such day plus the maximum number of
shares of Common Stock which could be acquired
pursuant to such right or warrant at the time of the
issuance, sale or exchange of such right or warrant
(assuming shares of Common Stock could be acquired
pursuant to such right or warrant at such time).
(iv) (A) In the event the Corporation shall,
at any time or from time to time while any
shares of Series B Preferred Stock are
outstanding, make an Extraordinary Distribution
(as hereinafter defined) in respect of the
Common Stock, whether by dividend, distribution,
reclassification of shares or recapitalization
of the Corporation (including a recapitalization
or reclassification effected by a merger or
consolidation to which subsection (h) hereof
does not apply), the Conversion Price in effect
immediately prior to such Extraordinary
Distribution shall, subject to subparagraphs (v)
and (vi) of this subsection (i), be adjusted by
multiplying such Conversion Price by a fraction
the numerator of which is the difference between
(1) the product of (x) the number of shares of
Common Stock outstanding immediately before such
Extraordinary Distribution multiplied by (y) the
Fair Market Value (as defined in subparagraph
(vii) of subsection (i) hereof) of a share of
Common Stock on the day before the ex-dividend
date with respect to an Extraordinary
Distribution which is paid in cash and on the
distribution date with respect to an
Extraordinary Distribution which is paid other
than in cash, and (2) the Fair Market Value of
the Extraordinary Distribution (as defined in
subparagraph (vii) of subsection (i) hereof)
minus the aggregate amount of regularly
scheduled quarterly dividends declared by the
Board of Directors of the Corporation and paid
by the Corporation in the twelve months
immediately preceding such Extraordinary
Distribution, and the denominator of which shall
be the product of (a) the number of shares of
Common Stock outstanding immediately before such
Extraordinary Dividend multiplied by (b) the
Fair Market Value (as defined in subparagraph
(vii) of subsection (i) hereof) a share of
Common Stock on the day before the ex-dividend
date with respect to an Extraordinary
Distribution which is paid in cash and on the
distribution date with respect to an
Extraordinary Distribution which is paid other
than in cash. The Corporation shall send each
holder of Series B Preferred Stock notice of its
intent to make any such dividend or distribution
in each case at the same time as, or as soon as
practicable after, such offer is first
communicated to holders of Common Stock. Such
notice shall indicate the intended record date
and the amount and nature of such dividend or
distribution, as well as the Conversion Price
and the number of shares of Common Stock into
which a share of Series B Preferred Stock may be
converted at such time.
(B) In the event the Corporation shall, at
any time or from time to time while any shares
of Series B Preferred Stock are outstanding,
effect a Pro Rata Repurchase (as hereinafter
defined) of Common Stock, the Conversion Price
in effect immediately prior to such Pro Rata
Repurchase shall, subject to subparagraphs (v)
and (vi) of this subsection (i), be adjusted by
multiplying such Conversion Price by a fraction,
the numerator of which is the difference between
(1) the product of (x) the number of shares of
Common Stock outstanding immediately before such
Pro Rata Repurchase multiplied by (y) the Fair
Market Value (as defined in subparagraph (vii)
of subsection (i) hereof) of a share of Common
Stock on the applicable expiration date
(including all extensions thereof) of any tender
offer which is a Pro Rata Repurchase, or on the
date of purchase with respect to any Pro Rata
Repurchase which is not a tender offer, as the
case may be, and (2) the aggregate purchase
price of the Pro Rata Repurchase, and the
denominator of which shall be the product of (a)
the number of shares of Common Stock outstanding
immediately before such Pro Rata Repurchase
minus the number of shares of Common Stock
repurchased by the Corporation multiplied by (b)
the Fair Market Value (as defined in
subparagraph (vii) of subsection (i) hereof) of
a share of Common Stock on the applicable
expiration date (including all extensions
thereof) of any tender offer which is a Pro Rata
Repurchase or on the date of purchase with
respect to any Pro Rata Repurchase which is not
a tender offer. The Corporation shall send each
holder of Series B Preferred Stock notice of any
offer by the Corporation to make a Pro Rata
Repurchase at the same time as, or as soon as
practicable after, such offer is first
communicated to holders of Common Stock. Such
notice shall indicate the number of shares
subject to such offer for a Pro Rata Repurchase
and the purchase price payable by the
Corporation pursuant to such offer, as well as
the Conversion Price and the number of Shares of
Common Stock into which a share of Series B
Preferred Stock may be converted at such time.
(v) Notwithstanding any other provisions of
this subsection (i), the Corporation shall not be
required to make any adjustment to the Conversion
Price unless such adjustment would require an
increase or decrease of at least one percent (1%) in
the Conversion Price. Any lesser adjustment shall be
carried forward and shall be made no later than the
time of, and together with, the next subsequent
adjustment which, together with any adjustment or
adjustments so carried forward, shall amount to an
increase or decrease of at least one percent (1%) in
the Conversion Price.
(vi) If the Corporation shall make any dividend
or distribution on the Common Stock or issue any
Common Stock, other capital stock or other security
of the Corporation or any rights or warrants to
purchase or acquire any such security, which
transaction does not result in an adjustment to the
Conversion Price pursuant to the foregoing provisions
of this subsection (i), the Board of Directors of the
Corporation shall consider whether such action is of
such a nature that an adjustment to the Conversion
Price should equitably be made in respect of such
transaction. If in such case the Board of Directors
of the Corporation determines that an adjustment to
the Conversion Price should be made, an adjustment
shall be made effective as of such date, as
determined by the Board of Directors of the
Corporation, which adjustment shall in no event
adversely effect the powers, preferences and special
rights of the Series B Preferred Stock as set forth
herein. The determination of the Board of Directors
of the Corporation as to whether an adjustment to the
Conversion Price should be made pursuant to the
foregoing provisions of this subparagraph (vi), and,
if so, as to what adjustment should be made and when,
shall be final and binding on the Corporation and all
shareholders of the Corporation. The Corporation
shall be entitled to make such additional adjustments
in the Conversion Price, in addition to those
required by the foregoing provisions of this
subsection (i), as shall be necessary in order that
any dividend or distribution in shares of capital
stock of the Corporation, subdivision,
reclassification or combination of shares of stock of
the Corporation or any recapitalization of the
Corporation shall not be taxable to the holders of
the Common Stock.
(vii) For purposes of this subdivision 17, the
following definitions shall apply:
"Adjustment Period" shall mean the period of
five (5) consecutive trading days ending on the day
immediately preceding the date on which the Fair
Market Value or Current Market Price of a Security is
to be determined.
"Business Day" shall mean each day that is not a
Saturday, Sunday or a day on which state or federally
chartered banking institutions in New York, New York
are not required to be open.
"Current Market Price" of publicly traded shares
of Common Stock or any other class of capital stock
or other security of the Corporation or any other
issuer for any day shall mean (i) for purposes of
subsections (f) and (g) hereof, the mean between the
highest and lowest reported sales price on such day
and (ii) for all other purposes hereof, the last
reported sales price, regular way, or, in the event
that no sale takes place on such day, the average of
the reported closing bid and asked prices, regular
way, in either case as reported on the New York Stock
Exchange Composite Tape or, if such security is not
listed or admitted to trading on the New York Stock
Exchange, on the principal national securities
exchange on which such security is listed or admitted
to trading or, if not listed or admitted to trading
on any national securities exchange, on the NASDAQ
National Market System or, if such security is not
quoted on such National Market System, the average of
the closing bid and asked prices on each such day in
the over-the-counter market as reported by NASDAQ or,
if bid and asked prices for such security on each
such day shall not have been reported through NASDAQ,
the average of the bid and asked prices for such day
as furnished by any New York Stock Exchange member
firm regularly making a market in such security
selected for such purpose by the Board of Directors
of the Corporation or a committee thereof, in each
case, on each trading day during the Adjustment
Period.
"Extraordinary Distribution" shall mean any
dividend or other distribution to holders of Common
Stock (effected while any shares of Series B
Preferred Stock are outstanding) (i) of cash, where
the aggregate amount of such cash dividend or
distribution together with the amount of all cash
dividends and distributions made during the preceding
period of 12 months, when combined with the aggregate
amount of all Pro Rata Repurchases (for this purpose,
including only that portion of the aggregate purchase
price of such Pro Rata Repurchase which is in excess
of the Fair Market Value of the Common Stock
repurchased as determined on the applicable
expiration date (including all extensions thereof) of
any tender offer or exchange offer which is a Pro
Rata Repurchase, or the date of purchase with respect
to any other Pro Rata Repurchase which is not a
tender offer or exchange offer made during such
period), exceeds twelve percent (12%) of the
aggregate Fair Market Value of all shares of Common
Stock outstanding on the day before the ex-dividend
date with respect to such Extraordinary Distribution
which is paid in cash and on the distribution date
with respect to an Extraordinary Distribution which
is paid other than in cash, and/or (ii) of any shares
of capital stock of the Corporation (other than
shares of Common Stock), other securities of the
Corporation (other than securities of the type
referred to in subparagraph (ii) or (iii) of this
subsection (i), evidences of indebtedness of the
Corporation or any other person or any other property
(including shares of any subsidiary of the
Corporation) or any combination thereof. The Fair
Market Value of an Extraordinary Distribution for
purposes of subparagraph (iv) of this subsection (i)
shall be equal to the sum of the Fair Market Value of
the dividend or other distribution to holders
referred to in (i) and (ii) above, plus the amount of
any cash dividends which are not Extraordinary
Distributions made during such 12-month period and
not previously included in the calculation of an
adjustment pursuant to subparagraph (iv) of this
subsection (i).
"Fair Market Value" shall mean, as to shares of
Common Stock or any other class of capital stock or
securities of the Corporation or any other issuer
which are publicly traded, (i) for purposes of
subsections (f) and (g) hereof, the Current Market
Price on the date as of which the Fair Market Value
is to be determined, and (ii) for all other purposes
hereof, the average of the Current Market Prices of
such shares or securities for each day of the
Adjustment Period. The "Fair Market Value" of any
security which is not publicly traded or of any other
property shall mean the fair value thereof as
determined by an independent investment banking or
appraisal firm experienced in the valuation of such
securities or property selected in good faith by the
Board of Directors of the Corporation or a committee
thereof, or, if no such investment banking or
appraisal firm is in the good faith judgment of the
Board of Directors or such committee available to
make such determination, as determined in good faith
by the Board of Directors of the Corporation or such
committee.
"Non-Dilutive Amount" in respect of an issuance,
sale or exchange by the Corporation of any right or
warrant to purchase or acquire shares of Common Stock
(including any security convertible into or
exchangeable for shares of Common Stock) shall mean
the difference between (i) the product of the Fair
Market Value of a share of Common Stock on the day
preceding the first public announcement of such
issuance, sale or exchange multiplied by the maximum
number of shares of Common Stock which could be
acquired on such date upon the exercise in full of
such rights and warrants (including upon the
conversion or exchange of all such convertible or
exchangeable securities), whether or not exercisable
(or convertible or exchangeable) at such date, and
(ii) the aggregate amount payable pursuant to such
right or warrant to purchase or acquire such maximum
number of shares of Common Stock; provided, however,
that in no event shall the Non-Dilutive Amount be
less than zero. For purposes of the foregoing
sentence, in the case of a security convertible into
or exchangeable for shares of Common Stock, the
amount payable pursuant to a right or warrant to
purchase or acquire shares of Common Stock shall be
the Fair Market Value of such security on the date of
the issuance, sale or exchange of such security by
the Corporation.
"Pro Rata Repurchase" shall mean any purchase of
shares of Common Stock by the Corporation or any
subsidiary thereof, whether for cash, shares of
capital stock of the Corporation, other securities of
the Corporation, evidences of indebtedness of the
Corporation or any other person or any other property
(including shares of a subsidiary of the
Corporation), or any combination thereof, effected
while any shares of Series B Preferred Stock are
outstanding, pursuant to any tender offer or exchange
offer subject to Section 13(e) of the Securities
Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor provision of law, or pursuant
to any other offer available to substantially all
holders of Common Stock; provided, however, that no
purchase of shares by the Corporation or any
subsidiary thereof made (1) pursuant to the "Dutch
auction" self-tender offer announced by the
Corporation on July 10, 1989 or (2) in open market
transactions shall be deemed a Pro Rata Repurchase.
For purposes of this subparagraph (vii) shares shall
be deemed to have been purchased by the Corporation
or any subsidiary thereof "in open market
transactions" if they have been purchased
substantially in accordance with the requirements of
Rule 10b-18 as in effect under the Exchange Act, on
the date shares of Series B Preferred Stock are
initially issued by the Corporation or on such other
terms and conditions as the Board of Directors of the
Corporation or a committee thereof shall have
determined are reasonably designed to prevent such
purchases from having a material effect on the
trading market for the Common Stock.
(viii) Whenever an adjustment to the Conversion
Price and the related voting rights of the Series B
Preferred Stock is required, the Corporation shall
forthwith place on file with the transfer agent for
the Common Stock and the Series B Preferred Stock,
and with the Secretary of the Corporation, a
statement signed by two officers of the Corporation
stating the adjusted Conversion Price determined as
provided herein and the resulting conversion ratio,
and the voting rights (as appropriately adjusted), of
the Series B Preferred Stock. Such statement shall
set forth in reasonable detail such facts as shall be
necessary to show the reason and the manner of
computing such adjustment, including any
determination of Fair Market Value involved in such
computation. Promptly after each adjustment to the
Conversion Price of the Series B Preferred Stock, the
Corporation shall mail a notice thereof and of the
then prevailing conversion ratio to each holder of
Series B Preferred Stock.
(ix) In the event that, at any time as a result
of an adjustment made pursuant to subsection (i) of
this subdivision 17, the holder of any shares of
Series B Preferred Stock upon thereafter surrendering
such shares for conversion, shall become entitled to
receive any shares or other securities of the
Corporation other than shares of Common Stock, the
Conversion Price in respect of such other shares or
securities so receivable upon conversion of Series B
Preferred Stock shall thereafter be adjusted, and
shall be subject to further adjustment from time to
time, in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to
Common Stock contained in subsection (i) hereof, and
the provisions of subsections (a) through (h) of this
subdivision 17 with respect to the Common Stock shall
apply on like or similar terms to any such other
shares or securities.
FIFTH: The Secretary of State of the State of New York is
hereby designated as the agent of the Corporation upon whom
process in any action or proceeding against it may be served.
The post office address to which the Secretary of State shall
mail a copy of any process against it served on him is:
XEROX CORPORATION
800 Long Ridge Road
P.O. Box 1600
Stamford, CT 06904-1600
Attention: General Counsel
SIXTH: Its duration is to be perpetual.
SEVENTH: The number of directors shall be not less than
five (5) nor more than twenty-one (21) as determined in the
manner prescribed by the By-Laws.
EIGHTH: The Corporation may purchase, acquire, hold and
dispose of the stocks, bonds and other evidences of
indebtedness of any corporation, domestic or foreign, and may
issue in exchange therefor, its stock, bonds or other
obligations.
NINTH: A person who is or was a director of the
Corporation shall not be personally liable to the Corporation
or its shareholders for damages for any breach of duty in such
capacity, except to the extent that the Business Corporation
Law of the State of New York as in effect from time to time
expressly provides that the foregoing provisions shall not
eliminate or limit such personal liability. Nothing in this
Article shall directly or indirectly increase the liability of
any such person based upon acts or omissions occurring before
the adoption hereof. No amendment, modification or repeal of
this Article shall adversely affect any right or protection of
any director that exists at the time of such change.
IN WITNESS WHEREOF, this Certificate has been signed on
the 17th day of October, 1996 and the statements contained
therein are affirmed as true under penalties of perjury.
/s/ Paul Allaire
Paul A. Allaire
Chairman of the Board
/s/ Eunice M. Filter
E. M. Filter
Secretary
Exhibit 11
Xerox Corporation
Computation of Net Income Per Common Share
(Dollars in millions, except per-share data; shares in thousands)
Three months Nine months
ended September 30, ended September 30,
1996 1995 1996 1995
I. Primary Net Income Per Common Share
Income from continuing operations $ 250 $ 256 $ 780 $ 697
Accrued dividends on ESOP preferred
stock, net (11) (11) (32) (32)
Accrued dividends on redeemable
preferred stock - - (1) (2)
Adjusted income from
continuing operations 239 245 747 663
Discontinued operations - (20) - (76)
Adjusted net income $ 239 $ 225 $ 747 $ 587
Average common shares outstanding
during the period 324,524 323,320 324,578 321,302
Common shares issuable with respect
to common stock equivalents for
stock options, incentive and
exchangeable shares 9,049 9,056 9,049 9,056
Adjusted average shares outstanding
for the period 333,573 332,376 333,627 330,358
Primary earnings per share:
Continuing operations $ 0.71 $ 0.74 $ 2.24 $ 2.01
Discontinued operations - (.06) - (.23)
Primary earnings per share $ 0.71 $ 0.68 $ 2.24 $ 1.78
II.Fully Diluted Net Income Per Common Share
Income from continuing operations $ 250 $ 256 $ 780 $ 697
Accrued dividends on redeemable
preferred stock - - (1) (2)
ESOP expense adjustment, net of tax - (2) (1) (6)
Interest on convertible debt,
net of tax - 1 1 2
Adjusted income from
continuing operations 250 255 779 691
Discontinued operations - (20) - (76)
Adjusted net income $ 250 $ 235 $ 779 $ 615
Average common shares outstanding
during the period 324,524 323,320 324,578 321,302
Stock options, incentive and
exchangeable shares 9,050 9,776 9,050 9,776
Convertible debt 2,644 2,644 2,644 2,644
ESOP preferred stock 28,063 28,754 28,063 28,754
Adjusted average shares outstanding
for the period 364,281 364,494 364,335 362,476
Fully diluted earnings per share:
Continuing operations $ 0.68 $ 0.70 $ 2.14 $ 1.91
Discontinued operations - (.05) - (.21)
Fully diluted earnings per share $ 0.68 $ 0.65 $ 2.14 $ 1.70
Exhibit 12 Xerox Corporation
Computation of Ratio of Earnings to Fixed Charges
Nine months ended Year ended
September 30, December 31,
(In millions) 1996 1995 1995 1994 1993* 1992 1991
Fixed charges:
Interest expense $ 446 $ 452 $ 605 $ 520 $ 540 $ 627 $ 596
Rental expense 110 120 142 170 180 187 178
Total fixed charges
before capitalized
interest 556 572 747 690 720 814 774
Capitalized interest - - - 2 5 17 3
Total fixed charges $ 556 $ 572 $ 747 $ 692 $ 725 $ 831 $ 777
Earnings available for
fixed charges:
Earnings** $1,318 $1,296 $1,979 $1,602 $ (193) $1,183 $1,035
Less undistributed
income in minority
owned companies (91) (99) (90) (54) (51) (52) (70)
Add fixed charges before
capitalized interest 556 572 747 690 720 814 774
Total earnings
available for
fixed charges $1,783 $1,769 $2,636 $2,238 $ 476 $1,945 $1,739
Ratio of earnings to
fixed charges (1)(2) 3.21 3.09 3.53 3.23 0.66 2.34 2.24
(1) The ratio of earnings to fixed charges has been computed based on the
Company's continuing operations by dividing total earnings available for
fixed charges, excluding capitalized interest, by total fixed charges.
Fixed charges consist of interest, including capitalized interest, and
one-third of rent expense as representative of the interest portion of
rentals. Debt has been assigned to discontinued operations based on
historical levels assigned to the businesses when they were continuing
operations adjusted for subsequent paydowns. The discontinued operations
consist of the Company's Insurance and Other Financial Services businesses
and its real-estate development and third-party financing businesses.
(2) The Company's ratio of earnings to fixed charges includes the effect of
the Company's finance subsidiaries, which primarily finance Xerox
equipment. Financing businesses are more highly leveraged and, therefore,
tend to operate at lower earnings to fixed charges ratio levels than do
non-financial businesses.
* 1993 earnings were inadequate to cover fixed charges. The coverage
deficiency was $249 million.
** Sum of "Income before Income Taxes, Equity Income and Minorities'
Interests" and "Equity in Net Income of Unconsolidated Affiliates."
5
1,000,000
9-MOS
DEC-31-1996
SEP-30-1996
136
0
13086
381
3099
10467
4925
2745
26543
6571
12959
0
727
326
3783
26543
6289
12303
3500
6553
4524
164
446
1226
441
780
0
0
0
780
2.24
2.14
