This proxy statement relates to the annual meeting of stockholders of Leidos Holdings, Inc. (Leidos) to approve the proposals described herein
with respect to the merger (the Merger) of Lion Merger Co., a Delaware corporation (Merger Sub), which is a wholly-owned subsidiary of Leidos, with and into Abacus Innovations Corporation, a Delaware corporation
(Splitco), which is a wholly-owned subsidiary of Lockheed Martin Corporation (Lockheed Martin), whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and as a
wholly-owned subsidiary of Leidos. Splitco has filed a registration statement on Form S-4 and Form S-1 (Reg. No. 333-210797) to register the shares of its common stock, par value $0.001 per share, which common shares will be distributed to Lockheed
Martin stockholders in connection with the Merger, which shares of Splitco common stock will be immediately converted into shares of Leidos common stock in the Merger. In addition, Leidos has filed a registration statement on Form S-4 (Reg.
No. 333-210796) to register the shares of its common stock, par value $.0001 per share, that will be issued in the Merger.
Based on market
conditions prior to the closing of the Merger, Lockheed Martin will determine whether the shares of Splitco common stock will be distributed to Lockheed Martin stockholders in a spin-off or a split-off. In a spin-off, all Lockheed Martin
stockholders would receive a pro rata number of shares of Splitco common stock. In a split-off, Lockheed Martin would offer its stockholders the option to exchange their shares of Lockheed Martin common stock for shares of Splitco common stock in an
exchange offer, which shares would be converted immediately into shares of Leidos common stock in the Merger, resulting in a reduction in Lockheed Martins outstanding shares. If the exchange offer is undertaken and consummated but the exchange
offer is not fully subscribed because less than all shares of Splitco common stock owned by Lockheed Martin are exchanged, the remaining shares of Splitco common stock owned by Lockheed Martin would be distributed on a pro rata basis to Lockheed
Martin stockholders whose shares of Lockheed Martin common stock remain outstanding after the consummation of the exchange offer. Splitco is filing its registration statement on Form S-4 and Form S-1 under the assumption that the shares of
Splitco common stock will be distributed to Lockheed Martin stockholders pursuant to a split-off. This proxy statement and Leidos registration statement on Form S-4 also assume that the shares of Splitco common stock will be distributed to
Lockheed Martin stockholders pursuant to a split-off. Once a final decision is made regarding the manner of distribution of the shares, this proxy statement, Leidos registration statement on Form S-4, and Splitcos registration statement
on Form S-4 and Form S-1 will be amended to reflect that decision, if necessary.
You are cordially invited attend the annual meeting of stockholders of Leidos Holdings, Inc. (Leidos), a Delaware corporation, which will
be held at the companys offices at 11951 Freedom Drive, Reston, Virginia 20190, on August 8, 2016 at 9:00 a.m., local time. A notice of the annual meeting and the proxy statement follow.
As previously announced, on January 26, 2016, Leidos entered into an Agreement and Plan of
Merger (the Merger Agreement) with Lockheed Martin Corporation (Lockheed Martin), Abacus Innovations Corporation, a Delaware corporation and a wholly owned subsidiary of Lockheed Martin (Splitco), and Lion Merger
Co., a Delaware corporation and a wholly owned subsidiary of Leidos (Merger Sub), pursuant to which Leidos will combine with Lockheed Martins realigned Information Systems & Global Solutions business (IS&GS)
(collectively, the Splitco Business) in a Reverse Morris Trust transaction (the Transaction), through the merger (the Merger) of Merger Sub with and into Splitco, whereby the separate corporate existence of
Merger Sub will cease and Splitco will continue as the surviving company and as a wholly owned subsidiary of Leidos.
As more fully described in the accompanying proxy statement, in order to complete the Merger and
the related transactions, Lockheed Martin will transfer the Splitco Business to Splitco and Lockheed Martin will distribute Splitcos stock to its stockholders, at Lockheed Martins option, by way of a spin-off, a split-off or a
combination thereof (the Distribution). Prior to the Distribution, Lockheed Martin will receive from Splitco distributions of cash with an aggregate value of approximately $1,800,000,000. Immediately after the Distribution, the Merger
will be completed, and each outstanding share of Splitco common stock will be converted automatically into the right to receive one share of common stock of Leidos.
Immediately after the consummation of the Merger, approximately 50.5 percent of the outstanding shares of Leidos common stock are expected to be held by pre-Merger
holders of Splitco common stock and approximately 49.5 percent of the outstanding shares of Leidos common stock are expected to be held by pre-Merger Leidos stockholders on a fully diluted basis. After the Merger, the Leidos common stock will
continue to be listed on the New York Stock Exchange (NYSE) under Leidos current symbol, LDOS.
Only those stockholders of record at the close of business on
June 30, 2016 are entitled to notice of the annual meeting and to vote at the annual meeting and any adjournments or postponements of the annual meeting.
This document is a proxy statement of Leidos for its use in soliciting proxies for the annual meeting. This
document answers questions about the Merger, the related transactions and the annual meeting and includes a summary description of the Merger and the related transactions. We urge you to review this entire document carefully.
In particular, you
should consider the matters discussed under Risk Factors beginning on page 103.
This document is dated July 7, 2016 and is first being mailed to Leidos stockholders on or about July 7,
2016.
Proxy Statement
Table of
Contents
HELPFUL INFORMATION
In this document:
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2011 IPAP means the Lockheed Martin Amended and Restated 2011 Incentive Performance Award Plan;
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Additional Agreements means the Assignment and Assumption Agreements, the Intellectual Property Matters Agreement, the Shared Contracts Agreements, the Subcontract Pending Novation, the Supply Agreements,
the Transition Services Agreements, and the other agreements contemplated by the Separation Agreement to effect the lease, sublease, license and leaseback of various real estate used in the Splitco Business;
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Assignment and Assumption Agreements means any Bills of Sale, Assignment and Assumption Agreements (Parent to Splitco), any Bills of Sale, Assignment and Assumption Agreements (Splitco to Parent) and any
Assignments and Assumptions of Lease, and any similar documents entered into the effect the Transactions, each as contemplated by the Separation Agreement;
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Code means the Internal Revenue Code of 1986, as amended;
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Commitment Parties means, collectively, the Leidos Commitment Parties and the Splitco Commitment Parties;
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Cut-Off Time means 11:59 p.m. E.T. on the day immediately prior to the date of the Distribution;
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DGCL means the General Corporation Law of the State of Delaware, as amended;
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Distribution means the distribution by Lockheed Martin of the shares of Splitco common stock to Lockheed Martin stockholders by way of an exchange offer or by way of a
pro rata
dividend and, with
respect to any shares of Splitco common stock that are not subscribed for in any such exchange offer, a
pro rata
dividend to the Lockheed Martin stockholders;
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Employee Matters Agreement means the Employee Matters Agreement dated as of January 26, 2016, among Lockheed Martin, Leidos and Splitco, as amended;
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ERISA means the Employee Retirement Income Security Act of 1974, as amended;
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Exchange Act means the Securities Exchange Act of 1934, as amended;
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Former Splitco Business Employee means any former employee who performed substantially all of his or her services in connection with the Splitco Business;
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GAAP means generally accepted accounting principles in the United States;
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HSR Act means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
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Intellectual Property Matters Agreement means the Intellectual Property Matters agreement as contemplated by the Separation Agreement;
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Internal Reorganization means the internal reorganization within Lockheed Martin of the Splitco Business in anticipation of the Distribution as contemplated by the Separation Agreement;
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IRS means the United States Internal Revenue Service;
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IS&GS means the Information Systems & Global Solutions business segment of Lockheed Martin;
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Leidos means Leidos Holdings, Inc., a Delaware corporation, and, unless the context otherwise requires, its subsidiaries, which, after consummation of the Merger, will include Splitco and the Splitco
Subsidiaries;
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Leidos Board means the board of directors of Leidos;
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Leidos Borrower means Leidos, Inc., a wholly owned subsidiary of Leidos Holdings, Inc. and the borrower under the Leidos Facilities;
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Leidos Bylaws means the Bylaws of Leidos, as amended;
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Leidos Charter means the Amended and Restated Certificate of Incorporation of Leidos, as amended;
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Leidos Commitment Letter means the Commitment Letter dated January 26, 2016, among Citigroup Global Markets Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd., Bank of America, N.A., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, JPMorgan Chase Bank, N.A., J.P. Morgan Securities, LLC, Goldman Sachs Bank USA and Leidos, and any associated fee letters, in respect of loans in the aggregate principal amount of $1,440,000,000, together in each case with
any amendments, supplements and joinders thereto;
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Leidos Commitment Parties means, collectively, Citigroup Global Markets Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd., Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, JPMorgan
Chase Bank, N.A., J.P. Morgan Securities, LLC, and Goldman Sachs Bank USA, together with all additional lenders added to the Commitment Letter from time to time;
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Leidos common stock means the common stock, par value $0.0001 per share, of Leidos;
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Leidos preferred stock means the preferred stock, par value $0.0001 per share, of Leidos;
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Leidos Special Dividend means a special dividend in an amount equal to $13.64 per share to be declared by Leidos prior to the Merger, as of a record date prior to the closing date of the Merger, as described
more fully in The Merger AgreementLeidos Special Dividend;
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Leidos stockholders means the holders of Leidos common stock;
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Leidos Stock Plans means the Leidos 2006 Equity Incentive Plan, the Leidos 2006 Employee Stock Purchase Plan and each other employee benefit plan of Leidos providing for the grant by Leidos of stock options,
restricted stock units, performance share units, stock equivalents or other equity or equity-based awards;
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Leidos Tax Opinion means an opinion from Skadden, Arps, Slate, Meagher & Flom LLP, tax counsel to Leidos, to the effect that the Merger will be treated for U.S. federal income Tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that each of Leidos, Merger Sub and Splitco will be a party to the reorganization within the meaning of Section 368(b) of the Code;
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Lockheed Martin means Lockheed Martin Corporation, a Maryland corporation, and, unless the context otherwise requires, its subsidiaries, which, after consummation of the Distribution, will not include
Splitco and the Splitco Subsidiaries;
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Lockheed Martin Board means the board of directors of Lockheed Martin;
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Lockheed Martin Cash Distribution means the distribution of cash in an amount equal to the Splitco Special Cash Payment, by Lockheed Martin to its creditors in retirement of outstanding Lockheed Martin
indebtedness, or to Lockheed Martin stockholders in repurchase of, or distribution with respect to, shares of Lockheed Martin common stock;
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Lockheed Martin common stock means the common stock, par value $1.00 per share, of Lockheed Martin;
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Lockheed Martin stockholders means the holders of Lockheed Martin common stock;
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Lockheed Martin Tax Opinions means opinions from Davis Polk & Wardwell LLP, tax counsel to Lockheed Martin, to the effect that (i) the Merger will be treated for U.S. federal income Tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and that each of Leidos, Merger Sub and Splitco will be a party to the reorganization within the meaning of Section 368(b) of the Code, and (ii) (a) the Splitco Transfer and
the Distribution, taken together, will qualify as a reorganization within the meaning of Section 368(a)(1)(D) of the Code and that each of Lockheed Martin and Splitco will be a party to the reorganization within the meaning
of Section 368(b) of the Code, (b) the Distribution, as such, will qualify as a distribution of Splitco common stock to Lockheed Martin stockholders pursuant to Section 355 of the Code, (c) the Merger will not cause Section 355(e) of the Code to
apply to the Distribution, and (d) the Lockheed Martin Cash Distribution will qualify as money distributed to Lockheed Martin creditors or stockholders in connection with the reorganization for purposes of Section 361(b) of the Code;
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Merger means the merger of Merger Sub with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and as a wholly-owned
subsidiary of Leidos, as contemplated by the Merger Agreement;
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MGCL means the Maryland General Corporation Law, as amended;
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Merger Agreement means the Agreement and Plan of Merger dated as of January 26, 2016, among Lockheed Martin, Splitco, Leidos and Merger Sub, as amended by Amendment to Agreement and Plan of Merger dated
as of June 27, 2016;
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Merger Sub means Lion Merger Co., a Delaware corporation and a wholly-owned subsidiary of Leidos;
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NYSE means The New York Stock Exchange;
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SEC means the United States Securities and Exchange Commission;
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Securities Act means the Securities Act of 1933, as amended;
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Separation means the separation of the Splitco Business from the remaining businesses of Lockheed Martin and its subsidiaries pursuant to the Separation Agreement;
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Separation Agreement means the Separation Agreement dated as of January 26, 2016, between Lockheed Martin and Splitco, as amended by Amendment to Separation Agreement dated as of June 27, 2016;
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Share Issuance means the issuance of shares of Leidos common stock to the stockholders of Splitco in the Merger;
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Shared Contracts Agreements means the Shared Contracts AgreementShared Contracts (Parent Companies) and the Shared Contracts AgreementsShared Contracts (Splitco Companies), each as contemplated
by the Separation Agreement;
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Splitco means Abacus Innovations Corporation, a Delaware corporation, and, prior to the Distribution, a wholly-owned subsidiary of Lockheed Martin;
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Splitco Business means the business and operations of IS&GS;
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Splitco Business Employee means, collectively, (i) each employee who performed substantially all of his or her services in connection with the Splitco Business as of January 26, 2016, (ii) each individual
hired after January 26, 2016 and before the Distribution who performs substantially all of his or her services in connection with the Splitco Business and (iii) each shared services individual who, immediately before the Distribution, performs
substantially all of his or her services in connection with the Splitco Business;
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Splitco Commitment Letter means the Commitment Letter dated January 26, 2016, among Citigroup Global Markets Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd., Bank of America, N.A., Merrill Lynch, Pierce, Fenner
& Smith Incorporated, JPMorgan Chase Bank, N.A., J.P. Morgan Securities, LLC, Goldman Sachs Bank USA and Splitco, and any associated fee letters, in respect of loans in the aggregate principal amount of $1,841,450,000, together in each case with
any amendments, supplements and joinders thereto;
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Splitco Commitment Parties means, collectively, Citigroup Global Markets Inc., The Bank of Tokyo-Mitsubishi UFJ, Ltd., Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, JPMorgan
Chase Bank, N.A., J.P. Morgan Securities, LLC, and Goldman Sachs Bank USA, together with all additional lenders added to the Commitment Letter from time to time;
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Splitco common stock means the common stock, par value $0.001 per share, of Splitco;
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Splitco Credit Facility means the credit facility or facilities entered into by Splitco on or before the date of the Distribution providing for indebtedness in an aggregate principal amount equal to
$1,841,450,000 on the terms and conditions contemplated by the Splitco Commitment Letter;
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Splitco Special Cash Payment means the cash payment from Splitco to Lockheed Martin to be made prior to the Distribution in the amount of $1,800,000,000 subject to adjustment as described in The
Separation AgreementSeparation of the IS&GS BusinessSplitco Special Cash Payment;
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Splitco stockholders means the holders of Splitco common stock;
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Splitco Subsidiaries means the direct and indirect subsidiaries of Splitco that, together with Splitco, will hold the transferred assets and assumed liabilities related to the Splitco Business following the
Separation;
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Splitco Transfer means the contribution of the Transferred Assets (as defined in the Separation Agreement) by Lockheed Martin to Splitco in consideration for the transfer of Splitco common stock, the
transfer to Lockheed Martin of the Splitco Special Cash Payment and the assumption by Splitco of the Assumed Liabilities (as defined in the Separation Agreement), pursuant to and in accordance with the Separation Agreement;
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Supply Agreements means the Supply Agreement (Parent to Splitco) and the Supply Agreement (Splitco to Parent), each as contemplated by the Separation Agreement;
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Subcontract Pending Novation means the Subcontract Pending Novation (Parent to Splitco), as contemplated by the Separation Agreement;
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Tax Matters Agreement means the Tax Matters Agreement dated as of January 26, 2016, among Lockheed Martin, Leidos and Splitco;
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Transaction Documents means the Separation Agreement, the Merger Agreement, the Employee Matters Agreement and the Tax Matters Agreement, as well as the Additional Agreements (as described in The
Separation AgreementSeparation of the IS&GS BusinessAdditional Agreements), each of which have been entered into or will be entered into in connection with the Transactions;
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Transactions means the transactions contemplated by the Merger Agreement and the Separation Agreement, which provide for, among other things, the Separation, the Distribution and the Merger, as described in
The Transactions;
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Transition Services Agreements means the Transition Services Agreement (Parent to Splitco) and the Transition Services Agreement (Splitco to Parent), each as contemplated by the Separation Agreement.
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REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information about Leidos from documents filed with the Securities and Exchange Commission (SEC)
that have not been included or delivered with this document. This information is available to Leidos stockholders without charge by accessing the SECs website maintained at www.sec.gov or upon written request to Leidos Holdings, Inc., 11951
Freedom Drive, Reston, Virginia 20190, Attention: Corporate Secretary. See Where You Can Find More Information; Incorporation by Reference.
All
information contained or incorporated by reference in this document with respect to Leidos and Merger Sub and their respective subsidiaries, as well as information on Leidos after the consummation of the Transactions, has been provided by Leidos.
All other information contained or incorporated by reference in this document with respect to Lockheed Martin, Splitco or their respective subsidiaries or the Splitco Business and with respect to the terms and conditions of Lockheed Martins
exchange offer has been provided by Lockheed Martin.
The information included in this document regarding Lockheed Martins exchange offer is being provided
for informational purposes only and does not purport to be complete. For additional information on Lockheed Martins exchange offer and the terms and conditions of Lockheed Martins exchange offer, Leidos stockholders are urged to
read Splitcos registration statement on Form S-4 and Form S-1 (Reg. No. 333-210797), Leidos registration statement on Form S-4 (Reg. No. 333-210796), and all other documents Splitco or Leidos file with the SEC relating to the Merger.
This document constitutes only a proxy statement for Leidos stockholders relating to the annual meeting and is not an offer to sell or a solicitation of an offer to purchase shares of Leidos common stock, Lockheed Martin common stock or Splitco
common stock.
5
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION AND THE ANNUAL MEETING
The following are some of the questions that Leidos stockholders may have, and answers to those questions. These questions and answers, as well as the following
summary, are not meant to be a substitute for the information contained in the remainder of this document, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this document. You
are urged to read this document in its entirety prior to making any decision.
Why am I receiving these materials?
Leidos has sent you these materials in connection with its solicitation of proxies for use at the 2016 annual meeting of stockholders to be held at 9:00 a.m. local time,
on August 8, 2016 at the companys offices at 11951 Freedom Drive, Reston, Virginia 20190. These materials were first sent or made available to Leidos stockholders on July 7, 2016.
Leidos is holding its annual meeting of its stockholders in order, among other things, to obtain stockholder approval of the Share Issuance in connection with the
Merger pursuant to which Lockheed Martins IS&GS business will combine with Leidos business. Leidos cannot complete the Merger unless the Share Issuance is approved by the affirmative vote of a majority of votes cast by Leidos
stockholders on the proposal at the annual meeting.
This document includes important information about the Transaction and the annual meeting of Leidos
stockholders. Leidos stockholders should read this information carefully and in its entirety. A copy of the Merger Agreement is attached as
Annex A-1
to this document (and the Amendment to the Merger Agreement is attached as
Annex F-1
)
and a copy of the Separation Agreement is attached as
Annex B-1
to this document (and the Amendment to the Separation Agreement is attached as
Annex G-1
). The enclosed voting materials allow Leidos stockholders to vote their shares
without attending the Leidos annual meeting.
The vote of Leidos stockholders is very important and Leidos encourages its stockholders to vote their proxy as soon as possible. Please follow the instructions set forth on the enclosed proxy and
voting instruction card (or on the voting instruction form provided by the record holder if shares of Leidos stock are held in the name of a bank, broker or other nominee).
What proposals will be voted on at the annual meeting?
Leidos stockholders
will vote on the following proposals:
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To consider and vote on the proposal to issue shares of Leidos common stock to Lockheed Martin stockholders under the Merger Agreement;
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To elect nine directors;
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To approve, by an advisory vote, the compensation of Leidos named executive officers;
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To approve, by an advisory vote, Transaction-related compensation of Leidos named executive officers;
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To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 30, 2016;
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To vote upon the proposal to adjourn the annual meeting, if necessary or appropriate, to solicit additional proxies; and
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To transact such other business as may properly come before the meeting or any adjournments, postponements or continuations of the meeting.
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What votes are required to approve the Proposals?
Pursuant to the NYSE
rules, Proposal No. 1 must be approved by a majority of the votes cast by Leidos stockholders on the proposal at the annual meeting. An abstention from voting will be treated as a vote cast under NYSE rules with regard to the proposal to approve the
Share Issuance and will have the same effect as a vote AGAINST the proposal to approve the Share Issuance. In accordance with applicable rules, banks, brokers and other nominees who hold shares of common stock in street name
for their customers do not have discretionary authority to vote the shares with respect to the proposal to approve the Share Issuance. Accordingly, there will be no broker non-votes and shares held in street name (that is,
shares held through a bank, broker or other nominee) will not be voted on the proposal to approve the Share Issuance unless the bank, broker or nominee has received voting instructions from its customer. If this proposal is not approved, the Merger
cannot be completed.
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Regarding Proposal No. 2, we have adopted majority voting procedures for the election of directors in uncontested
elections. In an uncontested election, nominees must receive more for than against votes to be elected. Abstentions are not counted as votes cast. As provided in our bylaws, a contested election is one in which
the number of nominees exceeds the number of directors to be elected. The election of directors at the 2016 annual meeting is an uncontested election. If an incumbent director receives more against than for votes, he or she
is expected to tender his or her resignation in accordance with our Corporate Governance Guidelines. The Nominating and Corporate Governance Committee will consider the offer of resignation and recommend to the Board of Directors the action to be
taken. The Board will promptly disclose its decision as to whether to accept or reject the tendered resignation in a press release, Current Report on Form 8-K or some other public announcement.
The affirmative vote of the holders of a majority of the voting power of common stock, present or represented either in person or by proxy and entitled to vote at the
annual meeting is required to approve Proposal No. 3. Broker non-votes are not entitled to vote on this proposal and will not be counted in evaluating the results of the vote. This advisory vote on the compensation of Leidos named
executive officers is non-binding on the Board of Directors.
The affirmative vote of a majority of the shares present or represented either in person or by proxy
and entitled to vote is required to approve proposal No. 4. Broker non-votes are not entitled to vote on this proposal and will not be counted in evaluating the results of the vote. This advisory vote on the Transaction-related compensation of
Leidos named executive officers is non-binding on the Board of Directors.
The affirmative vote of the holders of a majority of the voting power of common
stock, present or represented and entitled to vote at the annual meeting is required to approve Proposal No. 5.
The affirmative vote of the holders of a majority
of the shares of our common stock present in person or represented by proxy and entitled to vote at our annual meeting is required to approve the adjournment of our annual meeting, if necessary, to solicit additional proxies if there are not
sufficient votes in favor of our proposal for the issuance of our common stock.
Who is entitled to vote at the annual meeting?
Only stockholders of record of our common stock as of the close of business on our record date of June 30, 2016 are entitled to notice of, and to vote at, the
annual meeting. As of June 30, 2016, there were 72,722,443 shares of common stock outstanding.
We have no other class of capital stock outstanding. A
list of stockholders entitled to vote at the meeting will be available for inspection at 11951 Freedom Drive, Reston, Virginia for at least 10 days prior to the meeting and will also be available for inspection at the meeting.
How do I vote my shares?
Shares of common stock represented by a properly
executed and timely proxy will, unless it has previously been revoked, be voted in accordance with its instructions. In the absence of specific instructions, the shares represented by a properly executed and timely proxy will be voted in accordance
with the Boards recommendations as follows:
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FOR the proposal to issue shares of Leidos common stock to Lockheed Martin stockholders in the merger;
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FOR all of the companys nominees to the Board;
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FOR the approval, on a non-binding, advisory basis, of the compensation of our named executive officers;
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FOR the approval, on a non-binding, advisory basis, of named executive officer Transaction-related compensation;
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FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 30, 2016; and
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FOR the adjournment of the Leidos meeting, if necessary or appropriate, to solicit additional proxies.
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No other
business is expected to come before the annual meeting; however, should any other matter properly come before the annual meeting, the proxy holders intend to vote such shares in accordance with their best judgment on such matter.
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There are four different ways to vote your shares:
By Internet:
Go to www.proxyvote.com or scan the QR code on your proxy and voting instruction card with a smart phone.
By Telephone:
Call 1-800-690-6903.
By
Mail:
If you received your proxy materials in the mail, you may complete, sign and return the accompanying proxy and voting instruction card in the postage-paid envelope provided.
In Person:
Attend the meeting at the companys office at 11951 Freedom Drive in Reston, Virginia, and vote in person if you are a stockholder
of record or if you have obtained a valid proxy from the stockholder of record.
Submitting a proxy will not prevent you from attending the annual meeting and
voting in person. Any proxy may be revoked at any time prior to exercise by delivering a written revocation or a new proxy bearing a later date to our mailing agent, Broadridge, as described below or by attending the annual meeting and voting in
person. The mailing address of our mailing agent is Broadridge, 51 Mercedes Way, Edgewood, NY 11717. Attendance at the annual meeting will not, however, in and of itself, revoke a proxy
If a Leidos stockholder is not going to attend the annual meeting, should that stockholder return its proxy and voting instruction card or otherwise vote its shares?
Yes. Returning the proxy and voting instruction card or voting by calling the toll-free number shown on the proxy and voting instruction card or visiting the
website shown on the proxy and voting instruction card before the required deadline ensures that the shares will be represented and voted at the annual meeting, even if a Leidos stockholder will be unable to or does not attend.
What are the voting deadlines?
For shares not held in the Leidos, Inc.
Retirement Plan (the Leidos Retirement Plan), the deadline for submitting a proxy using the Internet or the telephone is 11:59 p.m. Eastern time on August 7, 2016. For shares held in the Leidos Retirement Plan, the deadline for
submitting voting instructions using any of the allowed methods is 11:59 p.m. Eastern time on August 3, 2016.
Do I need an admission ticket to attend
the annual meeting?
Yes. If you attend the meeting, you will be asked to present an admission ticket or proof of ownership and valid photo identification. Your
admission ticket is:
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Attached to your proxy and voting instruction card if you received your proxy materials in the mail;
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Can be printed from the online voting site; or
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A letter or a recent account statement showing your ownership of our common stock as of the record date, if you hold shares through a bank or a broker.
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What constitutes a quorum?
The presence, either in person or by proxy,
of the holders of a majority of the total voting power of the shares of common stock outstanding as of June 30, 2016 is necessary to constitute a quorum and to conduct business at the annual meeting. Abstentions and broker non-votes
will be counted as present for purposes of determining the presence of a quorum.
What is a broker non-vote?
A broker non-vote occurs when a broker, bank or other nominee holding shares for a beneficial owner does not vote on a particular proposal because the
nominee does not have discretionary voting power with respect to that matter and has not received voting instructions from the beneficial owner. In tabulating the voting results for a particular proposal, broker non-votes are not
considered entitled to vote on that proposal. Broker non-votes will not have an effect on the outcome of any matter being voted on at the meeting, assuming a quorum is present.
Unless you provide voting instructions to any broker holding shares on your behalf, your broker may not use discretionary authority to vote your shares on any of the
matters to be considered at the annual meeting other than the ratification of our independent registered public accounting firm. Please vote your proxy or provide voting instructions to your broker so your vote can be counted.
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How many votes am I entitled to?
Each holder of common stock will be entitled to one vote per share, in person or by proxy, for each share of stock held in such stockholders name as of
June 30, 2016, on any matter submitted to a vote of stockholders at the annual meeting unless a stockholder elects to cumulate votes for the election of directors as described below.
Is cumulative voting permitted for the election of directors?
In the
election of directors, you may cumulate your vote. This means that you may allocate among the director nominees, as you see fit, the total number of votes equal to the director positions to be filled multiplied by the number of shares you hold. You
may not cumulate your votes against a nominee and cumulative voting applies only to the election of directors.
If you are a stockholder of record and choose to
cumulate your votes, you will need to notify our Corporate Secretary in writing prior to the Annual Meeting or, if you vote in person at the annual meeting, notify the chair of the meeting prior to the commencement of voting at the annual meeting.
You may not submit your proxy or voting instructions over the Internet or by telephone if you wish to distribute your votes unevenly among two or more nominees. If you hold shares beneficially through a broker, trustee or other nominee and wish to
cumulate votes, you should contact your broker, trustee or nominee.
How are the shares held by the Leidos Retirement Plan voted?
Each participant in the Leidos Retirement Plan has the right to instruct Vanguard Fiduciary Trust Company, as trustee of the Leidos Retirement Plan (the
Trustee), on a confidential basis, how to vote his or her proportionate interests in all shares of common stock held in the Leidos Retirement Plan. The Trustee will vote all shares held in the Leidos Retirement Plan for which no voting
instructions are received in the same proportion as the shares for which voting instructions have been received.
The Trustees duties with respect to voting
the common stock in the Leidos Retirement Plan are governed by the fiduciary provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA). The fiduciary provisions of ERISA may require, in certain limited
circumstances that the Trustee override the votes of participants with respect to the common stock held by the Trustee and to determine, in the Trustees best judgment, how to vote the shares.
How are the shares held by the Management Stock Compensation Plan and Key Executive Stock Deferral Plan voted?
Under the terms of our Management Stock Compensation Plan and Key Executive Stock Deferral Plan, Vanguard Fiduciary Trust Company, as trustee of these stock plans, has
the power to vote the shares of common stock held in these stock plans. Vanguard will vote all such shares in the same proportion that our other stockholders collectively vote their shares of common stock. If you are a participant in these stock
plans, you do not have the right to instruct Vanguard on how to vote your proportionate interests in the shares of common stock held in these stock plans.
If a Leidos stockholders shares are held in street name through its bank, broker or other nominee, will that bank, broker or other nominee vote
those shares?
If your shares are held by a bank, broker or other nominee on your behalf in street name, your bank, broker or other nominee will send
you instructions as to how to provide voting instructions for your shares by proxy. Many banks and brokerage firms have a process for their customers to provide voting instructions by telephone or via the Internet, in addition to providing voting
instructions by proxy and voting instruction card.
In accordance with the applicable rules, banks, brokers and other nominees who hold shares of common stock in
street name for their customers do not have discretionary authority to vote the shares with respect to any of the matters to be considered at the annual meeting other than the ratification of our independent registered public accounting
firm. Accordingly, there will be no broker non-votes and shares held in street name will not be voted on any of the proposals other than the proposal to ratify our independent registered public accounting firm unless the
bank, broker or other nominee has received voting instructions from its customer.
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Can I change my vote after mailing my proxy and voting instruction card or submitting voting instructions by Internet or
telephone?
Yes. If a holder of record of Leidos common stock has properly completed and submitted its proxy and voting instruction card or submitted voting
instructions by Internet or telephone, the Leidos stockholder can change its vote in any of the following ways:
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by sending a signed notice of revocation to the Corporate Secretary of Leidos that is received prior to the annual meeting stating that the Leidos stockholder revokes its proxy;
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by properly completing a new proxy and voting instruction card bearing a later date and properly submitting it so that it is received prior to the annual meeting;
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by logging onto the Internet website specified on the proxy and voting instruction card in the same manner a stockholder would to submit its proxy electronically or by calling the toll-free number specified on the proxy
and voting instruction card prior to the annual meeting, in each case if the Leidos stockholder is eligible to do so and following the instructions on the proxy and voting instruction card; or
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by attending the meeting and voting in person.
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Simply attending the annual meeting will not revoke a proxy. In the
event of multiple online or telephone votes by a stockholder, each vote will supersede the previous vote and the last vote cast will be deemed to be the final vote of the stockholder unless such vote is revoked in person at the annual meeting.
If a Leidos stockholder holds shares in street name through its bank, broker or other nominee, and has directed such person to vote its shares, it should
instruct such person to change its vote, or if in the alternative a Leidos stockholder wishes to vote in person at the annual meeting, it must bring to the annual meeting a letter from the bank, broker or other nominee confirming its beneficial
ownership of the shares and that the bank, broker or other nominee is not voting the shares at the annual meeting.
What should Leidos stockholders do now?
After carefully reading and considering the information contained in this document, Leidos stockholders should vote their shares as soon as possible so that
their shares will be represented and voted at the annual meeting. Leidos stockholders should follow the voting instructions set forth on the enclosed proxy and voting instruction card.
Who is soliciting these proxies?
We are soliciting these proxies and the
cost of the solicitation will be borne by us, including the charges and expenses of persons holding shares in their name as nominee incurred in connection with forwarding proxy materials to the beneficial owners of such shares. In addition to the
use of the mail, proxies may be solicited by our officers, directors and employees in person, by telephone or by email.
Such individuals will not be additionally
compensated for such solicitation but may be reimbursed for reasonable out-of-pocket expenses incurred in connection with such solicitation. We have also retained Morrow & Co., LLC, 470 West Avenue, Stamford, Connecticut 06902, to assist in
soliciting proxies for a fee of $10,000, plus expenses.
What is householding and how does it affect me?
We have adopted a procedure approved by the SEC, called householding. Under this procedure, we send only one proxy statement and one annual report to
eligible stockholders who share a single address, unless we have received instructions to the contrary from any stockholder at that address. This practice is designed to reduce our printing and postage costs. Stockholders who do not participate in
householding will continue to receive separate proxy and voting instruction cards. We do not use householding for any other stockholder mailings.
If you are a
registered stockholder residing at an address with other registered stockholders and wish to receive a separate copy of the proxy statement or annual report, or if you do not wish to participate in householding and prefer to receive separate copies
of these documents in the future, please contact our mailing agent, Broadridge, either by calling toll-free at 1-800-542-1061, or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. If you own shares through a
bank, broker, or other nominee, you should contact the nominee concerning householding procedures. We will promptly deliver a separate copy of the proxy statement or annual report to you upon request.
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If you are eligible for householding, but you and other stockholders of record with whom you share an address currently
receive multiple copies of the proxy statement or annual report and you wish to receive a single copy of each of these documents for your household, please contact our mailing agent, Broadridge, at the telephone number or address indicated above.
Where can I find the voting results of the annual meeting?
We intend to
announce preliminary voting results at the annual meeting and publish final results in a Current Report on Form 8-K to be filed with the SEC within four business days of the annual meeting
Questions and Answers About the Transactions
What is
Leidos proposing?
Leidos is proposing to combine the Splitco Business with Leidos business. The Merger will be effected through a series of transactions
that are described in more detail below and elsewhere in this document.
What are the key steps of the Transactions?
Below is a summary of the key steps of the Transactions. A step-by-step description of material events relating to the Transactions is set forth under The
Transactions.
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Lockheed Martin will transfer the Splitco Business to Splitco following the Internal Reorganization.
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In connection with the transfer of the Splitco Business to Splitco, Splitco will issue to Lockheed Martin additional shares of Splitco common stock. Following this issuance, subject to adjustment in accordance with the
Merger Agreement, Lockheed Martin will own 76,958,918 shares of Splitco common stock, which will constitute all of the outstanding stock of Splitco. In addition, Splitco will incur new indebtedness in an aggregate principal amount of approximately
$1,841,450,000. Splitco will use a portion of the proceeds of this loan to pay to Lockheed Martin the Splitco Special Cash Payment in connection with the transfer of the Splitco Business to Splitco. Splitco will use the balance to pay certain
fees and expenses related to such indebtedness.
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Lockheed Martin will offer to Lockheed Martin stockholders the right to exchange all or a portion of their shares of Lockheed Martin common stock for shares of Splitco common stock at a discount to the equivalent
per-share value of Leidos common stock based on the conversion in the Merger of each share of Splitco common stock into one share of Leidos common stock. If the Lockheed Martin exchange offer is consummated but is not fully subscribed, Lockheed
Martin will distribute the remaining shares of Splitco common stock on a
pro rata
basis to Lockheed Martin stockholders whose shares of Lockheed Martin common stock remain outstanding after the consummation of the exchange offer. Any Lockheed
Martin stockholder who validly tenders (and does not properly withdraw) shares of Lockheed Martin common stock for shares of Splitco common stock in the exchange offer will waive their rights with respect to such tendered shares to receive, and
forfeit any rights to, shares of Splitco common stock distributed on a pro rata basis to Lockheed Martin stockholders in the event the exchange offer is not fully subscribed.
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Prior to the closing of the Merger, the Leidos Borrower will incur new indebtedness in the form of a $690,000,000 Term Loan A Facility and a $750,000,000 Revolving Credit Facility. The proceeds of the Term Loan A
Facility and up to $50,000,000 of borrowings under the Revolving Credit Facility, together with cash on hand at Leidos (which shall not exceed $500,000,000), will be used to pay the Leidos Special Dividend, and additional proceeds of borrowings
under the Revolving Credit Facility will be used to (i) repay in full all outstanding indebtedness for borrowed money of Splitco (if any) (other than the debt incurred by Splitco described above), (ii) repay in full all indebtedness, and
terminate all commitments, under the Amended and Restated Four Year Credit Agreement, dated as of March 11, 2011, among Leidos, as borrower, Leidos, Inc., as guarantor, and Citibank, N.A., as administrative agent, the lenders, other agents and other
parties party thereto from time to time and (iii) pay the fees, costs and expenses associated therewith.
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Immediately after the Distribution, Merger Sub will merge with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and as a wholly-owned
subsidiary of Leidos. In the Merger, each share of Splitco common stock will be converted into the right to receive one share of Leidos common stock, as described in the section of this document entitled The Merger AgreementMerger
Consideration. Immediately after the consummation of the Merger, approximately 50.5 percent of the outstanding shares of Leidos common stock is expected to be held by pre-Merger Splitco (former Lockheed Martin) stockholders and approximately
49.5 percent of the outstanding shares of Leidos common stock is expected to be held by pre-Merger Leidos stockholders on a fully diluted basis.
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What are the material U.S. federal income tax consequences to Leidos and its stockholders resulting from the Transactions?
Leidos will not recognize any gain or loss for U.S. federal income tax purposes as a result of the Merger. Because Leidos stockholders will not participate in the
Distribution or the Merger, Leidos stockholders generally will not recognize gain or loss upon either the Distribution (including the Lockheed Martin exchange offer) or the Merger.
Why is the transaction structured as a Reverse Morris Trust transaction?
The
transaction structure was negotiated by the parties. Lockheed Martin believes the tax-efficient Reverse Morris Trust structure optimizes the value of the transaction to Lockheed Martin and its stockholders because stockholders of Lockheed Martin
generally will not recognize any gain or loss for U.S. federal income tax purposes as a result of this exchange offer or the Merger, except for any gain or loss attributable to the receipt of cash in lieu of fractional shares, if any, of Leidos
common stock received in the Merger and the Distribution will not result in the recognition of income, gain or loss to Lockheed Martin or Splitco (except for taxable income or gain of Lockheed Martin possibly arising as a result of certain internal
restructuring transactions undertaken prior to or in anticipation of the Distribution). A Reverse Morris Trust transaction structure requires, among other things, that former Lockheed Martin stockholders own more than 50% of the Leidos common stock
following consummation of the Transactions.
What will Leidos stockholders receive in connection with the Merger?
Prior to the Merger, Leidos will declare the Leidos Special Dividend, the payment of which will be conditioned on completion of the Merger. All shares of Leidos common
stock issued and outstanding immediately before the Merger will remain issued and outstanding immediately after the consummation of the Merger. Immediately after consummation of the Merger, approximately 49.5 percent of the outstanding shares
of Leidos common stock is expected to be held by pre-Merger Leidos stockholders on a fully diluted basis.
Leidos stockholders will not receive separate merger
consideration as part of the Merger and no additional shares of Leidos common stock will be issued to Leidos stockholders pursuant to the Merger. Leidos stockholders will receive the commercial benefit of owning an equity interest in Splitco, which
will include the Splitco Business as it exists following consummation of the Separation Agreement with Lockheed Martin and payment of the Splitco Special Cash Payment to Lockheed Martin. Leidos stockholders will thus hold an interest in a company
with expanded opportunities in the government services industry, additional expertise in information technology operations, financial and HR enterprise resource planning (ERP) outsourcing, data center consolidation and facilities management, and
enhanced EBITDA margins and revenue growth opportunities. See Leidos Reasons for the Transactions.
As a result of the Merger, Leidos
stockholders ownership of Leidos common stock will also mean that they own an interest in a company with increased levels of indebtedness. In connection with the Merger, Leidos will incur new indebtedness of $690,000,000 in the form of a term
loan facility and a new revolving credit facility, which is expected to have $750,000,000 of unused availability immediately following consummation of the transactions. In addition, Leidos will guarantee the indebtedness that Splitco will incur in
connection with the Transactions, consisting of up to $1,841,450,000 in the form of 3-year Term Loan A Facility in an aggregate principal amount of up to $400,000,000, a 5-year Term Loan A Facility in an aggregate principal amount of up to
$310,000,000 and a 7-year Term Loan B Facility in an aggregate principal amount of up to approximately $1,131,450,000. See Debt Financing.
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What are the principal adverse effects of the Transactions to Leidos stockholders?
Following the consummation of the Transactions, Leidos stockholders will participate in a company that holds the Splitco Business, but their percentage interest in this
company will be diluted. Immediately after consummation of the Merger, pre-Merger Leidos stockholders are expected to own no more than 49.5 percent of Leidos common stock on a fully diluted basis. Therefore, the voting power represented by the
shares held by pre-Merger Leidos stockholders will be lower immediately following the Merger than immediately prior to the Merger. In addition, Lockheed Martin stockholders that participate in the exchange offer will be exchanging their shares of
Lockheed Martin common stock for shares of Splitco common stock at a discount to the per-share value of Leidos common stock. The existence of a discount, along with the issuance of shares of Leidos common stock pursuant to the Merger, may negatively
affect the market price of Leidos common stock. Further, Splitco will be (x) the primary obligor under the Splitco Credit Facility (as described in more detail in Debt Financing) upon the closing thereof immediately prior to the making
of the Splitco Special Cash Payment, which Splitco Credit Facility is expected to be guaranteed by Leidos after the consummation of the Merger and (y) upon the closing of the Merger, a guarantor of the indebtedness of the Leidos Borrower under the
credit facilities to be provided pursuant to the Leidos Commitment Letter. This additional indebtedness could materially and adversely affect the liquidity, results of operations and financial condition of Leidos. Leidos also expects to incur
significant one-time costs in connection with the Transactions, which may have an adverse impact on Leidos liquidity, cash flows and operating results in the periods in which they are incurred. Finally, Leidos management will be required
to devote a significant amount of time and attention to the process of integrating the operations of Leidos business and the Splitco Business. If Leidos management is not able to manage the integration process effectively, or if any
significant business activities are interrupted as a result of the integration process, Leidos business could suffer and its stock price may decline. See Risk Factors for a further discussion of the material risks associated with
the Transactions.
What is the estimated total value of the consideration to be paid by Leidos in the Transactions?
Subject to adjustment under certain circumstances as set forth in the Merger Agreement, Leidos will issue 76,958,918 shares of Leidos common stock in the Merger. Based
upon the reported closing sale price of $
46.80 per share for Leidos common stock on the NYSE on
June 29
, 2016, and after taking into account the Leidos Special Dividend of $13.64 per share, the
total value of the shares to be issued by Leidos and the cash to be received by Lockheed Martin in the Transactions would have been approximately $4,351,957,721. The actual value of the Leidos common stock to be issued in the Merger will depend on
the market price of shares of Leidos common stock at the time of the Merger.
Are there possible adverse effects on the value of Leidos common stock
ultimately to be received by Lockheed Martin stockholders who participate in the exchange offer?
The Lockheed Martin exchange offer is designed to permit
Lockheed Martin stockholders to exchange their shares of Lockheed Martin common stock for a number of shares of Splitco common stock that corresponds to a discount to the equivalent amount of Leidos common stock based on one share of Leidos common
stock for each share of Splitco common stock as specified in the Merger Agreement. The existence of a discount, along with the issuance of shares of Leidos common stock pursuant to the Merger, may affect negatively the market price of Leidos common
stock. The market price of Leidos common stock also will be affected by the performance of the Splitco Business and other risks associated with the Transactions. This risk and other risk factors associated with the Transactions are described in more
detail in the section of this document entitled Risk Factors.
How will the Transactions impact the future liquidity and capital resources of
Leidos?
Leidos will incur indebtedness of $690,000,000 in connection with the Transactions in the form of a term loan facility and will also enter into a new
revolving credit facility which is expected to have $750,000,000 of unused availability immediately after consummation of the Transactions (the Leidos Debt Financing).
Splitco will incur new indebtedness of up to $1,841,450,000 in connection with the Transactions in the form of 3-year Term Loan A Facility in an aggregate principal
amount of up to $400,000,000, a 5-year Term Loan A Facility in an aggregate principal amount of up to $310,000,000 and a 7-year Term Loan B Facility in an aggregate principal amount of up to approximately $1,131,450,000 (the Splitco Debt
Financing; and together with the Leidos Debt Financing, the Debt Financings).
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The Debt Financings could materially and adversely affect the liquidity, results of operations and financial condition of
Leidos. Leidos also expects to incur significant one-time costs in connection with the Transactions, which may have an adverse impact on Leidos liquidity, cash flows and operating results in the periods in which they are incurred. Finally,
Leidos management will be required to devote a significant amount of time and attention to the process of integrating the operations of Leidos business and the Splitco Business. If Leidos management is not able to manage the integration
process effectively, or if any significant business activities are interrupted as a result of the integration process, Leidos business could suffer and its stock price may decline. See Risk Factors for a further discussion of the
material risks associated with the Transactions.
Upon the consummation of the Transactions, the Leidos Debt Financing is expected to be guaranteed by Splitco and
the Splitco Debt Financing is expected to be guaranteed by Leidos and its subsidiaries.
How do the Transactions impact Leidos dividend policy?
In connection with the Transactions, prior to the consummation of the Merger and subject to applicable law, Leidos shall declare the Leidos Special Dividend, the
payment of which will be conditioned on completion of the Transactions. The Leidos Special Dividend will be funded by a combination of new borrowings and cash on hand. With the exception of the payment of the Leidos Special Dividend, the
Transactions are not expected to affect Leidos dividend policy. See Summary Historical and Pro Forma Financial DataLeidos Dividend Policy for a further discussion of Leidos current dividend policy.
What will Lockheed Martin receive in the Transactions?
Immediately prior to
the Distribution and in connection with the transfer of the Splitco Business to Splitco, Lockheed Martin will receive the Splitco Special Cash Payment, the proceeds of which will be used to pay dividends, repurchase its stock or retire outstanding
indebtedness.
What will Lockheed Martin stockholders receive in the Transactions?
In the exchange offer, Lockheed Martin will offer to Lockheed Martin stockholders the right to exchange all or a portion of their shares of Lockheed Martin common stock
for shares of Splitco common stock at a discount to the per-share value of Leidos common stock based on one share of Leidos common stock for each share of Splitco common stock as specified in the Merger Agreement, subject to proration in the event
of oversubscription. In all cases, the exchange agent will hold all issued and outstanding shares of Splitco common stock as agent until the shares of Splitco common stock are converted into the right to receive shares of Leidos common stock in the
Merger. Lockheed Martin stockholders will not be able to trade shares of Splitco common stock during this period or at any time before or after the consummation of the Merger. In the Merger, each share of Splitco common stock will be converted into
the right to receive one share of Leidos common stock, as described in the section of this document entitled The Merger AgreementMerger Consideration.
If the exchange offer is consummated but is not fully subscribed, Lockheed Martin will distribute the remaining shares of Splitco common stock owned by Lockheed Martin
on a
pro rata
basis to Lockheed Martin stockholders whose shares of Lockheed Martin common stock remain outstanding after the consummation of the exchange offer. Any Lockheed Martin stockholder who validly tenders (and does not properly
withdraw) shares of Lockheed Martin common stock for shares of Splitco common stock in the exchange offer will waive their rights with respect to such tendered shares to receive, and forfeit any rights to, shares of Splitco common stock distributed
on a
pro rata
basis to Lockheed Martin stockholders in the event the exchange offer is not fully subscribed.
Are there any conditions to the consummation
of the Transactions?
Yes. The consummation of the Transactions is subject to a number of conditions, including:
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the approval by Leidos stockholders of the Share Issuance;
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the termination or expiration of the waiting period under the HSR Act (which period has expired), and the receipt of any governmental approvals required under the antitrust laws in the United Kingdom;
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the approval for listing on the NYSE of the shares of Leidos common stock to be issued in the Merger;
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the effectiveness under the Securities Act of Splitcos registration statement on Form S-4 and Form S-1 (Reg. No. 333-210797) and Leidos registration statement on Form S-4 (Reg. No. 333-210796), and the
absence of any stop order issued by the SEC or any pending proceeding before the SEC seeking a stop order with respect thereto;
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the receipt of the Lockheed Martin Tax Opinions by Lockheed Martin and the receipt of the Leidos Tax Opinion by Leidos;
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the receipt by Lockheed Martin, Splitco and Leidos of customary solvency opinions;
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the incurrence of debt by Splitco pursuant to the Splitco Credit Facility;
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the receipt of the Splitco Special Cash Payment by Lockheed Martin;
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the completion of the various transaction steps contemplated by the Merger Agreement and the Separation Agreement, including the Separation and the Distribution; and
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other customary conditions.
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To the extent permitted by applicable law, Lockheed Martin and Splitco, on the one hand,
and Leidos and Merger Sub, on the other hand, may waive the satisfaction of the conditions to their respective obligations to consummate the Transactions. In addition, the waiver by Lockheed Martin or Splitco of conditions to their respective
obligations under the Separation Agreement requires the consent of Leidos. If Leidos waives the satisfaction of a material condition to the consummation of the Transactions, Leidos will evaluate the facts and circumstances at that time and
re-solicit stockholder approval of the issuance of shares of Leidos common stock in the Merger if required to do so by law or the rules of the NYSE.
This document
describes these conditions in more detail under The Merger AgreementConditions to the Merger.
When will the Transactions be completed?
The Transactions are expected to be completed in the third or fourth quarter of 2016. However, it is possible that the Transactions could be completed at a
later time or not at all, and the Merger Agreement provides that Lockheed Martin or Leidos may terminate the Merger Agreement if the Merger is not consummated on or before January 25, 2017. For a discussion of the conditions to consummate of
the Transactions and the circumstances under which the Merger Agreement may be terminated by the parties, see The Merger AgreementConditions to the Merger and The Merger AgreementTermination, respectively.
Are there risks associated with the Transactions?
Yes. The material risks
and uncertainties associated with the Transactions are discussed in the section of this document entitled Risk Factors and the section of this document entitled Cautionary Statement on Forward-Looking Statements. Those risks
include, among others, the possibility that the Transactions may not be completed or may not achieve the intended benefits, the possibility that Leidos may fail to realize the anticipated benefits of the Merger and the value of any Leidos common
stock to be received in the Transactions, the uncertainty that Leidos will be able to integrate the Splitco Business successfully, the possibility that Leidos may be unable to provide benefits and services or access to equivalent financial strength
and resources to the Splitco Business that historically have been provided by Lockheed Martin, the possibility that the Transactions may be treated by the IRS as taxable to Lockheed Martin and/or Lockheed Martin stockholders, the additional
long-term indebtedness and liabilities that Leidos and its subsidiaries will have following consummation of the Transactions and the substantial dilution to the ownership interest of current Leidos stockholders following consummation of the Merger
resulting from the Transactions.
What stockholder approvals are needed in connection with the Transactions?
Leidos cannot complete the Transactions unless the proposal relating to the Share Issuance is approved by the affirmative vote of a majority of votes cast by Leidos
stockholders on the proposal at the 2016 annual meeting.
Where will the Leidos shares to be issued in the Merger be listed?
Leidos common stock is listed on the NYSE under the symbol LDOS. After the consummation of the Transactions, all shares of Leidos common stock issued in the
Merger, and all other outstanding shares of Leidos common stock, will continue to be listed on the NYSE and trade under the same symbol.
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Will there be any change to the Leidos Board or executive officers of Leidos after the consummation of the Transactions?
Yes. In connection with the Transactions, the size of the Leidos Board will be increased to include three additional directors to be designated as nominees
by Lockheed Martin (subject to the reasonable approval of the Leidos Board), effective at the time of closing of the Merger. The Merger Agreement provides that at the next annual election of directors of Leidos, the Leidos Board will take all
actions necessary to include each of the Lockheed Martin designees as nominees for the Leidos Board for election by Leidos stockholders. The executive officers of Leidos immediately prior to consummation of the Merger are expected to be the
executive officers of Leidos immediately following consummation of the Merger.
What vote is required to approve the Share Issuance?
Pursuant to the NYSE rules, the proposal to approve the Share Issuance must be approved by the affirmative vote of a majority of votes cast by Leidos stockholders on the
proposal at the annual meeting. An abstention from voting will be treated as a vote cast under NYSE rules with regard to the proposal to approve the Share Issuance and will have the same effect as a vote AGAINST the proposal to approve
the Share Issuance. In accordance with applicable rules, banks, brokers and other nominees who hold shares of common stock in street name for their customers do not have discretionary authority to vote the shares with respect to the
proposal to approve the Share Issuance. Accordingly, there will be no broker non-votes and shares held in street name (that is, shares held through a bank, broker or other nominee) will not be voted on the proposal to approve
the Share Issuance unless the bank, broker or nominee has received voting instructions from its customer. If this proposal is not approved, the Merger cannot be completed.
Do Lockheed Martin stockholders have to vote to approve the Transactions?
No.
What if an Leidos stockholder does not vote on the Share Issuance proposal?
The outcome depends on how the Leidos common stock is held and whether any vote is cast or not.
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If a Leidos stockholder submits a proxy to Leidos but the proxy does not indicate how it should be voted on the proposal, the proxy will be counted as a vote FOR the proposal.
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If a Leidos stockholder submits a proxy to Leidos and the proxy indicates that the stockholder abstains from voting as to a proposal, it will have the same effect as a vote AGAINST the proposal.
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If a Leidos stockholder fails to submit a proxy to Leidos, that stockholders shares will not count towards the required quorum of a majority of the votes entitled to be cast on the proposal.
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If a Leidos stockholder holds shares in street name through a bank, broker or other nominee, those shares will not be counted for purposes of determining the presence of a quorum unless the bank, broker or
other nominee has been instructed to vote on at least one of the proposals presented in this proxy statement. In accordance with applicable rules, banks, brokers and other nominees who hold shares of common stock in street name for their
customers do not have discretionary authority to vote the shares with respect to the proposals to approve the Share Issuance. Accordingly, there will be no broker non-votes and shares held in street name will not be voted on
the proposal to approve the Share Issuance unless the bank, broker or other nominee has received voting instructions from its customer with respect to such proposal. As a result, if a Leidos stockholder holds shares in street name and
fails to instruct its bank, broker or other nominee how to vote that stockholders shares, such failure will not affect the vote on the Share Issuance unless the bank, broker or other nominee has been instructed to vote on at least one of the
proposals presented in this proxy statement.
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Have any Leidos stockholders already agreed to vote for the issuance of Leidos common stock in the
Merger?
No.
Can Leidos stockholders dissent and require appraisal of
their shares?
No.
16
Will the instruments that govern the rights of Leidos stockholders with respect to their shares of Leidos common stock
after the consummation of the Transactions be different from those that govern the rights of current Leidos stockholders?
The rights of Leidos stockholders with
respect to their shares of Leidos common stock after the consummation of the Transactions will continue to be governed by federal and state laws and Leidos governing documents, including:
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the corporate law of the State of Delaware;
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the Amended and Restated Certificate of Incorporation of Leidos; and
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the Amended and Restated Bylaws of Leidos.
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Who can answer my questions?
If you have any questions about the Transactions or the annual meeting, need assistance in voting your shares or need additional copies of this document or the enclosed
proxy and voting instruction card, you should contact:
Morrow & Co., LLC
470 West Avenue
Stamford, Connecticut 06902
Stockholders, please call Toll Free (800) 278-2141
Banks and Brokerage Firms, please call (203) 658-9400
or
Leidos Holdings, Inc.
11951 Freedom Drive
Reston, Virginia 20190
Attention: Investor Relations
Telephone: (571)
526-6000
Where can I find more information about Leidos and the Splitco Business?
Leidos stockholders can find more information about Leidos and the IS&GS business in Information on Leidos and Information on the IS&GS
Business and from the various sources described in Where You Can Find More Information; Incorporation by Reference.
17
S
UMMARY
The following summary contains certain information described in more detail elsewhere in this document. It does not contain all the details concerning the
Transactions, including information that may be important to you. To better understand the Transactions, you should carefully review this entire document and the documents it refers to. See Where You Can Find More Information; Incorporation by
Reference.
The Companies
Leidos
Holdings, Inc.
11951 Freedom Drive
Reston, Virginia 20190
Leidos Holdings, Inc., incorporated in 2005, is a Delaware corporation having its principal executive offices in Reston, VA, and serves as the holding company for its
principal operating company, Leidos, Inc., which was formed in 1969. Leidos is a science and technology solutions leader working to address some of the worlds toughest challenges in national security, health and infrastructure. Its
approximately 18,000 employees support vital missions for government and commercial customers, develop innovative solutions to drive better outcomes and defend digital and physical infrastructure from new world threats.
Lion Merger Co.
c/o Leidos Holdings, Inc.
11951 Freedom Drive
Reston, Virginia 20190
Lion Merger Co., a Delaware corporation incorporated on January 21, 2016, referred to in this document as Merger Sub, is a direct, wholly-owned subsidiary of Leidos
that was organized specifically for the purpose of completing the Merger. Merger Sub has engaged in no business activities to date and it has no material assets or liabilities of any kind, other than those incident to its formation and in connection
with the Transactions.
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Lockheed Martin Corporation, is a Maryland
corporation formed in 1995 by combining the businesses of Lockheed Corporation and Martin Marietta Corporation. Lockheed Martin is a global security and aerospace company principally engaged in the research, design, development, manufacture,
integration and sustainment of advanced technology systems, products and services. Lockheed Martin also provides a broad range of management, engineering, technical, scientific, logistics and information services. It serves both U.S. and
international customers with products and services that have defense, civil and commercial applications, with its principal customers being agencies of the U.S. Government. Lockheed Martins main areas of focus are in defense, space,
intelligence, homeland security and information technology, including cybersecurity.
Abacus Innovations Corporation
c/o Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Abacus Innovations Corporation, a Delaware corporation
incorporated on January 19, 2016, referred to in this document as Splitco, is a direct, wholly-owned subsidiary of Lockheed Martin that was organized specifically for the purpose of effecting the Separation. Splitco has engaged in no business
activities to date and it has no material assets or liabilities of any kind, other than those incident to its formation and in connection with the Transactions. Prior to the closing of the Lockheed Martin exchange offer, Splitco will own, directly
and through the Splitco Subsidiaries, the Splitco Business and will incur indebtedness in the Splitco Debt Financing. The Splitco Business means the business and operations of Lockheed Martins Information Systems & Global
Solutions (IS&GS) business segment as it was reported in Lockheed Martins Annual Report on Form 10-K for the year ended December 31, 2015, as summarized in the section of this document entitled Information on the Splitco
Business.
18
The Transactions
On January 26, 2016, Lockheed Martin and Leidos announced that they, along with Splitco and Merger Sub, had entered into the Merger Agreement, and that Lockheed Martin
and Splitco had entered into the Separation Agreement, which together provide for the combination of Leidos business and the Splitco Business. In the Transactions, Lockheed Martin will transfer the Splitco Business to Splitco. Prior to the
Distribution, Splitco will incur new indebtedness and will pay to Lockheed Martin the Splitco Special Cash Payment.
On the closing date of the Merger, Lockheed
Martin will distribute shares of Splitco common stock to its participating stockholders in the exchange offer. If the exchange offer is consummated but is not fully subscribed, Lockheed Martin will distribute the remaining shares of Splitco common
stock on a pro rata basis to Lockheed Martin stockholders whose shares of Lockheed Martin common stock remain outstanding after the consummation of the exchange offer. Any Lockheed Martin stockholder who validly tenders (and does not properly
withdraw) shares of Lockheed Martin common stock for shares of Splitco common stock in the exchange offer will waive their rights with respect to such tendered shares to receive, and forfeit any rights to, shares of Splitco common stock distributed
on a pro rata basis to Lockheed Martin stockholders in the event the exchange offer is not fully subscribed. If there is a pro rata distribution, the exchange agent will calculate the exact number of shares of Splitco common stock not exchanged in
the exchange offer and to be distributed on a pro rata basis, and the number of shares of Leidos common stock into which the remaining shares of Splitco common stock will be converted in the Merger will be transferred to Lockheed Martin stockholders
(after giving effect to the consummation of the exchange offer) as promptly as practicable thereafter.
Immediately after the Distribution and on the closing
date of the Merger, Merger Sub will merge with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and a wholly-owned subsidiary of Leidos. In the Merger, subject to
adjustment in accordance with the Merger Agreement, each share of Splitco common stock will be converted into the right to receive one share of Leidos common stock, as described in the section of this document entitled The Merger
AgreementMerger Consideration.
Subject to adjustment under certain circumstances as set forth in the Merger Agreement, Leidos will issue 76,958,918
shares of Leidos common stock in the Merger. Based upon the reported closing sale price of $46.80 per share for Leidos common stock on the NYSE on June 29, 2016, and after taking into account the Leidos Special Dividend of $13.64 per share, the
total value of the shares to be issued by Leidos and the cash expected to be received by Lockheed Martin in the Transactions would have been approximately $4,351,957,721. The actual value of the Leidos common stock to be issued in the Merger will
depend on the market price of shares of Leidos common stock at the time of the Merger.
After the Merger, Leidos will own and operate the Splitco Business
through Splitco, which will be Leidos wholly-owned subsidiary, and will also continue its current businesses. All shares of Leidos common stock, including those issued in the Merger, will be listed on the NYSE under Leidos current
trading symbol LDOS.
Below is a step-by-step description of the sequence of material events relating to the Transactions.
Step 1 Separation
Lockheed Martin will transfer the Splitco Business to
Splitco following the Internal Reorganization.
Step 2 Issuance of Splitco Common Stock to Lockheed Martin, Incurrence of Splitco Debt and Splitco Cash Payment
In connection with the transfer of the Splitco Business to Splitco, Splitco will issue to Lockheed Martin additional shares of Splitco common stock. Following
this issuance, subject to adjustment in accordance with the Merger Agreement, Lockheed Martin will own 76,958,918 shares of Splitco common stock, which will constitute all of the outstanding stock of Splitco. In addition, Splitco will incur new
indebtedness in an aggregate principal amount of approximately $1,841,450,000. Splitco will use a portion of the proceeds of this loan to pay to Lockheed Martin the Splitco Special Cash Payment in connection with the transfer of the Splitco Business
to Splitco. Splitco will use the balance to pay certain fees and expenses related to such indebtedness.
19
Step 3 DistributionExchange Offer
Lockheed Martin will offer to Lockheed Martin stockholders the right to exchange all or a portion of their shares of Lockheed Martin common stock for shares of Splitco
common stock at a discount to the equivalent per-share value of Leidos common stock, after giving effect to the amount of the Leidos Special Dividend, based on the conversion in the Merger of each share of Splitco common stock into one share of
Leidos common stock. If the exchange offer is consummated but is not fully subscribed, Lockheed Martin will distribute the remaining shares of Splitco common stock on a
pro rata
basis to Lockheed Martin stockholders whose shares of Lockheed
Martin common stock remain outstanding after the consummation of the exchange offer. Any Lockheed Martin stockholder who validly tenders (and does not properly withdraw) shares of Lockheed Martin common stock for shares of Splitco common stock in
the exchange offer will waive their rights with respect to such tendered shares to receive, and forfeit any rights to, shares of Splitco common stock distributed on a pro rata basis to Lockheed Martin stockholders in the event the exchange offer is
not fully subscribed.
Step 4 Incurrence of Leidos Debt
Prior to
the closing of the Merger, the Leidos Borrower will incur new indebtedness in the form of a $690,000,000 Term Loan A Facility and a $750,000,000 Revolving Credit Facility. The proceeds of the Term Loan A Facility and up to $50,000,000 of borrowings
under the Revolving Credit Facility, together with cash on hand at Leidos (which shall not exceed $500,000,000), will be used to pay the Leidos Special Dividend, and additional proceeds of borrowings under the Revolving Credit Facility will be
used to (i) repay in full all outstanding indebtedness for borrowed money of Splitco (if any) (other than the debt incurred by Splitco described above in Step 2), (ii) repay in full all indebtedness, and terminate all commitments, under the
Amended and Restated Four Year Credit Agreement dated as of March 11, 2011, among Leidos, as borrower, Leidos, Inc., as guarantor, and Citibank, N.A., as administrative agent, the lenders, other agents and other parties party thereto from time
to time and (iii) pay the fees, costs and expenses associated therewith.
Step 5 Merger
Immediately after the Distribution, Merger Sub will merge with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will
continue as the surviving company and as a wholly-owned subsidiary of Leidos. In the Merger, each share of Splitco common stock will be converted into the right to receive one share of Leidos common stock, as described in the section of this
document entitled The Merger AgreementMerger Consideration. Immediately after the consummation of the Merger, approximately 50.5 percent of the outstanding shares of Leidos common stock is expected to be held by pre-Merger Splitco
(former Lockheed Martin) stockholders and approximately 49.5 percent of the outstanding shares of Leidos common stock is expected to be held by pre-Merger Leidos stockholders on a fully diluted basis.
20
Set forth below are diagrams that graphically illustrate, in simplified form, the existing corporate structures, the
corporate structures immediately following the Separation and the Distribution but before the Merger and the corporate structures immediately following the consummation of the Merger.
21
After completion of all of the steps described above, Leidos wholly-owned subsidiary, Splitco, will hold the Splitco Business
directly and through its subsidiaries and will continue as the obligor under the new indebtedness to be incurred by Splitco on or about the date of the Distribution, which, after the consummation of the Merger, is expected to be guaranteed by
Leidos.
In connection with the Transactions, on the date of the Distribution, Lockheed Martin or its subsidiaries and Splitco or the Splitco Subsidiaries will
enter into the Additional Agreements relating to, among other things, intellectual property, real property, shared contracts, supply arrangements, contract novation and transition services. See Other AgreementsAdditional
Agreements.
Opinion of Leidos Financial Advisor
Leidos has
retained Citigroup Global Markets Inc., referred to as Citi, as its financial advisor in connection with the proposed Merger. In connection with this engagement, Citi delivered a written opinion, dated January 25, 2016, to the Leidos Board as
to the fairness, from a financial point of view and as of the date of the opinion, to Leidos of the exchange ratio provided for pursuant to the Merger Agreement. For purposes of Citis financial analyses and opinion, the term
exchange ratio means, after giving effect to the Distribution and certain related transactions contemplated by the Separation Agreement, 1.020202 (which represents the number of shares of Leidos common stock to be issued in the Merger,
divided by the number of fully diluted shares of Leidos common stock as of the date of Citis opinion). The description of Citis opinion, dated January 25, 2016, to the Leidos Board set forth below is qualified in its entirety by
reference to the full text of such opinion, a copy of which is attached as
Annex C-1
to this document.
Citis opinion was provided for the information of the Leidos Board (in its capacity as such) in connection with its evaluation of
the exchange ratio provided for pursuant to the Merger Agreement from a financial point of view to Leidos and did not
address any other terms, aspects or implications of the Merger or any related transactions,
22
including, without limitation, the Distribution relating to the Splitco Business contemplated to be
effected prior to consummation of the Merger or any conversion or exchange ratio
determined in
connection with such Distribution. Citi expressed no view as to, and its opinion did not address, the underlying business decision of Leidos to effect the Merger or related transactions, the relative merits of the Merger or
related transactions as compared to any alternative business strategies that might exist for Leidos or the effect of any other transaction in which Leidos might engage. Citis opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote or act on any matters relating to the proposed Merger, any related transaction or otherwise.
Debt Financing
On January 26, 2016, in connection with their entry into
the Merger Agreement, Leidos and Splitco entered into separate commitment letters with the Commitment Parties pursuant to which the Commitment Parties agreed to provide debt financing for the Transactions. Pursuant to, and subject to the terms and
conditions of, the Leidos Commitment Letter, the Commitment Parties will provide a new senior secured credit facility to the Leidos Borrower in an aggregate principal amount of up to $1,440,000,000, which is currently expected to consist of a Term
Loan A Facility in an aggregate principal amount of up to $690,000,000 and a revolving credit facility in an aggregate principal amount of up to $750,000,000. Pursuant to, and subject to the terms and conditions of, the Splitco Commitment Letter,
the Commitment Parties will provide a new senior secured credit facility to Splitco of up to $1,841,450,000, which is currently expected to consist of a three-year Term Loan A Facility in an aggregate principal amount of up to $400,000,000, a
five-year Term Loan A Facility in an aggregate principal amount of up to $310,000,000 and a Term Loan B Facility in an aggregate principal amount of up to $1,131,450,000. See Debt Financing for further information.
Interests of Leidos Directors and Executive Officers in the Transactions
Certain of Leidos directors and executive officers have financial interests in the Transactions that may be different from, or in addition to, the interests of
Leidos stockholders generally. The members of the Leidos Board were aware of and considered these interests, among other matters, in reaching the determination to approve the terms of the Merger Agreement and the Transactions, including the Merger,
and in recommending to Leidos stockholders that they vote to approve the Share Issuance.
Board of Directors and Management of Leidos Following the Transactions
Following the consummation of the exchange offer, Merger Sub will merge with and into Splitco, whereby the separate corporate existence of Merger Sub will cease
and Splitco will continue as the surviving company and a wholly-owned subsidiary of Leidos. Directors of Leidos serving on its board of directors immediately before the consummation of the Merger are expected to continue to serve as directors of
Leidos immediately following the closing of the Merger. In connection with the Transactions and following the consummation of the Merger, the size of the Leidos Board will be increased to include three additional directors to be designated by
Lockheed Martin. The Merger Agreement provides that, thereafter, at the following annual election of directors of Leidos, the Leidos Board will take all actions necessary to include each of the Lockheed Martin designees as nominees for the Leidos
Board for election by Leidos stockholders, subject in all events to the fiduciary duties of the Leidos Board, the requirements of the NYSE and all other applicable laws. Following the consummation of the Merger, the executive officers of Leidos
immediately prior to the consummation of the Merger are expected to be the executive officers of Leidos immediately following the consummation of the Merger.
Leidos Stockholder Approval
Leidos cannot complete the Transactions
unless the proposal relating to the Share Issuance is approved by the affirmative vote of a majority of votes cast by Leidos stockholders on the proposal at the 2016 annual meeting either in person or by proxy (assuming a quorum is present).
Leidos Stockholders Meeting
Under the terms of the Merger
Agreement, Leidos has agreed to call, give notice of, convene and hold an annual meeting of its stockholders for the purpose of, among other things, voting upon the proposal to approve the Share Issuance. The Leidos Board has called an annual
meeting of Leidos stockholders to be held on
23
August 8, 2016, for Leidos stockholders of record on June 30, 2016. The definitive proxy statement was mailed to Leidos stockholders on or about July 7, 2016.
As of June 30, 2016, Leidos directors and executive officers held 1.61 percent of the shares entitled to vote at Leidos 2016 annual meeting of
stockholders. As of June 30, 2016, Lockheed Martins and Splitcos directors, executive officers and their affiliates owned an aggregate of less than 1% of the shares of Leidos common stock entitled to vote at Leidos 2016 annual
meeting of stockholders.
Accounting Treatment and Considerations
Accounting Standard Codification 805, Business Combinations, requires the use of the acquisition method of accounting for business combinations. In applying the
acquisition method, it is necessary to identify both the accounting acquiree and the accounting acquiror. In a business combination effected through an exchange of equity interests, such as the Merger, the entity that issues the interests (Leidos,
in this case) is generally the acquiring entity. In identifying the acquiring entity in a combination effected through an exchange of equity interests, however, all pertinent facts and circumstances must be considered, including the following:
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Issuance of equity by Leidos
. Leidos expects to issue approximately 77 million shares of Leidos common stock in the Merger.
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Incurrence of debt by Leidos and Splitco.
Approximately $2.531 billion of indebtedness is expected to be incurred under the Facilities (as defined in the section of this document entitled Debt
Financing). After the Merger, Splitco will be a wholly-owned subsidiary of Leidos, Splitcos indebtedness is expected to be guaranteed by Leidos and Leidos indebtedness incurred to finance the Transactions is expected to be
guaranteed by Splitco.
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The relative voting interests of Leidos stockholders after the consummation of the Transactions
. In this case, Lockheed Martin stockholders participating in the exchange offer (and
pro rata
distribution,
if any) are expected to receive approximately 50.5 percent of the equity ownership and associated voting rights in Leidos after the consummation of the Transactions on a fully diluted basis.
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The composition of the governing body of Leidos after the consummation of the Transactions
. The Leidos Board currently consists of 10 directors and will increase following consummation of the Merger in accordance
with the terms of the Merger Agreement, which provides that the Leidos Board will cause the number of directors comprising the Leidos Board to be increased to no more than 13 directors and cause three directors designated by Lockheed Martin to be
appointed to the Leidos Board to serve until the next annual meeting of the Leidos stockholders.
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The composition of the senior management of Leidos after the consummation of the Transactions
. In this case, Leidos executive officers immediately following the Merger are expected to consist of
Leidos executive officers immediately prior to the Merger.
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Leidos management has determined that Leidos will be the accounting acquiror in the
Merger based on the facts and circumstances outlined above and the detailed analysis of the relevant GAAP guidance. Consequently, Leidos will apply acquisition accounting to the assets and liabilities of Splitco acquired or assumed upon the
consummation of the Merger. The historical financial statements of Leidos for periods ended prior to the consummation of the Merger will reflect only the operations and financial condition of Leidos. Subsequent to the consummation of the Merger, the
financial statements of Leidos will include the combined operations and financial condition of Leidos and Splitco.
Federal Securities Law Consequences; Resale
Restriction
Leidos common stock issued in the Merger will not be subject to any restrictions on transfer arising under the Securities Act, except for shares
issued to any Lockheed Martin stockholder who may be deemed to be an affiliate of Splitco for purposes of Rule 145 under the Securities Act.
No
Appraisal or Dissenters Rights
None of Leidos, Merger Sub, Lockheed Martin or Splitco stockholders will be entitled to exercise appraisal rights or to
demand payment for their shares in connection with the Transactions.
24
SUMMARY HISTORICAL, PRO FORMA AND SUPPLEMENTAL FINANCIAL DATA
The following summary combined financial data of the Splitco Business and summary consolidated financial data of Leidos are being provided to help you in your analysis
of the financial aspects of the Transactions. You should read this information in conjunction with the financial information included elsewhere and incorporated by reference in this document. See Managements Discussion and Analysis of
Financial Condition and Results of Operations for the Splitco Business, Where You Can Find More Information; Incorporation by Reference, Information on the Splitco Business, Information on Leidos,
Selected Historical Financial Data and Unaudited Pro Forma Combined Consolidated Financial Statements and Supplemental Combined Consolidated Statement of Income.
Summary Historical Combined Financial Data of the Splitco Business
The following data of the Splitco Business as of March 27, 2016, and for the three months ended March 27, 2016 and March 29, 2015, have been derived from the unaudited
combined interim financial statements of the Splitco Business included elsewhere in this document. The following data of the Splitco Business as of December 31, 2015 and 2014, and for the three years in the period ended December 31, 2015, have
been derived from the audited combined financial statements of the Splitco Business included elsewhere in this document. The data below as of December 31, 2013 have been derived from the unaudited combined balance sheet of the Splitco Business not
included or incorporated by reference in this document. This information is only a summary and should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations for the Splitco
Business, the combined financial statements of the Splitco Business and the notes thereto and the unaudited pro forma combined consolidated financial statements of Leidos and the Splitco Business included elsewhere in this document.
The Splitco Business closes its books and records on the last Sunday of the calendar quarter, which was on March 27 for the first quarter of 2016 and March 29 for the
first quarter of 2015, to align its financial closing with its business processes. The consolidated financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim
periods as the Splitco Business fiscal year ends on December 31.
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As of and for the Three
Months Ended
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As of and for the Years Ended
December 31,
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(in millions)
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March 27,
2016
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March 29,
2015
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2015
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2014
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2013
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Combined Statement of Earnings Data:
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Revenues
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$
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1,341
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|
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$
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1,393
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|
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$
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5,626
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|
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$
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5,702
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|
|
$
|
6,158
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Earnings before income taxes
(a)
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|
|
83
|
|
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|
128
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|
|
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471
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|
|
|
438
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|
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365
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Net earnings
(a)
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53
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|
|
|
84
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|
|
|
309
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|
|
|
292
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|
|
|
246
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Less: Net earnings attributable to non-controlling interest
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2
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|
1
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|
5
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|
|
5
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|
|
|
6
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Net earnings attributable to parent
(a)
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51
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|
|
|
83
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|
|
|
304
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|
|
|
287
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|
|
|
240
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Combined Balance Sheet Data:
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Total assets
(b)
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$
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4,111
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*
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$
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4,180
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$
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4,251
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|
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$
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3,829
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(a)
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Earnings before income taxes, net earnings and net earnings attributable to parent were affected by severance charges of $19 million ($12 million after tax) in the three months ended March 27, 2016; $20 million ($13
million after tax) in 2015; and $45 million ($29 million after tax) in 2013.
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(b)
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The increase in total assets from 2013 to 2014 was primarily attributable to the acquisitions of Systems Made Simple, Inc., Industrial Defender, Inc. and Beontra AG in 2014.
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(*)
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Balance sheet data as of March 29, 2015 is not included or incorporated by reference in this document.
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25
Summary Historical Consolidated Financial Data of Leidos
The following summary historical consolidated financial data of Leidos as of April 1, 2016, and for the three-month periods ended April 1, 2016 and April 3, 2015, have
been derived from Leidos unaudited condensed consolidated financial statements, which are incorporated by reference herein from the Quarterly Report on Form 10-Q for the three-month period ended April 1, 2016. The summary historical
consolidated financial data of Leidos as of and for the 11-month period ended January 1, 2016, and as of January 30, 2015 and for the years ended January 30, 2015 and January 31, 2014, have been derived from Leidos audited consolidated
financial statements, which are incorporated by reference herein from the Transition Report on Form 10-K for the 11-month period ended January 1, 2016. The summary historical consolidated financial data of Leidos as of January 31, 2014 have been
derived from Leidos audited consolidated financial statements which are not included in or incorporated by reference into this document. The summary historical consolidated financial data presented below is not necessarily indicative of the
results of operations or financial condition that may be expected for any future period or date. This information is only a summary and should be read in conjunction with the financial statements of Leidos and the notes thereto and the
Managements Discussion and Analysis of Financial Condition and Results of Operations section contained in Leidos Quarterly Report on Form 10-Q for the three-month period ended April 1, 2016 and Leidos Transition Report
on Form 10-K for the 11-month period ended January 1, 2016, each of which is incorporated by reference in this document. See Where You Can Find More Information; Incorporation By Reference.
As indicated in Leidos Transition Report on Form 10-K for the 11-month period ended January 1, 2016, Leidos Board of Directors approved the amendment and
restatement of Leidos bylaws to change Leidos year end from the Friday nearest the end of January to the Friday nearest the end of December. As a result of this change, Leidos filed a Transition Report on Form 10-K with the SEC on
February 26, 2016, which covers the 11-month period that began on January 31, 2015 and ended on January 1, 2016. This change did not impact Leidos prior reported fiscal years (covering a 12-month period), which ended on the Friday nearest the
end of January. For example, fiscal 2015 began on February 1, 2014 and ended on January 30, 2015.
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Three Months
Ended
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11 Months Ended
(a)*
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12 Months Ended
(a)*
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(in millions, except per share data)
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April 1,
2016
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April 3,
2015
(a)
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January 1,
2016
(b)*
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January 30,
2015
(c)*
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January 31,
2014
(d)*
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Consolidated Statement of Income Data:
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|
|
|
|
|
|
|
Revenues
|
|
$
|
1,312
|
|
|
$
|
1,246
|
|
|
$
|
4,712
|
|
|
$
|
5,063
|
|
|
$
|
5,755
|
|
Operating income (loss)
|
|
|
89
|
|
|
|
38
|
|
|
|
320
|
|
|
|
(214
|
)
|
|
|
163
|
|
Income (loss) from continuing operations
|
|
|
49
|
|
|
|
23
|
|
|
|
243
|
|
|
|
(330
|
)
|
|
|
84
|
|
Income (loss) from discontinued operations, net of tax
|
|
|
|
|
|
|
18
|
|
|
|
(1
|
)
|
|
|
7
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
49
|
|
|
$
|
41
|
|
|
$
|
242
|
|
|
$
|
(323
|
)
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
$
|
0.68
|
|
|
$
|
0.32
|
|
|
$
|
3.33
|
|
|
$
|
(4.46
|
)
|
|
$
|
0.98
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
0.24
|
|
|
|
(0.01
|
)
|
|
|
0.10
|
|
|
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.68
|
|
|
$
|
0.56
|
|
|
$
|
3.32
|
|
|
$
|
(4.36
|
)
|
|
$
|
1.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
0.66
|
|
|
|
0.31
|
|
|
|
3.28
|
|
|
|
(4.46
|
)
|
|
|
0.98
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
0.24
|
|
|
|
(0.01
|
)
|
|
|
0.10
|
|
|
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.66
|
|
|
$
|
0.55
|
|
|
$
|
3.27
|
|
|
$
|
(4.36
|
)
|
|
$
|
1.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend per common share
|
|
$
|
0.32
|
|
|
$
|
0.32
|
|
|
$
|
1.28
|
|
|
$
|
1.28
|
|
|
$
|
5.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
April 1,
2016
|
|
|
January 1,
2016
(e)
|
|
|
January 30,
2015
(e)
|
|
|
January 31,
2014
(e)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
Total assets
|
|
$
|
3,391
|
|
|
$
|
3,370
|
|
|
$
|
3,273
|
|
|
$
|
4,152
|
|
Notes payable and long-term debt, including current portion
|
|
$
|
1,091
|
|
|
$
|
1,081
|
|
|
$
|
1,158
|
|
|
$
|
1,323
|
|
Other long-term liabilities and deferred income taxes
|
|
$
|
195
|
|
|
$
|
183
|
|
|
$
|
168
|
|
|
$
|
227
|
|
*
|
References in the following notes refer to Leidos Transition Report on Form 10-K for the 11-month period ended January 1, 2016.
|
(a)
|
References to financial data are to Leidos continuing operations, unless otherwise noted. During the year ended January 31, 2014, Leidos completed the spin-off of Science Applications International
Corporation. The operating results of Science Applications International Corporation are included in discontinued operations.
|
(b)
|
Reflects the 11-month period of January 31, 2015 through January 1, 2016 as a result of the change in Leidos fiscal year end. All other periods presented include twelve months as originally reported. For further
information see, Note 1
Summary of Significant Accounting PoliciesReporting Periods
of the combined notes to the consolidated financial statements contained within the Transition Report on Form 10-K. The 11-month period
ended January 1, 2016 results include a gain on a real estate sale of $82 million, tangible asset impairment charges of $29 million, intangible asset impairment charges of $4 million and bad debt expense of $8 million. For further information see,
Note 16
LeasesSale and Leaseback Agreement,
Note 3
Acquisitions,
Note 4
Goodwill and Intangible Assets
and
Note 5
Receivables
of the combined notes to the
consolidated financial statements contained within the Transition Report on Form 10-K.
|
(c)
|
Fiscal 2015 results include goodwill impairment charges of $486 million, intangible asset impairment charges of $41 million and a tangible asset impairment charge of $40 million. For further information see, Note 4
Goodwill and Intangible Assets
and Note 3
Acquisitions
of the combined notes to the consolidated financial statements contained within the Transition Report on Form 10-K.
|
(d)
|
Fiscal 2014 results include intangible asset impairment charges of $51 million, bad debt expense of $44 million, and separation transaction and restructuring expenses of $65 million. For further information see, Note 4
Goodwill and Intangible Assets,
Note 5
Receivables
and Note 1
Summary of Significant Accounting PoliciesSeparation Transaction and Restructuring Expenses
of the combined notes to the
consolidated financial statements contained within the Transition Report on Form 10-K.
|
(e)
|
During the three months ended April 1, 2016, Leidos adopted ASU 2015-03,
InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs
. As a result, consolidated
balance sheet data reflects the reclassification of deferred financing costs related to Leidos notes from
Other Assets
to
Notes Payable and Long-Term Debt, Net of Current Portion,
which totaled $7 million, $8 million, and $10 million at January 1, 2016, January 30, 2015, and January
31, 2014, respectively.
|
Summary Unaudited Pro Forma Combined Consolidated Financial Data
The following summary unaudited pro forma combined consolidated financial data present the pro forma financial position and results of operations of Leidos based upon
the historical financial statements of each of Leidos and the Splitco Business, after giving effect to the Merger and other Transactions as further described in the section of this document entitled
The Transactions
. The unaudited
pro forma combined consolidated financial data are intended to reflect the impact of the Merger and the other Transactions on Leidos consolidated financial statements as if the relevant transactions occurred on January 31, 2015 for purposes of
the unaudited combined consolidated pro forma statement of income data and April 1, 2016 for purposes of the unaudited combined consolidated pro forma balance sheet data. The unaudited pro forma combined consolidated financial statements have been
prepared using, and should be read in conjunction with (i) the unaudited condensed consolidated financial statements of Leidos as of and for the three-month period ended April 1, 2016, and the audited consolidated financial statements of Leidos as
of and for the 11-month period ended January 1, 2016, which are incorporated by reference in this document, and (ii) the unaudited combined financial statements of the Splitco Business as of and for the three months ended March 27, 2016,
and the audited combined financial statements of the Splitco Business as of and for the year ended December 31, 2015, which are included elsewhere in this document. The unaudited pro forma combined consolidated financial data is presented for
illustrative purposes only and does not purport to be indicative of the actual results that would have been achieved by Leidos if the Merger and other Transactions had been consummated for the period presented or that will be achieved in the future.
This information is only a summary and has been derived from and should be read in conjunction with the more detailed unaudited pro forma combined consolidated financial statements and the notes thereto, included elsewhere in this document, which
have been prepared in accordance with Article 11 of Regulation S-X. See Where You Can Find More Information;
27
Incorporation by Reference, Unaudited Pro Forma Combined Consolidated Financial Statements and Supplemental Combined Consolidated Statement of Income and the audited and
unaudited (as the case may be) combined financial statements of the Splitco Business and notes thereto included elsewhere in this document.
Unaudited Pro Forma
Combined Consolidated Statement of Income Data
The following table presents the unaudited pro forma combined consolidated statement of income data for the three
months ended April 1, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
(in millions)
|
|
Leidos for the
Three Months
Ended April 1,
2016
|
|
|
Splitco Business
for the Three
Months Ended
March 27, 2016
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
|
|
Revenues
|
|
$
|
1,312
|
|
|
$
|
1,341
|
|
|
$
|
(16
|
)
|
|
$
|
2,637
|
|
Income from continuing operations before income taxes
|
|
|
78
|
|
|
|
83
|
|
|
|
(49
|
)
|
|
|
112
|
|
Income tax expense
|
|
|
(29
|
)
|
|
|
(30
|
)
|
|
|
15
|
|
|
|
(44
|
)
|
Income from continuing operations
|
|
|
49
|
|
|
|
53
|
|
|
|
(34
|
)
|
|
|
68
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to the company
|
|
$
|
49
|
|
|
$
|
51
|
|
|
$
|
(34
|
)
|
|
$
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the unaudited pro forma combined consolidated statement of income data for the 11 months ended January
1, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
(in millions)
|
|
Leidos for the
11 Months
Ended
January 1,
2016
|
|
|
Splitco Business
for the Year
Ended
December 31,
2015
|
|
|
Less:
Splitco Business
for the One
Month Ended
January 31,
2015
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
|
|
Revenues
|
|
$
|
4,712
|
|
|
$
|
5,626
|
|
|
$
|
(431
|
)
|
|
$
|
(38
|
)
|
|
$
|
9,869
|
|
Income from continuing operations before income taxes
|
|
|
355
|
|
|
|
471
|
|
|
|
(39
|
)
|
|
|
(147
|
)
|
|
|
640
|
|
Income tax expense
|
|
|
(112
|
)
|
|
|
(162
|
)
|
|
|
10
|
|
|
|
43
|
|
|
|
(221
|
)
|
Income from continuing operations
|
|
|
243
|
|
|
|
309
|
|
|
|
(29
|
)
|
|
|
(104
|
)
|
|
|
419
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to the company
|
|
$
|
243
|
|
|
$
|
304
|
|
|
$
|
(29
|
)
|
|
$
|
(104
|
)
|
|
$
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma Combined Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
(in millions)
|
|
Leidos as of
April 1, 2016
|
|
|
Splitco Business
as of March 27,
2016
|
|
|
Pro Forma
Adjustments
|
|
|
Pro Forma
Combined
|
|
Total assets
|
|
$
|
3,391
|
|
|
$
|
4,111
|
|
|
$
|
1,685
|
|
|
$
|
9,187
|
|
Notes payable and long-term debt, including current portion
|
|
$
|
1,091
|
|
|
$
|
|
|
|
$
|
2,483
|
|
|
$
|
3,574
|
|
28
Summary Unaudited Supplemental Combined Consolidated Statement of Income Data
The following summary unaudited supplemental combined consolidated statement of income data combine the historical consolidated statement of income of Leidos for the
11-month period ended January 1, 2016, the unaudited historical statement of income of Leidos for the one month ended January 30, 2015 and the historical combined statement of earnings of the Splitco Business for the year ended December 31, 2015,
after giving effect to the Merger and other Transactions as further described in the section of this document entitled The Transactions. The unaudited supplemental combined consolidated statement of income data are intended to reflect
the impact of the Merger and the other Transactions on Leidos consolidated financial statements as if the relevant transactions occurred on January 3, 2015. The unaudited supplemental combined consolidated statement of income has been prepared
using, and should be read in conjunction with, the audited consolidated financial statements of Leidos as of and for the 11-month period ended January 1, 2016, which are incorporated by reference in this document, and the audited combined
financial statements of the Splitco Business as of and for the year ended December 31, 2015, which are included elsewhere in this document. The unaudited supplemental combined consolidated statement of income data is presented for illustrative
purposes only and does not purport to be indicative of the actual results that would have been achieved by Leidos if the Merger and other Transactions had been consummated for the period presented or that will be achieved in the future. This
information is only a summary and has been derived from and should be read in conjunction with the more detailed unaudited supplemental combined consolidated statement of income and the notes thereto included elsewhere in this document. See
Where You Can Find More Information; Incorporation by Reference, Unaudited Pro Forma Combined Consolidated Financial Statements and Supplemental Combined Consolidated Statement of Income and the audited combined financial
statements of the Splitco Business and notes thereto included elsewhere in this document.
Unaudited Supplemental Combined Consolidated Statement of Income Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
(in millions)
|
|
Leidos for the
11 Months
Ended
January 1,
2016
|
|
|
Leidos for the
One Month
Ended
January 30,
2015
|
|
|
Splitco Business
for the Year
Ended
December 31,
2015
|
|
|
Adjustments
|
|
|
Supplemental
Combined
for the
12 Months
Ended
January 1,
2016
|
|
Revenues
|
|
$
|
4,712
|
|
|
$
|
374
|
|
|
$
|
5,626
|
|
|
$
|
(41
|
)
|
|
$
|
10,671
|
|
Income from continuing operations before income taxes
|
|
|
355
|
|
|
|
(27
|
)
|
|
|
471
|
|
|
|
(161
|
)
|
|
|
638
|
|
Income tax (expense) benefit
|
|
|
(112
|
)
|
|
|
20
|
|
|
|
(162
|
)
|
|
|
47
|
|
|
|
(207
|
)
|
Income (loss) from continuing operations
|
|
|
243
|
|
|
|
(7
|
)
|
|
|
309
|
|
|
|
(114
|
)
|
|
|
431
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to the company
|
|
$
|
243
|
|
|
$
|
(7
|
)
|
|
$
|
304
|
|
|
$
|
(114
|
)
|
|
$
|
426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Summary Comparative Historical, Pro Forma and Supplemental Per Share Data
The following table sets forth certain historical, pro forma and supplemental per-share data for Leidos. The Leidos historical data has been derived from and should be
read together with Leidos unaudited condensed consolidated financial statements and related notes thereto contained in Leidos Quarterly Report on
Form 10-Q
for the three-month period ended
April 1, 2016 and Leidos audited consolidated financial statements and related notes thereto contained in Leidos Transition Report on Form 10-K for the 11-month period ended January 1, 2016, each of which is incorporated by reference in
this document. See Where You Can Find More Information; Incorporation by Reference. The pro forma data as of and for the three months ended April 1, 2016 and for the 11 months ended January 1, 2016 has been derived from the unaudited
pro forma combined consolidated financial statements included elsewhere in this document. The supplemental data for the 12 months ended January 1, 2016 has been derived from the unaudited supplemental combined consolidated statement of income
included elsewhere in this document. See Unaudited Pro Forma Combined Consolidated Financial Statements and Supplemental Combined Consolidated Statement of Income.
This comparative historical, pro forma and supplemental per-share data is being provided for illustrative purposes only. Leidos and the Splitco Business may have
performed differently had the Transactions occurred prior to the periods or at the date presented. You should not rely on the pro forma and supplemental per-share data presented as being indicative of the results that would have been achieved had
Leidos and the Splitco Business been combined during the periods or at the date presented or of the future results or financial condition of Leidos or the Splitco Business to be achieved following the consummation of the Transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three
Months Ended April 1, 2016
|
|
|
As of and for the 11 Months
Ended January 1, 2016
|
|
|
For the 12
Months Ended
January 1, 2016
|
|
(shares in millions)
|
|
Leidos
Historical
|
|
|
Pro Forma
Combined
|
|
|
Leidos
Historical
|
|
|
Pro Forma
Combined
|
|
|
Supplemental
Combined
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operationsBasic
|
|
$
|
0.68
|
|
|
$
|
0.44
|
|
|
$
|
3.33
|
|
|
$
|
2.76
|
|
|
$
|
2.84
|
|
Income from continuing operationsDiluted
|
|
$
|
0.66
|
|
|
$
|
0.44
|
|
|
$
|
3.28
|
|
|
$
|
2.74
|
|
|
$
|
2.82
|
|
|
|
|
|
|
|
Weighted average common shares outstandingBasic
|
|
|
72
|
|
|
|
149
|
|
|
|
73
|
|
|
|
150
|
|
|
|
150
|
|
Weighted average common shares outstandingDiluted
|
|
|
74
|
|
|
|
151
|
|
|
|
74
|
|
|
|
151
|
|
|
|
151
|
|
|
|
|
|
|
|
Book value per share of common stock
|
|
$
|
15.31
|
|
|
$
|
18.28
|
|
|
$
|
14.83
|
|
|
|
NA
|
(i)
|
|
|
NA
|
(i)
|
Dividends declared per share of common stock
|
|
$
|
0.32
|
|
|
$
|
0.32
|
|
|
$
|
1.28
|
|
|
$
|
1.28
|
|
|
$
|
1.28
|
|
(i)
|
NA = Not applicable, as no pro forma or supplemental balance sheet data as of January 1, 2016 is presented.
|
Historical Common Stock Market Price and Dividend Data
Historical market price data for Splitco has not been presented as the Splitco Business is currently operated by Lockheed Martin and there is no established trading
market in Splitco common stock. Shares of Splitco common stock do not currently trade separately from Lockheed Martin common stock.
Shares of Lockheed Martin
common stock currently trade on the NYSE under the symbol LMT. On January 25, 2016, the last trading day before the announcement of the Transactions, the last sale price of Lockheed Martin common stock reported by the NYSE was
$211.01. On June 29, the last sale price of Lockheed Martin common stock reported by the NYSE was $
244.08
.
Shares of Leidos common stock
currently trade on the NYSE under the symbol LDOS. On January 25, 2016, the last trading day before the announcement of the Transactions, the last sale price of Leidos common stock reported by the NYSE was $53.66. On
June
29
, the last sale price of Leidos common stock reported by the NYSE was $46.80
.
30
Leidos Dividend Policy
Leidos currently intends to continue paying dividends on a quarterly basis, although the declaration of any future dividends will be determined by the Leidos Board and
will depend on many factors, including available cash, estimated cash needs, earnings, financial condition, operating results, and capital requirements, as well as limitations in Leidos contractual agreements, applicable law, regulatory
constraints, industry practice and other business considerations that the Leidos Board considers relevant. Leidos ability to declare and pay future dividends on Leidos common stock may be restricted by the provisions of the DGCL and covenants
in Leidos then-existing indebtedness arrangements.
In connection with the Transactions, prior to the consummation of the Merger and subject to applicable
law, Leidos will declare the Leidos Special Dividend, the payment of which will be conditioned on completion of the Transactions. The Leidos Special Dividend will be funded by a combination of new borrowing and cash on hand.
31
THE TRANSACTIONS
On January 26, 2016, Lockheed Martin and Leidos announced that they, along with Splitco and Merger Sub, had entered into the Merger Agreement, and that Lockheed Martin
and Splitco had entered into the Separation Agreement, which together provide for the combination of Leidos business and the Splitco Business. In the Transactions, Lockheed Martin will transfer the Splitco Business to Splitco. Prior to the
Distribution, Splitco will incur new indebtedness and will pay to Lockheed Martin the Splitco Special Cash Payment.
On the closing date of the Merger, Lockheed
Martin will distribute shares of Splitco common stock to its stockholders participating in the exchange offer. If the exchange offer is consummated but is not fully subscribed, Lockheed Martin will distribute the remaining shares of Splitco common
stock on a
pro rata
basis to Lockheed Martin stockholders whose shares of Lockheed Martin common stock remain outstanding after the consummation of the exchange offer. Any Lockheed Martin stockholder who validly tenders (and does not properly
withdraw) shares of Lockheed Martin common stock for shares of Splitco common stock in the exchange offer will waive their rights with respect to such tendered shares to receive, and forfeit any rights to, shares of Splitco common stock distributed
on a pro rata basis to Lockheed Martin stockholders in the event the exchange offer is not fully subscribed. If there is a pro rata distribution, the exchange agent will calculate the exact number of shares of Splitco common stock not exchanged in
the exchange offer and to be distributed on a pro rata basis, and the number of shares of Leidos common stock into which the remaining shares of Splitco common stock will be converted in the Merger will be transferred to Lockheed Martin stockholders
(after giving effect to the consummation of the exchange offer) as promptly as practicable thereafter.
Immediately after the Distribution and on the closing
date of the Merger, Merger Sub will merge with and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and a wholly-owned subsidiary of Leidos. In the Merger, subject to
adjustment in accordance with the Merger Agreement, each share of Splitco common stock will be converted into the right to receive one share of Leidos common stock, as described in the section of this document entitled The Merger
AgreementMerger Consideration.
Subject to adjustment under certain circumstances as set forth in the Merger Agreement, Leidos will issue 76,958,918
shares of Leidos common stock in the Merger. Based upon the reported closing sale price of $46.80
per share for Leidos common stock on the NYSE on
June 29, 2016, and based on the Leidos Special Dividend of $13.64 per
share, the total value of the shares to be issued by Leidos and the cash expected to be received by Lockheed Martin in the Transactions would have been approximately $4,351,957,721
. The actual value of the Leidos
common stock to be issued in the Merger will depend on the market price of shares of Leidos common stock at the time of the Merger.
After the Merger, Leidos
will own and operate the Splitco Business through Splitco, which will be Leidos wholly-owned subsidiary, and will also continue its current businesses. All shares of Leidos common stock, including those issued in the Merger, will be listed on
the NYSE under Leidos current trading symbol LDOS.
Below is a step-by-step description of the sequence of material events relating to the
Transactions.
Step 1 Separation
Lockheed Martin will transfer the
Splitco Business to Splitco following the Internal Reorganization.
Step 2 Issuance of Splitco Common Stock to Lockheed Martin, Incurrence of Splitco Debt and
Splitco Cash Payment
In connection with the transfer of the Splitco Business to Splitco, Splitco will issue to Lockheed Martin additional shares of Splitco
common stock. Following this issuance, subject to adjustment in accordance with the Merger Agreement, Lockheed Martin will own 76,958,918 shares of Splitco common stock, which will constitute all of the outstanding stock of Splitco. In addition,
Splitco will incur new indebtedness in an aggregate principal amount of approximately $1,841,450,000. Splitco will use a portion of the proceeds of this loan to pay to Lockheed Martin the Splitco Special Cash Payment in connection with the transfer
of the Splitco Business to Splitco. Splitco will use the balance to pay certain fees and expenses related to such indebtedness.
32
Step 3 DistributionExchange Offer
Lockheed Martin will offer to Lockheed Martin stockholders the right to exchange all or a portion of their shares of Lockheed Martin common stock for shares of Splitco
common stock at a discount to the equivalent per-share value of Leidos common stock, after giving effect to the amount of the Leidos Special Dividend, based on the conversion in the Merger of each share of Splitco common stock into one share of
Leidos common stock. If the exchange offer is consummated but is not fully subscribed, Lockheed Martin will distribute the remaining shares of Splitco common stock on a
pro rata
basis to Lockheed Martin stockholders whose shares of Lockheed
Martin common stock remain outstanding after the consummation of the exchange offer. Any Lockheed Martin stockholder who validly tenders (and does not properly withdraw) shares of Lockheed Martin common stock for shares of Splitco common stock in
the exchange offer will waive their rights with respect to such tendered shares to receive, and forfeit any rights to, shares of Splitco common stock distributed on a
pro rata
basis to Lockheed Martin stockholders in the event the exchange
offer is not fully subscribed.
Step 4 Incurrence of Leidos Debt
Prior to the closing of the Merger, the Leidos Borrower will incur new indebtedness in the form of a $690,000,000 Term Loan A Facility and a $750,000,000 Revolving
Credit Facility. The proceeds of the Term Loan A Facility and up to $50,000,000 of borrowings under the Revolving Credit Facility, together with cash on hand at Leidos (which shall not exceed $500,000,000), will be used to pay the Leidos
Special Dividend, and additional proceeds of borrowings under the Revolving Credit Facility will be used to (i) repay in full all outstanding indebtedness for borrowed money of Splitco (if any) (other than the debt incurred by Splitco described
above in Step 2), (ii) repay in full all indebtedness, and terminate all commitments, under the Amended and Restated Four Year Credit Agreement, dated as of March 11, 2011, among Leidos, as borrower, Leidos, Inc., as guarantor, and Citibank, N.A.,
as administrative agent, the lenders, other agents and other parties party thereto from time to time and (iii) pay the fees, costs and expenses associated therewith.
Step 5 Merger
Immediately after the Distribution, Merger Sub will merge with
and into Splitco, whereby the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving company and as a wholly-owned subsidiary of Leidos. In the Merger, each share of Splitco common stock will be converted
into the right to receive one share of Leidos common stock, as described in the section of this document entitled The Merger AgreementMerger Consideration. Immediately after the consummation of the Merger, approximately 50.5
percent of the outstanding shares of Leidos common stock is expected to be held by pre-Merger Splitco (former Lockheed Martin) stockholders and approximately 49.5 percent of the outstanding shares of Leidos common stock is expected to be held by
pre-Merger Leidos stockholders, on a fully diluted basis.
33
Set forth below are diagrams that graphically illustrate, in simplified form, the existing corporate structures, the
corporate structures immediately following the Separation and the Distribution but before the Merger and the corporate structures immediately following the consummation of the Merger.
34
After completion of all of the steps described above, Leidos wholly-owned subsidiary, Splitco, will hold the Splitco Business
directly and through its subsidiaries and will continue as the obligor under the new indebtedness to be incurred by Splitco on or about the date of the Distribution, which, after the consummation of the Merger, is expected to be guaranteed by
Leidos.
In connection with the Transactions, on the date of the Distribution, Lockheed Martin or its subsidiaries and Splitco or the Splitco Subsidiaries will
enter into the Additional Agreements relating to, among other things, intellectual property, real property, shared contracts, supply arrangements, contract novation and transition services. See Other AgreementsAdditional
Agreements.
Determination of Number of Shares of Splitco Common Stock to Be Distributed to Lockheed Martin Stockholders
Lockheed Martin is offering to exchange all shares of Splitco common stock for shares of Lockheed Martin common stock validly tendered and not properly
withdrawn. Immediately prior to the Distribution, the total number of shares of Splitco common stock outstanding will equal 76,958,918 shares, subject to adjustment pursuant to the Merger Agreement. Accordingly, subject to such adjustment, the total
number of shares of Splitco common stock to be exchanged for shares of Lockheed Martin common stock in the exchange offer will be equal to 76,958,918 shares.
No Fractional Shares; Exchange of Certificates
Each issued and
outstanding share of Splitco common stock will be converted in the Merger into the right to receive one share of Leidos common stock. In the conversion, no fractional shares of Leidos common stock will be delivered to Splitco
stockholders. All fractional shares of Leidos common stock that any Splitco stockholder otherwise would be entitled to receive as a result of the Merger will be aggregated by the exchange agent on behalf of Leidos. The exchange agent will cause
the whole shares obtained thereby to be sold on behalf of the Splitco stockholders that
35
otherwise would be entitled to receive such fractional shares of Leidos common stock in the Merger, in the open market or otherwise, in each case at then-prevailing market prices as soon as
practicable after the Merger and, in any case, no later than five business days after the Merger. The exchange agent then will make available the net proceeds thereof, after deducting any required withholding taxes and brokerage charges, commissions
and transfer taxes, on a
pro rata
basis, without interest, as soon as practicable to the Splitco stockholders that otherwise would be entitled to receive such fractional shares of Leidos common stock in the Merger.
Upon consummation of the Merger, shares of Splitco common stock will no longer be outstanding and will automatically be canceled and retired. Prior to the Merger,
Leidos will deposit in a reserve account with its transfer agent the certificates or book-entry authorizations representing the shares of Leidos common stock issuable in the Merger.
Background of the Transactions
The boards of
directors of each of Leidos and Lockheed Martin periodically, and in the ordinary course, evaluate and consider a variety of financial and strategic opportunities to enhance stockholder value as part of their respective long-term business plans.
During calendar year 2015 and January 2016, each of the companies respective management teams discussed with their boards of directors a variety of financial and strategic alternatives and opportunities regarding their respective
companys future growth and strategic development. In the case of Lockheed Martin, those discussions included alternatives relating to its government information technology and technical services businesses.
On July 20, 2015, Lockheed Martin announced an agreement to acquire Sikorsky Aircraft Corporation, a global leader in military and commercial rotary-wing aircraft. At
the same time, Lockheed Martin announced its intention to conduct a strategic review of alternatives for its government information technology and technical services businesses, which includes the Splitco Business. In connection with the strategic
review, Lockheed Martin engaged J.P. Morgan Securities LLC (J.P. Morgan) and Goldman, Sachs & Co. (Goldman Sachs) as its financial advisors and Hogan Lovells US LLP (Hogan Lovells) as its lead legal advisor.
The purpose of the strategic review was to explore whether the businesses could achieve greater growth and create more value for customers and stockholders outside of Lockheed Martin. As part of that strategic review, Lockheed Martin also considered
whether certain elements of its government information technology business should be retained and realigned with its other business segments based on the nature of the work and the customers served. The result of the strategic review was that
certain government work that was closely associated with other programs being performed by Lockheed Martins Missiles and Fire Control, Mission Systems and Training and Space Systems business areas was retained by Lockheed Martin and
transferred to those business areas. The determination of whether to divest or retain the businesses under strategic review was based on an assessment of the nature of the work performed and customers served by each operation, competitive pressures
and other factors.
Following the announcement by Lockheed Martin of its intention to conduct this strategic review, management of Lockheed Martin received
inquiries from third parties expressing interest in the acquisition of all or a portion of the businesses that were under review. Lockheed Martin and its advisors considered the unsolicited indications of interest as well as feedback received
from a number of parties contacted by J.P. Morgan and Goldman Sachs to evaluate their potential interest in a transaction involving the businesses under review. J.P. Morgan and Goldman Sachs discussed with Lockheed Martin several possible
structures involving the Splitco Business, including a tax-free spin-off of the business, a sale for cash, a joint venture structure in which Lockheed Martin would retain an equity interest in the combined company and the possibility of effecting a
transaction using a Reverse Morris Trust structure. In a Reverse Morris Trust transaction, Lockheed Martin would transfer the relevant businesses to a new subsidiary and then distribute the stock of the subsidiary to Lockheed Martins
stockholders, and immediately thereafter the subsidiary would merge with a subsidiary of the counterparty. In the merger, former Lockheed Martin shareholders would receive more than 50 percent of the shares of the combined entity. A Reverse Morris
Trust transaction structure allows Lockheed Martin to divest assets in a tax-efficient manner since neither Lockheed Martin nor its stockholders generally will recognize gain or loss in connection with the transaction.
Throughout the late summer and fall of 2015, management updated the Lockheed Martin Board on the status of the strategic review, the level of interest expressed by
third parties and the progress made in discussions with interested parties through periodic reports of management between meetings of the Board and through presentations and updates at each of the Lockheed Martin Board meetings in September, October
and December 2015.
36
On August 25, 2015, Mr. Roger Krone, Leidos Chairman and Chief Executive Officer, telephoned Mr. Bruce Tanner,
Lockheed Martins Executive Vice President and Chief Financial Officer, to discuss the possibility of a transaction involving Leidos and the Lockheed Martin businesses that were under strategic review. Mr. Tanner indicated that Lockheed Martin
would be willing to engage in preliminary discussions about Leidos interest. Prior to this discussion, Leidos had existing business relationships with Lockheed Martin through various subcontracting and teaming arrangements in support of U.S.
government customers. Mr. Krone and Mr. Tanner discussed possible transaction structures, including the possibility of a Reverse Morris Trust structure.
In
early September 2015, Lockheed Martin entered into confidentiality agreements with a number of parties that had expressed an interest in evaluating the Lockheed Martin businesses under strategic review. On September 3, 2015, Lockheed Martin and
Leidos executed an initial confidentiality agreement in order to facilitate exploratory discussions and enable Leidos to receive confidential information about the businesses under strategic review to determine whether there was mutual interest in
pursuing a possible transaction. The initial exploratory discussions involved the sharing by Lockheed Martin with Leidos of certain limited non-public, confidential and proprietary information regarding Lockheed Martin and its government
information technology and technical services businesses.
On September 18, 2015, representatives of Lockheed Martin, including Mr. Greg Psihas, Lockheed
Martins Vice President, Corporate Development, along with representatives of J.P. Morgan and Goldman Sachs, met with Mr. Krone and Michael Leiter, Executive Vice President for Business Development and Strategy for Leidos, at the McLean,
Virginia offices of Hogan Lovells. At the meeting, Lockheed Martins representatives provided an overview of the businesses under strategic review from an operational and a financial perspective. The parties engaged in preliminary discussions
regarding a potential transaction involving Leidos and the businesses under strategic review, and outlined potential next steps and a possible decision-making timeline. During the month of September 2015, Lockheed Martin and its advisors from J.P.
Morgan and Goldman Sachs also met with other interested parties and discussed the same information and proposed timeline with those parties.
Over the subsequent
weeks, representatives of Lockheed Martin and Leidos discussed the progress of Lockheed Martins strategic review and its consideration of the process by which Lockheed Martin intended to conclude its evaluation of its government information
technology and technical services businesses and the possible structure of a transaction or transactions involving those businesses. During these discussions, Leidos expressed its continuing interest in pursuing a potential transaction.
On October 14, 2015, Messrs. Krone and Leiter and James Reagan, Executive Vice President and Chief Financial Officer of Leidos, met with Mr. Psihas and other Lockheed
Martin employees, as well as representatives of J.P. Morgan, Goldman Sachs and Hogan Lovells at the McLean, Virginia offices of Hogan Lovells. At that meeting, the Leidos management team provided certain information to Lockheed Martin about
Leidos business and a potential combination of Leidos and Lockheed Martins government information technology and technical services businesses. In the course of those discussions, Leidos and Lockheed Martin discussed the possible
structure of a transaction in which the businesses would be combined, including a general outline and structure of a potential Reverse Morris Trust transaction involving Leidos and the Lockheed Martin businesses. During that same week, Lockheed
Martin held similar discussions with other interested parties.
On October 28, 2015, Leidos management updated and briefed the Audit Committee of the Leidos Board
with respect to discussions that had taken place with Lockheed Martin regarding a potential combination of Leidos with the Lockheed Martin information technology and technical services businesses in a Reverse Morris Trust transaction. Leidos
determined that a Reverse Morris Trust structure transaction would facilitate the acquisition of the Splitco Business by Leidos because a taxable disposition of the Splitco Business would have made the transaction less financially attractive to
Lockheed Martin or would have required Leidos to pay additional consideration. In addition, given that the Splitco Business and Leidos businesses are of comparable sizes, Leidos quickly determined that the payment of all cash consideration was not
feasible because of the amount of additional leverage that it would have been required to incur. Leidos determined that, as a practical matter, a Reverse Morris Trust transaction was the only transaction structure that permitted Leidos to issue
Leidos common stock to Lockheed Martin stockholders without adverse tax consequences to Lockheed Martin and its stockholders. Later that same day, Messrs. Krone and Leiter briefed members of the Leidos Board during a teleconference regarding the
preliminary discussions that had been held between Lockheed Martin and Leidos, and provided an overview of the Lockheed Martin government information technology and technical services businesses. The Leidos Board authorized Leidos management to
continue to explore a potential Reverse Morris Trust transaction with Lockheed Martin.
37
In order to facilitate mutual due diligence processes and the exchange of non-public information regarding what is now the
Splitco Business and Leidos, on November 5, 2015, Lockheed Martin and Leidos executed a more comprehensive confidentiality agreement that superseded the prior confidentiality agreement.
On November 19, 2015, representatives of Lockheed Martin, including senior management of businesses under strategic review, held a management presentation for
representatives of Leidos at the McLean, Virginia offices of Hogan Lovells. Also in attendance at this meeting were representatives of Lockheed Martins financial and legal advisors, J.P. Morgan, Goldman Sachs and Hogan Lovells, as well as
representatives of Citi, Leidos financial advisor. During the course of this meeting, the Lockheed Martin team explained the results of the strategic review that it had been conducting and the programs and business areas that were to be
included in the Splitco Business. Later that day, Lockheed Martin provided certain members of the Leidos team with access to an on-line data room for purposes of sharing information about the Splitco Business and the proposed transaction. During
that same week, Lockheed Martin and its representatives held similar discussions with other interested parties.
On November 24, 2015, at the direction of
Lockheed Martin, J.P. Morgan and Goldman Sachs delivered a process letter to prospective bidders participating in the auction process for a transaction involving the Splitco Business, including Leidos, outlining the anticipated steps of the
transaction process being run by Lockheed Martin and the timing and procedures for submitting a non-binding proposal. In the process letter, Goldman Sachs and J.P. Morgan requested that parties submit a non-binding proposal for a strategic
combination with the Splitco Business by way of a Reverse Morris Trust transaction no later than December 9, 2015.
On December 3, 2015, at a meeting of the Finance
Committee of the Leidos Board (the Leidos Finance Committee), Leidos management updated the committee on the status of the potential transaction with Lockheed Martin, and provided additional information about the Splitco Business, a
timeline of key transaction dates and an overview of its due diligence findings to date. Leidos management also reviewed and discussed with the Leidos Finance Committee a summary of the key terms of a draft of Leidos non-binding proposal for a
combination with the Splitco Business. The Leidos Finance Committee authorized management to continue pursuing the potential transaction and to submit a non-binding proposal to Lockheed Martin. Representatives of Citi attended the meeting.
On December 9, 2015, Leidos submitted a preliminary, non-binding proposal to Lockheed Martin for the strategic combination between Leidos and the Splitco Business.
Leidos non-binding proposal contemplated that the business combination between Leidos and the Splitco Business would be effected through a Reverse Morris Trust transaction which would result in Lockheed Martin stockholders and existing Leidos
stockholders holding approximately 50.5 percent and 49.5 percent of the combined entity on a fully diluted basis, respectively. Leidos non-binding proposal valued the Splitco Business on a debt-free, cash-free basis at approximately $5.3
billion, $2.3 billion of which would be delivered in the form of a special cash payment by Splitco to Lockheed Martin. In order to achieve the 50.5 percent/49.5 percent post-transaction ownership split, Leidos proposal also contemplated that
Leidos would pay a special dividend of approximately $1.2 billion to its stockholders in connection with the proposed transaction. Leidos noted in its proposal that it was based on the limited due diligence that then had been conducted to date, and
in particular, that the valuation was based, in part, on preliminary assumptions as to the financial performance and tax basis of the business under review and was subject to further adjustment following Leidos due diligence review of the
Splitco Business.
Also on December 9, 2015, Lockheed Martin received a preliminary, non-binding proposal from Party A, another prospective bidder with which
Lockheed Martin had held discussions, regarding a potential strategic combination with the Splitco Business.
Over the next two weeks, representatives of Lockheed
Martin and representatives of Leidos, including their respective legal and financial advisors, spoke by phone and held in-person meetings on a number of occasions to allow Leidos the opportunity to conduct additional financial and legal due
diligence in support of its proposal. Over the same period, Lockheed Martin and its financial advisors held similar discussions and had similar in-person meetings with Party A to allow Party A to conduct additional financial and legal due diligence
on the Splitco Business. On December 14, 2015, J.P. Morgan and Goldman Sachs advised both Citi and Party As financial advisor that Leidos and Party A should submit a revised proposal on December 23, 2016 based on the additional financial
and legal due diligence conducted by Leidos and Party A following the submission of their respective initial proposals on December 9, 2015.
On December 22,
2015, the Leidos Finance Committee held a meeting at which Leidos management updated the Leidos Finance Committee with respect to the additional due diligence that had been conducted following the
38
submission of Leidos December 9, 2015 non-binding proposal. Mr. Krone provided an update on the auction bidding process undertaken by Lockheed Martin for the possible disposition of the
Splitco Business in a Reverse Morris Trust transaction, and summarized Lockheed Martins reaction to Leidos initial non-binding proposal. In addition, Leidos management described for the Leidos Finance Committee the terms of the revised
proposal that Leidos management had developed based on the additional due diligence conducted following the submission of Leidos initial non-binding proposal. The Leidos Finance Committee authorized management to proceed with the submission of
the revised proposal. Representatives of Citi attended the meeting.
On December 23, 2015, Leidos submitted its revised non-binding proposal for a Reverse Morris
Trust transaction between Leidos and the Splitco Business to J.P. Morgan and Goldman Sachs. Based on the Leidos stock price at the time, Leidos revised proposal valued the Splitco Business on a debt-free, cash-free basis at approximately $4.7
billion, $1.8 billion of which would be delivered in the form of a special cash payment by Splitco to Lockheed Martin. In order to achieve the 50.5 percent/49.5 percent post-transaction ownership split, Leidos proposal also contemplated that
Leidos would pay a special dividend of approximately $1.3 billion to its stockholders in connection with the proposed transaction.
Also on December 23, 2015,
Lockheed Martin received a revised proposal from Party A.
On December 29, 2015, J.P. Morgan and Goldman Sachs advised Citi that Leidos was one of two potential
acquirors with which Lockheed would negotiate the terms of the Transaction Documents, and that drafts of the Transaction Documents would be distributed in early January 2016.
On January 5, 2016, on behalf of Lockheed Martin, Hogan Lovells sent initial drafts of the Transaction Documents, including the Merger Agreement, to Leidos, Citi and
Skadden, Arps, Slate, Meagher & Flom LLP (Skadden), Leidos legal advisor.
On January 7, 2016, representatives of Leidos met with
representatives of Lockheed Martin, including Mr. Tanner and Mr. Psihas, and senior management of Splitco at the offices of Hogan Lovells in McLean, Virginia. Each partys respective legal and financial advisors also attended the meeting.
At the meeting, Leidos management provided further information to Lockheed Martin and its representatives with respect to Leidos business and operations, and the benefits to the Splitco Business of a combination with Leidos. Following that
meeting, Leidos provided Lockheed Martin and its financial and legal advisors with access to an on-line data room for purposes of conducting an operational, financial and legal review of Leidos, and Lockheed Martin provided additional information
about the Splitco Business through the on-line data room it previously had established for purposes of the auction process involving the Splitco Business. During that same week, Lockheed Martin representatives, including Lockheed Martins
financial and legal representatives, attended a similar presentation and received access to similar due diligence materials from Party A.
Commencing in early
January 2016, Leidos began formalizing its financing commitments for the proposed transaction with various lenders, including Citi and the other Leidos Commitment Parties and Splitco Commitment Parties, J.P. Morgan and Goldman Sachs.
On January 12, 2016, on behalf of Leidos, Skadden sent revised versions of the Merger Agreement and the other Transaction Documents earlier provided to Leidos, Citi and
Skadden by Hogan Lovells on behalf of Lockheed Martin to Lockheed Martin and its advisors. The law firm representing Party A did likewise.
On January 13,
2016, J.P. Morgan and Goldman Sachs, on behalf of Lockheed Martin, engaged in discussions with Citi and Party As financial advisor and provided feedback about certain terms and conditions included in the proposals that had been submitted by
each of Leidos and Party A.
Over the course of the day on January 14, 2016, representatives of Lockheed Martin, J.P. Morgan, Goldman Sachs and Hogan Lovells met in
person at Hogan Lovells offices in McLean, Virginia and engaged in telephone conversations with representatives of Leidos, Citi and Skadden, and with representatives of Party A and its financial and legal advisors. Leidos and Party A were
advised that, based on the results of those discussions, Lockheed Martin intended to proceed in earnest with the negotiation of final Transaction Documents that could be presented to Lockheed Martins Board for its review and consideration and
that Lockheed Martin desired to announce the transaction in conjunction with its fourth quarter / year-end earnings call scheduled for January 26, 2016. In the course of those discussions, J.P. Morgan and Goldman Sachs advised Citi that Lockheed
Martin had concerns regarding certain provisions in Leidos revised draft of the Merger Agreement, including the inclusion by Leidos of post-signing value adjustments and post-closing indemnities.
39
Late in the day on January 14, 2016, Messrs. Krone and Reagan met at Hogan Lovells offices with Mr. Psihas of
Lockheed Martin to discuss the terms of the proposed transaction and certain of the changes made by Leidos to the draft Merger Agreement. Representatives of the parties respective legal and financial advisors joined a portion of the meeting in
person or by telephone. In a series of discussions during the evening of January 14, 2016, and on January 15, 2016, Lockheed Martin and Leidos reached agreement in principle on a number of important points relating to the proposed transaction,
including the elimination of Leidos proposed post-signing value adjustments, the inclusion of a limited post-closing indemnity, a termination fee in an amount equal to $150 million and an aggregate value to Lockheed Martin and its stockholders
based on the value of Leidos stock prior to a signing of the Merger Agreement in an amount equal to approximately $5 billion.
Following these discussions, on
January 15, 2016, Mr. Psihas advised Mr. Krone that Lockheed Martin was prepared to meet in person with representatives of Leidos and its financial and legal advisors to negotiate the final terms of the Transaction Documents based on the agreements
in principle that had been reached on a number of the principal economic and other terms. On January 16, 2016, Mr. Psihas advised Party A that Lockheed Martin was proceeding with final negotiations with another party. Early in the morning of
January 16, 2016, on behalf of Lockheed Martin, Hogan Lovells sent a revised version of the Merger Agreement to Leidos, Citi and Skadden.
On January 17, 2016,
representatives of Leidos and Lockheed Martin and their respective financial and legal advisors, including representatives of Lockheed Martins outside tax advisors from Davis Polk & Wardwell LLP (Davis Polk), met at the McLean,
Virginia offices of Hogan Lovells to continue negotiating the terms of the Merger Agreement and the other Transaction Documents.
During the course of the following
week, representatives of Leidos and Lockheed Martin continued to negotiate the terms of the Merger Agreement and the other Transaction Documents, both in person at Hogan Lovells offices and by telephone.
On January 18, 2016, representatives of Leidos shared with Lockheed Martin drafts of the financing commitment letter obtained by Leidos for the borrowing contemplated
by Leidos and Splitco in connection with the proposed transaction. On January 20, 2016, Lockheed Martin and Leidos agreed that Leidos and Splitco would each obtain its own financing commitment letter in connection with the proposed transaction.
On January 21, 2016, the Leidos Board held a special meeting at which Leidos management and representatives of Skadden and Citi also were present. Leidos
management provided an update on the negotiations with respect to the proposed transaction and the status of financing arrangements. In addition, Leidos management provided an update on the status of the due diligence investigation conducted by
Leidos and its subject matter experts, noted key due diligence findings, and discussed key post-signing milestones and a post-closing integration timeline. Leidos management also reviewed with the Leidos Board the key terms and conditions of
the Merger Agreement and the other Transaction Documents. The Leidos Board and management further discussed the overall merits of the proposed transaction in view of the detailed information presented. Following the discussion, the Leidos
Board authorized Leidos management to continue negotiation of definitive agreements to effectuate the transaction, subject to the Leidos Boards final consideration and approval.
During the period from January 21, 2016 through January 25, 2016, Leidos and Lockheed Martin, together with their respective financial and legal advisors, continued to
negotiate definitive agreements with respect to the transaction. In addition, during this period, Leidos and Lockheed Martin completed their respective due diligence investigations in connection with the transaction.
On January 25, 2016, the Leidos Board held a special telephonic meeting, which members of Leidos management and representatives of Citi and Skadden also attended, to
review the final structure and terms of the proposed transaction, including the related financing arrangements with Citi and the other Leidos Commitment Parties, and to discuss developments since the previous Leidos Board meeting. Members of
Leidos management reviewed with the Leidos Board, among other things, the components of the consideration to be delivered to Lockheed Martin and its stockholders, and the methodology used by the parties to determine the amount of Leidos common stock
to be issued in the transaction. Also at this meeting, Citi reviewed with the Leidos Board its financial analysis of the exchange ratio and rendered an oral opinion, confirmed by delivery of a written opinion dated January 25, 2016, to the Leidos
Board to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken described in such opinion, the exchange ratio
provided for pursuant to the Merger Agreement of 1.020202 (which represents the
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number of shares of Leidos common stock to be issued in the Merger, divided by the number of fully diluted shares of Leidos common stock as of the date of Citis opinion) was fair, from a
financial point of view, to Leidos. Leidos management also provided an update on the status of the proposed debt financing, as well as the various agreements to be entered into in connection with the transaction, including providing an update that
the terms and conditions were substantially complete and the agreements in substantially final form, and that subject to the Leidos Boards approval and the Lockheed Martin Boards approval, both parties were prepared to execute and
deliver the agreements. Following discussion with Leidos management and advisors, the Leidos Board unanimously determined, among other things, that the Merger Agreement and the Transactions, including the Merger and the Share Issuance, were
advisable, fair to and in the best interests of Leidos and its stockholders, authorized and approved the Merger Agreement and authorized and approved the proposed debt financing.
On January 25, 2016, the Lockheed Martin Board held a meeting to review the final results of the strategic review of Lockheed Martins government information
technology and technical services businesses, review the auction process that led to the proposed Reverse Morris Trust transaction involving Leidos, including the interest expressed by other parties in the Splitco Business and the course of
negotiations with such parties subsequent to Lockheed Martins announcement of the strategic review on July 20, 2015, review the terms and conditions of the Transaction Documents that had been negotiated between representatives of Leidos and
Lockheed Martin and which were substantially complete, including the terms that were subject to final resolution of the parties, review the tax requirements with respect to Reverse Morris Trust transactions and review the nature and scope of the tax
opinions of Davis Polk and Skadden that would be conditions to the closing the Transactions, review with Lockheed Martins financial and legal advisors their views on the proposed Transactions and the benefits afforded by the Transactions to
Lockheed Martin and its stockholders as well as the Splitco Business and to consider the communications to be made and the actions to be taken by Lockheed Martin and Leidos following execution of the Transaction Documents. Following discussion with
Lockheed Martins management and advisors, the Lockheed Martin Board unanimously determined, among other things, that the Separation Agreement, the Merger Agreement and the Transactions, including the Merger and the receipt by Lockheed Martin
of the Splitco Special Cash Payment, were advisable and in the best interests of Lockheed Martin and its stockholders, and authorized and approved the Separation Agreement, the Merger Agreement and the other Transactions.
On the morning of January 26, 2016, Leidos and Splitco received the final Leidos Commitment Letter and the final Splitco Commitment Letter, respectively, to provide
financing for the proposed Transactions, executed by the Leidos Commitment Parties and the Splitco Commitment Parties, Lockheed Martin and Splitco entered into the Separation Agreement and Leidos and Lockheed Martin and certain of their affiliates,
including Splitco, entered into the Merger Agreement, the Tax Matters Agreement and the Employee Matters Agreement.
Following the execution of the Merger Agreement
and the other Transaction Documents referenced in the preceding paragraph, on the morning of January 26, 2016, before the opening of trading on the NYSE, Leidos and Lockheed Martin each issued press releases announcing the Transactions.
Leidos Reasons for the Transactions
In
reaching its decision to approve the Merger Agreement and the Transactions and recommend that Leidos stockholders approve the Share Issuance, the Leidos Board considered, among other things, the potential strategic and financial benefits expected to
be achieved by combining Leidos and the Splitco Business relative to the future prospects of Leidos on a standalone basis, the relative actual results of operations and prospects of Leidos and of the Splitco Business, as well as other potential
strategic alternatives that might be available to Leidos, and the risks and uncertainties associated with the Transactions and with these alternatives.
In that
process, the Leidos Board considered, among other things, the following factors as generally supporting its decision to approve the Merger Agreement and recommend that Leidos stockholders approve the Share Issuance:
Strategic Considerations
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the Merger will result in a combined company with increased scale and a more balanced portfolio, with 45% of combined annual revenues coming from civil and commercial and 55% from defense and intelligence sectors,
versus 28% and 72%, respectively, with Leidos as a standalone company;
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the Merger will add Splitco expertise in such areas as IT operations, financial and HR enterprise resource planning (ERP) outsourcing, data center consolidation, and facilities management;
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the acquisition of the Splitco Business is expected to result in a substantial expansion of Leidos addressable opportunities in the government services industry, with more than 2,000 individual contracts and task
orders and over 100 contract vehicles brought to the combined company by the Splitco Business that have minimal overlap with Leidos current contract vehicles and customers;
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the acquisition of the Splitco Business will diversify Leidos offerings across the government services industry and create a meaningful presence and longstanding relationships for the combined company with an
attractive and expanded customer set, including new key customer relationships with the Department of Health and Human Services, the Department of Veterans Affairs, the Federal Aviation Administration, the Defense Information Systems Agency, the
Department of Homeland Security and the Social Security Administration;
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the complementary market access and capabilities of Leidos and the Splitco Business, including the experience that the management and employees of the Splitco Business will bring to the combined company in federal and
international IT solutions and services, with capabilities across the full lifecycle of large, complex IT systems design, implementation and operation;
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with a collective workforce of approximately 33,000 employees, the size and scale of the combined company will enhance its ability to provide value to its customers through a broader range of services to meet their
needs, and will allow its customers to realize future savings on work under cost plus contracts given the savings that the combined company expects to realize as it distributes overhead costs over a larger revenue base; and
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the Merger is expected to enable Leidos to become an industry leader in the government services industry by revenue, growing from a revenue base of approximately $5,000,000,000 for calendar year 2015 to a combined
annual revenue base of approximately $10,000,000,000.
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Financial Considerations
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the Merger is expected to result in enhanced EBITDA margins and revenue growth opportunities for the combined company with strong free cash flow;
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the Merger is expected to result in significant cost synergies during 2017 and annualized net cost synergies of approximately $120,000,000 by the end of 2018 with the potential for additional longer term revenue
synergies, although the magnitude and timing of any such longer term synergies is yet to be determined; and
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the Transactions are expected to be accretive to earnings per share on a non-GAAP basis after adjusting for, among other things, acquisition and integration costs and amortization of acquired intangibles in the second
full year of operations after the Merger and neutral in the first full year of operations after the Merger.
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Transaction Terms and Other
Considerations
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the structure of the Transactions delivers significant value to existing stockholders of Leidos by providing that the Leidos Board will, subject to applicable law, declare the Leidos Special Dividend in an amount equal
to $13.64 per share;
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subject to certain limited adjustments that are not expected to be triggered, the number of shares of common stock to be issued by Leidos is fixed and will not fluctuate based upon changes in the stock price of Leidos
or Lockheed Martin prior to the completion of the Merger;
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the terms of the Merger Agreement, including the Merger exchange ratio, were the result of extensive arms-length negotiations between representatives of Leidos and Lockheed Martin;
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the prospective financial results of the Splitco Business (as well as the risks involved in achieving those results), the fit of the business combination with Leidos previously established strategic goals (which
include adding capabilities, expanding market access and increasing scale) and the results of Leidos due diligence review of the Splitco Business;
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the opinion of Citi, dated January 25, 2016, to the Leidos Board as to the fairness, from a financial point of view and as of the date of the opinion, to Leidos of the exchange ratio provided for pursuant to the Merger
Agreement of 1.020202 (which represents the number of shares of Leidos common stock to be issued in the Merger, divided by the number of fully diluted shares of Leidos common stock as of the date of Citis opinion), which opinion was based on
and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken as more fully described in the section of this document entitled Opinion of Leidos Financial
Advisor;
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immediately following the Merger, the Leidos Board would be expanded to include three additional directors to be designated by Lockheed Martin;
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immediately following the Merger, the current executive officers of Leidos would continue in their current positions, with additional executive management talent to be gained from former management of the Splitco
Business;
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the Transactions are expected to be approved by regulatory authorities without any significant disruption in the business of Leidos or Splitco; and
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the Merger Agreement permits the Leidos Board to withdraw or modify its recommendation to the Leidos stockholders to approve the Share Issuance in certain circumstances and subject, under certain circumstances, to the
payment of a termination fee.
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The Leidos Board also considered, among other things, the following risk factors but determined that the benefits of
the Transactions substantially outweighed such risks:
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the inability of Leidos to influence the operations of the Splitco Business during the potentially significant time period prior to consummating the Transactions;
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the possibility that the increased revenues, earnings and efficiencies expected to result from the Transactions would fail to materialize;
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the challenges inherent in fully and successfully separating the operations of the Splitco Business from Lockheed Martin and integrating such business with Leidos;
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the potential impact of the restrictions under the Merger Agreement on Leidos ability to take certain actions during the period between execution of the Merger Agreement and the consummation of the Transactions,
generally requiring the company to conduct business only in the ordinary course or, if not in the ordinary course, to first seek and obtain Lockheed Martins consent (which could delay or prevent Leidos from undertaking business opportunities
that may arise pending completion of the Transactions);
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the dilution of the ownership interests of Leidos current stockholders that would result from the Share Issuance and that Leidos current stockholders, as a group, would control less than a majority of Leidos
after consummation of the Transactions;
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the possibility that the public announcement of the Merger Agreement could have an adverse effect on Leidos, including effects on Leidos customers, operating results and share price, and Leidos ability to
attract and retain key management and personnel;
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the risk that the Transactions and integration may divert management attention and resources away from other strategic opportunities and from operational matters;
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the Splitco Business will be dependent on the provision of transition services by Lockheed Martin for a period of time after completion of the Merger;
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the need for Leidos and Splitco to incur substantial indebtedness in connection with the Transactions;
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the potential payment of termination fees of $150,000,000 that Leidos could be required to make in certain circumstances under the Merger Agreement;
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the restrictions imposed on Leidos ability to take certain corporate actions under the terms of the Tax Matters Agreement among Leidos, Lockheed Martin and Splitco, which could reduce its ability to engage in
certain future business transactions that might be advantageous;
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the requirement in the Merger Agreement that Leidos call and hold a vote of its stockholders to approve the Share Issuance even in circumstances where the Leidos Board has withdrawn or adversely changed its
recommendation to the Leidos stockholders;
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the indemnities being provided by Lockheed Martin for breaches of representations and warranties under the Merger Agreement are limited in scope and duration;
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the indemnities being provided by Splitco under the Separation Agreement, and by Splitco or Leidos under the Employee Matters Agreement, the Tax Matters Agreement and other ancillary agreements for breaches of
representations, warranties and obligations;
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the possibility that the Transactions may not be consummated and the potential adverse consequences, including substantial costs that would be incurred and potential damage to Leidos reputation, if the
Transactions are not completed; and
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the other risks described above under the section entitled Risk Factors beginning on page 103.
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The foregoing discussion of the information and factors considered by the Leidos Board is not exhaustive, but includes the material factors considered by the Leidos
Board, including factors that support the Transactions as well as those that weigh against them. In view of the wide variety of factors considered by the Leidos Board in connection with its evaluation of the Transactions and the complexity of these
matters, the Leidos Board did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. Rather, the Leidos Board based its
recommendation on the totality of the information presented to and considered by it. The Leidos Board evaluated the factors described above with the assistance of Leidos senior management and legal and financial advisors. In considering the
factors described above, individual members of the Leidos Board may have given different weights to other or different factors.
This explanation of the factors
considered by the Leidos Board is in part forward-looking in nature and, therefore, should be read in light of the factors discussed in the sections of this document entitled Cautionary Statement on Forward-Looking Statements and
Risk Factors.
After careful consideration, the Leidos Board unanimously approved the Merger Agreement and the Transactions, and determined that the
Merger Agreement and the Transactions, including the Merger and the Share Issuance, are advisable, fair to and in the best interests of, Leidos and its stockholders.
Opinion of Leidos Financial Advisor
Leidos
has engaged Citi as its financial advisor in connection with the proposed Merger. In connection with this engagement, Leidos requested that Citi evaluate the fairness, from a financial point of view, to Leidos of the exchange ratio provided for
pursuant to the Merger Agreement. On January 25, 2016, at a meeting of the Leidos Board held to evaluate the Merger, Citi rendered an oral opinion, confirmed by delivery of a written opinion dated January 25, 2016, to the Leidos Board to the
effect that, as of that date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications described in its opinion, the exchange ratio provided for pursuant to the Merger Agreement
was fair, from a financial point of view, to Leidos. For purposes of Citis financial analyses and opinion, the term exchange ratio means, after giving effect to the Distribution and certain related transactions contemplated by
the Separation Agreement, 1.020202 (which represents the number of shares of Leidos common stock to be issued in the Merger, divided by the number of fully diluted shares of Leidos common stock as of the date of Citis opinion).
The description of Citis opinion, dated January 25, 2016, to the Leidos Board set forth below is qualified in its entirety by reference to the full text of such
opinion, a copy of which is attached as
Annex C-1
to this document.
Citis opinion was provided for the information of the Leidos Board (in its capacity as such) in connection with its evaluation of the exchange ratio provided for
pursuant to the Merger Agreement from a financial point of view to Leidos and did not address any other terms, aspects or implications of the Merger or any related transactions, including, without limitation, the Distribution relating to the Splitco
Business contemplated to be effected prior to consummation of the Merger or any conversion or exchange ratio determined in connection with such Distribution. Citi expressed no view as to, and its opinion did not address, the underlying business
decision of Leidos to effect the Merger or related transactions, the relative merits of the Merger or related transactions as compared to any alternative business strategies that might exist for Leidos or the effect of any other transaction in which
Leidos might engage. Citis opinion is not intended to be and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act on any matters relating to the proposed Merger, any related transaction or
otherwise.
In arriving at its opinion, Citi:
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reviewed drafts, each dated January 25, 2016, of the Merger Agreement and the Separation Agreement;
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held discussions with certain senior officers, directors and other representatives of Leidos and certain senior officers and other representatives of Lockheed Martin concerning the businesses, operations and prospects
of Leidos and the Splitco Business on a standalone basis;
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reviewed certain publicly available and other business and financial information relating to Leidos and the Splitco Business, including third-party prepared quality of earnings reports relating to the Splitco Business,
as well as certain financial forecasts and other information and data relating to Leidos and the Splitco Business which were provided to or discussed with Citi by the respective managements of Leidos and Lockheed Martin, including alternative
financial forecasts and other information and data relating to the Splitco Business prepared or discussed with Citi by Leidos management that Citi was directed to utilize in its analyses and certain information and data relating to the potential
strategic implications and financial and operational benefits (including the amount, timing and achievability thereof) anticipated by Leidos management to result from the Merger and related transactions;
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reviewed the financial terms of the Merger as set forth in the Merger Agreement in relation to, among other things, current and historical market prices of Leidos common stock, the financial condition and historical and
projected earnings and other operating data of Leidos and the Splitco Business, and the capitalization of Leidos and Splitco;
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analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations Citi considered relevant in evaluating those of Leidos and the Splitco
Business;
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evaluated certain potential pro forma financial effects of the Merger and related transactions relative to Leidos on a standalone basis utilizing the financial forecasts and other information and data relating to Leidos
and the Splitco Business described above; and
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conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as Citi deemed appropriate in arriving at its opinion.
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In rendering its opinion, Citi assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information and data
publicly available or provided to or otherwise reviewed by or discussed with Citi and upon assurances that no relevant information was omitted or remained undisclosed to Citi. With respect to financial forecasts and other information and data that
Citi was directed to utilize in its analyses, including estimates as to the potential strategic implications and financial and operational benefits anticipated by Leidos management to result from the Merger and the related transactions, Citi was
advised by Leidos management, and Citi assumed, with Leidos consent, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of such management as to the future financial performance of
Leidos and the Splitco Business, the potential strategic implications and financial and operational benefits (including the amount, timing and achievability thereof) anticipated by Leidos management to result from, and other potential pro forma
financial effects of, the Merger and related transactions and the other matters covered thereby.
With respect to third-party prepared quality of earnings reports
relating to the Splitco Business provided to or discussed with Citi, Citi assumed, with Leidos consent, that such reports were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of the
preparer thereof and were a reasonable basis on which to evaluate the matters covered thereby. Citi assumed, with Leidos consent, that the financial results, including with respect to the potential strategic implications and financial and
operational benefits anticipated to result from the Merger and related transactions, reflected in such financial forecasts and other information and data would be realized in the amounts and at the times projected. Citi was advised that an audit of
the financial statements relating to the Splitco Business
and Splitco had not been completed as of the date of Citis opinion and Citi assumed, with
Leidos consent, that, upon completion, such final audited financial statements would not reflect any information that would be meaningful in any material respect to Citis analyses or opinion.
Citi relied, at Leidos direction, upon the assessments of the managements of Leidos and Lockheed Martin as to, among other things, (i) the related transactions,
including with respect to the timing thereof and assets, liabilities and financial and other terms involved, (ii) the potential impact on Leidos and the Splitco Business of market, competitive and other trends and developments in and prospects for,
and governmental, regulatory and legislative matters relating to or otherwise affecting, the industries in which Leidos and the Splitco Business operate, (iii) existing and future relationships, agreements and arrangements with, and the ability to
attract, retain and/or replace, key employees, contractors, customers and other commercial relationships of Leidos and the Splitco Business, and (iv) the ability to integrate the operations of Leidos and the Splitco Business. Citi assumed, with
Leidos consent, that there would be no developments with respect to any such matters or adjustments to the exchange ratio that would
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have an adverse effect on Leidos, Splitco (including the Splitco Business), the Merger or related transactions (including the contemplated benefits thereof) or that would otherwise be meaningful
in any material respect to Citis analyses or opinion.
Citi evaluated Splitco (including the Splitco Business) and the Merger for purposes of Citis
analyses and opinion after giving effect to the related transactions. Citi did not make and, except for certain third-party prepared quality of earnings reports relating to the Splitco Business, was not provided with an independent evaluation or
appraisal of the assets or liabilities (contingent, off-balance sheet or otherwise) of Leidos, the Splitco Business or any entity or other business and Citi did not make any physical inspection of the properties or assets of Leidos, the Splitco
Business or any entity or other business. Citi assumed, with Leidos consent, that the Merger and related transactions would be consummated in accordance with their respective terms and in compliance with all applicable laws, documents and
other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary governmental, regulatory or third party approvals, consents, releases, waivers and
agreements for the Merger and related transactions, no delay, limitation, restriction or condition, including any divestiture requirements, amendments or modifications, would be imposed or occur that would have an adverse effect on Leidos, Splitco
(including the Splitco Business), the Merger or related transactions (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to Citis analyses or opinion. Citi also assumed, with Leidos consent,
that the Merger and related transactions would qualify, as applicable, for the intended tax treatment contemplated by the Merger Agreement and the Separation Agreement. Citis opinion, as set forth in its written opinion, related to the
relative values of Leidos and the Splitco Business. Citi did not express any view or opinion as to the actual value of Leidos common stock or any other securities when issued or distributed or the prices at which Leidos common stock or any other
securities would trade or otherwise be transferable at any time, including following announcement or consummation of the Merger and related transactions. Citi assumed, with Leidos consent, that Splitco would retain or acquire all assets,
properties and rights necessary for the operations of the Splitco Business, that appropriate reserves, indemnification arrangements or other provisions were made with respect to liabilities of or relating to Splitco (including the Splitco Business)
that would be assumed in connection with the Merger and related transactions, and that Splitco would not directly or indirectly assume or incur any liabilities that are contemplated to be excluded as a result of the Merger, the related transactions
or otherwise. Representatives of Leidos advised Citi, and Citi further assumed, that the final terms of the Merger Agreement and the Separation Agreement would not vary materially from those set forth in the drafts Citi reviewed. Citi did not
express any opinion with respect to accounting, tax, regulatory, legal or similar matters and it relied, with Leidos consent, upon the assessments of representatives of Leidos and Lockheed Martin as to such matters.
Citis opinion did not address any terms (other than the exchange ratio to the extent expressly specified in such opinion), aspects or implications of the Merger
or related transactions, including, without limitation, the form or structure of the Merger, the form or structure, or financial or other terms, of any related transactions, or any terms, aspects or implications of any related agreements, any
indemnification or other agreement, arrangement or understanding to be entered into in connection with or contemplated by the Merger, the related transactions or otherwise. Citi expressed no view as to, and its opinion did not address, the fairness
(financial or otherwise) of the amount or nature or any other aspect of any compensation to any officers, directors or employees of any parties to the Merger or related transactions, or any class of such persons, relative to the exchange ratio or
otherwise. Citis opinion was necessarily based upon information available, and financial, stock market and other conditions and circumstances existing and disclosed, to Citi as of the date of its opinion. Although subsequent developments
may affect Citis opinion, Citi has no obligation to update, revise or reaffirm its opinion. As the Leidos Board was aware, the credit, financial and stock markets, and the industries in which Leidos and the Splitco Business operate, have
experienced and continue to experience volatility and Citi expressed no opinion or view as to any potential effects of such volatility on Leidos, Splitco (or their respective businesses), the Merger or related transactions (including the
contemplated benefits thereof). The issuance of Citis opinion was authorized by Citis fairness opinion committee.
In preparing its opinion, Citi
performed a variety of financial and comparative analyses, including those described below. The summary of the analyses below is not a complete description of Citis opinion or the analyses underlying, and factors considered in connection with,
Citis opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular
circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Citi arrived at its ultimate opinion based on the results of all analyses undertaken by it and factors assessed as a whole, and it did not draw, in
isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, Citi believes that the analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information
presented in tabular format, without
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considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying such analyses and its opinion.
In its analyses, Citi considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its
opinion, many of which are beyond the control of Leidos, Lockheed Martin and Splitco. No company or business reviewed is identical or directly comparable to Leidos, Splitco or their respective businesses and an evaluation of these analyses is
not entirely mathematical; rather, the analyses involve complex considerations and judgments concerning business, financial and operating characteristics and other factors that could affect the public trading or other values of the companies or
business segments reviewed or views regarding the comparability of such companies or business segments. Accordingly, such analyses may not necessarily include all companies or business segments that could be deemed relevant.
The estimates contained in Citis analyses and the valuation ranges resulting from any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less favorable than those suggested by such analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect
the prices at which businesses or securities actually may be sold or acquired. Accordingly, the estimates used in, and the results derived from, Citis analyses are inherently subject to substantial uncertainty.
Citi was not requested to, and it did not, recommend or determine the specific consideration payable in the Merger. The type and amount of consideration payable in the
Merger were determined through negotiations between Leidos and Lockheed Martin and the decision to enter into the Merger Agreement, the Separation Agreement and related documents was solely that of the Leidos Board. Citis opinion was only one
of many factors considered by the Leidos Board in its evaluation of the Merger and related transactions and should not be viewed as determinative of the views of such board of directors or Leidos management with respect to the Merger or related
transactions or the consideration payable in the Merger or related transactions.
The following is a summary of the material financial analyses presented to the
Leidos Board in connection with Citis opinion, dated January 25, 2016.
The summary set forth below does not purport to be a
complete description of the financial analyses performed by, and underlying the opinion of, Citi,
nor
does the order of the financial analyses described represent the relative importance or
weight given to those financial analyses by Citi. Certain financial analyses summarized below
include information presented in tabular
format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary as the tables alone do not constitute a complete description of the financial analyses. Considering the data in the
tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the financial analyses, could create a misleading or incomplete view of such financial
analyses. None of Leidos, Lockheed Martin, Splitco, Citi or any other person assumes responsibility if future results are different from those described, whether or not any such difference is material.
For purposes of the financial analyses
described below, the term (a) EBITDA means earnings before interest, taxes, depreciation and amortization, excluding one-time, non-recurring and non-cash items and including stock-based compensation expense and, in the case of the
Splitco Business, excluding pension expense, quality of earnings savings and incremental overhead costs (none of which were expected by Leidos management to be applicable in the ongoing operations of the Splitco Business) and (b) non-GAAP
EPS means earnings per share after adding back, in the case of Leidos, non-cash amortization expense, net of tax, and, in the case of the combined company, non-cash transaction amortization expense, Leidos standalone non-cash
amortization expense and integration cost, net of tax. Approximate implied equity value reference ranges for the Splitco Business and Leidos were calculated, as applicable, after taking into account the net debt of the Splitco Business and Leidos as
of June 30, 2016 as estimated by Leidos management and after giving effect to the Splitco Special Cash Payment and the Leidos Special Dividend. In calculating implied exchange ratio reference ranges as reflected in the financial analyses described
below, Citi (i) divided the low-end of the approximate implied equity value reference ranges derived for the Splitco Business from such analyses by the high-end of the approximate implied equity value reference ranges derived for Leidos from such
analyses in order to calculate the low-end of the implied exchange ratio reference ranges and (ii) divided the high-end of the approximate implied equity value reference ranges derived for the Splitco Business from such analyses by the low-end of
the approximate implied equity value reference ranges derived for Leidos from such analyses in order to calculate the high-end of the implied exchange ratio reference ranges. Financial data utilized for the Splitco Business and Leidos in the
financial analyses described below, to the extent based on internal financial forecasts and estimates of management, were based on financial forecasts and other estimates and data prepared or discussed with Citi by Leidos management, referred to as
the Splitco Business forecasts and the Leidos forecasts, respectively. Citi did not rely, for purposes of
47
its opinion, on a comparison of the financial terms of the Merger to the financial terms of other transactions, including other Reverse Morris Trust transactions, given, in Citis view, the
lack of sufficient comparability of other transactions with the Merger since other Reverse Morris Trust transactions involved companies in different industries than those in which the Splitco Business and Leidos operate and/or other transactions in
the federal information technology services industry (which is the industry in which the Splitco Business and Leidos operate) generally involved different transaction structures relative to the Merger and related transactions.
Selected Public Companies Analyses
.
Citi
performed separate selected public companies analyses of the Splitco Business and
Leidos in which Citi reviewed certain financial and stock market information, as applicable, relating to the Splitco Business, Leidos and the following six selected companies that Citi considered generally relevant as publicly traded companies with
operations in the federal information technology services industry that have a business and customer mix and revenue growth profile similar to those of the Splitco Business and Leidos, collectively referred to as the selected companies:
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Booz Allen Hamilton Holding Corporation
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CACI International Inc.
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Engility Holdings, Inc.
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ManTech International Corporation
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Science Applications International Corporation
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Citi reviewed enterprise values (calculated as fully diluted equity
values based on closing stock prices on January 25, 2016, plus total debt and non-controlling interests (as applicable) and less cash and cash equivalents and investments in unconsolidated affiliates (as applicable)) as a multiple of calendar year
2016 and calendar year 2017 estimated EBITDA. Financial data of the selected companies were based on public filings, Wall Street research analysts consensus estimates and other publicly available information. Financial data of the Splitco
Business was based on the Splitco Business forecasts. Financial data of Leidos was based on publicly available Wall Street research analysts consensus estimates and the Leidos forecasts.
The overall low to high calendar year 2016 and calendar year 2017 estimated EBITDA multiples observed for the selected companies were 8.2x to 10.6x (with a median of
9.1x, excluding Leidos) and 8.0x to 10.0x (with a median of 8.7x, excluding Leidos), respectively. Citi noted that the calendar year 2016 and calendar year 2017 estimated EBITDA multiples observed for Leidos were 10.4x and 9.9x, respectively, based
on publicly available Wall Street research analysts consensus estimates.
Citi then applied selected ranges of calendar year 2016 and calendar year 2017
estimated EBITDA multiples of 8.2x to 10.6x and 8.0x to 10.0x, respectively, derived from the selected companies to the respective calendar year 2016 and calendar year 2017 estimated EBITDA of the Splitco Business and Leidos, based on, in the case
of the Splitco Business, the Splitco Business forecasts and, in the case of Leidos, the Leidos forecasts. These analyses indicated approximate implied equity value reference ranges based on calendar year 2016 and calendar year 2017 estimated
EBITDA of $2.161 billion to $3.314 billion and $1.805 billion to $2.718 billion, respectively, for the Splitco Business and $1.985 billion to $2.993 billion and $1.961 billion to $2.831 billion, respectively, for Leidos.
Utilizing the approximate implied equity value reference ranges derived for the Splitco Business and Leidos described above, Citi calculated the following implied
exchange ratio reference ranges, as compared to the exchange ratio:
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|
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Implied Exchange Ratio Reference Range Based on:
|
|
Exchange Ratio
|
CY 2016E
|
|
CY 2017E
|
|
|
EBITDA
|
|
EBITDA
|
|
|
0.722x 1.669x
|
|
0.638x 1.386x
|
|
1.020202x
|
Citi noted that the above exchange ratio reference ranges indicated overall ranges of implied contributed equity values by the Splitco
Business and Leidos to the combined company (i) based on the approximate implied equity value reference ranges derived from the calendar year 2016 estimated EBITDA of the Splitco Business and Leidos, of approximately 41.9% to 62.5% and approximately
37.5% to 58.1%, respectively, and (ii) based on the approximate implied equity value reference ranges derived from the calendar year 2017 estimated EBITDA of the Splitco Business and Leidos, of approximately 38.9% to 58.1% and approximately 41.9% to
61.1%, respectively, as compared to the pro forma ownership of holders of Splitco common stock and Leidos common stock in the combined company upon consummation of the Merger of approximately 50.5% and 49.5%, respectively.
48
Discounted Cash Flow Analyses
. Citi performed separate discounted cash flow analyses of the Splitco
Business and Leidos in which Citi calculated the estimated present value (as of June 30, 2016) of the standalone unlevered, after-tax free cash flows that the Splitco Business and Leidos were forecasted to generate during the second half of the
calendar year ending December 31, 2016 through the full calendar year ending December 31, 2020 based on, in the case of the Splitco Business, the Splitco Business forecasts and, in the case of Leidos, the Leidos forecasts. For purposes of this
analysis, stock-based compensation was treated as a cash expense. Citi calculated terminal values for the Splitco Business and Leidos by applying to the standalone unlevered, after-tax free cash flows of the Splitco Business and Leidos for the
calendar year ending December 31, 2020 (assuming normalized depreciation equal to capital expenditures in the terminal year) a selected range of perpetuity growth rates of 1.0% to 2.0% which were derived based on Citis professional judgment
and taking into account, among other factors, long-term growth expectations of Leidos management for the federal information technology services industry sector and trends in the overall economy generally. The present values (as of June 30,
2016) of the cash flows and terminal values were then calculated using a selected range of discount rates of 6.7% to 8.0% derived from a weighted average cost of capital calculation. These analyses indicated approximate implied equity value
reference ranges of $1.991 billion to $3.602 billion for the Splitco Business and $2.455 billion to $4.197 billion for Leidos.
Utilizing the approximate implied
equity value reference ranges derived for the Splitco Business and Leidos described above, Citi calculated the following implied exchange ratio reference range, as compared to the exchange ratio:
|
|
|
Implied Exchange Ratio
Reference Range
|
|
Exchange Ratio
|
0.474x 1.467x
|
|
1.020202x
|
Citi noted that the above exchange ratio reference range implied an overall range of contributed equity values by the Splitco Business
and Leidos to the combined company of approximately 32.2% to 59.5%, in the case of the Splitco Business, and approximately 40.5% to 67.8%, in the case of Leidos, as compared to the pro forma ownership of holders of Splitco common stock and Leidos
common stock in the combined company upon consummation of the Merger of approximately 50.5% and 49.5%, respectively.
Relative Contributions
Analysis
. Citi performed a relative contributions analysis in which Citi reviewed the relative contributions of the Splitco Business and Leidos to the combined companys calendar years 2016 and 2017 estimated EBITDA. Financial
data of the Splitco Business was based on the Splitco Business forecasts and financial data of Leidos was based on the Leidos forecasts. This analysis indicated overall relative contributions of the Splitco Business and Leidos to the combined
companys calendar years 2016 and 2017 estimated EBITDA of approximately 49.2% (based on calendar 2017 estimated EBITDA) to 52.6% (based on calendar year 2016 estimated EBITDA) and 47.4% (based on calendar year 2016 estimated EBITDA) to 50.8%
(based on calendar 2017 estimated EBITDA), respectively.
Utilizing the approximate implied percentage equity value contribution ranges derived for the Splitco
Business and Leidos described above, Citi calculated the following implied exchange ratio reference range, as compared to the exchange ratio:
|
|
|
Implied Exchange Ratio
Reference Range
|
|
Exchange Ratio
|
0.967x 1.108x
|
|
1.020202x
|
Citi noted that the pro forma ownership of holders of Splitco common stock and Leidos common stock in the combined company upon
consummation of the Merger will be approximately 50.5% and 49.5%, respectively.
Other Information
.
Citi observed certain additional
information that was not considered part of its financial analyses for its opinion but was noted for informational purposes, including the following:
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the illustrative potential pro forma impact of the Merger and related transactions on the implied per share equity value of Leidos after taking into account the potential net cost synergies anticipated by Leidos
management to result from the Merger and related transactions and, additionally, assumed annual run-rate revenues of $0 to $1 billion, which indicated, based on the Leidos forecasts and the Splitco Business forecasts and utilizing the methodology
described in the section above under Discounted Cash Flow Analyses, that the Merger and related transactions could have a positive impact, both with or without incremental annual run-rate revenues, on the implied per share equity
value of Leidos on a standalone basis;
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49
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|
|
the illustrative pro forma financial impact of the Merger and related transactions on, among other things, Leidos estimated non-GAAP EPS for the calendar years ending December 31, 2017 through December 31, 2020
based on the Leidos forecasts and the Splitco Business forecasts, after giving effect to the Leidos Special Dividend and taking into account potential phased-in and run-rate net cost synergies anticipated by Leidos management to result from the
Merger and related transactions, which indicated that the Merger could be accretive to Leidos estimated non-GAAP EPS for each of the calendar years ending December 31, 2017 through December 31, 2020; and
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the implied latest 12 months EBITDA multiples paid in selected transactions with transaction values in excess of $100 million involving target companies with operations in the federal information technology services
industry, based on publicly available Wall Street research analysts estimates, public filings and other publicly available information, which, after applying a selected range of latest 12 months estimated EBITDA multiples derived from such
selected transactions of 7.9x to 10.6x to the calendar year 2016 estimated EBITDA of the Splitco Business (based on the Splitco Business forecasts), indicated an approximate implied enterprise value reference range for the Splitco Business of $3.823
billion to $5.136 billion as compared to the implied purchase price (on an enterprise value basis) for the Splitco Business based on the exchange ratio of approximately $5.000 billion.
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Actual results achieved by the combined company may vary from forecasted results and variations may be material.
Miscellaneous
Leidos has agreed to pay Citi for its services in
connection with the proposed Merger and the related transactions an aggregate fee of $21.5 million, of which a portion was payable upon delivery of Citis opinion and $20.5 million is payable contingent upon consummation of the Merger. In
addition, Leidos has agreed to reimburse Citi for Citis expenses, including fees and expenses of counsel, and to indemnify Citi and related parties against certain liabilities, including liabilities under federal securities laws, arising out
of Citis engagement.
As the Leidos Board was aware, at Leidos request, Citi and certain of its affiliates were engaged by Leidos and Splitco to
participate in certain financings to be undertaken in connection with the Merger and related transactions, for which services Citi and such affiliates will receive an aggregate fee currently estimated to be approximately $11 million, including
acting as lead bookrunner for, and as a lender under, such financings. As the Leidos Board also was aware, Citi and its affiliates in the past have provided, currently are providing and in the future may provide investment banking, commercial
banking and other similar financial services to Leidos and its affiliates unrelated to the proposed Merger and related transactions, for which services Citi and its affiliates have received and expect to receive compensation, including, during the
two-year period prior to the date of Citis opinion, having acted or acting as (i) lead arranger for a stock repurchase of Leidos and (ii) administrative agent for, and as a lender under, a credit facility of Leidos, for which services
described in clauses (i) and (ii) above Citi and its affiliates received during such two-year period aggregate fees of approximately $
1
million. As the Leidos Board further was aware, Citi and its affiliates in the past have provided,
currently are providing and in the future may provide investment banking, commercial banking and other similar financial services to Lockheed Martin and its affiliates, for which services Citi and its affiliates have received and expect to receive
compensation, including, during the two-year period prior to the date of Citis opinion, having acted or acting as (i) joint bookrunning manager for certain notes offerings of Lockheed Martin and (ii) joint lead arranger, joint bookrunner or
bookrunner and syndication or documentation agent for, and as a lender under, certain credit facilities of Lockheed Martin, for which services described in clauses (i) and (ii) above Citi and its affiliates received during such two-year period
aggregate fees of approximately $
8
million. In the ordinary course of business, Citi and its affiliates may actively trade or hold the securities of Leidos, Lockheed Martin, Splitco and their respective affiliates for their own
account or for the account of their customers and, accordingly, may at any time hold a long or short position in such securities. In addition, Citi and its affiliates (including Citigroup Inc. and its affiliates) may maintain relationships with
Leidos, Lockheed Martin, Splitco and their respective affiliates.
Leidos selected Citi as its financial advisor in connection with the proposed Merger and related
transactions based on Citis reputation, experience and familiarity with Leidos and its business. Citi is an internationally recognized investment banking firm that regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.
50
Certain Financial Projections
In connection with its consideration of the potential combination of Leidos and the Splitco Business, the Leidos Board was provided with certain non-public financial
projections initially prepared by management of Lockheed Martin and the Splitco Business and subsequently adjusted by management of Leidos, as discussed below, with respect to the Splitco Business for the years ending December 31, 2016 through
December 31, 2018 (the Splitco Financial Projections and, as adjusted and extended by Leidos to include the years ended December 31, 2019 and December 31, 2020, the Leidos Adjusted Splitco Financial Projections) and certain
non-public financial projections prepared by management of Leidos with respect to Leidos business, as a stand-alone company, for the years ending December 31, 2016 through December 31, 2020 (the Leidos Financial Projections,
and, collectively with the Splitco Financial Projections and the Leidos Adjusted Splitco Financial Projections, the Financial Projections). The Financial Projections also were provided to Leidos financial advisor. Leidos believes
that no material change in its operations or performance, or the projections or assumptions provided to the Leidos Board and Citi in connection with the Merger, has occurred since the Leidos Board meeting held to approve the Merger, and Leidos does
not anticipate any material changes in such operations, performance, projections or assumptions before the Leidos stockholder meeting.
The Leidos Adjusted Splitco
Financial Projections and the Leidos Financial Projections are included in this document solely to give stockholders access to information that was made available in connection with, and material to, the Leidos Boards consideration of the
Transactions, and are not included in this document to influence any stockholder to make any investment decision with respect to the Transactions or for any other purpose.
The Financial Projections were not prepared with a view towards public disclosure or compliance with published guidelines of the SEC or the guidelines established by
the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Neither the independent auditor of Leidos nor the independent auditor of Lockheed Martin, the Splitco Business or Splitco,
nor any other independent accountants, have compiled, examined or performed any procedures with respect to the Financial Projections, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and no
such auditor assumes responsibility for, and each disclaims any association with, the Financial Projections. Furthermore, the Financial Projections:
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were based upon numerous estimates or expectations, beliefs, opinions and assumptions with respect to the Splitco Business and Leidos business, respectively, including their respective results of operations and
financial conditions, customer requirements and competition, and with respect to general business, economic, market, regulatory and financial conditions and other future events, all of which are difficult to predict and many of which are beyond
Leidos or Lockheed Martins control and may not be realized;
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do not take into account any transactions, circumstances or events occurring after the date they were prepared, including the Transactions, or the effect of any failure of the Merger or the other Transactions to occur;
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are not necessarily indicative of current market conditions or values or future performance, which may be significantly more or less favorable than as set forth in the Financial Projections; and
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are not, and should not be regarded as, a representation that any of the expectations contained in, or forming a part of, the Financial Projections will be achieved.
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Leidos management believes that the assumptions used as a basis for the Financial Projections were reasonable based on the information available to Leidos management at
the time prepared. However, the Financial Projections are not a guarantee of future actual performance. The future financial results of the Splitco Business and Leidos business, respectively, may differ materially from those expressed in the
Financial Projections due to factors that are beyond Leidos or Lockheed Martins ability to control or predict.
Although the Financial Projections were
prepared with numerical specificity, they are forward-looking statements that involve inherent risks and uncertainties. Further, the Financial Projections cover multiple years and such information by its nature becomes less predictive with each
successive quarter and year. Stockholders are urged to read the section of this document entitled Cautionary Statement on Forward-Looking Statements for additional information regarding the risks inherent in forward-looking information
such as the Financial Projections. Stockholders also should review the factors described in the section of this document entitled Risk Factors and those risk factors incorporated in this document by reference from Item 1A of Leidos
Transition Report on Form 10-K for the fiscal year ended January 1, 2016, and Item 1A of Lockheed Martins Annual Report on Form 10-K for the year ended December 31, 2015.
51
None of Leidos, Lockheed Martin or Splitco or any of their respective affiliates intends to, and, except to the extent
required by applicable law, each of them expressly disclaims any obligation to, update, revise or correct the Financial Projections to reflect circumstances existing or arising after the date such projections were generated or to reflect the
occurrence of future events, even in the event that any or all of the assumptions underlying the projections are shown to be in error or any of the Financial Projections otherwise would not be realized. Neither Lockheed Martin nor Splitco made any
representations to Leidos in the Merger Agreement or otherwise concerning the Splitco Financial Projections or the Leidos Adjusted Splitco Financial Projections.
Certain of the financial information contained in the Financial Projections, including EBITDA, may be considered non-GAAP financial measures. Leidos management provided
this information to the Leidos Board and Leidos financial advisor because Leidos management believed it could be useful in evaluating the Splitco Business, in the case of the Splitco Financial Projections and the Leidos Adjusted Splitco
Financial Projections, and Leidos business, in the case of the Leidos Financial Projections. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with
GAAP, and non-GAAP financial measures as used by Leidos or Lockheed Martin may not be comparable to similarly titled amounts used by other companies.
For the
foregoing reasons, the inclusion of the Leidos Adjusted Splitco Financial Projections and Leidos Financial Projections in this document should not be regarded as an indication that Leidos, Lockheed Martin, Splitco or their respective affiliates or
representatives considered or consider the Leidos Adjusted Splitco Financial Projections or the Leidos Financial Projections to be necessarily predictive of actual future events, and the Leidos Adjusted Splitco Financial Projections and Leidos
Financial Projections should not be relied upon as such. The Leidos Adjusted Splitco Financial Projections should be evaluated in conjunction with the limitations described above and the historical financial statements and other information
regarding the Splitco Business contained elsewhere in this document, and the Leidos Financial Projections should be evaluated in conjunction with the limitations described above and the historical financial statements and other information regarding
Leidos business contained elsewhere in this document.
The Splitco Financial Projections
Leidos was provided with non-public financial projections prepared by management of Lockheed Martin and Splitco with respect to the Splitco Business. Subsequently,
Leidos management made certain adjustments to these financial projections based on its judgment and experience in the industry to reflect Leidos managements alternative perspectives regarding the Splitco Business and changes in the terms of
the separation of the Splitco Business that were negotiated after the financial projections were delivered by management of Lockheed Martin but prior to the execution of the Merger Agreement. These changes, together with the addition by Leidos
management of two additional years of projected financial results, resulted in the Leidos Adjusted Splitco Financial Statements.
The following is a summary of the
Leidos Adjusted Splitco Financial Projections:
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|
|
|
|
|
|
|
|
|
|
|
2016E
|
|
|
2017E
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
|
(in millions)
|
|
Leidos Adjusted Case
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Revenue
|
|
$
|
4,715
|
|
|
$
|
4,760
|
|
|
$
|
4,801
|
|
|
$
|
4,898
|
|
|
$
|
4,995
|
|
Base EBITDA
(1)
|
|
$
|
392
|
|
|
$
|
377
|
|
|
$
|
373
|
|
|
$
|
384
|
|
|
$
|
394
|
|
Adjusted EBITDA
(2)
|
|
$
|
484
|
|
|
$
|
453
|
|
|
$
|
437
|
|
|
$
|
441
|
|
|
$
|
450
|
|
(1)
|
Defined as earnings before interest and tax, plus depreciation and amortization.
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(2)
|
Includes certain adjustments related to pension, incremental overhead cost, stock-based compensation and other adjustments.
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The Leidos Financial Projections
Leidos management prepared non-public
financial projections with respect to Leidos business as a stand-alone company. These projections do not give pro forma effect to the combination of Leidos and the Splitco Business.
The following is a summary of the Leidos Financial Projections:
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|
|
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|
2016E
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|
|
2017E
|
|
|
2018E
|
|
|
2019E
|
|
|
2020E
|
|
|
|
(in millions)
|
|
Revenue
|
|
$
|
5,054
|
|
|
$
|
5,151
|
|
|
$
|
5,340
|
|
|
$
|
5,686
|
|
|
$
|
5,913
|
|
EBITDA
(1)
|
|
$
|
423
|
|
|
$
|
433
|
|
|
$
|
454
|
|
|
$
|
497
|
|
|
$
|
523
|
|
(1)
|
2016E includes a $14 million adjustment for anticipated nonrecurring facility consolidation expenses.
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52
Leidos Stockholders Meeting
Under the terms of the Merger Agreement, Leidos has agreed to call, give notice of, convene and hold a meeting of its stockholders for the purpose of, among other
things, voting upon the proposal to approve the Share Issuance. The Leidos Board has called an annual meeting of Leidos stockholders to be held on August 8, 2016, for Leidos stockholders of record on June 30, 2016. The definitive proxy
statement was mailed to Leidos stockholders on or about July 7, 2016. Leidos has agreed to solicit proxies from its stockholders in favor of the approval of the Share Issuance and to take all other necessary actions to secure such
approval. Leidos is required to call such a stockholders meeting for the purpose of voting upon the matters described above, regardless of whether any transaction involving Leidos that would impede or interfere with the Merger is commenced,
announced or submitted to Leidos or Leidos stockholders or the Leidos Board has made a Change in Recommendation (as defined below under Board Recommendation).
Interests of Lockheed Martins and Splitcos Directors and Executive Officers in the Transactions
As of June 30, 2016, Lockheed Martins and Splitcos directors and executive officers owned less than 1% percent of the outstanding shares of Lockheed
Martins common stock and less than 1% percent of the outstanding shares of Leidos common stock. All of Splitcos outstanding common stock is owned directly by Lockheed Martin. None of Lockheed Martins or Splitcos
executive officers, other than Sondra L. Barbour (Executive Vice President, Information Systems & Global Solutions of Lockheed Martin and President and Chief Executive officer of Splitco), Martin T. Stanislav (Vice President and Chief Financial
Officer of Splitco), Timothy J. Reardon (Vice President and Chief Operating Officer of Splitco) and Michael A. Mitrione (Vice President and Chief Accounting Officer of Splitco), will receive any severance or other compensation as a result of the
Transactions. The directors and officers of Lockheed Martin and Splitco, other than Ms. Barbour and Messrs. Stanislav, Reardon and Mitrione, will receive no extra or special benefit that is not shared on a
pro rata
basis by all other Lockheed
Martin stockholders in connection with the Transactions.
Ms. Barbour and Messrs. Stanislav, Reardon and Mitrione hold restricted stock units awarded before
and after January 1, 2016, and performance share units and long-term incentive performance awards awarded prior to January 1, 2016. Ms. Barbour and Messrs. Stanislav, Reardon and Mitrione and other officers of Splitco will receive severance
payments from Leidos that are consistent with the benefits payable under the Lockheed Martin Corporation Executive Severance Plan if the officer is terminated by Leidos without cause or if the officer terminates for good
reason within one year following the closing of the Transactions.
Cause for this purpose means either a conviction for an act of fraud,
embezzlement, theft or other act constituting a felony (other than traffic-related offenses or as a result of vicarious liability) or willful misconduct that is materially injurious to Leidos financial position, operating results or
reputation; provided, however that no act or failure to act shall be considered willful unless done, or omitted to be done, by the officer (i) in bad faith; (ii) for the purpose of receiving an actual improper personal benefit
in the form of money, property or services; or (iii) in circumstances where the officer had reasonable cause to believe that the act, omission, or failure to act was unlawful. Good reason for this purpose means, without the
officers express written consent, the occurrence of any one or more of the following after a change in control: (i) a material and substantial reduction in the nature or status of the officers authority or responsibilities; (ii) a
material reduction in the annualized rate of the officers base salary; (iii) a material reduction in the aggregate value of the officers level of participation in any short or long term incentive cash compensation plan, employee benefit
or retirement plan or compensation practices, arrangements, or policies; (iv) a material reduction in the officers aggregate level of participation in equity-based incentive compensation plans; or (v) the officers principal place of
employment is relocated to a location that is greater than 50 miles from his or her principal place of employment on the date the change in control is consummated.
Lockheed Martin has entered into retention agreements with Mr. Stanislav, Mr. Reardon and Mr. Mitrione and certain additional Splitco Business Employees (the
Transaction Retention Agreements) as an inducement to these Splitco Business Employees to continue to work for Lockheed Martin through the closing date of the Merger. Each Splitco Business Employee who has a Transaction Retention
Agreement will be entitled to receive a retention payment ($515,900 for Mr. Stanislav, $448,300 for Mr. Reardon, and $136,000 for Mr. Mitrione) within 90 days following the closing date of the Merger if the Splitco Business Employee is employed by
Splitco or a Splitco Subsidiary immediately after the Merger, signs a release of claims and Lockheed Martins Senior Vice President of Human Resources determines that the Splitco Business Employee has satisfied certain additional criteria
required by the Transaction Retention Agreement.
53
As with all Lockheed Martin stockholders, if a director or officer of Lockheed Martin or Splitco owns shares of Lockheed
Martin common stock, directly or indirectly, such person may participate in the exchange offer on the same terms as other Lockheed Martin stockholders.
Interests of Leidos Directors and Executive Officers in the Transactions
In considering the recommendations of the Leidos Board that Leidos
stockholders vote to approve the Share Issuance, it should be noted that certain Leidos executive officers, including Leidos chief executive officer, chief financial officer and three other most highly compensated executive officers
(collectively, the named executive officers), have financial interests in the Transactions that may be different from, or in addition to, the interests of Leidos stockholders generally, as more fully described below. The members of the
Leidos Board were aware of and considered these interests, among other matters, in reaching the determination to approve the terms of the Merger Agreement and the Transactions.
Executive Employment Agreement with Roger Krone
Mr. Krone,
Leidos Chairman and Chief Executive Officer, is party to an executive employment agreement, which provides for the payment of severance in the event he is involuntarily terminated without cause or resigns for good reason. These benefits are
increased if the termination occurs within 24 months following a change in control. The Transactions will constitute a change in control for purposes of Mr. Krones agreement. Therefore, in the event of Mr. Krones qualifying termination
within the 24-months following the consummation of the Transactions (or in certain circumstances prior to the Transactions), he will be entitled to receive all accrued salary and a pro-rated bonus for the year of termination, plus the following
amounts, subject to his execution of a release of claims and the expiration of the revocation period: (a) a lump sum payment equal to two-and-one-half times Mr. Krones then current annual base salary and bonus amount; (b) a lump sum payment in
an amount equal to 30 times the monthly COBRA premiums for health, dental and vision coverage in effect for Mr. Krone and his dependents and the monthly company cost of providing life insurance and disability benefits to Mr. Krone; (c) up to 12
months of outplacement counseling; (d) full vesting of the unvested portion of the initial equity incentive award granted to Mr. Krone when he joined Leidos to the extent the award vests solely on the passage of time and an immediate payout and
vesting at the target performance level for any unvested portion of such initial equity incentive award to the extent the award is based all or in part on the achievement of performance goals; and (e) forgiveness of any obligation to repay the
sign-on bonus and sign-on equity grant he received upon commencement of his employment with Leidos. Mr. Krone is not entitled to receive a gross up payment to account for any excise tax that might be payable under the Code, and the
amount of the payments may be reduced by Leidos to the extent necessary to avoid an excise tax.
Under Mr. Krones executive employment agreement, good
reason generally means (a) a material adverse change in Mr. Krones authority, duties or responsibilities (including reporting responsibilities), including the failure of Mr. Krone to continue to serve as Chief Executive Officer of a
public company; (b) a material reduction in Mr. Krones base salary; (c) the imposition of a requirement that Mr. Krone be based (i) at any place outside a 50-mile radius from Mr. Krones principal place of employment immediately prior to
the change in control or (ii) at any location other than Leidos corporate headquarters, except, in each case, for reasonably required business travel which is not materially greater in frequency or duration than prior to the change in control;
or (d) any material breach by Leidos of any provision of his agreement, including the failure of Leidos to obtain an agreement from any successor to assume and agree to perform the agreement.
Severance Protection Agreements
Leidos has entered into severance
protection agreements with each of its executive officers, including each of its named executive officers (other than Mr. Krone), which provide that if the executive officer is involuntarily terminated without cause or resigns for good reason within
a 24-month period following a change in control, he or she will be entitled to receive similar benefits as described above with respect to Mr. Krone. Generally, he or she will be entitled to all accrued salary and a pro-rated bonus for the year
of termination, plus a single lump sum payment equal to two-and-one-half times the executive officers then current salary and bonus amount. The executive officer will also receive such health and welfare benefits as are provided to other
similarly situated executive officers who continue to be employed for the 30 months following termination and up to 12 months of outplacement counseling. In order to receive the lump sum payment and the 30 months of continued benefits, the executive
officer is required to execute a written release of claims. The executive officer is not entitled to receive a gross up payment to account for any excise tax that might be payable under the Code, and the amount of the payments may be
reduced by us to the extent necessary to avoid an excise tax.
54
The definition of good reason in the severance protection agreements is generally consistent with the
definition of good reason contained in Mr. Krones employment agreement, but also includes any purported termination of the executive officers employment for cause by Leidos which does not comply with the terms of the agreement.
No Change in Control under Equity Incentive Plans or Deferred Compensation Plans
Under the terms of the Leidos Stock Plans and its deferred compensation plans, all unvested stock, options and deferred compensation awards held by all participants
under those plans, including its named executive officers, are subject to accelerated vesting upon the occurrence of a change in control under certain circumstances. However, the Transactions will not constitute a change in control for purposes of
these plans.
An estimate of amounts potentially payable to Leidos executive officers are set out in the following table, determined as if the
consummation of the Merger occurred on June 20, 2016 and each of the listed executive officers incurred a qualifying termination on such date. The amounts indicated below are estimates of the amounts that would be payable to the executive
officers and the estimates are based on multiple assumptions that may or may not actually occur, including assumptions described in this document. Some of the assumptions are based on information not currently available and, as a result, the actual
amounts, if any, to be received by an executive officer may differ in material respects from the amounts set forth below.
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Name of Executive Officer
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Cash Severance Amount ($)
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Value of Continued
Welfare Benefits ($)
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Value of Outplacement
Counseling ($)
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Roger A. Krone
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6,359,041
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112,419
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15,000
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James C. Reagan
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2,921,979
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94,224
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15,000
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Vincent A. Maffeo
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2,773,571
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141,904
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15,000
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Jonathan W. Scholl
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2,528,608
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105,079
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15,000
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Michael E. Leiter
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2,559,267
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89,841
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15,000
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Sarah K. Allen
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1,691,033
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58,475
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15,000
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S. Gulu Gambhir
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1,785,399
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89,820
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15,000
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Ranjit S. Chadha
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1,032,471
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67,858
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15,000
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In addition, Mr. Krone would be entitled to accelerated vesting of certain of his equity awards and the forgiveness of any
obligation to repay his sign-on bonus and sign-on equity grant, which would have an estimated value of approximately $2,595,171 for the equity acceleration (valued using a share price of $45.58) and $1,179,030 for the forgiveness of the repayment
obligations (using the same share value for the sign-on equity grant).
Accounting Treatment and Considerations
Accounting Standard Codification 805, Business Combinations, requires the use of the acquisition method of accounting for business combinations. In applying the
acquisition method, it is necessary to identify both the accounting acquiree and the accounting acquiror. In a business combination effected through an exchange of equity interests, such as the Merger, the entity that issues the interests (Leidos in
this case) is generally the acquiring entity. In identifying the acquiring entity in a combination effected through an exchange of equity interests, however, all pertinent facts and circumstances must be considered, including the following:
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Issuance of equity by Leidos
. Leidos expects to issue approximately 77 million shares of Leidos common stock in the Merger.
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Incurrence of debt by Leidos and Splitco.
Approximately $2.531 billion of indebtedness is expected to be incurred under the Facilities. After the Merger, Splitco will be a wholly-owned subsidiary of Leidos,
Splitcos indebtedness is expected to be guaranteed by Leidos and Leidos indebtedness incurred to finance the Transactions is expected to be guaranteed by Splitco.
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The relative voting interests of Leidos stockholders after the consummation of the Transactions
. In this case, Lockheed Martin stockholders participating in the exchange offer (and
pro rata
distribution,
if any) are expected to receive approximately 50.5 percent of the equity ownership and associated voting rights in Leidos after the consummation of the Transactions on a fully diluted basis.
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The composition of the governing body of Leidos after the consummation of the Transactions
. The Leidos Board currently consists of 10 directors and will increase following consummation of the Merger in accordance
with the terms of the Merger Agreement, which provides that the Leidos Board will cause the number of directors comprising the Leidos Board to be increased to no more than 13 directors and cause three directors designated by Lockheed Martin to be
appointed to the Leidos Board to serve until the next annual meeting of the Leidos stockholders.
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The composition of the senior management of Leidos after the consummation of the Transactions
. In this case, Leidos executive officers immediately following the Merger are expected to consist of
Leidos executive officers immediately prior to the Merger.
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Leidos management has determined that Leidos will be the accounting acquiror in the
Merger based on the facts and circumstances outlined above and the detailed analysis of the relevant GAAP guidance. Consequently, Leidos will apply acquisition accounting to the assets and liabilities of Splitco acquired or assumed upon the
consummation of the Merger. The historical financial statements of Leidos for periods ended prior to the consummation of the Merger will reflect only the operations and financial condition of Leidos. Subsequent to the consummation of the Merger, the
financial statements of Leidos will include the combined operations and financial condition of Leidos and Splitco.
Regulatory
Approvals
Under HSR Act, and the rules promulgated under the HSR Act, the parties must file notification and report forms with the U.S. Federal Trade Commission
and the Antitrust Division of the Department of Justice and observe specified waiting period requirements before consummating the Merger. Leidos and Lockheed Martin each filed the requisite notification and report forms with the Federal Trade
Commission and the Antitrust Division on February 25, 2016, and the waiting period has expired.
Federal Securities Law Consequences;
Resale Restriction
Leidos common stock issued in the Merger will not be subject to any restrictions on transfer arising under the Securities Act, except for
shares issued to any Lockheed Martin stockholder who may be deemed to be an affiliate of Splitco for purposes of Rule 145 under the Securities Act.
No Appraisal or Dissenters Rights
None of Leidos, Merger Sub, Lockheed Martin or Splitco stockholders will be entitled to exercise appraisal rights or
to demand payment for their shares in connection with the Transactions.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger Agreement. This summary is qualified in its entirety by the Merger Agreement, which is incorporated
by reference in this document. Lockheed Martin stockholders and Leidos stockholders are urged to read the Merger Agreement in its entirety. This summary of the Merger Agreement has been included to provide Lockheed Martin stockholders and Leidos
stockholders with information regarding its terms. The rights and obligations of the parties are governed by the express terms of the Merger Agreement and not by this summary or any other information included in this document. It is not intended to
provide any other factual information about Leidos, Merger Sub, Lockheed Martin or Splitco. Information about Leidos, Merger Sub, Lockheed Martin and Splitco can be found elsewhere in this document and in the documents incorporated by reference into
this document. See also Where You Can Find More Information; Incorporation by Reference.
The Merger
Under the Merger Agreement and in accordance with the DGCL, at the effective time of the Merger, Merger Sub will merge with and into Splitco. As a result of the Merger,
the separate corporate existence of Merger Sub will cease and Splitco will continue as the surviving corporation and as a wholly-owned subsidiary of Leidos and will succeed to and assume all the rights, powers and privileges and be subject to all of
the obligations of Merger Sub in accordance with the DGCL. The certificate of incorporation and bylaws of Splitco in effect immediately prior to the Merger will be the certificate of incorporation and bylaws of the surviving corporation following
the consummation of the Merger.
Under the terms of the Merger Agreement, the officers of Splitco immediately before the Merger will be the initial officers of the
surviving corporation after the Merger and the directors of Merger Sub immediately before the Merger will be the initial directors of the surviving corporation after the Merger, in each case until their respective successors are duly elected and
qualified or until such directors or officers earlier death, resignation or removal.
Closing; Effective Time
As promptly as practicable, but in no event later than the later of (1) the third business day after the satisfaction or waiver (where permissible under applicable
law) of the conditions precedent to the Merger (other than those to be satisfied at closing), and (2) the earlier of the (A) date during a marketing period for the indebtedness to be incurred in connection with the Transactions specified
by Leidos on no less than two business days notice to Lockheed Martin and (B) the first business day following the final day of the Marketing Period (unless another date, time or place is agreed to in writing by Lockheed Martin and
Leidos), Lockheed Martin and Leidos will cause to be filed a certificate of merger with the Secretary of State of the State of Delaware to effect the Merger. The Merger will become effective at the time of filing of the certificate of merger or at
such later time as Lockheed Martin, Leidos, Splitco and Merger Sub may agree and provide in the certificate of merger. In addition, immediately prior to the Merger, Lockheed Martin must make the Distribution in accordance with the provisions of the
Merger Agreement and Separation Agreement.
Merger Consideration
The Merger Agreement provides that, at the effective time of the Merger, each issued and outstanding share of Splitco common stock will be automatically converted,
subject to adjustment, into the right to receive one fully paid and non-assessable share of Leidos common stock. Leidos expects to issue 76,958,918 shares of its common stock in the Merger. The calculation of the merger consideration as set forth in
the Merger Agreement is expected to result in Splitcos stockholders immediately prior to the Merger collectively holding approximately 50.5 percent of the outstanding shares of Leidos common stock immediately following the Merger on a fully
diluted basis.
Pursuant to a true-up provision in the Merger Agreement, in the event that counsel to Lockheed Martin cannot deliver the Lockheed Martin Tax
Opinions because, immediately after the Merger, the percentage of outstanding shares of Leidos common stock to be received by Splitco stockholders with respect to Splitco common stock that was not acquired directly or indirectly pursuant to a plan
(or series of related transactions) which includes the Distribution (within the meaning of Section 355(e) of the Code) would be less than 50.1 percent of all the outstanding stock of Leidos (determined without regard to any adjustment pursuant
to the true-up provision), then the aggregate number of shares of Leidos common stock into which the shares of Splitco common stock will be converted in the Merger will be increased (and the number of outstanding shares of Splitco common stock will
be increased by a corresponding amount) such that the number of shares of Leidos common stock to be received by Splitco
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stockholders with respect to such Splitco common stock that was not acquired directly or indirectly pursuant to a plan (or series of related transactions) which includes the Distribution (within
the meaning of Section 355(e) of the Code) will equal 50.1 percent of all the stock of Leidos. If any increase is required as a result of actions taken by Lockheed Martin or its affiliates pursuant to the plan (or series of related
transactions) that includes the Distribution (within the meaning of Section 355(e) of the Code) or the failure of Lockheed Martin or its affiliates to take commercially reasonable action to prevent such an increase that otherwise would have
been preventable, then the aggregate principal amount of the Splitco Special Cash Payment that Splitco distributes to Lockheed Martin pursuant to the Separation Agreement will be reduced as described in the Merger Agreement (it being understood that
neither the decision to effect the Distribution by means of an exchange offer or one-step spin-off, nor a breach by Leidos of certain capitalization representations in the Tax Matters Agreement shall be deemed an action or failure to take action by
Lockheed Martin or its affiliates for this purpose). As a result of the true-up provision in such circumstances, it is possible that Leidos could be required to issue more than 76,958,918 shares of its common stock in the Merger.
No fractional shares of Leidos common stock will be issued pursuant to the Merger. All fractional shares of Leidos common stock that a holder of shares of Splitco
common stock would otherwise be entitled to receive as a result of the Merger will be aggregated by Leidos transfer agent, and Leidos transfer agent will cause the whole shares obtained by such aggregation to be sold in the open market
or otherwise at then-prevailing market prices no later than five business days after the effective time of the Merger. Leidos transfer agent will pay the net proceeds of the sale, after deducting any required withholding taxes and brokerage
charges, commissions and transfer taxes, on a
pro rata
basis, without interest, as soon as practicable to the holders of Splitco common stock that would otherwise be entitled to receive such fractional shares of Leidos common stock in the
Merger.
The merger consideration and cash in lieu of fractional shares (if any) paid in connection with the Merger will be reduced by any applicable withholding
taxes as described below under Withholding Rights.
Leidos Special Dividend
Prior to the Merger, Leidos, subject to applicable law, will declare the Leidos Special Dividend, which will be an amount equal to $13.64 per share, as of a record date
prior to the date of the closing of the Merger; provided that, in the event the Distribution is in the form of an exchange offer, (i) Leidos will advise Lockheed Martin at least seven days prior to the anticipated commencement of the exchange
offer of the anticipated record date and ex-dividend date on the NYSE for the Leidos common stock in respect of the Leidos Special Dividend and (ii) the ex-dividend date in the regular way market on the NYSE for the Leidos common stock in
respect of the Leidos Special Dividend shall not be during the averaging period used to determine the final exchange ratio in the exchange offer).
Distribution of Per Share Merger Consideration
Prior to the effective time of the Merger, Leidos will deposit in a reserve account with its transfer agent
book-entry shares of Leidos common stock for the benefit of the Lockheed Martin stockholders who received shares of Splitco common stock in the Distribution and for distribution in the Merger upon conversion of the Splitco common stock.
At the effective time of the Merger, all issued and outstanding shares of Splitco common stock will be converted into the right to receive shares of Leidos common stock
as described above under Merger Consideration. As promptly as practicable thereafter, Leidos will cause its transfer agent to distribute the shares of Leidos common stock to each person who received Splitco common stock in the
Distribution. Each person entitled to receive Splitco common stock in the Distribution will be entitled to receive in respect of such shares of Splitco common stock a book-entry authorization representing the number of whole shares of Leidos common
stock that such holder has the right to receive pursuant to the Merger (and cash in lieu of fractional shares of Leidos common stock as described above under Merger Consideration, together with any dividends or distributions and
other amounts as described below under Distributions With Respect to Shares of Leidos common stock after the Effective Time of the Merger).
Treatment of Lockheed Martin Equity Awards
The parties are required to take all actions reasonably necessary, to be effective as of the consummation of the
Merger, to give effect to the equity treatment set forth in the Merger Agreement. Stock options held by Splitco Business Employees immediately prior to the consummation of the Merger will remain outstanding as an option to acquire Lockheed Martin
common stock and will continue to be governed by the terms and conditions as set forth in the applicable Lockheed Martin equity incentive plan and the relevant award agreement. All such stock options currently outstanding are fully vested and
exercisable.
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Performance share units held by Splitco Business Employees immediately prior to the consummation of the Merger will remain
outstanding as a Lockheed Martin performance share unit, will be eligible to vest on a pro rata basis in accordance with the terms and conditions of the Lockheed Martin stock plan and the relevant award agreement and will be entitled, subject to the
satisfaction of the performance criteria in the relevant award agreement, to convert to shares of Lockheed Martin common stock following the end of the applicable performance period based on such terms and conditions. Payout of these awards is not
dependent on future services by Splitco Business Employees for Splitco or Leidos following the Merger or on the performance of Leidos and the awards will not be converted into Leidos performance share units following the Merger.
Restricted stock units granted prior to January 1, 2016 that are held by a Splitco Business Employee who becomes a Leidos employee as a direct result of the Merger will
fully vest and will be converted into shares of Lockheed Martin common stock in accordance with their terms and conditions as set forth in the applicable Lockheed Martin equity incentive plan and the relevant award agreement. Restricted stock units
granted on or after January 1, 2016 to a Splitco Business Employee will be converted into Leidos restricted stock units subject to the same terms and conditions that governed such restricted stock units immediately prior to the consummation of the
Merger if the individual is employed by Splitco or a Splitco Subsidiary immediately after the Merger, except that the number of Leidos restricted stock units into which such Lockheed Martin restricted stock units will be converted will be equal to
the number of Lockheed Martin restricted stock units times (i) the closing per-share price of Lockheed Martin common stock, trading regular way with due bills, on the last full trading session prior to the effective time of the Merger, as listed on
the NYSE, divided by (ii) the opening per-share price of Leidos common stock on the first full trading session following the effective time of the Merger, as listed on the NYSE.
Distributions With Respect to Shares of Leidos Common Stock after the Effective Time of the Merger
No dividend or other distributions declared after the effective time of the Merger with respect to Leidos common stock will be paid with respect to any shares of Leidos
common stock that are not able to be distributed promptly after the effective time of the Merger, whether due to a legal impediment to such distribution or otherwise. Subject to the effect of abandoned property, escheat or other applicable laws,
following the distribution of any such previously undistributed shares of Leidos common stock, the following amounts will be paid to the record holder of such shares of Leidos common stock, without interest:
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at the time of the distribution of such previously undistributed shares, the amount of cash payable in lieu of fractional shares of Leidos common stock to which such holder is entitled pursuant to the Merger Agreement
and the amount of dividends or other distributions with a record date after the effective time of the Merger theretofore paid with respect to such whole shares of Leidos common stock; and
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at the appropriate payment date, the amount of dividends or other distributions with a record date after the effective time of the Merger but prior to the distribution of such whole shares of Leidos common stock and a
payment date subsequent to the distribution of such whole shares of Leidos common stock.
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Leidos will deposit all such amounts in a reserve account
with its transfer agent.
Termination of the Exchange Fund; No Liability
Any portion of the amounts deposited in the reserve account with Leidos transfer agent under the Merger Agreement that remains undistributed to the former
stockholders of Splitco on the one-year anniversary of the effective time of the Merger, subject to any abandoned property, escheat or similar law, will be delivered to Leidos upon demand, and any former stockholders of Splitco who have not received
shares of Leidos common stock as described above may thereafter look only to Leidos for the merger consideration to which they are entitled, any cash in lieu of fractional shares of Leidos common stock to which they may be entitled or any dividends
or other distributions with respect to the Leidos common stock to which they may be entitled (subject to any applicable abandoned property, escheat or similar law).
Pursuant to the Merger Agreement, none of Leidos, Lockheed Martin, Splitco, Merger Sub, the surviving corporation or Leidos exchange agent will be liable to any
person for any portion of the book-entry shares of Leidos common stock deposited by Leidos with its exchange agent for the benefit of the Lockheed Martin stockholders who received shares of Splitco common stock in the Distribution (or dividends or
distributions with respect to Leidos common stock) or any cash delivered to a public official in accordance with any applicable abandoned property, escheat or similar law.
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Withholding Rights
Each of Splitco, Leidos exchange agent, and Leidos are entitled to deduct and withhold from any amounts otherwise payable pursuant to the Merger Agreement such
amount as it is required to deduct and withhold with respect to the making of such payment under applicable law. To the extent that amounts are so withheld, such withheld amounts shall be treated for purposes of the Merger Agreement as having been
paid to the persons otherwise entitled thereto in respect of which such deduction and withholding was made.
Stock Transfer Books; No
Appraisal Rights
From and after the effective time of the Merger, the stock transfer books of Splitco will be closed and there will be no further registration
of transfers of Splitco common stock thereafter on the books or records of Splitco. In addition, pursuant to Section 262 of the DGCL, no appraisal rights will be available to Splitco stockholders in connection with the Merger.
Post-Closing Leidos Board of Directors and Officers
The Merger Agreement provides that the Leidos Board will take all actions necessary to cause the number of directors comprising the Leidos Board to be increased to no
more than 13 directors, and to cause three individuals designated by Lockheed Martin to be appointed to the Leidos Board as of the effective time of the Merger to serve until the next annual meeting of the Leidos stockholders. The Merger Agreement
provides that at the next annual meeting of the Leidos stockholders, the Leidos Board will take all actions necessary to include each of the Lockheed Martin designees as nominees for the Leidos Board recommended by the Leidos Board for election by
Leidos stockholders, subject to the fiduciary duties of the Leidos Board, the requirements of the NYSE and all other applicable laws. The Leidos Board also must take all action necessary to ensure that at least one of Lockheed Martins
designees is appointed to serve on each committee of the Leidos Board, subject to the requirements of the SEC, NYSE and other applicable laws.
In addition, until
the effective time of the Merger, Leidos must consult from time to time with and consider the views of Lockheed Martin regarding the roles and responsibilities of the members of the management of the Splitco Business in Leidos management and Splitco
after the closing of the Merger, provided that the ultimate decision as to the roles and responsibilities of the members of the management of the Splitco Business after closing of the Merger will be the responsibility of Leidos.
Stockholders Meeting
Under the terms of the
Merger Agreement, Leidos is required to establish a record date and take all other lawful action to call, give notice of, convene and hold a meeting of its stockholders for the purpose of voting upon the Share Issuance as promptly as practicable
following the date on which the SEC clears Leidos proxy statement relating to such stockholders meeting and, if required by the SEC as a condition to the mailing of the proxy statement, the registration statement of Leidos registering the
shares of Leidos common stock required for the Share Issuance has been declared effective. Leidos has agreed to solicit proxies from its stockholders in favor of the approval of the Share Issuance and to take all other actions necessary or advisable
to secure such approval. Leidos is required to call this stockholders meeting for the purpose of voting upon the matters described above regardless of the commencement, disclosure, announcement or submission to Leidos or its stockholders of any
Competing Leidos Transaction (as defined below under No Solicitation) or any Change in Recommendation (as defined below under Board Recommendation).
Representations and Warranties
In the Merger
Agreement, each of Leidos and Merger Sub has made representations and warranties to Lockheed Martin and Splitco, and each of Lockheed Martin and Splitco has made representations and warranties to Leidos and Merger Sub. These representations and
warranties relate to, among other things:
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each partys and its affiliates due incorporation, valid existence, good standing and authority to carry on its business;
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authority to enter into and perform obligations under the Merger Agreement (and other Transaction Documents);
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absence of conflicts with or violations of governance documents, other obligations or laws;
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board and stockholder approvals obtained or required in connection with the Transactions;
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governmental consents and approvals;
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financial statements and the financings contemplated by the Splitco Commitment Letter or the Leidos Commitment Letter, as applicable;
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absence of certain changes or events;
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absence of investigations or litigation;
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accuracy of information supplied for use in this document and certain other disclosure documents to be filed with the SEC in connection with the Transactions;
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compliance with applicable laws;
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intellectual property matters;
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interests in real property;
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employee benefit and labor matters;
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payment of fees to brokers or finders in connection with the Transactions;
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government contracts; and
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international trade laws and regulations.
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Leidos and Merger Sub have also made representations and warranties to
Lockheed Martin and Splitco relating to the opinion of Leidos financial advisor, the required vote of Leidos stockholders on the transactions contemplated by the Merger Agreement (including the Share Issuance), the operations and purpose of
formation of Merger Sub and the absence of any stockholder rights plan, poison pill, anti-takeover plan or other similar device.
Lockheed Martin has
also made representations and warranties to Leidos and Merger Sub relating to the absence of undisclosed liabilities and sufficiency of assets to be contributed to Splitco.
Many of the representations and warranties contained in the Merger Agreement are subject to a material adverse effect standard, knowledge qualifications, or
both, and, except in certain circumstances specified in the Merger Agreement, none of the representations and warranties will survive the effective time of the Merger other than representations and warranties with respect to the sufficiency of
assets to be contributed to Splitco (such representations and warranties to survive until the one year anniversary of the effective time of the Merger). The Merger Agreement does not contain any post-closing indemnification obligations with respect
to these matters, but certain remedies for breach of the representations and warranties that survive until the one year anniversary of the effective time of the Merger are set forth in the Intellectual Property Matters Agreement and the Transition
Services Agreement (Parent to Splitco). See Other AgreementsIntellectual Property Matters Agreement and Other AgreementsTransition Services Agreements for additional information.
Under the Merger Agreement, a material adverse effect means, with respect to Splitco or Leidos, as applicable, any event, circumstance, change or effect that,
individually or in the aggregate, is or would reasonably be expected to be materially adverse to the business, results of operations or financial condition of the Splitco Business, taken as a whole, or Leidos and its subsidiaries, taken as a whole,
as the case may be. However, none of the following, either alone or in combination, will be deemed either to constitute, or be taken into account in determining whether there is, a material adverse effect (except, in the case of the first, second,
third, fifth, sixth, seventh and eighth bullet points below, to the extent that such event, circumstance, change or effect has a disproportionate effect on the Splitco Business or Leidos, as applicable, as compared with other participants in the
industries in which the Splitco Business or Leidos operates):
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events, circumstances, changes or effects that generally affect the industries or segments in which the Splitco Business or Leidos, as applicable, operates, including legal and regulatory changes;
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general business, economic or political conditions (or changes therein);
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events, circumstances, changes or effects affecting the financial, credit or securities markets in the United States or in any other country or region in the world, including changes in interest rates or foreign
exchange rates;
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other than for purposes of certain specified representations and warranties, events, circumstances, changes or effects arising out of, or attributable to, the announcement of the execution of, or the consummation of the
transactions contemplated by, any Transaction Document, the identity of Leidos (in the case of a material adverse effect on the Splitco Business) or Lockheed Martin (in the case of a material adverse effect on Leidos and its subsidiaries), including
with respect to employees, customers, distributors, suppliers, financing sources, landlords, licensors, licensees or sub-licensees;
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events, circumstances, changes or effects arising out of, or attributable to, strikes, slowdowns, lockouts or work stoppages (pending or threatened);
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events, circumstances, changes or effects arising out of, or attributable to, acts of armed hostility, sabotage, terrorism or war (whether or not declared), including any escalation or worsening thereof;
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events, circumstances, changes or effects arising out of, or attributable to, earthquakes, hurricanes, tsunamis, tornadoes, floods or other natural disasters, weather-related conditions, explosions or fires, or any
force majeure events in any country or region in the world;
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events, circumstances, changes or effects arising out of, or attributable to, changes (or proposed changes) or modifications in GAAP, other applicable accounting standards or applicable law or the interpretation or
enforcement thereof;
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events, circumstances, developments, changes or effects arising out of, or attributable to, the failure by the Splitco Business or Leidos, as applicable, to meet any internal or other estimates, expectations, forecasts,
plans, projections or budgets for any period (except that the underlying cause of, or factors contributing to, such failure may be taken into account); or
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events, circumstances, developments, changes or effects arising out of, or attributable to, any change in the stock price or trading volume of the stock of Lockheed Martin or Leidos, as applicable (except that the
underlying cause of, or factors contributing to, such change may be taken into account).
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Conduct of Business Pending
the Merger
Each of the parties has undertaken to perform customary covenants in the Merger Agreement that place restrictions on it and its subsidiaries until
the earlier of the closing date of the Merger and the date on which the Merger Agreement is terminated in accordance with its terms as described below under Termination. In general, each of Lockheed Martin and Leidos has agreed
that, prior to the effective time of the Merger, except as contemplated by the Internal Reorganization and the Distribution (solely with respect to Lockheed Martin), for the Transactions, for actions required by applicable law or as consented to by
the other party (which consent may not be unreasonably withheld, delayed or conditioned), subject to certain agreed exceptions, it will use reasonable best efforts to (i) conduct the Splitco Business or the business of Leidos and its
subsidiaries, as the case may be, in the ordinary course in all material respects; and (ii) preserve intact in all material respects the business organization of such business.
In addition, Lockheed Martin has agreed that, prior to the effective time of the Merger, except as contemplated by the Internal Reorganization, the Distribution and the
other Transactions as further described in the section of this document entitled The Transactions, for actions required by applicable law, or as consented to by Leidos (which consent may not be unreasonably withheld, delayed or
conditioned), Lockheed Martin will not, and will cause its subsidiaries not to, take any of the following actions to the extent relating to the Splitco Business, and Lockheed Martin will cause the Splitco Subsidiaries not to take any of the
following actions:
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issue, sell, pledge or dispose of, grant or permit an encumbrance to exist on, any shares of capital stock or other ownership interests of Splitco, the Splitco Subsidiaries or the joint ventures associated with the
Splitco Business or any options, warrants, convertible securities or other rights of any kind to acquire any shares of such capital stock or ownership interest (including any phantom interest);
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sell, pledge or dispose of, grant or permit an encumbrance to exist on, any material assets of the Splitco Business, except in the ordinary course of business and consistent with past practice, for dispositions of
obsolete or worn-out assets, or for certain permitted encumbrances;
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amend or restate the articles or certificate of incorporation or bylaws (or similar organizational documents) of any Splitco Subsidiary, other than to change its name;
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adjust, reclassify, combine, split, subdivide or redeem, or purchase or otherwise acquire, directly or indirectly, any capital stock of any Splitco Subsidiary;
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acquire or dispose of (including by merger, consolidation or acquisition of stock or assets or any other business combination) any corporation, partnership, other business organization or any division thereof, except
for bidding joint ventures formed for a specific procurement in the ordinary course of business;
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make any loans or advances or capital contribution to, or investment in, any person other than a Splitco Subsidiary, except for bidding joint ventures formed for a specific procurement in the ordinary course of
business;
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subject to certain exceptions, (1) grant any increase in the base salaries, target bonus opportunity, or other benefits payable by Lockheed Martin or its affiliates to any Splitco Business Employees,
(2) adopt, terminate, accelerate the timing of payments or vesting under, or otherwise materially amend or supplement, any Lockheed Martin employee benefit plan as it relates to any Splitco Business Employees, (3) adopt, amend or terminate
any Lockheed Martin union contract, or (4) enter into or amend any employment, consulting, change in control, retention, severance or termination agreement with any Splitco Business Employee, in each case, other than (A) as required by
law, (B) as required by any Lockheed Martin employee benefit plan or any collective bargaining agreement or agreement with works councils or similar employee representative bodies, (C) grants of equity or equity-based awards pursuant to
Lockheed Martins equity compensation plans in the ordinary course of business up to an aggregate grant date fair market value of $25,000,000, (D) in the ordinary course of business consistent with the past practices of Lockheed Martin or
its affiliates (including in the context of new hires or promotions based on job performance or workplace requirements), or (E) to the extent undertaken to implement a program that affects all similarly situated employees of Lockheed Martin
and/or its affiliates and does not disproportionately increase the compensation and benefits of the Splitco Business Employees compared to such other similarly situated employees;
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waive or remove any material restriction under any Lockheed Martin employee benefit plan;
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change any accounting method, practice or policy used by Lockheed Martin as it relates to the Splitco Business, other than changes required by GAAP, applicable law or a governmental authority;
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terminate, discontinue, close or dispose of any business operation that is part of the Splitco Business, or lay-off any Splitco Business Employees (other than layoffs of less than 50 employees at any individual location
in any six month period in the ordinary course of business consistent with past practice), except as contemplated or required by the Employee Matters Agreement;
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transfer internally or change the responsibilities of any individual, including any employee of Lockheed Martin or its affiliates, in a manner that would affect whether such individual is or is not classified as a
Splitco Business Employee (except as contemplated or required by the Employee Matters Agreement);
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other than in the ordinary course of business and consistent with past practice or as required by applicable law, (1) make a change (or file any such change) in any method of tax accounting or any annual tax
accounting period, (2) make, change or rescind any tax election, (3) settle or compromise any tax liability or consent to any tax claim or tax assessment, (4) file any amended tax return or claim for refund, (5) enter into any
closing agreement relating to taxes (other than as contemplated by the Tax Matters Agreement), or (6) waive or extend the statute of limitations in respect of taxes, in each case, to the extent that doing so would reasonably be expected to
result in a material incremental cost to Splitco, Leidos or any of the Splitco Subsidiaries;
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pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business
and consistent with past practice, of liabilities reflected or reserved against in the financial statements of the Splitco Business or subsequently incurred in the ordinary course of business and consistent with past practice, unless such payment,
discharge or satisfaction does not impose any payment obligations on Splitco or any Splitco Subsidiary following the Cut-Off Time and otherwise would not restrict the operation of the Splitco Business following the effective time of the Merger;
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incur, guarantee, assume or become responsible for any indebtedness for borrowed money other than (1) indebtedness solely between or among Lockheed Martin-affiliated entities that will be repaid prior to the
Distribution, (2) the new debt to be incurred by Splitco in connection with the Transactions and the issuance of the shares of Splitco Common Stock, (3) indebtedness solely between or among any of the Splitco Subsidiaries and
(4) letters of credit or similar arrangements entered into in the ordinary course of business consistent with past practice;
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commence or settle any claim, action or proceeding before a governmental authority, other than in the ordinary course of business and consistent with past practice;
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other than in the ordinary course of business and consistent with past practice, materially amend (other than an extension), cancel or terminate any material contract, material intellectual property license or material
government contract of, or government bid submitted by, the Splitco Business;
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abandon, disclaim, sell, assign or grant any security interest in, to or under any material intellectual property of the Splitco Business, including failing to make filings or recordings and failing to pay required fees
and taxes, except in the ordinary course of business and consistent with past practice;
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grant to any third party any exclusive license, or enter into any covenant not to sue, or disclose to any person any material trade secret or confidential data with respect to any (1) material Splitco Business
licensed intellectual property or (2) material transferred intellectual property, in each case, except in the ordinary course of business and consistent with past practice;
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fail to maintain (with insurance companies substantially as financially responsible as their existing insurers) insurance in at least such amounts and against at least such risks and losses as are consistent in all
material respects with the past practice of the Splitco Business, except to the extent such actions affect similarly situated business of Lockheed Martin and its subsidiaries and do not disproportionately affect the Splitco Business;
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adopt a plan or agreement of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization; or
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enter into any agreement to do any of the foregoing.
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In addition, from the date of the Merger Agreement until the
Distribution, Lockheed Martin will, and will cause each of Splitco and the Splitco Subsidiaries to, (i) prepare and timely file all tax returns that it is required to file, (ii) timely pay all taxes due and payable on such tax returns, and
(iii) promptly notify Leidos of any notice of any claim, action or proceeding before a governmental authority, or any audit, in respect of any tax matters (or any significant developments with respect to ongoing claims, actions, proceedings or
audits).
Furthermore, Leidos has agreed that, prior to the effective time of the Merger, except as contemplated or required by the Merger Agreement or the other
Transaction Documents or applicable law, or as consented to by Lockheed Martin (which consent may not be unreasonably withheld, delayed or conditioned), subject to certain agreed exceptions, Leidos will not, and will cause its subsidiaries not to,
take any of the following actions:
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issue, sell, pledge or dispose of, grant or permit an encumbrance to exist on, any shares of capital stock or other ownership interests of Leidos or any of its subsidiaries or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital stock or ownership interests, other than, as applicable, (1) a transaction by a wholly-owned subsidiary of Leidos which remains a wholly-owned subsidiary of Leidos
after consummation of such transaction, (2) upon the exercise or settlement of, or as otherwise required by, any stock awards granted pursuant to the Leidos Stock Plans outstanding on the date of the Merger Agreement and in accordance with
their terms in effect on the date of the Merger Agreement or thereafter granted in the ordinary course of business, or (3) pursuant to the Share Issuance;
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sell, pledge or dispose of, grant or permit an encumbrance to exist on or authorize the sale, pledge or disposition of any material assets of the businesses of Leidos and its subsidiaries, except in the ordinary course
of business and consistent with past practice, for dispositions of obsolete or worn-out assets or for certain permitted encumbrances, including encumbrances to secure certain indebtedness permitted to be incurred under the Merger Agreement;
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amend or restate the articles or certificate of incorporation or bylaws (or similar organizational documents) of Leidos or any of its material subsidiaries (other than immaterial amendments to any such subsidiarys
organizational documents);
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declare, set aside, make or pay any dividend or other distribution, payable in cash, stock or property, with respect to any of its capital stock, except for (1) the declaration and payment by Leidos of regular
quarterly cash dividends of no more than $0.32 per share of Leidos common stock, (2) dividends or distributions by any wholly-owned subsidiary of Leidos, and (3) the Leidos Special Dividend;
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acquire or dispose of (including by merger, consolidation or acquisition of stock or assets or any other business combination) any corporation, partnership, other business organization or any division thereof other than
acquisitions or dispositions not exceeding $25,000,000 in the aggregate, except for bidding joint ventures formed for a specific procurement in the ordinary course of business;
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make any loans or advances or capital contribution to, or investment in, any person other than Leidos or any of its subsidiaries, except for bidding joint ventures formed for a specific procurement in the ordinary
course of business;
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(1) grant any increase in the base salaries, target bonus opportunity, or other benefits payable by Leidos or its subsidiaries to any of its employees, (2) adopt, terminate, accelerate the timing of payments or
vesting under, or otherwise materially amend or supplement, any Leidos employee benefit plan or (3) enter into or amend any employment, consulting, change in control, retention, severance or termination agreement with any Leidos employee, in
each case, other than (A) as required by applicable law, (B) as required by any Leidos employee benefit plan or Leidos collective bargaining agreement or agreement with works councils or similar employee representative bodies,
(C) grants of equity or equity-based awards pursuant to Leidos equity compensation plans in the ordinary course of business up to an aggregate grant date fair market value of $45,000,000, (D) in the ordinary course of business
consistent with the past practices of Leidos or its subsidiaries (including in the context of new hires or promotions based on job performance or workplace requirements), or (E) to the extent undertaken in connection with the implementation of
a program that affects all similarly situated employees of Leidos and/or its subsidiaries;
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change any accounting method, practice or policy used by Leidos as it relates to the businesses of Leidos and its subsidiaries, other than changes required by GAAP, applicable law or a governmental authority;
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other than in the ordinary course of business and consistent with past practice or as required by applicable law, (1) make a change (or file any such change) in any method of tax accounting or any annual tax
accounting period, (2) make, change or rescind any tax election, (3) settle or compromise any tax liability or consent to any claim or assessment relating to taxes, (4) file any amended tax return or claim for refund, (5) enter
into any closing agreement relating to taxes, or (6) waive or extend the statute of limitations in respect of taxes, in each case, to the extent that doing so would reasonably be expected to result in a material incremental cost to Splitco or
Leidos or any of its subsidiaries;
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incur, guarantee, assume or otherwise become responsible for any indebtedness for borrowed money other than (1) indebtedness incurred under Leidos current credit facilities (other than to finance an
acquisition of a material business), (2) indebtedness solely between or among Leidos and its subsidiaries, (3) refinancings, replacements, extensions and renewals of existing indebtedness entered into in the ordinary course of business
consistent with past practice, (4) indebtedness incurred in connection with the Transactions, (5) indebtedness incurred to finance the Leidos Special Dividend and (6) letters of credit or similar arrangements entered into in the
ordinary course of business consistent with past practice;
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commence or settle any claim, action or proceeding before a governmental authority, other than in the ordinary course of business and consistent with past practice;
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other than in the ordinary course of business and consistent with past practice, materially amend (other than an extension), cancel or terminate any material contract, material intellectual property license or material
government contract of Leidos and its subsidiaries, or any material government submitted by Leidos and its subsidiaries for which an award has not been issued;
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abandon, disclaim, sell, assign or grant any security interest in any material intellectual property of Leidos and its subsidiaries, including failing to make filings or recordings and failing to pay required fees and
taxes, except in the ordinary course of business and consistent with past practice;
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grant to any third-party any exclusive license, or enter into any covenant not to sue, with respect to any material intellectual property of Leidos and its subsidiaries, except in the ordinary course of business and
consistent with past practice;
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fail to maintain (with insurance companies substantially as financially responsible as their existing insurers) insurance in at least such amounts and against at least such risks and losses as are consistent in all
material respects with the past practice of the business of Leidos and its subsidiaries; or
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enter into any agreement to do any of the foregoing.
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In addition, from the date of the Merger Agreement until the
effective time of the Merger, Leidos will, and will cause each of its subsidiaries to, (i) prepare and timely file all tax returns that it is required to file, (ii) timely pay all taxes due and payable on such tax returns, and
(iii) promptly notify Lockheed Martin of any notice of any claim, action or proceeding before a governmental authority, or any audit, in respect of any tax matters (or any significant developments with respect to ongoing claims, actions,
proceedings or audits).
Tax Matters
The
Merger Agreement contains certain additional representations, warranties and covenants relating to the preservation of the tax-free status of the Splitco Transfer, the Distribution and the Merger. Additional representations, warranties and covenants
relating to the tax-free status of the Transactions are contained in the Tax Matters Agreement. Indemnification for taxes generally is governed by the terms, provisions and procedures described in the Tax Matters Agreement. See Other
AgreementsTax Matters Agreement.
SEC Filings
Lockheed Martin, Splitco, Leidos and Merger Sub have agreed to prepare and file with the SEC appropriate documents, including (1) a proxy statement of Leidos on
Schedule 14A relating to the Leidos stockholder approval required for the Share Issuance, (2) a registration statement on Form S-4 to register under the Securities Act the shares of Leidos common stock to be issued by Leidos to stockholders of
Splitco in connection with the Merger, and (3) a registration statement on Form 10 or Form S-1 (if the Distribution is effected in whole as a
pro rata
dividend), on Form S-4 (if the Distribution is effected in whole as an exchange offer)
or on a combined Form S-4/S-1 (if the Distribution is effected otherwise), to register under the Exchange Act or the Securities Act the shares of Splitco common stock to be distributed in the Distribution, and each of Lockheed Martin, Splitco,
Leidos and Merger Sub have agreed to use reasonable best efforts to have the registration statements described above declared effective under the Securities Act as promptly as practicable after such filings.
Leidos is required under the Merger Agreement to use reasonable best efforts to mail its proxy statement to its stockholders as promptly as practicable after the SEC
clears that proxy statement and, if required by the SEC as a condition to mailing the proxy statement, the registration statement of Leidos has been declared effective.
If the Distribution is effected in whole or in part as an exchange offer, Lockheed Martin is required under the Merger Agreement to prepare and file with the SEC, when
and as required, a Schedule TO and any other filings pursuant to Rule 13e-4 under the Exchange Act.
Regulatory Matters
The Merger Agreement provides that each party to the Merger Agreement will use reasonable commercial efforts to:
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promptly obtain all authorizations, consents, orders and approvals of all governmental authorities that are or become necessary for its execution and delivery of, and the performance of its obligations under, the Merger
Agreement and other Transaction Documents;
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cooperate fully with the other parties in obtaining all such authorizations, consents, orders and approvals; and
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provide any information requested by governmental authorities in connection with the Transactions.
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Each party to the
Merger Agreement has also agreed to promptly make its respective filings and notifications under the HSR Act and under any other antitrust or competition laws under which filing is required or under which the parties mutually determine that filing
is advisable with respect to the Transactions and to supply as promptly as practicable to the appropriate governmental authorities any additional information that may be requested pursuant to the HSR Act or such other laws. Each also agreed to, and
to cause its respective affiliates to, make as promptly as practicable its respective filings and notifications, if any, under other applicable law regarding government contracts, government bids, trade regulation, security clearances or other
relevant matters and to supply as promptly as practicable to the appropriate governmental authorities any additional information and documentary material that may be requested pursuant to such laws. Leidos is required to pay all filing or notice
fees in connection with the filings and notifications described in this paragraph.
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In addition, Leidos has agreed to take all steps reasonably necessary to avoid or eliminate impediments under the HSR Act
or any other antitrust, competition or trade regulation law that may be asserted by any governmental authority or any other person so as to enable the parties to the Merger Agreement to consummate the Transactions as promptly as practicable, and in
any event prior to the Termination Date (as defined below under Termination), including proposing, negotiating, committing to and effecting, by consent decree, hold separate orders or otherwise, the sale, divestiture or disposition
of its assets, properties or businesses or the assets, properties or businesses of the Splitco Business, and the entrance into other arrangements as necessary or advisable in order to avoid the entry of, and the commencement of litigation seeking
the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order in any suit or proceeding, which would otherwise reasonably be expected to have the effect of materially delaying or preventing the
consummation of the Transactions; provided that the effectiveness of any such sale, divestiture or disposition or entry into such other arrangement may be made contingent on the consummation of the Merger; provided, further, however, that nothing
contained in the Merger Agreement shall be construed to require Leidos or Merger Sub to (x) institute any legal proceedings against any governmental authority or (y) undertake any efforts or to take any action if the taking of such efforts
or action is or would reasonably be expected to result, individually or in the aggregate, in a material and adverse effect on the assets, liabilities, business, results of operations or condition (financial or otherwise) of (A) Splitco and the
Splitco Subsidiaries, taken as a whole, or of (B) Leidos and its subsidiaries, taken as a whole (each such action constituting a Burdensome Condition, as defined in the Merger Agreement); and neither Lockheed Martin, nor Splitco,
nor any of their subsidiaries shall take any action that has the effect of, or agree with any governmental authority to, any Burdensome Condition without the prior written consent of Leidos.
In addition, the Merger Agreement provides that Leidos shall, and shall cause its affiliates to, use its reasonable best efforts to defend through litigation on the
merits any proceeding by any person to avoid entry of, or to have vacated or terminated, any decree, order or judgment (whether temporary, preliminary or permanent) that would prevent the consummation of the Merger prior to the termination date of
the Merger Agreement. To assist Leidos in complying with its obligations with respect to regulatory approvals, the Merger Agreement provides that Lockheed Martin shall, and shall cause its affiliates to, enter into agreements or arrangements on
terms and conditions reasonably acceptable to Leidos to be entered into by any of them prior to the closing date of the Merger Agreement with respect to matters in connection with the receipt of regulatory approvals pursuant to the terms of the
Merger Agreement; provided, however, that (i) neither Lockheed Martin nor any of its affiliates are required to agree to any sale, divestiture, disposition or other arrangement with respect to any businesses or assets other than the Splitco
Business, (ii) the effectiveness of any sale, divestiture or disposition or entry into such other arrangements shall be contingent on the consummation of the Merger and (iii) Leidos shall indemnify Lockheed Martin and its affiliates for
their reasonable and documented out of pocket costs and expenses in providing such assistance.
Each party to the Merger Agreement has agreed that it will not, and
will cause its affiliates not to, enter into any transaction or agreement to effect any transaction that could be reasonably expected to make it more difficult, or increase the time required, to (1) obtain the expiration or termination of the
waiting period under the HSR Act or any other antitrust, competition or trade regulation law applicable to the Transactions, (2) avoid the entry of, the commencement of litigation seeking the entry of, or effect the dissolution of, any
injunction, temporary restraining order or other order that could reasonably be expected to materially delay or prevent the consummation of the Transactions, or (3) obtain all authorizations, consents, orders and approvals of governmental
authorities necessary or mutually determined as advisable for the consummation of the Transactions.
No Solicitation
The Merger Agreement contains detailed provisions restricting Leidos ability to seek certain alternative transactions and restricting Lockheed Martins
ability to seek alternative transactions with respect to the Splitco Business. Under these provisions, Leidos and Lockheed Martin have each agreed that it will not, and it will cause its affiliates and its affiliates respective directors,
officers, employees, attorneys, accountants, advisors or agents (each, a representative) not to:
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solicit, initiate, or knowingly encourage (including by way of furnishing non-public information), or take any other action to knowingly facilitate, any inquiries or the making of any proposal or offer (including any
proposal or offer to Leidos stockholders or Lockheed Martin stockholders, as the case may be) with respect to any Competing Leidos Transaction or any Competing Splitco Transaction;
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enter into, maintain, continue or otherwise engage or participate in any discussions or negotiations with any person or entity in furtherance of such inquiries or to obtain a proposal or offer with respect to a
Competing Leidos Transaction or a Competing Splitco Transaction, as the case may be;
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agree to, approve, endorse, recommend or consummate any Competing Leidos Transaction or Competing Splitco Transaction, as applicable;
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enter into any agreement relating to a Competing Leidos Transaction or Competing Splitco Transaction, as applicable; or
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in the case of Leidos, resolve, propose or agree, or authorize or permit any representative, to do any of the foregoing.
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The Merger Agreement provides that the term Competing Leidos Transaction means any transaction or series of related transactions (other than the Merger)
that constitutes, or is reasonably likely to lead to:
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any merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or other similar transaction involving Leidos or any of its subsidiaries, the assets of which represent over 20
percent of the total revenue, operating income, EBITDA or fair market value of the assets of Leidos and its subsidiaries, taken as a whole;
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any sale, lease, license, exchange, transfer or other disposition of, or joint venture involving, assets or businesses that represent over 20 percent of the total revenue, operating income, EBITDA or fair market value
of the assets of Leidos and its subsidiaries, taken as a whole;
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any sale, exchange, transfer or other disposition of more than 20 percent of any class of equity securities, or securities convertible into or exchangeable for equity securities, of Leidos;
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any tender offer or exchange offer that, if consummated, would result in any person or entity becoming the beneficial owner of more than 20 percent of any class of equity securities of Leidos;
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any other transaction the consummation of which would reasonably be likely to impede, interfere with, prevent or materially delay the Merger; or
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any combination of the foregoing.
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The Merger Agreement provides that the term Competing Splitco Transaction
means any transaction or series of related transactions (other than the Merger, the Internal Reorganization and the Distribution, or as contemplated by the Merger Agreement and the other Transaction Documents executed concurrently with the Merger
Agreement, and other than asset sales and transfers in the ordinary course of business) that constitutes, or is reasonably likely to lead to:
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a merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution, acquisition, sale, transfer or other disposition or similar transaction involving the Splitco Business; or
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any other transaction the consummation of which would be likely to impede, interfere with, prevent or materially delay the Merger.
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Each of Leidos and Lockheed Martin also agreed to immediately cease or cause to be terminated all existing discussions or negotiations with any person (other than the
other party and its affiliates) conducted prior to the execution of the Merger Agreement by such party or any of its representatives with respect to a Competing Leidos Transaction or a Competing Splitco Transaction, as applicable. Leidos and
Lockheed Martin have each agreed not to release any third party from, or waive any provision of, any confidentiality or, subject to fiduciary duties under applicable law, standstill agreement to which it or one of its affiliates is a party in
connection with a Competing Leidos Transaction or a Competing Splitco Transaction, as applicable. Leidos and Lockheed Martin have each also agreed to, to cause their respective subsidiaries and to instruct their respective representatives to,
request that each person (other than the other party and its affiliates) that has executed a confidentiality agreement with Leidos in connection with that persons consideration of a Competing Leidos Transaction or a Competing Splitco
Transaction return or destroy all information required to be returned or destroyed under the terms of the applicable confidentiality agreement and, if requested by the other party, to enforce that persons obligation to do so.
Under the Merger Agreement, Leidos must promptly (and in any event within 24 hours) notify Lockheed Martin, orally and in writing, after the receipt of any proposal,
inquiry, offer or request with respect to a Competing Leidos Transaction, including any request for discussions or negotiations and any request for information relating to Leidos or any of its affiliates or for access to the business, properties,
assets, books or records of Leidos or any of its affiliates. The notice must include the identity of the person making the proposal, inquiry, offer or request and a description of the proposal, inquiry, offer or request, including any terms and
conditions of the proposed Competing Leidos Transaction, and Leidos must also promptly (and in any event within 24 hours) provide to Lockheed Martin
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copies of any written materials received by Leidos in connection with any of the foregoing. Leidos has agreed that it will keep Lockheed Martin reasonably informed of the status and material
details of any proposal, inquiry, offer or request and any information requested of or provided by Leidos, and that it will provide Lockheed Martin with at least 48 hours prior notice of any meeting of the Leidos Board at which the Leidos Board is
reasonably expected to consider such a proposal, inquiry, offer or request. Leidos has also agreed that it will substantially simultaneously provide to Lockheed Martin any nonpublic information concerning Leidos that may be made available to any
other person in response to such a proposal, inquiry, offer or request unless such information has previously been provided or made available by Leidos to Lockheed Martin.
Under the Merger Agreement, Lockheed Martin has also agreed to promptly (and in any event within 24 hours) notify Leidos, orally and in writing, after the receipt of
any proposal, inquiry, offer or request with respect to a Competing Splitco Transaction, including any request for discussions or negotiations and any request for information relating to Lockheed Martin or any of its affiliates with respect to the
Splitco Business, or for access to the business, properties, assets, books or records of Lockheed Martin or any of its affiliates with respect to the Splitco Business.
Despite the covenants described in foregoing paragraphs in this section, at any time prior to the receipt of the approval of Leidos stockholders for the Share Issuance,
Leidos may furnish information to, and enter into discussions and negotiations with, a person who has made an unsolicited, written, bona fide proposal or offer with respect to a Competing Leidos Transaction that did not result from a breach of the
Merger Agreement by Leidos if, prior to furnishing such information and entering into such discussions, the Leidos Board has:
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determined, in its good faith judgment (after consulting with a financial advisor of nationally recognized reputation and outside legal counsel) that the proposal or offer constitutes, or is reasonably likely to lead
to, a Superior Proposal (which is described in the following paragraph), and has determined, in its good faith judgment (after consulting with outside legal counsel) that the failure to furnish such information to, or enter into such discussions
with, the person who made such proposal or offer would be inconsistent with the fiduciary duties of the Leidos Board to Leidos and its stockholders under applicable law;
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provided written notice to Lockheed Martin of its intent to furnish information or enter into discussions with the person at least three business days prior to first taking any such action with respect to any given
person; and
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obtained from the person a confidentiality agreement on terms no less favorable to Leidos than those contained in Leidos confidentiality agreement with Lockheed Martin and, immediately upon its execution,
delivered to Lockheed Martin a copy of the confidentiality agreement.
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The Merger Agreement provides that the term Superior Proposal means
an unsolicited written bona fide offer or proposal made by a third party with respect to a Competing Leidos Transaction (provided that such Competing Leidos Transaction must involve more than 50 percent of the total revenue, operating income, EBITDA
or fair market value of the assets of Leidos and its subsidiaries, taken as a whole), on terms and conditions that the Leidos Board determines, in its good faith judgment, after consulting with a financial advisor of internationally recognized
reputation and external legal counsel, and taking into account all legal, financial and regulatory and other aspects of the proposal (including availability of financing, and any changes to the terms of the Merger Agreement proposed by Lockheed
Martin in response to such offer or proposal, or otherwise) to be (1) more favorable from a financial point of view to the stockholders of Leidos than the Merger, and (2) reasonably expected to be consummated.
Board Recommendation
Leidos has agreed in the
Merger Agreement that neither the Leidos Board nor any committee thereof will:
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withdraw, qualify, modify, amend or fail to make, or publicly propose to withdraw, qualify, modify or amend, the Leidos Boards recommendation that Leidos stockholders vote in favor of the Share Issuance (the
Leidos Recommendation);
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make any public statement or take any action inconsistent with the Leidos Recommendation; or
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approve or adopt, or recommend the approval or adoption of, or publicly propose to approve or adopt, a Competing Leidos Transaction.
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Any of the actions described in the foregoing bullet points constitutes a Change in Recommendation.
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In addition, notwithstanding the restrictions, if at any time prior to obtaining Leidos stockholder approval of the Share
Issuance and in response to an offer or proposal for a Competing Leidos Transaction that did not result from a breach of the Merger Agreement, the Leidos Board determines in its good faith judgment (after consulting with outside legal counsel) that
(1) the offer or proposal is a Superior Proposal, and (2) failure to make a Change in Recommendation with respect to the Superior Proposal would be inconsistent with its fiduciary duties to Leidos and the Leidos stockholders under
applicable law, then the Leidos Board may make a Change in Recommendation, but only if:
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Leidos provides written notice to Lockheed Martin advising Lockheed Martin that the Leidos Board has received a Superior Proposal promptly after the Leidos Board determines it has received a Superior Proposal, stating
that the Leidos Board intends to make a Change in Recommendation and describing the terms and conditions of the Superior Proposal;
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Lockheed Martin does not, within five business days of receipt of the notice of a Superior Proposal described above, make an offer to revise the terms of the Merger Agreement in a manner that the Leidos Board
determines, in its good faith judgment, after consulting with a financial advisor of nationally recognized reputation and outside legal counsel, to be at least as favorable to Leidos stockholders as the Superior Proposal;
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during the five business day period following delivery of the notice described above, Leidos negotiates in good faith with Lockheed Martin (to the extent Lockheed Martin desires to negotiate) regarding any offer or
proposal made by Lockheed Martin to revise the terms of the Merger Agreement; and
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if there is any amendment to the terms of the Superior Proposal during the five business day period following delivery of the notice described above, Leidos provides a new written notice of the terms of such amended
Superior Proposal giving Lockheed Martin an additional three business day period to make an offer or proposal to revise the terms of the Merger Agreement in a manner that the Leidos Board determines to be at least as favorable to Leidos stockholders
as the Superior Proposal.
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The Merger Agreement provides that Leidos is not prohibited from disclosing the receipt of a proposal or offer for a
Competing Leidos Transaction if compelled to do so under applicable law or Rule 14d-9 or Rule 14e-2(a) promulgated under the Exchange Act and is not prohibited from making a Change in Recommendation under certain circumstances if there is a material
development or change in circumstances that was not known or reasonably foreseeable to the Leidos Board on the date the Merger Agreement was executed or arose after the execution of the Merger Agreement but becomes known to the Leidos Board prior to
the meeting of the Leidos stockholders to vote on the proposal to approve the Share Issuance (such development or change, an Intervening Event); provided that none of the following will comprise an Intervening Event: (1) any action
taken by a party in compliance with the covenants in the Merger Agreement, (2) any action taken or omitted with the consent of Leidos, (3) any action taken or omitted by Leidos (or as a consequence thereof), or (4) the receipt,
existence or terms of a Competing Leidos Transaction.
Financing
Pursuant to the Separation Agreement and the Splitco Commitment Letter entered into prior to the execution of the Separation Agreement, on or prior to the date of the
Distribution, Splitco will incur new indebtedness in an aggregate principal amount of not less than the $1,841,450,000 in the form of borrowings under a credit facility, and will use a portion of the proceeds of this indebtedness to pay the Splitco
Special Cash Payment to Lockheed Martin. The Separation Agreement also provides that, prior to the Distribution, Splitco shall issue to Lockheed Martin a number of shares of Splitco Common Stock such that, subject to adjustment, the number of shares
of Splitco common stock immediately prior to the Distribution equals 76,958,918.
Simultaneously with the execution of the Merger Agreement, Leidos entered into the
Leidos Commitment Letter, under which the Leidos Commitment Parties committed to provide to Leidos up to $1,440,000,000 in aggregate principal amount of senior secured term loans and revolving loans, in each case subject the terms and conditions of
the Leidos Commitment Letter. See Debt Financing.
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The Merger Agreement provides that Leidos will use reasonable best efforts to take all actions necessary to consummate the
debt financing contemplated by the Leidos Commitment Letter as promptly as practicable after the date of the Merger Agreement on terms and conditions no less favorable in the aggregate than the terms and conditions of the Leidos Commitment Letter.
Furthermore, Leidos is required to, and to cause its affiliates to:
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use reasonable best efforts to comply with and maintain the Leidos Commitment Letter and negotiate and execute definitive agreements on the terms and conditions contained in the Leidos Commitment Letter;
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satisfy the conditions in the Leidos Commitment Letter and the definitive agreements for the debt financing that are within Leidos control;
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fully enforce its rights under the Leidos Commitment Letter and the definitive agreements for the debt financing; and
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use reasonable best efforts to draw upon and consummate the debt financing contemplated by the Leidos Commitment Letter at or prior to the Distribution.
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The Merger Agreement provides that if any portion of the financing contemplated by the Leidos Commitment Letter or the related definitive agreements becomes unavailable
on the terms and conditions contemplated in the Leidos Commitment Letter or such definitive agreements, Leidos will use reasonable best efforts to obtain alternative financing that is sufficient to finance the payments to be made to Lockheed Martin
under the Separation Agreement on terms that do not expand the conditions to the funding from those in the Leidos Commitment Letter. Leidos will be subject to the same obligations described in the preceding paragraph with respect to any such
alternative financing arrangements.
Leidos has agreed to keep Lockheed Martin informed of the status of its efforts to arrange the debt financing. Except in
limited circumstances, Leidos may not, without Lockheed Martins consent, amend, modify, replace, waive or change any provision in the Leidos Commitment Letter or any definitive agreement relating to the debt financing in a manner that expands
on the conditions precedent or contingencies to the funding on the closing date of the debt financing or that could otherwise prevent, impair or materially delay the consummation of the Transactions or adversely impact the ability of Leidos to
enforce its rights against the other parties to the Leidos Commitment Letter. Prior to the closing of the Merger, Lockheed Martin has agreed to cooperate, at the expense of Leidos, with Leidos for the arrangement of the debt financing.
Certain Other Covenants and Agreements
The Merger
Agreement contains certain other covenants and agreements, including covenants (with certain exceptions specified in the Merger Agreement) relating to:
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each partys obligation to use reasonable best efforts to afford the other party and its authorized representatives access to each of the Splitco Business or Leidos offices, properties and books and records
and to furnish copies of related information, as well as restrictions on a party contacting any of the employees, customers, distributors or suppliers of the other party without the authorization of the other party;
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preservation of the indemnification provisions in the bylaws of Splitco with respect to directors, officers, employees or agents of Splitco;
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each partys obligation to cooperate and use reasonable best efforts to obtain the release of Lockheed Martin and its subsidiaries from certain contracts, instruments or other financial support arrangements to the
extent relating to the Splitco Business and for which Lockheed Martin or its subsidiary is a guarantor or person required to provide financial support, including by substituting Leidos or one of its subsidiaries for the Lockheed Martin entity that
is a party to the contract, instrument or financial support arrangement;
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an acknowledgement that, as an inducement to enter into the Merger Agreement and to consummate the Transactions, Lockheed Martin and Leidos will take, and cause Splitco and the Splitco Subsidiaries to take, all actions
necessary or appropriate to comply with the obligations under the Separation Agreement prior to the effective time of the Merger or from and after the closing of the Merger, as applicable;
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an acknowledgement that Leidos, Lockheed Martin, Splitco and Merger Sub exercise complete control and supervision over their respective operations prior to the consummation of the Merger;
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the listing of the shares of Leidos common stock issued in the Merger on the NYSE;
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steps required to cause any disposition of Splitco common stock or acquisitions of Leidos common stock resulting from the Transactions by each officer or director who is subject to the reporting requirements of
Section 16(a) of the Exchange Act with respect to Leidos or Splitco to be exempt under Rule 16b-3 promulgated under the Exchange Act;
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confidentiality obligations of Lockheed Martin and Leidos;
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each partys obligation to take appropriate actions, and to assist and cooperate with the other parties, to do all things necessary, proper or advisable under applicable law to execute and deliver the Transaction
Documents and any other documents as may be required to carry out the provisions of the Merger Agreement and to consummate the Transactions, as well as Lockheed Martins obligations to keep Leidos informed as to the status of the Internal
Reorganization; and
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preparation and delivery of the audited combined and consolidated financial statements of the Splitco Business and cooperation of the parties with respect to the preparation of pro forma financial statements required
for the filing of the registration statements.
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Conditions to the Merger
The obligations of Leidos, Lockheed Martin, Merger Sub and Splitco to consummate the Merger are subject to the satisfaction or, if permitted under applicable law,
written waiver of the following conditions:
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the consummation of the Internal Reorganization in all material respects in accordance with the Separation Agreement and the Distribution;
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the effectiveness of the registration statement of Leidos and the registration statement of Splitco and the absence of any stop order issued by the SEC or any pending proceeding before the SEC seeking a stop order with
respect thereto;
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the approval for listing on the NYSE of the shares of Leidos common stock to be issued in the Merger;
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the approval by Leidos stockholders of the Share Issuance;
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the expiration or termination of any applicable waiting period under the HSR Act (which period has expired), and the receipt of any governmental approvals required under the antitrust laws in certain other
jurisdictions; and
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the absence of any law or orders of governmental authorities in the United States or certain other jurisdictions that enjoins or makes illegal the consummation of the Internal Reorganization, the Distribution or the
Merger.
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The conditions listed above are referred to as the Joint Conditions to the Merger. As announced by Leidos on March 29, 2016,
the applicable waiting period under the HSR Act has expired.
Leidos and Merger Subs obligations to effect the Merger are subject to the satisfaction
or, if permitted by applicable law, written waiver of the following additional conditions:
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the truth and correctness in all material respects of Lockheed Martins representations and warranties with respect to corporate existence and power, corporate authorization, capital structure, ownership of equity
interests in the Splitco Subsidiaries and joint ventures associated with the Splitco Business, absence of certain conflicts, required board and stockholder approvals and broker fees as of the closing date of the Merger;
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the truth and correctness of Lockheed Martins other representations and warranties as of the closing date of the Merger, except where a failure to be true and correct would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on Splitco;
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the compliance in all material respects by Lockheed Martin and Splitco of all covenants and agreements required to be complied with by them on or prior to the effective time of the Merger under the Merger Agreement, the
Separation Agreement and each other Transaction Document executed contemporaneously with the Merger Agreement;
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the receipt by Leidos of a certificate, dated as of the closing date of the Merger, of an authorized representative of Lockheed Martin certifying the satisfaction by, as applicable, Lockheed Martin and Splitco of the
conditions described in the preceding three bullet points;
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the receipt by Leidos of an opinion from a nationally recognized valuation firm that Leidos and its subsidiaries on a consolidated basis shall not be insolvent or otherwise unable to pay their respective
obligations after giving effect to the Leidos Special Dividend and the Merger; and
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the receipt by Leidos of the Leidos Tax Opinion and a copy of the opinion of Davis Polk & Wardwell LLP, tax counsel to Lockheed Martin, to the effect that the Merger will be treated for U.S. federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code and that each of Leidos, Merger Sub and Splitco will be a party to the reorganization within the meaning of Section 368(b) of the Code.
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We refer to the first four conditions listed above as the Additional Conditions to the Merger for Leidos Benefit.
Lockheed Martins and Splitcos obligations to effect the Merger are subject to the satisfaction or, if permitted by applicable law, waiver of the following
additional conditions:
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the truth and correctness in all material respects of Leidos and Merger Subs representations and warranties with respect to corporate existence and power, corporate authorization, capitalization, absence of
certain conflicts and broker fees as of the closing date of the Merger;
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the truth and correctness of Leidos and Merger Subs other representations and warranties as of the closing date of the Merger, except where a failure to be true and correct would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on Leidos;
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the compliance in all material respects by Leidos and Merger Sub of all covenants and agreements required to be complied with by them on or prior to the effective time of the Merger under the Merger Agreement, the
Separation Agreement and each other Transaction Document executed contemporaneously with the Merger Agreement;
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the receipt by Lockheed Martin of a certificate, dated as of the closing date of the Merger, of an authorized representative of Leidos certifying the satisfaction by Leidos and Merger Sub of the conditions described in
the preceding three bullet points;
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the receipt by Lockheed Martin of the Lockheed Martin Tax Opinions and a copy of the Leidos Tax Opinion;
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the receipt by Lockheed Martin and Splitco of opinions from a nationally recognized valuation firm that Lockheed Martin and Splitco shall not be insolvent, unable to pay their respective obligations or
otherwise unable to make a distribution under the MGCL or DGCL, as the case may be, after giving effect to the Splitco Special Cash Payment, the Distribution and the Merger;
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the receipt by Lockheed Martin of the Splitco Special Cash Payment; and
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Splitco shall have incurred the Splitco Debt and shall have received the proceeds of the Splitco Debt.
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We refer to the
first four conditions listed above as the Additional Conditions to the Merger for Lockheed Martins Benefit. To the extent permitted by applicable law, Lockheed Martin and Splitco, on the one hand, and Leidos and Merger Sub, on the
other hand, may waive the satisfaction of the conditions to their respective obligations to consummate the Transactions. If Leidos waives the satisfaction of a material condition to the consummation of the Transactions, Leidos will evaluate the
facts and circumstances at that time and re-solicit stockholder approvals of the Share Issuance if required to do so by law or the rules of the NYSE. If Leidos waives a material condition to the consummation of the Transactions, Leidos will notify
stockholders of the waiver by issuing a press release or other public announcement a minimum of five business days prior to the special meeting of Leidos stockholders. See Risk FactorsRisks Related to the TransactionsLeidos may
waive one or more of the conditions to the consummation of the Transactions without re-soliciting stockholder approval.
Termination
The Merger Agreement may be
terminated and the Transactions may be abandoned at any time prior to the consummation of the Merger by the written consent of Lockheed Martin, Leidos, Splitco and Merger Sub. Also, subject to specified qualifications and exceptions, either Lockheed
Martin or Leidos may terminate the Merger Agreement and abandon the Transactions at any time prior to the consummation of the Merger:
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if the Merger has not been consummated by 11:59 p.m. New York City time on January 25, 2017 (such date and time, the Termination Date);
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if any governmental authority in the United States or certain other jurisdictions has issued a final and non-appealable order that permanently enjoins the consummation of the Merger; or
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if Leidos stockholders fail to approve the Share Issuance at the meeting of Leidos stockholders (including any adjournment, continuation or postponement thereof).
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In addition, subject to specified qualifications and exceptions, Lockheed Martin may terminate the Merger Agreement and abandon the Transactions if:
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Leidos has breached any covenant or agreement in the Merger Agreement (including an obligation to consummate the Merger) that would, if occurring or continuing on the closing date of the Merger, cause the Joint
Conditions to the Merger or Additional Conditions to the Merger for Lockheed Martins Benefit not to be satisfied, and the breach is not cured, or cannot be cured, upon the earlier of (i) 30 days following Lockheed Martins written
notice to Leidos of such breach and Lockheed Martins intent to terminate the Merger Agreement, (ii) with respect to a breach of an obligation to consummate the Merger, five business days following Lockheed Martins written notice to
Leidos of such breach and Lockheed Martins intent to terminate the Merger Agreement, or (iii) the Termination Date (a termination pursuant to this provision, a Termination for Leidos Material Breach);
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a Change in Recommendation has occurred;
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Leidos has failed to include the Leidos Recommendation in the Leidos proxy statement; or
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Leidos has failed to comply with its obligations under the Merger Agreement relating to the meeting of Leidos stockholders or the non-solicitation of alternative transactions, except for de minimis non-compliances with
these obligations that are promptly cured by Leidos.
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In addition, subject to specified qualifications and exceptions, Leidos may terminate the Merger
Agreement if:
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Lockheed Martin or Splitco has breached any covenant or agreement in the Merger Agreement or the Separation Agreement (including an obligation to consummate the Merger) that would, if occurring or continuing on the
closing date of the Merger, cause the Joint Conditions to the Merger or Additional Conditions to the Merger for Leidos Benefit not to be satisfied, and the breach is not cured, or cannot be cured, upon the earlier of (i) 30 days following
Leidos written notice to Lockheed Martin and Splitco of such breach and Leidos intent to terminate the Merger Agreement, (ii) with respect to a breach of an obligation to consummate the Merger, five business days following
Leidos written notice to Lockheed Martin and Splitco of such breach and Leidos intent to terminate the Merger Agreement, or (iii) the Termination Date.
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If the Merger Agreement is validly terminated, the Merger Agreement will terminate without any liability on the part of any party or their respective representatives
except as described below in the section of this document entitled Termination Fee and Expenses Payable in Certain Circumstances; provided that nothing in the Merger Agreement will relieve any party from liability for fraud
committed prior to such termination or for any willful breach prior to such termination of any of its representations, warranties, covenants or agreements set forth in the Transaction Documents; provided, further, that provisions of the Merger
Agreement relating to confidentiality, the effect of termination of the Merger Agreement, fees and expenses and all of the general provisions of the Merger Agreement will survive any termination and remain in full force and effect.
Termination Fee and Expenses Payable in Certain Circumstances
The Merger Agreement provides that, upon termination of the Merger Agreement under specified circumstances, a termination fee of $150,000,000 is payable by Leidos to
Lockheed Martin. The circumstances under which this termination fee is payable include:
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if Lockheed Martin terminates the Merger Agreement due to (1) a Change in Recommendation, (2) Leidos failure to include the Leidos Recommendation in the Leidos proxy statement, or (3) Leidos
failure to comply with its obligations under the Merger Agreement relating to the meeting of Leidos stockholders and the non-solicitation of alternative transactions; or
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if (1) Leidos or Lockheed Martin terminates the Merger Agreement because the Merger has not been consummated by the Termination Date or there is a Termination for Leidos Material Breach, (2) prior to the
termination of the Merger Agreement, a Competing Leidos Transaction is publicly announced or becomes publicly known, and (3) on or prior to the date that is 15 months after the date of termination, Leidos enters into a Competing Leidos
Transaction or consummates a Competing Leidos Transaction (whether or not the applicable Competing Leidos Transaction is the same as the original Competing Leidos Transaction publicly announced or publicly known); provided that solely for purpose of
this provision, references to 20 percent in the definition of Competing Leidos Transaction will be deemed to refer to 50 percent.
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If the Merger Agreement is terminated because Leidos stockholders fail to approve the Share Issuance at the meeting of
Leidos stockholders, Leidos will be required to reimburse Lockheed Martin in cash for all out-of-pocket fees and expenses actually incurred or accrued by Lockheed Martin and its affiliates in connection with the Transactions, up to a maximum of
$37,500,000 in the aggregate.
Except as described in this section and subject to certain exceptions, the Merger Agreement provides that all out-of-pocket expenses
incurred in connection with the Merger Agreement and the Transactions are to be paid by the party incurring the expenses, except that Lockheed Martin and Leidos shall each pay one-half of all out-of-pocket expenses relating to printing, filing and
mailing the Leidos and Splitco registration statements and the Leidos proxy statement and all SEC and other regulatory filing fees incurred in connection with the registration statements and the proxy statement.
If Leidos fails to pay the $150,000,000 termination fee described above when due, the amount of such payment will be increased to include the costs of all expenses
incurred or accrued by Lockheed Martin and Splitco (including fees and expenses of counsel) in connection with the collection under and enforcement of the terms of the Merger Agreement, together with interest on the unpaid termination fee. Payment
of the fees and expenses described in this section will not be in lieu of any damages incurred in the event of breach of the Merger Agreement.
In the event of a
termination of the Merger Agreement, in addition to the payment of any termination fee, reimbursement of any out-of-pocket expenses and any other payments contemplated by the Merger Agreement, Leidos will pay to Lockheed Martin an amount of cash
equal to the aggregate fees and expenses payable in connection with the financing contemplated by the Splitco Commitment Letter, including interest expenses for period up to and including the closing date of the Merger and any amounts required to
reimburse the Splitco Commitment Parties (including costs of counsel to the Splitco Commitment Parties).
Specific Performance
In the Merger Agreement, the parties acknowledge that money damages would be both incalculable and an insufficient remedy for any breach of the Merger Agreement
by a party, and that any such breach would cause the other parties irreparable harm. Accordingly, the parties have agreed that, in the event of any breach or threatened breach of the provisions of the Merger Agreement, the other parties are entitled
to enforce any provision of the Merger Agreement to equitable relief without the requirement of posting a bond or other security, including in the form of injunctions and orders for specific performance, in addition to all other remedies available
to a party at law or in equity.
Amendments; Waivers
No provision of the Merger Agreement may be amended or waived except by an instrument in writing signed by, in the case of an amendment, all of the parties to the Merger
Agreement, or, in the case of a waiver, by the party or parties against whom the waiver is to be effective. For any amendments or waivers to the sections of the Merger Agreement relating to liability following payment of a termination fee,
amendments and waivers, successors and assigns, governing law, dispute resolution, waiver of jury trial, third-party beneficiaries, certain non-parties to the Merger Agreement and non-recourse that, in each case, adversely affect any of Leidos
or Splitcos financing sources, the prior written consent of the affected financing sources will be required before such amendment or waiver is effective.
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THE SEPARATION AGREEMENT
The following is a summary of the material provisions of the Separation Agreement. This summary is qualified in its entirety by the Separation Agreement, which is
incorporated by reference in this document. Lockheed Martin stockholders and Leidos stockholders are urged to read the Separation Agreement in its entirety. This description of the Separation Agreement has been included to provide Lockheed Martin
stockholders and Leidos stockholders with information regarding its terms. The rights and obligations of the parties are governed by the express terms and conditions of the Separation Agreement and not by this summary or any other information
included in this document. It is not intended to provide any other factual information about Leidos, Merger Sub, Lockheed Martin or Splitco. Information about Leidos, Merger Sub, Lockheed Martin and Splitco can be found elsewhere in this document
and in the documents incorporated by reference into this document. See also Where You Can Find More Information; Incorporation by Reference.
Descriptions regarding the assets and liabilities conveyed to Splitco and retained by Lockheed Martin contained in the Separation Agreement are qualified by certain
information that has been exchanged between Lockheed Martin and Splitco that is not reflected in the Separation Agreement. Accordingly, Lockheed Martin stockholders and Leidos stockholders should not rely on the general descriptions of assets and
liabilities in the Separation Agreement, as they may have been modified in important ways by the information exchanged between Lockheed Martin and Leidos.
Overview
The Separation Agreement provides for the Separation of the Splitco Business from Lockheed Martin. Among other things, the Separation Agreement
specifies those assets of Lockheed Martin related to the Splitco Business that are to be transferred to, and those liabilities of Lockheed Martin related to the Splitco Business that are to be assumed by, Splitco and the Splitco Subsidiaries, and
sets forth when and how these transfers and assumptions will occur. The Separation Agreement also includes procedures by which Lockheed Martin and Splitco will become separate and independent companies. The matters addressed by the Separation
Agreement include, but are not limited to, the matters described below.
In consideration for the contribution of certain specified assets relating to the Splitco
Business to Splitco and the Splitco Subsidiaries, Splitco will:
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issue and deliver to Lockheed Martin additional shares of Splitco common stock that, together with the 100 shares of Splitco common stock currently owned by Lockheed Martin, will constitute all of the outstanding stock
of Splitco;
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pay to Lockheed Martin the Splitco Special Cash Payment; and
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assume certain specified liabilities relating to the Splitco Business.
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Separation of the
IS&GS Business
Internal Reorganization
At or prior to the
date of the Distribution, to the extent not completed prior to the date of the Separation Agreement, Lockheed Martin and Splitco will take steps (including transfers of stock or other equity interests, formation of new entities and/or declaration of
dividends) to effect the Internal Reorganization, pursuant to which, among other things, all of the Splitco Subsidiaries will become direct or indirect subsidiaries of Splitco.
Conveyance of Assets; Assumption and Discharge of Liabilities
Generally, subject to the terms and conditions contained in the Separation Agreement and only to the extent not inconsistent with the tax-free status of the
Distribution:
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at or prior to the date of the Distribution, Lockheed Martin will transfer to Splitco or a Splitco Subsidiary all the Transferred Assets (as defined below), and Splitco or a Splitco Subsidiary will assume all
liabilities arising out of or relating to the Transferred Assets or the operation, affairs or conduct of the Splitco Business, whether arising before, at or after the execution of the Separation Agreement;
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Lockheed Martin will retain all assets and liabilities that are not transferred to, or assumed by, Splitco or a Splitco Subsidiary in the Separation; and
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following the date of the Distribution, if the parties receive funds upon payment of accounts receivable or other amounts attributable to assets or liabilities transferred to the other party, then the parties will
transfer such misallocated assets or liabilities, or related funds, to the appropriate party.
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The assets to be transferred or assigned to Splitco or
the Splitco Subsidiaries (the Transferred Assets) include, among other things, the following assets of Lockheed Martin:
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certain owned and leased real property used in the Splitco Business;
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all shares of capital stock and other equity interests in the Splitco Subsidiaries, including equity interests in the Joint Venture Entities;
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all tangible property, including machinery, equipment, furniture, office equipment, communications equipment, vehicles, storage tanks, spare and replacement parts, fuel and other property, that is used exclusively in
connection with the Splitco Business;
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all contracts that relate exclusively to the Splitco Business and certain shared contracts and rights thereunder, including those contracts subject to the terms of the Shared Contracts Agreements (as more fully
described in the section of this document entitled Other AgreementsAdditional Agreements);
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all bids, proposals and quotations, including bids made in respect of government contracts, submitted prior to the date of the Distribution on behalf of the Splitco Business;
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all accounts receivable and notes receivable relating exclusively to the operation of the Splitco Business;
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all prepaid expenses relating exclusively to the operation of the Splitco Business, including lease and rental payments;
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all rights, claims, credits, causes of action or rights of set-off against other persons or entities (other than Lockheed Martin) relating exclusively to the Splitco Business or the Transferred Assets, including
unliquidated rights under manufacturers and vendors warranties;
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certain intellectual property and industrial property rights and rights in confidential information, including patents, trademarks, copyrights and applications therefor and all other intellectual property that is
related to the Splitco Business and identified in the Intellectual Property Matters Agreement, subject to the terms, conditions and limitations of the Intellectual Property Matters Agreement as more fully described in the section of this document
entitled Other AgreementsAdditional Agreements;
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all transferable franchise, licenses, permits or other authorizations issued by a governmental authority and owned, or granted, held or used exclusively in connection with the Splitco Business;
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all data of any third party (other than Lockheed Martin, Splitco or a Splitco Subsidiary) that has been provided, disclosed or otherwise made available exclusively to, or is maintained or used exclusively by, the
Splitco Business, together with any books, records, files and papers containing such data;
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all data of Lockheed Martin used exclusively in the Splitco Business, together with any books, records, files and papers containing such data;
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all corporate or limited liability company minute books and related stock records of Splitco and the Splitco Subsidiaries, all information and records related exclusively to Splitco and the Splitco Subsidiaries used to
demonstrate compliance with applicable law and any other compliance records exclusively related to the Splitco Business and all separate financial and property tax records of Splitco or the Splitco Subsidiaries that do not form part of the general
ledger of Lockheed Martin;
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all insurance proceeds (except those relating to Excluded Assets or Excluded Liabilities (as defined below)), net of any retrospective premiums, deductibles, retention or similar amounts, arising out of or related to
damage, destruction or loss of any Transferred Assets (or that would have been Transferred Assets but for the occurrence of an event giving rise to the insurance proceeds) to the extent of any damage or destruction that remains unrepaired or to the
extent any property or asset remains unreplaced on the date of the Distribution;
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assets relating to certain employee plans and other benefit arrangements expressly provided in the Employee Matters Agreement (as more fully described in the section of this document entitled Other
AgreementsEmployee Matters Agreement) to be transferred to Splitco or to a trust associated with an employee plan or benefit arrangement sponsored by Splitco; and
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all software programs, document and other related materials used or held for use exclusively in connection with the Splitco Business, including software licenses, software embedded in any hardware or equipment that is a
Transferred Asset and operating system software and commercial off-the-shelf software installed on any computer, workstation, personal digital assistant, cell phone or other communications device that is a Transferred Asset, to the extent
transferable under the terms of any license.
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The Separation Agreement provides that the assets to be transferred or assigned to Splitco or the Splitco Subsidiaries will not in any event include, among other things, any of the following assets (the Excluded
Assets):
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all cash and cash equivalents of Lockheed Martin including those used as collateral for financial support arrangements of Lockheed Martin, other than the actual cash of the Splitco Business calculated in accordance with
the cash adjustment as more fully described below under Cash and Working Capital Adjustment and deposits with utilities, insurance companies and other persons;
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all accounts receivable of the Splitco Business for which Lockheed Martin is the obligor;
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all original books and records that Lockheed Martin is required to retain pursuant to applicable law or that contain information relating to any business or activity of Lockheed Martin not forming a part of the Splitco
Business or any employee of Lockheed Martin that is not a Splitco Business Employee;
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all original employment-related books and records relating to Splitco Business Employees and all books and records relating to employee plans and benefit arrangements under which benefits are provided to the Splitco
Business Employees and Former Splitco Business Employee;
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all tax records relating to the Splitco Business that form part of the general ledger of Lockheed Martin, any work papers of Lockheed Martins auditors and any other tax records (including accounting records) of
Lockheed Martin;
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all assets of Lockheed Martin not held or owned by or used exclusively in connection with the Splitco Business, certain contracts, rights and other properties and assets that the parties have agreed will be excluded
assets and all assets otherwise relating to or arising out of any business or operations other than the Splitco Business;
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all owned and leased real property other than the real property used in the Splitco Business;
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all rights and claims of Lockheed Martin under any of the Transaction Documents or related agreements or instruments;
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all notes receivable or similar claims or rights of the Splitco Business from Lockheed Martin relating to or arising out of the financing of the Splitco Business or the transfer of cash to or from the Splitco Business;
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all capital stock or any other securities owned by Lockheed Martin (other than capital stock or equity interests in the Splitco Subsidiaries);
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all intellectual property owned, licensed or used by Lockheed Martin other than the intellectual property to be transferred to Splitco and the Splitco Subsidiaries pursuant to the Intellectual Property Matters
Agreement;
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all assets relating to employee plans and benefits arrangements of Lockheed Martin, except to the extent the Employee Matters Agreement provides for the transfer of such assets to a Splitco Subsidiary or to a trust
associated with an employee plan or benefit arrangement sponsored by a Splitco Subsidiary or such assets are held directly by any Splitco Subsidiary or by a trust associated with an employee plan or benefit arrangement sponsored by a Splitco
Subsidiary and are exclusively applicable to Splitco Business Employees;
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unless otherwise provided in the Supply Agreements, all intra-Lockheed Martin work transfer agreements and all quotations, bids or proposals submitted by Lockheed Martin, Splitco or the Splitco Subsidiaries in response
to requests for intra-Lockheed Martin quotations and all rights and benefits in respect of other interdivision, intradivision intra-Lockheed Martin agreements or arrangements in respect of the Splitco Business;
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all data of Lockheed Martin, other than any data used exclusively in the Splitco Business;
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all assets that are expressly contemplated by the Transaction Documents to be retained by Lockheed Martin; and
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all assets related to liabilities that will not be assumed by Splitco or the Splitco Subsidiaries in connection with the Transactions.
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The Separation Agreement provides that the liabilities that are to be assumed by Splitco or the Splitco Subsidiaries (the
Assumed Liabilities) include, among other things, the following liabilities of Lockheed Martin:
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all trade and other accounts payable and notes payable of the Splitco Business and all liabilities that are reflected in the balance sheet of the Splitco Business as of December 31, 2015, the final statement of the
cash and net working capital of the Splitco Business to be delivered under the Separation Agreement or the notes to the combined financials statements of the Splitco Business;
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certain specified liabilities that the parties have agreed will be assumed by Splitco or the Splitco Subsidiaries;
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all liabilities arising under or related to bids, quotations and proposals of the Splitco Business and the contracts that constitute Transferred Assets (whether or not such contracts are inactive contracts and whether
arising prior to, on or after the date of the Distribution and whether or not novated to Splitco or the Splitco Subsidiaries), including all settlement liabilities and liabilities arising from or relating to performance or non-performance of such
contracts;
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all liabilities in respect of the Splitco Business Employees, Former Splitco Business Employees and all dependents and beneficiaries of such individuals, including liabilities in respect of workers compensation
for incidents occurring prior to, on or after the date of the Distribution, liabilities in respect of any obligation of Lockheed Martin to indemnify, defend, or advance or reimburse expenses of any such employees or former employees in connection
with the Splitco Business, and liabilities under or relating to the Worker Adjustment and Retraining Notification Act or any similar state or local law to the extent relating to or arising out of any actions taken prior to, on or after the date of
the Distribution, except in each case to the extent otherwise provided in the Employee Matters Agreement;
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all liabilities with respect to any Splitco Business Employees, Former Splitco Business Employees and all dependents and beneficiaries of such individuals under employee plans and benefit arrangements and liabilities in
respect of independent contractor agreements or arrangements in connection with the Splitco Business, except in each case to the extent otherwise provided in the Employee Matters Agreement to be retained by Lockheed Martin;
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all liabilities relating to errors or omissions or allegations thereof or claims of design or other defects with respect to any product sold or service provided by the Splitco Business prior to, on or after the date of
the Distribution;
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all liabilities relating to warranty or similar obligations or services with respect to any product sold or service provided by the Splitco Business prior to, on or after the date of the Distribution;
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all liabilities relating to the owned and leased real property included in the Transferred Assets and the other real property and facilities to be leased, subleased or licensed to Splitco or the Splitco Subsidiaries
arising prior to, on and after the Distribution as more fully described below in Other AgreementsAdditional AgreementsBuilding and Office Space Lease, Subleases andLicense Agreements;
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all liabilities under any stock purchase agreement or similar agreement relating to the acquisition of a Splitco Subsidiary prior to the date of the Distribution;
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all liabilities relating to workers compensation or the Occupational Safety and Health Act of 1970, as amended, and any regulations, decisions or orders promulgated thereunder, and any state or local law
pertaining to worker, employee or occupational safety or health, whether arising prior to, on or after the date of the Distribution;
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all liabilities arising under the new indebtedness to be incurred by Splitco prior to or on the date of the Distribution, all other indebtedness for borrowed money incurred by Splitco or the Splitco Subsidiaries after
the Cut-Off Time and the Splitco Special Cash Payment;
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all liabilities relating to or arising out of the ownership by Splitco, the Splitco Subsidiaries or any of their successors of the Transferred Assets, or the ownership, lease, use or occupancy by Splitco, or the Splitco
Subsidiaries of real property or facilities, including the ownership of the owned and leased real property included in the Transferred Assets, the other real property and facilities to be leased, subleased or licensed to Splitco or the Splitco
Subsidiaries on and after the Distribution (as more fully described below in Other Agreements) or relating to or arising out of conditions at or affecting such real property or facilities or the operations of the Splitco Business
that arise under or relate to environmental laws, whether arising prior to, on or after the date of the Distribution;
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all liabilities arising directly or indirectly from legal, administrative or other claims or proceedings relating to the Splitco Business or any Transferred Assets, including in respect of any alleged tort, breach of
contract, violation or noncompliance with applicable law or any franchise, permit, license or similar authorization, whether arising prior to, on or after the date of the Distribution; and
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except as otherwise expressly provided in any Transaction Document, all other liabilities relating to or arising out of the Transferred Assets or the operation, affairs, or conduct of the Splitco Business whether
arising before, at, or after the date of the Separation Agreement.
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The Separation Agreement provides that the liabilities that are to be assumed by
Splitco or the Splitco Subsidiaries will not in any event include, among other things, any of the following assets (the Excluded Liabilities):
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all liabilities in respect of trade and other accounts payable and notes payable of the Splitco Business for which Lockheed Martin is the obligee;
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except for obligations in respect of the Splitco Special Cash Payment, all liabilities, whether now in existence or arising after the date of the Separation Agreement, in respect of notes payable (including intercompany
promissory notes) or similar obligations (whether or not billed or accrued and however documented) to Lockheed Martin relating to or arising out of the financing of the Splitco Business or the transfer of cash to or from the Splitco Business;
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except to the extent provided in the Supply Agreements, all liabilities in respect of any intra-Lockheed Martin work transfer agreements and any quotations, bids or proposals submitted by Lockheed Martin, Splitco or the
Splitco Subsidiaries in response to requests for intra-Lockheed Martin quotations, intra-Lockheed Martin work transfer agreements or other interdivision, intradivision intra-Lockheed Martin agreements or arrangements in respect of the Splitco
Business;
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all liabilities, whether in existence or arising after the date of the Separation Agreement, relating to fees, commissions or expenses owed to any broker, finder, investment banker, accountant, attorney or other
intermediary or advisor employed by Lockheed Martin, Splitco or the Splitco Subsidiaries in connection with the Transactions (other than any financing fees or expenses payable by Splitco or a Splitco Subsidiary in connection with the financial
support arrangements relating to the Transactions;
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all liabilities of Lockheed Martin in respect of indebtedness for borrowed money (excluding other liabilities arising under the new indebtedness to be incurred by Splitco prior to or on the date of the Distribution, all
other indebtedness for borrowed money validly incurred by Splitco or the Splitco Subsidiaries after the Cut-Off Time and the Splitco Special Cash Payment, which will be assumed by Splitco or a Splitco Subsidiary unless otherwise included in the
previous paragraph);
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all liabilities under those contracts the parties have agreed will be Excluded Assets;
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all liabilities expressly retained or assumed by Lockheed Martin pursuant to the Tax Matters Agreement or the Employee Matters Agreement, and certain liabilities that the parties have agreed will be retained by Lockheed
Martin relating to (i) payment obligations in respect of specified indemnity holdback and other obligations continuing under certain transaction agreements relating to the acquisition of a Splitco Subsidiary prior to the date of the
Distribution, (ii) liabilities of Lockheed Martin in respect of certain pending litigation and administrative proceedings and (iii) environmental remediation liabilities in respect of real property owned by Lockheed Martin in King of
Prussia, Pennsylvania, a portion of which will be leased to Splitco or a Splitco Subsidiary as of the date of the Distribution; and
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all liabilities arising from the satisfaction or settlement of intercompany accounts in accordance with the Separation Agreement.
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Consents and Delayed Transfers
The Separation Agreement provides that
Lockheed Martin and Splitco will use their respective reasonable best efforts to obtain any third-party consents required in connection with the transfer of any contract constituting a Transferred Asset to Splitco or a Splitco Subsidiary or the
transfer of any contract constituting an Excluded Asset from Splitco or a Splitco Subsidiary to Lockheed Martin.
Where the transfer of an asset requires the
consent of a third party and such consent has not been obtained prior to the Distribution, then, to the extent permitted under such contract and applicable law, Lockheed Martin and Splitco will be required to cooperate to enter into mutually
agreeable arrangements under which Splitco, the Splitco
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Subsidiaries or Lockheed Martin, as the case may be, will obtain the claims, rights and benefits associated with, and will assume the economic burden and other obligations with respect to, the
relevant contract until the applicable contract is transferred to, or the applicable liability is assumed by, Splitco, a Splitco Subsidiary or Lockheed Martin, as applicable, and Splitco, the Splitco Subsidiaries or Lockheed Martin, as applicable,
would enforce, at the other partys cost and reasonable request, any and all claims, rights and benefits against any third party arising under and contract, for the benefit of the other party. These obligations are subject to the limitation
that no party will be required to pay any fee under any arrangements pursuant to the preceding sentence or in connection with obtaining any third-party consent, nor will any party have any obligation to seek such consents with respect to licenses
for commercial off-the-shelf software.
In addition, subject to the terms of the Merger Agreement and the Separation Agreement, the Separation Agreement requires
that Lockheed Martin and Splitco use reasonable best efforts to take all actions necessary to consummate the Transactions as promptly as practicable, including using reasonable best efforts to obtain all approvals of governmental authorities
necessary to complete the Distribution and the other Transactions as further described in the section of this document entitled The Transactions. In connection with the foregoing, Splitco is required to provide any assurances as to
financial capability, resources and creditworthiness requested by a governmental authority. Lockheed Martin and Splitco are also required to prepare and submit appropriate notifications and disclosures in connection with Transactions to the Defense
Contract Management Agency, the Defense Security Service of the U.S. Government and any other governmental authorities pursuant to national or industrial security regulations and existing and prospective customers under government contracts or bids.
Certain Additional Agreements
The Separation Agreement requires
that on the date of the Distribution, Lockheed Martin or its subsidiaries and Splitco or the Splitco Subsidiaries execute and deliver all necessary transfer documents relating to the Transferred Assets to be transferred or assigned to Splitco or the
Splitco Subsidiaries (or the Excluded Assets to be transferred to, or retained by, Lockheed Martin) and the Assumed Liabilities to be assumed by Splitco or the Splitco Subsidiaries (or Excluded Liabilities to be transferred to, or retained by,
Lockheed Martin), including the Assignment and Assumption Agreements.
In addition, on the date of the Distribution, Lockheed Martin or its subsidiaries and Splitco
or the Splitco Subsidiaries are required to execute and deliver certain intellectual property matters agreements, real property agreements, transition services agreements, supply agreements, a subcontract pending the U.S. governments agreement
to novate one or more government contracts to Splitco and agreements relating to performance of certain shared contracts, as more fully described in the section of this document entitled Other AgreementsAdditional Agreements.
Intercompany Agreements
All contracts between Splitco or any of the
Splitco Subsidiaries, on the one hand, and Lockheed Martin or any of its subsidiaries (other than Splitco and the Splitco Subsidiaries), on the other hand, will be terminated as of the date of the Distribution, except for certain agreements like the
Separation Agreement, the Merger Agreement, the Additional Agreements and contracts to which any non-wholly-owned subsidiary of Lockheed Martin or Splitco, as the case may be, is a party. In addition, all outstanding intercompany accounts between
Lockheed Martin or any of its subsidiaries (other than Splitco and the Splitco Subsidiaries), on the one hand, and Splitco or any of the Splitco Subsidiaries, on the other hand, will be settled or satisfied no later than the date of the
Distribution.
Cash and Working Capital Adjustment
The
Separation Agreement provides for a cash adjustment to the extent that the actual cash of Splitco and the Splitco Subsidiaries as of the Cut-Off Time is greater than zero. The Separation Agreement also provides for a working capital adjustment to
the extent that the actual net working capital of Splitco and the Splitco Subsidiaries as of the Cut-Off Time is greater or less than specified target amounts of net working capital for Splitco and the Splitco Subsidiaries as of such date.
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If the actual net working capital amount as determined in accordance with the procedures set forth in the Separation Agreement exceeds $29,000,000, then Splitco will pay to Lockheed Martin the excess, plus an amount
equal to the actual cash of the Splitco Business as of the Cut-Off Time.
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If the actual net working capital amount exceeds $22,000,000 and is not more than $29,000,000, then Lockheed Martin will pay to Splitco an amount equal to $7,000,000 minus the sum of such excess and the actual cash of
the Splitco Business as of the Cut-Off Time (provided that, if the sum of such excess and the actual cash exceeds $7,000,000, Splitco will pay to Lockheed Martin the amount by which such sum exceeds $7,000,000).
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If the actual net working capital equals or exceeds $12,000,000 and is not more than $22,000,000, then Lockheed Martin will pay to Splitco an amount equal to $7,000,000 minus the actual cash of the Splitco Business as
of the Cut-Off Time (provided that, if the actual cash exceeds $7,000,000, Splitco will pay to Lockheed Martin such excess amount).
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Finally, if the actual net working capital amount is less than $12,000,000, then Lockheed Martin will pay to Splitco an amount equal to the difference between $19,000,000 and the actual net working capital, minus the
actual cash of the Splitco Business as of the Cut-Off Time (provided that if the amount of actual cash exceeds the difference between $19,000,000 and the actual net working capital, Splitco will pay to Lockheed Martin such excess amount).
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In each instance, payment is to be made within five business days of the final determination of the actual amounts of net working capital and cash.
Certain Resignations
Lockheed Martin is required to cause
each director or employee of Lockheed Martin who will not be employed by Splitco or a Splitco Subsidiary after the Distribution to resign, effective no later than the date of the Distribution, from all boards of directors or similar governing bodies
of Splitco or any Splitco Subsidiary and from all positions as officers of Splitco or any Splitco Subsidiary.
Issuance of Splitco
Common Stock, Incurrence of Debt and Splitco Special Cash Payment
As consideration for the Splitco Transfer, Splitco will:
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issue and deliver to Lockheed Martin additional shares of Splitco common stock which, along with the 100 shares of Splitco common stock then owned by Lockheed Martin, will constitute all of the outstanding stock of
Splitco and will equal the number of shares of Leidos common stock to be issued to Splitco stockholders in the Merger; and
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pay to Lockheed Martin the Splitco Special Cash Payment.
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On or before the date of the Distribution, Splitco will enter
into a definitive agreement or agreements providing for indebtedness in an aggregate principal amount equal to $1,841,450,000 in the form of borrowings under credit facilities, as more fully described in the section of this document entitled
Debt Financing. Prior to the date of the Distribution, Splitco will incur and receive the proceeds of such indebtedness.
Distribution
In the Distribution, Lockheed Martin
will distribute all of the outstanding shares of Splitco common stock to the Lockheed Martin stockholders. The Separation Agreement provides that the Distribution may be effected, at Lockheed Martins option, by way of a spin-off or a split-off
pursuant to the Exchange Offer. Lockheed Martin intends to effect the Distribution as a split-off pursuant to the Exchange Offer.
Conditions to the Distribution
The obligation of
Lockheed Martin to complete the Distribution is subject to the satisfaction or waiver by Lockheed Martin (subject to the limitation that any waiver shall also be subject to the prior written consent of Leidos) of the following conditions:
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execution and delivery of each Transaction Document to the extent not already executed by each party thereto; and
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each of the conditions to the obligations of the parties to the Merger Agreement to consummate the Merger and complete the other transactions contemplated by the Merger Agreement shall have been satisfied or waived by
the party entitled to the benefit thereof (other than those conditions that by their nature are to be satisfied contemporaneously with or immediately following the Distribution), in each case as described in the section of this document entitled
The Merger AgreementConditions to the Merger.
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Disclaimer
Except as expressly provided otherwise in any Transaction Document, Splitco will take the assets and liabilities of the Splitco Business that are allocated to it on an
as is, where is basis, with no representation or warranty of any kind. The foregoing has no impact on the representations and warranties made by Lockheed Martin in the Merger Agreement, the Tax Matters Agreement, the Employee
Matters Agreement or any of the Additional Agreements. See The Merger AgreementRepresentations and Warranties for a description of the representations and warranties related to the Splitco Business that are contained in the Merger
Agreement.
Indemnification; Limitation on Liability
The Separation Agreement provides that, after the Distribution, the sole and exclusive remedy with respect to any breach of the Separation Agreement will be a claim for
damages (whether in contract, in tort or otherwise, and whether in law, in equity or both). Subject to certain limitations described below, each of Splitco and Lockheed Martin agreed to indemnify the other party, its affiliates and their respective
representatives against, and hold harmless from, all assessments, losses, damages, costs, expenses, liabilities, judgments, awards, fines, sanctions, penalties, charges and amounts paid in settlement (subject to the limitations in the Separation
Agreement, Damages) arising out of, resulting from or related to the following:
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any breach or failure to perform by Splitco, any Splitco Subsidiary or Lockheed Martin, as the case may be, of any covenants, agreements or obligations of such party under the Separation Agreement;
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any liability assumed by Splitco and the Splitco Subsidiaries, except to the extent subject to indemnification by Lockheed Martin under the Separation Agreement, or any liability retained by Lockheed Martin, as the case
may be;
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any matters for which indemnification is provided by Lockheed Martin, Splitco or the Splitco Subsidiaries, as the case may be, under any Transaction Document; and
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any liabilities assumed by Splitco and the Splitco Subsidiaries, or Lockheed Martin, as applicable, in respect of contracts for which the transfer to Splitco or the Splitco Subsidiaries, on the one hand, or to Lockheed
Martin, on the other hand, is delayed pending receipt of a required consent from a third party.
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Under the Separation Agreement, Lockheed Martin will
indemnify Splitco, its affiliates and their respective representatives for any Damages incurred by them in connection with any liability assumed by Splitco or a Splitco Subsidiary under the Separation Agreement, but only to the extent such Damages
arise out of or result from any circumstance, condition or event existing or occurring prior to the date of the Distribution and was not otherwise agreed to by the parties. Notwithstanding the foregoing, Lockheed Martin also has agreed to indemnify
Splitco for a portion of certain Damages relating to a pending dispute arising out of the Splitco Business.
Under the Separation Agreement, Splitco also will
indemnify Lockheed Martin, its affiliates and their respective representatives for any financial support arrangements relating to, arising out of or supporting the Splitco Business.
The Separation Agreement provides for certain limitations in connection with indemnification sought by the parties for Damages, including the following:
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each party must, and must cause its Subsidiaries to, take all reasonable steps to mitigate its Damages after becoming aware of any event that could reasonably be expected to give rise to any such Damages, and
indemnification will not be available to the extent a party fails to take reasonable steps to mitigate such Damages.
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no Lockheed Martin or Splitco indemnified party will be entitled to payment or indemnification more than once with respect to the same matter;
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no party will be entitled to set off, or have any right to set off, with respect to any Damages against any payments to be made by any such party under the Transaction Documents; and
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Lockheed Martin has no obligation to indemnify Splitco, its affiliates and their respective representatives with regard to any liabilities assumed by Splitco and the Splitco Subsidiaries: (i) unless Splitco
provides written notice of any such claim on or before the first anniversary of the date of the Distribution, (ii) to the extent of any amounts reserved or accrued on the balance sheet of the Splitco Business as of December 31, 2015 or
taken into account in determining the actual net working capital of the Splitco Business as of the Cut-Off Time, (iii) until the aggregate amount of all Damages exceeds $100,000,000 (at which point, the indemnified parties will be entitled to
indemnification only for Damages in excess of that amount) and (iv) for Damages that exceed $400,000,000 in the aggregate.
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The Separation Agreement provides that Lockheed Martin and Splitco (and any Splitco Subsidiary), as applicable, will use
reasonable best efforts to obtain reimbursement of all Damages that are subject to indemnification as a reimbursable cost under government contracts to the extent such Damages are reimbursable in accordance with applicable law. To the extent that
Lockheed Martin and Splitco (and any Splitco Subsidiary), as applicable, is reimbursed for any cost under a government contract in respect of a matter subject to indemnification pursuant to the Separation Agreement, such party shall remit such
reimbursement to the other party promptly upon receipt of such reimbursement.
Further Assurances and Certain Additional Covenants
The Separation Agreement addresses additional obligations of Lockheed Martin and Splitco relating to, among other things, record retention, access to
information, confidentiality, the privileged nature of information, separation planning and real estate matters, and includes covenants relating to non-solicitation of employees, insurance and financial support arrangements, and casualty and
condemnation matters. Certain of these obligations and covenants are described below.
Further Assurances
Subject to the terms and conditions of the Separation Agreement, before and after the Distribution, each of Lockheed Martin and Splitco has agreed to use reasonable best
efforts to take all actions and to do all things necessary, proper, advisable or desirable under applicable law to consummate or implement the Transactions.
Novation and Other Matters Related to Government Contracts
After the
date of the Distribution, Splitco or a Splitco Subsidiary will submit a request that the U.S. Government recognize Splitco or a Splitco Subsidiary as the successor in interest to all of the government contracts constituting Transferred Assets that
are being assigned to Splitco or the Splitco Subsidiaries. Thereafter, the parties are required to enter into novation agreements in accordance with the federal acquisition regulations. In addition to the foregoing, Splitco and Lockheed Martin are
required to use reasonable best efforts to obtain all consents, approvals and waivers required to process, enter into and complete the novation agreements with respect to such government contracts. On the date of the Distribution, the parties will
enter into Subcontract Pending Novation to assume and perform the obligations under the government contracts constituting Transferred Assets until such time as the novation agreements are executed for such contracts with the U.S. Government. See
Other AgreementsAdditional AgreementsSubcontract Pending Novation for a more detailed description of this agreement. Notwithstanding the foregoing, the parties acknowledged that it may be impracticable to seek novation of
inactive government contracts and, as a result, will not seek novation of inactive government contracts unless required to do so by a governmental authority even though assets and liabilities in respect of inactive government contracts constituting
Transferred Assets or Assumed Liabilities will be allocated to Splitco and the Splitco Subsidiaries, and inactive government contracts constituting Excluded Assets or Excluded Liabilities will be allocated to Lockheed Martin in connection with the
Transactions.
Splitco and Lockheed Martin have further agreed to use reasonable best efforts to obtain any consent or novation to the extent that consent, or a
novation comparable to the novations described in the immediately preceding paragraph, is required from, any government authority that is not part of the U.S. Government. Splitco and Lockheed Martin agreed to cooperate in the filing, prosecution and
intervention in bid protests arising from or in connection with any bids, proposals or quotations made in respect of U.S. government contracts. Lockheed Martin is also required to file claims, participate in litigation or take such bid protest
action on behalf of Splitco if Splitco, in Lockheed Martins reasonable discretion after consultation with outside counsel, has satisfied its obligation under applicable law prior to the filing, prosecution and intervention in such disputes.
After the Distribution, in the event any member of a partys group remains a party to any contract with any governmental authority, which contract is to be
novated to a member of the other partys group after the Distribution, such contract party is required to take all reasonable measures necessary to maintain any security clearances required to be maintained pursuant to or in connection with
such agreement until such contract is novated to the applicable member of the novation partys group.
After the Distribution, each of Lockheed Martin and
Splitco will allow any government authority to offset any settlement liability related to government contracts assigned to such party against payments otherwise owed by such governmental authority or will promptly reimburse Lockheed Martin or
Splitco, for such partys
pro rata
portion of
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such settlement liabilities. Each party will also indemnify and compensate the other party for any future liabilities associated with audit adjustments of allocations related to or associated
with the Transferred Assets and Assumed Liabilities.
Furthermore, Lockheed Martin and Splitco agreed to take certain actions with respect to government contracts
for which the period of performance has elapsed, but which remain pending close-out. The parties allocated responsibilities associated with the close-out process, including the party responsible for the on-program close-out function and central
close-out function with respect to each government contract and the responsibilities of each party with respect to claims made by any governmental authority during the contract close-out process.
Non-Solicitation of Employees
Pursuant to the Separation Agreement,
for a period of 18 months after the date of the Distribution, each of Splitco and Lockheed Martin has agreed that, without the prior written approval of Lockheed Martin or Splitco (as applicable), it will not, directly or indirectly, solicit any
non-administrative employee of the other party to terminate his or her employment relationship with such party. The restrictions in the preceding sentence do not apply to any employee hired as a result of the use of an independent employment agency
(so long as the agency was not directed to solicit a particular individual or a class of individuals that could only be satisfied by employees of, (i) in the case of solicitation by Splitco, Lockheed Martin or any of its Subsidiaries, or
(ii) in the case of solicitation by Lockheed Martin, the Splitco Business) or general solicitations or advertisements (such as an advertisement in newspapers, on, as applicable, Splitco or Lockheed Martin websites or internet job sites, or on
radio or television), in each case to the extent not specifically directed to employees of Splitco or Lockheed Martin, as the case may be.
Insurance;
Financial Support Arrangements
From and after the effective time of the Merger, Lockheed Martin will have no obligation to maintain any form of insurance
coverage in respect of the Transferred Assets, the Splitco Business or the Splitco Business Employees, except that Lockheed Martin will maintain, for at least six years after the Merger, tail coverage provided by the directors and
officers liability and fiduciary liability insurance under which Splitco and the Splitco Subsidiaries are covered immediately prior to the effective time of the Merger.
On and after the date of the Distribution, Splitco is required to reimburse Lockheed Martin for any self-insurance, retention, deducible or retrospective premium or
similar expenses allocated to the Splitco Business by Lockheed Martin resulting from or arising out of any and all current or former insurance policies maintained by Lockheed Martin to the extent any such liabilities relate to the Splitco Business,
any Assumed Liabilities or any other activities of Splitco or the Splitco Subsidiaries. In connection with any claims asserted against Splitco or the Splitco Subsidiaries after the date of the Distribution arising out of occurrence before the date
of the Distribution, Splitco and the Splitco Subsidiaries may access coverage under occurrence-based insurance policies of Lockheed Martin in place prior to the date of the Distribution and under which Splitco or any Splitco Subsidiary was insured
to the extent such coverage exists, and Lockheed Martin will cooperate in pursuing any such claims.
In addition, within 60 days after the date of the Distribution,
Splitco must in good faith seek to have Lockheed Martin released, effective as of the date of Distribution, from all obligations under any financial support arrangements, including letters of credit, performance guarantees, surety bonds and similar
arrangements, entered into by Lockheed Martin on behalf of the Splitco Business prior to the Distribution. If, after the Distribution, any amounts are drawn on any financial support arrangements pursuant to which Lockheed Martin is obligated to make
any reimbursement or Lockheed Martin pays any amounts under such financial support arrangements, Splitco is required to promptly reimburse Lockheed Martin for such amounts.
Lockbox Accounts
On and after the date of the Distribution, Lockheed
Martin will take such actions as may be reasonable under the circumstances to transfer to Splitco from time to time any payments in respect of accounts receivable constituting Transferred Assets in any lockbox or similar bank account of Lockheed
Martin and its Subsidiaries (other than the Splitco Subsidiaries). On and after the date of the Distribution, Splitco shall take such actions as may be reasonable under the circumstances to transfer to Lockheed Martin from time to time any payments
in respect of accounts receivable constituting Excluded Assets received by Splitco and the Splitco Subsidiaries in any lockbox or similar bank account of Splitco.
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Casualty and Condemnation
If there is any physical damage to, destruction of, or theft or similar loss of any Transferred Assets between the date of execution of the Separation Agreement and the
date of the Distribution or any taking by eminent domain or similar action by a governmental authority of an asset that would otherwise be considered a Transferred Asset, then Lockheed Martin must use commercially reasonable efforts consistent with
past practice to (i) repair or replace any such assets and (ii) replace the asset that has been condemned or taken as necessary consistent with prudent operation of the Splitco Business. If the Distribution occurs prior to the repair or
replacement of such assets, then Lockheed Martin shall promptly pay to Splitco or the Splitco Subsidiaries any casualty insurance proceeds or other funds Lockheed Martin receives with respect to the damage, destruction, loss or taking of such
Transferred Assets.
Real Property and Related Matters
As of the date of the Distribution, Lockheed Martin will transfer to Splitco by quitclaim deed certain owned real property in Gaithersburg, Maryland. Lockheed and
Splitco also must cooperate with each other and use reasonable best efforts to take all actions and to do all things necessary or desirable to assign the leases included in the Transferred Assets to be assigned to Splitco or a designated Splitco
Subsidiary.
With respect to other real property and facilities associated with the Splitco Business, Lockheed and Splitco must cooperate with each other and use
reasonable best efforts to take all actions and to do all things necessary or desirable for Lockheed Martin to, immediately prior to the date of the Distribution, (a) lease to Splitco or a designated Splitco Subsidiary certain buildings and
other space at Lockheed Martin facilities in Manassas, Virginia; Rockville, Maryland; and King of Prussia, Pennsylvania that will continue to be owned by Lockheed Martin or one of its subsidiaries after the date of the Distribution,
(b) sublease to Splitco space within the existing leased facility of Lockheed Martin at Stennis Space Center in Mississippi that will continue to be leased by Lockheed Martin or one of its subsidiaries after the date of the Distribution and
(c) license, on a short-term basis, space at facilities utilized by other businesses of Lockheed Martin located in Owego, New York; Mt. Laurel, New Jersey; and two properties in Herndon, Virginia that will continue to be owned or leased by
Lockheed Martin or one of its subsidiaries after the Distribution. Lockheed Martin and Splitco will also cooperate with each other and use reasonable best efforts to take all actions and to do all things necessary or desirable for Splitco to
(a) sublease to Lockheed Martin space within the leased facility in Kingston, Australia for which the applicable lease will be transferred to Splitco in connection with Transactions and (b) license to Lockheed Martin space at the
facilities located in Farnborough, United Kingdom and Eagan, Minnesota for which the applicable lease or sublease will be transferred to Splitco in connection with the Transactions. The agreements with respect to the real property and facilities to
be leased, subleased or licensed to Splitco, the Splitco Subsidiaries and Lockheed Martin on and after the date of the Distribution are more fully described below in Other AgreementsAdditional AgreementsBuilding and Office Space
Lease, Subleases andLicense Agreements.
Termination
Without any further action, the Separation Agreement will terminate simultaneously upon a valid termination of the Merger Agreement prior to the closing of the Merger.
If the Separation Agreement is so terminated, neither Lockheed Martin nor Splitco will be liable to the other party or any other person under the Separation Agreement, except as provided in the Merger Agreement. In addition, pursuant to the terms of
the Merger Agreement, neither Lockheed Martin nor Splitco may otherwise terminate the Separation Agreement prior to the closing of the Merger without the prior written consent of Leidos.
Assignment; Amendment and Waiver
Prior to the
closing of the Merger, the Separation Agreement may not be assigned, amended or modified, and rights under the Separation Agreement may not be waived, by Lockheed Martin or Splitco without the prior written consent of Leidos.
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DEBT FINANCING
Overview
On January 26, 2016, in connection
with their entry into the Merger Agreement, Leidos and Splitco entered into separate commitment letters with the Commitment Parties (each commitment letter, as amended, restated, modified or otherwise supplemented through the date hereof, the
Leidos Commitment Letter and the Splitco Commitment Letter respectively and, collectively, the Commitment Letters) pursuant to which the Commitment Parties agreed to provide debt financing in connection with the
Transactions. The following is a description of the principal terms of such indebtedness, as set out in the Commitment Letters as in effect on the date hereof.
In
connection with the Transactions, Splitco and Leidos expect to engage in the following financing activities:
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the entry by the Leidos Borrower into a new senior secured credit facility in an aggregate principal amount of up to $1,440,000,000, which is currently expected to consist of a term loan A facility in an aggregate
principal amount of up to $690,000,000 (the Leidos Term Loan A Facility) and a revolving credit facility in an aggregate principal amount of up to $750,000,000 (the Leidos Revolving Credit Facility and, together with the
Leidos Term Loan A Facility, the Leidos Facilities), the proceeds of which will be used, together with cash on hand of the Leidos Borrower, to, among other things, (i) pay a special dividend to Leidos stockholders in an amount equal
to $13.64 per share, (ii) repay in full all outstanding indebtedness for borrowed money of the Splitco Business, if any (other than the debt incurred by Splitco under the Splitco Facilities), (iii) repay in full all indebtedness, and
terminate all commitments, under Leidos Amended and Restated Four Year Credit Agreement, dated as of March 11, 2011, among Leidos, as borrower, the Leidos Borrower, as guarantor, Citibank, N.A., as administrative agent and the lenders,
other agents and other parties party thereto from time to time (as amended by Amendment No. 1, dated as of April 19, 2013, Amendment No. 2, dated as of October 17, 2014, Amendment No. 3 dated as of January 26, 2016,
Amendment No. 4, dated as of February 12, 2016, and as further amended, amended and restated, supplemented or otherwise modified through the date hereof) and (iv) pay certain fees, costs and expenses in connection with the
consummation of the Transactions, as specified in the Leidos Commitment Letter and definitive documentation in connection therewith.
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the entry by Splitco into a new senior secured credit facility of up to $1,841,450,000, which is currently expected to consist of a three-year term loan A facility in an aggregate principal amount of up to $400,000,000
(the Splitco Three-Year Term Loan A Facility), a five-year term loan A facility in an aggregate principal amount of up to $310,000,000 (the Splitco Five-Year Term Loan A Facility), and a term loan B facility in an aggregate
principal amount of up to $1,131,450,000 (the Splitco Term Loan B Facility and, together with the Splitco Three-Year Term Loan A Facility and the Splitco Five-Year Term Loan A Facility, the Splitco Facilities; the Splitco
Facilities together with the Leidos Facilities, the Facilities), in order to (i) make the Special Cash Payment and (ii) pay certain fees, costs and expenses in connection with the consummation of the Transactions, as specified
in the Splitco Commitment Letter and definitive documentation in connection therewith.
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As a result of these financing activities, Leidos
leverage will increase after the consummation of the Transactions. For a discussion of Leidos liquidity and capital resources after the consummation of the Transactions, see Information on LeidosLeidos Liquidity and Capital
Resources After the Consummation of the Transactions.
Leidos Term Loan A Facility
Pursuant to the Leidos Commitment Letter, subject to certain conditions, the Commitment Parties agreed to provide to the Leidos Borrower the Leidos Term Loan A Facility
consisting of senior secured term loans in an aggregate principal amount of up to $690,000,000 to be used by the Leidos Borrower to consummate the Transactions. See Debt FinancingOverview.
The full amount of the Leidos Term Loan A Facility must be drawn in a single drawing on the closing date of the Transactions, and amounts borrowed under the Leidos Term
Loan A Facility may not be reborrowed. The Leidos Commitment Letter provides that the terms of the Leidos Term Loan A Facility will be finalized in a credit agreement (the Leidos Credit Agreement) and related documentation to be mutually
agreed between Leidos, the Leidos Borrower and the agents and lenders thereunder.
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The Leidos Term Loan A Facility will mature five years after the date of the consummation of the Transactions; provided
that if any of Leidos 4.450 percent notes due 2020 have not been refinanced in a Qualifying Refinancing (to be defined in the Leidos Credit Agreement) prior to the date that is 91 days before the maturity date of such notes (the Early
Maturity Date), then the Leidos Term Loan A Facility will mature on the Early Maturity Date.
Leidos will pay interest on the unpaid principal amount of each
loan under the Leidos Term Loan A Facility at a rate
per annum
equal to (a) the sum of the Base Rate plus an applicable margin for Base Rate loans or (b) LIBOR plus an applicable margin for LIBOR loans. The applicable margin for the
loans under the Leidos Term Loan A Facility will be 1.25% for Base Rate loans and 2.25% for LIBOR loans on the closing date of the Leidos Term Loan A Facility, and will be subject to two step-downs to, in the case of (x) Base Rate loans, 1.00%
and 0.75% and (y) LIBOR loans, 2.00% and 1.75%, in each case based upon achievement and maintenance of Senior Secured Leverage Ratios of 2.75:1.00 and 2.25:1.00, respectively.
Prepayments
The Leidos Commitment Letter provides that voluntary
prepayments of loans under the Leidos Term Loan A Facility may be made at any time, on three business days notice in the case of a prepayment of LIBOR term loans, or one business days notice in the case of a prepayment of Base Rate term
loans, without premium or penalty, in minimum principal amounts to be agreed in the case of the Leidos Credit Agreement; provided that voluntary prepayments of LIBOR term loans made on a date other than the last day of an interest period applicable
thereto shall be subject to customary breakage costs. Such prepayments will be applied to scheduled installments of principal payments under the Leidos Term Loan A Facility as directed by the Leidos Borrower.
In addition, loans under the Leidos Term Loan A Facility shall be prepaid with (i) 50 percent of Leidos consolidated excess cash flow, with reductions to 25
percent and 0 percent based upon achievement and maintenance of senior secured leverage ratios to be mutually agreed and (ii) 100 percent of the net cash proceeds of all asset sales and other dispositions of property, subject to customary
reinvestment rights, and all issuances, offerings or placements of debt, in each case, by Leidos, the Leidos Borrower, Splitco and their respective restricted subsidiaries, subject to certain customary exceptions. Such prepayments shall be allocated
pro rata
among the outstanding term loans under the Splitco Facilities and the Leidos Term Loan A Facility.
Covenants
Leidos, Leidos Borrower and their respective subsidiaries will be subject to customary affirmative and negative covenants in connection with the Leidos Term Loan A
Facility, including limitations on:
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mergers, consolidations, liquidations and dissolutions;
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investments, loans, advances, guarantees and acquisitions;
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sale-and leaseback transactions;
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speculative hedging arrangements;
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dividends or other distributions on capital stock, redemptions and repurchases of capital stock and prepayments, redemptions and repurchases of junior debt;
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transactions with affiliates;
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restrictions on liens and other restrictive agreements;
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debt and preferred stock;
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amendments of the operative documents related to the Splitco Facilities, junior debt agreements and organizational documents; and
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changes in fiscal year.
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Financial Covenants
Leidos will be required to maintain, as at the end of each fiscal quarter after the closing date of the Debt Financings, (i) in the case of any fiscal quarter
ending on or prior to the fiscal quarter ending 18 months after such closing date, a ratio of senior secured indebtedness to EBITDA (a Senior Secured Leverage Ratio) equal to or less than 4.75 to 1.00, (ii) in the case of any fiscal
quarter ending after the fiscal quarter ending 18 months after such closing date and on or prior to the fiscal quarter ending 30 months after such closing date, a Senior Secured Leverage Ratio equal to or less than 4.25 to 1.00 and (iii) in the
case of any fiscal quarter ending after the fiscal quarter ending 30 months after such closing date, a Senior Leverage Ratio equal to or less than 3.75 to 1.00.
Guarantee and Security
Obligations under the Leidos Term Loan A
Facility will be unconditionally guaranteed, on a joint and several basis, by Leidos and by each direct or indirect, wholly-owned domestic subsidiary of Leidos, subject to customary exceptions, from time to time (other than the Leidos Borrower),
including, following the Merger, Splitco and its direct and indirect, wholly-owned domestic subsidiaries, subject to customary exceptions (collectively, the Leidos Guarantors and, together with the Splitco Guarantors (as defined below),
the Guarantors).
Obligations under the Leidos Term Loan A Facility will be secured on a first-priority basis (and
pari passu
with the Leidos
Revolving Credit Facility and the Splitco Facilities) by substantially all of the assets of the Leidos Borrower and each Guarantor.
Events of Default
Events of default under the Leidos Term Loan A Facility will include the following (with customary qualifications and exceptions):
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nonpayment of principal, interest, fees or other amounts;
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inaccuracy of representations and warranties;
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violation of covenants;
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cross default and cross acceleration;
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voluntary and involuntary bankruptcy or insolvency proceedings;
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inability to pay debts as they become due;
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actual or asserted invalidity of security documents or guarantees; and
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An immediate event of default will occur upon (i) a failure to consummate the Merger
immediately following the initial funding of the Leidos Facilities or (ii) a failure by the subsidiaries of Leidos required to become Guarantors as of the Closing Date under the Facilities (the Initial Guarantors) to guarantee the
Facilities or to grant a security interest in substantially all their respective assets to secure the Facilities, in each case, immediately following the Merger.
Leidos Revolving Credit Facility
Pursuant to the
Leidos Commitment Letter, subject to certain conditions, the Commitment Parties agreed to provide to the Leidos Borrower the Leidos Revolving Credit Facility, a senior secured revolving credit facility in an aggregate principal amount of up to
$750,000,000 to be used by the Leidos Borrower primarily for working capital and general corporate purposes. See Debt FinancingOverview.
The
Leidos Commitment Letter provides that up to $50,000,000 of loans under the Leidos Revolving Credit Facility may be incurred on the closing date of the Transactions to finance the Transactions and that additional loans under the Leidos Revolving
Credit Facility may be incurred on the closing date of the Transactions for working capital and general corporate purposes; provided that the aggregate amount of loans under the Leidos Revolving Credit Facility incurred on the closing date of the
Transactions may not exceed $200,000,000. Amounts repaid under the Leidos Revolving Credit Facility may be reborrowed at any time prior to the maturity of the Leidos Revolving Credit Facility, subject to conditions and limitations specified in the
Leidos Credit Agreement and related documentation.
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The Leidos Commitment Letter provides that obligations under Leidos Revolving Credit Facility will mature five years after
the closing date of the Transactions; provided that, if any of Leidos 4.450 percent notes due 2020 have not been refinanced in a Qualifying Refinancing (to be defined in the Leidos Credit Agreement) prior to the Early Maturity Date, then the
Leidos Revolving Credit Facility will mature on the Early Maturity Date.
Leidos will pay interest on the unpaid principal amount of each loan under the Leidos
Revolving Credit Facility at a rate
per annum
equal to (a) the sum of the Base Rate plus an applicable margin for Base Rate loans of (b) LIBOR plus an applicable margin for LIBOR loans. The applicable margin for the loans under the
Leidos Revolving Credit Facility will be 1.25% for Base Rate loans and 2.25% for LIBOR loans on the closing date of the Leidos Revolving Credit Facility, and will be subject to two step-downs to, in the case of (x) Base Rate loans, 1.00% and
0.75% and (y) LIBOR loans, 2.00% and 1.75%, in each case based upon achievement and maintenance of Senior Secured Leverage Ratios of 2.75:1.00 and 2.25:1.00, respectively.
Commitment Reductions
The Leidos Credit Agreement will provide,
subject to certain conditions, that commitments under the Leidos Revolving Credit Facility may be permanently reduced at any time.
Covenants
Under the Leidos Revolving Credit Facility, Leidos, Leidos Borrower and their respective subsidiaries will be subject to the same customary affirmative and negative
covenants applicable to the Leidos Term Loan A Facility. See Leidos Term Loan A FacilityCovenants.
Financial Covenants
Under the Leidos Revolving Credit Facility, Leidos, Leidos Borrower and their respective subsidiaries will be subject to the same financial covenants applicable to the
Leidos Term Loan A Facility. See Leidos Term Loan A FacilityFinancial Covenants.
Guarantee and Security
Obligations under the Leidos Revolving Credit Facility will be guaranteed, on a joint and several basis, and secured, on a first-priority basis (and pari passu with the
Leidos Term Loan A Facility and the Splitco Facilities), on the same terms and by the same parties as those which guarantee and secure obligations under the Leidos Term Loan A Facility. See Leidos Term Loan A FacilityGuarantee and
Security.
Events of Default
The same events of default
will apply to the Leidos Revolving Credit Facility as will apply to the Leidos Term Loan A Facility. See Leidos Term Loan A FacilityEvents of Default.
Splitco Facilities
Pursuant to the Splitco
Commitment Letter, subject to certain conditions, the Commitment Parties agreed to provide the Splitco Three-Year Term Loan A Facility, consisting of senior secured term loans in an aggregate principal amount of up to $400,000,000, the Splitco
Five-Year Term Loan A Facility, consisting of senior secured term loans in an aggregate principal amount of up to $310,000,000, and the Splitco Term Loan B Facility, consisting of senior secured term loans in an aggregate principal amount of up to
$1,131,450,000, the aggregate amount of which is to be used by Splitco to make the Special Cash Payment and to pay certain fees, costs and expenses in connection with the Transactions. See Debt FinancingOverview.
The full amount of each Splitco Facility must be drawn in a single drawing on or prior to the closing date of the Transactions. Amounts borrowed under any Splitco
Facility and repaid may not be reborrowed. The Splitco Commitment Letter provides that the terms of the Splitco Facilities will be finalized in a credit agreement (the Splitco Credit Agreement) and related documentation to be mutually
agreed between Splitco and the agents and lenders thereunder.
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The Splitco Three-Year Term Loan A Facility will mature three years after the date of the consummation of the Transactions
and the Splitco Five-Year Term Loan A Facility will mature five years after the date of the consummation of the Transactions; provided that in each case if any of Leidos 4.450 percent notes due 2020 have not been refinanced in a Qualifying
Refinancing (to be defined in the Splitco Credit Agreement) prior to the Early Maturity Date, then such Splitco Term Loan A Facility will mature on the Early Maturity Date. The Splitco Term Loan B Facility has a seven-year maturity period beginning
on the closing date of the Transactions.
Splitco will pay interest on the unpaid principal amount of each loan at a rate per annum equal to (a) the sum of
the Base Rate plus an applicable margin for Base Rate loans or (b) LIBOR plus an applicable margin for LIBOR loans. The applicable margin for term loan A loans will be 1.25% for Base Rate loans and 2.25% for LIBOR loans on the closing date of
the Leidos Debt Financing, and will be subject to two step-downs to, in the case of (x) Base Rate loans, 1.00% and 0.75% and (y) LIBOR loans, 2.00% and 1.75%, in each case based upon achievement and maintenance of Senior Secured Leverage
Ratios of 2.75:1.00 and 2.25:1.00, respectively. The applicable margins for the Splitco Term Loan B Facility in the case of (x) Eurocurrency Rate Loans will be 2.75% per annum and (y) Base Rate Loans will be 1.75% per annum.
Prepayments
The Splitco Commitment Letter provides that voluntary
prepayments of loans under the Splitco Facilities may be made at any time, on three business days notice in the case of a prepayment of LIBOR term loans, or one business days notice in the case of a prepayment of Base Rate term loans,
without premium or penalty in minimum principal amounts; provided that voluntary prepayments of LIBOR term loans made on a date other than the last day of an interest period applicable thereto shall be subject to customary breakage costs. Each
voluntary prepayment of loans under the Splitco Facilities may be applied to any scheduled principal payments under the Splitco Facilities as directed by Splitco.
Loans under the Splitco Facilities shall be prepaid with (i) 50 percent of Leidos consolidated excess cash flow, with reductions to 25 percent and 0 percent
based upon achievement and maintenance of a senior secured leverage ratio to be mutually agreed, subject to certain exceptions, and (ii) 100 percent of the net cash proceeds of all asset sales and other dispositions of property, subject to
customary reinvestment rights, and all issuances, offerings or placements of debt, in each case, by Leidos, the Leidos Borrower, Splitco and their respective restricted subsidiaries, with certain exceptions. Such prepayments shall be allocated
pro rata
among the outstanding term loans under the Splitco Facilities and the Leidos Term Loan A Facility.
Covenants
Leidos, Splitco and their respective subsidiaries will be subject to customary affirmative and negative covenants under the Splitco Facilities, including limitations on:
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mergers, consolidations, liquidations and dissolutions;
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investments, loans, advances, guarantees and acquisitions;
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sale-and leaseback transactions;
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speculative hedging arrangements;
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dividends or other distributions on capital stock, redemptions and repurchases of capital stock and prepayments, redemptions and repurchases of junior debt;
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transactions with affiliates;
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restrictions on liens and other restrictive agreements;
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debt and preferred stock; and
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amendments of the operative documents related to the Leidos Facilities, junior debt agreements and organizational documents.
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Financial Covenants
Solely with respect to the term loan A facilities, Splitco will be required to maintain, as at the end of each fiscal quarter after the closing date of the Debt
Financings, (i) in the case of any fiscal quarter ending on or prior to the fiscal quarter ending 18 months after such closing date, a Senior Secured Leverage Ratio equal to or less than 4.75 to 1.00, (ii) in the case of any fiscal quarter
ending after the fiscal quarter ending 18 months after such closing date and on or prior to the fiscal quarter ending 30 months after such closing date, a Senior Secured Leverage Ratio equal to or less than 4.25 to 1.00 and (iii) in the case of
any fiscal quarter ending after the fiscal quarter ending 30 months after such closing date, a Senior Secured Leverage Ratio equal to or less than 3.75 to 1.00.
Guarantee and Security
Obligations under the Splitco Facilities will
be unconditionally guaranteed, on a joint and several basis, by each direct and indirect, wholly-owned domestic subsidiary of Splitco from time to time, subject to customary exceptions and (ii) after the consummation of the Merger, by each
Leidos Guarantor (collectively, the Splitco Guarantors).
Obligations under the Splitco Facilities will be secured on a first-priority basis (and
pari passu
to the Leidos Facilities) by substantially all of the assets of Splitco and each Guarantor.
Events of Default
Events of default for the Splitco Facilities will include the following (with customary qualifications and exceptions):
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nonpayment of principal, interest, fees or other amounts;
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inaccuracy of representations and warranties;
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violation of covenants;
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cross default and cross acceleration;
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voluntary and involuntary bankruptcy or insolvency proceedings;
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inability to pay debts as they become due;
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actual or asserted invalidity of security documents or guarantees; and
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An immediate event of default under the Splitco Facilities will occur upon (i) a failure to
consummate the Merger immediately following the initial funding of the Splitco Facilities or (ii) a failure by the Initial Guarantors to guarantee the obligations under the Facilities or to grant a security interest in substantially all their
respective assets to secure the obligations under the Facilities, in each case, immediately following the Merger.
Intercreditor
Agreement
The lien priority, relative rights and other creditors rights issues in respect of the Leidos Facilities and the Splitco
Facilities in a customary pari passu intercreditor agreement reasonably satisfactory to the administrative agent under each of the Leidos Facilities and the Splitco Facilities, the Leidos Borrower and Splitco.
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OTHER AGREEMENTS
Leidos, Lockheed Martin, Splitco and Merger Sub or their respective subsidiaries, in each case as applicable, have entered into or, before the consummation of the
Transactions, will enter into, certain other agreements relating to the Transactions and various interim and ongoing relationships between Lockheed Martin, Splitco and Leidos. The material terms of these agreements are summarized below.
Employee Matters Agreement
In connection with the
Transactions, Lockheed Martin, Splitco and Leidos have entered into an Employee Matters Agreement with respect to the transfer of employees engaged in the Splitco Business and related matters, including terms of employment, benefit plan transition
and coverage and other compensation and labor matters. This summary is qualified by reference to the complete text of the Employee Matters Agreement, which is incorporated by reference herein and is filed as an exhibit to the registration statement
of which this document is a part.
Transfer of Employees and Retention of Certain Independent Contractors
Effective immediately prior to the date of the Distribution, Lockheed Martin will transfer the employment of any Splitco Business Employee who is not then employed by
Splitco or any Splitco Subsidiary to Splitco or a Splitco Subsidiary. Splitco and the Splitco Subsidiaries will assume the liabilities and obligations of Lockheed Martin under any applicable plan, policy, contract or arrangement to employ, reemploy,
reinstate or reactivate each Splitco Business Employee who is an inactive employee immediately prior to the date of the Distribution.
At the date of the
Distribution, Splitco and the Splitco Subsidiaries will assume the liabilities and obligations of Lockheed Martin with respect to continuing to retain certain individuals who are retained as an independent contractor by Lockheed Martin on the date
of the Distribution in connection with the Splitco Business, in accordance with the terms and conditions in effect for such individuals retention by Lockheed Martin immediately before the date of the Distribution.
Terms and Conditions of Employment
From and after the date of the
Distribution, Splitco and the Splitco Subsidiaries will assume the liabilities and obligations of Lockheed Martin under any employment agreements or similar agreements, including temporary staffing arrangements, consulting agreements and personal
services agreements, or applicable law relating to the terms and conditions of employment of each Splitco Business Employee and Former Splitco Business Employee. Splitco and the Splitco Subsidiaries will also assume the liabilities and obligations
of Lockheed Martin arising out of or pertaining to the termination of employment of, employing of or the failure or refusal to employ, reinstate, reactivate or reemploy any Splitco Business Employee or Former Splitco Business Employee (including
severance benefits), whether such liabilities or obligations are based on events occurring prior to, on or after the date of the Distribution.
For the period
beginning on the date of the Distribution and ending on December 31st of the year in which the date of the Distribution occurs (the Transition Period), Splitco and the Splitco Subsidiaries will continue to provide each Splitco
Business Employee with (i) the same base salary or wage rate and short- and long-term incentive opportunities that were provided to the Splitco Business Employee immediately prior to the date of the Distribution and (ii) participation in
employee benefit plans and programs that are substantially comparable in the aggregate to those benefits provided under the employee benefit plans and programs of Lockheed Martin, Splitco and the Splitco Subsidiaries (excluding defined benefit
pension plans and post-retirement medical plans) as in effect for the Splitco Business Employee immediately prior to the date of the Distribution. For the six month period beginning on the date of the Distribution, Splitco and the Splitco
Subsidiaries will maintain in effect the severance and layoff plans applicable to the Splitco Business Employees immediately before the date of the Distribution. For the period beginning on the date of the Distribution and ending on the first
anniversary of the date of the Distribution, in the case of any Splitco Business Employee who was granted a restricted stock unit award from Lockheed Martin on January 28, 2016, Splitco and the Splitco Subsidiaries will treat any involuntary
termination other than for cause (as defined under the Lockheed Martin Corporation Executive Severance Plan) or termination by the employee for good reason (as defined under the employees restricted stock unit award
agreement dated January 28, 2016) as an executive layoff event under the Lockheed Martin Corporation Executive Severance Plan. After the end of the Transition Period, Splitco Business Employees will be eligible to participate in employee
benefits plans, programs and policies and all other compensation and employment related plans, policies and arrangements that are substantially similar to the corresponding plans, programs and other arrangements maintained by Leidos for the benefit
of similarly situated employees.
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Benefit Plan Liabilities
Except as provided below, Lockheed Martin will retain all liabilities and obligations under any Employee Plan and Benefit Arrangement that is not, after the date of the
Distribution, sponsored or maintained by Splitco or any Splitco Subsidiary. In any event, Lockheed Martin will retain all assets and liabilities in respect of each Employee Plan that is a defined benefit pension plan or post-retirement medical plan.
Splitco and the Splitco Subsidiaries will assume all of the liabilities and obligations of Lockheed Martin arising under any group life, accident, medical, dental
or disability plan or similar arrangement (including severance benefit plans) maintained by an entity other than Splitco or any Splitco Subsidiary, with respect to each Splitco Business Employee and Former Splitco Business Employee to the extent
that such liabilities and obligations relate to claims which have not been incurred on or prior to the date of the Distribution. Splitco and the Splitco Subsidiaries will also assume all liabilities and obligations of Lockheed Martin, with respect
to each Splitco Business Employee and Former Splitco Business Employee, arising under any workers compensation laws relating to accidents or occupational diseases that occurred on, before or after the date of the Distribution. Splitco and the
Splitco Subsidiaries will assume all liabilities and obligations, whenever incurred, under any employee benefit or compensation plan, program, policy or arrangement that is sponsored or maintained by Splitco or any Splitco Subsidiary.
Incentive Compensation
Lockheed Martin will retain any obligations to
make payments to any Splitco Business Employee in respect of a cash-based long-term incentive performance award granted by Lockheed Martin under the 2011 IPAP, the Lockheed Martin Long-Term Incentive Cash Plan (LTIC) and the Lockheed
Martin Key Employee Engagement Plan (KEEP) prior to 2016. At the date of the Distribution, Splitco and the Splitco Subsidiaries will assume the liabilities and obligations of Lockheed Martin under all cash-based long-term incentive
performance awards granted by Lockheed Martin to Splitco Business Employees in 2016 under the LTIC and the KEEP. Unless Lockheed Martin has paid the Splitco Business Employees their annual incentive bonus under the applicable incentive arrangement
for the year in which the date of the Distribution occurs, Splitco agrees to maintain the annual cash incentive and sales incentive compensation arrangements that cover the Splitco Business Employees as in effect immediately prior to the date of the
Distribution at least until the end of the calendar year in which the date of the Distribution occurs, and Splitco will pay to each such Splitco Business Employee an incentive bonus under the applicable incentive arrangement for such calendar year
in the amount determined by Lockheed Martin in accordance with the terms of such arrangement and past practice.
Lockheed Martin has entered into retention
agreements with certain Splitco Business Employees (the Transaction Retention Agreements) as an inducement to these Splitco Business Employees to continue to work for Lockheed Martin through the Closing Date (as defined in the Merger
Agreement). Lockheed Martin will retain all liabilities and obligations to these Splitco Business Employees under such Transaction Retention Agreements and any responsibility for associated withholding taxes.
Savings Plans
As soon as practicable after the date of the
Distribution, Splitco or Leidos will establish one or more than one individual account plan for the benefit of the Splitco Business Employees or otherwise make immediate participation in one or more existing Splitco or Leidos plans available to the
Splitco Business Employees (each a Successor Savings Plan). During the period commencing on the date of the Distribution and ending on the date on which the payroll services to be provided by Lockheed Martin to Splitco under the
Transition Services Agreement terminate (the Benefits Services Termination Date), the terms of each such Successor Savings Plan that pertain to Splitco Business Employees who participated in a Lockheed Martin Savings Plan prior to the
date of the Distribution will provide for elective deferrals by participants, matching contributions or profit-sharing contributions by Splitco at rates which are the same as the rates in effect under each Lockheed Martin Savings Plan immediately
before the date of the Distribution with respect to the Splitco Business Employees who participated in each such plan. Lockheed Martin will cause the account balance of each Splitco Business Employee under each Lockheed Martin Savings Plan to be
fully vested as of the date of the Distribution.
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Nonqualified Plans
Splitco will establish as of the date of the Distribution three nonqualified plans or, at Splitcos option, three separate nonqualified plan structures in one, or
more than one, nonqualified plan (each such plan or structure, a Splitco NQ Plan). Each Splitco NQ Plan will be the same in all material respects as the related Lockheed Martin nonqualified plan specified in the Employee Matters
Agreement (each, a Lockheed Martin NQ Plan) as in effect immediately before the date of the Distribution. Each Splitco NQ Plan will be established for the benefit of each Splitco Business Employee who participates in the corresponding
Lockheed Martin NQ Plan immediately before the date of the Distribution and each other person who, immediately before the date of the Distribution, is a beneficiary of a Splitco Business Employee and has an account balance under such Lockheed Martin
NQ Plan. Each Splitco NQ Plan will provide at least through the Benefits Services Termination Date for a formula for contributions that is the same as the formula for contributions in the corresponding Lockheed Martin NQ Plan as of the date of the
Distribution.
Mirror Benefit Plans
As soon as practicable after
the date of the Distribution, Splitco will establish a mirror benefit plan for each Employee Plan and Benefit Arrangement specified in the Employee Matters Agreement (the Splitco Mirror Plans). Each Splitco Mirror Plan will
be established for the benefit of each Splitco Business Employee who participates in the corresponding Employee Plan or Benefit Arrangement, as applicable, immediately before the date of the Distribution and each other person who, immediately before
the date of the Distribution, is a beneficiary of a Splitco Business Employee and has an accrued benefit or account balance under such Employee Plan or Benefit Arrangement. Prior to the Benefits Services Termination Date, each Splitco Mirror Plan
will be the same in all material respects as the corresponding Employee Plan or Benefit Arrangement, as applicable, as in effect immediately before the date of the Distribution, provided that the parties shall cooperate in good faith to make
reasonable changes on a mutually agreeable schedule, subject to reimbursement by Leidos of any direct or indirect costs of making the change. Splitco will maintain such Splitco Mirror Plans through the Benefits Services Termination Date or such
earlier date that Splitco Business Employees are transitioned onto plans, programs, policies and other arrangements maintained by Leidos.
Termination and
Plant Closing Notices; WARN Act
Splitco will provide any notices to the Splitco Business Employees that may be required under any applicable law, including
the federal Worker Adjustment and Retraining Notification Act of 1988, as amended (the WARN Act) or any similar state or local law, with respect to events that occur from and after the date of the Distribution. Splitco will not take
any action after the date of the Distribution that would cause any termination of employment of any employees by Lockheed Martin on or before the date of the Distribution to constitute a plant closing or mass layoff under the
WARN Act or any similar state or local law, or to create any liability to Lockheed Martin for any employment terminations under applicable law.
U.S. Labor
Matters
Effective as of and from the date of the Distribution, Splitco will offer to adopt and assume the collective bargaining agreement between Lockheed
Martin Information Systems and Global SolutionsAFSS and the International Association of Machinists and Aerospace Workers, AFL-CIO and its affected District and Local Lodges (the U.S. Union Contract), which covers certain Splitco
Business Employees located in the United States (the U.S. Union Employees), and will recognize the union that is a party to the U.S. Union Contract with respect to the Splitco Business Employees. Provided that Splitco adopts and assumes
the U.S. Union Contract, Splitco will employ, effective as of and from the date of the Distribution, the U.S. Union Employees on the terms and conditions of the U.S. Union Contract. Except to the extent otherwise required by applicable law or
otherwise permitted by the U.S. Union Contract, Splitco will not, and will cause any successor to the Splitco Business not to, reduce the hourly wage rates or annual incentive compensation opportunities or benefits of any U.S. Union Employee during
the Transition Period.
To the extent Splitco does not comply with its obligations related to the U.S. Union Contract and, as a result, any Lockheed Martin
indemnified party incurs any severance, termination or similar cost in respect of any U.S. Union Employee in connection with the Transactions on or following the date of the Distribution, Splitco will indemnify such party for such amounts.
On or before the date of the Distribution, Lockheed Martin will transfer and assign the U.S. Union Contract to Splitco, keep Splitco reasonably informed of the status
of any negotiations and modifications with respect to the U.S. Union Contract and refrain from actions that would result in a breach of the U.S. Union Contract.
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Non-U.S. Employees
The
Employee Matters Agreement generally provides that Splitco Business Employees who are resident outside of the U.S. or otherwise are subject to non-U.S. law, and their related benefits and obligations, will be treated in the same manner as the
Splitco Business Employees who are resident in the United States, subject to applicable law. The Employee Matters Agreement also contains certain provisions relating to the transfer of, the terms of employment of, and the benefits plans of Splitco
Business Employees who are assigned to the Splitco Business in the United Kingdom (the UK Splitco Business Employees) or who are employed in Israel by a wholly-owned subsidiary of Lockheed Martin (the Israeli Employees),
including, but not limited to, the provisions summarized below.
With respect to UK Splitco Business Employees, Lockheed Martin, Splitco and Leidos acknowledged and
agreed that, pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006 as amended (the Transfer Regulations), the contracts of employment between Lockheed Martin and the UK Splitco Business Employees (except in
so far as those contracts relate to any occupational pension scheme, as that term is used in Regulation 10 of the Transfer Regulations) will have effect after the date of the Distribution as if originally made between Splitco and such Splitco
Business Employees. To the extent required to comply with Lockheed Martins obligations under certain governmental contracts, certain UK Splitco Business Employees who were previously UK public sector employees, participated in public sector
defined benefit pension plans and who transferred to Lockheed Martin under the governmental contracts pursuant to the Transfer Regulations will generally be permitted by Splitco to accrue benefits under a broadly comparable pension scheme to the
public sector plan in which they previously participated. With respect to the Israeli Employees, the employment of such employees will be transferred to Splitco or a Splitco Subsidiary effective as of the date of the Distribution, subject to
obtaining written consent from the employees prior to the date of the Distribution as set forth in the Employee Matters Agreement. As of the date of the Distribution, Splitco will continue to provide the Israeli Employees with the same salary and
all other employment benefits and rights that were provided to them by the applicable affiliate of Lockheed Martin in Israel immediately prior to the date of the Distribution according to applicable law and any employment agreement. Subject to
applicable law, Lockheed Martins Israeli affiliate will transfer the Israeli Employees pension arrangements to Splitco after obtaining approval from the Israel tax authority prior to the date of the Distribution, which approval it shall
secure before the date of the Distribution.
Tax Matters Agreement
In connection with the Transactions, Lockheed Martin, Splitco, and Leidos have entered into a Tax Matters Agreement that governs the parties respective rights,
responsibilities, and obligations with respect to taxes, including taxes arising in the ordinary course of business, and taxes, if any, incurred as a result of any failure of the Distribution, the Merger or certain related transactions to qualify as
tax-free for U.S. federal income tax purposes. The Tax Matters Agreement also sets forth the respective obligations of the parties with respect to the filing of tax returns, the administration of tax contests and assistance and cooperation on tax
matters. This summary is qualified by reference to the complete text of the form of the Tax Matters Agreement, which is incorporated by reference and is filed as an exhibit to the registration statement of which this document is a part.
In general, the Tax Matters Agreement governs the rights and obligations of Lockheed Martin, on the one hand, and Splitco and Leidos, on the other hand, after the
Distribution with respect to taxes for both pre-Distribution and post-Distribution periods. Under the Tax Matters Agreement, Lockheed Martin generally is responsible for pre-Distribution taxes (including taxes attributable to Splitco), and Splitco
generally is responsible for post-Distribution taxes attributable to Splitco. Subject to certain exceptions, Splitco is responsible for taxes that are recoverable (or, in certain cases, recovered) by Splitco or the Splitco Subsidiaries from a
governmental authority pursuant to the terms of Splitcos government contracts. Furthermore, each party is responsible for any taxes imposed on Lockheed Martin that arise from the failure of the Distribution, the Merger and certain related
transactions to qualify as tax-free transactions to the extent that such failure to qualify is attributable to certain actions (described below) taken by such party.
The Tax Matters Agreement further provides that Leidos and its subsidiaries will indemnify Lockheed Martin for (i) all taxes for which Splitco is responsible as
described above, (ii) all taxes incurred by reason of certain actions or events, or by reason of any breach by Splitco, Leidos, or any of their respective subsidiaries of any of their respective representations, warranties or covenants under
the Tax Matters Agreement that, in each case, affect the tax-free status of the Distribution, the Merger and certain related transactions and (iii) any costs and expenses related to the foregoing (including reasonable attorneys fees and
expenses). Lockheed Martin will indemnify Leidos and its
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subsidiaries for (i) all taxes for which Lockheed Martin is responsible as described above, (ii) all taxes incurred by reason of certain actions or events, or by reason of any breach by
Lockheed Martin of any of their respective representations, warranties or covenants under the Tax Matters Agreement that, in each case, affect the tax-free status of the Distribution, the Merger and certain related transactions and (iii) any
costs and expenses related to the foregoing (including reasonable attorneys fees and expenses).
In addition, the Tax Matters Agreement generally will
prohibit Lockheed Martin, Splitco, Leidos and their respective subsidiaries from taking certain actions that could cause the Distribution, the Merger and certain related transactions to fail to qualify as tax-free transactions. Furthermore, unless
an exception applies, for a two-year period following the date of the Distribution:
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none of Splitco, Leidos or any of their respective subsidiaries may discontinue the active conduct of the Splitco Business;
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Leidos may not redeem or repurchase any of its stock;
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neither Leidos nor Splitco may engage in certain mergers or consolidations;
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none of Leidos, Splitco or any of Splitcos subsidiaries may sell or issue any of its own stock or stock rights;
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none of Splitco, Leidos or any of their respective subsidiaries may enter into any transaction or series of transactions as a result of which one or more persons would acquire (directly or indirectly) an amount of stock
of Splitco and/or Leidos (taking into account the stock of Splitco acquired pursuant to the Merger) that would reasonably be expected to cause the failure of the tax-free status of the Distribution, the Merger and certain related transactions; and
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none of Splitco, Leidos or any of their respective subsidiaries may amend its certificate of incorporation or take any other action affecting the relative voting rights of any stock or stock rights of Leidos, Splitco or
their respective subsidiaries.
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If Splitco, Leidos or any of their respective subsidiaries intends to take an action that is otherwise prohibited as
described above, Splitco or Leidos is required to notify Lockheed Martin of its proposal and obtain an IRS ruling with Lockheed Martin or an unqualified tax opinion acceptable to Lockheed Martin to the effect that such action will not affect the
tax-free status of the Distribution, the Merger and certain related transactions. However, if Splitco, Leidos or any of their respective subsidiaries takes any of the actions above and such actions result in tax-related losses to Lockheed Martin,
Leidos and its subsidiaries generally are required to indemnify Lockheed Martin for such losses, without regard to whether Lockheed Martin has given prior consent to such action and without regard to whether Splitco or Leidos obtains an IRS ruling
or an unqualified tax opinion.
The Tax Matters Agreement is binding on and will inure to the benefit of any successor to any of the parties of the Tax Matters
Agreement to the same extent as if such successor had been an original party to the Tax Matters Agreement. Further, as of the effective time of the Merger, Leidos will be subject to the obligations and restrictions imposed on Splitco.
Additional Agreements
In addition to the
agreements described above, in connection with the Separation Agreement, Lockheed Martin and certain of its subsidiaries, on the one hand, and Splitco and certain of the Splitco Subsidiaries, on the other hand, will enter into the agreements
described below on the date of the Distribution.
Intellectual Property Matters Agreement
Lockheed Martin and a subsidiary that will be transferred to Splitco will enter into an Intellectual Property Matters Agreement (IPMA) in respect of certain
intellectual property (including patents, trade secrets, copyrights and know-how) used by the Splitco Business. Pursuant to the IPMA, Lockheed Martin will transfer to the Splitco Subsidiary certain specified intellectual property owned by Lockheed
Martin and used in the Splitco Business (Transferred Intellectual Property), including the right to use such intellectual property, which the Splitco Subsidiary will hold subject to (i) any rights of the U.S. Government in any such
intellectual property, (ii) any licensees of such Transferred Intellectual Property granted prior to the execution of the IPMA and (iii) any rights of third parties in intellectual property embedded or included in the Transferred
Intellectual Property. The Splitco Subsidiary will also grant back to Lockheed Martin an irrevocable, worldwide, perpetual, fully paid up, royalty-free, generally nontransferable and nonexclusive license to a specified subset of the Transferred
Intellectual Property to use for any purpose relating to Lockheed Martins retained businesses and operations.
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In addition, Lockheed Martin will grant to the Splitco Subsidiary an irrevocable, worldwide, perpetual, fully paid up,
royalty-free, generally nontransferable and nonexclusive license in and to certain additional specified intellectual property owned by Lockheed Martin and used by the Splitco Business and other retained businesses of Lockheed Martin (Licensed
Intellectual Property) to use the same for any purposes in connection with the Splitco Business, subject to any rights of third parties in intellectual property embedded or included in the Licensed Intellectual Property. The Splitco Subsidiary
may not grant sublicenses of its rights to the Licensed Intellectual Property under the IPMA without the prior written consent of Lockheed Martin (other than sublicenses to (a) Splitco, wholly-owned subsidiaries of Splitco and any future
wholly-owned subsidiaries of Splitco and (b) providers of goods and services or other third parties for the benefit of the Splitco Business), provided that such consent shall not be unreasonably withheld or delayed with respect to proposed
sublicenses to Affiliates of Splitco. Any permitted sublicense must be consistent with the terms of the IPMA, and the Splitco Subsidiary will remain solely liable for any such sublicensees compliance with the agreement. In the case of
sublicenses to wholly-owned subsidiaries of Splitco, such sublicenses must provide for automatic termination when any such entity ceases to be an affiliate of the Splitco Subsidiary or wholly-owned subsidiary of Splitco. In addition, the IPMA
contains restrictions with respect to the fields of use in which certain identified items of the Licensed Intellectual Property may be used and grants exclusive license rights in certain identified items of the Licensed Intellectual Property, for
the design, development, manufacture, sale and distribution of devices, systems, products and services for certain commercial customers.
The IPMA prohibits
either party from assigning or otherwise transferring, in whole or in part, any of its rights or obligations under the IPMA without consent from the non-assigning party, other than in connection with the sale of transfer of all or substantially all
of the assigning partys stock, assets or business to which the IPMA relates.
Furthermore, pursuant to the IPMA, certain specified intellectual property will
be deemed jointly owned by Lockheed Martin and the Splitco Subsidiary (the Jointly Owned Intellectual Property), with each party owning an equal and undivided interest in such intellectual property. Each party will be entitled to freely
use the Jointly Owned Intellectual Property outside the scope of the IPMA without accounting between them, and any improvement, updates or modifications to the Jointly Owned Intellectual Property made after the date of the Distribution will be owned
by the party making such improvement, update or modification.
The IPMA also governs the parties rights with respect to enforcement and defense of third
party claims relating to the intellectual property covered by the agreement. The IPMA also provides that, if any breach of the sufficiency of assets representation made by Lockheed Martin in the Merger Agreement can be remedied by a license of
additional, or additional rights to use, intellectual property, then Lockheed Martin must provide or expand the license to the Splitco Subsidiary to include such rights to the extent required to cure such breach, on the same terms and conditions as
comparable licenses under the IPMA, retroactive to the date of the Distribution; provided that either Splitco or the Splitco Subsidiary have provided a written notice of such alleged breach or requested such license on or prior to the first
anniversary of the date of the Distribution. See also The Merger AgreementRepresentations and Warranties for a more detailed description of the representations and warranties related to the Splitco Business that are contained in
the Merger Agreement. Additionally, the Splitco Subsidiary will be afforded a reasonable opportunity, with respect to continued use of any intellectual property used in the Splitco Business prior to the Distribution Date that is not included in the
Licensed Intellectual Property or Transferred Intellectual Property (and which Lockheed Martin has not identified that it will retain and exclude from those categories), to negotiate with Lockheed Martin a license to enable the Splitco Subsidiary to
make use of such intellectual property consistent with its use in the Splitco Business prior to the Distribution Date or to phase-out and cease use of such intellectual property in a commercially reasonable manner.
Shared Contracts Agreements
Lockheed Martin and Splitco will enter
into Shared Contracts Agreements in respect of certain indefinite-delivery, indefinite-quantity government contracts that relate to the Splitco Business and the other businesses conducted by Lockheed Martin and its subsidiaries (the Shared
Contracts). Pursuant to the first of these agreements, the Splitco Business will perform work under task orders, delivery orders, work orders and similar arrangements pursuant to Shared Contracts that Lockheed Martin will retain following the
Distribution and under bids submitted by the Splitco Business under those Shared Contracts. Pursuant to the second agreement, Lockheed Martin will perform work under task orders, delivery orders, work orders and similar arrangements pursuant to
Shared Contracts that will transfer to Splitco in connection with the Transactions and under bids submitted by the retained businesses of Lockheed Martin under those Shared Contracts. Each Shared Contracts Agreement will continue in effect with
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respect to each Shared Contract until the earlier of (a) the expiration or termination of such Shared Contract or (b) the award to Splitco or a Splitco Subsidiary, on the one hand, or
Lockheed Martin, on the other hand, of a substitute contract vehicle to the applicable Shared Contract.
These agreements also outline the obligations of the
parties with respect to the filing, prosecution and intervention in all bid protest actions on behalf of the other party. The agreement under which Shared Contracts will transfer to Splitco also addresses the submission of bids, quotations or
proposals in connection with ongoing and future procurements, and describes the business areas of Lockheed Martin, Splitco and the Splitco Subsidiaries in which each party will have ongoing rights to submit future proposals under the Shared
Contracts.
Subcontract Pending Novation
Lockheed Martin and
Splitco will enter into a Subcontract Pending Novation pursuant to which Splitco will act as a subcontractor to Lockheed Martin for performance of all obligations of Lockheed Martin under certain of the U.S. government contracts included in the
Transferred Assets pending the U.S. Governments agreement to novate such U.S. government contracts. The term of the agreement will continue until the earlier of the novation or assignment of the government contracts subject to the
agreement, or the satisfaction of all obligations of Lockheed Martin under the government contracts subject to the agreement. Among other things, the agreement also provides that Lockheed Martin and Splitco will use reasonable best efforts to
(a) provide all notices and obtain all consents and approvals needed from the U.S. Government in connection with performance under the agreement and, if not received, to cooperate to set up alternative arrangements, and (b) cause the
applicable government contracts to be novated in accordance with the terms of the Separation Agreement and federal acquisition regulations.
Supply Agreements
Lockheed Martin and Splitco will enter into Supply Agreements pursuant to which Lockheed Martin and certain of its subsidiaries will supply certain
Splitco Subsidiaries, and certain Splitco Subsidiaries will supply Lockheed Martin and certain of its subsidiaries, as the case may be, with services pursuant to certain intercompany work orders, bids and/or informal intercompany commercial
arrangements existing between businesses and subsidiaries to be retained by Lockheed Martin following the Distribution, on the one hand, and the Splitco Business, on the other hand. Pursuant to the Supply Agreements, these intercompany work orders
and commercial arrangements will be reduced to writing and shall be performed on the basis of the standard terms and conditions agreed upon by Lockheed Martin and Leidos. These agreements will continue in effect until the expiration or termination
of the last intercompany work order, bid or other commercial arrangement that is subject to each Supply Agreement and the price of services provided under the Supply Agreement will be consistent with the costs and fees for such services prior to the
Distribution and other cost principles agreed upon by the parties, or the price or cost estimates previously provided for such services by the applicable business unit of Lockheed Martin, Splitco or a Splitco Subsidiary, as the case may be.
Transition Services Agreements
Lockheed Martin and Splitco will
enter into two Transition Services Agreements (each, a TSA) on the date of the Distribution. Pursuant to the Parent-to-Splitco TSA (LM TSA), Lockheed Martin will provide Splitco and the Splitco Subsidiaries with certain
services, including information technology, supply chain, financial, human resources and other specified services. These services are generally planned to extend for an initial term of six to 12 months and will be provided initially at a base
monthly fee, with escalating increases up to the base amount plus 12 percent for services extended beyond the initial term up to maximum period of 24 months from the date of the Distribution. The LM TSA also includes the allocation of certain costs
associated with provision of such transition services, which the parties have agreed to share or allocate to given party based on the subject matter to which such set-up costs relate. In addition, the LM TSA provides that if any breach of the
representation regarding sufficiency of assets made by Lockheed Martin in the Merger Agreement can be remedied by the provision of an additional service, Lockheed Martin must provide such services to Splitco and the Splitco Subsidiaries to the
extent required to remedy such breach, and the parties must cooperate and act in good faith to negotiate the specific terms and conditions on which the additional transition services will be provided. See also The Merger
AgreementRepresentations and Warranties for a more detailed description of the representations and warranties related to the Splitco Business that are contained in the Merger Agreement.
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Under the Splitco-to-Parent TSA, Splitco and the Splitco Subsidiaries will provide Lockheed Martin with certain services to
be agreed upon by the parties, including financial and accounting services. These services are planned to extend for a period of 12 months and will be provided initially at cost with scheduled, escalating increases to the extent Lockheed Martin
requires any transition services for a period longer than 12 months.
Building and Office Space Leases
Lockheed Martin or certain of its subsidiaries and Splitco will enter into certain lease agreements in respect of certain buildings and office space at properties owned
by other businesses of Lockheed Martin in Manassas, Virginia, Rockville, Maryland and two properties in King of Prussia, Pennsylvania. Pursuant to three of these agreements, Lockheed Martin will grant to Splitco a leasehold interest in certain
buildings or portions thereof at these sites, as the sites will continue to be owned by Lockheed Martin after the consummation of the Transactions. Pursuant to a fourth agreement, the property located at 230 Mall Boulevard in King of Prussia,
Pennsylvania will be retained by Lockheed Martin in connection with the Internal Reorganization. After the Distribution, the subsidiary of Lockheed Martin that owns the King of Prussia property will grant a leasehold interest in certain buildings
and space at the site. These agreements will provide for a one or three year term and monthly rent to be paid by the lessee, and also will provide for certain access rights that will allow each party to access the common areas at the leased sites.
Subleases
Lockheed Martin or certain of its subsidiaries and
Splitco will enter into certain sublease agreements in respect of certain office space at properties currently leased by Lockheed Martin at Stennis Space Center in Mississippi and in Kingston, Australia. Pursuant to the sublease for office space at
the facility located at Stennis Space Center, Lockheed Martin will grant to Splitco a sublease of space within certain buildings or portions thereof, as the buildings will continue to be leased by a subsidiary of Lockheed Martin after the
consummation of the Transactions. Pursuant to the other sublease, Splitco will sublease to Lockheed Martin office space within certain buildings at the Kingston, Australia site, as the lease associated with this property will be owned by Splitco
after the consummation of the Transactions, but Lockheed Martin will continue to use such buildings. These subleases will provide for a term that extends through the expiration of the primary lease at each property and monthly rent to be paid by the
sublessee that consistent with the rent payable under the primary leases, and will also provide for certain access rights that will allow each party to access the common areas at the subleased sites.
License Agreements
Lockheed Martin or certain of its subsidiaries and
Splitco will enter into license agreements in respect of certain office spaces and other facilities owned, leased or subleased by Lockheed Martin in Owego, New York, Farnborough, United Kingdom, Eagan, Minnesota, Mt. Laurel, New Jersey, and two
properties in Herndon, Virginia. Pursuant to four of these agreements, Lockheed Martin will grant to Splitco a short-term license to use space within certain buildings at the Owego, New York, Mt. Laurel, New Jersey sites and two properties in
Herndon, Virginia, as the buildings will continue to be owned or leased by Lockheed Martin or one of its subsidiaries after the consummation of the Transactions. These license agreements will provide for a term that expires in the second quarter of
2017 and monthly rent to be paid by the licensee that may escalate at the end of 2016 pursuant to the terms of the underlying lease for such properties. Pursuant to the other two license agreements, Splitco will license to Lockheed Martin office
space within certain buildings at the Farnborough, United Kingdom and Eagan, Minnesota sites, as the leases or subleases associated with these properties will be owned by Splitco after the consummation of the Transactions, but Lockheed Martin will
continue to use portions of such buildings. The license agreement for the Farnborough, United Kingdom will provide for a term that extends until 2023, while the license agreement for the Eagan, Minnesota site will be month-to-month pending
negotiations with the applicable landlord. Each license agreement will also provide certain access rights that will allow each party to access the common areas of these shared sites.
Leaseback Agreement
Pursuant to a leaseback agreement, Splitco will
grant to Lockheed Martin a leasehold interest in certain buildings and space at the Gaithersburg site, as the facility will be owned by Splitco after the consummation of the Transactions, but Lockheed Martin will continue to use such buildings until
the operations of other Lockheed Martins businesses at such facility can be transferred to controlled facilities of Lockheed Martin. This agreement will provide for a one-year term and a monthly rent to be paid by Lockheed Martin, and will
otherwise be on terms consistent with the lease agreement pursuant to which Splitco will lease from Lockheed Martin certain buildings and office space at the facility owned by Lockheed Martin in Rockville, Maryland.
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DESCRIPTION OF LEIDOS CAPITAL STOCK
The rights of holders of Leidos stock are governed by Delaware law, the Leidos Charter and the Leidos Bylaws. For information on how to obtain a copy of the
Leidos Charter and the Leidos Bylaws, see Where You Can Find More Information; Incorporation by Reference
The following description of Leidos
capital stock does not purport to be complete and is subject to, and qualified in its entirety by reference to, the complete text of the Leidos Charter and the Leidos Bylaws.
General
As of the date of this document,
Leidos authorized capital stock consists of 510,000,000 shares of capital stock, consisting of up to 500,000,000 shares of common stock, $0.0001 par value per share, and up to 10,000,000 shares of preferred stock, $0.0001 par value per share,
issuable in one or more series. As of April 1, 2016, there were 72,401,335 shares of Leidos common stock issued and outstanding, and no shares of Leidos preferred stock were issued and outstanding.
Leidos has adopted and maintains the Leidos 2006 Equity Incentive Plan pursuant to which Leidos is authorized to issue stock, stock options and other types of
equity-based compensation to employees, directors and consultants. As of April 1, 2016, awards and other rights or options to acquire shares of Leidos common stock were outstanding under these plans that represented rights or options to acquire
approximately 5,379,032 shares of Leidos common stock and Leidos had reserved approximately 3,891,778 additional shares of Leidos common stock for future issuances under the Leidos Stock Plans.
Common Stock
Leidos stockholders are entitled to
dividends as declared by the Leidos Board from time to time after payment of, or provision for, full dividends on any shares of preferred stock then outstanding. Leidos stockholders are entitled to one vote per share on all matters submitted for
action by the stockholders and the Leidos Charter permits cumulative voting for the election of directors. Leidos stockholders have no preemptive or subscription rights and have no liability for further calls or assessments. In the event of the
liquidation, dissolution or winding up of Leidos, Leidos stockholders will be entitled to receive,
pro rata
, all of Leidos remaining assets available for distribution, after satisfaction of the prior preferential rights of any preferred
stock then outstanding and the satisfaction of all of Leidos debts and liabilities.
Preferred Stock
Under the Leidos Charter, the Leidos Board is authorized, without further stockholder action, to provide for the issuance from time to time of up to 10,000,000 shares of
Leidos preferred stock in one or more series and to establish the voting powers, designations, preferences and rights and other terms of the preferred stock, as may be set forth in a certificate of designation to the Leidos Charter providing for the
issuance of the preferred stock as adopted by the Leidos Board or a duly authorized committee thereof.
Certain Anti-Takeover Effects
of Provisions of Delaware Law, the Leidos Charter and the Leidos Bylaws
As a Delaware corporation that has a class of voting stock listed on a national
securities exchange, Leidos is subject to the provisions of Section 203 of the DGCL. In general, Section 203 prohibits a public Delaware corporation from engaging in a business combination with an interested
stockholder for a period of three years after the time at which such person became an interested stockholder unless: (i) prior to such time, the Board approved either the business combination or transaction in which the stockholder became
an interested stockholder; or (ii) upon becoming an interested stockholder, the stockholder owned at least 85 percent of the corporations outstanding voting stock other than shares held by directors who are also officers and certain
employee benefit plans; or (iii) the business combination is approved by both the Board and by holders of at least 66 and two-thirds percent of the corporations outstanding voting stock (at a meeting and not by written consent), excluding
shares owned by the interested stockholder. For these purposes, a business combination includes mergers, asset sales and other similar transactions with an interested stockholder, and interested stockholder means
a stockholder that, together with its affiliates and associates, owns (or, under certain circumstances, has owned within the prior three years) more than 15 percent of the outstanding voting stock. Although Section 203 permits a corporation to
elect not to be governed by its provisions, Leidos has not made this election.
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The Leidos Charter provides that the directors elected may be removed with or without cause by the holders of two-thirds of
the total voting power of all outstanding shares then entitled to vote at an election of directors. However, the DGCL provides that the affirmative vote of the holders of record of a majority of the outstanding shares entitled to vote shall be
enough to remove any director or the entire board. Under the Leidos Bylaws, unless and until filled by the stockholders, any vacancy or newly created directorships on the Leidos Board may be filled by vote of a majority of the directors then in
office, although less than a quorum.
The Leidos Charter and the Leidos Bylaws provide that any action required or permitted to be taken by Leidos stockholders at
an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting. The Leidos Charter and the Leidos Bylaws also provide that special meetings of Leidos stockholders may be called for any purpose at
any time by the Leidos Board, a majority of the members of the Leidos Board or by a committee of the Leidos Board with power designated to call such meetings. In addition, the Leidos Bylaws establish an advance notice procedure for stockholder
proposals to be brought before an annual meeting of Leidos stockholders, including proposed nominations of candidates for election to the Leidos Board. Leidos stockholders at an annual meeting may only consider proposals or nominations specified in
the notice of meeting or brought before the meeting by or at the direction of the Leidos Board or by a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has delivered timely written notice in
proper form to the Secretary of Leidos of the stockholders intention to bring such business before the meeting. These provisions could have the effect of delaying stockholder actions that are favored by the holders of a majority of
Leidos outstanding voting securities until the next stockholder meeting.
The DGCL provides generally that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporations certificate of incorporation or bylaws, unless a corporations certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Portions of the
Leidos Charter may be amended only by the affirmative vote of the holders of not less than two-thirds of the votes which all the Leidos stockholders would be entitled to vote. The Leidos Bylaws may be amended or repealed by a majority vote of the
Leidos Board or by the affirmative vote of not less than two-thirds of the votes which all Leidos stockholders would be entitled to cast in any annual election of directors.
Listing
Leidos common stock trades on the NYSE
under the trading symbol LDOS.
Transfer Agent
The transfer agent and registrar for Leidos common stock is Computershare Trust Company, N.A.
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RISK FACTORS
You should carefully consider each of the following risks and all of the other information contained and incorporated by reference in this document and the exhibits
hereto. Some of the risks described below relate principally to the Transactions, while others relate principally to the business and the industry in which Leidos, including Splitco and the Splitco Subsidiaries, will operate after the Transactions.
The remaining risks relate principally to the securities markets generally and ownership of shares of Leidos common stock. The risks described below are not the only risks that Leidos currently faces or will face after the Transactions. Additional
risks and uncertainties not currently known or that are currently expected to be immaterial also may materially and adversely affect Leidos business and financial condition or the price of Leidos common stock following the consummation of the
Transactions. In addition, you should consider the risks associated with Leidos business that appear in its Transition Report on Form 10-K for the 11-month period ended January 1, 2016, and its Quarterly Report on Form 10-Q for the
quarter ended April 1, 2016, which are incorporated by reference into this prospectus.
The Transactions may not be completed on the terms or
timeline currently contemplated, or at all, as Leidos and Lockheed Martin may be unable to satisfy the conditions or obtain the approvals required to complete the Transactions or such approvals may contain material restrictions or conditions.
The consummation of the Transactions is subject to numerous conditions, including, among other things, (1) the consummation of the Internal
Reorganization and the Distribution in accordance with the Separation Agreement, (2) the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (which period has
expired), and the receipt of any necessary regulatory approvals in the United Kingdom, (3) the effectiveness of registration statements to be filed with the SEC, (4) the approval by Leidos stockholders of the Share Issuance in the Merger,
(5) the receipt by Lockheed Martin of the Lockheed Martin Tax Opinions and the receipt by Leidos of the Leidos Tax Opinion, (6) the receipt by Leidos, Lockheed Martin and Splitco of solvency opinions customary in transactions of this type
and (7) other customary closing conditions. There is no assurance that the Transactions will be consummated on the terms or timeline currently contemplated, or at all. Leidos and Lockheed Martin have and will continue to expend time and
resources of management and incur legal, advisory and financial services fees related to the Transactions. These expenses must be paid regardless of whether the Transactions are consummated.
Governmental agencies may not approve the Transactions, may impose conditions to the approval of the Transactions or may require changes to the terms of the
Transactions. Any such conditions or changes could have the effect of delaying completion of the Transactions, imposing costs on or limiting the revenues of the combined company following the Transactions or otherwise reducing the anticipated
benefits of the Transactions. Any condition or change which results in a material adverse effect on Lockheed Martin and/or Leidos under the Merger Agreement may cause Lockheed Martin and/or Leidos to restructure or terminate the Transactions.
Completion of the transfer of certain of the U.S. government contracts, bids and proposals, and related assets contemplated in the Transactions will depend on obtaining
post-closing governmental approvals, particularly in the form of novation and/or name change agreements to which the U.S. government must be a party. Between the closing of the Transaction and the time these governmental approvals are obtained,
Leidos may encounter administrative difficulties, delays in payments, and uncertainties in being recognized as the party in interest or holder of the affected contracts, bid and proposals, and related assets. In addition, governmental approvals
could be accompanied by conditions affecting the future value and business prospects of the affected contracts, bid and proposals, and related assets. Such administrative difficulties, delays, uncertainties, and governmental conditions could have an
adverse effect on the cash flows and operating results of Leidos and the Splitco Business.
Leidos and Splitco will need to obtain debt financing to complete the
Transactions. Although commitment letters have been obtained from various lenders, the obligations of the lenders under the commitment letters are subject to the satisfaction or waiver of customary conditions, including, among others, the absence of
any material adverse effect, as the term is described in the Merger Agreement. Accordingly, there can be no assurance that these conditions will be satisfied or, if not satisfied, waived by the lenders. If Leidos is not able to obtain
alternative financing on commercially reasonable terms, it could prevent the consummation of the Transactions or materially and adversely affect Leidos business, liquidity, financial condition and results of operations if the Transactions are
ultimately consummated.
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If completed, the integration of Leidos and Splitco may not be successful or the anticipated benefits from the
Transactions may not be realized.
After the consummation of the Transactions, Leidos will have significantly more sales, assets and employees than it did
prior to the consummation of the Transactions. During the period in which transition services are provided to Leidos by Lockheed Martin, Splitco will have a continued dependence on the provision of services from Lockheed Martin, including with
respect to information technology infrastructure. The integration process will require Leidos to expend capital and significantly expand the scope of its operations. Leidos management will be required to devote a significant amount of time and
attention to the process of integrating the operations of Leidos business and the Splitco Business. There is a significant degree of difficulty and management involvement inherent in that process. These difficulties include, but are not
limited to:
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integrating the Splitco Business while carrying on the ongoing operations of Leidos business;
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managing a significantly larger company than before the consummation of the Transactions;
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the possibility of faulty assumptions underlying Leidos expectations regarding the integration process;
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coordinating a greater number of diverse businesses located in a greater number of geographic locations;
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operating in geographic markets or industry sectors in which Leidos may have little or no experience;
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complying with laws of new jurisdictions in which Leidos has not previously operated;
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integrating business systems and models;
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attracting and retaining the necessary personnel associated with the Splitco Business following the consummation of the Transactions;
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creating and implementing uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters; and
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integrating information technology, purchasing, accounting, finance, sales, billing, payroll and regulatory compliance systems, and meeting external reporting requirements following the consummation of the Transactions.
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All of the risks associated with the integration process could be exacerbated by the fact that Leidos may not have a sufficient number of employees
with the requisite expertise to integrate the businesses or to operate Leidos business after the Transactions. Failure to hire or retain employees with the requisite skills and knowledge to run Leidos after the Transactions may have a material
adverse effect on Leidos business, financial condition and results of operations.
Even if Leidos is able to combine the two business operations successfully,
it may not be possible to realize the benefits of the increased sales volume and other benefits, including the expected synergies that are expected to result from the Transactions, or realize these benefits within the time frame that is expected.
For example, the elimination of duplicative costs may not be possible or may take longer than anticipated, or the benefits from the Transactions may be offset by costs incurred or delays in integrating the companies. In addition, the quantification
of synergies expected to result from the Transactions is based on significant estimates and assumptions that are subjective in nature and inherently uncertain. The amount of synergies actually realized in the Transactions, if any, and the time
periods in which any such synergies are realized, could differ materially from the expected synergies discussed in this document, regardless of whether Leidos is able to combine the two business operations successfully.
If Leidos is unable to successfully integrate the Splitco Business or if it is unable to realize the anticipated synergies and other benefits of the Transactions, there
could be a material adverse effect on Leidos business, financial condition and results of operations.
The Merger Agreement contains provisions that may
discourage other companies from trying to acquire Leidos.
The Merger Agreement contains provisions that may discourage a third party from submitting a
business combination proposal to Leidos prior to the closing of the Transactions that might result in greater value to Leidos stockholders than the Transactions. The Merger Agreement generally prohibits Leidos from soliciting any alternative
transaction proposal, although it may terminate the Merger Agreement in order to accept an unsolicited alternative
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transaction proposal that the Leidos Board determines is superior to the Transactions. In addition, before the Leidos Board may withdraw or modify its recommendation or terminate the Merger
Agreement to enter into a transaction that it determines is superior to the Transactions, Lockheed Martin has the opportunity to negotiate with Leidos to modify the terms of the Transactions in response to any competing acquisition proposals. If the
Merger Agreement is terminated by Leidos or Lockheed Martin in certain limited circumstances, Leidos may be obligated to pay a termination fee to Lockheed Martin, which would represent an additional cost for a potential third party seeking a
business combination with Leidos.
Failure to complete the Transactions could adversely affect the market price of Leidos common stock as well as its
business, financial condition and results of operations.
If the Transactions are not completed for any reason, the price of Leidos common stock may decline,
or the companys business, financial condition and results of operations may be impacted to the extent that the market price of Leidos common stock reflects positive market assumptions that the Transactions will be completed and the related
benefits will be realized; based on significant expenses, such as legal, advisory and financial services which generally must be paid regardless of whether the Transactions are completed; based on potential disruption of the business of Leidos and
distraction of its workforce and management team; and the requirement in the Merger Agreement that, under certain limited circumstances, Leidos must pay Lockheed Martin a termination fee or reimburse Lockheed Martin for expenses relating to the
Transactions.
Leidos will incur significant costs related to the Transactions that could have a material adverse effect on its liquidity, cash flows and
operating results.
Leidos expects to incur significant, one-time costs in connection with the Transactions, some of which will be capitalized, including
approximately (a) $29 million of financing-related fees (which, when added to the approximately $34 million that Splitco expects to incur, totals approximately $63 million), (b) $30 million of transaction-related costs, including advisory,
legal, accounting and other professional fees and (c) $150 million to $175 million of transition and integration-related costs, a portion of which will be incremental capital spending, which management believes are necessary to realize the
anticipated synergies from the Transactions. The incurrence of these costs may have a material adverse effect on Leidos liquidity, cash flows and operating results in the periods in which they are incurred. Leidos may be able to recover
approximately $50 million to $70 million of the transition and integration-related expenses as allocable costs through its cost-type contracts over a five-year period, but there can be no assurances that it will be able to do so.
Investors holding shares of Leidos common stock immediately prior to the completion of the Transactions will, in the aggregate, have a significantly reduced
ownership and voting interest in Leidos after the Transactions and will exercise less influence over management.
Investors holding shares of Leidos common
stock immediately prior to the completion of the Transactions will, in the aggregate, own a significantly smaller percentage of the combined company immediately after the completion of the Transactions. Immediately following the completion of the
Transactions, it is expected that Lockheed Martin stockholders will hold approximately 50.5 percent of the outstanding shares of Leidos common stock, on a fully diluted basis. Leidos existing stockholders will continue to hold the remaining
approximately 49.5 percent of the outstanding shares of Leidos common stock, on a fully diluted basis. In addition, as a result of the true-up provision in the Merger Agreement, it is possible that Leidos could be required to issue additional shares
of its common stock in the Transactions. Consequently, Leidos stockholders, collectively, will be able to exercise less influence over the management and policies of the combined company than they will be able to exercise over the management and
Leidos policies immediately prior to the completion of the Transactions.
The calculation of merger consideration will not be adjusted if there is a
change in the value of the Splitco Business or its assets or the value of Leidos before the Transactions are completed.
The calculation of the number of
shares of Leidos common stock to be distributed in the Merger will not be adjusted if there is a change in the value of the Splitco Business or its assets or the value of Leidos prior to the consummation of the Transactions. Leidos will not be
required to consummate the Merger if there has been any material adverse effect on the Splitco Business as defined in the Merger Agreement. However, Leidos will not be permitted to terminate or re-solicit the vote of Leidos stockholders
because of any changes in the market prices of Leidos common stock or any changes in the value of the Splitco Business that do not constitute a material adverse effect on the Splitco Business.
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Sales of Leidos common stock after the Transactions may negatively affect the market price of Leidos common stock.
The shares of Leidos common stock to be issued as part of the Transactions will generally be eligible for immediate resale. The market price of Leidos
common stock could decline as a result of sales of a large number of shares of Leidos common stock in the market after the consummation of the Transactions or even the perception that these sales could occur.
Currently, Lockheed Martin stock may be held in index funds that tied to the Standard & Poors 500 Index or other stock indices, and may be held by
institutional investors subject to various investing guidelines. Because Leidos may not be included in these indices following the consummation of the Transactions or may not meet the investing guidelines of some of these institutional investors,
these index funds and institutional investors may decide to or may be required to sell the Leidos common stock that they receive in the case of any pro rata distribution. In addition, the investment fiduciaries of Lockheed Martins defined
benefit pension plans may decide to sell any Leidos common stock that the trusts for these plans receive in the Transactions, or may decide not to participate in the exchange offer, in response to their fiduciary obligations under applicable law.
Leidos expects to incur new indebtedness in connection with the Transactions, and the degree to which Leidos will be leveraged following completion of the
Transactions may have a material adverse effect on Leidos business, financial condition or results of operations and cash flows.
On January 26,
2016, Leidos and certain financial institutions executed the Leidos Commitment Letter and Splitco and certain financial institutions executed the Splitco Commitment Letter pursuant to which the financial institutions have agreed to provide credit
facilities to Leidos and Splitco, respectively, the proceeds of which will provide financing to Leidos to fund the Leidos Special Dividend and to Splitco to finance the Splitco Special Cash Payment. Leidos ability to make payments on and to
refinance its indebtedness, including the debt incurred pursuant to the Transactions, as well as any future debt that Leidos may incur, will depend on, among other things, Leidos ability to generate cash in the future from operations,
financings or asset sales. Leidos ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond Leidos control.
If Leidos is not able to repay or refinance its debt as it becomes due, Leidos may be forced to sell assets or take other disadvantageous actions, including
(i) reducing financing in the future for working capital, capital expenditures and general corporate purposes or (ii) dedicating an unsustainable level of Leidos cash flow from operations to the payment of principal and interest on
Leidos indebtedness. In addition, Leidos ability to withstand competitive pressures and react to changes in Leidos industry could be impaired. The lenders who hold such debt also could accelerate amounts due, which could
potentially trigger a default or acceleration of any of Leidos other debt.
In addition, Leidos may increase its debt or raise additional capital following
the Transactions, subject to restrictions in Leidos debt agreements and agreements entered into in connection with the Transactions. If Leidos cash flow from operations is less than it anticipates, or if Leidos cash requirements
are more than it expects, Leidos may require more financing. However, debt or equity financing may not be available to Leidos on terms advantageous or acceptable to Leidos, if at all. If Leidos incurs additional debt or raises equity through the
issuance of preferred stock, the terms of the debt or preferred stock issued may give the holders rights, preferences and privileges senior to those of holders of Leidos common stock, particularly in the event of liquidation. The terms of the
debt or preferred stock also may impose additional and more stringent restrictions on Leidos operations than it currently has. If Leidos raises funds through the issuance of additional equity, Leidos stockholders percentage ownership in
Leidos would be diluted. If Leidos is unable to raise additional capital when needed, it could affect Leidos financial condition. Also, regardless of the terms of Leidos debt or equity financing, the ability of Leidos to issue common
stock may be limited under the Tax Matters Agreement.
The historical financial information of the Splitco Business may not be representative of its results
or financial condition if it had been operated independently of Lockheed Martin and, as a result, may not be a reliable indicator of its future results.
The
Splitco Business is currently operated by Lockheed Martin. Consequently, the financial information of the Splitco Business included in this document has been derived from the consolidated financial statements and accounting records of Lockheed
Martin as if the operations of the Splitco Business were conducted independently from Lockheed Martin. The historical results of operations, financial position and cash flows of the Splitco Business included in this document may not be indicative of
what they would have been had the Splitco Business actually
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been an independent stand-alone entity, nor are they necessarily indicative of the future results of operations, financial position and cash flows of the Splitco Business. For example, the
combined financial statements of the Splitco Business include all revenues and costs directly attributable to the Splitco Business and an allocation of expenses related to certain Lockheed Martin corporate functions. These expenses have been
allocated to the Splitco Business based on direct usage or benefit where identifiable, with the remainder allocated pro rata based on an applicable measure of revenues, cost of revenues, headcount, fixed assets, number of transactions or other
relevant measures. Although Splitco considers these allocations to be a reasonable reflection of the utilization of services or the benefit received, the allocations may not be indicative of the actual expense that would have been incurred had
Splitco operated as an independent, stand-alone entity, nor are they indicative of Splitcos future expenses.
The unaudited pro forma combined financial
information of Leidos and Splitco is not intended to reflect what actual results of operations and financial condition would have been had Leidos and Splitco been a combined company for the periods presented, and therefore these results may not be
indicative of Leidos future operating performance.
Because Leidos will acquire Splitco only upon completion of the Transactions, it has no available
historical financial information that consolidates the financial results for the Splitco Business and Leidos. The historical financial statements contained or incorporated by reference in this document consist of the separate financial statements of
Lockheed Martin, Splitco, the Splitco Business and Leidos.
The unaudited pro forma combined consolidated financial information presented in this document is for
illustrative purposes only and is not intended to, and does not purport to, represent what Leidos actual results or financial condition would have been if the Transactions had occurred on the relevant date. In addition, such unaudited pro
forma combined consolidated financial information is based in part on certain assumptions regarding the Transactions that Leidos believes are reasonable. These assumptions, however, are only preliminary and will be updated only after the
consummation of the Transactions. The unaudited pro forma combined consolidated financial information has been prepared using the acquisition method of accounting, with Leidos considered the acquirer of Splitco. Under the acquisition method of
accounting, the purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values with any excess purchase price allocated to goodwill. The pro forma purchase price
allocation was based on an estimate of the fair values of the tangible and intangible assets and liabilities of the Splitco Business. In arriving at the estimated fair values, Leidos considered the preliminary appraisals of independent consultants
which were based on a preliminary and limited review of the assets and liabilities related to the Splitco Business to be transferred to, or assumed by, Splitco and the Splitco Subsidiaries in the Transactions. Following the Merger, Leidos expects to
complete the purchase price allocation after considering the fair value of the assets and liabilities of the Splitco Business at the level of detail necessary to finalize the required purchase price allocation. The final purchase price allocation
may be different than that reflected in the pro forma purchase price allocation presented herein, and this difference may be material.
The unaudited pro forma
combined consolidated financial information does not reflect the costs of any integration activities or transaction-related costs or incremental capital spending that Leidos management believes are necessary to realize the anticipated synergies from
the Transactions. Accordingly, the pro forma financial information included in this document does not reflect what Leidos results of operations or operating condition would have been had Leidos and Splitco been a consolidated entity during all
periods presented, or what Leidos results of operations and financial condition will be in the future.
Leidos may be unable to provide the same types
and level of benefits, services and resources to Splitco that historically have been provided by Lockheed Martin, or may be unable to provide them at the same cost.
As part of Lockheed Martin, Splitco has been able to receive benefits and services from Lockheed Martin and has been able to benefit from Lockheed Martins
financial strength and extensive business relationships. After the consummation of the Transactions, Splitco will be owned by Leidos and no longer will benefit from Lockheed Martins resources. While Leidos will enter into agreements under
which Lockheed Martin will agree to provide certain transition services and site-related services for a period of time following the consummation of the Transactions, it cannot be assured that Leidos will be able to adequately replace those
resources or replace them at the same cost. If Leidos is not able to replace the resources provided by Lockheed Martin or is unable to replace them at the same cost or is delayed in replacing the resources provided by Lockheed Martin, Leidos
business, financial condition and results of operations may be materially adversely impacted.
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Leidos business, financial condition and results of operations may be adversely affected following the
Transactions if Leidos cannot negotiate contract terms that are as favorable as those Lockheed Martin has received when Leidos replaces certain of Splitcos contracts after the closing of the Transactions.
Prior to the consummation of the Transactions, certain functions (such as purchasing, accounts payable processing, accounts receivable management, information systems,
logistics and distribution) associated with the Splitco Business are being performed under Lockheed Martins centralized systems and, in some cases, under contracts that also are used for Lockheed Martins other businesses and which will
not be assigned in whole or in part to Splitco. In addition, some other contracts to which Lockheed Martin is a party on behalf of Splitco will require consents of third parties to assign them to Splitco. There can be no assurance that Leidos will
be able to negotiate contract terms that are as favorable as those Lockheed Martin received when and if Leidos replaces these contracts with its own agreements for similar services, including any contracts that may need to be replaced as a result of
a failure to obtain required third-party consents.
Although Leidos believes that it will be able to enter into new agreements for similar services and that
Lockheed Martin and Leidos will be able to obtain all material third-party consents required to assign contracts to Splitco, it is possible that the failure to enter into new agreements for similar services or to obtain required consents to assign
contracts could have a material adverse impact on Leidos business, financial condition and results of operations following the consummation of the Transactions.
If the Distribution does not qualify as a tax-free transaction under Section 368(a)(1)(D) or 355 of the Code or the Merger does not qualify as a tax-free
reorganization under Section 368(a) of the Code, including as a result of actions taken in connection with the Distribution or the Merger or as a result of subsequent acquisitions of shares of Lockheed Martin, Leidos or Splitco
common stock, then Lockheed Martin and/or Lockheed Martin stockholders may be required to pay substantial U.S. federal income taxes, and, in certain circumstances and subject to certain conditions, Leidos may be required to indemnify Lockheed Martin
for any such tax liability imposed on Lockheed Martin.
The consummation of the Transactions is conditioned on the receipt by Lockheed Martin of the Lockheed
Martin Tax Opinions and by Leidos of the Leidos Tax Opinion. The opinions will be based on, among other things, currently applicable law and certain representations made by, and certain assumptions permitted by, Lockheed Martin, Splitco, and Leidos.
An opinion of counsel represents counsels best legal judgment, such opinion is not binding on the IRS or the courts, and the IRS or the courts may not agree with the opinion. Any change in currently applicable law, which may be retroactive, or
the failure of any representation or assumption to be true, correct and complete in all material respects, could adversely affect the conclusions reached by counsel in the opinions.
Even if the Distribution were otherwise to qualify as a tax-free transaction under Sections 368(a)(1)(D) and 355 of the Code, it would be taxable to Lockheed Martin
(but not to Lockheed Martin stockholders) pursuant to Section 355(e) of the Code if there were a 50 percent or greater change in ownership of either Lockheed Martin or Splitco (including stock of Leidos after the Merger), directly or
indirectly, as part of a plan or series of related transactions that include the Distribution. For this purpose, any acquisitions of Lockheed Martin, Splitco or Leidos stock within the period beginning two years before the Distribution and ending
two years after the Distribution are presumed to be part of such a plan, although Lockheed Martin may be able to rebut that presumption. While the Merger will be treated as part of such a plan for purposes of the test, standing alone the Merger
should not cause the Distribution to be taxable to Lockheed Martin under Section 355(e) of the Code because Lockheed Martin stockholders will hold more than 50 percent of Leidos outstanding stock immediately following the Merger.
Nevertheless, if the IRS were to determine that other acquisitions of Lockheed Martin, Splitco or Leidos stock, either before or after the Distribution, were part of a plan or series of related transactions that included the Distribution, such
determination could result in significant tax to Lockheed Martin. In connection with the Lockheed Martin Tax Opinions, Lockheed Martin, Splitco and Leidos (to its knowledge) have represented and will represent that the Distribution is not part of
any such plan or series of related transactions other than the Merger. In certain circumstances and subject to certain limitations, under the Tax Matters Agreement Leidos is required to indemnify Lockheed Martin if the Distribution becomes taxable
as a result of certain actions by Leidos or Splitco or as a result of certain changes in ownership of the stock of Leidos or Splitco after the Merger. If Lockheed Martin were to recognize gain on the Distribution for reasons not related to a
disqualifying action by Splitco or Leidos, Lockheed Martin would not be entitled to be indemnified under the Tax Matters Agreement and the resulting tax to Lockheed Martin could have a material adverse effect on Lockheed Martin. If Leidos is
required to indemnify Lockheed Martin if the Distribution is taxable, this indemnification obligation could be substantial and could have a material adverse effect on Leidos, including with respect to its financial condition and results of
operations.
108
Splitco and Leidos may be affected by significant restrictions following the Transactions in order to avoid
significant tax-related liabilities.
The Tax Matters Agreement generally prohibits Splitco, Leidos and their affiliates from taking certain actions that
could cause the Distribution, the Merger and certain related transactions to fail to qualify as tax-free transactions.
Furthermore, unless an exception applies,
for a two-year period following the date of the Distribution:
|
|
|
none of Splitco, Leidos or any of their respective subsidiaries may discontinue the active conduct of the Splitco Business;
|
|
|
|
Leidos may not redeem or repurchase any of its stock;
|
|
|
|
neither Leidos nor Splitco may engage in certain mergers or consolidations;
|
|
|
|
none of Leidos, Splitco or any of Splitcos subsidiaries may sell or issue any of its own stock or stock rights;
|
|
|
|
none of Splitco, Leidos or any of their respective subsidiaries may enter into any transaction or series of transactions as a result of which one or more persons would acquire (directly or indirectly) an amount of stock
of Splitco and/or Leidos (taking into account the stock of Splitco acquired pursuant to the Merger) that would reasonably be expected to cause the failure of the tax-free status of the Distribution, the Merger and certain related transactions; and
|
|
|
|
none of Splitco, Leidos or any of their respective subsidiaries may amend its certificate of incorporation or take any other action affecting the relative voting rights of any stock or stock rights of Leidos, Splitco or
their respective subsidiaries.
|
If Splitco or Leidos intends to take certain restricted actions, it must notify Lockheed Martin of the proposal to
take such action and either obtain a ruling from the IRS or an unqualified opinion acceptable to Lockheed Martin to the effect that such action will not affect the tax-free status of the Transactions. However, this will not relieve Leidos of any
responsibility to indemnify Lockheed Martin for tax-related losses.
Due to these restrictions and indemnification obligations under the Tax Matters Agreement,
Leidos may be limited in its ability to pursue strategic transactions, equity or convertible debt financings or other transactions that may otherwise be in Leidos best interests.
Leidos will have more shares of its common stock outstanding and will be a substantially larger company with significant indebtedness after the Transactions,
which may discourage other companies from trying to acquire Leidos.
Leidos expects to issue 76,958,918 shares of its common stock in the Merger. In
addition, as a result of the true-up provision in the Merger Agreement in certain circumstances, it is possible that Leidos could be required to issue more than 76,958,918 shares of its common stock in the Merger. Because Leidos will be a
significantly larger company and will have significantly more shares of its common stock outstanding after the consummation of the Transactions and significantly more outstanding indebtedness, an acquisition of Leidos by a third party may become
more expensive. As a result, some companies may not seek to acquire Leidos, and the reduction in potential parties that may seek to acquire Leidos could negatively impact the prices at which Leidos common stock trades.
Leidos estimates and judgments related to the acquisition accounting models used to record the purchase price allocation may be inaccurate.
Leidos management will make significant accounting judgments and estimates for the application of acquisition accounting under GAAP, and the underlying valuation models.
Leidos business, operating results and financial condition could be materially and adversely impacted in future periods if Leidos accounting judgments and estimates related to these models prove to be inaccurate.
Leidos may be required to recognize impairment charges for goodwill and other intangible assets.
The proposed transaction will add approximately $5.0 billion of goodwill and other intangible assets to Leidos consolidated balance sheet. In accordance with GAAP,
Leidos management periodically assesses these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to Leidos business, inability to effectively integrate acquired businesses, unexpected
significant changes or planned changes in use of the assets, divestitures and market capitalization declines may impair goodwill and other intangible assets. Any charges relating to such impairments would adversely affect Leidos results of
operations in the periods recognized.
109
Leidos may waive one or more of the conditions to the consummation of the Transactions without re-soliciting
stockholder approval.
Leidos may determine to waive, in whole or in part, one or more of the conditions to its obligations to consummate the Transactions to
the extent permitted by applicable law. If Leidos waives the satisfaction of a material condition to the consummation of the Transactions, Leidos will evaluate the facts and circumstances at that time and re-solicit stockholder approval of the Share
Issuance if required to do so by applicable law or other relevant rules. In some cases, if the Leidos Board determines that such waiver or its effect on Leidos stockholders does not rise to the level of materiality that would require
re-solicitation of proxies pursuant to applicable law or rules, Leidos would complete the Merger without seeking further stockholder approval.
Some of
Leidos directors and executive officers have interests in seeing the Transactions completed that may be different from, or in addition to, those of other Leidos stockholders. Therefore, some of Leidos directors and executive officers may
have a conflict of interest in recommending the proposals being voted on at Leidos special meeting.
In considering the recommendations of the Leidos
Board that Leidos stockholders vote to approve the Share Issuance, you should be aware that Leidos directors and executive officers have financial interests in the Transactions that may be different from, or in addition to, the interests
of Leidos stockholders generally. The members of the Leidos Board were aware of and considered these interests, among other matters, in reaching the determination to approve the terms of the Transactions, including the Merger, and in
recommending to Leidos stockholders that they vote to approve the Share Issuance.
The directors of Leidos immediately prior to the Merger are generally
expected to be the directors of Leidos immediately after the Merger and the executive officers of Leidos immediately prior to the Merger are generally expected to be the executive officers of Leidos immediately after the Merger.
In addition, the executive officers of Leidos would be entitled to severance benefits upon a qualifying termination of employment in connection with the Merger that are
greater than the severance benefits to which they are entitled without regard to the consummation of the Merger.
For a further description and quantification of
the benefits that the Leidos directors and executive officers may receive as a result of these interests, see The TransactionsInterests of Leidos Directors and Executive Officers in the Transactions.
110
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
The forward looking statements contained in this document involve risks and uncertainties that may affect Leidos and Splitcos operations, markets, products,
services, prices and other factors as discussed in filings with the SEC. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the
expectations of Leidos or Splitco will be realized. This document also contains statements about the proposed business combination transaction between Leidos and Lockheed Martin, in which Lockheed Martin will separate a substantial portion of its
government information technology infrastructure services business and its technical services business, which have been realigned in the Information Systems & Global Solutions (IS&GS) business segment, and combine this business with
Leidos. Many factors could cause actual results to differ materially from these forward-looking statements with respect to the Transactions, including risks relating to the completion of the Transactions on anticipated terms and timing, including
obtaining stockholder and regulatory approvals, anticipated tax treatment, the dependency of any split-off transaction on market conditions and the value to be received in any split-off transaction, unforeseen liabilities, future capital
expenditures, revenues, expenses, earnings, synergies, economic performance, indebtedness, financial condition, losses, future prospects, business and management strategies for the management, expansion and growth of the new combined companys
operations, Leidos ability to integrate the businesses successfully and to achieve anticipated synergies, and the risk that disruptions from the Transaction will harm Leidos business. While the list of factors presented here is
considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forward-looking statements.
Consequences of material differences in results as compared with those anticipated in the forward-looking statements could include, among other things, business disruption, operational problems, financial loss, legal liability to third parties and
similar risks, any of which could have a material adverse effect on Leidos consolidated financial condition, results of operations or liquidity. For a discussion identifying additional important factors that could cause actual results to vary
materially from those anticipated in the forward-looking statements, see Leidos filings with the SEC, including Managements Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors
in Leidos Transition Report on Form 10-K for the 11-month period ended January 1, 2016, and in its quarterly reports on Form 10-Q, which are available at http://www.Leidos.com and at the SECs web site at http://www.sec.gov, and
Lockheed Martins filings with the SEC, including Managements Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors in Lockheed Martins Annual Report on Form 10-K for the
year ended December 31, 2015, and in its quarterly reports on Form 10-Q, which are available at http://www.lockheedmartin.com and at the SECs web site at http://www.sec.gov. Neither Leidos nor Lockheed Martin assumes any obligation to provide
revisions or updates to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.
111
Stockholder Proposals for the 2017 Annual Meeting
Any stockholder proposals intended to be presented under SEC Rule 14a-8 at the 2017 annual meeting of stockholders must be received by us no later than March 9, 2017 in
order to be considered for inclusion in our Proxy Statement and form of proxy relating to that meeting. The proposal and its proponent must satisfy all applicable requirements of Rule 14a-8.
As we recently adopted proxy access, our bylaws permit a stockholder or group of stockholders (up to 20) who have owned at least three percent of common stock for at
least three years to submit director nominees for inclusion in our Proxy Statement if the nominating stockholder(s) satisfies the requirements specified in the bylaws. To be timely, the notice must be delivered to the Corporate Secretary not
later than the close of business on the 120
th
day, nor earlier than the close of business on the 150
th
day, prior to the first anniversary of
the date that the proxy statement for the annual meeting was sent to stockholders. In the event, however, that the annual meeting is not scheduled to be held within a period that begins 30 days before the first anniversary date of the preceding
years annual meeting of stockholders and ends 30 days after the first anniversary date of the preceding years annual meeting of stockholders, then the notice of nomination must be provided by the later of the close of business on the
date that is 180 days prior to the annual meeting or the tenth day following the date such annual meeting is first publicly announced or disclosed. Therefore, in connection with the 2017 annual meeting of stockholders, notice must be delivered to
the Corporate Secretary between February 7, 2017 and March 9, 2017.
In addition, Sections 2.07 and 3.03 of our bylaws provides that, in order for a stockholder to
propose any matter (including nominations for directors) for consideration at the annual meeting (other than by inclusion in the Proxy Statement), such stockholder must give timely notice to our Corporate Secretary of his or her intention to bring
such business before the meeting and satisfy the requirements specified in the bylaws. To be timely, notice must be delivered to the Corporate Secretary not later than the close of business on the 90th day, nor earlier than the close of business on
the 120th day, prior to the first anniversary of the preceding years annual meeting. In the event, however, that the date of the annual meeting is more than 30 days before or more than 70 days after such anniversary date, notice by the
stockholder must be delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the 90th day prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by us, whichever occurs later. Therefore, in connection with the 2017 annual meeting of stockholders, notice must be delivered to the Corporate Secretary between April 10, 2017 and
May 10, 2017.
Transition Report on Form 10-K
We will provide without charge to any stockholder, upon written or oral request, a copy of our Transition Report for the transition period from January 31, 2015 to
January 1, 2016 without exhibits. Requests should be directed to Leidos Holdings, Inc., 11951 Freedom Drive, Reston, Virginia 20190, Attention: Corporate Secretary or by calling 1-571-526-6000.
225
WHERE YOU CAN FIND MORE INFORMATION; INCORPORATION BY REFERENCE
Leidos files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy materials that Leidos has filed with the
SEC at the following SEC public reference room: 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room.
Leidos SEC filings are also available to the public on the SECs Internet website at www.sec.gov, which contains reports, proxy and information statements
and other information regarding companies that file electronically with the SEC. In addition, Leidos SEC filings are also available to the public on Leidos website, www.leidos.com. Information contained on Leidos website is not
incorporated by reference into this document, and you should not consider information contained on that website as part of this document.
Statements contained in
this document, or in any document incorporated by reference in this proxy statement, regarding the contents of any contract or other document are not necessarily complete and each such statement is qualified in its entirety by reference to that
contract or other document filed as an exhibit with the SEC. The SEC allows Leidos to incorporate by reference into this proxy statement documents Leidos files with it. This means that Leidos can disclose important information to you by
referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that Leidos files with the SEC will update and supersede that information. Leidos incorporates by
reference into this document the documents listed below and any future filings Leidos makes with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, including any filings after the date of this document until the date of the annual
meeting. The information incorporated by reference is an important part of this document. Any statement in a document incorporated by reference into this document will be deemed to be modified or superseded for purposes of this document to the
extent a statement contained in this or any other subsequently filed document that is incorporated by reference into this document modifies or supersedes such statement. Any statement so modified or superseded will be not deemed, except as so
modified or superseded, to constitute a part of this document.
|
|
|
Leidos Transition Report on Form 10-K for the 11-month period ended January 1, 2016 and Amendment No. 1 to Leidos Transition Report on Form 10-K/A;
|
|
|
|
Leidos Quarterly Report on Form 10-Q for the quarter ended April 1, 2016;
|
|
|
|
Leidos Current Reports on Form 8-K filed with the SEC on January 26, 2016, January 28, 2016, April 13, 2016 and June 17, 2016; and
|
|
|
|
The description of Leidos common stock, par value $.0001 per share, contained in Amendment No. 5 to Registration Statement on Form S-1 (Registration No. 333-128021) filed with the SEC on October 2, 2006.
|
You can obtain a copy of any document incorporated by reference into this document except for the exhibits to those documents from Leidos. You may
also obtain these documents from the SEC or through the SECs website described above. Documents incorporated by reference are available from Leidos without charge, excluding all exhibits unless specifically incorporated by reference as an
exhibit into this document.
226
INDEX TO FINANCIAL PAGES
|
|
|
|
|
|
|
Page
|
|
Audited Financial Statements of the Information Systems & Global Solutions Business:
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
Combined Statements of Earnings for the Years Ended December
31, 2015, 2014 and 2013
|
|
|
F-3
|
|
Combined Statements of Comprehensive Income for the Years Ended December
31, 2015, 2014 and 2013
|
|
|
F-4
|
|
Combined Balance Sheets as of December 31, 2015 and 2014
|
|
|
F-5
|
|
Combined Statements of Cash Flows for the Years Ended December
31, 2015, 2014 and 2013
|
|
|
F-6
|
|
Combined Statements of Equity for the Years Ended December
31, 2015, 2014 and 2013
|
|
|
F-7
|
|
Notes to Combined Financial Statements
|
|
|
F-8
|
|
|
|
Unaudited Financial Statements of the Information Systems & Global Solutions Business:
|
|
|
|
|
|
|
Review Report of Independent Registered Public Accounting Firm
|
|
|
F-28
|
|
Combined Statements of Earnings for the Three Months Ended March 27, 2016 and March 29,
2015
|
|
|
F-29
|
|
Combined Statements of Comprehensive Income for the Three Months Ended March 27, 2016 and
March 29, 2015
|
|
|
F-30
|
|
Combined Balance Sheets as of March 27, 2016 and December 31, 2015
|
|
|
F-31
|
|
Combined Statements of Cash Flows for the Three Months Ended March 27, 2016 and March 29,
2015
|
|
|
F-32
|
|
Combined Statements of Equity for the Three Months Ended March 27, 2016 and March 29, 2015
|
|
|
F-33
|
|
Notes to Combined Financial Statements
|
|
|
F-34
|
|
|
|
Audited Financial Statement of Abacus Innovations Corporation:
|
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-42
|
|
Balance Sheet as of January 25, 2016
|
|
|
F-43
|
|
Notes to Financial Statement
|
|
|
F-44
|
|
|
|
Unaudited Financial Statement of Abacus Innovations Corporation:
|
|
|
|
|
|
|
Review Report of Independent Registered Public Accounting Firm
|
|
|
F-45
|
|
Balance Sheet as of March 27, 2016
|
|
|
F-46
|
|
Notes to Financial Statement
|
|
|
F-47
|
|
F-1
Report of Independent Registered Public Accounting Firm
Board of Directors
Lockheed Martin Corporation
We have audited the accompanying Combined Balance Sheets of the Information Systems & Global Solutions business of Lockheed Martin Corporation (the Company),
as of December 31, 2015 and 2014 and the related Combined Statements of Earnings, Comprehensive Income, Equity and Cash Flows for each of the three years in the period ended December 31, 2015. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these combined financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Information Systems & Global Solutions business of Lockheed Martin Corporation at December 31, 2015 and 2014 and the combined results of its operations and its
cash flows for each of the three years in the period ended December 31, 2015 in conformity with U.S. generally accepted accounting principles.
|
/s/ Ernst & Young LLP
|
|
McLean, Virginia
|
|
April 15, 2016
|
F-2
The Information Systems & Global Solutions Business
Combined Statements of Earnings
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Revenues
|
|
$
|
5,626
|
|
|
$
|
5,702
|
|
|
$
|
6,158
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
(5,157
|
)
|
|
|
(5,279
|
)
|
|
|
(5,755
|
)
|
Severance charges
|
|
|
(20
|
)
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
(5,177
|
)
|
|
|
(5,279
|
)
|
|
|
(5,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
449
|
|
|
|
423
|
|
|
|
358
|
|
Other income, net
|
|
|
22
|
|
|
|
15
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
471
|
|
|
|
438
|
|
|
|
365
|
|
Income tax expense
|
|
|
(162
|
)
|
|
|
(146
|
)
|
|
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
309
|
|
|
|
292
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: net earnings attributable to non-controlling interest
|
|
|
5
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to parent
|
|
$
|
304
|
|
|
$
|
287
|
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-3
The Information Systems & Global Solutions Business
Combined Statements of Comprehensive Income
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Net earnings
|
|
$
|
309
|
|
|
$
|
292
|
|
|
$
|
246
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(19
|
)
|
|
|
(23
|
)
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
290
|
|
|
|
269
|
|
|
|
253
|
|
Less: comprehensive income attributable to non-controlling interest
|
|
|
5
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to parent
|
|
$
|
285
|
|
|
$
|
264
|
|
|
$
|
247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-4
The Information Systems & Global Solutions Business
Combined Balance Sheets
(in millions)
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
39
|
|
|
$
|
61
|
|
Receivables, net
|
|
|
840
|
|
|
|
880
|
|
Inventories, net
|
|
|
168
|
|
|
|
129
|
|
Other current assets
|
|
|
20
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,067
|
|
|
|
1,081
|
|
Fixed assets, net
|
|
|
97
|
|
|
|
104
|
|
Goodwill
|
|
|
2,823
|
|
|
|
2,836
|
|
Intangible assets, net
|
|
|
128
|
|
|
|
177
|
|
Deferred income taxes
|
|
|
10
|
|
|
|
8
|
|
Other noncurrent assets
|
|
|
55
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,180
|
|
|
$
|
4,251
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
236
|
|
|
$
|
247
|
|
Customer advances and amounts in excess of costs incurred
|
|
|
297
|
|
|
|
246
|
|
Salaries, benefits and payroll taxes
|
|
|
214
|
|
|
|
242
|
|
Other current liabilities
|
|
|
254
|
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,001
|
|
|
|
977
|
|
Deferred income taxes
|
|
|
150
|
|
|
|
155
|
|
Other noncurrent liabilities
|
|
|
88
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,239
|
|
|
|
1,246
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Net parent investment
|
|
|
2,970
|
|
|
|
3,016
|
|
Accumulated other comprehensive loss
|
|
|
(36
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
Total parent investment
|
|
|
2,934
|
|
|
|
2,999
|
|
Non-controlling interest
|
|
|
7
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
2,941
|
|
|
|
3,005
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
4,180
|
|
|
$
|
4,251
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-5
The Information Systems & Global Solutions Business
Combined Statements of Cash Flows
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
309
|
|
|
$
|
292
|
|
|
$
|
246
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
70
|
|
|
|
55
|
|
|
|
51
|
|
Stock-based compensation
|
|
|
10
|
|
|
|
14
|
|
|
|
17
|
|
Deferred income taxes
|
|
|
(7
|
)
|
|
|
(34
|
)
|
|
|
8
|
|
Severance charges
|
|
|
20
|
|
|
|
|
|
|
|
45
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
35
|
|
|
|
83
|
|
|
|
122
|
|
Inventories, net
|
|
|
(41
|
)
|
|
|
34
|
|
|
|
12
|
|
Accounts payable
|
|
|
(1
|
)
|
|
|
(72
|
)
|
|
|
(64
|
)
|
Customer advances and amounts in excess of costs incurred
|
|
|
53
|
|
|
|
30
|
|
|
|
(35
|
)
|
Salaries, benefits and payroll taxes
|
|
|
(47
|
)
|
|
|
(20
|
)
|
|
|
(8
|
)
|
Other, net
|
|
|
(9
|
)
|
|
|
4
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
392
|
|
|
|
386
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(25
|
)
|
|
|
(18
|
)
|
|
|
(24
|
)
|
Acquisitions of businesses
|
|
|
|
|
|
|
(448
|
)
|
|
|
(206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(25
|
)
|
|
|
(466
|
)
|
|
|
(230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers (to) from parent
|
|
|
(361
|
)
|
|
|
136
|
|
|
|
(165
|
)
|
Other, net
|
|
|
(24
|
)
|
|
|
(19
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by financing activities
|
|
|
(385
|
)
|
|
|
117
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash
|
|
|
(4
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(22
|
)
|
|
|
31
|
|
|
|
8
|
|
Cash at beginning of year
|
|
|
61
|
|
|
|
30
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
39
|
|
|
$
|
61
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-6
The Information Systems & Global Solutions Business
Combined Statements of Equity
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Parent
Investment
|
|
|
Accumulated Other
Comprehensive Loss
|
|
|
Non-controlling
Interest
|
|
|
Total Equity
|
|
Balances as of December 31, 2012
|
|
$
|
2,482
|
|
|
$
|
(1
|
)
|
|
$
|
8
|
|
|
$
|
2,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
240
|
|
|
|
|
|
|
|
6
|
|
|
|
246
|
|
Other comprehensive income
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Distribution to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Net transfers to parent
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2013
|
|
|
2,580
|
|
|
|
6
|
|
|
|
7
|
|
|
|
2,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
287
|
|
|
|
|
|
|
|
5
|
|
|
|
292
|
|
Other comprehensive loss
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
(23
|
)
|
Distribution to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Net transfers from parent
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2014
|
|
|
3,016
|
|
|
|
(17
|
)
|
|
|
6
|
|
|
|
3,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
304
|
|
|
|
|
|
|
|
5
|
|
|
|
309
|
|
Other comprehensive loss
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
(19
|
)
|
Distribution to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Net transfers to parent
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2015
|
|
$
|
2,970
|
|
|
$
|
(36
|
)
|
|
$
|
7
|
|
|
$
|
2,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined financial statements.
F-7
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
Note
1Business Overview and Basis of Presentation
The accompanying combined financial statements and notes present the combined results of
operations, financial position, and cash flows of the Information Systems & Global Solutions business (IS&GS) of Lockheed Martin Corporation (Lockheed Martin). IS&GS is a leading provider of information
technology (IT), management and engineering services to civil, defense and intelligence agencies of the U.S. Government. IS&GS also provides services to agencies of allied foreign governments, state and local governments and
commercial customers. IS&GS supports its customers by providing data analytics, systems engineering, large-scale agile software development, network-enabled situational awareness solutions, communications and command and control capability and
global systems integration, to help customers gather, analyze and securely distribute intelligence data to address complex and pressing challenges, such as combating global terrorism, cybersecurity, air traffic management, energy demand management
and transforming the healthcare system. IS&GS is also responsible for various classified systems and services in support of vital national security systems. Major U.S. Government customers include civil agencies such as the Department of
Homeland Security, the Department of Health and Human Services and the Department of the Treasury; the Department of Defense (DoD) and all branches of the U.S. military; and the U.S. intelligence community. IS&GS international
customers are primarily located in the United Kingdom, the Middle East and Australia. In the commercial sector, IS&GS serves clients primarily in the financial services, healthcare and energy industries. For the years ended December 31,
2015, 2014 and 2013, IS&GS derived 88%, 91% and 95%, respectively, of its revenues from the U.S. Government (including 26%, 30% and 35% from the DoD).
On January 26, 2016, Lockheed Martin entered into definitive agreements to separate and combine IS&GS with Leidos Holdings, Inc.
(Leidos) in a Reverse Morris Trust transaction (the Transaction). At Lockheed Martins election, the Transaction will be structured as a distribution of IS&GS to Lockheed Martins stockholders in a split-off
transaction, a spin-off transaction or a combination split-off and spin-off transaction. No matter which form of transaction is selected, IS&GS will be transferred to a subsidiary holding IS&GS (Splitco), the stock of which will
be distributed to Lockheed Martin stockholders and that distribution will be followed by a merger of Splitco with a subsidiary of Leidos. If Lockheed Martin elects a split-off, it will conduct an exchange offer pursuant to which Lockheed Martin
stockholders will have the option to elect to exchange Lockheed Martin shares for shares of Splitco. In the Merger, each share of Splitco common stock will be converted into the right to receive one share of Leidos common stock. If the exchange
offer is not fully subscribed, the remaining shares of Splitco will be distributed by Lockheed Martin in a pro-rata spin-off to Lockheed Martin stockholders in respect of those Lockheed Martin shares not exchanged in the exchange offer. If Lockheed
Martin elects a spin-off, all of the shares of Splitco will be distributed by Lockheed Martin to its stockholders as a pro-rata dividend. In connection with the transfer of IS&GS to Splitco, Lockheed Martin will receive a $1.8 billion cash
payment. Both the distribution and the merger are expected to qualify as tax-free transactions to Lockheed Martin and its stockholders, except to the extent that cash is paid to Lockheed Martin stockholders in lieu of fractional shares. The
Transaction is subject to the approval by Leidos stockholders of the issuance of the Leidos shares in the merger and the satisfaction of customary closing conditions, including regulatory approvals, the absence of a material adverse change
with respect to each of IS&GS and Leidos, and receipt of solvency opinions and opinions of tax counsel. The Transaction is expected to be completed in the third or fourth quarter of 2016.
Throughout the periods included in these combined financial statements, IS&GS operated as part of Lockheed Martin and consisted of several legal
entities, acquired businesses, as well as businesses with no separate legal status. Separate financial statements have not historically been prepared for IS&GS. The combined financial statements have been derived from Lockheed Martins
historical accounting records as if IS&GS operations had been conducted independently from Lockheed Martin and were prepared on a stand-alone basis in accordance with U.S. generally accepted accounting principles (GAAP) and
pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC).
The historical results of operations,
financial position and cash flows of IS&GS presented in these combined financial statements may not be indicative of what they would have been had IS&GS actually been an independent stand-alone entity, nor are they necessarily indicative of
IS&GS future results of operations, financial position and cash flows.
The combined financial statements include all revenues and costs
directly attributable to IS&GS and an allocation of expenses related to certain Lockheed Martin corporate functions (Note 3). These expenses have been
F-8
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
allocated to IS&GS based on direct usage or benefit where identifiable, with the remainder allocated pro rata based on an applicable measure of revenues, cost of revenues, headcount, fixed
assets, number of transactions or other relevant measures. IS&GS considers these allocations to be a reasonable reflection of the utilization of services or the benefit received. However, the allocations may not be indicative of the actual
expense that would have been incurred had IS&GS operated as an independent, stand-alone entity, nor are they indicative of IS&GS future expenses.
The combined financial statements include assets and liabilities specifically attributable to IS&GS and certain assets and liabilities that are held
by Lockheed Martin that are specifically identifiable or otherwise attributable to IS&GS. Lockheed Martins cash has not been assigned to IS&GS for any of the periods presented because those cash balances are not directly attributable
to IS&GS. Lockheed Martin uses a centralized approach for managing cash and financing operations with its segments and subsidiaries. Accordingly, a substantial portion of IS&GS cash accounts are regularly swept by Lockheed
Martin at its discretion. Transfers of cash between IS&GS and Lockheed Martin are included within Net transfers (to) from parent on the Combined Statements of Cash Flows and the Combined Statements of Equity. Lockheed Martins long-term
debt and related interest expense have not been attributed to IS&GS for any of the periods presented because Lockheed Martins borrowings are neither directly attributable to IS&GS nor is IS&GS the legal obligor of such borrowings.
All intercompany transactions and balances within IS&GS have been eliminated. Transactions between IS&GS and Lockheed Martin have been
included in these combined financial statements and substantially all have been effectively settled for cash at the time the transaction is recorded through Lockheed Martins centralized cash management system. Transactions between IS&GS
and other businesses of Lockheed Martin are considered related party transactions (Note 3).
The combined financial statements and notes include
subsidiaries, ventures and partnerships over which IS&GS has a controlling financial interest. IS&GS uses the equity method to account for investments in business entities that it does not control if it is otherwise able to exert significant
influence over the entities operating and financial policies. IS&GS has consolidated the financial results for Mission Support Alliance, LLC (MSA), a venture with Jacobs Engineering Group, Inc. and Centerra Group, LLC. MSA
manages the operations at the Department of Energys Hanford, Washington site and provides services including emergency response and training, environmental integration and land management, fleet and road maintenance, water and electric and
utilities, cybersecurity and information management.
Management has concluded that IS&GS operates in one segment based upon the information
used by the chief operating decision maker in evaluating the performance of IS&GS business and allocating resources and capital. IS&GS manages its business as a single profit center in order to promote collaboration and provide
comprehensive functional service offerings across its entire customer base.
Note 2Significant Accounting Policies
Use of Estimates
IS&GS prepares its combined financial
statements in conformity with GAAP. In doing so, IS&GS is required to make estimates and assumptions that affect the amounts reported in the combined financial statements and accompanying notes. IS&GS bases these estimates on historical
experience and on various other assumptions that IS&GS believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. IS&GS actual results may differ materially from these estimates. Significant estimates inherent in the preparation of these combined financial statements include, but are not limited to, accounting for revenue and cost
recognition, allocation of expenses related to certain Lockheed Martin corporate functions, evaluation of goodwill and other assets for impairment, income taxes including deferred taxes, fair value measurements, legal accruals and other
contingencies.
F-9
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
Revenues
Percentage-of-Completion Method of Revenue Recognition
Substantially all of IS&GS revenues are derived from services and solutions provided to the U.S. Government. IS&GS records revenues
and estimated profits for its contracts with the U.S. Government using the percentage-of-completion method of accounting. IS&GS primarily performs under the following types of contractual arrangements with the U.S. Government: cost-reimbursable
contracts, fixed-price contracts and time-and-materials contracts.
Revenues on cost-reimbursable-plus-fee contracts are recognized as services are
performed, generally based on the allowable costs incurred during the period plus any recognizable earned fee. IS&GS considers fixed fees under cost-reimbursable-plus-fee contracts to be earned in proportion to the allowable costs incurred in
performance of the contract. For cost-reimbursable-plus-fee contracts that include performance-based fee incentives, which are principally award fee arrangements, IS&GS recognizes income when such fees are probable and estimable. Estimates of
the total fee to be earned are made based on contract provisions, prior experience with similar contracts or clients and managements evaluation of the performance on such contracts. Contract costs, including indirect expenses, are subject to
audit by the Defense Contract Audit Agency (DCAA) and, accordingly, are subject to possible cost disallowances.
Revenues on fixed-price contracts
are primarily recognized using the cost-to-cost method, which is primarily based on actual costs incurred relative to total estimated costs for the contract. Profits on fixed-price contracts result from the difference between incurred costs used to
calculate the percentage of completion and revenue earned.
Revenues earned under time-and-materials contracts are recognized based on the hours
worked multiplied by the contractually billable rates to the customer, plus the billable rate for allowable materials and out-of-pocket expenses.
IS&GS contracts may include several elements or phases. In these situations, IS&GS determines whether the elements should be accounted for
separately based on how the elements are bid or negotiated, whether the customer can accept separate elements of the arrangement and the relationship between the pricing on the elements individually and combined. When IS&GS determines that
accounting for the elements separately is appropriate, it allocates the contract value to the deliverables based on the relative value of each element to the contract value.
Accounting for contracts using the percentage-of-completion method requires judgment relative to assessing risks, estimating contract revenues and costs
(including estimating award and incentive fees and penalties related to performance) and making assumptions for schedule and technical issues. Due to the scope and nature of the work required to be performed on certain contracts, the estimation of
total revenues and costs at completion is complicated and subject to many variables and, accordingly, is subject to change. When adjustments in estimated total contract revenues or estimated total costs are required, any changes from prior estimates
are recognized in the current period for the inception-to-date effect of such changes. When estimates of total costs to be incurred on a contract exceed estimates of total revenues to be earned, a provision for the entire loss on the contract is
recorded in the period in which the loss is determined.
The initial profit booking rate of each contract considers risks surrounding the ability to
achieve the technical requirements, schedule and costs in the initial estimated total costs to complete the contract. Profit booking rates may increase during the performance of the contract if IS&GS successfully retires risks surrounding the
technical, schedule and cost aspects of the contract that decreases the estimated total costs to complete the contract. Conversely, profit booking rates may decrease if the estimated total costs to complete the contract increase. Profit booking
rates also may be impacted favorably or unfavorably by other items. Favorable items may include the positive resolution of contractual matters and cost recoveries on disputed charges. Unfavorable items may include the adverse resolution of
contractual matters and reserves for disputes. All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate. Therefore, comparability of IS&GS revenues, profit and margins may be
impacted by changes in profit booking rates on IS&GS contracts accounted for using the percentage-of-completion method. IS&GS combined net adjustments not related to volume, including net profit booking rate adjustments and other
matters, increased gross profit by approximately $168 million, $116 million
F-10
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
and $136 million for the years ended December 31, 2015, 2014 and 2013, respectively. These adjustments increased net earnings by approximately $109 million, $75 million and $88 million for
the years ended December 31, 2015, 2014 and 2013, respectively.
Services Method of Revenue Recognition
For services and solutions provided to non-U.S. Government customers, IS&GS records revenues as services are performed or on a straight-line basis
over the period of performance if there is persuasive evidence of an arrangement, the price is fixed or determinable and collectability is reasonably assured, except for award and incentive fees. Award and incentive fees are recorded when they are
fixed or determinable, generally at the date the amount is communicated to IS&GS by the customer. This approach results in the recognition of such fees at contractual intervals (typically every six months) throughout the contract and is
dependent on the customers processes for notification of awards. Costs for contracts accounted for using the services method are expensed as incurred.
Stock-Based Compensation
Lockheed Martin provides
stock-based compensation to certain IS&GS employees. All stock-based awards, which include restricted stock units (RSUs), performance stock units (PSUs) and stock options, are equity settled in Lockheed Martins
shares. IS&GS recognizes expense for stock-based compensation over the periods in which the relevant employees services are rendered based on each awards grant-date fair value, net of estimated forfeitures.
Research and Development
Except for certain arrangements
described below, IS&GS accounts for independent research and development costs as part of the general and administrative costs that are allocated among all of their contracts and programs in progress under U.S. Government contractual
arrangements and charged to cost of revenues. Under certain arrangements in which a customer shares in development costs, their portion of unreimbursed costs is expensed as incurred in cost of revenues. Independent research and development costs
charged to cost of revenues totaled $22 million, $18 million and $23 million in 2015, 2014 and 2013, respectively. Costs IS&GS incurs under customer-sponsored research and development programs pursuant to contracts are included in revenues and
cost of revenues.
Severance Charges
Management
routinely reviews its operations in an effort to ensure it has an efficient operating structure and to improve the affordability of IS&GS services. When the reviews result in a workforce reduction severance benefits are provided to
employees primarily under Lockheed Martins ongoing benefit arrangements. Severance costs are accrued once management commits to a plan of termination that includes the number of employees to be terminated, their job classifications or
functions, their locations and the expected completion dates.
Income Taxes
The provision for income taxes is determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes
represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. Income taxes as presented attribute deferred income taxes of Lockheed Martin to IS&GS stand-alone combined
financial statements in a manner that is systematic, rational and consistent with the asset and liability method. Accordingly, IS&GS income tax provision was prepared following the separate return method, which calculates income taxes for
the stand-alone financial statements of each member of the combined group as if the group member were a separate taxpayer and a stand-alone enterprise. As a result, actual tax transactions included in the consolidated financial statements of
Lockheed Martin may not be included in the separate combined financial statements of IS&GS. Similarly, the tax treatment of certain items reflected in the combined financial statements of IS&GS may not be reflected in the consolidated
financial statements and tax returns of Lockheed Martin.
F-11
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
The breadth of operations at IS&GS and the complexity of tax regulations require assessments of
uncertainties and judgments in estimating taxes that IS&GS would have paid if it had been a separate taxpayer. The final taxes that would have been paid are dependent upon many factors, including negotiations with taxing authorities in various
jurisdictions, outcomes of tax litigation and resolution of disputes arising from federal and state tax audits in the normal course of business.
The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred
taxes result from differences between the financial and tax basis of IS&GS assets and liabilities and are adjusted for changes in tax rates and tax laws when such changes are enacted. Valuation allowances are recorded to reduce deferred
tax assets when it is more likely than not that a tax benefit will not be realized.
In general, the taxable income of the IS&GS entities was
included in Lockheed Martins combined tax returns, and where applicable, in jurisdictions around the world. As such, separate U.S. federal income tax returns were not prepared for most IS&GS entities. IS&GS current portion of
U.S. and certain non-U.S. income taxes payable is deemed to have been remitted to Lockheed Martin in the period the related tax expense was recorded. Consequently, current income taxes payable are deemed to have been settled with Lockheed Martin in
each year.
IS&GS recognizes uncertain tax positions in the combined financial statements when it is more likely than not that the tax position
will be sustained upon examination. Uncertain tax positions are measured based on the probabilities that the uncertain tax position will be realized upon final settlement. IS&GS recognizes interest accrued related to uncertain tax positions and
penalties as a component of income tax expense.
Cash
IS&GS participates in Lockheed Martins cash management and financing programs. The cash reflected on the combined financial statements
represents cash on hand at certain foreign and domestic entities that do not participate in Lockheed Martins centralized cash management program.
Receivables
Receivables include amounts billed and currently
due from customers and unbilled costs. Billed receivables include invoices presented to customers that have not been paid. Unbilled receivables represent recoverable costs incurred, including retainage, and accrued profits, that are not
contractually billable until the completion of milestones, other stipulated contractual activities, or contract authorization, and as such, recovery of a portion of unbilled receivables may not occur within the next twelve months. Pursuant to
contract provisions, agencies of the U.S. Government and certain other customers have title to, or a security interest in, assets related to contracts as a result of advances, performance-based payments and progress payments. Accordingly, IS&GS
reflects those advances and payments as an offset to the related receivables balance for contracts that IS&GS accounts for on a percentage-of-completion basis using the cost-to-cost method as the basis to measure progress towards completion.
Inventories
IS&GS inventories are substantially
composed of costs accumulated against specific contracts or orders and are recorded at actual cost. These contract costs represent recoverable costs incurred, allocable operating overhead, advances to suppliers and, in the case of contracts with the
U.S. Government and substantially all other governments, general and administrative expenses. Other inventories are recorded at the lower of cost or estimated net realizable value.
F-12
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
Fixed assets
Fixed assets are recorded at cost. No depreciation expense is recorded on construction in progress until such assets are placed into operation. When
assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized. Depreciation is recognized using the following methods and estimated useful lives:
|
|
|
|
|
|
|
Depreciation Method
|
|
Estimated useful lives
(in years)
|
Machinery and equipment
|
|
Straight-line or declining-balance
|
|
5-15
|
Buildings and leasehold improvements
|
|
Straight-line
|
|
10-40
|
The carrying amounts of fixed assets are reviewed for impairment if events or changes in the facts and circumstances
indicate that their carrying amounts may not be recoverable. Fixed assets are assessed for impairment by comparing the estimated undiscounted future cash flows of the related asset grouping to its carrying amount. If an asset is determined to be
impaired, an impairment charge is recognized in the period in which the impairment is identified at an amount equal to the excess of the carrying value of the asset over its fair value.
Investments
Investments where IS&GS has the ability to
exercise significant influence, but not control, are accounted for under the equity method of accounting and are included in other noncurrent assets on its Combined Balance Sheets. Significant influence typically exists if IS&GS has a 20% to 50%
ownership interest in the investee. Under this method of accounting, IS&GS recognizes its share of the net earnings or losses of the investee in Other income, net on its Combined Statements of Earnings as the activities of the investee are
closely aligned with the operations of IS&GS. IS&GS evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may be impaired. If a decline in
the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.
As of
December 31, 2015 and 2014, IS&GS equity method investments totaled $18 million and $8 million, respectively, which are comprised of its Kwajalein Range Services, LLC (KRS) and Consolidated Nuclear Services, LLC
(CNS) businesses. IS&GS respective ownership in KRS and CNS are 49 percent and 34 percent, respectively. IS&GS share of net earnings related to its equity method investees for the years ended December 31, 2015,
2014 and 2013 was $23 million, $15 million and $5 million, respectively. IS&GS share of distributions from its equity method investees for the years ended December 31, 2015, 2014 and 2013 was $13 million, $15 million and
$1 million, respectively.
Derivative Financial Instruments
IS&GS uses derivative instruments principally to reduce its exposure to market risks from changes in foreign currency exchange rates. IS&GS does
not enter into or hold derivative instruments for speculative trading purposes. IS&GS transacts business globally and is subject to risks associated with changing foreign currency exchange rates. IS&GS enters into foreign currency hedges
such as forward and option contracts that change in value as foreign currency exchange rates change. These contracts hedge forecasted foreign currency transactions in order to mitigate fluctuations in earnings and cash flows associated with changes
in foreign currency exchange rates. IS&GS designates foreign currency hedges as cash flow hedges. IS&GS may also enter into derivative instruments that are not designated as hedges and do not qualify for hedge accounting, which are intended
to mitigate certain economic exposures.
The aggregate notional amounts and fair value of outstanding foreign currency hedges as of
December 31, 2015 and 2014 were not significant. Derivative instruments did not have a significant impact on net earnings or comprehensive income for any of the years ended December 31, 2015, 2014 and 2013, respectively.
F-13
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
Business Acquisitions
IS&GS allocates the purchase price of businesses acquired to the tangible and intangible assets acquired, liabilities assumed and non-controlling
interest acquired based on their estimated fair value at the acquisition date. The excess of the acquisition price over the estimated fair value assigned to the underlying net assets of the acquired businesses is recorded as goodwill. The goodwill
recognized is attributable to expected revenue and cost synergies and intangible assets that do not qualify for separate recognition, such as the assembled workforce. Goodwill is not amortized and is subject to annual impairment testing. Any change
to the acquisition date fair value prior to the expiration of the measurement period, a period generally not to exceed 12 months from the date of the acquisition, is recorded as an adjustment to the assets acquired, including goodwill, or the
liabilities assumed. Any change to the acquisition date fair values after expiration of the measurement period is recorded in the Combined Statements of Earnings. Acquisition-related expense and restructuring charges are recognized separately from
the business combination and are expensed as incurred. Revenues and earnings attributable to acquisitions are included in the combined financial statements for the periods subsequent to the acquisition date.
Goodwill
Goodwill is recorded when the purchase price of an
acquired business exceeds the fair value of the net assets acquired. Goodwill is tested for impairment at least annually in the fourth quarter and more frequently whenever certain events or changes in circumstances indicate the carrying value of
goodwill may be impaired. Such events or changes in circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of its industry, operating performance indicators, competition, reorganizations
of its business or the disposal of all or a portion of a reporting unit. Goodwill has been allocated to and is tested for impairment at a level referred to as the reporting unit, which is a level below its business segment. The level at which
IS&GS tests goodwill for impairment requires IS&GS to determine whether the operations below the business segment constitute a business for which discrete financial information is available and IS&GS management regularly reviews the
operating results.
IS&GS may use both qualitative and quantitative approaches when testing goodwill for impairment. Under the qualitative
approach, for selected reporting units, IS&GS may perform a qualitative evaluation of events and circumstances impacting the reporting unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if IS&GS
determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary. Otherwise, IS&GS performs a quantitative two-step impairment test.
Under step one of the quantitative impairment test, IS&GS compares the fair value of each reporting unit to its carrying value, including goodwill.
If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of a reporting unit exceeds its fair value, IS&GS then performs step two of the quantitative impairment test
and compares the implied value of the reporting units goodwill with the carrying value of its goodwill. The implied value of the reporting units goodwill is calculated by creating a hypothetical balance sheet as if the reporting unit had
just been acquired. This balance sheet contains all assets and liabilities recorded at fair value (including any intangible assets that may not have any corresponding carrying value in its balance sheet). The implied value of the reporting
units goodwill is calculated by subtracting the fair value of the net assets from the fair value of the reporting unit. If the carrying value of the reporting units goodwill exceeds the implied value of that goodwill, an impairment loss
is recognized in an amount equal to that excess.
IS&GS estimates the fair value of each reporting unit using a combination of a discounted cash
flow (DCF) analysis and market-based valuation methodologies such as comparable public company trading values and values observed in recent business acquisitions, where appropriate. Determining fair value requires the exercise of
significant judgments, including judgments about the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant transaction multiples. The cash flows
employed in the DCF analyses are based on IS&GS best estimate of future revenues, earnings and cash flows after considering factors such as general market conditions, U.S. Government budgets, existing firm orders, expected future orders,
contracts with suppliers, labor agreements, changes in working capital, long-term business plans and recent operating performance. The discount rates utilized in the DCF analysis are based on the respective reporting units weighted average
cost of capital, which takes into account the relative
F-14
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
weights of each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate to consider the risk inherent in future cash flows of the
respective reporting unit.
Intangible Assets
Identifiable intangible assets generally represent the value of contractual relationships and developed technology acquired in business combinations. In
valuing these assets, IS&GS makes assumptions regarding useful lives and projected growth rates, and significant judgment is required. IS&GS periodically reviews identifiable intangible assets for impairment as events or changes in
circumstances indicate that the carrying amount of such assets may not be recoverable. If the carrying amounts of the assets exceed their respective fair values, impairment tests are performed to measure the amount of the impairment loss, if any.
Customer Advances and Amounts in Excess of Cost Incurred
IS&GS receives advances, performance-based payments and progress payments from customers that may exceed costs incurred on certain contracts,
including contracts with agencies of the U.S. Government. IS&GS classifies such advances, other than those reflected as a reduction of receivables or inventories as discussed above, as current liabilities.
Postretirement Benefit Plans
Many of IS&GS
employees participate in defined benefit pension and other postretirement benefit plans administered and sponsored by Lockheed Martin. IS&GS does not record assets or liabilities to recognize the funded status of these plans because the combined
financial statements reflect the cost for these plans as if they were multi-employer plans. Costs allocated to IS&GS reflect IS&GS employees proportionate share of total costs in Lockheed Martin plans in which they participate as well
as an allocation of Lockheed Martins corporate costs for these plans. Assets and liabilities of these plans will be retained by Lockheed Martin subsequent to the separation of IS&GS. Certain IS&GS employees also directly participate in
several defined benefit plans with other companies. IS&GS records its proportionate share of the costs for these multi-employer plans in the combined financial statements.
Commitments and Contingencies
IS&GS is subject to
various claims and contingencies related to lawsuits, as well as commitments under contractual and other commercial obligations. IS&GS recognizes liabilities for commitments and contingencies when a loss is probable and estimable.
Net Parent Investment
Net parent investment in the Combined
Balance Sheets represents Lockheed Martins historical investment in IS&GS and includes accumulated net earnings attributable to parent and the net effect of transactions with, and cost allocations from, parent. Note 3 provides additional
information regarding the allocation to IS&GS of expenses incurred by parent.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss on the Combined Balance Sheets and Combined Statements of Equity consisted primarily of foreign currency translation
adjustments for all periods presented in these combined financial statements.
Fair Value
IS&GS uses the fair value measurement guidance to value certain of its assets and liabilities. Under this guidance, assets and liabilities are
required to be valued based on assumptions used by a market participant, consistent with the following hierarchy of inputs:
Level 1Quoted
prices (unadjusted) for identical assets or liabilities in an active market.
F-15
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
Level 2Inputs, other than quoted prices that are observable, either directly or indirectly, for
similar assets or liabilities.
Level 3Unobservable inputs that reflect IS&GS own assumptions which market participants would use in
pricing the asset or liability.
The carrying amount of cash, trade receivables, accounts payable and accrued expenses approximates fair value due
to the short maturity (less than one year) of these instruments.
Certain assets and liabilities are measured at fair value on a non-recurring
basis, including assets and liabilities acquired in a business combination. Equity-method investments and long-lived assets would be recognized at fair value if deemed to be impaired or if reclassified as assets held for sale. The fair value in
these instances would be determined using Level 3 inputs.
Recent Accounting Pronouncements
In May 2014, the FASB issued a new standard that will change the way IS&GS recognizes revenue and significantly expand the disclosure
requirements for revenue arrangements. On July 9, 2015, the FASB approved a one-year deferral of the effective date of the standard to 2018 for public companies, with an option that would permit companies to adopt the standard in 2017. Early
adoption prior to 2017 is not permitted. The new standard may be adopted either retrospectively or on a modified retrospective basis whereby the new standard would be applied to new contracts and existing contracts with remaining performance
obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for existing contracts with remaining performance obligations. In addition, the FASB is contemplating making
additional changes to certain elements of the new standard. IS&GS is currently evaluating the methods of adoption allowed by the new standard and the effect the standard is expected to have on IS&GS combined financial statements and
related disclosures. As the new standard will supersede substantially all existing revenue guidance affecting IS&GS under GAAP, it could impact revenue and cost recognition on thousands of contracts across the IS&GS business, in addition to
IS&GS business processes and IT systems. As a result, IS&GS evaluation of the effect of the new standard will extend over future periods.
In September 2015, the FASB issued a new standard that simplifies the accounting for adjustments made to preliminary amounts recognized in a business
combination by eliminating the requirement to retrospectively account for those adjustments. Instead, adjustments will be recognized in the period in which the adjustments are determined, including the effect on earnings of any amounts that would
have been recorded in previous periods if the accounting had been completed at the acquisition date. IS&GS adopted the standard on January 1, 2016 and will prospectively apply the standard to business combination adjustments identified
after the date of adoption.
In November 2015, the FASB issued a new standard that simplifies the presentation of deferred income taxes and requires
that deferred tax assets and liabilities, as well as any related valuation allowance, be classified as noncurrent in IS&GS Combined Balance Sheets. The standard is effective January 1, 2017, with early adoption permitted. The standard
may be applied either prospectively from the date of adoption or retrospectively to all prior periods presented. IS&GS adopted the standard as of December 31, 2015 and retrospectively applied the standard to all periods presented in these
combined financial statements.
In February 2016, the FASB issued a new standard that increases transparency and comparability among organizations
by requiring the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements. The standard is effective January 1, 2019 for public companies, with early adoption
permitted. The standard will be applied using a modified retrospective approach to the beginning of the earliest period presented in the financial statements. IS&GS is currently evaluating when it will adopt the standard and the expected impact
to the combined financial statements and related disclosures.
F-16
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
Note 3Corporate Allocations, Related Party Transactions and Net Parent Investment
Corporate Allocations
The combined financial statements
reflect allocations of certain expenses from Lockheed Martin including, but not limited to, general corporate expenses such as senior management, legal, human resources, finance, accounting, treasury, tax, IT, benefits, communications, ethics and
compliance, corporate employee benefits, incentives and stock-based compensation, shared services processing and administration and depreciation for corporate fixed assets. Management of IS&GS considers these allocations to be a reasonable
reflection of the utilization of services by, or the benefits provided to, it. The allocation methods used include a pro rata basis of revenues, cost of revenues, headcount, fixed assets, number of transactions or other measures. Allocations for
management costs and corporate support services provided to IS&GS totaled $253 million, $268 million and $273 million for the years ended December 31, 2015, 2014 and 2013, respectively.
The financial information in these combined financial statements does not necessarily include all the expenses that would have been incurred by
IS&GS had it been a separate, stand-alone entity. Actual costs that may have been incurred if IS&GS had been a stand-alone company would depend on a number of factors, including the chosen organization structure and functions outsourced or
performed by employees.
Related Party Transactions
Revenues in the Combined Statements of Earnings include sales to affiliates of Lockheed Martin of $44 million, $51 million and $44 million for the years
ended December 31, 2015, 2014 and 2013, respectively. Costs of revenues in the Combined Statements of Earnings includes expenses for work performed for IS&GS by Lockheed Martin or its affiliates of $58 million, $86 million and $114 million
for the years ended December 31, 2015, 2014 and 2013, respectively. There were no significant receivables or payables due from or due to Lockheed Martin as of December 31, 2015 and 2014, respectively.
Net Parent Investment
Net transfers (to) from parent are
included within Net parent investment on the Combined Statements of Equity. The components of the net transfers (to) from parent consisted of the following: (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Cash transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash pooling and general financing activities
|
|
$
|
(1,135
|
)
|
|
$
|
(704
|
)
|
|
$
|
(1,072
|
)
|
IS&GS expenses incurred by parent
|
|
|
361
|
|
|
|
403
|
|
|
|
523
|
|
Corporate allocations
|
|
|
253
|
|
|
|
268
|
|
|
|
273
|
|
Current income taxes payable
|
|
|
160
|
|
|
|
169
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash transactions, net
|
|
|
(361
|
)
|
|
|
136
|
|
|
|
(165
|
)
|
Non-cash transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
Other transfers with parent
|
|
|
11
|
|
|
|
13
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net transfers (to) from parent
|
|
$
|
(350
|
)
|
|
$
|
149
|
|
|
$
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash pooling and general financing activities include cash transferred from IS&GS to Lockheed Martin under cash
pooling arrangements. IS&GS expenses incurred by parent include IS&GS employee fringe and pension expense. Corporate allocations include the items described above in the section titled Corporate Allocations. Current income taxes
payable are deemed to have been settled with Lockheed Martin in each year.
F-17
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
Note 4Business Acquisitions
Systems Made Simple, Inc.
On December 1, 2014, IS&GS
acquired Systems Made Simple, Inc. (SMS) for $344 million, net of cash acquired. SMS specializes in health IT solutions that deliver technology and service solutions to improve, increase, enable and ensure the secure exchange and
interoperability of information between patients, healthcare providers and payers for federal and state government organizations. This acquisition enabled IS&GS to extend its business into the health information technology markets.
The purchase price of $344 million included an indemnity holdback amount of $32 million and contingent consideration of $28 million. The contingent
consideration was recorded at fair value using Level 3 inputs and is payable in an amount of up to $30 million based on the awards of three potential future contracts. As of December 31, 2015, the remaining accruals for the indemnity holdback
payment and contingent consideration were $21 million and $28 million, respectively. Subject to certain limited exceptions for then-pending claims, the remaining holdback amount is required to be paid on the second and third anniversary dates of the
acquisition based on scheduled amounts as certain indemnities lapse. The contingent consideration is required to be paid if certain contracts are awarded, which is expected to occur in 2016.
Industrial Defender, Inc.
On April 7, 2014, IS&GS
acquired Industrial Defender, Inc. (Industrial Defender) for $161 million, net of cash acquired. Industrial Defender specializes in cybersecurity solutions for industrial control systems in the oil, gas, utility and chemical industries.
This acquisition enabled IS&GS to extend its business into the oil, gas, utility and chemical industries. The purchase price included an indemnity holdback amount of $18 million. The indemnity holdback can be used by IS&GS to cover damages
arising out of certain matters that existed but may not have been identified at the acquisition date, as well as specifically identified indemnifiable matters. As of December 31, 2015, the remaining accrual for the indemnity holdback was
approximately $10 million. Subject to certain limited exceptions for then-pending claims, the remaining holdback amount is scheduled to be paid in varying amounts on the second and third anniversary dates of the acquisition.
Beontra AG
On March 18, 2014, IS&GS acquired
Beontra AG (Beontra) for $21 million, net of cash acquired. Beontra is based in Germany and specializes in integrated planning and demand forecasting IT solutions for airports around the world. The Beontra acquisition facilitates
IS&GS expansion of its business into the commercial airport information technology solutions market.
Amor Group Ltd.
On September 11, 2013, IS&GS acquired Amor Group Ltd. (Amor) for $206 million, net of cash acquired. Amor is based in Scotland,
United Kingdom, and specializes in IT solutions for the energy, transportation and public service sectors. The acquisition enabled IS&GS to continue to extend their business into the oil & gas and international airport markets.
Purchase Price Allocation
The fair values of the assets
acquired and liabilities assumed were determined using income, market and cost valuation methodologies. The fair value measurements were estimated using significant inputs that are not observable in the market and thus represent Level 3 inputs.
Determining the fair value of assets acquired and liabilities assumed required the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates and discount rates. The cash flows employed
in the discounted cash flow analyses was based on managements best estimate of future revenues, earnings and cash flows after considering factors such as general market conditions, customer budgets, existing firm orders, expected future
orders, contracts with suppliers, labor agreements, changes in working capital, long term business plans and recent operating performance. Use of different estimates and judgments could have yielded different results.
F-18
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
The goodwill attributable to these acquisitions reflects the value of the existing workforce, benefits
that IS&GS expects to realize as a result of improved economies of scale and cost savings that will be achieved by operating the businesses as part of a larger overall company. Only a portion of the recorded goodwill for these acquisitions is
deductible for tax purposes.
The purchase price and purchase price allocation for these acquisitions are summarized as follows (in millions):
2014 Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
|
|
Systems Made
Simple
|
|
|
Industrial
Defender
|
|
|
Beontra
|
|
|
Total
|
|
Receivables
|
|
$
|
58
|
|
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
64
|
|
Fixed assets
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
3
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract related
|
|
|
75
|
|
|
|
20
|
|
|
|
4
|
|
|
|
99
|
|
Developed technology
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Other
|
|
|
14
|
|
|
|
6
|
|
|
|
|
|
|
|
20
|
|
Other assets
|
|
|
2
|
|
|
|
11
|
|
|
|
1
|
|
|
|
14
|
|
Goodwill
|
|
|
239
|
|
|
|
119
|
|
|
|
18
|
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable assets and goodwill
|
|
|
390
|
|
|
|
173
|
|
|
|
25
|
|
|
|
588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(30
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(31
|
)
|
Customer advances and amounts in excess of costs incurred
|
|
|
|
|
|
|
(8
|
)
|
|
|
(2
|
)
|
|
|
(10
|
)
|
Other liabilities
|
|
|
(16
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(46
|
)
|
|
|
(12
|
)
|
|
|
(4
|
)
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
344
|
|
|
$
|
161
|
|
|
$
|
21
|
|
|
$
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 Acquisition
|
|
|
|
|
Accounts
|
|
Amor
|
|
Receivables
|
|
$
|
27
|
|
Fixed assets
|
|
|
3
|
|
Intangible assets:
|
|
|
|
|
Contract related
|
|
|
23
|
|
Developed technology
|
|
|
11
|
|
Other assets
|
|
|
5
|
|
Goodwill
|
|
|
168
|
|
|
|
|
|
|
Total identifiable assets and goodwill
|
|
|
237
|
|
|
|
|
|
|
Accounts payable
|
|
|
(5
|
)
|
Customer advances and amounts in excess of costs incurred
|
|
|
(4
|
)
|
Other liabilities
|
|
|
(22
|
)
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(31
|
)
|
|
|
|
|
|
Total purchase price
|
|
$
|
206
|
|
|
|
|
|
|
Impact to 2014 and 2013 Financial Results
The combined financial statements include the financial results of the acquired companies only for the period from the acquisition date forward. As a
result, the combined financial results for the years ended December 31, 2014 and 2013 do not reflect a full year of the acquisition results for the entities acquired in those years. From the acquisition date through December 31, 2014, the
2014 acquisitions generated revenues of $57 million and net losses of $4 million, inclusive of intangible amortization and adjustments required to account for the acquisitions. From the acquisition date through December 31, 2013, Amor
generated revenues of $29 million and net loss of $1 million, inclusive of intangible amortization and adjustments required to account for the acquisition.
F-19
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
Pro Forma Impact of Business Acquisitions (Unaudited)
Unaudited pro forma combined results of operations consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Revenues
|
|
$
|
6,013
|
|
|
$
|
6,524
|
|
Net earnings
|
|
|
296
|
|
|
|
248
|
|
The unaudited supplemental pro forma financial data above has been calculated after applying our accounting policies and
adjusting the historical results of the acquisitions with pro forma adjustments, net of tax, that assume the acquisitions occurred on January 1, 2013. Significant pro forma adjustments include the recognition of additional depreciation and
amortization expense related to acquired fixed assets and intangible assets. These adjustments assume the application of fair value adjustments to fixed assets and intangible assets occurred on January 1, 2013 and are as follows: depreciation
and amortization expense of $32 million and $40 million in 2014 and 2013, respectively.
The unaudited supplemental pro forma financial data does
not reflect the realization of any expected ongoing cost or revenue synergies relating to the integration of the combined companies. Further, the pro forma data should not be considered indicative of the results that would have occurred if the
acquisitions had been consummated on January 1, 2013, nor are they indicative of future results.
Note 5Severance Charges
During 2015, IS&GS recorded severance charges of $20 million as a result of a review intended to reduce costs in order to improve the affordability
of its services and solutions offerings. The charges consisted of severance costs associated with the planned elimination of certain positions through either voluntary or involuntary actions. Upon separation, terminated employees will receive
lump-sum severance payments primarily based on years of service. Approximately $14 million of the severance benefits were paid in 2015 with the remainder expected to be paid by mid-2016.
During 2013, IS&GS recorded severance charges of $45 million after a strategic review of the business to reduce its workforce and after considering
future workload projections. Upon separation, terminated employees received lump-sum severance payments primarily based on years of service, all of which were paid by December 31, 2015. Cash paid for the 2013 severance charges was $3 million,
$24 million and $18 million for the years ended December 31, 2015, 2014 and 2013, respectively. No additional payments are expected related to the 2013 action.
Note 6Receivables, Net
Receivables, net consisted of
the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Amounts billed
|
|
$
|
373
|
|
|
$
|
404
|
|
Unbilled costs and accrued profits
|
|
|
614
|
|
|
|
561
|
|
Less: customer advances and progress payments
|
|
|
(147
|
)
|
|
|
(85
|
)
|
|
|
|
|
|
|
|
|
|
Total receivables, net
|
|
$
|
840
|
|
|
$
|
880
|
|
|
|
|
|
|
|
|
|
|
IS&GS receivables are primarily with the U.S. Government, and thus IS&GS does not have material credit
risk exposure for amounts billed. IS&GS expects to bill substantially all of the December 31, 2015 unbilled costs and accrued profits during 2016.
F-20
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
Note 7Inventories, Net
Inventories, net consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Work-in-process, primarily related to long-term contracts and programs in progress
|
|
$
|
144
|
|
|
$
|
114
|
|
Less: customer advances and progress payments
|
|
|
(3
|
)
|
|
|
(6
|
)
|
Other inventories
|
|
|
27
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
168
|
|
|
$
|
129
|
|
|
|
|
|
|
|
|
|
|
Work-in-process inventories as of December 31, 2015 and 2014 included general and administrative costs of $16
million and $20 million, respectively. General and administrative costs incurred and recorded in inventories totaled $79 million in 2015, $110 million in 2014 and $129 million in 2013 and general and administrative costs charged to cost of revenues
from inventories totaled $83 million in 2015, $108 million in 2014 and $132 million in 2013.
Note 8Fixed Assets, Net
Fixed assets, net consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Machinery and equipment
|
|
$
|
137
|
|
|
$
|
139
|
|
Buildings and leasehold improvements
|
|
|
117
|
|
|
|
107
|
|
Other fixed assets
|
|
|
14
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total fixed assets, gross
|
|
|
268
|
|
|
|
263
|
|
Less: accumulated depreciation
|
|
|
(171
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
Total fixed assets, net
|
|
$
|
97
|
|
|
$
|
104
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense related to fixed assets was $21 million, $25 million and $21 million for the years ended
December 31, 2015, 2014 and 2013, respectively.
Note 9Goodwill
Changes in the carrying amount of goodwill were as follows (in millions):
|
|
|
|
|
|
|
Total
|
|
Balance as of December 31, 2013
|
|
$
|
2,475
|
|
|
|
|
|
|
Acquisitions
|
|
|
376
|
|
Foreign currency translation
|
|
|
(15
|
)
|
|
|
|
|
|
Balance as of December 31, 2014
|
|
|
2,836
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(13
|
)
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
$
|
2,823
|
|
|
|
|
|
|
Goodwill from acquisitions for the year ended December 31, 2014 included $239 million from Systems Made Simple,
$119 million from Industrial Defender and $18 million from Beontra (Note 4).
F-21
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
Note 10Intangible Assets, Net
Intangible assets, net consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2015
|
|
|
As of December 31, 2014
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
Contract related
|
|
$
|
176
|
|
|
$
|
(90
|
)
|
|
$
|
86
|
|
|
$
|
176
|
|
|
$
|
(58
|
)
|
|
$
|
118
|
|
Developed technology
|
|
|
37
|
|
|
|
(22
|
)
|
|
|
15
|
|
|
|
37
|
|
|
|
(15
|
)
|
|
|
22
|
|
Indefinite-lived assets
|
|
|
18
|
|
|
|
|
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
18
|
|
Other
|
|
|
20
|
|
|
|
(11
|
)
|
|
|
9
|
|
|
|
20
|
|
|
|
(1
|
)
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles assets
|
|
$
|
251
|
|
|
$
|
(123
|
)
|
|
$
|
128
|
|
|
$
|
251
|
|
|
$
|
(74
|
)
|
|
$
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average amortization period for total intangible assets is 3.9 years. Amortization expense for the years
ended December 31, 2015, 2014 and 2013 was $49 million, $30 million and $30 million, respectively. Estimated amortization related to intangible assets as of December 31, 2015, for fiscal year 2016 through fiscal year 2020 and thereafter,
is as follows: $35 million, $19 million, $16 million, $13 million, $11 million and $16 million, respectively.
Note 11Income Taxes
The provision for U.S. federal and foreign income tax expense consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Federal income tax (expense) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(160
|
)
|
|
$
|
(169
|
)
|
|
$
|
(111
|
)
|
Deferred
|
|
|
1
|
|
|
|
29
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total federal income tax expense
|
|
|
(159
|
)
|
|
|
(140
|
)
|
|
|
(116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign income tax (expense) benefit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(9
|
)
|
|
|
(11
|
)
|
|
|
|
|
Deferred
|
|
|
6
|
|
|
|
5
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign income tax expense
|
|
|
(3
|
)
|
|
|
(6
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense
|
|
$
|
(162
|
)
|
|
$
|
(146
|
)
|
|
$
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes are included in Cost of revenues on the Combined Statements of Earnings because under U.S. Government
contracting regulations such amounts are allowable costs in establishing prices for contracts with the U.S. Government. Accordingly, a substantial portion of state income taxes is also included in revenues. IS&GS total net state income tax
expense was $26 million for 2015, $33 million for 2014 and $25 million for 2013.
The reconciliation of the 35% U.S. federal statutory income tax
rate to actual income tax expense is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Income tax expense at the U.S. federal statutory tax rate
|
|
$
|
(165
|
)
|
|
$
|
(153
|
)
|
|
$
|
(128
|
)
|
U.S. manufacturing deduction benefit
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
Research and development tax credit
|
|
|
1
|
|
|
|
5
|
|
|
|
3
|
|
Non-controlling interest
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Other, net
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
$
|
(162
|
)
|
|
$
|
(146
|
)
|
|
$
|
(119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
The primary components of U.S. federal and foreign deferred income tax assets and liabilities were as
follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Deferred tax assets related to:
|
|
|
|
|
|
|
|
|
Accrued compensation and benefits
|
|
$
|
46
|
|
|
$
|
45
|
|
Federal net operating losses
|
|
|
11
|
|
|
|
13
|
|
Foreign company operating losses and credits
|
|
|
10
|
|
|
|
10
|
|
Other
|
|
|
6
|
|
|
|
7
|
|
Valuation allowance
(a)
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
|
70
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities related to:
|
|
|
|
|
|
|
|
|
Contract accounting methods
|
|
|
9
|
|
|
|
23
|
|
Goodwill and intangible assets
|
|
|
200
|
|
|
|
189
|
|
Fixed assets
|
|
|
1
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
210
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
140
|
|
|
$
|
147
|
|
|
|
|
|
|
|
|
|
|
(a)
|
A valuation allowance was provided against certain foreign company deferred tax assets arising from carryforwards of unused tax benefits.
|
As of December 31, 2015, net operating loss carryforwards were approximately $32 million for U.S. federal tax purposes and $51 million for foreign
tax purposes, which will be available to offset future taxable income. If not used, the U.S. federal carryforwards will expire between 2016 and 2034. The foreign carryforwards will not expire.
As of December 31, 2015 and 2014, liabilities associated with unrecognized tax benefits are not material.
With few exceptions, the statute of limitations is no longer open for U.S. federal or non-U.S. income tax examinations for the years before 2012, other
than with respect to refunds.
U.S. income taxes and foreign withholding taxes have not been provided on earnings of $40 million, $40 million and
$28 million that have not been distributed by non-U.S. companies of IS&GS as of December 31, 2015, 2014 and 2013, respectively. IS&GS intention is to permanently reinvest these earnings, thereby indefinitely postponing their
remittance to the U.S. If these earnings had been remitted, the estimated additional income taxes after foreign tax credits would not be material to these combined financial statements.
Note 12Postretirement Plans
Defined Benefit Pension and Other
Postemployment Benefit Plans
Certain IS&GS salaried employees participate in various defined benefit pension and other postemployment
benefit (OPEB) plans administered and sponsored by Lockheed Martin. The OPEB plans provide certain heath care and life insurance benefits to retired employees. The combined financial statements reflect periodic pension and
post-retirement costs as if they were multi-employer plans. The net periodic pension and OPEB costs includes interest costs, recognized net actuarial losses and service costs that are determined based on actuarial valuations of individual
participant data and projected returns on plan assets. Costs associated with the pension and OPEB plans were allocated to the combined financial statements based on IS&GS employees proportionate share of costs for the respective Lockheed
Martin plans in which they participate. These costs are considered to have been settled with Lockheed Martin at the time of the allocation of these expenses. Pension expense for participating IS&GS employees was $69 million, $92 million and $154
million for the years ended December 31, 2015, 2014 and 2013, respectively.
In addition to the pension and OPEB plans administered and
sponsored by Lockheed Martin, MSA is one of several sponsors to the Hanford Site Pension Plan (the HSPP) (Hanford Multi Employer Pension Plan EIN: 90-0501441), a multiemployer defined benefit pension plan that covers eligible
employees of certain prime contractors
F-23
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
and subcontractors of the Department of Energy, including employees of MSA. The HSPP is managed and administered by a committee composed of representatives from each of the sponsoring
employers, and the committee determines the annual funding requirements. Assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers and if a participating employer stops
contributing to a multiemployer plan, the unfunded obligations of the plan may be borne by the remaining participating employers.
For the years
ended December 31, 2015, 2014 and 2013, expenses of $25 million, $27 million and $28 million, respectively, were included in the combined financial statements for IS&GS share of HSPP contributions. The HSPP sponsoring employers
total contributions for the years ended December 31, 2015, 2014 and 2013 were $84 million, $79 million and $92 million, respectively.
A
summary of total HSPP assets and liabilities, as provided by the plan sponsor, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Total plan assets
|
|
$
|
1,269
|
|
|
$
|
1,258
|
|
Total actuarial present value of accumulated plan benefits
|
|
|
1,582
|
|
|
|
1,521
|
|
Percent funded
|
|
|
80
|
%
|
|
|
83
|
%
|
In addition to the HSPP, IS&GS participates in several other multiemployer defined benefit pension and OPEB health
and medical plans. For the years ended December 31, 2015, 2014 and 2013, IS&GS incurred and paid $22 million, $23 million and $25 million, respectively, in expenses for IS&GS employees participating in these
various multiemployer plans.
Defined Contribution Plans
Certain IS&GS employees participate in defined contribution plans, most with 401(k) plan features, administered and sponsored by Lockheed Martin.
Employees participate by contributing a portion of their compensation to the plan, which is partially matched by Lockheed Martin. Expenses of $50 million, $53 million and $55 million for the years ended December 31, 2015, 2014 and 2013,
respectively, were allocated to the combined financial statements for the defined contribution plans in which IS&GS employees participate.
Deferred
Compensation Plans
Certain IS&GS employees participate in deferred compensation plans administered and sponsored by Lockheed Martin.
Pursuant to these deferred compensation plans, certain executives and other highly compensated employees may defer all or a portion of their salaries and incentive compensation at their discretion. Liabilities of $32 million
and $24 million as of December 31, 2015 and 2014, respectively, were allocated to the combined financial statements related to deferred compensation for IS&GS employees.
Note 13Stock-Based Compensation
Certain IS&GS
employees participate in Lockheed Martins stock-based compensation plans. Under the plans, Lockheed Martin may grant employees RSUs, PSUs, options to purchase common stock, stock appreciation rights (SARs), or other stock units. As of
December 31, 2015 there was an insignificant number of PSUs outstanding and held by IS&GS employees and no SARs or other stock units had been granted to IS&GS employees.
For the years ended December 31, 2015, 2014 and 2013, total stock-based compensation expense of $10 million, $14 million and $17 million,
respectively, was allocated to the combined financial statements for IS&GS employees who participated in the plans. Compensation expense is generally recognized ratably over the requisite service period based on the grant-date fair value of
awards, less estimated forfeitures. Stock-based compensation expense, substantially all of which relates to RSUs, is included in Cost of revenues on the Combined Statements of Earnings.
As of December 31, 2015, there was $9 million of unrecognized compensation cost related to unvested awards granted to IS&GS employees, which is
expected to be recognized over a weighted average period of one year.
F-24
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
RSUs
Activity related to unvested RSUs consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Number of RSUs
(in thousands)
|
|
|
Weighted Average Grant-
Date Fair Value Per Share
|
|
Unvested at December 31, 2012
|
|
|
787
|
|
|
$
|
78.99
|
|
Granted
|
|
|
226
|
|
|
|
89.24
|
|
Vested
|
|
|
(303
|
)
|
|
|
78.10
|
|
Forfeited
|
|
|
(47
|
)
|
|
|
83.03
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2013
|
|
|
663
|
|
|
|
82.60
|
|
Granted
|
|
|
131
|
|
|
|
146.85
|
|
Vested
|
|
|
(361
|
)
|
|
|
85.67
|
|
Forfeited
|
|
|
(14
|
)
|
|
|
99.51
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2014
|
|
|
419
|
|
|
|
99.48
|
|
Granted
|
|
|
97
|
|
|
|
192.47
|
|
Vested
|
|
|
(240
|
)
|
|
|
97.19
|
|
Forfeited
|
|
|
(10
|
)
|
|
|
142.97
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2015
|
|
|
266
|
|
|
|
133.83
|
|
|
|
|
|
|
|
|
|
|
For RSUs, the vesting period is three years, or less if the employee is retirement-eligible on the date of grant or will
become retirement eligible before the end of the vesting period. Employees who are granted RSUs receive the right to receive shares of common stock after completion of the vesting period. The employees cannot sell or transfer shares prior to vesting
and have no voting rights until the RSUs vest. The grant-date fair value of RSUs is equal to the closing market price of Lockheed Martins common stock on the grant date less a discount to reflect the delay in payment of dividend-equivalent
cash payments that are made only upon vesting, which is generally three years from the grant date.
Stock Options
Lockheed Martin did not grant stock options during 2015, 2014 and 2013. As of each of December 31, 2015 and 2014, there were one million stock
options outstanding for IS&GS employees with a weighted average exercise price of $87 and $85, respectively. All stock options outstanding as of December 31, 2015 are fully vested, have a weighted average remaining contractual life of
approximately four years and have an aggregate intrinsic value of $99 million.
Note 14Commitments and Contingencies
Legal Proceedings
IS&GS is a party to litigation and
other proceedings that arise in the ordinary course of its business. These matters could result in fines, penalties, compensatory or treble damages or non-monetary sanctions or relief. IS&GS does not believe that the outcome of these
matters, including the proceedings mentioned below, will have a material adverse effect on IS&GS, notwithstanding that the unfavorable resolution of any matter may have a material adverse effect on its net earnings in any particular interim
reporting period. Among the factors that IS&GS considers in this assessment are the nature of existing legal proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing law
and precedent, the opinions or views of legal counsel and other advisors, its experience in similar cases and the experience of other companies, the facts available at the time of assessment and how IS&GS is responding or intends to respond to
the proceeding or claim. IS&GS assessment of these factors may change over time as individual proceedings or claims progress.
On
April 24, 2009, Lockheed Martin filed a declaratory judgment action against the New York Metropolitan Transportation Authority and its Capital Construction Company (collectively, the MTA) asking the U.S. District Court for the
Southern District of New York to find that the MTA was in material breach of contract with Lockheed Martin (relating to IS&GS) based on the MTAs failure to provide access to sites where work was to be performed and the
F-25
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
failure to provide the customer-furnished equipment necessary to complete the contract. The MTA filed an answer and counterclaim alleging that Lockheed Martin breached the contract and
subsequently terminated the contract for alleged default. The primary damages sought by the MTA are the cost to complete the contract and potential re-procurement costs. Although IS&GS is unable to estimate the cost of another
contractor to complete the contract and the costs of re-procurement, the original contract with the MTA had a total value of $323 million, of which $241 million was paid to IS&GS, and the MTA is seeking damages of approximately $190
million. IS&GS disputes the MTAs allegations and is defending against them. Additionally, following an investigation, Lockheed Martins sureties on a performance bond related to this matter, who were represented by
independent counsel, concluded that the MTAs termination of the contract was improper. Subsequent to the initial filing, Lockheed Martins declaratory judgment action was amended to include claims for monetary damages against the MTA
of approximately $95 million. This matter was taken under consideration by the court in December 2014 following a five-week bench trial and the filing of post-trial pleadings by the parties. IS&GS expects a decision in 2016.
On November 10, 2015, MSA received a final decision of the Department of Energy contracting officer for MSA concluding that certain payments by MSA
to IS&GS for the performance of IT services and management services under a subcontract to MSA constituted affiliate fees in violation of the Federal Acquisition Regulation (the FAR). At the same time, the contracting officer
advised MSA that he would not approve certain provisional fee payments to MSA pending resolution of the matters set forth in his decision. Subsequent to the contracting officers final decision, MSA and Lockheed Martin received notice from
the U.S. Attorneys Office for the Eastern District of Washington that the U.S. Government had initiated a False Claims Act investigation into the facts surrounding this dispute, and each of MSA and Lockheed Martin have produced information in
response to Civil Investigative Demands from the U.S. Attorneys Office. Since this issue first was raised by the Department of Energy, MSA has asserted that the IT and management services being performed by IS&GS under a fixed
price/fixed unit rate subcontract approved by the Department of Energy meet the definition of a commercial item under the FAR and any profits earned on that subcontract are permissible. MSA filed an appeal of the contracting
officers decision with the Civilian Board of Contract Appeals and that appeal is pending. Subsequent to the filing of MSAs appeal, the contracting officer demanded that MSA reimburse the Department of Energy in the amount of $64
million, which was his estimate of the profits earned during the period from 2010 to 2014 by IS&GS. MSA has requested that the Department of Energy defer that demand pending resolution of the appeal, but to date the demand has not been
rescinded. MSA and the other members of MSA have advised Lockheed Martin that they believe that if MSA incurs liability in this matter, then Lockheed Martin is responsible to MSA for the loss.
Although IS&GS cannot predict the outcome of legal or other proceedings with certainty, GAAP requires IS&GS to record a liability if a loss is
probable and the amount of the loss is reasonably estimable, and requires IS&GS to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an estimate cannot be made for contingencies where there is at
least a reasonable possibility that a loss may have been incurred where the amount of that loss would be material to IS&GS. As of December 31, 2015, the aggregate amount of all liabilities in respect of legal and other proceedings
(including the matters described above) recorded by IS&GS in its combined financial statements was $62 million, and the range of reasonably possible additional losses was estimated by IS&GS to be from $0 to $200 million. IS&GS
believes, after consultation with counsel and after taking into account its current litigation reserves that the currently pending legal and other proceedings should not have a material adverse effect on IS&GS consolidated financial
condition or results of operations. In view of the inherent difficulty of predicting the outcome of legal proceedings, IS&GS cannot state with confidence what will be the eventual outcomes of the currently pending matters, the timing of
their ultimate resolution or the eventual losses, fines, penalties or impact related to those matters. In light of the uncertainties involved in such proceedings, it is possible that accruals may need to be adjusted in the future and the
outcome of a particular matter in a particular period could be material to IS&GS in that period.
Operating Leases
IS&GS rents certain equipment and facilities under operating leases. Additionally, certain facilities and equipment are furnished by the U.S.
Government under short-term or cancelable arrangements. IS&GS total rental expense under operating leases was $61 million for each of the years ended December 31, 2015, 2014 and 2013. Future minimum lease commitments as of
December 31, 2015 for long-term non-cancelable operating leases were $162 million, of which $50 million is payable in 2016, $39 million in 2017, $28 million in 2018, $19 million in 2019, $15 million in 2020 and $11 million thereafter.
F-26
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements
Letters of Credit, Surety Bonds and Third-Party Guarantees
In connection with the business of IS&GS, Lockheed Martin has standby letters of credit, surety bonds and third-party guarantees with financial
institutions and other third parties primarily relating to advances received from customers and the guarantee of future performance on certain contracts. Letters of credit and surety bonds generally are available for draw down in the event IS&GS
does not perform. In some cases, Lockheed Martin may guarantee the contractual performance of third parties such as venture partners. Third-party guarantees do not include guarantees of subsidiaries and other consolidated entities. IS&GS had
total outstanding letters of credit, surety bonds and third-party guarantees aggregating to $436 million and $447 million as of December 31, 2015 and 2014, respectively.
As of December 31, 2015 and 2014, third-party guarantees totaled $127 million, all of which related to the guarantee of contractual performance of
a venture to which IS&GS is currently a party. This amount represents the estimate of the maximum amount IS&GS would expect to incur upon the contractual non-performance of the venture partners.
Note 15Composition of Certain Financial Statement Captions
The following table presents financial information underlying the Combined Balance Sheets caption Other current liabilities (in millions).
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2015
|
|
|
2014
|
|
Customer contract accruals
|
|
$
|
124
|
|
|
$
|
116
|
|
Other current liabilities
|
|
|
130
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
254
|
|
|
$
|
242
|
|
|
|
|
|
|
|
|
|
|
Note 16Subsequent Events
IS&GS has evaluated subsequent events through April 15, 2016, the date the combined financial statements were available to be issued. Other than the
Transaction described in Note 1 and as described below, no material subsequent events have occurred that should be recorded or disclosed in these combined financial statements.
During the first quarter of 2016, IS&GS experienced development issues on a large international data center migration and consolidation program,
caused by unanticipated challenges in application remediation and data center migration activities. A first quarter technical baseline review was conducted with the customer, which resulted in cost and schedule changes to the program. Accordingly,
IS&GS recognized a change in estimate on this program resulting in the recognition of a $25 million negative profit rate adjustment in the first quarter of 2016.
F-27
Review Report of Independent Registered Public Accounting Firm
Board of Directors
Lockheed Martin Corporation
We have reviewed the Combined Balance Sheet of the Information Systems & Global Solutions business of Lockheed Martin Corporation (the Company) as of March 27,
2016, and the related Combined Statements of Earnings, Comprehensive Income, Cash Flows and Equity for the quarters ended March 27, 2016 and March 29, 2015. These financial statements are the responsibility of the Companys
management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards
of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the combined financial statements referred to above for them to be in
conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the Combined Balance Sheet of the Information Systems & Global Solutions business of Lockheed Martin Corporation as of December 31, 2015, and the related Combined Statements of Earnings, Comprehensive
Income, Cash Flows and Equity for the year then ended (not presented herein), and we expressed an unqualified audit opinion on those combined financial statements in our report dated April 15, 2016. In our opinion, the accompanying Combined Balance
Sheet as of December 31, 2015, is fairly stated, in all material respects, in relation to the Combined Balance Sheet from which it has been derived.
|
/s/ Ernst & Young LLP
|
|
McLean, Virginia
|
May 26, 2016
|
F-28
The Information Systems & Global Solutions Business
Combined Statements of Earnings
(unaudited;
in millions)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 27,
2016
|
|
|
March 29,
2015
|
|
Revenues
|
|
$
|
1,341
|
|
|
$
|
1,393
|
|
Cost of revenues
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
(1,246
|
)
|
|
|
(1,271
|
)
|
Severance charges
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
(1,265
|
)
|
|
|
(1,271
|
)
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
76
|
|
|
|
122
|
|
Other income, net
|
|
|
7
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
83
|
|
|
|
128
|
|
Income tax expense
|
|
|
(30
|
)
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
53
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
Less: net earnings attributable to non-controlling interest
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to parent
|
|
$
|
51
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited combined financial statements.
F-29
The Information Systems & Global Solutions Business
Combined Statements of Comprehensive Income
(unaudited; in millions)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 27,
2016
|
|
|
March 29,
2015
|
|
Net earnings
|
|
$
|
53
|
|
|
$
|
84
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(6
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
47
|
|
|
|
71
|
|
Less: comprehensive income attributable to non-controlling interest
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to parent
|
|
$
|
45
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited combined financial statements.
F-30
The Information Systems & Global Solutions Business
Combined Balance Sheets
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
March 27,
2016
|
|
|
December 31,
2015
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
39
|
|
|
$
|
39
|
|
Receivables, net
|
|
|
835
|
|
|
|
840
|
|
Inventories, net
|
|
|
120
|
|
|
|
168
|
|
Other current assets
|
|
|
19
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,013
|
|
|
|
1,067
|
|
Fixed assets, net
|
|
|
92
|
|
|
|
97
|
|
Goodwill
|
|
|
2,816
|
|
|
|
2,823
|
|
Intangible assets, net
|
|
|
118
|
|
|
|
128
|
|
Deferred income taxes
|
|
|
17
|
|
|
|
10
|
|
Other noncurrent assets
|
|
|
55
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,111
|
|
|
$
|
4,180
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
247
|
|
|
$
|
236
|
|
Customer advances and amounts in excess of costs incurred
|
|
|
289
|
|
|
|
297
|
|
Salaries, benefits and payroll taxes
|
|
|
223
|
|
|
|
214
|
|
Other current liabilities
|
|
|
251
|
|
|
|
254
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,010
|
|
|
|
1,001
|
|
Deferred income taxes
|
|
|
145
|
|
|
|
150
|
|
Other noncurrent liabilities
|
|
|
79
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,234
|
|
|
|
1,239
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Net parent investment
|
|
|
2,910
|
|
|
|
2,970
|
|
Accumulated other comprehensive loss
|
|
|
(42
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
Total parent investment
|
|
|
2,868
|
|
|
|
2,934
|
|
Non-controlling interest
|
|
|
9
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
2,877
|
|
|
|
2,941
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
4,111
|
|
|
$
|
4,180
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited combined financial statements.
F-31
The Information Systems & Global Solutions Business
Combined Statements of Cash Flows
(unaudited; in millions)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 27,
2016
|
|
|
March 29,
2015
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
53
|
|
|
$
|
84
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
14
|
|
|
|
19
|
|
Stock-based compensation
|
|
|
3
|
|
|
|
3
|
|
Severance charges
|
|
|
19
|
|
|
|
|
|
Deferred income taxes
|
|
|
(12
|
)
|
|
|
(1
|
)
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
5
|
|
|
|
50
|
|
Inventories, net
|
|
|
48
|
|
|
|
19
|
|
Accounts payable
|
|
|
9
|
|
|
|
17
|
|
Customer advances and amounts in excess of costs incurred
|
|
|
(7
|
)
|
|
|
9
|
|
Salaries, benefits and payroll taxes
|
|
|
(10
|
)
|
|
|
(37
|
)
|
Other, net
|
|
|
(5
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
117
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Net transfers to parent
|
|
|
(111
|
)
|
|
|
(132
|
)
|
Other, net
|
|
|
(5
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(116
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
|
|
|
|
(5
|
)
|
Cash at beginning of period
|
|
|
39
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
39
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited combined financial statements.
F-32
The Information Systems & Global Solutions Business
Combined Statements of Equity
(unaudited; in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Parent
Investment
|
|
|
Accumulated Other
Comprehensive Loss
|
|
|
Non-Controlling
Interest
|
|
|
Total Equity
|
|
Balances as of December 31, 2014
|
|
$
|
3,016
|
|
|
$
|
(17
|
)
|
|
$
|
6
|
|
|
$
|
3,005
|
|
Net earnings
|
|
|
83
|
|
|
|
|
|
|
|
1
|
|
|
|
84
|
|
Other comprehensive loss
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(13
|
)
|
Distribution to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Net transfers to parent
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 29, 2015
|
|
$
|
2,969
|
|
|
$
|
(30
|
)
|
|
$
|
4
|
|
|
$
|
2,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of December 31, 2015
|
|
$
|
2,970
|
|
|
$
|
(36
|
)
|
|
$
|
7
|
|
|
$
|
2,941
|
|
Net earnings
|
|
|
51
|
|
|
|
|
|
|
|
2
|
|
|
|
53
|
|
Other comprehensive loss
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
Net transfers to parent
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances as of March 27, 2016
|
|
$
|
2,910
|
|
|
$
|
(42
|
)
|
|
$
|
9
|
|
|
$
|
2,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited combined financial statements.
F-33
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements (unaudited)
Note
1Business Overview and Basis of Presentation
The accompanying unaudited interim combined financial statements and notes present the
combined results of operations, financial position, and cash flows of the Information Systems & Global Solutions business (IS&GS) of Lockheed Martin Corporation (Lockheed Martin). IS&GS is a leading provider
of information technology (IT), management and engineering services to civil, defense and intelligence agencies of the U.S. Government. IS&GS also provides services to agencies of allied foreign governments, state and local
governments and commercial customers. IS&GS supports its customers by providing data analytics, systems engineering, large-scale agile software development, network-enabled situational awareness solutions, communications and command and control
capability and global systems integration, to help customers gather, analyze and securely distribute intelligence data to address complex and pressing challenges, such as combating global terrorism, cybersecurity, air traffic management, energy
demand management and transforming the healthcare system. IS&GS is also responsible for various classified systems and services in support of vital national security systems. Major U.S. Government customers include civil agencies such as the
Department of Homeland Security, the Department of Health and Human Services and the Department of the Treasury; the Department of Defense (DoD) and all branches of the U.S. military; and the U.S. intelligence community. IS&GS
international customers are primarily located in the United Kingdom, the Middle East and Australia. In the commercial sector, IS&GS serves clients primarily in the financial services, healthcare and energy industries.
On January 26, 2016, Lockheed Martin entered into definitive agreements to separate and combine IS&GS with Leidos Holdings, Inc.
(Leidos) in a Reverse Morris Trust transaction (the Transaction). At Lockheed Martins election, the Transaction will be structured as a distribution of IS&GS to Lockheed Martins stockholders in a split-off
transaction, a spin-off transaction or a combination split-off and spin-off transaction. No matter which form of transaction is selected, IS&GS will be transferred to a subsidiary holding IS&GS (Splitco), the stock of which will
be distributed to Lockheed Martin stockholders and that distribution will be followed by a merger of Splitco with a subsidiary of Leidos. If Lockheed Martin elects a split-off, it will conduct an exchange offer pursuant to which Lockheed Martin
stockholders will have the option to elect to exchange Lockheed Martin shares for shares of Splitco. In the Merger, each share of Splitco common stock will be converted into the right to receive one share of Leidos common stock. If the exchange
offer is not fully subscribed, the remaining shares of Splitco will be distributed by Lockheed Martin in a pro-rata spin-off to Lockheed Martin stockholders in respect of those Lockheed Martin shares not exchanged in the exchange offer. If Lockheed
Martin elects a spin-off, all of the shares of Splitco will be distributed by Lockheed Martin to its stockholders as a pro-rata dividend. In connection with the transfer of IS&GS to Splitco, Lockheed Martin will receive a $1.8 billion cash
payment. Both the distribution and the merger are expected to qualify as tax-free transactions to Lockheed Martin and its stockholders, except to the extent that cash is paid to Lockheed Martin stockholders in lieu of fractional shares. The
Transaction is subject to the approval by Leidos stockholders of the issuance of the Leidos shares in the merger and the satisfaction of customary closing conditions, including regulatory approvals, the absence of a material adverse change
with respect to each of IS&GS and Leidos, and receipt of solvency opinions and opinions of tax counsel. The Transaction is expected to be completed in the third or fourth quarter of 2016.
Throughout the periods included in these unaudited combined financial statements, IS&GS operated as part of Lockheed Martin and consisted of several
legal entities, acquired businesses, as well as businesses with no separate legal status. Separate financial statements have not historically been prepared for IS&GS. The unaudited combined financial statements have been derived from Lockheed
Martins historical accounting records as if IS&GS operations had been conducted independently from Lockheed Martin and were prepared on a stand-alone basis in accordance with U.S. generally accepted accounting principles
(GAAP) for interim periods and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). In the opinion of IS&GS management, these unaudited combined financial statements reflect all
adjustments that are of a normal recurring nature necessary for fair presentation of IS&GS results of operations, financial condition and cash flows for the interim periods presented. Certain information and note disclosures normally
included in financial statements prepared annually in accordance with GAAP have been condensed or omitted pursuant to such SEC rules. These unaudited combined financial statements were prepared using the accounting policies disclosed in and should
be read in conjunction with the audited combined financial statements included in this document.
The unaudited combined financial statements
include all revenues and costs directly attributable to IS&GS and an allocation of expenses related to certain Lockheed Martin corporate functions (Note 2). These expenses have
F-34
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements (unaudited)
been allocated to IS&GS based on direct usage or benefit where identifiable, with the remainder allocated pro rata based on an applicable measure of revenues, cost of revenues, headcount,
fixed assets, number of transactions or other relevant measures. IS&GS considers these allocations to be a reasonable reflection of the utilization of services or the benefit received. However, the allocations may not be indicative of the actual
expense that would have been incurred had IS&GS operated as an independent, stand-alone entity, nor are they indicative of IS&GS future expenses.
The unaudited combined financial statements include assets and liabilities specifically attributable to IS&GS and certain assets and liabilities
that are held by Lockheed Martin that are specifically identifiable or otherwise attributable to IS&GS. Lockheed Martins cash has not been assigned to IS&GS for any of the periods presented because those cash balances are not directly
attributable to IS&GS. Lockheed Martin uses a centralized approach for managing cash and financing operations with its segments and subsidiaries. Accordingly, a substantial portion of IS&GS cash accounts are regularly swept
by Lockheed Martin at its discretion. Transfers of cash between IS&GS and Lockheed Martin are included within Net transfers to parent on the unaudited Combined Statements of Cash Flows and the Combined Statements of Equity. Lockheed
Martins long-term debt and related interest expense have not been attributed to IS&GS for any of the periods presented because Lockheed Martins borrowings are neither directly attributable to IS&GS nor is IS&GS the legal
obligor or a guarantor of such borrowings.
The unaudited combined financial statements and notes include subsidiaries, ventures and partnerships
over which IS&GS has a controlling financial interest. IS&GS uses the equity method to account for investments in business entities that it does not control if it is otherwise able to exert significant influence over the entities
operating and financial policies. IS&GS has consolidated the financial results for Mission Support Alliance, LLC (MSA), a venture with Jacobs Engineering Group, Inc. and Centerra Group, LLC. MSA manages the operations at the
Department of Energys Hanford, Washington site and provides services including emergency response and training, environmental integration and land management, fleet and road maintenance, water and electric and utilities, cybersecurity and
information management.
All intercompany transactions and balances within IS&GS have been eliminated. Transactions between IS&GS and
Lockheed Martin have been included in these unaudited combined financial statements and substantially all have been effectively settled for cash at the time the transaction is recorded through Lockheed Martins centralized cash management
system. Transactions between IS&GS and other businesses of Lockheed Martin are considered related party transactions (Note 2).
Management has
concluded that IS&GS operates in one segment based upon the information used by the chief operating decision maker in evaluating the performance of IS&GS business and allocating resources and capital. IS&GS manages its business as
a single profit center in order to promote collaboration and provide comprehensive functional service offerings across its entire customer base.
The historical results of operations, financial position and cash flows of IS&GS presented in these unaudited combined financial statements may not
be indicative of what they would have been had IS&GS actually been an independent stand-alone entity, nor are they necessarily indicative of IS&GS future results of operations, financial position and cash flows. Also, the results of
operations for the interim periods presented are not necessarily indicative of results to be expected for the full years.
IS&GS closed its
books and records on the last Sunday of the calendar quarter, which was on March 27 for the first quarter of 2016 and March 29 for the first quarter of 2015, to align its financial closing with its business processes. The unaudited
combined financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim periods as IS&GS fiscal year ends on December 31.
The preparation of these unaudited combined financial statements in conformity with GAAP requires IS&GS to make estimates and assumptions that
affect the amounts reported in the unaudited combined financial statements and accompanying notes. IS&GS bases these estimates on historical experience and on various other assumptions that IS&GS believes are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
F-35
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements (unaudited)
IS&GS actual results may differ materially from these estimates. Significant estimates inherent in the preparation of these unaudited combined financial statements include but are not
limited to accounting for revenue and cost recognition, allocation of expenses related to certain Lockheed Martin corporate functions, income taxes including deferred taxes, legal accruals and other contingencies.
Accounting for contracts using the percentage-of-completion method requires judgment relative to assessing risks, estimating contract revenues and costs
(including estimating award and incentive fees and penalties related to performance) and making assumptions for schedule and technical issues. Due to the scope and nature of the work required to be performed on certain contracts, the estimation of
total revenues and costs at completion is complicated and subject to many variables and, accordingly, is subject to change. When adjustments in estimated total contract revenues or estimated total costs are required, any changes from prior estimates
are recognized in the current period for the inception-to-date effect of such changes. When estimates of total costs to be incurred on a contract exceed estimates of total revenues to be earned, a provision for the entire loss on the contract is
recorded in the period in which the loss is determined.
The initial profit booking rate of each contract considers risks surrounding the ability to
achieve the technical requirements, schedule and costs in the initial estimated total costs to complete the contract. Profit booking rates may increase during the performance of the contract if IS&GS successfully retires risks surrounding the
technical, schedule and cost aspects of the contract that decreases the estimated total costs to complete the contract. Conversely, profit booking rates may decrease if the estimated total costs to complete the contract increase. Profit booking
rates also may be impacted favorably or unfavorably by other items. Favorable items may include the positive resolution of contractual matters and cost recoveries on disputed charges. Unfavorable items may include the adverse resolution of
contractual matters and reserves for disputes. All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate. Therefore, comparability of IS&GS revenues, profit and margins may be
impacted by changes in profit booking rates on IS&GS contracts accounted for using the percentage-of-completion method. IS&GS combined net adjustments not related to volume, including net profit booking rate adjustments and other
matters, increased gross profit by $35 million and $64 million for the three months ended March 27, 2016 and March 29, 2015, respectively. These adjustments increased net earnings by $23 million and $42 million for the three months ended March 27,
2016 and March 29, 2015, respectively.
Note 2Corporate Allocations, Related Party Transactions and Net Parent Investment
Corporate Allocations
The unaudited combined financial
statements reflect allocations of certain expenses from Lockheed Martin including, but not limited to, costs related to corporate functions such as senior management, legal, human resources, finance, accounting, treasury, tax, IT, benefits,
communications and ethics and compliance, and other corporate expenses such as corporate employee benefits, incentives and stock-based compensation, shared services processing and administration and depreciation for corporate fixed assets.
Management of IS&GS considers these allocations to be a reasonable reflection of the utilization of services by, or the benefits provided to, it. The allocation methods used include a pro rata basis of revenues, cost of revenues, headcount,
fixed assets, number of transactions or other measures. Allocations for management costs and corporate support services provided to IS&GS totaled $56 million and $69 million for the three months ended March 27, 2016 and March 29, 2015,
respectively.
The financial information in these unaudited combined financial statements does not necessarily include all the expenses that would
have been incurred by IS&GS had it been a separate, stand-alone entity. Actual costs that may have been incurred if IS&GS had been a stand-alone company would depend on a number of factors, including the chosen organization structure and
functions outsourced or performed by employees.
Related Party Transactions
Revenues in the unaudited Combined Statements of Earnings include sales to affiliates of Lockheed Martin of $8 million and $13 million for the three
months ended March 27, 2016 and March 29, 2015, respectively. Costs of revenues in the unaudited Combined Statements of Earnings includes expenses for work performed for IS&GS by
F-36
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements (unaudited)
Lockheed Martin or its affiliates of $8 million and $15 million for the three months ended March 27, 2016 and March 29, 2015, respectively. There were no significant receivables or payables due
from or due to Lockheed Martin as of March 27, 2016 and December 31, 2015.
Net Parent Investment
Net transfers to parent are included within Net parent investment on the unaudited Combined Statements of Equity. The components of the net transfers to
parent consisted of the following: (in millions):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 27, 2016
|
|
|
March 29, 2015
|
|
Cash transactions
|
|
|
|
|
|
|
|
|
Cash pooling and general financing activities
|
|
$
|
(302
|
)
|
|
$
|
(335
|
)
|
IS&GS expenses incurred by parent
|
|
|
93
|
|
|
|
91
|
|
Corporate allocations
|
|
|
56
|
|
|
|
69
|
|
Current income taxes payable
|
|
|
42
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Total cash transactions, net
|
|
|
(111
|
)
|
|
|
(132
|
)
|
Non-cash transactions
|
|
|
|
|
|
|
|
|
Other transfers with parent
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total net transfers to parent
|
|
$
|
(111
|
)
|
|
$
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
Cash pooling and general financing activities include cash transferred from IS&GS to Lockheed Martin under cash
pooling arrangements. IS&GS expenses incurred by parent include IS&GS employee fringe and pension expense. Corporate allocations include the items described above in the section titled Corporate Allocations. Current income taxes
payable are deemed to have been settled with Lockheed Martin in each period.
Note 3Severance Charges
In the first quarter of 2016, IS&GS recorded severance charges of $19 million as a result of a review intended to reduce the costs of its services
and solutions offerings. The charges consisted of severance costs associated with the planned elimination of certain positions through involuntary actions. Upon separation, terminated employees will receive lump-sum severance payments primarily
based on years of service, the majority of which are expected to be paid by the end of 2016.
In the third quarter of 2015, IS&GS recorded
severance charges of $20 million. As of March 27, 2016, IS&GS had paid approximately $15 million in severance payments associated with this action, with the remainder expected to be paid by mid-2016.
Note 4Postretirement Plans
Certain
IS&GS salaried employees participate in various defined benefit pension and other postemployment benefit (OPEB) plans administered and sponsored by Lockheed Martin. The OPEB plans provide certain health care and life insurance
benefits to retired employees. The unaudited combined financial statements reflect periodic pension and post-retirement costs as if they were multi-employer plans. The net periodic pension and OPEB costs includes interest costs, recognized net
actuarial losses and service costs that are determined based on actuarial valuations of individual participant data and projected returns on plan assets. Costs associated with the pension and OPEB plans were allocated to the unaudited combined
financial statements based on IS&GS employees proportionate share of costs for the respective Lockheed Martin plans in which they participate. These costs are considered to have been settled with Lockheed Martin at the time of the
allocation of these expenses. Pension and OPEB expense for IS&GS employees participating in plans sponsored by Lockheed Martin and various other multi-employer plans, excluding the Hanford Site Pension Plan (the HSPP) discussed
below, was $20 million and $21 million for the three months ended March 27, 2016 and March 29, 2015, respectively.
In addition to the
pension and OPEB plans administered and sponsored by Lockheed Martin, MSA is one of several sponsors to the HSPP, a multiemployer defined benefit pension plan that covers eligible employees of certain
F-37
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements (unaudited)
prime contractors and subcontractors of the Department of Energy, including employees of MSA. For the three months ended March 27, 2016 and March 29, 2015, expense of $7 million and $6
million, respectively, were included in the unaudited combined financial statements for IS&GS share of HSPP contributions.
Note 5Income Taxes
Quarterly income tax expense is measured using an estimated annual effective income tax rate, adjusted for discrete items within the period.
IS&GS effective income tax rate was 36.1% and 34.4% for the three months ended March 27, 2016 and March 29, 2015, respectively. The rates for the three months ended March 27, 2016 and March 29, 2015 varied from the federal statutory
rate of 35% due to the favorable impact of the U.S. manufacturing deduction and net earnings attributable to non-controlling interest. These favorable impacts on the rate for the three months ended March 27, 2016 were more than offset by the
unfavorable impact of adjustments for foreign activities. As of March 27, 2016 and December 31, 2015, liabilities associated with unrecognized tax benefits were not material.
State income taxes are included in Cost of revenues on the unaudited Combined Statements of Earnings because under U.S. Government contracting
regulations such amounts are allowable costs in establishing prices for contracts with the U.S. Government. Accordingly, a substantial portion of state income taxes is also included in Revenues. IS&GS total net state income tax expense was
$7 million and $6 million for the three months ended March 27, 2016 and March 29, 2015, respectively.
Note 6Inventories, net
Inventories, net consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
March 27, 2016
|
|
|
December 31, 2015
|
|
Work-in-process, primarily related to long-term contracts and programs in progress
|
|
$
|
93
|
|
|
$
|
144
|
|
Other inventories
|
|
|
30
|
|
|
|
27
|
|
Less: customer advances and progress payments
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
Total inventories, net
|
|
$
|
120
|
|
|
$
|
168
|
|
|
|
|
|
|
|
|
|
|
Note 7Goodwill and Intangible Assets, net
Changes in the carrying amount of goodwill were as follows (in millions):
|
|
|
|
|
|
|
Total
|
|
Balance as of December 31, 2015
|
|
$
|
2,823
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
(7
|
)
|
|
|
|
|
|
Balance as of March 27, 2016
|
|
$
|
2,816
|
|
|
|
|
|
|
Intangible assets, net consisted of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 27, 2016
|
|
|
As of December 31, 2015
|
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
|
Gross
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Amount
|
|
Finite lived:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
176
|
|
|
$
|
(96
|
)
|
|
$
|
80
|
|
|
$
|
176
|
|
|
$
|
(90
|
)
|
|
$
|
86
|
|
Developed technology
|
|
|
37
|
|
|
|
(24
|
)
|
|
|
13
|
|
|
|
37
|
|
|
|
(22
|
)
|
|
|
15
|
|
Other
|
|
|
20
|
|
|
|
(13
|
)
|
|
|
7
|
|
|
|
20
|
|
|
|
(11
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Finite lived:
|
|
$
|
233
|
|
|
$
|
(133
|
)
|
|
$
|
100
|
|
|
$
|
233
|
|
|
$
|
(123
|
)
|
|
$
|
110
|
|
Indefinite lived:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename and trademark
|
|
|
18
|
|
|
|
|
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles assets
|
|
$
|
251
|
|
|
$
|
(133
|
)
|
|
$
|
118
|
|
|
$
|
251
|
|
|
$
|
(123
|
)
|
|
$
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements (unaudited)
The weighted-average amortization period for total intangible assets is 3.9 years. Amortization expense
for the three months ended March 27, 2016 and March 29, 2015 was $10 million and $14 million, respectively. Estimated amortization related to intangible assets as of March 27, 2016, for the remainder of fiscal year 2016 and each fiscal year through
fiscal year 2021 and thereafter, is as follows: $25 million, $19 million, $16 million, $13 million, $11 million, $9 million and $7 million, respectively.
Note
8Legal Proceedings and Contingencies
Legal Proceedings
IS&GS is a party to litigation and other proceedings that arise in the ordinary course of its business. These matters could result in fines,
penalties, compensatory or treble damages or non-monetary sanctions or relief. IS&GS does not believe that the outcome of these matters, including the proceedings mentioned below, will have a material adverse effect on IS&GS,
notwithstanding that the unfavorable resolution of any matter may have a material adverse effect on its net earnings in any particular interim reporting period. Among the factors that IS&GS considers in this assessment are the nature of
existing legal proceedings and claims, the asserted or possible damages or loss contingency (if estimable), the progress of the case, existing law and precedent, the opinions or views of legal counsel and other advisors, its experience in similar
cases and the experience of other companies, the facts available at the time of assessment and how IS&GS is responding or intends to respond to the proceeding or claim. IS&GS assessment of these factors may change over time as
individual proceedings or claims progress.
On April 24, 2009, Lockheed Martin filed a declaratory judgment action against the New York
Metropolitan Transportation Authority and its Capital Construction Company (collectively, the MTA) asking the U.S. District Court for the Southern District of New York to find that the MTA is in material breach of an agreement with
Lockheed Martin (relating to IS&GS) based on the MTAs failure to provide access to sites where work must be performed and the customer-furnished equipment necessary to complete the contract. The MTA filed an answer and counterclaim
alleging that Lockheed Martin breached the contract and subsequently terminated the contract for alleged default. The primary damages sought by the MTA are the cost to complete the contract and potential re-procurement costs. While
IS&GS is unable to estimate the cost of another contractor completing the contract and the costs of re-procurement, the contract with the MTA had a total value of $323 million, of which $241 million was paid to IS&GS, and the MTA is seeking
damages of approximately $190 million. IS&GS disputes the MTAs allegations and is defending against them. Additionally, following an investigation, Lockheed Martins sureties on a performance bond related to this matter, who
were represented by independent counsel, concluded that the MTAs termination of the contract was improper. Finally, Lockheed Martins declaratory judgment action was later amended to include claims for monetary damages against the
MTA of approximately $95 million. This matter was taken under submission by the District Court in December 2014, after a five-week bench trial and the filing of post-trial pleadings by the parties. IS&GS expects a decision in 2016.
On November 10, 2015, MSA received a final decision of the Department of Energy contracting officer for MSA concluding that certain payments
by MSA to IS&GS for the performance of IT services and management services under a subcontract to MSA constituted affiliate fees in violation of the Federal Acquisition Regulation (the FAR). At the same time, the contracting
officer advised MSA that he would not approve certain provisional fee payments to MSA pending resolution of the matters set forth in his decision. Subsequent to the contracting officers final decision, MSA and Lockheed Martin received
notice from the U.S. Attorneys Office for the Eastern District of Washington that the U.S. Government had initiated a False Claims Act investigation into the facts surrounding this dispute, and each of MSA and Lockheed Martin have produced
information in response to Civil Investigative Demands from the U.S. Attorneys Office. Since this issue first was raised by the Department of Energy, MSA has asserted that the IT and management services being performed by IS&GS under
a fixed price/fixed unit rate subcontract approved by the Department of Energy meet the definition of a commercial item under the FAR and any profits earned on that subcontract are permissible. MSA filed an appeal of the contracting
officers decision with the Civilian Board of Contract Appeals and that appeal is pending. Subsequent to the filing of MSAs appeal, the contracting officer demanded that MSA reimburse the Department of Energy in the amount of $64
million, which was his estimate of the profits earned during the period from 2010 to 2014 by IS&GS. MSA has requested that the Department of Energy defer that demand pending resolution of the appeal, but to date the demand has not been
rescinded. MSA and the other members of MSA have advised Lockheed Martin that they believe that if MSA incurs liability in this matter, then Lockheed Martin is responsible to MSA for the loss.
F-39
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements (unaudited)
Although IS&GS cannot predict the outcome of legal or other proceedings with certainty, GAAP
requires IS&GS to record a liability if a loss is probable and the amount of the loss is reasonably estimable, and requires IS&GS to disclose an estimate of the reasonably possible loss or range of loss or make a statement that such an
estimate cannot be made for contingencies where there is at least a reasonable possibility that a loss may have been incurred where the amount of that loss would be material to IS&GS. As of March 27, 2016, the aggregate amount of all
liabilities in respect of legal and other proceedings (including the matters described above) recorded by IS&GS in its unaudited combined financial statements was approximately $63 million, and the range of reasonably possible additional losses
was estimated by IS&GS to be from $0 to $200 million. IS&GS believes, after consultation with counsel and after taking into account its current litigation reserves that the currently pending legal and other proceedings should not have a
material adverse effect on IS&GS financial condition or results of operations. In view of the inherent difficulty of predicting the outcome of legal proceedings, IS&GS cannot state with confidence what will be the eventual
outcomes of the currently pending matters, the timing of their ultimate resolution or the eventual losses, fines, penalties or impact related to those matters. In light of the uncertainties involved in such proceedings, it is possible that
accruals may need to be adjusted in the future and the outcome of a particular matter in a particular period could be material to IS&GS in that period.
Letters of Credit, Surety Bonds and Third-Party Guarantees
In connection with the business of IS&GS, Lockheed Martin has standby letters of credit, surety bonds and third-party guarantees with financial
institutions and other third parties primarily relating to advances received from customers and the guarantee of future performance on certain contracts. Letters of credit and surety bonds generally are available for draw down in the event IS&GS
does not perform. In some cases, Lockheed Martin may guarantee the contractual performance of third parties such as venture partners. Third-party guarantees do not include guarantees of subsidiaries and other consolidated entities. IS&GS had
total outstanding letters of credit, surety bonds and third-party guarantees aggregating to $437 million and $436 million as of March 27, 2016 and December 31, 2015, respectively.
As of March 27, 2016 and December 31, 2015, third-party guarantees totaled $127 million, all of which related to the guarantee of contractual
performance of a venture to which IS&GS is currently a party. This amount represents the estimate of the maximum amount IS&GS would expect to incur upon the contractual non-performance of the venture partners.
Note 9Composition of Certain Financial Statement Captions
The following table presents financial information underlying the Combined Balance Sheets caption Other current liabilities (in millions).
|
|
|
|
|
|
|
|
|
|
|
March 27, 2016
|
|
|
December 31, 2015
|
|
Customer contract accruals
|
|
$
|
136
|
|
|
$
|
124
|
|
Other current liabilities
|
|
|
115
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
251
|
|
|
$
|
254
|
|
|
|
|
|
|
|
|
|
|
Note 10Recent Accounting Pronouncements
In May 2014, the FASB issued a new standard that will change the way IS&GS recognizes revenue and significantly expand the disclosure
requirements for revenue arrangements. On July 9, 2015, the FASB approved a one-year deferral of the effective date of the standard to 2018 for public companies, with an option that would permit companies to adopt the standard in 2017. Early
adoption prior to 2017 is not permitted. The new standard may be adopted either retrospectively or on a modified retrospective basis whereby the new standard would be applied to new contracts and existing contracts with remaining performance
obligations as of the effective date, with a cumulative catch-up adjustment recorded to beginning retained earnings at the effective date for existing contracts with remaining performance obligations. IS&GS is currently evaluating the methods of
adoption allowed by the new standard and the effect the standard is expected to have on IS&GS combined financial statements and related disclosures. As the new standard will supersede substantially all existing revenue guidance affecting
IS&GS under
F-40
The Information Systems & Global Solutions Business
Notes to Combined Financial Statements (unaudited)
GAAP, it could impact revenue and cost recognition on thousands of contracts across the IS&GS business, in addition to IS&GS business processes and IT systems. As a result,
IS&GS evaluation of the effect of the new standard will extend over future periods.
In September 2015, the FASB issued a new standard
that simplifies the accounting for adjustments made to preliminary amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. Instead, adjustments will be recognized in the period in
which the adjustments are determined, including the effect on earnings of any amounts that would have been recorded in previous periods if the accounting had been completed at the acquisition date. IS&GS adopted the standard on January 1,
2016 and will prospectively apply the standard to business combination adjustments identified after the date of adoption.
In February 2016, the
FASB issued a new standard that increases transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet and the disclosure of key information about leasing arrangements.
The standard is effective January 1, 2019 for public companies, with early adoption permitted. The standard will be applied using a modified retrospective approach to the beginning of the earliest period presented in the financial statements.
IS&GS is currently evaluating when it will adopt the standard and the expected impact to the combined financial statements and related disclosures.
Note
11Subsequent Events
IS&GS has evaluated subsequent events through May 26, 2016, the date the unaudited combined financial statements
were available to be issued. No material subsequent events have occurred that should be recorded or disclosed in these unaudited combined financial statements.
F-41
Report of Independent Registered Public Accounting Firm
Board of Directors
Abacus Innovations Corporation
We have audited the accompanying balance sheet of Abacus Innovations Corporation (the Company), as of January 25, 2016. This balance sheet is the responsibility of
the Companys management. Our responsibility is to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. We were not
engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall presentation of the balance sheet. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial
position of the Abacus Innovations Corporation at January 25, 2016 in conformity with U.S. generally accepted accounting principles.
|
/s/ Ernst & Young LLP
|
|
McLean, Virginia
|
|
April 15, 2016
|
F-42
Abacus Innovations Corporation
Balance Sheet
(in whole dollars)
|
|
|
|
|
|
|
January 25,
2016
|
|
Assets
|
|
|
|
|
Cash
|
|
$
|
100
|
|
|
|
|
|
|
Total assets
|
|
$
|
100
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
Common stock (authorized 1,000 shares of $.001 par value each, issued: 100 shares)
|
|
$
|
|
|
Additional paid-in capital
|
|
|
100
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
100
|
|
|
|
|
|
|
The accompanying notes are an integral part of this financial statement.
F-43
Notes to Financial Statement
Note 1Business Overview
Abacus Innovations Corporation
(Abacus) is a newly-formed Delaware corporation and wholly-owned subsidiary of Lockheed Martin Corporation (Lockheed Martin). Lockheed Martin caused Abacus to be formed on January 19, 2016, in order to facilitate
separation of its Information Systems & Global Solutions business. Abacus issued 100 shares of common stock to Lockheed Martin for $100 on January 25, 2016. Abacus has engaged in no business operations to date and has no assets or
liabilities of any kind, other than those incident to its formation.
The accompanying balance sheet includes the accounts of Abacus and was
prepared in accordance with U.S. generally accepted accounting principles.
Note 2Subsequent Events
Abacus has evaluated subsequent events through April 15, 2016, the date the financial statement was available to be issued. No material subsequent events
have occurred that should be recorded or disclosed in this financial statement.
F-44
Review Report of Independent Registered Public Accounting Firm
Board of Directors
Abacus Innovations Corporation
We have reviewed the accompanying balance sheet of Abacus Innovations Corporation (the Company) as of March 27, 2016. This balance sheet is the responsibility of
the Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the balance sheet referred to above for it to be in conformity with U.S.
generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the balance sheet of Abacus Innovations Corporation as of January 25, 2016 (not presented herein), and we expressed an unqualified audit opinion on that balance sheet in our report dated April 15, 2016.
|
/s/ Ernst & Young LLP
|
|
McLean, Virginia
|
May 26, 2016
|
F-45
Abacus Innovations Corporation
Balance Sheet
(unaudited, in whole dollars)
|
|
|
|
|
|
|
March 27,
2016
|
|
Assets
|
|
|
|
|
Cash
|
|
$
|
100
|
|
|
|
|
|
|
Total assets
|
|
$
|
100
|
|
|
|
|
|
|
Liabilities and equity
|
|
|
|
|
Common stock (authorized 1,000 shares of $.001 par value each, issued: 100 shares)
|
|
$
|
|
|
Additional paid-in capital
|
|
|
100
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
100
|
|
|
|
|
|
|
The accompanying notes are an integral part of this unaudited financial statement.
F-46
Notes to Financial Statement (unaudited)
Note 1Business Overview
Abacus Innovations Corporation
(Abacus) is a newly-formed Delaware corporation and wholly-owned subsidiary of Lockheed Martin Corporation (Lockheed Martin). Lockheed Martin caused Abacus to be formed on January 19, 2016, in order to facilitate
separation of its Information Systems & Global Solutions business. Abacus issued 100 shares of common stock to Lockheed Martin for $100 on January 25, 2016. Abacus has engaged in no business operations to date and has no assets or
liabilities of any kind, other than those incident to its formation.
The accompanying balance sheet includes the accounts of Abacus and was
prepared in accordance with U.S. generally accepted accounting principles.
Abacus closes its books and records on the last Sunday of the calendar
quarter, which was on March 27 for the first quarter of 2016, to align its financial closing with Lockheed Martins financial closing period. The unaudited balance sheet included herein is labeled based on that convention. This practice only
affects interim periods as Abacus fiscal year ends on December 31.
Abacus had no operations from January 19, 2016 through March 27, 2016,
thus no statement of earnings is included with this financial statement.
Note 2Subsequent Events
Abacus has evaluated subsequent events through May 26, 2016, the date the unaudited financial statement was available to be issued. No material
subsequent events have occurred that should be recorded or disclosed in this unaudited financial statement.
F-47
Annex A-1
AGREEMENT AND PLAN OF MERGER
Dated as of January 26, 2016
By and
Among
LOCKHEED MARTIN CORPORATION,
ABACUS INNOVATIONS CORPORATION,
LEIDOS
HOLDINGS, INC.
and
LION MERGER
CO.
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
Article I
|
|
|
DEFINED TERMS
|
|
|
|
|
Section 1.01
|
|
Definitions
|
|
|
A-2
|
|
|
Article II
|
|
|
THE MERGER
|
|
|
|
|
Section 2.01
|
|
The Merger
|
|
|
A-2
|
|
Section 2.02
|
|
Closing; Merger Effective Time
|
|
|
A-2
|
|
Section 2.03
|
|
Effects of the Merger
|
|
|
A-2
|
|
Section 2.04
|
|
Conversion of Shares
|
|
|
A-3
|
|
Section 2.05
|
|
Charter and Bylaws of Surviving Corporation
|
|
|
A-3
|
|
Section 2.06
|
|
Directors and Officers
|
|
|
A-4
|
|
Section 2.07
|
|
Board of Directors/Management of RMT Parent
|
|
|
A-4
|
|
Section 2.08
|
|
The Distribution
|
|
|
A-4
|
|
Section 2.09
|
|
The RMT Parent Special Dividend
|
|
|
A-4
|
|
|
Article III
|
|
|
DELIVERY OF MERGER CONSIDERATION;
CONVERSION OF EQUITY AWARDS
|
|
|
|
|
Section 3.01
|
|
Exchange Fund
|
|
|
A-5
|
|
Section 3.02
|
|
Stock Transfer Books
|
|
|
A-7
|
|
Section 3.03
|
|
No Appraisal Rights
|
|
|
A-7
|
|
Section 3.04
|
|
Treatment of LMC Equity Awards
|
|
|
A-7
|
|
|
Article IV
|
|
|
REPRESENTATIONS AND WARRANTIES OF LMC AND SPINCO
|
|
|
|
|
Section 4.01
|
|
Corporate Existence and Power
|
|
|
A-8
|
|
Section 4.02
|
|
Corporate Authorization
|
|
|
A-8
|
|
Section 4.03
|
|
Capital Structure of Spinco
|
|
|
A-8
|
|
Section 4.04
|
|
Transferred Subsidiaries and LMC JV Interests
|
|
|
A-9
|
|
Section 4.05
|
|
No Conflict; Board and Stockholder Approval
|
|
|
A-9
|
|
Section 4.06
|
|
Governmental Consents and Approvals
|
|
|
A-10
|
|
Section 4.07
|
|
Financial Information; Financing
|
|
|
A-11
|
|
Section 4.08
|
|
Absence of Certain Changes
|
|
|
A-12
|
|
Section 4.09
|
|
Litigation
|
|
|
A-12
|
|
Section 4.10
|
|
Registration Statements; Proxy Statement; Schedule TO
|
|
|
A-12
|
|
Section 4.11
|
|
Compliance with Laws
|
|
|
A-13
|
|
Section 4.12
|
|
Intellectual Property
|
|
|
A-13
|
|
Section 4.13
|
|
Real Property
|
|
|
A-14
|
|
Section 4.14
|
|
Employee Benefit Matters
|
|
|
A-15
|
|
Section 4.15
|
|
Labor Matters
|
|
|
A-16
|
|
Section 4.16
|
|
Taxes
|
|
|
A-17
|
|
Section 4.17
|
|
Spinco Material Contracts
|
|
|
A-17
|
|
Section 4.18
|
|
Environmental Matters
|
|
|
A-18
|
|
Section 4.19
|
|
Sufficiency of Assets; Title
|
|
|
A-18
|
|
Section 4.20
|
|
Brokers
|
|
|
A-19
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
Section 4.21
|
|
Government Contracts
|
|
|
A-19
|
|
Section 4.22
|
|
International Trade Laws and Regulations
|
|
|
A-20
|
|
Section 4.23
|
|
Disclaimer of LMC and Spinco
|
|
|
A-21
|
|
|
Article V
|
|
|
REPRESENTATIONS AND WARRANTIES OF RMT PARENT AND MERGER SUB
|
|
|
|
|
Section 5.01
|
|
Corporate Existence and Power
|
|
|
A-22
|
|
Section 5.02
|
|
Corporate Authorization
|
|
|
A-22
|
|
Section 5.03
|
|
Capitalization
|
|
|
A-23
|
|
Section 5.04
|
|
No Conflict; Board and Stockholder Approval
|
|
|
A-24
|
|
Section 5.05
|
|
Governmental Consents and Approvals
|
|
|
A-24
|
|
Section 5.06
|
|
Financial Information; Financing
|
|
|
A-25
|
|
Section 5.07
|
|
Absence of Certain Changes
|
|
|
A-26
|
|
Section 5.08
|
|
Litigation
|
|
|
A-26
|
|
Section 5.09
|
|
Registration Statements, Proxy Statement; Schedule TO
|
|
|
A-26
|
|
Section 5.10
|
|
Compliance with Laws
|
|
|
A-27
|
|
Section 5.11
|
|
Intellectual Property
|
|
|
A-27
|
|
Section 5.12
|
|
Real Property
|
|
|
A-28
|
|
Section 5.13
|
|
Employee Benefit Matters
|
|
|
A-28
|
|
Section 5.14
|
|
Labor Matters
|
|
|
A-30
|
|
Section 5.15
|
|
Taxes
|
|
|
A-30
|
|
Section 5.16
|
|
RMT Parent Material Contracts
|
|
|
A-31
|
|
Section 5.17
|
|
Environmental Matters
|
|
|
A-31
|
|
Section 5.18
|
|
No Stockholder Rights Plan; No Anti-Takeover Law
|
|
|
A-32
|
|
Section 5.19
|
|
Operations of Merger Sub
|
|
|
A-32
|
|
Section 5.20
|
|
Opinion of Financial Advisor
|
|
|
A-32
|
|
Section 5.21
|
|
Brokers
|
|
|
A-32
|
|
Section 5.22
|
|
Government Contracts
|
|
|
A-32
|
|
Section 5.23
|
|
International Trade Laws and Regulations
|
|
|
A-34
|
|
Section 5.24
|
|
Disclaimer of RMT Parent and Merger Sub
|
|
|
A-35
|
|
|
Article VI
|
|
|
CONDUCT OF BUSINESS PENDING THE MERGER
|
|
|
|
|
Section 6.01
|
|
Conduct of Business by LMC Pending the Merger
|
|
|
A-35
|
|
Section 6.02
|
|
Conduct of Business by RMT Parent Pending the Merger
|
|
|
A-37
|
|
|
Article VII
|
|
|
ADDITIONAL COVENANTS AND AGREEMENTS
|
|
|
|
|
Section 7.01
|
|
Registration Statements; Proxy Statement; Schedule TO; Merger Sub and Spinco Stockholder Approvals
|
|
|
A-39
|
|
Section 7.02
|
|
RMT Parent Stockholders Meeting
|
|
|
A-40
|
|
Section 7.03
|
|
No Solicitation of Transactions
|
|
|
A-41
|
|
Section 7.04
|
|
Access to Information
|
|
|
A-44
|
|
Section 7.05
|
|
Directors and Officers Indemnification
|
|
|
A-45
|
|
Section 7.06
|
|
Regulatory and Other Authorizations; Notices and Consents
|
|
|
A-45
|
|
Section 7.07
|
|
Release from Financial Support Arrangements
|
|
|
A-46
|
|
Section 7.08
|
|
Financing
|
|
|
A-47
|
|
Section 7.09
|
|
Tax Matters
|
|
|
A-51
|
|
Section 7.10
|
|
Separation Agreement
|
|
|
A-52
|
|
Section 7.11
|
|
Control of Other Partys Business
|
|
|
A-53
|
|
A-ii
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
Section 7.12
|
|
Listing of Spinco Shares of RMT Parent Common Stock
|
|
|
A-53
|
|
Section 7.13
|
|
Section 16 Matters
|
|
|
A-53
|
|
Section 7.14
|
|
Confidentiality
|
|
|
A-53
|
|
Section 7.15
|
|
Further Actions
|
|
|
A-53
|
|
Section 7.16
|
|
Financial Statements
|
|
|
A-54
|
|
Section 7.17
|
|
Corrective Changes
|
|
|
A-55
|
|
Section 7.18
|
|
Spinco Authorized Shares
|
|
|
A-55
|
|
|
Article VIII
|
|
|
CONDITIONS TO THE MERGER
|
|
|
|
|
Section 8.01
|
|
Conditions to the Obligations of Each Party
|
|
|
A-55
|
|
Section 8.02
|
|
Conditions to the Obligations of RMT Parent and Merger Sub
|
|
|
A-56
|
|
Section 8.03
|
|
Conditions to the Obligations of LMC and Spinco
|
|
|
A-56
|
|
Section 8.04
|
|
Frustration of Closing Conditions
|
|
|
A-57
|
|
|
Article IX
|
|
|
TERMINATION
|
|
|
|
|
Section 9.01
|
|
Termination
|
|
|
A-58
|
|
Section 9.02
|
|
Effect of Termination
|
|
|
A-59
|
|
Section 9.03
|
|
Fees and Expenses
|
|
|
A-59
|
|
|
Article X
|
|
|
GENERAL PROVISIONS
|
|
|
|
|
Section 10.01
|
|
Non-Survival of Representations, Warranties, Covenants and Agreements
|
|
|
A-60
|
|
Section 10.02
|
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Notices
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A-60
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Section 10.03
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Amendments; Waivers
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A-61
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Section 10.04
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Successors and Assigns
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Section 10.05
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Construction
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A-62
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Section 10.06
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Disclosure Letters
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A-62
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Section 10.07
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Public Announcements
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A-62
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Section 10.08
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Entire Agreement
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A-63
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Section 10.09
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Counterparts; Effectiveness
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A-63
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Section 10.10
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Governing Law
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Section 10.11
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Dispute Resolution, Consent to Jurisdiction
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Section 10.12
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Severability
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Section 10.13
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Captions
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Section 10.14
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Specific Performance
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A-64
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Section 10.15
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Payments
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A-64
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Section 10.16
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No Third-Party Beneficiaries
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A-65
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Section 10.17
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Non-Parties
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A-65
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Section 10.18
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Non-Recourse
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EXHIBIT
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Exhibit A
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Definitions
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A-67
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A-iii
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (together with the Disclosure Letters and Exhibits hereto, this
Agreement
) is made as of the 26
th
day of January 2016, by and among Lockheed Martin Corporation, a Maryland corporation (
LMC
), Abacus Innovations Corporation, a Delaware corporation and wholly owned Subsidiary of
LMC (
Spinco
), Leidos Holdings, Inc., a Delaware corporation (
RMT Parent
), and Lion Merger Co., a Delaware corporation and direct, wholly owned Subsidiary of RMT Parent (
Merger Sub
). Each of
LMC, Spinco, RMT Parent and Merger Sub is sometimes referred to individually as a
Party
and collectively they are sometimes referred to as the
Parties
.
W I T N E S S E T H:
WHEREAS, LMC, among
other things, is engaged, directly and indirectly, in the Spinco Business and its other businesses;
WHEREAS, Spinco is a wholly owned direct
subsidiary of LMC and, following the Internal Reorganization, will be engaged in the Spinco Business;
WHEREAS, contemporaneously with the execution
of this Agreement, LMC and Spinco are entering into the Separation Agreement;
WHEREAS, on or prior to the Closing Date, and subject to the terms
and conditions set forth in the Separation Agreement, LMC will consummate the Internal Reorganization, and following the Internal Reorganization and prior to the Merger Effective Time, LMC will transfer (the
Distribution
) all of
the issued and outstanding shares of Spincos common stock, $0.001 par value per share (
Spinco Common Stock
), to holders of LMCs common stock, $1.00 par value per share (
LMC Common Stock
);
WHEREAS, in the sole discretion of LMC and subject to the terms and conditions of the Separation Agreement, the Distribution shall be made
(i) without consideration, by way of a
pro rata
dividend, or (ii) by way of an offer to exchange (the
Exchange Offer
) shares of Spinco Common Stock for currently outstanding shares of LMC Common Stock and, in the
event that LMCs stockholders subscribe for less than all of the Spinco Common Stock in the Exchange Offer, without consideration and
pro rata
to holders of LMC Common Stock, by way of a dividend of any unsubscribed shares of Spinco
Common Stock;
WHEREAS, at the Merger Effective Time, the Parties will effect the merger of Merger Sub with and into Spinco (the
Merger
), with Spinco continuing as the surviving corporation, all upon the terms and conditions set forth herein;
WHEREAS, the
Parties intend that, for U.S. federal income Tax purposes, the Internal Reorganization, the Spinco Transfer, the Parent Cash Distribution, the Distribution and the Merger will be treated as contemplated by the Tax Matters Agreement and, accordingly,
that (a) the Spinco Transfer and the Distribution, taken together, qualify as a reorganization within the meaning of Section 368(a)(1)(D) of the Code and that each of LMC and Spinco will be a party to the
reorganization within the meaning of Section 368(b) of the Code, (b) the Distribution, as such, qualifies as a distribution of Spinco Common Stock to LMCs stockholders pursuant to Section 355 of the Code, (c) the
Merger will not cause Section 355(e) of the Code to apply to the Distribution, (d) the Parent Cash Distribution qualifies as money distributed to LMC creditors or stockholders in connection with the reorganization for purposes of
Section 361(b) of the Code, and (d) the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code and that each of RMT Parent, Merger Sub and Spinco will be a party to the
reorganization within the meaning of Section 368(b) of the Code;
WHEREAS, the Board of Directors of RMT Parent (the
RMT Parent Board
) (a) has approved and declared advisable this Agreement and
the transactions contemplated hereby, including the Merger and the RMT Parent Share Issuance, and (b) has resolved to recommend the approval by the stockholders of RMT Parent of the RMT Parent Share Issuance;
WHEREAS, the Board of Directors of Merger Sub (the
Merger Sub Board
) (a) has approved and declared advisable this Agreement and
the transactions contemplated hereby, including the Merger, and (b) has resolved to recommend the adoption of this Agreement by the sole stockholder of Merger Sub;
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WHEREAS, the Board of Directors of Spinco (the
Spinco Board
) (a) has approved and
declared advisable this Agreement and the transactions contemplated hereby, including the Internal Reorganization, the Spinco Transfer, the Distribution and the Merger and (b) has resolved to recommend the adoption of this Agreement by the sole
stockholder of Spinco; and
WHEREAS, the Board of Directors of LMC (the
LMC Board
) has approved this Agreement and the Separation
Agreement and the transactions contemplated hereby and thereby, including the Internal Reorganization, the Spinco Transfer, the Distribution and the Merger;
NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I
DEFINED TERMS
Section 1.01
Definitions
.
Capitalized terms used in this Agreement have the meanings specified in
Exhibit A
.
ARTICLE II
THE MERGER
Section 2.01
The Merger
.
Upon the
terms and subject to the satisfaction or written waiver (where permissible under Applicable Law) of the conditions set forth in
Article VIII
, and in accordance with the applicable provisions of the DGCL, at the Merger Effective Time, Merger
Sub shall be merged with and into Spinco. As a result of the Merger, at the Merger Effective Time, the separate corporate existence of Merger Sub shall cease and Spinco shall continue as the surviving corporation in the Merger (the
Surviving Corporation
).
Section 2.02
Closing; Merger Effective Time
.
As promptly as practicable, but in no event later than the later of (i) the third Business Day, after the satisfaction or written waiver (where
permissible under Applicable Law) of the conditions set forth in
Article VIII
(other than those conditions that by their terms are to be satisfied at the Closing or on the Closing Date (including the Distribution), but subject to the
satisfaction or written waiver (where permissible under Applicable Law) of those conditions at the Closing), and (ii) the earlier of (A) the date during the Marketing Period to be specified by RMT Parent on no fewer than two Business
Days notice to LMC (it being understood that such date may be conditioned upon the simultaneous completion of the Financings), and (B) the first Business Day following the final day of the Marketing Period (unless another date, time or
place is agreed to in writing by LMC and RMT Parent), the Parties shall cause the Merger to be consummated by filing a certificate of merger (the
Certificate of Merger
) with the Secretary of State of the State of Delaware, in such
form as is required by, and executed in accordance with, the relevant provisions of the DGCL (the date and time of such filing of the Certificate of Merger (or such later time as may be agreed by each of the Parties and specified in the Certificate
of Merger) being the
Merger Effective Time
). Immediately prior to the filing of the Certificate of Merger, a closing (the
Closing
) shall be held at the offices of Hogan Lovells US LLP, Columbia Square, 555
Thirteenth Street, NW, Washington, DC 20004, or such other place as the parties shall agree, for the purpose of confirming the satisfaction or waiver, as the case may be, of the conditions set forth in
Article VIII
.
Section 2.03
Effects of the Merger
.
The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the DGCL.
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Section 2.04
Conversion of Shares
.
(a)
Conversion of Spinco Common Stock
. At the Merger Effective Time, by virtue of the Merger and without any action on the part of RMT Parent,
Merger Sub, Spinco or the holders of the Spinco Common Stock, each share of Spinco Common Stock (all shares of Spinco Common Stock being collectively, the
Spinco Shares
) issued and outstanding immediately prior to the Merger
Effective Time shall be converted automatically into the right to receive one fully paid and non-assessable share of RMT Parent Common Stock (the
Merger Consideration
), and each holder of certificates or book-entry shares that
immediately prior to the Merger Effective Time represented such Spinco Shares shall thereafter cease to have any rights with respect thereto, except (i) the right to receive the Merger Consideration, any dividends or other distributions
pursuant to
Section 3.01(c)
and cash in lieu of any fractional shares payable pursuant to
Section 3.01(e)
, in each case to be issued or paid, without interest, in consideration therefor and (ii) as provided by Applicable
Law.
(b)
Capital Stock of Merger Sub
. At the Merger Effective Time, by virtue of the Merger and without any action on the part of RMT
Parent, Merger Sub, Spinco or the holders of the Spinco Common Stock, each share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Merger Effective Time shall be converted into and become one
validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of the Surviving Corporation.
(c)
Exchange Ratio
True-Up
.
If the condition set forth in
Section 8.03(b)
would be unable to be satisfied solely because immediately after the Merger Effective Time, the percentage of outstanding shares of RMT Parent Common Stock to be received
by the former holders of Spinco Common Stock with respect to Qualified Spinco Common Stock would be less than 50.1% (the
Threshold Percentage
) of all the stock of RMT Parent (including (i) any instruments that are treated as
stock for U.S. federal income Tax purposes and (ii) any stock that may be issued after the Merger Effective Time, pursuant to the exercise or settlement of an option or other contract acquired or entered into on or before the Merger Effective
Time that may be regarded as having been acquired or entered into before the Merger Effective Time as part of a plan of which the Distribution is a part within the meaning of Section 355(e) of the Code, determined without regard to
any adjustment pursuant to this
Section 2.04(c)
), including, for the avoidance of doubt, by reason of the failure of the representation set forth in Section 10(a)(ii) of the Tax Matters Agreement to be true in all relevant respects
(an
RMT Parent Capitalization Breach
), then the number of shares of Spinco Common Stock issued pursuant to
Section 2.04(d)
and converted pursuant to
Section 2.04(a)
shall be increased such that the
aggregate number of shares of RMT Parent Common Stock to be received by the former holders of Spinco Common Stock with respect to Qualified Spinco Common Stock equals the Threshold Percentage;
provided
, that no adjustment shall be required
pursuant to this
Section 2.04(c)
to the extent that any required increase is the result of a change in Applicable Law between the date of this Agreement and the Merger Effective Time; and
provided
,
further
, that to the
extent any increase required under this
Section 2.04(c)
is the result of (x) actions taken by an LMC Entity pursuant to the plan (or series of related transactions) that includes the Distribution (within the meaning of
Section 355(e) of the Code), or (y) the failure of the LMC Entities to take commercially reasonable action to prevent such an increase that otherwise would have been preventable, it being understood and agreed that neither (A) the
mere decision to effect the Distribution by way of an Exchange Offer or One-Step Spin-Off nor (B) an RMT Parent Capitalization Breach shall be deemed to be an action or failure to take an action by the LMC Entities for purposes of clauses
(x) and (y), then the amount of the Spinco Special Cash Payment shall be reduced by an amount equal to the product of $55.2243 multiplied by the number of additional shares of RMT Parent Common Stock to be issued pursuant to this
Section 2.04(c)
.
(d)
Issuance of Shares of Spinco Common Stock
. As contemplated by Section 3.03 of the Separation
Agreement, and subject to the adjustment provided in
Section 2.04(c)
and
Section 3.01(f)
, on or before the Distribution Date, Spinco shall issue and deliver to LMC a number of shares of Spinco Common Stock equal to the
difference of (i) the product of (A) the Exchange Ratio, multiplied by (B) 75,434,980, minus (ii) the number of shares of Spinco Common Stock held by LMC immediately prior to such issuance pursuant to Section 3.03 of the
Separation Agreement and this
Section 2.04(d)
.
Section 2.05
Charter and Bylaws of Surviving Corporation
.
(a) The charter of Spinco immediately prior to the Merger Effective Time, by virtue of the Merger and without any action on the part of RMT Parent,
Merger Sub, Spinco or the holders of Spinco Common Stock, shall be the charter of the Surviving Corporation until thereafter amended in accordance with such charter and Applicable Law.
A-3
(b) The bylaws of Spinco immediately prior to the Merger Effective Time, by virtue of the Merger and
without any action on the part of RMT Parent, Merger Sub, Spinco or the holders of Spinco Common Stock, shall be the bylaws of the Surviving Corporation until thereafter duly amended in accordance with the charter of the Surviving Corporation, such
bylaws and Applicable Law.
Section 2.06
Directors and Officers
.
The directors of Merger Sub immediately prior to the Merger Effective Time shall be the initial directors of the Surviving Corporation, each to hold
office in accordance with the charter and bylaws of the Surviving Corporation, and the officers of Spinco immediately prior to the Merger Effective Time shall be the initial officers of the Surviving Corporation, in each case until their respective
successors are duly elected and qualified or until such directors or officers earlier death, resignation or removal.
Section 2.07
Board of Directors/Management of RMT Parent
.
(a) The RMT Parent Board shall take all such action as may be necessary (a) to cause the
number of directors comprising the RMT Parent Board as of the Merger Effective Time to be no more than 13 directors, and (b) to cause three individuals designated by LMC and reasonably acceptable to the RMT Parent Board to be appointed to the
RMT Parent Board as of the Merger Effective Time to serve until the next annual meeting of the stockholders of RMT Parent;
provided
, that if any of such LMC designees is unable or unwilling to serve, then LMC shall select a reasonable
replacement for such LMC designee. In connection with the next annual meeting of the stockholders of RMT Parent following the Merger Effective Time, the RMT Parent Board shall take all such action as may be necessary to include each of the LMC
designees as nominees for the RMT Parent Board recommended by the RMT Parent Board for election by RMT Parents stockholders, subject in all events to the fiduciary duties of the RMT Parent Board of Directors, the requirements of the New York
Stock Exchange and all other Applicable Laws. The RMT Parent Board shall take all such action as may be necessary to ensure that at least one of such LMC designees is appointed to serve on each committee of the RMT Parent Board, subject in all
events to the requirements of the SEC, the New York Stock Exchange and all other Applicable Laws.
(b) During the period from the date of this
Agreement to the Merger Effective Time, RMT Parent shall consult from time to time with and consider the views of LMC regarding the roles and responsibilities of members of the management of the Spinco Business in the management of RMT Parent and
Spinco following the Closing;
provided
,
however
, that the ultimate decision as to the roles and responsibilities of members of the management of the Spinco Business following Closing shall be the responsibility of RMT Parent.
Section 2.08
The Distribution
.
Immediately prior to the Merger, LMC and Spinco shall make the Distribution pursuant to and in accordance with the provisions of this Agreement and the
Separation Agreement. Notwithstanding anything in Section 4.02 of the Separation Agreement to the contrary, in the event LMC elects to effect the Distribution as the Exchange Offer, LMC shall extend the expiration date of such Exchange Offer
for one or more consecutive increments of not more than 20 Business Days each (the length of such period to be determined by LMC in consultation with RMT Parent), if, as of any otherwise scheduled expiration of the Exchange Offer, any condition to
the Exchange Offer or any condition to the consummation of the Merger, other than those conditions that are to be satisfied on the date of the expiration of the Exchange Offer or the Closing Date, has not been satisfied or waived (to the extent
permitted under Applicable Law), it being understood that, without the consent of RMT Parent, no such extension shall extend the expiration date of such Exchange Offer to a time later than, the earlier of (a) the later of (i) the date that
is 15 Business Days after the satisfaction or waiver of all conditions to the closing of the Merger, other than those conditions that are to be satisfied on the date of the Closing Date and (ii) the date that is 35 Business Days after the
commencement of the Exchange Offer and (b) a number of Business Days prior to the Termination Date sufficient to permit the consummation of any Clean-Up Spin-Off prior to the Termination Date.
Section 2.09
The RMT Parent Special Dividend
.
Prior to the Merger (regardless of whether the actual payment date for any RMT Parent Special Dividend is before, on or after the Merger Effective
Time), RMT Parent, subject to Applicable Law, shall declare a special
A-4
dividend to the holders of its common shares as of a record date prior to the Closing Date (provided that, in the event the Distribution is in the form of an Exchange Offer, (i) RMT Parent
will advise LMC at least seven days prior to the anticipated commencement of the Exchange Offer of the anticipated record date and ex-dividend date on the NYSE for the RMT Parent Common Stock in respect of the special dividend and (ii) the
ex-dividend date in the regular way market on the NYSE for the RMT Parent Common Stock in respect of the special dividend shall not be during the averaging period used to determine the final exchange ratio in the Exchange Offer), in an amount equal
to $1,029,210,261 in the aggregate (the
RMT Parent Special Dividend
).
ARTICLE III
DELIVERY OF MERGER CONSIDERATION;
CONVERSION OF EQUITY AWARDS
Section 3.01
Exchange Fund
.
(a)
Exchange Agent
. Prior to the Merger Effective Time, RMT Parent shall appoint Computershare Trust Company, NA (or another nationally recognized commercial bank or trust company mutually agreed to by LMC and RMT Parent) to act as exchange agent
(the
Exchange Agent
) for the delivery of the Merger Consideration in accordance with
Article II
and this
Article III
. RMT Parent shall deposit, or shall cause to be deposited, with the Exchange Agent, for the benefit
of the holders of Spinco Shares, for exchange in accordance with
Section
2.04
and this
Article III
promptly after the Merger Effective Time, book-entry shares representing the Merger Consideration issuable to holders of Spinco
Shares as of the Merger Effective Time pursuant to
Section 2.04(a)
(such book-entry shares of RMT Parent Common Stock, together with any dividends or distributions with respect thereto pursuant to
Section 3.01(c)
and other
amounts payable in accordance with
Section 3.01(e)
, the
Exchange Fund
). The Exchange Agent shall, pursuant to irrevocable instructions from RMT Parent delivered to the Exchange Agent as of the Closing, deliver the
Merger Consideration out of the Exchange Fund as contemplated by this Agreement. The cash portion of the Exchange Fund shall be invested by the Exchange Agent as directed by RMT Parent. Any interest or other income from such investments of the
Exchange Fund shall be paid to and become income of RMT Parent. Except as contemplated by
Section 3.01(g)
, the Exchange Fund shall not be used for any purpose other than as specified in this
Section 3.01(a)
.
(b)
Exchange Procedures
.
(i)
As promptly as practicable after the Merger Effective Time, RMT Parent shall cause the Exchange Agent to distribute the shares of RMT Parent Common Stock into which the shares of Spinco Common Stock that were distributed in the Distribution have
been converted pursuant to the Merger to the Persons who received Spinco Common Stock in the Distribution. Each Person entitled to receive Spinco Common Stock in the Distribution shall be entitled to receive in respect of the shares of Spinco Common
Stock distributed to such Person a book-entry authorization representing the number of whole shares of RMT Parent Common Stock that such holder has the right to receive pursuant to this
Section 3.01(b)
(and cash in lieu of fractional
shares of RMT Parent Common Stock, as contemplated by
Section 3.01(e)
, together with any dividends or distributions and other amounts pursuant to
Section 3.01(c)
). The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to RMT Parent Common Stock held by it from time to time hereunder, except as contemplated by
Section 3.01(c)
.
(ii) Until exchanged as contemplated by this
Section 3.01
, each Spinco Share shall be deemed at all times after the Merger
Effective Time to represent only the right to receive upon surrender of such Spinco Share, without interest, the Merger Consideration, cash in lieu of any fractional shares of RMT Parent Common Stock that the holder of such Spinco Share may be
entitled to receive pursuant to
Section 3.01(e)
and any dividends or other distributions such holder is entitled to receive pursuant to
Section 3.01(c)
.
(c)
Distributions with Respect to Undistributed Shares of RMT Parent Common Stock
. No dividends or other distributions declared after the Merger
Effective Time with respect to RMT Parent Common Stock shall be paid with respect to any shares of RMT Parent Common Stock that are not able to be distributed by the Exchange Agent promptly after the Merger Effective Time, whether due to a legal
impediment to such distribution or otherwise. Subject to the effect of abandoned property, escheat or other Applicable Laws, following the distribution of any such
A-5
previously undistributed shares of RMT Parent Common Stock, there shall be paid to the record holder of such shares of RMT Parent Common Stock, without interest, (i) at the time of the
distribution, the amount of cash payable in lieu of a fractional share of RMT Parent Common Stock to which such holder may be entitled pursuant to
Section 3.01(e)
and the amount of dividends or other distributions with a record date
after the Merger Effective Time theretofore paid with respect to such whole shares of RMT Parent Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Merger
Effective Time but prior to the distribution of such whole shares of RMT Parent Common Stock and a payment date subsequent to the distribution of such whole shares of RMT Parent Common Stock.
(d)
No Further Rights in Spinco Common Stock
. All shares of RMT Parent Common Stock issued upon the exchange of Spinco Common Stock in accordance
with the terms of
Article II
and this
Article III
(including any cash paid pursuant to
Section 3.01(c)
or
Section 3.01(e)
) shall be deemed to have been issued or paid, as the case may be, in full satisfaction of
all rights pertaining to the shares of Spinco Common Stock.
(e)
No Fractional Shares
. No certificates or scrip representing fractional
shares of RMT Parent Common Stock or book-entry credit of the same shall be issued upon the surrender for exchange of Spinco Common Stock, and such fractional share interests will not entitle the owner thereof to vote, or to any other rights of a
stockholder of RMT Parent. All fractional shares of RMT Parent Common Stock that a holder of shares of Spinco Common Stock otherwise would be entitled to receive as a result of the Merger shall be aggregated by the Exchange Agent. The Exchange Agent
shall cause the whole shares obtained thereby to be sold on behalf of such holders of shares of Spinco Common Stock who otherwise would be entitled to receive such fractional shares of RMT Parent Common Stock in the Merger, in the open market or
otherwise, in each case at then-prevailing market prices, and in no case later than five Business Days after the Merger Effective Time. The Exchange Agent shall pay the net proceeds thereof, subject to the deduction of the amount of any withholding
Taxes as contemplated in
Section 3.01(i)
and brokerage charges, commissions and Transfer Taxes, on a
pro rata
basis, without interest, as soon as practicable to the holders of Spinco Common Stock that otherwise would be entitled
to receive such fractional shares of RMT Parent Common Stock in the Merger. The payment of cash in lieu of fractional shares of RMT Parent Common Stock to holders of Spinco Common Stock is solely for the purpose of avoiding the expense and
inconvenience to RMT Parent of issuing fractional shares and does not represent separately bargained for consideration.
(f)
Adjustments to
Exchange Ratio
. The Exchange Ratio shall be adjusted to reflect appropriately the effect of any stock split, reverse stock split, subdivision, stock dividend (including any dividend or distribution of securities convertible into RMT Parent
Common Stock or Spinco Common Stock), extraordinary cash dividends (other than the RMT Parent Special Dividend), reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to RMT Parent
Common Stock or Spinco Common Stock (other than, in the case of Spinco Common Stock, to the extent contemplated in the Separation Agreement) with a record date occurring on or after the date of this Agreement and prior to the Merger Effective Time,
other than the issuance of stock by Spinco in connection with the Separation, the Spinco Special Cash Payment, or the other Contemplated Transactions;
provided
that nothing in this
Section 3.01(f)
shall be construed to permit
Spinco, RMT Parent or Merger Sub to take any action with respect to its securities that otherwise is prohibited by the terms of this Agreement.
(g)
Termination of Exchange Fund
. Any portion of the Exchange Fund (including proceeds of any investment thereof) that remains undistributed to the former holders of Spinco Shares on the one-year anniversary of the Merger Effective Time shall,
subject to any abandoned property, escheat or similar law, be delivered to RMT Parent, upon demand, and any former holders of Spinco Shares who have not theretofore received shares of RMT Parent Common Stock in accordance with this
Article
III
shall thereafter look only to RMT Parent for the Merger Consideration to which they are entitled pursuant to
Section 2.04(a)
, any cash in lieu of fractional shares of RMT Parent Common Stock to which they may be entitled pursuant
to
Section 3.01(e)
and any dividends or other distributions with respect to the RMT Parent Common Stock to which they may be entitled pursuant to
Section 3.01(c)
(subject to any abandoned property, escheat or similar law).
(h)
No Liability
. None of RMT Parent, LMC, Spinco, Merger Sub, the Surviving Corporation or the Exchange Agent shall be liable to any Person
for any portion of the Exchange Fund (or dividends or distributions with respect to RMT Parent Common Stock) or any cash delivered to a public official in accordance with any applicable abandoned property, escheat or similar law.
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(i)
Withholding Rights
. Each of the Surviving Corporation, the Exchange Agent, and RMT Parent shall
be entitled to deduct and withhold from any amounts otherwise payable pursuant to this Agreement such amount as it is required to deduct and withhold with respect to the making of such payment under Applicable Law. To the extent that amounts are so
withheld, such withheld amounts shall be treated for purposes of this Agreement as having been paid to the Persons otherwise entitled thereto in respect of which such deduction and withholding was made.
Section 3.02
Stock Transfer Books
.
From and after the Merger Effective Time, the stock transfer books of Spinco shall be closed and there shall be no further registration of transfers of
Spinco Shares thereafter on the books or records of Spinco.
Section 3.03
No Appraisal Rights
.
In accordance with Section 262 of the DGCL, no appraisal rights shall be available to holders of Spinco Shares in connection with the Merger.
Section 3.04
Treatment of LMC Equity Awards
.
(a)
Stock Options
. Each LMC Stock Option held by a Spinco Business Employee or Former Spinco Business Employee and outstanding as of the Merger
Effective Time, without any action on the part of any Party or the Spinco Business Employee or Former Spinco Business Employee, shall remain outstanding as an option to acquire shares of LMC Common Stock and shall be governed by the terms and
conditions of the applicable LMC IPAP and the relevant award agreement in respect thereof.
(b)
Restricted Stock Units
. Each LMC Restricted
Stock Unit in respect of an award made by LMC prior to January 1, 2016 that is held by a Spinco Business Employee and outstanding as of the Merger Effective Time, without any action on the part of any Party or the Spinco Business Employee,
shall fully vest, and shall be converted into shares of LMC Common Stock, in accordance with the terms and conditions of the LMC 2011 IPAP and the relevant award agreement in respect thereof. Each LMC Restricted Stock Unit in respect of an award
made by LMC on or after January 1, 2016, without any action on the part of any Party or the Spinco Business Employee, shall be converted into RMT Parent RSUs on the same terms and conditions that governed such LMC Restricted Stock Unit
immediately prior to the Merger Effective Time (including in respect of the preservation of Deferred Dividend Equivalents (as defined in the LMC 2011 IPAP)), as set forth in the LMC 2011 IPAP and the relevant award agreement in respect thereof,
except that the number of RMT Parent RSUs into which each LMC Restricted Stock Unit shall be converted will equal the RSU Conversion Ratio.
(c)
Performance Share Units
. Each LMC Performance Share Unit held by a Spinco Business Employee and outstanding as of the Merger Effective Time, without any action on the part of any Party or the Spinco Business Employee, shall remain outstanding
as an LMC Performance Share Unit, shall be eligible to partially vest at the end of the applicable vesting period in accordance with the terms and conditions of the LMC 2011 IPAP and the relevant award agreement in respect thereof, and shall be
entitled to receive shares of LMC Common Stock at the end of the applicable vesting period based on the terms and conditions of the LMC IPAP and the relevant award agreement in respect thereof.
(d)
Miscellaneous
. The Parties shall take all actions reasonably necessary to give effect to the provisions of this Section 3.04. In
furtherance and without limiting the generality of the foregoing, RMT Parent shall prepare and file with the SEC a registration statement or statements registering a number of shares of RMT Parent Common Stock necessary to fulfill RMT Parents
obligations under this
Section 3.04
.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LMC AND SPINCO
Except as otherwise disclosed or identified in (i) the LMC SEC Documents filed with or furnished to the SEC prior to the date of this Agreement,
but excluding any risk factor disclosure and disclosure of risks included in any forward
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looking statements disclaimer or other statement included in such LMC SEC Documents to the extent they are predictive or forward looking in nature or (ii) the LMC Disclosure Letter,
LMC and Spinco, jointly and severally, hereby represent and warrant to RMT Parent and Merger Sub as follows:
Section 4.01
Corporate
Existence and Power
.
Each of LMC and Spinco is a corporation duly incorporated, validly existing and in good standing under the corporation
laws of its respective jurisdiction of incorporation and has all corporate power and authority to own its properties and carry on its business as conducted. As of the Closing Date, each Transferred Subsidiary (other than Spinco) will be duly
incorporated or formed, validly existing and in good standing (to the extent such concept is recognized in the relevant jurisdiction of organization) under the Applicable Laws of its respective jurisdiction of organization and will have all
corporate power and authority to own its properties and carry on its business as conducted.
Section 4.02
Corporate Authorization
.
(a) Each of LMC and Spinco has the necessary corporate power and authority to enter into this Agreement, to carry out its obligations hereunder and to
consummate the Contemplated Transactions. Each LMC Entity and each Transferred Subsidiary has the necessary corporate power and authority to enter into each Transaction Document to which it is or will be a party, to carry out its obligations
thereunder and to consummate the Contemplated Transactions. The execution and delivery by LMC and Spinco of this Agreement, the performance by LMC and Spinco of their respective obligations hereunder and the consummation by LMC and Spinco of the
Contemplated Transactions have been duly authorized by all requisite corporate action on the part of LMC and Spinco, except for (x) such further action of the LMC Board required, if applicable, to determine the nature of the Distribution, to
establish the Record Date and the Distribution Date, (y) the effectiveness of the declaration of the Distribution by the LMC Board (which is subject to the satisfaction or, to the extent permitted by Applicable Law, waiver of the conditions set
forth in the Separation Agreement), and (z) the Spinco Stockholder Consent.
(b) The execution and delivery by each Retained LMC Entity and
each Transferred Subsidiary of each Transaction Document to which it is or will be a party, the performance by each Retained LMC Entity and each Transferred Subsidiary of their respective obligations thereunder and the consummation by each Retained
LMC Entity and each Transferred Subsidiary of the Contemplated Transactions either have been or will be duly authorized by all requisite corporate or similar action on the part of each Retained LMC Entity and each Transferred Subsidiary.
(c) This Agreement has been duly executed and delivered by LMC and Spinco, and (assuming due authorization, execution and delivery by the other Parties)
this Agreement constitutes a legal, valid and binding obligation of LMC and Spinco, enforceable against LMC and Spinco in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar Applicable Laws relating to or affecting creditors rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity).
Each Transaction Document will be duly executed and delivered by each Retained LMC Entity and each Transferred Subsidiary party thereto, and (assuming due authorization, execution and delivery by the other parties thereto) each Transaction Document
will constitute, a legal, valid and binding obligation of each Retained LMC Entity and each Transferred Subsidiary party thereto or contemplated to be party thereto, enforceable against each such Retained LMC Entity or Transferred Subsidiary in
accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Applicable Laws relating to or affecting creditors rights generally and subject to
the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity).
Section 4.03
Capital
Structure of Spinco
.
(a) As of the date hereof, the authorized capital stock of Spinco consists of 1,000 Spinco Shares and 100 Spinco Shares
are issued and outstanding. Immediately following the Distribution, the number of Spinco Shares shall equal the number of shares contemplated by
Section 2.04(d)
of this Agreement and Section 3.03 of the Separation Agreement, and the
number of authorized Spinco Shares shall exceed that number.
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(b) Except in connection with the Merger and as provided for in the Separation Agreement, (i) there
are no options, warrants, convertible debt, other convertible instruments or other rights, agreements, arrangements or commitments of any character (A) relating to the issued or unissued capital stock of Spinco or (B) obligating Spinco to
issue, grant, extend or enter into any such option, warrant, convertible debt, other convertible instrument or other right, agreement, arrangement or commitment, and (ii) there are no outstanding contractual obligations of Spinco to repurchase,
redeem or otherwise acquire any shares of capital stock of, or other equity interests in, Spinco or to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in any other Person. All outstanding shares of
Spinco Common Stock are, and all such shares of Spinco Common Stock which may be issued prior to the Merger Effective Time in accordance with the terms of this Agreement and the Separation Agreement will be when issued, duly authorized, validly
issued, fully paid and non-assessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any Contracts or any provision of the
charter or bylaws of Spinco.
(c) There are no outstanding bonds, debentures, notes or other indebtedness of Spinco having the right to vote (or
convertible into or exercisable for securities having the right to vote) on any matters on which stockholders of Spinco may vote.
(d) Spinco is a
direct, wholly owned Subsidiary of LMC. The copies of the charter and bylaws of Spinco that previously were furnished or made available to RMT Parent are true, complete and correct copies of such documents as in effect on the date of this Agreement.
Section 4.04
Transferred Subsidiaries and LMC JV Interests
.
(a) As of the Merger Effective Time, (i) Spinco or another Transferred Subsidiary will own, directly or indirectly, equity interests in the
Transferred Subsidiaries (other than Spinco), in substantially the manner set forth in
Section 4.04
of the LMC Disclosure Letter, in each case, free and clear of all Liens other than restrictions imposed by applicable securities laws and
regulations, (ii) all equity interests in the Transferred Subsidiaries will have been duly authorized, validly issued, fully paid and non-assessable, and (iii) there will be no outstanding options, warrants, convertible debt, other
convertible instruments or other rights, agreements, arrangements or commitments of any character (A) relating to the equity interests in the Transferred Subsidiaries or (B) obligating any Transferred Subsidiary to issue, grant, extend or
enter into any such option, warrant, convertible debt, other convertible instrument or other right, agreement, arrangement or commitment.
(b) At
the Merger Effective Time, to the knowledge of LMC and the Spinco Business, subject to the terms and conditions of such respective limited liability company agreements made available to RMT Parent prior to the date of this Agreement, (i) the
LMC JV Interests will have been duly authorized, validly issued, fully paid and non-assessable, and (ii) there will be no outstanding options, warrants, convertible debt, other convertible instruments or other rights, agreements, arrangements
or commitments relating to the LMC JV Interests. As of the date of this Agreement, to the knowledge of LMC, subject to the terms and conditions of such respective limited liability company agreements made available to RMT Parent prior to the date of
this Agreement, there are no outstanding options, warrants, convertible debt, other convertible instruments or other rights, agreements, arrangements or commitments obligating any JV Entity to issue, grant, extend or enter into any such option,
warrant, convertible debt, other convertible instrument or other right, agreement, arrangement or commitment.
(c) Except for its interests in the
Transferred Subsidiaries (other than Spinco) and the JV Entities, as of the Merger Effective Time, Spinco will not own, directly or indirectly, any capital stock of, or other equity or voting interest in, any Person.
(d) Prior to the Merger Effective Time, true, complete and correct copies of the articles or certificate of incorporation and bylaws (or similar
organizational documents) of the Transferred Subsidiaries (other than Spinco) and the JV Entities will be furnished or made available to RMT Parent.
Section 4.05
No Conflict; Board and Stockholder Approval
.
(a) Assuming that all consents, approvals, authorizations and other actions described herein or set forth in
Section 4.05
of the LMC
Disclosure Letter have been obtained, all filings and notifications listed in
Section 4.06
or in
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Section 4.06
of the LMC Disclosure Letter have been made, any applicable waiting period has expired or been terminated and any applicable approval or authorization has been obtained
under the Antitrust Laws, and except as may result from any facts or circumstances relating solely to RMT Parent or its Affiliates, the execution, delivery and performance by LMC and Spinco of this Agreement does not, and the execution, delivery and
performance by each Retained LMC Entity and each Transferred Subsidiary of the Transaction Documents to which it is contemplated to be a party will not, (i) contravene or conflict with the articles or certificate of incorporation or bylaws (or
similar organizational documents) of LMC, any Retained LMC Entity or any Transferred Subsidiary, (ii) (A) contravene, conflict with or violate any Applicable Law or Governmental Order applicable to LMC, any Retained LMC Entity or any
Transferred Subsidiary, (B) contravene, conflict with, result in any breach of, constitute a default (or an event which, with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to
others any rights of termination, acceleration or cancellation of, any Spinco Material Contract or any other contract to which LMC, any Retained LMC Entity or any Transferred Subsidiary is a party or by which any of their respective properties or
assets is bound or (C) (1) result in the creation or the imposition of (y) any Lien upon any of the Transferred Assets (other than a Permitted Lien) or (z) any Lien upon any of the capital stock of the Transferred Subsidiaries or
(2) result in the cancellation, modification, revocation or suspension of any material license or permit, authorization or approval issued or granted by any Governmental Authority in respect of the Transferred Assets or the Transferred
Subsidiaries, except in any such case as would not reasonably be expected to (I) materially and adversely affect the ability of LMC or Spinco to carry out its obligations under, and to consummate the Contemplated Transactions or (II) otherwise
have a Spinco Material Adverse Effect.
(b) The LMC Board, by resolutions adopted at a meeting duly called and held and not subsequently rescinded
or modified in any way, has approved this Agreement and the Separation Agreement and the transactions contemplated hereby and thereby, and has recommended the approval by the sole stockholder of Spinco of the Merger. The Spinco Board, by resolutions
adopted at a meeting duly called and held and not subsequently rescinded or modified in any way, has determined that the Merger and this Agreement are advisable and has approved this Agreement and the Separation Agreement and the transactions
contemplated hereby and thereby, and has recommended the approval by LMC, as the sole stockholder of Spinco, of the Merger. No fair price, moratorium, control share acquisition, business combination,
interested stockholder, stockholder protection or similar anti-takeover law applicable to LMC or Spinco under Applicable Law applies to the Agreement, the Merger or any other Contemplated Transactions.
(c) The affirmative vote of the holders of a majority of the voting power of the shares of common stock of Spinco is the only vote of the holders of any
class or series of Spincos capital stock necessary to adopt this Agreement or consummate the Contemplated Transactions. LMC is the sole stockholder of record of Spinco. LMC shall, in its capacity as sole stockholder of Spinco, adopt this
Agreement and approve the Merger by written consent as soon as practicable following execution and delivery of this Agreement (the
Spinco Stockholder Consent
).
Section 4.06
Governmental Consents and Approvals
.
Except as set forth in
Section 4.06
of the LMC Disclosure Letter, the execution, delivery and performance by LMC and Spinco of this
Agreement and the execution, delivery and performance by each LMC Entity and each Transferred Subsidiary of each Transaction Document to which it is contemplated to be a party do not require any consent, approval, authorization or other order or
declaration of, action by, filing with or notification to, any Governmental Authority, other than (a) compliance with, and filings under, the HSR Act or any other applicable Antitrust Laws, (b) the filing and recordation of the Certificate
of Merger with the Secretary of State of the State of Delaware in accordance with
Section 2.02
, (c) the filing with the SEC of the Registration Statements and, if applicable, Schedule TO, and such other compliance with the Exchange
Act and the Securities Act as may be required in connection with the Contemplated Transactions, (d) compliance with any applicable requirements and filings with DSS under the NISPOM, (e) where the failure to obtain such consent, approval,
authorization or action, or to make such filing or notification, would not reasonably be expected to prevent or materially delay the consummation by LMC or Spinco of the Contemplated Transactions or would not reasonably be expected to have a Spinco
Material Adverse Effect, (f) consents, approvals, authorizations or other similar orders or declarations of, actions by, filings with, or notifications to, any Governmental Authority relating to the Internal Reorganization, including those that
have been identified on
Section 4.06
of the LMC Disclosure Letter, (g) filings with the United States Department of States Directorate of Defense Trade Controls in accordance with Section 122.4 of the ITAR,
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including a filing pursuant to ITAR Section 122.4(a) to be submitted five days after Closing, or (h) as a result of any facts or circumstances relating to RMT Parent or any of its
Affiliates.
Section 4.07
Financial Information; Financings
.
(a)
Section 4.07(a)(1)
of the LMC Disclosure Letter sets forth the unaudited combined statements of operations for the years ended
December 31, 2014 and 2015 and unaudited combined balance sheets as of December 31, 2014 and 2015 of the Spinco Business (collectively, the
Spinco Financial Statements
). The Spinco Financial Statements have been prepared
in accordance with GAAP, except as described on
Section 4.07(a)(2)
of the LMC Disclosure Letter, applied on a consistent basis, for segment reporting information in the consolidated financial statements of LMC and do not include all
statements, information (including allocations of overhead expenses pushdown of certain corporate assets and liabilities such as Taxes) and notes required by GAAP for complete financial statements. The Spinco Financial Statements have been prepared
using the accounting policies and practices, applied on a consistent basis, disclosed in the audited annual consolidated financial statements included in the Annual Report on Form 10-K of LMC for the year ended December 31, 2014. The Spinco
Financial Statements present fairly, in all material respects, the combined financial position and the combined results of operations of the Spinco Business as a segment of LMC, as of the respective dates thereof or the periods then ended, in each
case except as may be noted therein.
(b) When delivered pursuant to
Section 7.16
, the Spinco Audited Financial Statements shall present
fairly, in all material respects, the combined financial position and the combined results of operations of the Spinco Business as of the dates thereof or for the periods covered thereby, and will have been prepared in accordance with GAAP
consistently applied based on the historic practices and accounting policies of LMC to the extent compliant with GAAP (it being understood, however, that the Spinco Business has not been operating historically as a separate standalone
entity or reporting segment and, therefore, the Spinco Audited Financial Statements will reflect certain adjustments necessary to be presented on a stand-alone basis in accordance with GAAP and SEC requirements). The Spinco Audited Financial
Statements shall conform in all material respects to the published rules and regulations of the SEC applicable to financial statements for each of the periods that will be required to be included in the Registration Statement, the Proxy Statement
or, if applicable, the Schedule TO.
(c) Except (i) as set forth in the Spinco Financial Statements or the notes thereto, (ii) as
specifically contemplated by this Agreement or the other Transaction Documents, or (iii) as set forth in
Section 4.07(c)
of LMC Disclosure Letter, since December 31, 2015, the LMC Entities and the Transferred Subsidiaries have
not incurred any Liabilities that will be liabilities of Spinco or the Transferred Subsidiaries as an Assumed Liability pursuant to the Separation Agreement and that are of a nature that would be required to be disclosed on a combined balance sheet
of the Spinco Business or in the notes thereto prepared in conformity with GAAP, other than Liabilities incurred in the ordinary course of business or Liabilities that would not reasonably be expected to have a Spinco Material Adverse Effect.
(d) LMC maintains, and has maintained, a standard system of accounting established and administered in accordance with GAAP applied on a consistent
basis. LMC and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial statements of LMC in conformity with GAAP applied on a consistent basis and to maintain accountability for assets, (iii) access to assets is permitted only in
accordance with managements general or specific authorizations and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
To the knowledge of LMC, since December 31, 2015, neither LMC nor any of its Subsidiaries nor the JV Entities has identified or been made aware of any material illegal act or fraud related to the business of the Spinco Business.
(e) LMC has timely filed all certifications and statements required by (i) Rule 13a-14 or Rule 15d-14 under the Exchange Act or (ii) 18 U.S.C.
Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) with respect to all applicable LMC SEC Documents. LMC maintains disclosure controls and procedures required by Rule 13a-15 or Rule 15d-15 under the Exchange Act, and such controls and
procedures are effective to ensure that all material information concerning LMC and its Subsidiaries is made known on a timely basis to the individuals responsible for the preparation of LMCs SEC filings and other public disclosure documents.
As used in this
Section 4.07
, the term filed shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC.
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(f) LMC has delivered to RMT Parent a true, complete and fully executed copy of a commitment letter,
including (i) all exhibits, schedules, attachments and amendments to such commitment letter in effect as of the date of this Agreement and (ii) any associated fee letters (together, the
Spinco Commitment Letter
) from
Citigroup Global Markets Inc. (
CGMI
), The Bank of Tokyo-Mitsubishi UFJ, Ltd. (
BTMU
), Bank of America, N.A. (
BoA
), Merrill Lynch, Pierce, Fenner & Smith Incorporated
(
MLPFS
), JPMorgan Chase Bank, N.A. (
JPMCB
), J.P. Morgan Securities, LLC (
JPMS
) and Goldman Sachs Bank USA (
GS
) (CGMI, BTMU, BoA, MLPFS, JPMCB, JPMS and GS, together with all
additional lenders and financing sources added to the Spinco Commitment Letter or any Alternative Spinco Commitment Letter, the
Spinco Lenders
), pursuant to which, among other things, the Spinco Lenders have committed to Spinco to
provide, or cause to be provided, to Spinco debt financing in the aggregate amount set forth therein (the bank and/or bond financings, in each case contemplated by the Spinco Commitment Letter, being referred to as the
Spinco
Financing
). As of the date of this Agreement, (x) the Spinco Commitment Letter has not been amended, waived or modified and (y) the respective commitments contained in the Spinco Commitment Letter have not been withdrawn,
modified or rescinded in any respect. Except for the Spinco Commitment Letter (together with all ancillary documents referenced therein), there are no side letters or other contracts, instruments or other commitments, obligations or arrangements
(whether written or oral) related to the funding of the full amount of the Spinco Financing.
(g) The Spinco Commitment Letter, in the form so
delivered, is in full force and effect and is a legal, valid and binding obligation of Spinco and, to the knowledge of LMC and Spinco, the other parties thereto (in each case, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors rights and remedies generally and to general principles of equity). As of the date of this Agreement (assuming the accuracy of the representations and warranties and undertakings of RMT Parent and Merger
Sub under this Agreement for such purpose), no event has occurred that, with or without notice, lapse of time or both, would reasonably be expected to constitute a default or breach on the part of Spinco under any term or condition of the Spinco
Commitment Letter. Other than as set forth in the Spinco Commitment Letter, there are no conditions precedent to the funding of the full amount of the Spinco Financing. As of the date of this Agreement, and subject to the satisfaction of all the
conditions set forth in
Section 8.01
and
Section 8.02
, Spinco has no reason to believe that any of the conditions to the Spinco Financing that are required to be satisfied by it or any other party to the Spinco Commitment
Letter as a condition to the obligations under the Spinco Commitment Letter will not be satisfied on a timely basis or that the Spinco Financing contemplated by the Spinco Commitment Letter will not be available to Spinco immediately prior to, or
on, the Distribution Date.
Section 4.08
Absence of Certain Changes
.
Since December 31, 2015, there has not occurred any Spinco Material Adverse Effect.
Section 4.09
Litigation
.
Except as set
forth in
Section 4.09
of the LMC Disclosure Letter, there is no Proceeding by or against LMC or its Subsidiaries or any JV Entity and specifically relating to the Spinco Business pending or, to the knowledge of LMC, threatened in writing that
would reasonably be expected to have a Spinco Material Adverse Effect or would reasonably be expected to prevent or materially delay the consummation by LMC or Spinco of the Contemplated Transactions.
Section 4.10
Registration Statements; Proxy Statement; Schedule TO
.
The information supplied by LMC specifically for inclusion or incorporation by reference in the Registration Statements and the Proxy Statement and, if
applicable, the Schedule TO and any other filing contemplated by
Section 7.01
, shall not, at (a) the time each Registration Statement is declared effective, (b) the time the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to the stockholders of RMT Parent, (c) the time of the RMT Parent Stockholders Meeting, (d) the time the Schedule TO is filed with the SEC or (e) the Merger Effective Time, contain any untrue
statement of a material fact or fail to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. All documents that LMC and
Spinco are responsible for filing with the SEC in connection with the Contemplated Transactions will comply as to form and substance in all material respects with the applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and
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regulations thereunder. Notwithstanding the foregoing, no representation is made by LMC in respect of any information provided by RMT Parent or Merger Sub specifically for inclusion or
incorporation by reference into the Registration Statements, the Proxy Statement or, if applicable, the Schedule TO.
Section 4.11
Compliance with Laws
.
Since January 1, 2013, LMC and its Subsidiaries have conducted the Spinco Business in all material respects in
compliance with all Applicable Laws and Governmental Orders applicable to the Spinco Business, and the Spinco Business is not in material violation of any such Applicable Law or Governmental Order. In connection with the Spinco Business, LMC and the
Transferred Subsidiaries have obtained and are, in all material respects, in compliance with all material Permits that are necessary to conduct the Spinco Business or to own, lease or operate the Transferred Assets. This
Section 4.11
does not apply with respect to the matters that are the subject of the representations and warranties set forth in
Section 4.14
,
Section 4.15
,
Section 4.16
,
Section 4.18
,
Section 4.21
or
Section 4.22
.
Section 4.12
Intellectual Property
.
(a) Except as set forth in
Section 4.12
of the LMC Disclosure Letter:
(i) With respect to all material patents and patent applications and registrations and applications for trademarks and copyrights
included in the Transferred Intellectual Property, the LMC Entities are the owners of each such item of Intellectual Property, and all such Intellectual Property is subsisting, and to the knowledge of LMC, except with respect to applications, is
valid and enforceable;
(ii) To the knowledge of LMC, the conduct of, and the use of the Transferred Intellectual Property and the
Licensed Intellectual Property in connection with, the Spinco Business as heretofore conducted does not conflict with, infringe upon, misappropriate or otherwise violate the Intellectual Property rights of any other Persons, except to the extent
that such conflict, infringement, misappropriation or violation has not had, and would not reasonably be expected to have, individually or in the aggregate, a Spinco Material Adverse Effect;
provided
that LMC makes no representation or
warranty hereunder with respect to any Intellectual Property owned and provided by a third party (other than LMC or any of its Affiliates) that is embedded or included in any such Transferred Intellectual Property or Licensed Intellectual Property;
(iii) To the knowledge of LMC, LMC and the other LMC Entities have taken reasonable measures to protect the confidentiality of all
Transferred Intellectual Property and Licensed Intellectual Property that is considered confidential or proprietary as of the date of this Agreement (except for such Transferred Intellectual Property or Licensed Intellectual Property whose value
would not reasonably be expected to be impaired in any material respect by disclosure), including entering into appropriate confidentiality agreements with Persons with access to such Transferred Intellectual Property or Licensed Intellectual
Property;
(iv) There is no (A) Proceeding initiated by any other Person pending or, to the knowledge of LMC, threatened in
writing against LMC or any other LMC Entity (1) concerning the matters described in
Section 4.12(a)(ii)
or (2) challenging the validity, enforceability or ownership of any material Transferred Intellectual Property or material
Licensed Intellectual Property;
provided
, in each case, that any Proceeding that has been initiated but with respect to which process or other comparable notice has not been served on or delivered to LMC or any LMC Entity shall be deemed to
be threatened rather than pending or (B) Governmental Order against LMC or any LMC Entity or settlement agreement that an LMC Entity is a party to or, to the knowledge of LMC, any other Governmental Order or settlement
agreement restricting in any material respect the use or exploitation of any material Transferred Intellectual Property or material Licensed Intellectual Property; and
(v) As of the date of this Agreement, and subject to the rights of third parties in Intellectual Property embedded or included in any
Transferred Intellectual Property and third parties having license rights in Transferred Intellectual Property, one of the LMC Entities is the sole and exclusive owner of all right, title and interest in and to all of the Transferred Intellectual
Property, and no current or former Affiliate (other than the Spinco Companies), partner, director, stockholder, officer, or employee of LMC or any of its Affiliates (other than the Spinco Companies) will, after giving effect to the Contemplated
Transactions, own or retain any proprietary rights in any of the material Transferred Intellectual Property.
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(b) Since January 1, 2013, to the knowledge of LMC, (i) there have been no security breaches in
the information technology systems of, used by or affecting the Spinco Business, and (ii) there have been no disruptions in any information technology systems that adversely affected the Spinco Business, except in each case, as has not had, or
would not reasonably be expected to have, individually or in the aggregate, a Spinco Material Adverse Effect.
(c) The LMC Entities, in connection
with the conduct of the Spinco Business, have, at all times since January 1, 2013, complied, in all material respects, with its own posted or otherwise binding privacy policies, relating to privacy, data protection, or the collection,
retention, protection and use of personal information (
PII
) collected, used, or held for use by or on behalf of the Spinco Business. No Proceedings have been asserted or, to the knowledge of LMC, threatened in writing against any
LMC Entity, alleging a material violation of any Persons privacy, personal information or data rights in relation to the conduct of the Spinco Business that would reasonably be expected to have a Spinco Material Adverse Effect. In connection
with the operation of the Spinco Business, the LMC Entities take commercially reasonable measures to protect PII against unauthorized access, use, modification, disclosure or other misuse.
(d) There is no IP License for which the termination thereof or the restriction or loss of rights thereunder would reasonably be expected to have a
Spinco Material Adverse Effect. Each IP License is valid and binding on the applicable LMC Entity and, to the knowledge of LMC, the counterparty thereto, and is in full force and effect, subject to the effect of any applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar Applicable Laws relating to or affecting creditors rights generally and subject to the effect of general principles of equity (regardless of whether considered in a
proceeding at law or in equity). No LMC Entity is in material breach of, or material default under, any IP License to which it is a party.
(e)
Notwithstanding anything in this Agreement to the contrary, the representations and warranties contained in
Section 4.05
,
Section 4.08
,
Section 4.09
,
Section 4.19(a)
and this
Section 4.12
are the only representations and warranties being made by LMC in this Agreement with respect to the validity of, the right to register, or any activity that constitutes infringement, misappropriation or other violation of, a third partys
Intellectual Property rights.
Section 4.13
Real Property
.
(a)
Section 4.13(a)
of the LMC Disclosure Letter sets forth, with respect to each parcel of material Spinco Leased Real Property as of the
date of this Agreement, the Contracts that provide an LMC Entity with such rights in or to Spinco Leased Real Property as of the date of this Agreement (collectively with the Contracts that provide each LMC Entity with such rights in or to such
Spinco Leased Real Property as of the Closing Date, the
Spinco Leases
), the address (or other identifying description) of such parcel and the identity of the lessor, lessee and current occupant (if different from lessee) of each
such parcel. Except to the extent disclosure is limited by the terms of any Spinco Lease, true, correct and complete copies of all material Spinco Leases existing as of the date of this Agreement have been provided to RMT Parent. The applicable LMC
Entity (i) has a valid and binding leasehold interest in each parcel of Spinco Leased Real Property existing as of the date of this Agreement and (ii) will have a valid and binding leasehold interest in each parcel of Spinco Leased Real
Property that will exist as of the Closing Date, in each case, free and clear of all Liens other than Permitted Liens.
(b) No LMC Entity, nor to
the knowledge of LMC, any counterparty to any Spinco Lease is in default in any material respects with respect to any obligation under the Spinco Leased Real Property. Except as otherwise indicated on
Schedule 4.13(a)
of the LMC Disclosure
Letter, no LMC Entity has subleased or granted to a third party any right to use or occupy all or any portion of the Spinco Leased Real Property.
(c)
Section 4.13(c)
of the LMC Disclosure Letter sets forth the address and parcel number of each parcel of Spinco Owned Real Property. An
LMC Entity has good and marketable fee simple title in and to each parcel of Spinco Owned Real Property, including all of the buildings and improvements thereon, free and clear of all Liens, other than Permitted Liens. There are no outstanding
options, rights of first offer or rights of first refusal to purchase any Spinco Owned Real Property or any portion thereof or interest therein. Other than pursuant to easements of record, no LMC Entity has leased or granted any right to use or
occupy all or any portion of a Spinco Owned Real Property to a third party. There is no condemnation or other proceeding in eminent domain pending or, to the knowledge of LMC, threatened, affecting the Spinco Owned Real Property or any portion
thereof or interest therein.
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Section 4.14
Employee Benefit Matters
.
(a)
U.S. LMC Plans and Material Documents
.
Section 4.14(a)
of the LMC Disclosure Letter lists, as of the date of this Agreement, all
material U.S. LMC Plans. U.S. LMC Plans shall mean: employee benefit plans (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (
ERISA
), whether or not subject to ERISA),
all bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other compensation or benefit plans, programs or arrangements, and all employment,
termination, severance, retention or other contracts or agreements, (i) to which an LMC Entity is a party, with respect to which an LMC Entity has any obligation or which are maintained, contributed to or sponsored by an LMC Entity, in each
case, for the benefit of any U.S. Spinco Business Employee or to which any U.S. Spinco Business Employee is a party or (ii) to which a Spinco Company is a party, with respect to which a Spinco Company has any obligation or which are maintained,
contributed to or sponsored by a Spinco Company, in each case, for the benefit of any U.S. Spinco Business Employee or to which any U.S. Spinco Business Employee is a party.
Section 4.14(a)
of the LMC Disclosure Letter indicates by an
asterisk those U.S. LMC Plans that are maintained, contributed to or sponsored solely by a Spinco Company (each, a
U.S. Spinco Plan
). With respect to each U.S. LMC Plan, LMC has made available to RMT Parent (to the extent
applicable) (i) a true and complete copy of the current plan document and any material amendments thereto, (ii) copies of (1) the most recent summary plan description and any summaries of material modifications thereto and
(2) the most recent annual report on Form 5500 (including any applicable schedules and attachments thereto) filed with the Department of Labor, and (iii) the most recent determination or opinion letter received from the IRS (if any).
(b)
Non-U.S. LMC Plans and Material Documents
.
Section 4.14(b)
of the LMC Disclosure Letter lists, as of the date of this Agreement,
all material Non-U.S. LMC Plans. Non-U.S. Spinco Plans shall mean employee benefit plans, bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance
or other compensation or benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements, (i) to which an LMC Entity is a party, with respect to which an LMC Entity has any obligation or
which are maintained, contributed to or sponsored by an LMC Entity, in each case, for the benefit of any Non-U.S. Spinco Business Employee or to which any Non-U.S. Spinco Business Employee is a party (other than statutory plans) or (ii) to
which a Spinco Company is a party, with respect to which a Spinco Company has any obligation or which are maintained, contributed to or sponsored by a Spinco Company, in each case, for the benefit of any Non-U.S. Spinco Business Employee or to which
any Non-U.S. Spinco Business Employee is a party (other than statutory plans) (LMC Plans shall mean U.S. LMC Plans and Non-U.S. LMC Plans).
Section 4.14(b)
of the LMC Disclosure Letter indicates by an asterisk those Non-U.S. LMC
Plans that are maintained, contributed to or sponsored solely by a Spinco Company (each, a
Non-U.S. Spinco Plan
). With respect to each Non-U.S. LMC Plan, LMC has made available to RMT Parent (to the extent applicable) (i) a
true and complete copy of the current plan document and any material amendments thereto and (ii) copies of the most recent summary plan description and any summaries of material modifications thereto.
(c) Except as set forth in
Section 4.14(c)
of the LMC Disclosure Letter, each LMC Plan (and any related trust or other funding vehicle) has
been administered in all material respects in accordance with its terms and as applicable is in compliance in all material respects with ERISA, the Code and all other material Applicable Laws. Each of LMC and its Subsidiaries is in compliance in all
material respects with ERISA, the Code and all other material Applicable Laws. All employer and employee contributions required to have been made by LMC to each U.S. LMC Plan have, in all material respects, been timely made. There is no material
Proceeding pending, or to the knowledge of LMC threatened, with respect to any U.S. Spinco Plan, other than ordinary course claims for benefits. Each U.S. Spinco Plan that is intended to be qualified under Section 401(a) of the Code has
received a favorable determination or opinion letter from the IRS, or an application for a favorable determination by the IRS has been timely filed and is currently pending, and, to the knowledge of LMC, nothing has occurred that would reasonably be
expected to result in a loss of the Tax-qualified status of such U.S. Spinco Plan under Section 401(a) of the Code. To the knowledge of LMC, no UK Spinco Business Employee has any claim or right in respect of any benefits payable on early
retirement or redundancy under any occupational pension scheme which claim or right has transferred to LMC or will transfer to Spinco on or after the Distribution Date pursuant to the Transfer Regulations.
(d) No Liability under Title IV or Section 302 of ERISA has been incurred by LMC or any Person that is a member of a controlled group of
corporations with, or is under common control with, or is a member of the same affiliated service group with LMC, in each case, as defined in Sections 414(b), (c), (m) or (o) of the Code (each, an
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ERISA Affiliate
) that has not been satisfied in full, and, to the knowledge of LMC, no condition exists that presents a material risk to LMC or any ERISA Affiliate of incurring
any such liability, other than liability for premiums due the Pension Benefit Guaranty Corporation (which premiums have been paid when due). No U.S. LMC Plan that is subject to Section 302 or Title IV of ERISA or Section 412 of the Code (a
Title IV Plan
) or any trust established thereunder has incurred any accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day
of the most recent fiscal year of each Title IV Plan ended prior to the Closing. Neither LMC nor any of its ERISA Affiliates has, within the preceding six years, withdrawn in a complete or partial withdrawal from any multiemployer plan
(as defined in Section 3(37) of ERISA) or incurred any liability under Section 4204 of ERISA that has not been satisfied in full.
(e)
Each Non-U.S. LMC Plan has been administered in compliance in all material respects with its terms and operated in compliance in all material respects with Applicable Laws. Each Non-U.S. LMC Plan required to be registered or approved by a non-U.S.
governmental entity has been so registered or approved and has been maintained in good standing with applicable regulatory authorities, and, to the knowledge of LMC, no event has occurred since the date of the most recent approval or application
therefor relating to any such Non-U.S. LMC Plan that could reasonably be expected to materially affect any such approval relating thereto or increase the costs relating thereto in a manner material to LMC. Each Non-U.S. LMC Plan is funded or insured
in material compliance with Applicable Law. LMCs Israeli Affiliated Transferors Liability towards the Israeli Employees regarding severance pay, accrued vacation and contributions to all Funds are fully funded or, if not required by any
source to be fully funded, are accrued on LMCs Israeli Affiliated Transferors financial statements as of the date of such financial statements. LMCs Israeli Affiliated Transferor specifically declares that the employment agreements
of all Israeli Employees duly adopted the terms and conditions detailed in the general approval of the Minister of Labor regarding payments by employers to a pension fund and insurance fund in lieu of severance pay in accordance with Section 14
of the Severance Pay Law, 1963 as of their start date of employment and based on their full determining salary for purposes of severance pay, and accordingly the LMC Israeli Affiliated Transferors contributions to the severance component
within the Funds of the Israeli Employees fully satisfy its severance pay liability towards the Israeli Employees for the period of their employment up to the Distribution Date.
(f) Except as set forth in
Section 4.14(f)(1)
of the LMC Disclosure Letter, none of the execution and delivery of the Transaction Documents,
the Internal Reorganization, the Distribution or the consummation of the Merger or any other Contemplated Transaction (alone or in conjunction with any other event, including any termination of employment) will (i) entitle any Spinco Business
Employee to any material compensation or benefit, (ii) accelerate the time of payment or vesting, or trigger any payment or funding, of any material compensation or benefit or trigger any other material obligation under any LMC Plan, or
(iii) result in any breach or violation of or default under, or limit LMCs right to amend, modify or terminate, any LMC Plan, in each case except as provided in this Agreement or the Employee Matters Agreement or pursuant to Applicable
Law. Except as disclosed in
Section 4.14(f)(2)
of the LMC Disclosure Letter, no amounts payable under the LMC Plans will fail to be deductible for federal income Tax purposes by virtue of Section 280G of the Code as a result of the
occurrence of the transactions contemplated by this Agreement, either alone or in combination with another event.
Section 4.15
Labor
Matters
.
Section 4.15
of the LMC Disclosure Letter lists, as of the date of this Agreement, each collective bargaining agreement or
similar labor agreement that is applicable to any Spinco Business Employee as of the date of this Agreement, including Union Employees, to which an LMC Entity (excluding, for the avoidance of doubt, the JV Entities) is a party, including
arrangements with works councils and other similar employee representative bodies representing any Spinco Business Employee (together with such collective bargaining agreements, the
LMC Union Contracts
). LMC complies in all
material respects with all such LMC Union Contracts. LMC has made available to RMT Parent each LMC Union Contract and, if not covered by such LMC Union Contracts, a list of all unions, works councils and similar employee representative bodies
representing any Spinco Business Employee. As of the date hereof, (a) there are no material strikes or lockouts with respect to any Union Employees pending, or to the knowledge of LMC, threatened in writing, (b) there is no material union
organizing effort pending or, to the knowledge of LMC, threatened in writing against the Spinco Business, (c) there is no material unfair labor practice, labor dispute (other than routine individual grievances) or labor arbitration proceeding
pending or, to the knowledge of LMC, threatened in writing affecting the Spinco Business and (d) there is no material slowdown, or work stoppage in effect or, to the knowledge of LMC, threatened in writing with respect to the Spinco Business
Employees, including Union
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Employees. Each of LMC and its Subsidiaries conduct, and since January 1, 2013 have conducted, the Spinco Business, in all material respects, in compliance with all material Applicable Laws
with respect to labor relations, employment and employment practices, including occupational safety and health standards. To the knowledge of LMC, as of the date of this Agreement, no Spinco Business Employee at a Level 8 or above is in material
violation of any term of any employment or nondisclosure agreement, fiduciary duty or restrictive covenant for the benefit of LMC or a former employer of any such employee.
Section 4.16
Taxes
. Except as set forth in
Section 4.16
of the LMC Disclosure Letter,
(a) all material Tax Returns required to have been filed by, or with respect to, the Transferred Subsidiaries have been timely filed (taking into
account any valid extension of time to file granted or obtained) and all such Tax Returns are true, correct and complete in all material respects;
(b) all material Taxes required to be paid on such Tax Returns have been paid in full or will be timely paid in full;
(c) no deficiency or other claim for any material amount of Tax has been asserted or assessed by a Governmental Authority in writing against any of the
Transferred Subsidiaries that has not been satisfied by payment, settled or withdrawn;
(d) there are no material Tax liens on any Transferred
Subsidiary (other than Permitted Liens);
(e) no Transferred Subsidiary has distributed stock of another Person or had its stock distributed by
another Person in a transaction (other than the Distribution or a transaction effected in connection therewith, including the Internal Reorganization) that was intended to be governed in whole or in part by Section 355 of the Code in the two
years prior to the date of this Agreement;
(f) none of LMC, its Subsidiaries or the Transferred Subsidiaries has taken or agreed to take any action
that would (and none of them is aware of any fact, event, agreement, plan or other circumstance that would) prevent either (i) the Merger or (ii) the Spinco Transfer and Distribution from qualifying as a reorganization within
the meaning of Section 368(a) of the Code or otherwise prevent the Tax-Free Status of the External Transactions;
(g) none of LMC, its
Subsidiaries or the Transferred Subsidiaries has participated in a listed transaction within the meaning of Treasury regulations section 1.6011-4; and
(h) none of the Transferred Subsidiaries is bound by any material agreement or arrangement the primary purpose of which relates to Taxes (other than
(i) such an agreement or arrangement exclusively between or among LMC and its Subsidiaries and (ii) the Tax Matters Agreement).
Section 4.17
Spinco Material Contracts
.
(a) Except as set forth in
Section 4.17
of the LMC Disclosure Letter and except for (x) Contracts that do not constitute Transferred
Assets or Assumed Liabilities, and (y) Government Contracts, which are covered in
Section 4.21
, as of the date of this Agreement, the LMC Entities, with respect to the Spinco Business, are not parties to or otherwise bound by or
subject to (Contracts of the following types, the
Spinco Material Contracts
):
(i) Contracts for the purchase of
products or for the receipt of services, the performance of which will extend over a period of one year or more and which involved payments by an LMC Entity in respect of the Spinco Business in excess of $10,000,000 in the aggregate during the
calendar year ended December 31, 2015;
(ii) Contracts for the furnishing of products or services by an LMC Entity, the
performance of which will extend over a period of one year or more and which involved payments to an LMC Entity in respect of the Spinco Business in excess of $10,000,000 in the aggregate during the calendar year ended December 31, 2015;
(iii) Contracts concerning the establishment or operation of a partnership, joint venture or limited liability company;
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(iv) each material Spinco Lease existing at the date of this Agreement;
(v) Spinco Subsidiary Acquisition Agreements;
(vi) Contracts containing (A) a covenant materially restricting the ability of any LMC Entity to engage in any line of business in
any geographic area or to compete with any Person, to market any product or to solicit customers, (B) a provision granting the other party most favored nation status or equivalent preferential pricing terms or (C) a provision
granting the other party exclusivity or similar rights, other than teaming or similar agreements entered into in the ordinary course of business where the restrictions apply solely to the Contract or pursuit that is the subject matter of the teaming
or similar agreement (and any extensions or recompetes in respect thereof) and other than as a result of an OCI clause; or
(vii)
indentures, credit agreements, loan agreements and similar instruments pursuant to which a Transferred Subsidiary has or will incur or assume any indebtedness for borrowed money or has or will guarantee or otherwise become liable for any
indebtedness of any other Person for borrowed money in excess of $5,000,000, other than any indentures, credit agreements, loan agreements or similar instruments solely between or among any Transferred Subsidiaries.
(b) LMC has made available to RMT Parent true, complete and correct copies of each Spinco Material Contract as in effect on the date of this Agreement.
Each Spinco Material Contract is valid and binding on the applicable LMC Entity and, to the knowledge of LMC, the counterparty thereto, and is in full force and effect, subject to the effect of any applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar Applicable Laws relating to or affecting creditors rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or
in equity). No LMC Entity is in material breach of, or material default under, any Spinco Material Contract to which it is a party.
(c) LMC has
made available to RMT Parent true, complete and correct copies of each Financial Support Arrangement set forth on
Section 7.07
of the LMC Disclosure Letter. Each such Financial Support Arrangement is valid and binding on the applicable
LMC Entity and is in full force and effect, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Applicable Laws relating to or affecting creditors rights generally
and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity). No LMC Entity is in material breach of, or material default under such Financial Support Arrangement to which it is a
party.
Section 4.18
Environmental Matters
.
(a) Except as disclosed on
Section 4.18
of the LMC Disclosure Letter, the Spinco Business is (and, to the knowledge of LMC and the Spinco
Business, its predecessor companies have been), in material compliance with all applicable Environmental Laws, and have obtained all Environmental Permits that are necessary to conduct the Spinco Business or to own, lease or operate the Transferred
Assets, except where such noncompliance or failure to have obtained such Environmental Permits has not had, or would not reasonably be expected to have, individually or in the aggregate, a Spinco Material Adverse Effect.
(b) Notwithstanding anything in this Agreement to the contrary, the representations and warranties contained in
Section 4.06
and, as such
relates to occupational health and safety standards,
Section 4.15
, and in this
Section 4.18
, are the only representations and warranties being made by LMC in this Agreement with respect to compliance with or Liability under
Environmental Laws or Environmental Permits or with respect to any environmental, health or safety matter related in any way to the Spinco Business, the Transferred Leased Real Property, the Spinco Owned Real Property or the Transferred Facilities.
Section 4.19
Sufficiency of Assets; Title
.
(a) Except as otherwise provided in this Agreement and in
Section 4.19
of the LMC Disclosure Letter, and after giving effect to the Internal
Reorganization, the Spinco Transfer and the employment of the Spinco Business Employees, together with the services and assets to be provided, the licenses to be granted and the other arrangements contemplated by the Transaction Documents, shall, in
the aggregate, constitute all of the assets and rights reasonably sufficient to conduct, in all material respects, the Spinco Business immediately after the Closing independent of LMC and its then Subsidiaries in substantially the same manner as
currently conducted by the LMC Entities.
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(b) The LMC Entities have, in all material respects, good and valid title to, or valid leases, licenses or
rights to use, all of the Transferred Assets, free and clear of all Liens, other than Permitted Liens (except with respect to the Spinco Owned Real Property and the Spinco Leased Real Property, which are the subject of the representations and
warranties set forth in
Section 4.13
).
Section 4.20
Brokers
.
Except for Goldman, Sachs & Co., J.P. Morgan Securities LLC and Houlihan Lokey Capital, Inc., no broker, finder or investment banker is
entitled to any brokerage, finders or other fee or commission in connection with the Contemplated Transactions based upon arrangements made by or on behalf of LMC or any of its Subsidiaries. LMC shall be solely responsible for the fees and
expenses of Goldman, Sachs & Co., J.P. Morgan Securities LLC and Houlihan Lokey Capital, Inc.
Section 4.21
Government
Contracts
. With respect to Government Contracts, Government Bids and Teaming Agreements that constitute Transferred Assets or Assumed Liabilities:
(a) Except as set forth in
Section 4.21(a)
of the LMC Disclosure Letter, the LMC Entities, with respect to the Spinco Business, are not
parties to or otherwise bound by or subject to (it being understood that Government Contracts or Government Bids the disclosure of or reference to which is prohibited by NISPOM or the comparable regulations of other Governmental Authorities are not
required to be listed on
Section 4.21(a)
of the LMC Disclosure Letter):
(i) any Current Government Contract where the
aggregate revenues during the calendar year ended December 31, 2015 were in excess of $30,000,000;
(ii) any material Government
Bid for which an award has not been issued where the anticipated annual revenues will be in excess of $30,000,000; or
(iii) any
material Teaming Agreement.
(b) Each Current Government Contract is in full force and effect and constitutes a legal, valid and binding agreement,
enforceable in accordance with its terms. To the Knowledge of LMC, each Current Government Contract was awarded in compliance with Applicable Law. LMC has not received written notice that any Current Government Contract or Government Bid is the
subject of protest proceedings.
(c) Except as set forth in
Section 4.21(c)
of the LMC Disclosure Letter, and solely to the extent
relating to the Spinco Business, (i) since January 1, 2013, LMC (or the Affiliated Transferor or Transferred Subsidiary) has complied and is in compliance in all material respects with all contract terms, conditions, provisions, and
requirements (whether stated or incorporated expressly, by reference, or by operation of law) and all requirements of Applicable Law pertaining to any Government Contract or Government Bid; (ii) since January 1, 2013, all representations,
certifications and statements made, executed, acknowledged or submitted, in each case in writing, to a Governmental Authority in connection with a Government Contract or Government Bid were materially current, accurate and complete as of their
respective effective dates; (iii) neither the U.S. Government nor any prime contractor, subcontractor or other Person has notified LMC (or the applicable Affiliated Transferor or Transferred Subsidiary) in writing that LMC (or the applicable
Affiliated Transferor or Transferred Subsidiary) has breached or violated any Applicable Law or contract term, condition, provisions, or requirement pertaining to such Current Government Contract that would reasonably be expected to adversely and
materially affect (A) the collectability of any receivable or (B) the award of Government Contracts in the future; and (iv) no termination for default, or cure notice or show cause notice, is currently in effect or, to LMCs
knowledge, currently threatened pertaining to any Current Government Contract, and, to LMCs knowledge, there is no fact or circumstance that is reasonably likely to give rise to a termination for default of any Current Government Contract.
(d) Except as set forth in
Section 4.21(d)
of the LMC Disclosure Letter, none of LMCs Principals (as defined in FAR 52.209-5)
with respect to the Government Contracts or Government Bids is or during the last three years has been (i) debarred, suspended or excluded from participation in, or the award of, Government Contracts or doing business with any Governmental
Authority, (ii) the subject of a finding of material non-compliance, non-responsibility or ineligibility for government contracting or for any reason is listed on the List of Parties Excluded from Federal
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Procurement and Nonprocurement Programs or (iii) currently proposed for, or has been subject to suspension, debarment or exclusion proceedings or threatened suspension, debarment or
exclusion proceedings.
(e) Except as set forth in
Section 4.21(e)
of the LMC Disclosure Letter, there are (i) no outstanding
claims, contract disputes for which the amount in dispute exceeds $500,000, or requests for equitable adjustment against any LMC Entity with respect to the Spinco Business by any Governmental Authority or by any prime contractor, higher or lower
tier subcontractor, vendor or other third party arising under or relating to any Government Contract and (ii) no outstanding material disputes with respect to the Spinco Business between any LMC Entity on the one hand, and a Governmental
Authority on the other hand, under the Contract Disputes Act or between any LMC Entity on the one hand, and any prime contractor, higher or lower tier subcontractor, vendor or other third party on the other hand, arising under or relating to any
such Government Contract or Government Bid.
(f) The cost accounting systems and business systems (as defined in Defense Federal Acquisition
Regulation Supplement 242.7001 & 252.242-7005) used by the Spinco Business and the associated entries reflected in the financial and business records of the Spinco Business with respect to Government Contracts and Government Bids are (and
since January 1, 2013 have been) in compliance in all material respects with Applicable Law, and (i) business systems have been approved, where applicable, by the Defense Contract Management Agency as adequate for accumulating and billing
costs under and otherwise for complying with Government Contracts, to the extent evaluated, and (ii) to the knowledge of LMC, such cost accounting systems are adequate to meet the standards promulgated by the Cost Accounting Standards Board
required for complying with the terms and conditions of the Government Contracts and Applicable Law.
(g) Except as set forth in
Section 4.21(g)
of the LMC Disclosure Letter, as of the date of this Agreement, with respect to the Spinco Business, (i) to the knowledge of LMC, there are no pending administrative, civil or criminal allegations, investigations,
audits, civil investigation demands, subpoenas or indictments by any Governmental Authority concerning any JV Entitys, LMCs or any other LMC Entitys Government Contracts. Except as set forth in
Section 4.21(g)
of the
LMC Disclosure Letter, and except where it has not had, or would not reasonably be expected to have, individually or in the aggregate, a Spinco Material Adverse Effect, during the past six years, neither LMC, nor, to the Knowledge of LMC, any of its
personnel (i) has made any disclosure to any Governmental Authority pursuant to any voluntary disclosure agreement or the FAR mandatory disclosure provisions (FAR 9.406-22(b)(1)(vi), 9.407-2(a)(8) & 52.203-13) in connection with any
Government Contract or Government Bid, (ii) has received credible evidence of a violation of federal criminal law involving the fraud, conflict of interest, bribery, or gratuity provisions found in Title 18 of the U.S. Code, a violation of the
civil False Claims Act, or a significant overpayment, in connection with the award, performance, or closeout of any Government Contract or receiving a Government Contract as a result of a Government Bid, or (iii) has initiated any formal
internal investigation into such matter or possible matter.
(h) Except as set forth in
Section 4.21(h)
of the LMC Disclosure Letter,
LMC has not received during the past three years, written notice of any government past performance evaluations or ratings of less than satisfactory in the Contractor Performance Assessment Reporting System in connection with the Government
Contracts.
(i) Except as set forth in
Section 4.21(i)
of the LMC Disclosure Letter, the Spinco Business has in the past three years
received a rating of satisfactory or better and complied in all material respects with all applicable requirements relating to the safeguarding of and access to classified information, including those specified in the National Industrial Security
Program Operating Manual. No notice of revocation, suspension or invalidation from the Defense Security Service or any other Governmental Authority has been issued as of the date hereof and remains unresolved with respect to any such facility
security clearance and, to the Knowledge of LMC, no event, condition or omission has occurred or exists that would constitute grounds for such action or notice.
Section 4.22
International Trade Laws and Regulations
.
(a) Since January 1, 2013, the LMC Entities and, to the knowledge of LMC, the JV Entities have conducted, in all material respects, the Spinco
Business in compliance with all International Trade Laws and Regulations, have not engaged in any transactions, or otherwise dealt with any country, or other Person with whom United States Persons are prohibited from dealing under applicable
International Trade Laws and Regulations, and have not participated directly or indirectly in any boycotts or other similar practices in violation of International Trade Laws and Regulations, and there are no Proceedings pending or, to the knowledge
of LMC, threatened between LMC or any of
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its Subsidiaries or, to the knowledge of LMC, the JV Entities and any Governmental Authority under any of the International Trade Laws and Regulations that would reasonably be expected to have a
Spinco Material Adverse Effect or would reasonably be expected to prevent or materially delay the consummation by LMC or Spinco of the Contemplated Transactions.
(b) LMC and, to the knowledge of LMC, the JV Entities have been and are registered with the Directorate of Defense Trade Controls, United States
Department of State, as an entity that engages in the United States in the business of either manufacturing or exporting defense articles or furnishing defense services, as those terms are defined in the ITAR, in connection
with the operation of the Spinco Business. Except as would not reasonably be expected to have a Spinco Material Adverse Effect, neither LMC nor any of its Subsidiaries has manufactured defense articles, exported defense
articles or furnished defense services or technical data to foreign nationals in the U.S. or abroad, as those terms are defined in 22 C.F.R. part 120, except pursuant to a valid license or other valid legal
authorization and otherwise in accordance with Applicable Law.
(c) Neither LMC nor any Representative of an LMC Entity and, to the knowledge of
LMC, nor any JV Entity has offered or given, with respect to the Spinco Business, and LMC has no knowledge of any Person that has offered or given on its behalf with respect to the Spinco Business, anything of value to (i) any official, member,
employer or customer of a Governmental Authority, any political party or official thereof, or any candidate for political office, (ii) any customer or member of the government or (iii) any other Person, in any such case while knowing or
having reason to know that all or a portion of such money or thing of value may be offered, given or promised, directly or indirectly, to any customer, member of the government or candidate for political office, in each case in violation of the
FCPA, laws and regulations by other countries implementing the OECD Convention on Combating Bribery of Foreign Officials or other Applicable Laws of similar effect.
Section 4.23
Disclaimer of LMC and Spinco
.
(a) EXCEPT AS EXPRESSLY SET FORTH IN THIS
ARTICLE IV
OR IN THE OTHER TRANSACTION DOCUMENTS, NONE OF LMC, SPINCO OR THEIR RESPECTIVE
REPRESENTATIVES MAKES OR HAS MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF THE SPINCO BUSINESS, THE TRANSFERRED SUBSIDIARIES, THE JV ENTITIES, THE CONTEMPLATED TRANSACTIONS OR ANY OF THE TRANSFERRED
ASSETS OR THE ASSUMED LIABILITIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE IV OR IN THE OTHER TRANSACTION DOCUMENTS, LMC, SPINCO AND THEIR RESPECTIVE REPRESENTATIVES HAVE NOT MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR
IN EQUITY, WITH RESPECT TO (I) THE EXCLUDED ASSETS OR THE EXCLUDED LIABILITIES, (II) MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR USE OR PURPOSE AND ALL OTHER WARRANTIES ARISING UNDER THE UNIFORM COMMERCIAL CODE (OR SIMILAR LAWS), (III) THE
OPERATION OF THE SPINCO BUSINESS AFTER THE CLOSING OR (IV) THE PROBABLE SUCCESS, PROFITABILITY OR PROSPECTS OF THE SPINCO BUSINESS AFTER THE CLOSING AND ANY SUCH REPRESENTATION OR WARRANTY IS HEREBY EXPRESSLY DISCLAIMED.
(b) EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN THE OTHER TRANSACTION DOCUMENTS, NONE OF LMC, SPINCO OR THEIR REPRESENTATIVES WILL HAVE OR BE SUBJECT TO
ANY LIABILITY OR INDEMNIFICATION OBLIGATION TO RMT PARENT, MERGER SUB, ITS REPRESENTATIVES OR TO ANY OTHER PERSON RESULTING FROM THE DISTRIBUTION TO RMT PARENT, MERGER SUB OR ITS REPRESENTATIVES OF, OR RMT PARENTS, MERGER SUBS OR THEIR
REPRESENTATIVES USE OF, ANY INFORMATION RELATING TO THE SPINCO BUSINESS, INCLUDING ANY INFORMATION, DOCUMENTS, PROJECTIONS, FORECASTS, BUSINESS PLANS, OFFERING MATERIALS OR OTHER MATERIAL MADE AVAILABLE TO RMT PARENT OR ITS REPRESENTATIVES OR
POTENTIAL FINANCING SOURCES, WHETHER ORALLY OR IN WRITING, IN CERTAIN DATA ROOMS, MANAGEMENT PRESENTATIONS, FUNCTIONAL BREAK-OUT DISCUSSIONS, EXPERT SESSIONS, SITE TOURS OR VISITS, DILIGENCE CALLS OR MEETINGS,
RESPONSES TO QUESTIONS SUBMITTED ON BEHALF OF RMT PARENT, MERGER SUB OR THEIR REPRESENTATIVES OR IN ANY OTHER FORM IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF RMT PARENT AND MERGER SUB
Except as otherwise disclosed or identified in (a) the RMT Parent SEC Documents filed with or furnished to the SEC prior to the date of this
Agreement, but excluding any risk factor disclosure and disclosure of risks included in any forward looking statements disclaimer or other statement included in such RMT Parent SEC Documents to the extent they are predictive or forward
looking in nature; or (b) the RMT Parent Disclosure Letter, RMT Parent and Merger Sub, jointly and severally, hereby represent and warrant to LMC and Spinco as follows:
Section 5.01
Corporate Existence and Power
.
Each of RMT Parent and Merger Sub is an entity duly incorporated, validly existing and in good standing under the corporation laws of the jurisdiction
of its incorporation and has all corporate power and authority to own its properties and carry on its business as conducted. Each of the RMT Parents Subsidiaries (other than Merger Sub) is duly incorporated or formed, validly existing and in
good standing (to the extent such concept is recognized in the relevant jurisdiction of organization) under the Applicable Laws of its respective jurisdiction of organization and has all corporate power and authority to own its properties and carry
on its business as conducted.
Section 5.02
Corporate Authorization
.
(a) Each of RMT Parent and Merger Sub has all necessary corporate or similar power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the Contemplated Transactions. Each of RMT Parents Subsidiaries has the necessary corporate power and authority to enter into each Transaction Document to which it is or will be a party, to carry out its
obligations thereunder and to consummate the Contemplated Transactions. The execution and delivery by RMT Parent and Merger Sub of this Agreement, the performance by RMT Parent and Merger Sub of their respective obligations hereunder and the
consummation by RMT Parent and Merger Sub of the Contemplated Transactions have been duly authorized by all requisite corporate action on the part of RMT Parent and Merger Sub, except for the RMT Parent Stockholder Approval.
(b) The execution and delivery by RMT Parent of each Transaction Document to which it is or will be a party, the performance by RMT Parent of its
obligations thereunder and the consummation by RMT Parent of the Contemplated Transactions have been, or will be, duly authorized by all requisite corporate or similar action on the part of RMT Parent.
(c) The execution and delivery by each of RMT Parents Subsidiaries of each Transaction Document to which it is or will be a party, the performance
by each of RMT Parents Subsidiaries of its obligations thereunder and the consummation by each of RMT Parents Subsidiaries of the transactions contemplated thereby will be, duly authorized by all requisite action on the part of each of
RMT Parents Subsidiaries. This Agreement has been duly executed and delivered by each of RMT Parent and Merger Sub, and (assuming due authorization, execution and delivery by the other Parties) this Agreement constitutes a legal, valid and
binding obligation of each of RMT Parent and Merger Sub, enforceable against each of RMT Parent and Merger Sub in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar Applicable Laws relating to or affecting creditors rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity). Each Transaction
Document to which RMT Parent is or will be a party has been or will be duly executed and delivered by RMT Parent, and (assuming due authorization, execution, and delivery by the other parties thereto), constitutes, or will constitute, a legal, valid
and binding obligation of RMT Parent, enforceable against RMT Parent in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Applicable Laws
relating to or affecting creditors rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity). Each Transaction Document will be duly executed and delivered
by each of RMT Parents Subsidiaries party thereto, and (assuming due authorization, execution and delivery by the other parties thereto) each Transaction Document will constitute, a legal, valid and binding obligation of each of RMT
Parents Subsidiaries party thereto or contemplated to be party thereto, enforceable against each such Subsidiary of RMT Parent in accordance with its terms, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar Applicable Laws relating to or affecting creditors rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity).
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(d) Merger Sub is a direct, wholly owned Subsidiary of RMT Parent. The copies of the articles of
incorporation and bylaws of Merger Sub that were previously furnished or made available to LMC are true, complete and correct copies of such documents as in effect on the date of this Agreement.
(e)
Section 5.02(e)
of the RMT Parent Disclosure Letter sets forth a list as of the date hereof of the Subsidiaries of RMT Parent and their
respective jurisdictions of incorporation or formation.
Section 5.03
Capitalization
.
(a) As of the date hereof, the authorized capital stock of RMT Parent consists of 500,000,000 shares of RMT Parent Common Stock and 10,000,000 shares of
RMT Parent Preferred Stock. As of the close of business on January 25, 2016 (the
RMT Parent Capitalization Date
), (i) 72,189,438 shares of RMT Parent Common Stock and no shares of RMT Parent Preferred Stock were issued
and outstanding, (ii) an aggregate 4,853,917 shares of RMT Parent Common Stock are reserved for issuance pursuant to outstanding awards and rights under the RMT Parent Stock Plans of which (A) 2,325,879 shares of RMT Parent Common Stock
were subject to outstanding RMT Parent Stock Options, which RMT Parent Stock Options are subject to the vesting set forth in Section 5.03 of the RMT Parent Disclosure Letter, (B) 2,282,722 shares of RMT Parent Common Stock were subject to
outstanding RMT Parent RSUs, which RMT Parent RSUs are subject to the vesting set forth in Section 5.03 of the RMT Parent Disclosure Letter, and (C) 245,316 shares of RMT Parent Common Stock were subject to outstanding RMT Parent
Performance Share Units that are settled in shares of RMT Parent Common Stock, which RMT Parent Performance Share Units are subject to the vesting set forth in Section 5.03 of the RMT Parent Disclosure Letter (assuming satisfaction of any
performance-based vesting criteria at the target level), and no shares of RMT Parent Common Stock were subject to outstanding RMT Parent Performance Share Units that are settled in cash, and (iii) no shares of RMT Parent Common Stock and no
shares of RMT Parent Preferred Stock were held in the treasury of RMT Parent. Except as set forth above, as of the RMT Parent Capitalization Date, (i) there were no options, warrants, convertible debt, other convertible instruments or other
rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of RMT Parent or (A) obligating RMT Parent or any of its Subsidiaries to issue or sell any shares of capital stock of, or other
equity interests in, RMT Parent, (B) obligating RMT Parent or any of its Subsidiaries to issue, grant, extend or enter into any such option, warrant, right, agreement, arrangement or commitment or (C) that give any Person the right to
receive any economic benefit or right similar to or derived from the economic benefits and rights accruing to holders of shares of RMT Parent Common Stock and (ii) there are no outstanding contractual obligations of RMT Parent or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of RMT Parent Common Stock. All shares of RMT Parent Common Stock which may be issued prior to the Merger Effective Time in accordance with the terms of this Agreement, will be when
issued, duly authorized, validly issued, fully paid and non-assessable and not subject to or issued in violation of any purchase option, call option, right of first refusal, preemptive right, subscription right or any similar right under any
applicable contracts or any provision of the RMT Parent Charter or the bylaws of RMT Parent.
(b) No bonds, debentures, notes or other indebtedness
of RMT Parent or any of its Subsidiaries having the right to vote (or convertible into or exercisable for securities having the right to vote) on any matters on which stockholders of RMT Parent may vote are issued or outstanding.
(c) The authorized capital stock of Merger Sub consists of 100 shares of common stock, par value $0.01 per share. 100 shares of common stock of Merger
Sub are issued and outstanding, all of which are owned of record and beneficially by RMT Parent.
(d) As of the Merger Effective Time, (i) RMT
Parent will own, directly or indirectly, equity interests in each of its Subsidiaries in the manner set forth in
Section 5.03(d)
of the RMT Parent Disclosure Letter, in each case, free and clear of all Liens other than restrictions
imposed by applicable securities laws and regulations, (ii) all equity interests in RMT Parents Subsidiaries will have been duly authorized, validly issued, fully paid and non-assessable, and (iii) there will be no outstanding
options, warrants, convertible debt, other convertible instruments or other rights, agreements, arrangements or commitments of any character (A) relating to the equity interests in the Subsidiaries of RMT Parent or (B) obligating any
Subsidiary of RMT Parent to issue, grant, extend or enter into any such option, warrant, convertible debt, other convertible instrument or other right, agreement, arrangement or commitment.
(e)
Section 5.03(e)
of the RMT Parent Disclosure Letter sets forth a list of all of the Subsidiaries of RMT Parent and RMT Parents
respective (direct or indirect) ownership interest in each such Subsidiary. Except for its
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interests in the Subsidiaries set forth on
Section 5.03(e)
of the RMT Parent Disclosure Letter, as of the Merger Effective Time, RMT Parent will not own, directly or indirectly, any
capital stock of, or other equity or voting interest in, any Person.
(f) Prior to the Merger Effective Time, true, complete and correct copies of
the articles or certificate of incorporation and bylaws (or similar organizational documents) of each Subsidiary of RMT Parent (other than Merger Sub) will be furnished or made available to LMC.
Section 5.04
No Conflict; Board and Stockholder Approval
.
(a) Assuming that all consents, approvals, authorizations and other actions described herein or set forth in
Section 5.04
of the RMT Parent
Disclosure Letter have been obtained, all filings and notifications listed in
Section 5.05
or in
Section 5.05
of the RMT Parent Disclosure Letter have been made, any applicable waiting period has expired or been terminated
and any applicable approval or authorization has been obtained under the Antitrust Laws, and except as may result from any facts or circumstances relating solely to LMC or its Affiliates, the execution, delivery and performance by RMT Parent and
Merger Sub of this Agreement does not, and the execution, delivery and performance by RMT Parent and Merger Sub of each other Transaction Document to which it is contemplated to be a party will not, (i) contravene or conflict with the articles
or certificate of incorporation or bylaws (or similar organizational documents) of RMT Parent or any Subsidiary of RMT Parent (including Merger Sub), (ii) (A) contravene or conflict with or violate any Applicable Law or Governmental Order
applicable to RMT Parent or any Subsidiary of RMT Parent (including Merger Sub), (B) contravene, conflict with, result in any breach of, constitute a default (or an event which, with the giving of notice or lapse of time, or both, would become
a default) under, require any consent under, or give to others any rights of termination, acceleration or cancellation of, any RMT Parent Material Contract or any other contract to which RMT Parent or any Subsidiary of RMT Parent is a party or by
which any of their respective properties or assets is bound or (C) (1) result in the creation or the imposition of (y) any Lien upon any assets of RMT Parent or any of its Subsidiaries (other than a Permitted Lien) or (z) any
Lien upon any of the capital stock of RMT Parent or any of its Subsidiaries or (2) result in the cancellation, modification, revocation or suspension of any material license or permit, authorization or approval issued or granted by any
Governmental Authority in respect of RMT Parent or any of its Subsidiaries, except in any such case as would not reasonably be expected to (I) materially and adversely affect the ability of RMT Parent or any of its Subsidiaries to carry out its
obligations under, and to consummate the Contemplated Transactions or (II) otherwise have an RMT Parent Material Adverse Effect.
(b) The RMT Parent
Board, by resolutions adopted at a meeting duly called and held and not subsequently rescinded or modified in any way, has (i) determined that the Merger and this Agreement are advisable and has approved this Agreement, and (ii) subject to
the provisions of
Section 7.03(d)
, resolved to recommend the approval by the stockholders of RMT Parent of the RMT Parent Share Issuance. The Merger Sub Board, by resolutions adopted at a meeting duly called and held and not subsequently
rescinded or modified in any way, has determined that the Merger and this Agreement are advisable and has approved this Agreement and the transactions contemplated hereby, and has recommended the approval by RMT Parent, as the sole stockholder of
Merger Sub, of the Merger.
(c) The affirmative vote of the holders of a majority of the voting power of the shares of common stock of Merger Sub is
the only vote of the holders of any class or series of Merger Subs capital stock necessary to adopt this Agreement or consummate the Contemplated Transactions. RMT Parent is the sole stockholder of record of Merger Sub. RMT Parent shall, in
its capacity as sole stockholder of Merger Sub, adopt this Agreement and approve the Merger by written consent as soon as practicable following execution and delivery of this Agreement. The RMT Parent Stockholder Approval is the only vote of the
holders of any voting securities of RMT Parent under any Applicable Law, the rules and regulations of the New York Stock Exchange, and the RMT Parent Charter and the bylaws of RMT Parent necessary to approve the Contemplated Transactions, including
the RMT Parent Share Issuance and the actions contemplated by
Section 3.04
.
Section 5.05
Governmental Consents and
Approvals
.
Except as set forth in
Section 5.05
of the RMT Parent Disclosure Letter, the execution, delivery and performance by RMT
Parent and Merger Sub of this Agreement and the execution, delivery and performance by RMT Parent and each of its Subsidiaries of each Transaction Document to which it is contemplated to be a party do not require any
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consent, approval, authorization or other order or declaration of, action by, filing with or notification to, any Governmental Authority, other than (a) compliance with, and filings under,
the HSR Act or any other applicable Antitrust Laws, (b) the filing and recordation of the Certificate of Merger with the Secretary of State of the State of Delaware in accordance with
Section 2.02
, (c) the filing with the SEC
of the Proxy Statement and the Registration Statements and such other compliance with the Exchange Act and the Securities Act as may be required in connection with the Contemplated Transactions, (d) compliance with any applicable requirements
and filings with DSS under the NISPOM, (e) where the failure to obtain such consent, approval, authorization or action, or to make such filing or notification, would not reasonably be expected to prevent or materially delay the consummation by
RMT Parent or Merger Sub of the Contemplated Transactions or would not reasonably be expected to have an RMT Parent Material Adverse Effect, (f) compliance with the rules and regulations of the New York Stock Exchange as required in connection
with the Contemplated Transactions, (g) filings with the United States Department of States Directorate of Defense Trade Controls in accordance with Section 122.4 of the ITAR, including a filing pursuant to ITAR Section 122.4(a)
to be submitted five days after Closing or (h) as a result of any facts or circumstances relating to LMC or any of its Affiliates.
Section 5.06
Financial Information; Financing
.
(a) Each of the consolidated financial statements (including, in each case, any notes thereto) contained (or incorporated by reference) in the RMT
Parent SEC Documents (i) present fairly, in all material respects, the combined financial position of RMT Parent and its Subsidiaries as of the dates thereof and the results of operations and cash flows of RMT Parent and its Subsidiaries for
the periods covered thereby (subject, in the case of unaudited statements, to normal and recurring year-end adjustments that have not had, and would not reasonably be expected to have, an RMT Parent Material Adverse Effect), and (ii) were
prepared in accordance with GAAP consistently applied during the periods covered thereby (except as may be indicated in the notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC).
(b) RMT Parent has timely filed all certifications and statements required by (i) Rule 13a-14 or Rule 15d-14 under the Exchange Act or (ii) 18
U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) with respect to all applicable RMT Parent SEC Documents. RMT Parent maintains disclosure controls and procedures required by Rule 13a-15 or Rule 15d-15 under the Exchange Act,
and such controls and procedures are effective to ensure that all material information concerning RMT Parent and its Subsidiaries is made known on a timely basis to the individuals responsible for the preparation of RMT Parents SEC filings and
other public disclosure documents. As used in this
Section 5.06(b)
, the term filed shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the
SEC.
(c) RMT Parent maintains, and has maintained, a standard system of accounting established and administered in accordance with GAAP applied on
a consistent basis. RMT Parent and its Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific
authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements of RMT Parent in conformity with GAAP applied on a consistent basis and to maintain accountability for assets, (iii) access to assets
is permitted only in accordance with managements general or specific authorizations and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect
to any differences.
(d) RMT Parent has delivered to LMC a true, complete and fully executed copy of a commitment letter, including (i) all
exhibits, schedules, attachments and amendments to such commitment letter in effect as of the date of this Agreement and (ii) any associated fee letters (together, the
RMT Commitment
Letter
and, together with the
Spinco Commitment Letter, the
Commitment Letters
) from CGMI, BTMU, BoA, MLPFS, JPMCB, JPMS and GS (CGMI, BTMU, BoA, MLPFS, JPMCB, JPMS and GS (together with all additional lenders and financing sources added to the RMT Commitment
Letter or any Alternative RMT Commitment Letter, the
RMT Lenders
and, together with the Spinco Lenders, the
Lenders
), pursuant to which, among other things, the RMT Lenders have committed to RMT Parent and RMT
Inc. to provide or cause to be provided to RMT Inc. debt financing in the aggregate amount set forth therein (the bank and/or bond financings, in each case contemplated by the RMT Commitment Letter, being referred to as the
RMT
Financing
; the RMT Financing together with the Spinco Financing, the
Financings
). As of the date of this Agreement, (x) the RMT Commitment Letter has not been amended, waived or modified and (y) the respective
commitments contained in the RMT Commitment Letter have not been withdrawn, modified or rescinded
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in any respect. Except for the RMT Commitment Letter (together with all ancillary documents referenced therein), there are no side letters or other contracts, instruments or other commitments,
obligations or arrangements (whether written or oral) related to the funding of the full amount of the RMT Financing.
(e) The RMT Commitment
Letter, in the form so delivered, is in full force and effect and is a legal, valid and binding obligation of RMT Parent and, to the knowledge of RMT Parent, the other parties thereto (in each case, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors rights and remedies generally and to general principles of equity). As of the date of this Agreement (assuming the accuracy of the representations and warranties and undertakings
of each of LMC and Spinco under this Agreement for such purpose), no event has occurred that, with or without notice, lapse of time or both, would reasonably be expected to constitute a default or breach on the part of RMT Parent under any term or
condition of the RMT Commitment Letter. RMT Parent has fully paid any and all commitment fees, any other fees or any other amounts required by the RMT Commitment Letter to be paid on or before the date of this Agreement. At the Closing, assuming the
RMT Financing is funded in accordance with the RMT Commitment Letter, the proceeds of the RMT Financing will be sufficient to finance the RMT Parent Special Dividend and to pay all related fees and expenses associated therewith. Other than as set
forth in the RMT Commitment Letter, there are no conditions precedent to the funding of the full amount of the RMT Financing. As of the date of this Agreement, and subject to the satisfaction of all the conditions set forth in
Section 8.01
and
Section 8.03
, RMT Parent has no reason to believe that any of the conditions to the RMT Financing that are required to be satisfied by it or any other party to the RMT Commitment Letter as a condition to the
obligations under the RMT Commitment Letter will not be satisfied on a timely basis or that the RMT Financing contemplated by the RMT Commitment Letter will not be available to RMT Inc. immediately prior to, or on, the Closing Date.
(f) Upon the consummation of the Contemplated Transactions, assuming the accuracy of the representations and warranties of LMC and Spinco contained in
Article IV
, (i) RMT Parent will not be insolvent, (ii) RMT Parent will not be left with unreasonably small capital, (iii) RMT Parent will not have incurred debts or other Liabilities beyond its ability to pay such debts or
other Liabilities as they mature and (iv) the capital of RMT Parent will not be impaired.
Section 5.07
Absence of Certain Changes
.
Since December 31, 2015, there has not occurred any RMT Parent Material Adverse Effect.
Section 5.08
Litigation
.
Except as set
forth in
Section 5.08
of the RMT Parent Disclosure Letter, there is no Proceeding by or against RMT Parent or any of its Subsidiaries pending or, to the knowledge of RMT Parent, threatened in writing that would reasonably be expected to
have an RMT Parent Material Adverse Effect or would reasonably be expected to prevent or materially delay the consummation by RMT Parent or Merger Sub of the Contemplated Transactions.
Section 5.09
Registration Statements, Proxy Statement; Schedule TO
.
The information supplied by RMT Parent specifically for inclusion or incorporation by reference in the Registration Statements and the Proxy Statement
and, if applicable, the Schedule TO and any other filing contemplated by
Section 7.01
, shall not, at (a) the time each Registration Statement is declared effective, (b) the time the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to the stockholders of RMT Parent, (c) the time of the RMT Parent Stockholders Meeting, (d) the time the Schedule TO is filed with the SEC or (e) the Merger Effective Time, contain any untrue
statement of a material fact or fail to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. All documents that RMT
Parent is responsible for filing with the SEC in connection with the Contemplated Transactions will comply as to form and substance in all material respects with the applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder. Notwithstanding the foregoing, no representation is made by RMT Parent or Merger Sub in respect of any information provided by LMC or Spinco specifically for inclusion or
incorporation by reference into the Registration Statements, the Proxy Statement or, if applicable, the Schedule TO.
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Section 5.10
Compliance with Laws
.
Since January 1, 2013, RMT Parent and its Subsidiaries have conducted, in all material respects, their businesses in compliance with all Applicable
Laws and Governmental Orders applicable to the business of RMT Parent and its Subsidiaries, and none of RMT Parent and its Subsidiaries is in material violation of any such Applicable Law or Governmental Order. RMT Parent and each of its
Subsidiaries has obtained and is, in all material respects, in compliance with all material Permits that are necessary to conduct its business or to own, lease or operate its facilities. This
Section 5.10
does not apply with respect to
the matters that are the subject of the representations and warranties set forth in
Section 5.13
,
Section 5.14
,
Section 5.15
,
Section 5.17
,
Section 5.22
or
Section 5.23
.
Section 5.11
Intellectual Property
.
(a) Except as set forth in
Section 5.11
of the RMT Parent Disclosure Letter:
(i) with respect to all material patents and patent applications, material registrations and applications for trademarks and copyrights
owned by RMT Parent and its Subsidiaries (the
Owned Intellectual Property
), all such Owned Intellectual Property is subsisting and, to the knowledge of RMT Parent, except with respect to applications, is valid and enforceable;
(ii) To the knowledge of RMT Parent, the conduct of, and the use of the Owned Intellectual Property in connection with, the
respective businesses of the RMT Parent and its Subsidiaries as heretofore conducted does not conflict with, infringe upon, misappropriate or otherwise violate the Intellectual Property rights of any other Persons, except to the extent that such
conflict, infringement, misappropriation or violation has not had, and would not reasonably be expected to have, individually or in the aggregate, an RMT Parent Material Adverse Effect; provided that RMT Parent makes no representation or warranty
hereunder with respect to any Intellectual Property owned and provided by a third party (other than RMT Parent or any of its Affiliates) that is embedded or included in any such Owned Intellectual Property;
(iii) To the knowledge of RMT Parent, RMT Parent and the other RMT Parent Entities have taken reasonable measures to protect the
confidentiality of all such Owned Intellectual Property that is considered confidential or proprietary by RMT Parent as of the date of this Agreement (except for such Owned Intellectual Property whose value would not reasonably be expected to be
impaired in any material respect by disclosure), including entering into appropriate confidentiality agreements with Persons with access to such Owned Intellectual Property; and
(iv) There is no (A) Proceeding initiated by any other Person pending or, to the knowledge of RMT Parent, threatened in writing
against RMT Parent or any other RMT Parent Entity (1) concerning the matters described in
Section 5.11(a)(ii)
or (2) challenging the validity, enforceability or ownership of any material Owned Intellectual Property;
provided
, in each case, that any Proceeding that has been initiated but with respect to which process or other comparable notice has not been served on or delivered to RMT Parent or any RMT Parent Entity shall be deemed to be
threatened rather than pending or (B) Governmental Order against RMT Parent or any RMT Parent Entity or settlement agreement that an RMT Parent Entity is a party to or, to the knowledge of RMT Parent, any other
Governmental Order or settlement agreement restricting in any material respect the use or exploitation of any material Owned Intellectual Property.
(b) Since January 1, 2013, to the knowledge of RMT Parent, (i) there have been no security breaches in the information technology systems of,
used by or affecting the business of RMT Parent and its Subsidiaries, and (ii) there have been no disruptions in any information technology systems that adversely affected the business of RMT Parent and its Subsidiaries, except in each case, as
has not had, or would not reasonably be expected to have, individually or in the aggregate, an RMT Parent Material Adverse Effect.
(c) The RMT
Parent Entities, in connection with the conduct of the business of RMT Parent and its Subsidiaries, have, at all times since January 1, 2013, complied, in all material respects, with RMT Parents own posted or otherwise binding privacy
policies, relating to privacy, data protection, or the collection, retention, protection and use of PII. No Proceedings have been asserted or, to the knowledge of RMT Parent, threatened in writing against any RMT Parent Entity, alleging a material
violation of any Persons privacy, personal information or data rights in relation to the conduct of the business of RMT Parent and its Subsidiaries that would reasonably be expected to have an RMT Parent Material Adverse Effect. In connection
with the operation of the business of RMT
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Parent and its Subsidiaries, the RMT Parent Entities take commercially reasonable measures to protect PII against unauthorized access, use, modification, disclosure, or other misuse.
(d) There is no material license under which an RMT Parent Entity is a licensee or a licensor or otherwise is granted, obtains or agrees to grant or
provide rights to use any material Intellectual Property, or is restricted in any material respect in its right to use any material Intellectual Property (excluding (i) licenses for COTS software (as such term is defined in the Separation
Agreement), or (ii) licenses granted to customers (including Governmental Authorities) in the ordinary course of business consistent with past practice) (each such license,
RMT Parent License
) for which the termination
thereof or the restriction or loss of rights thereunder would reasonably be expected to have a RMT Parent Material Adverse Effect. Each RMT Parent License is valid and binding on the applicable RMT Parent Entity and, to the knowledge of RMT Parent,
the counterparty thereto, and is in full force and effect, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Applicable Laws relating to or affecting creditors
rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity). No RMT Parent Entity is in material breach of, or material default under, any RMT Parent License to
which it is a party.
(e) Notwithstanding anything in this Agreement to the contrary, the representations and warranties contained in
Section 5.04
,
Section 5.07
,
Section 5.08
and in this
Section 5.11
are the only representations and warranties being made by RMT Parent in this Agreement with respect to the validity of, the right to
register, or any activity that constitutes infringement, misappropriation or other violation of, a third partys Intellectual Property rights.
Section 5.12
Real Property
.
(a)
Section 5.12(a)
of the RMT Parent Disclosure Letter sets forth, with respect to each parcel of RMT Parent Leased Real Property as of the date of this Agreement and each parcel of RMT Parent Leased Real Property as of the Closing Date,
the Contracts which provide RMT Parent with such rights in or to such RMT Parent Leased Real Property existing as of the date of this Agreement (collectively with the Contracts that provide RMT Parent with such rights in or to such RMT Parent Leased
Real Property as of the Closing Date, the
RMT Leases
), the address (or other identifying description) of each parcel of material RMT Parent Leased Real Property and the identity of the lessor, lessee and current occupant (if
different from lessee) of each such parcel of RMT Parent Leased Real Property. True, correct and complete copies of all RMT Leases existing as of the date of this Agreement have been provided to LMC. RMT Parent (i) has a valid and binding
leasehold interest in each parcel of RMT Parent Leased Real Property existing as of the date of this Agreement and (ii) will have a valid and binding leasehold interest in each parcel of RMT Parent Leased Real Property, in each case, free and
clear of all Liens, other than Permitted Liens. No RMT Parent Entity has subleased or granted to a third party any right to use or occupy all or any portion of the RMT Parent Leased Real Property.
(b) No RMT Parent Entity, nor to the knowledge of RMT Parent Entity, any counterparty to any RMT Lease is in default in any material respects with
respect to any obligation under an RMT Lease. No RMT Parent Entity has subleased or granted to a third party any right to use or occupy all or any portion of the RMT Parent Leased Real Property.
(c)
Section 5.12(c)
of the RMT Parent Disclosure Letter sets forth the address and parcel number of each parcel of material RMT Parent Owned
Real Property. A RMT Parent Entity has good and marketable fee simple title in and to each parcel of RMT Parent Owned Real Property, including all of the buildings and improvements thereon, free and clear of all Liens, other than Permitted Liens.
There are no outstanding options, rights of first offer or rights of first refusal to purchase any RMT Parent Owned Real Property or any portion thereof or interest therein. Other than pursuant to easements of record, no RMT Parent Entity has leased
or granted any right to use or occupy all or any portion of an RMT Parent Owned Real Property to a third party. There is no condemnation or other proceeding in eminent domain, pending or, to the knowledge of RMT Parent, threatened, affecting the RMT
Parent Owned Real Property or any portion thereof or interest therein.
Section 5.13
Employee Benefit Matters
.
(a)
U.S. RMT Parent Plans and Material Documents
.
Section 5.13(a)
of the RMT Parent Disclosure Letter lists, as of the date of this
Agreement, all material employee benefit plans (as defined in Section 3(3) of ERISA,
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whether or not subject to ERISA), all material bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement,
severance or other compensation or benefit plans, programs or arrangements, and all material employment, termination, severance, retention or other contracts or agreements, to which RMT Parent or any of its Subsidiaries is a party, with respect to
which RMT Parent or any of its Subsidiaries has any obligation or which are maintained, contributed to or sponsored by RMT Parent or any of its Subsidiaries, in each case, for the benefit of any U.S. RMT Parent Employee or to which any U.S. RMT
Parent Employee is a party (collectively, the
U.S. RMT Parent Plans
). With respect to each U.S. RMT Parent Plan, RMT Parent has made available to LMC (to the extent applicable) (i) a true and complete copy of the current plan
document and any material amendments thereto, (ii) copies of (1) the most recent summary plan description and any summaries of material modifications thereto and (2) the most recent annual report on Form 5500 (including any applicable
schedules and attachments thereto) filed with the Department of Labor, and (iii) the most recent determination or opinion letter received from the IRS (if any).
(b)
Non-U.S. RMT Parent Plans and Material Documents
.
Section 5.13(b)
of the RMT Parent Disclosure Letter lists, as of the date
hereof, all material employee benefit plans, material bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other compensation or benefit
plans, programs or arrangements, and all material employment, termination, severance or other contracts or agreements, to which RMT Parent or any of its Subsidiaries is a party, with respect to which RMT Parent or any of its Subsidiaries has any
obligation or which are maintained, contributed to or sponsored by RMT Parent or any of its Subsidiaries, in each case, for the benefit of any Non-U.S. RMT Parent Employee or to which any Non-U.S. RMT Parent Employee is a party (other than statutory
plans) (collectively, the
Non-U.S. RMT Parent Plans
and together with the U.S. RMT Parent Plans, the
RMT Parent Plans
). With respect to each Non-U.S. RMT Parent Plan, RMT Parent has made available to LMC (to the
extent applicable) (i) a true and complete copy of the current plan document and any material amendments thereto and (ii) copies of the most recent summary plan description and any summaries of material modifications thereto.
(c) Each RMT Parent Plan (and any related trust or other funding vehicle) has been administered in all material respects in accordance with its terms
and as applicable is in compliance in all material respects with ERISA, the Code and all other material Applicable Laws. Each of RMT Parent and its Subsidiaries is in compliance in all material respects with ERISA, the Code and all other material
Applicable Laws. Each of RMT Parent and its Subsidiaries is in compliance in all material respects with ERISA, the Code and all other material Applicable Laws. All employer and employee contributions required to have been made by RMT Parent to each
U.S. RMT Parent Plan have, in all material respects, been timely made. There is no material Proceeding pending, or to the knowledge of RMT Parent threatened, with respect to any U.S. RMT Parent Plan, other than ordinary course claims for benefits.
Each U.S. RMT Parent Plan that is intended to be qualified under Section 401(a) of the Code has received a favorable determination or opinion letter from the IRS, or an application for a favorable determination by the IRS has been timely filed
and is currently pending, and, to the knowledge of RMT Parent, nothing has occurred that would reasonably be expected to result in a loss of the Tax-qualified status of such U.S. RMT Parent Plan under Section 401(a) of the Code.
(d) No Liability under Title IV or Section 302 of ERISA has been incurred by RMT Parent or any of its ERISA Affiliates that has not been satisfied
in full, and, to the knowledge of RMT Parent, no condition exists that presents a material risk to RMT Parent or any ERISA Affiliate of incurring any such liability, other than liability for premiums due the Pension Benefit Guaranty Corporation
(which premiums have been paid when due). No U.S. RMT Parent Plan that is a Title IV Plan or any trust established thereunder has incurred any accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412
of the Code), whether or not waived, as of the last day of the most recent fiscal year of each Title IV Plan ended prior to the Closing. Neither RMT Parent nor any of its ERISA Affiliates has, within the preceding six years, withdrawn in a complete
or partial withdrawal from any multiemployer plan (as defined in Section 3(37) of ERISA) or incurred any liability under Section 4204 of ERISA that has not been satisfied in full.
(e) Each Non-U.S. RMT Parent Plan has been administered in compliance in all material respects with its terms and operated in compliance in all material
respects with Applicable Laws. Each Non-U.S. RMT Parent Plan required to be registered or approved by a non-U.S. governmental entity has been so registered or approved and has been maintained in good standing with applicable regulatory authorities,
and, to the knowledge or RMT Parent, no event has occurred since the date of the most recent approval or application therefor relating to any such Non-
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U.S. RMT Parent Plan that could reasonably be expected to materially affect any such approval relating thereto or increase the costs relating thereto in a manner material to RMT Parent. Each
Non-U.S. RMT Parent Plan is funded or insured in material compliance with Applicable Law.
(f) Except as set forth in
Section 5.13(f)(1)
of
the RMT Parent Disclosure Letter, none of the execution and delivery of this Agreement or the other Transaction Documents or the consummation of the Merger or any other Contemplated Transaction (alone or in conjunction with any other event,
including any termination of employment) will (i) entitle any RMT Parent Employee to any material compensation or benefit, (ii) accelerate the time of payment or vesting, or trigger any payment or funding, of any material compensation or
benefit or trigger any other material obligation under any RMT Parent Plan or (iii) result in any breach or violation of or default under, or limit RMT Parents right to amend, modify or terminate, any RMT Parent Plan, in each case, except
as provided in this Agreement or the Employee Matters Agreement or pursuant to Applicable Law. Except as disclosed in
Section 5.13(f)(2)
of the RMT Parent Disclosure Letter, no amounts payable under the RMT Parent Plans will fail to be
deductible for federal income Tax purposes by virtue of Section 280G of the Code as a result of the occurrence of the transactions contemplated by this Agreement, either alone or in combination with another event.
Section 5.14
Labor Matters
.
Section 5.14
of the RMT Parent Disclosure Letter lists, as of the date of this Agreement, each collective bargaining agreement or similar
labor agreement that is applicable to any RMT Parent Employee as of the date of this Agreement, and its Subsidiaries, including Union Employees, to which RMT Parent or any of its Subsidiaries is a party, including arrangements with works councils
and other similar employee representative bodies representing any employee of RMT Parent and its Subsidiaries will have outstanding rights or obligations on and following the Closing (together with such collective bargaining agreements, the
RMT Parent Union Contracts
). RMT Parent has made available to LMC each RMT Parent Union Contract. As of the date hereof, (a) there are no material strikes or lockouts with respect to any Union Employees pending, or to the RMT
Parents knowledge, threatened in writing, (b) there is no material union organizing effort pending or, to the knowledge of RMT Parent, threatened in writing against RMT Parent or any of its Subsidiaries, (c) there is no material
unfair labor practice, labor dispute (other than routine individual grievances) or labor arbitration proceeding pending or, to the knowledge of RMT Parent, threatened in writing affecting RMT Parent or any of its Subsidiaries and (d) there is
no material slowdown, or work stoppage in effect or, to the knowledge of RMT Parent, threatened in writing with respect to RMT Parent or any of its Subsidiaries, including Union Employees. RMT Parent and each of its Subsidiaries conducts, and since
January 1, 2013 has conducted, its business, in all material respects, in compliance with all material Applicable Laws with respect to labor relations, employment and employment practices, including occupational safety and health standards.
Section 5.15
Taxes
. Except as set forth in
Section 5.15
of the RMT Parent Disclosure Letter,
(a) all material Tax Returns required to have been filed by, or with respect to, RMT Parent and its Subsidiaries have been timely filed (taking into
account any valid extension of time to file granted or obtained) and all such Tax Returns are true, correct and complete in all material respects;
(b) all material Taxes required to be paid on such Tax Returns have been paid in full or will be timely paid in full;
(c) no deficiency or other claim for any material amount of Tax has been asserted or assessed by a Governmental Authority in writing against RMT Parent
or any of its Subsidiaries that has not been satisfied by payment, settled or withdrawn;
(d) there are no material Tax liens on RMT Parent or any
of its Subsidiaries (other than Permitted Liens);
(e) none of RMT Parent and its Subsidiaries has distributed stock of another Person or had its
stock distributed by another Person in a transaction that was intended to be governed in whole or in part by Section 355 of the Code in the two years prior to this Agreement;
(f) none of RMT Parent, Merger Sub and their respective Subsidiaries has taken or agreed to take any action that would (and none of them is aware of any
fact, event, agreement, plan or other circumstance that would) prevent
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either (i) the Merger or (ii) the Spinco Transfer and Distribution from qualifying as a reorganization within the meaning of Section 368(a) of the Code or otherwise
prevent the Tax-Free Status of the External Transactions;
(g) none of RMT Parent and its Subsidiaries has participated in a listed
transaction within the meaning of Treasury regulations section 1.6011-4; and
(h) none of RMT Parent and its Subsidiaries is bound by any
material agreement or arrangement the primary purpose of which relates to Taxes (other than (i) such an agreement or arrangement exclusively between or among RMT Parent and its Subsidiaries and (ii) the Tax Matters Agreement).
Section 5.16
RMT Parent Material Contracts
.
(a) Except as set forth in
Section 5.16
of the RMT Parent Disclosure Letter and except for Government Contracts, which are covered in
Section 5.22
, as of the date of this Agreement, neither RMT Parent nor any of its Subsidiaries are parties to or otherwise bound by or subject to (Contracts of the following types, the
RMT Parent Material Contracts
):
(i) Contracts for the purchase of products or for the receipt of services, the performance of which will extend over a period of one
year or more and which involved payments by RMT Parent or any of its Subsidiaries in excess of $10,000,000 in the aggregate during the calendar year ended December 31, 2015;
(ii) Contracts for the furnishing of products or services by RMT Parent or any of its Subsidiaries, the performance of which will extend
over a period of one year or more and which involved payments to RMT Parent or any of its Subsidiaries in excess of $10,000,000 in the aggregate during the calendar year ended December 31, 2015;
(iii) Contracts concerning the establishment or operation of any material partnership, joint venture or limited liability company (other
than any such Contract between RMT Parent or any of its Subsidiaries and another Subsidiary of RMT Parent);
(iv) material lease
agreements for parcels of RMT Parent Leased Real Property existing at the date of this Agreement;
(v) Contracts containing
(A) a covenant materially restricting the ability of RMT Parent or any of its Subsidiaries to engage in any line of business in any geographic area or to compete with any Person, to market any product or to solicit customers, (B) a
provision granting the other party most favored nation status or equivalent preferential pricing terms or (C) a provision granting the other party exclusivity or similar rights, other than teaming or similar agreements entered into
in the ordinary course of business where the restrictions apply solely to the Contract or pursuit that is the subject matter of the teaming or similar agreement (and any extensions or recompetes in respect thereof) and other than as a result of an
OCI clause; or
(vi) indentures, credit agreements, loan agreements and similar instruments pursuant to which RMT Parent or any of
its Subsidiaries has or will incur or assume any indebtedness for borrowed money or has or will guarantee or otherwise become liable for any indebtedness of any other Person for borrowed money in excess of $5,000,000, other than any indentures,
credit agreements, loan agreements or similar instruments solely between or among any RMT Parent and any of its Subsidiaries.
(b) RMT Parent has
made available to LMC true, complete and correct copies of each RMT Parent Material Contract in effect on the date of this Agreement. Each RMT Parent Material Contract is valid and binding on RMT Parent or its Subsidiaries, as applicable, and, to
the knowledge of RMT Parent, the counterparty thereto, and is in full force and effect, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar Applicable Laws relating to or
affecting creditors rights generally and subject to the effect of general principles of equity (regardless of whether considered in a proceeding at law or in equity). Neither RMT Parent nor any of its Subsidiaries is in material breach of, or
material default under, any RMT Parent Material Contract to which it is a party.
Section 5.17
Environmental Matters
.
(a) Except as disclosed on
Section 5.17
of the RMT Parent Disclosure Letter, the business of RMT Parent and its Subsidiaries is in material
compliance with all applicable Environmental Laws and has obtained all
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Environmental Permits that are necessary to conduct its business or to own, lease or operate its facilities, except where such noncompliance or failure to have obtained all such Environmental
Permits has not had, or would not reasonably be expected to have, individually or in the aggregate, an RMT Parent Material Adverse Effect.
(b)
Notwithstanding anything in this Agreement to the contrary, the representations and warranties contained in
Section 5.05
, and, as such relates to occupational health and safety standards,
Section 5.14
, and in this
Section 5.17
, are the only representations and warranties being made by RMT Parent in this Agreement with respect to compliance with or Liability under Environmental Laws or Environmental Permits or with respect to any environmental,
health or safety matter related in any way to the businesses of RMT Parent and its Subsidiaries, the RMT Parent Leased Real Property or the RMT Parent Owned Real Property.
Section 5.18
No Stockholder Rights Plan; No Anti-Takeover Law
.
As of the date of this Agreement, there is no stockholder rights plan, poison pill, anti-takeover plan or other similar device in effect to
which RMT Parent or any of its Subsidiaries is a party or otherwise is bound. The Contemplated Transactions are and, as of the Closing, shall be exempt from any such stockholder rights plan, poison pill, anti-takeover plan or other
similar device adopted prior to the Closing to which RMT Parent or any of its Subsidiaries is a party or otherwise is bound. No fair price, moratorium, control share acquisition, business combination,
interested stockholder, stockholder protection or other similar anti-takeover law applicable to RMT Parent or Merger Sub enacted under Applicable Law applies to this Agreement, the Merger or any other Contemplated
Transactions.
Section 5.19
Operations of Merger Sub
.
Merger Sub was newly formed solely for the purpose of engaging in the transactions contemplated by this Agreement and at no time prior to the Merger
Effective Time will Merger Sub have conducted any business activity or other operations of any kind other than those necessary to consummate the Merger as contemplated by this Agreement.
Section 5.20
Opinion of Financial Advisor
.
The RMT Parent Board has received a written opinion (or an oral opinion to be confirmed in writing) of Citigroup Global Markets Inc., dated on or about
the date of this Agreement, as to the fairness, from a financial point of view and as of the date of the opinion, of the Exchange Ratio to RMT Parent.
Section 5.21
Brokers
.
Except for
Citigroup Global Markets Inc., no broker, finder or investment banker is entitled to any brokerage, finders or other fee or commission in connection with the Contemplated Transactions based upon arrangements made by or on behalf of RMT Parent
or any of its Subsidiaries. RMT Parent shall be solely responsible for the fees and expenses of Citigroup Global Markets Inc.
Section 5.22
Government Contracts
. With respect to Government Contracts, Government Bids and Teaming Agreements of RMT Parent and its Subsidiaries:
(a)
Except as set forth in
Section 5.22(a)
of the RMT Parent Disclosure Letter, the RMT Parent Entities are not parties to or otherwise bound by or subject to (it being understood that Government Contracts or Government Bids the disclosure
of or reference to which is prohibited by NISPOM or the comparable regulations of other Governmental Authorities are not required to be listed on
Section 5.22
of the RMT Parent Disclosure Letter):
(i) any Current Government Contract where the aggregate revenues during the calendar year ended December 31, 2015 were in excess of
$30,000,000;
(ii) any material Government Bid for which an award has not been issued where the anticipated annual revenues will be
in excess of $30,000,000; or
(iii) any material Teaming Agreement.
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(b) Each Current Government Contract is in full force and effect and constitutes a legal, valid and binding
agreement, enforceable in accordance with its terms. To the Knowledge of RMT Parent, each Current Government Contract was awarded in compliance with Applicable Law. RMT Parent has not received written notice that any Current Government Contract or
Government Bid is the subject of protest proceedings.
(c) Except as set forth in
Section 5.22(c)
of the RMT Parent Disclosure Letter,
and solely to the extent relating to the business of RMT Parent and its Subsidiaries(i) since January 1, 2013, RMT Parent and its Subsidiaries have complied and are in compliance in all material respects with all contract terms, conditions,
provisions, and requirements (whether stated or incorporated expressly, by reference, or by operation of law) and all requirements of Applicable Law pertaining to any Government Contract or Government Bid of RMT Parent or its Subsidiaries;
(ii) since January 1, 2013, all representations, certifications and statements made, executed, acknowledged or submitted, in each case in writing, to a Governmental Authority in connection with a Government Contract or Government Bid were
materially current, accurate and complete as of their respective effective dates; (iii) neither the U.S. Government nor any prime contractor, subcontractor or other Person has notified RMT Parent or any of its Subsidiaries in writing that RMT
Parent or its applicable Subsidiary has breached or violated any Applicable Law or contract term, condition, provisions, or requirement pertaining to such Current Government Contract that would reasonably be expected to adversely and materially
affect (A) the collectability of any receivable or (B) the award of Government Contracts in the future; and (iv) no termination for default, or cure notice or show cause notice, is currently in effect or, to RMT Parents
knowledge, currently threatened pertaining to any Current Government Contract, and, to RMT Parents knowledge, there is no fact or circumstance that is reasonably likely to give rise to a termination for default of any Current Government
Contract.
(d) Except as set forth in
Section 5.22(d)
of the RMT Parent Disclosure Letter, none of RMT Parents Principals (as
defined in FAR 52.209-5) with respect to the Government Contracts or Government Bids is or during the last three years has been (i) debarred, suspended or excluded from participation in, or the award of, Government Contracts or doing business
with any Governmental Authority, (ii) the subject of a finding of material non-compliance, non-responsibility or ineligibility for government contracting or for any reason is listed on the List of Parties Excluded from Federal Procurement and
Nonprocurement Programs or (iii) currently proposed for, or has been subject to suspension, debarment or exclusion proceedings or threatened suspension, debarment or exclusion proceedings.
(e) Except as set forth in
Section 5.22(e)
of the RMT Parent Disclosure Letter, there are (i) no outstanding claims, contract disputes
for which the amount in dispute exceeds $500,000, or requests for equitable adjustment against any RMT Parent or its Subsidiaries by any Governmental Authority or by any prime contractor, higher or lower tier subcontractor, vendor or other third
party arising under or relating to any Government Contract and (ii) no outstanding material disputes with respect to the business of RMT Parent or its Subsidiaries between any RMT Parent Entity on the one hand, and a Governmental Authority on
the other hand, under the Contract Disputes Act or between any RMT Parent Entity on the one hand, and any prime contractor, higher or lower tier subcontractor, vendor or other third party on the other hand, arising under or relating to any such
Government Contract or Government Bid.
(f) The cost accounting systems and business systems (as defined in Defense Federal Acquisition Regulation
Supplement 242.7001 & 252.242-7005) used by RMT Parent and its Subsidiaries and the associated entries reflected in the financial and business records of RMT Parent and its Subsidiaries with respect to Government Contracts and Government
Bids are (and since January 1, 2013 have been) in compliance in all material respects with Applicable Law, and (i) business systems have been approved, where applicable, by the Defense Contract Management Agency as adequate for
accumulating and billing costs under and otherwise for complying with Government Contracts, to the extent evaluated, and (ii) to the Knowledge of RMT Parent, such cost accounting systems are adequate to meet the standards promulgated by the
Cost Accounting Standards Board required for complying with the terms and conditions of the Government Contracts and Applicable Law.
(g) Except as
set forth in
Section 5.22(g)
of the RMT Parent Disclosure Letter, as of the date of this Agreement, (i) to the knowledge of RMT Parent, there are no pending administrative, civil or criminal investigations, audits, civil
investigation demands, subpoenas or indictments by any Governmental Authority concerning RMT Parents or any other RMT Parent Entitys Government Contracts. Except as set forth in
Section 5.22(g)
of the RMT
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Parent Disclosure Letter, and except where it has not had, or would not reasonably be expected to have an RMT Parent Material Adverse Effect, during the past six years, neither RMT Parent, nor,
to the Knowledge of RMT Parent, any of its personnel (i) has made any disclosure to any Governmental Authority pursuant to any voluntary disclosure agreement or the FAR mandatory disclosure provisions (FAR 9.406-22(b)(1)(vi),
9.407-2(a)(8) & 52.203-13) in connection with any Government Contract or Government Bid, (ii) has received credible evidence of a violation of federal criminal law involving the fraud, conflict of interest, bribery, or gratuity
provisions found in Title 18 of the U.S. Code, a violation of the civil False Claims Act, or a significant overpayment, in connection with the award, performance, or closeout of any Government Contract or receiving a Government Contract as a result
of a Government Bid, or (iii) has initiated any formal internal investigation into such matter or possible matter.
(h) Except as set forth in
Section 5.22(h)
of the RMT Parent Disclosure Letter, RMT Parent has not received during the past three years, written notice of any government past performance evaluations or ratings of less than satisfactory in the Contractor
Performance Assessment Reporting System in connection with the Government Contracts.
(i) Except as set forth in
Section 5.22(i)
of the
RMT Parent Disclosure Letter, each of RMT Parent and its Subsidiaries has in the past three years received a rating of satisfactory or better and complied in all material respects with all applicable requirements relating to the safeguarding of and
access to classified information, including those specified in the National Industrial Security Program Operating Manual. No notice of revocation, suspension or invalidation from the Defense Security Service or any other Governmental Authority
has been issued as of the date hereof and remains unresolved with respect to any such facility security clearance and, to the Knowledge of RMT Parent, no event, condition or omission has occurred or exists that would constitute grounds for such
action or notice.
Section 5.23
International Trade Laws and Regulations
.
(a) Since January 1, 2013, RMT Parent and its Subsidiaries have been and are currently in compliance in all material respects with all
International Trade Laws and Regulations, have not engaged in any transactions, or otherwise dealt with any country, or other Person with whom United States Persons are prohibited from dealing under applicable International Trade Laws and
Regulations, and have not participated directly or indirectly in any boycotts or other similar practices in violation of International Trade Laws and Regulations, and there are no Proceedings pending or, to the knowledge of RMT Parent, threatened
between any RMT Parent Entity and any Governmental Authority under any of the International Trade Laws and Regulations that would reasonably be expected to have an RMT Parent Material Adverse Effect or would reasonably be expected to prevent or
materially delay the consummation by RMT Parent of the Contemplated Transactions.
(b) RMT Parent has been and is registered with the Directorate of
Defense Trade Controls, United States Department of State, as an entity that engages in the United States in the business of either manufacturing or exporting defense articles or furnishing defense services, as those terms
are defined in the ITAR, in connection with the operation of its business. Except as would not reasonably be expected to have an RMT Parent Material Adverse Effect, neither RMT Parent nor any of its Subsidiaries has manufactured defense
articles, exported defense articles or furnished defense services or technical data to foreign nationals in the U.S. or abroad, as those terms are defined in 22 C.F.R. part 120, except pursuant to a valid
license or other valid legal authorization and otherwise in accordance with Applicable Law.
(c) No RMT Parent Entity or Representative of an RMT
Parent Entity has offered or given, and RMT Parent has no knowledge of any Person that has offered or given on its behalf, anything of value to (a) any official, member, employer or customer of a Governmental Authority, any political party or
official thereof, or any candidate for political office, (b) any customer or member of the government or (c) any other Person, in any such case while knowing or having reason to know that all or a portion of such money or thing of value
may be offered, given or promised, directly or indirectly, to any customer, member of the government or candidate for political office, in each case in violation of the FCPA, laws and regulations by other countries implementing the OECD Convention
on Combating Bribery of Foreign Officials or other Applicable Laws of similar effect.
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Section 5.24
Disclaimer of RMT Parent and Merger Sub
.
(a) EXCEPT AS EXPRESSLY SET FORTH IN THIS
ARTICLE V
OR IN THE OTHER TRANSACTION DOCUMENTS, NONE OF RMT PARENT, MERGER SUB OR THEIR RESPECTIVE
REPRESENTATIVES MAKES OR HAS MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, IN RESPECT OF THE CONTEMPLATED TRANSACTIONS OR ANY OF THEIR BUSINESSES OR THEIR SUBSIDIARIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE IV
OR IN THE OTHER TRANSACTION DOCUMENTS, RMT PARENT, MERGER SUB AND THEIR RESPECTIVE REPRESENTATIVES HAVE NOT MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT LAW OR IN EQUITY, WITH RESPECT TO (I) MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR USE OR PURPOSE AND ALL OTHER WARRANTIES ARISING UNDER THE UNIFORM COMMERCIAL CODE (OR SIMILAR LAWS), (II) THE OPERATION OF THEIR BUSINESSES AFTER THE CLOSING OR (III) THE PROBABLE SUCCESS, PROFITABILITY OR PROSPECTS OF THEIR BUSINESSES
AFTER THE CLOSING AND ANY SUCH REPRESENTATION OR WARRANTY IS HEREBY EXPRESSLY DISCLAIMED.
(b) EXCEPT AS EXPRESSLY SET FORTH HEREIN OR IN THE OTHER
TRANSACTION DOCUMENTS, NONE OF RMT PARENT, MERGER SUB, OR THEIR RESPECTIVE REPRESENTATIVES WILL HAVE OR BE SUBJECT TO ANY LIABILITY OR INDEMNIFICATION OBLIGATION TO LMC, SPINCO OR THEIR REPRESENTATIVES OR TO ANY OTHER PERSON RESULTING FROM THE
DISTRIBUTION TO LMC, SPINCO, OR THEIR REPRESENTATIVES, OR LMCS, SPINCOS OR THEIR REPRESENTATIVES USE OF, ANY INFORMATION RELATING TO THE BUSINESSES OF RMT PARENT AND ITS SUBSIDIARIES, INCLUDING ANY INFORMATION, DOCUMENTS,
PROJECTIONS, FORECASTS, BUSINESS PLANS, OFFERING MATERIALS OR OTHER MATERIAL MADE AVAILABLE TO LMC OR ITS REPRESENTATIVES OR POTENTIAL FINANCING SOURCES, WHETHER ORALLY OR IN WRITING, IN CERTAIN DATA ROOMS, MANAGEMENT PRESENTATIONS,
FUNCTIONAL BREAK-OUT DISCUSSIONS, EXPERT SESSIONS, SITE TOURS OR VISITS, DILIGENCE CALLS OR MEETINGS, RESPONSES TO QUESTIONS SUBMITTED ON BEHALF OF LMC OR ITS REPRESENTATIVES OR IN ANY OTHER FORM IN CONNECTION WITH THE
CONTEMPLATED TRANSACTIONS.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.01
Conduct of Business by LMC Pending the Merger
.
(a) From the date of this Agreement and until the earlier of the Closing Date or the date on which this Agreement is terminated in accordance with
Section 9.01
, except, (i) as set forth in
Section 6.01
of the LMC Disclosure Letter, (ii) for or as contemplated by the Internal Reorganization, the Distribution and the other Contemplated Transactions,
(iii) for actions required by Applicable Law, and (iv) as RMT Parent otherwise shall consent to in writing (such consent not to be unreasonably withheld, delayed or conditioned), (A) LMC shall, and shall cause its Subsidiaries to, use
reasonable best efforts to conduct the Spinco Business in the ordinary course in all material respects and preserve intact in all material respects the business organization of the Spinco Business, and (B) LMC shall not, and shall cause its
Subsidiaries not to, to the extent relating to the Spinco Business, and shall cause the Transferred Subsidiaries not to, in each case, in a manner consistent with the following:
(i) (A) issue, sell, pledge or dispose of, (B) grant a Lien on or permit a Lien to exist on or (C) authorize the issuance,
sale, pledge or disposition of, or granting or placing of a Lien on, the LMC JV Interests or any shares of any class of capital stock, or other ownership interests, of any of the Transferred Subsidiaries, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such capital stock, or any other ownership interest (including any phantom interest) of any of the Transferred Subsidiaries or JV Entities;
(ii) (A) sell, pledge or dispose of, (B) grant a Lien on or permit a Lien to exist on or (C) authorize the sale, pledge or
disposition of, or granting or placing of a Lien on, any material assets of the Spinco Business, except (1) in the ordinary course of business and consistent with past practice; (2) dispositions of obsolete or worn-out assets that are no
longer used or useful in the operation or conduct of the Spinco Business; and (3) Liens that are Permitted Liens;
(iii) amend
or restate the articles or certificate of incorporation or bylaws (or similar organizational documents) of any Transferred Subsidiary, other than to change its name;
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(iv) adjust, reclassify, combine, split, subdivide or redeem, or purchase or otherwise
acquire, directly or indirectly, any capital stock of a Transferred Subsidiary;
(v) (A) acquire or dispose of (including by merger,
consolidation or acquisition of stock or assets or any other business combination) any corporation, partnership, other business organization or any division thereof or (B) make any loans or advances or capital contribution to, or investment in,
any Person other than a Transferred Subsidiary, except in each case for bidding joint ventures formed for a specific procurement in the ordinary course of business;
(vi) (A) grant any increase in the base salaries, target bonus opportunity, or other benefits payable by LMC or its Affiliates to any of
the Spinco Business Employees, (B) adopt, terminate, accelerate the timing of payments or vesting under, or otherwise materially amend or supplement, any LMC Plan as it relates to any of the Spinco Business Employees, (C) adopt, amend or
terminate any LMC Union Contract or (D) enter into or amend any employment, consulting, change in control, retention, severance or termination agreement with any Spinco Business Employee, in each case, other than (1) as required by
Applicable Law, (2) as required by any LMC Plan or any LMC Union Contract, each as in effect on the date hereof, (3) grants of equity or equity-based awards pursuant to LMCs equity compensation plans in the ordinary course of
business up to an aggregate grant date fair market value of $25,000,000, or, (4) in the ordinary course of business consistent with the past practices of LMC or its Affiliates (including in the context of new hires or promotions based on job
performance or workplace requirements) or (5) to the extent undertaken in connection with the implementation of a program that affects all similarly situated employees of LMC and/or its Affiliates and does not disproportionately increase the
compensation and benefits of the Spinco Business Employees relative to such other similarly situated employees;
(vii) waive or
remove any material restriction under any LMC Plan;
(viii) change any method of accounting or accounting practice or policy used by
LMC as it relates to the Spinco Business, other than such changes as are required by GAAP, Applicable Law or a Governmental Authority;
(ix) (A) terminate, discontinue, close or dispose of any business operation that is part of the Spinco Business, or lay off any Spinco
Business Employees (other than layoffs of less than 50 employees at any individual location in any six month period in the ordinary course of business consistent with past practice); or (B) transfer internally or otherwise alter the duties and
responsibilities of any individual, including any employee of LMC and its Affiliates, in a manner that would affect whether such individual is or is not classified as a Spinco Business Employee, except, in each case, to the extent contemplated or
required by the Employee Matters Agreement;
(x) other than in the ordinary course of business and consistent with past practice or
as required by Applicable Law, (A) make any change (or file any such change) in any method of Tax accounting or any annual Tax accounting period, (B) make, change or rescind any Tax election, (C) settle or compromise any Tax liability
or consent to any claim or assessment relating to Taxes, (D) file any amended Tax Return or claim for refund, (E) enter into any closing agreement relating to Taxes (other than a closing agreement described in Section 3(a) of the Tax
Matters Agreement) or (F) waive or extend the statute of limitations in respect of Taxes, in each case, to the extent that doing so would reasonably be expected to result in a material incremental cost to Spinco or RMT Parent or any of the
Transferred Subsidiaries;
(xi) pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business and consistent with past practice, of liabilities reflected or reserved against in the Spinco Financial Statements or Spinco
Audited Financial Statements or subsequently incurred in the ordinary course of business and consistent with past practice, unless such payment, discharge or satisfaction does not impose any payment obligations on a Spinco Company following the
Cut-Off Time and otherwise would not restrict the operation of the Spinco Business following the Merger Effective Time;
(xii) incur,
guarantee or assume or otherwise become responsible for any indebtedness for borrowed money other than (A) indebtedness solely between or among LMC Entities that will be repaid prior to the Distribution, (B) the Spinco Debt,
(C) indebtedness solely between or among any of the Transferred Subsidiaries and (D) letters of credit or similar arrangements entered into in the ordinary course of business consistent with past practice;
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(xiii) commence or settle any Proceeding other than in the ordinary course of business and
consistent with past practice;
(xiv) other than in the ordinary course of business and consistent with past practice materially
amend (other than an extension), cancel or terminate any Spinco Material Contract, IP License, material Government Contracts, or any Government Bid;
(xv) (A) abandon, disclaim, sell, assign or grant any security interest in, to or under any material Spinco Intellectual Property,
including failing to perform or cause to be performed all applicable filings, recordings and other acts, or to pay or cause to be paid all required fees and Taxes, to maintain and protect its interest in any material Spinco Intellectual Property,
(B) grant to any third party any exclusive license, or enter into any covenant not to sue, or (C) disclose to any Person any material trade secret or confidential Data that would constitute a Transferred Asset, with respect to any
(y) material Licensed Intellectual Property as it relates to the Spinco Business or (z) material Transferred Intellectual Property, in each case, except in the ordinary course of business and consistent with past practice;
(xvi) fail to maintain (with insurance companies substantially as financially responsible as their existing insurers) insurance in at
least such amounts and against at least such risks and losses as are consistent in all material respects with the past practice of the Spinco Business, except to the extent such actions affect similarly situated businesses of LMC and its
Subsidiaries and do not disproportionately affect the Spinco Business;
(xvii) adopt a plan or agreement of complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other material reorganization; or
(xviii) enter
into any agreement to do any of the foregoing.
(b) From the date of this Agreement until the Distribution, LMC shall cause each of the Transferred
Subsidiaries to (i) prepare and timely file all Tax Returns that it is required to file, (ii) timely pay all Taxes shown to be due and payable on such Tax Returns and (iii) promptly notify RMT Parent of any notice of any material
Proceeding or audit in respect of any Tax matters (or any significant developments with respect to ongoing Proceedings or audits in respect of such Tax matters) affecting a Transferred Subsidiary.
Section 6.02
Conduct of Business by RMT Parent Pending the Merger
.
(a) From the date of this Agreement and until the earlier of the Closing Date and the date on which this Agreement is terminated in accordance with
Section 9.01
, except, (i) as set forth in
Section 6.02
of the RMT Parent Disclosure Letter, (ii) for the Contemplated Transactions, (iii) for actions required by Applicable Law, and (iv) as LMC otherwise
shall consent to in writing (such consent not to be unreasonably withheld, delayed or conditioned), (A) RMT Parent shall, and shall cause its Subsidiaries to, use reasonable best efforts to conduct its and their businesses in the ordinary
course in all material respects and preserve intact in all material respects the business organization of their businesses, and (B) RMT Parent shall not, and shall cause its Subsidiaries not to:
(i) (A) issue, sell, pledge or dispose of, (B) grant a Lien on or permit a Lien to exist on or (C) authorize the issuance,
sale, pledge or disposition of, or granting or placing of a Lien on, any shares of any class of capital stock, or other ownership interests, of RMT Parent or any of its Subsidiaries, or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of such capital stock, or any other ownership interest (including any phantom interest) of RMT Parent or any of its Subsidiaries, other than, as applicable, (1) any such transaction by a directly or indirectly
wholly owned Subsidiary of RMT Parent which remains a directly or indirectly wholly owned Subsidiary of RMT Parent after consummation of such transaction, (2) upon the exercise or settlement of, or as otherwise required by, any RMT Parent Stock
Awards granted pursuant to the RMT Parent Stock Plans outstanding on the date of this Agreement and in accordance with their terms in effect on the date of this Agreement or thereafter granted in the ordinary course of business or (3) pursuant
to the RMT Parent Share Issuance;
(ii) (A) sell, pledge or dispose of, (B) grant a Lien on or permit a Lien to exist on or
(C) authorize the sale, pledge or disposition of, or granting or placing of a Lien on, any material assets of the businesses of RMT Parent and its Subsidiaries, except (1) in the ordinary course of business and consistent with past
practice, (2) dispositions of obsolete or worn-out assets that are no longer used or useful in the operation or conduct
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of the business of RMT Parent or its Subsidiaries, (3) Liens that are Permitted Liens and (4) Liens securing indebtedness that would not be prohibited by
Section 6.02(a)(ix)
;
(iii) amend or restate the articles or certificate of incorporation or bylaws (or similar
organizational documents) of RMT Parent or any of its material Subsidiaries (other than immaterial amendments to any such RMT Parent Subsidiary organizational documents);
(iv) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock or property, with respect to any of its
capital stock except for (A) the declaration and payment of regular quarterly cash dividends not in excess of $0.32 per share in respect of RMT Parent Common Stock, (B) dividends or distributions by any directly or indirectly wholly owned
Subsidiary of RMT Parent, and (C) the RMT Parent Special Dividend;
(v) (A) acquire or dispose of (including by merger,
consolidation or acquisition of stock or assets or any other business combination) any corporation, partnership, other business organization or any division thereof, other than acquisitions not exceeding $25,000,000 in the aggregate and dispositions
not exceeding $25,000,000 in the aggregate; or (B) make any loans or advances or capital contribution to, or investment in, any Person other than RMT Parent or a Subsidiary of RMT Parent, except in each case for bidding joint ventures formed
for a specific procurement in the ordinary course of business;
(vi) (A) grant any increase in the base salaries, target bonus
opportunity, or other benefits payable by RMT Parent or its Subsidiaries to any of its employees, (B) adopt, terminate, accelerate the timing of payments or vesting under, or otherwise materially amend or supplement, any RMT Parent Plans or
(C) enter into or amend any employment, consulting, change in control, retention, severance or termination agreement with any RMT Parent Employee, in each case, other than (1) as required by Applicable Law, (2) as required by any RMT
Parent Plan or RMT Parent Union Contract, each as in effect on the date hereof, (3) grants of equity or equity-based awards pursuant to RMT Parents equity compensation plans in the ordinary course of business up to an aggregate grant date
fair market value of $45,000,000, (4) in the ordinary course of business consistent with the past practices of RMT Parent or its Subsidiaries (including in the context of new hires or promotions based on job performance or workplace
requirements) or (5) to the extent undertaken in connection with the implementation of a program that affects all similarly situated employees of RMT Parent and/or its Subsidiaries;
(vii) change any method of accounting or accounting practice or policy used by RMT Parent as it relates to the businesses of RMT Parent
and its Subsidiaries, other than such changes as are required by GAAP, Applicable Law or a Governmental Authority;
(viii) other than
in the ordinary course of business and consistent with past practice or as required by Applicable Law, (A) make any change (or file any such change) in any method of Tax accounting or any annual Tax accounting period, (B) make, change or
rescind any Tax election, (C) settle or compromise any Tax liability or consent to any claim or assessment relating to Taxes, (D) file any amended Tax Return or claim for refund, (E) enter into any closing agreement relating to Taxes
or (F) waive or extend the statute of limitations in respect of Taxes, in each case, to the extent that doing so would reasonably be expected to result in a material incremental cost to Spinco or RMT Parent or any of its Subsidiaries;
(ix) incur, guarantee or assume or otherwise become responsible for any indebtedness for borrowed money other than (A) indebtedness
incurred under RMT Parents current credit facilities (other than to finance an acquisition of a material business), (B) indebtedness solely between or among RMT Parent and its Subsidiaries, (C) refinancings, replacements, extensions
and renewals of existing indebtedness entered into in the ordinary course of business consistent with past practice, (D) indebtedness incurred in connection with the Contemplated Transactions, (E) indebtedness incurred to finance the RMT
Parent Special Dividend), and (F) letters of credit or similar arrangements entered into in the ordinary course of business consistent with past practice;
(x) commence or settle any Proceeding other than in the ordinary course of business and consistent with past practice;
(xi) other than in the ordinary course of business and consistent with past practice materially amend (other than an extension), cancel
or terminate any RMT Parent Material Contract, any RMT Parent License or any material Government Bid for which an award has not been issued;
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(xii) (A) abandon, disclaim, sell, assign or grant any security interest in, to or under
any material RMT Parent Intellectual Property, including failing to perform or cause to be performed all applicable filings, recordings and other acts, or to pay or cause to be paid all required fees and Taxes, to maintain and protect its interest
in any material RMT Parent Intellectual Property or (B) grant to any third party any exclusive license, or enter into any covenant not to sue with respect to any material RMT Parent Intellectual Property, except in the ordinary course of
business and consistent with past practice;
(xiii) fail to maintain (with insurance companies substantially as financially
responsible as their existing insurers) insurance in at least such amounts and against at least such risks and losses as are consistent in all material respects with the past practice of the businesses of RMT Parent and its Subsidiaries; or
(xiv) enter into any agreement to do any of the foregoing.
(b) From the date of this Agreement until the Merger Effective Time, RMT Parent shall, and shall cause each of its Subsidiaries to, (i) prepare and
timely file all Tax Returns that it is required to file, (ii) timely pay all Taxes shown to be due and payable on such Tax Returns and (iii) promptly notify LMC of any notice of any material Proceeding or audit in respect of any Tax
matters (or any significant developments with respect to ongoing Proceedings or audits in respect of such Tax matters).
ARTICLE VII
ADDITIONAL COVENANTS AND AGREEMENTS
Section 7.01
Registration Statements; Proxy Statement; Schedule TO; Merger Sub and Spinco Stockholder Approvals
.
(a) As promptly as reasonably practicable following the date hereof, to the extent such filings are required by Applicable Law in connection with the
transactions contemplated by this Agreement, LMC shall cause to be prepared the audited financial statements contemplated by
Section 7.16
and as promptly as practicable after the date such audited financial statements are delivered to
RMT Parent, (i) LMC, Spinco, RMT Parent and Merger Sub shall jointly prepare, and RMT Parent shall file with the SEC, a proxy statement relating to the RMT Parent Stockholder Approval (together with all supplements and amendments thereto, the
Proxy Statement
) and a registration statement on Form S-4 to register under the Securities Act the RMT Parent Share Issuance (together with all supplements and amendments, prospectuses or information statements, the
RMT
Parent Registration Statement
), (ii) LMC, Spinco, RMT Parent and Merger Sub shall jointly prepare, and Spinco shall file with the SEC, a registration statement on Form 10 or Form S-1 (if the Distribution is effected in whole as a
pro rata
dividend), on Form S-4 (if the Distribution is effected in whole as an exchange offer) or on a combined Form S-4/S-1 (if the Distribution is effected otherwise) to register under the Exchange Act or the Securities Act, as the case
may be, the Spinco Common Stock to be distributed in the Distribution (together with all supplements and amendments, prospectuses or information statements, the
Spinco Registration Statement
and, together with the RMT Parent
Registration Statement, the
Registration Statements
) and (iii) if the Distribution is effected in whole or in part as an exchange offer, LMC shall prepare and file with the SEC, when and as required, a Schedule TO and other
filings pursuant to Rule 13e-4 under the Exchange Act (collectively, the
Schedule TO
).
(b) Each of LMC, Spinco, RMT Parent and
Merger Sub shall use its reasonable best efforts to have the Registration Statements declared effective under the Exchange Act or the Securities Act, as applicable, as promptly as practicable after such filing, and RMT Parent shall cause the Proxy
Statement to be mailed to the holders of RMT Parent Common Stock as promptly as practicable following the date on which the SEC clears (whether orally or in writing) the Proxy Statement and, if required by the SEC as a condition to the mailing of
the Proxy Statement, the RMT Parent Registration Statement is declared effective. Each of RMT Parent and LMC shall also take any action required to be taken under any applicable state securities laws or regulations in connection with, in the case of
RMT Parent, the RMT Parent Share Issuance and, in the case of LMC, the issuance and distribution of the Spinco Common Stock in the Distribution and, if applicable, the exchange of Spinco Common Stock pursuant to the Exchange Offer. The Parties shall
cooperate in preparing and filing with the SEC the Proxy Statement, the Registration Statements, the Schedule TO and any necessary amendments or supplements thereto. RMT Parent and Merger Sub shall furnish all information concerning RMT Parent and
the RMT Parent Entities, and LMC and Spinco
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shall furnish all information concerning LMC, the Spinco Business and the Transferred Subsidiaries as may be reasonably requested by the other Parties in connection with the preparation, filing
and distribution of the Proxy Statement, the Registration Statements, the Schedule TO and any necessary amendments or supplements thereto. None of the Proxy Statement, the Registration Statements, the Schedule TO nor any amendment or supplement
thereto shall be filed or mailed to stockholders without the written consent of all of the Parties (such consent not to be unreasonably withheld, delayed or conditioned).
(c) The Proxy Statement shall (i) state that the RMT Parent Board has approved this Agreement and the transactions contemplated hereby, and
approved the RMT Parent Share Issuance and (ii) subject to
Section 7.03(d)
, include the RMT Parent Recommendation (except to the extent that RMT Parent effects a Change in the RMT Parent Recommendation in accordance with
Section 7.03(d)
).
(d) Except for, but subject to
Section 10.07
, ordinary course communications filed pursuant to Rule 425
under the Securities Act and as required by Applicable Law or in connection with a Change in the RMT Parent Recommendation, no amendment or supplement to the Proxy Statement, a Registration Statement or the Schedule TO shall be made without the
prior consent of the other Parties (which shall not be unreasonably withheld, conditioned or delayed). RMT Parent and LMC, as applicable, shall advise the other promptly after receiving oral or written notice of (i) the time when a Registration
Statement has become effective or any supplement or amendment to the Proxy Statement or a Registration Statement has been filed, (ii) the issuance of any stop order; (iii) the suspension of the qualification for offering or sale in any
jurisdiction of the RMT Parent Common Stock issuable in connection with the Merger or the Spinco Common Stock issuable in connection with the Distribution, or (iv) any oral or written request by the SEC for amendment of the Proxy Statement, a
Registration Statement or the Schedule TO or SEC comments thereon or requests by the SEC for additional information. RMT Parent and LMC shall promptly provide each other with copies of any written communication from the SEC and summaries of any oral
communications with the SEC with respect to the Proxy Statement, the Registration Statements or the Schedule TO and shall cooperate to prepare appropriate responses thereto (and will provide each other with copies of any such responses given to the
SEC) and make such modifications to the Proxy Statement, the Registration Statements and the Schedule TO as shall be reasonably appropriate.
(e)
If, at any time prior to the Merger Effective Time, any event or circumstance shall be discovered by a Party that should be set forth in an amendment or a supplement to a Registration Statement, the Proxy Statement or the Schedule TO so that any
such document would not include any misstatement of a material fact or fail to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, such Party shall promptly
inform the other Parties and the Parties shall cause an appropriate amendment or supplement describing such information to be promptly filed with the SEC and, to the extent required by Applicable Law, disseminated to stockholders.
(f) In connection with the filing of the Registration Statements and other SEC filings contemplated hereby, each of LMC and RMT Parent shall use its
reasonable best efforts to (i) cooperate with the other to prepare financial statements (including audited, unaudited and pro forma financial statements as required by the SEC and Applicable Law) that comply with the rules and regulations of
the SEC to the extent required for SEC filings, including the requirements of Regulation S-X and (ii) provide and make reasonably available upon reasonable notice the senior management employees of LMC or RMT Parent, as the case may be, to
discuss the materials prepared and delivered pursuant to this
Section 7.01(f)
.
Section 7.02
RMT Parent Stockholders
Meeting
.
RMT Parent shall establish a record date and take all other lawful action to call, give notice of, convene and hold a meeting of its
stockholders (the
RMT Parent Stockholders Meeting
) as promptly as practicable following the date on which the SEC clears (whether orally or in writing) the Proxy Statement and, if required by the SEC as a condition to the
mailing of the Proxy Statement, the RMT Parent Registration Statement is declared effective, for the purpose of obtaining the RMT Parent Stockholder Approval. RMT Parent agrees that the obligation of RMT Parent to call, give notice of, convene and
hold the RMT Parent Stockholders Meeting shall not be limited or otherwise affected by (a) the commencement, disclosure, announcement or submission to RMT Parent or its stockholders of any Competing RMT Parent Transaction, or (b) any
Change in the RMT Parent Recommendation. Subject to
Section 7.03(d)
, RMT Parent shall solicit from its stockholders proxies in favor of the RMT Parent Stockholder
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Approval and shall take all other action reasonably necessary or advisable to secure the RMT Parent Stockholder Approval. RMT Parent agrees that it shall not submit to a vote of the stockholders
of RMT Parent any Competing RMT Parent Transaction or Competing RMT Parent Transaction Agreement (in either case, whether or not a Superior Proposal) prior to the vote of RMT Parents stockholders to obtain the RMT Parent Stockholder Approval.
Section 7.03
No Solicitation of Transactions
.
(a) RMT Parent agrees that it will not, nor will it permit any of its Subsidiaries to, and that it will instruct its Representatives not to, directly or
indirectly, (i) solicit, initiate or knowingly encourage (including by way of furnishing non-public information), or take any other action to knowingly facilitate, any inquiries or the making of any proposal or offer (including any proposal or
offer to RMT Parents stockholders), with respect to any Competing RMT Parent Transaction, (ii) enter into, maintain, continue or otherwise engage or participate in any discussions or negotiations with any Person or entity in furtherance
of such inquiries or to obtain a proposal or offer with respect to a Competing RMT Parent Transaction, (iii) agree to, approve, endorse, recommend or consummate any Competing RMT Parent Transaction, (iv) enter into any Competing RMT Parent
Transaction Agreement or (v) resolve, propose or agree, or authorize or permit any Representative, to do any of the foregoing. RMT Parent acknowledges and agrees that it shall be responsible for the actions of its Subsidiaries and
Representatives. RMT Parent acknowledges and agrees that the taking of any of the actions contemplated by the foregoing clauses (i) through (v) by RMT Parent or any of its Subsidiaries shall be deemed to be a breach by RMT Parent of this
Section 7.03(a)
. RMT Parent acknowledges and agrees that if any of its Representatives takes any actions that, if taken by RMT Parent, would constitute a breach of this
Section 7.03
, such actions shall be attributed to RMT
Parent and RMT Parent shall be responsible. RMT Parent shall, and shall cause its Subsidiaries to, and shall instruct its Representatives to, immediately cease and cause to be terminated all existing discussions or negotiations with any Persons
(other than LMC and its Affiliates) conducted prior to the execution of this Agreement by RMT Parent or any of its Subsidiaries or Representatives with respect to a Competing RMT Parent Transaction. RMT Parent shall not, and shall cause its
Subsidiaries not to, and RMT Parent shall instruct its Representatives not to, release any third party from, or waive any provision of, any confidentiality or, subject to applicable fiduciary duties under Applicable Law, standstill agreement to
which it or one of its Affiliates is a party in connection with a Competing RMT Parent Transaction. RMT Parent shall, and shall cause its Subsidiaries to, promptly request each Person (other than LMC and its Affiliates) that has heretofore executed
a confidentiality agreement with RMT Parent or any of its Subsidiaries in connection with such Persons consideration of a Competing RMT Parent Transaction (whether by merger, acquisition of stock or assets or otherwise), to return (or if
permitted by the applicable confidentiality agreement, destroy) all information required to be returned (or, if applicable, destroyed) by such Person under the terms of the applicable confidentiality agreement and, if requested by LMC, to enforce
such Persons obligation to do so.
(b) RMT Parent shall promptly (and in any event within 24 hours after RMT Parent attains knowledge thereof)
notify LMC, orally and in writing, after the receipt by RMT Parent or any of its Representatives of any proposal, inquiry, offer or request (or any amendment thereto) with respect to a Competing RMT Parent Transaction, including any request for
discussions or negotiations and any request for information relating to RMT Parent or any of its Affiliates or for access to the business, properties, assets, books or records of RMT Parent or any of its Affiliates. Such notice shall indicate the
identity of the Person making such proposal, inquiry, offer or request and a description of such proposal, inquiry, offer or request, including the terms and conditions (if any) of such proposed Competing RMT Parent Transaction, and RMT Parent shall
promptly (and in any event within 24 hours after receipt by RMT Parent) provide to LMC copies of any written materials received by RMT Parent in connection with any of the foregoing. RMT Parent agrees that it shall keep LMC reasonably informed of
the status and material details of (including discussions with respect to or amendments or proposed amendments to) (i) any such proposal, inquiry, offer or request and (ii) any information requested of or provided by RMT Parent pursuant to
Section 7.03(c)
. RMT Parent shall provide LMC with at least 48 hours prior notice of any meeting of the RMT Parent Board at which the RMT Parent Board is reasonably expected to consider any proposal, inquiry, offer or request with
respect thereto (or any lesser advance notice otherwise provided to members of the RMT Parent Board in respect of such meeting). RMT Parent agrees that it shall substantially simultaneously provide to LMC any non-public information concerning RMT
Parent that may be made available pursuant to
Section 7.03(c)
to any other Person in response to any such proposal, inquiry, offer or request (or any amendment thereto) unless such information has previously been provided or made
available by RMT Parent to LMC.
(c) Notwithstanding anything to the contrary in this
Section 7.03
, at any time prior to the receipt of
the RMT Parent Stockholder Approval, RMT Parent may furnish information to, and enter into discussions and negotiations
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with, a Person who has made an unsolicited, written, bona fide proposal or offer with respect to a Competing RMT Parent Transaction that did not arise or result from any breach of this
Section 7.03
if, prior to furnishing such information and entering into such discussions, the RMT Parent Board has (i) determined, in its good faith judgment (after consulting with a financial advisor of nationally recognized
reputation and outside legal counsel) that such proposal or offer constitutes, or is reasonably likely to lead to, a Superior Proposal and has determined, in its good faith judgment (after consulting with outside legal counsel) that the failure to
furnish such information to, or enter into such discussions with, the Person who made such proposal or offer would be inconsistent with the RMT Parent Boards fiduciary duties to RMT Parent and/or its stockholders under Applicable Law,
(ii) provided written notice to LMC of its intent to furnish information or enter into discussions with such Person at least three Business Days prior to taking the first of any such action with respect to any given Person and
(iii) obtained from such Person an Acceptable Confidentiality Agreement (it being understood that an Acceptable Confidentiality Agreement and any related agreements shall not include any provision granting such Person exclusive rights to
negotiate with RMT Parent or having the effect of prohibiting RMT Parent from satisfying its obligations under this Agreement) and, immediately upon its execution, delivered to LMC a copy of such Acceptable Confidentiality Agreement.
(d) Except as set forth in this
Section 7.03(d)
, neither the RMT Parent Board nor any committee thereof shall (i) withdraw, qualify,
modify, amend or fail to make, or propose publicly to withdraw, qualify, modify or amend the RMT Parent Recommendation, (ii) make any public statement or take any action inconsistent with the RMT Parent Recommendation or (iii) approve or
adopt, or recommend the approval or adoption of, or publicly propose to approve or adopt, any Competing RMT Parent Transaction (any of the actions described in (i), (ii) or (iii), a
Change in the RMT Parent Recommendation
).
Notwithstanding the foregoing:
(i) the RMT Parent Board may make a Change in the RMT Parent Recommendation if (A) other than in
connection with or as a result of the making of a Competing RMT Parent Transaction, a material development or change in circumstances that was not known or reasonably foreseeable (or if known or reasonably foreseeable, the probability or magnitude
of consequences of which were not known or reasonably foreseeable) to the RMT Parent Board on the date of this Agreement occurs or arises after the date of this Agreement, which material development or change in circumstances becomes known to the
RMT Parent Board prior to the RMT Parent Stockholders Meeting (such material development or change in circumstances being referred to as an
Intervening Event
(it being understood that in no event shall (i) any action
taken by any Party pursuant to and in compliance with the affirmative covenants set forth in
Article VI
, or any action taken or omitted with the consent of RMT Parent (in the case of actions taken or omitted by LMC or Spinco) or any action
taken or omitted by RMT Parent, and the consequences of any such action or omission, or (ii) the receipt, existence of or terms of a Competing RMT Parent Transaction constitute an Intervening Event), (B) the RMT Parent Board determines in
its good faith judgment, after consulting with its outside legal counsel, that an Intervening Event has occurred; (C) the RMT Parent Board does not effect, or cause RMT Parent to effect, a Change in the RMT Parent Recommendation at any time
within three business days after LMC receives written notice from RMT Parent that the RMT Parent Board has determined that an Intervening Event requires the RMT Parent Board to effect, or cause RMT Parent to effect, a Change in the RMT Parent
Recommendation (provided, a new notice shall be required with respect to any change in circumstances and a new notice period of three business days shall begin); (D) during such applicable period, if requested by LMC, RMT Parent engages in good
faith negotiations, and directs its financial advisors and outside legal advisors to, engage in good faith negotiations, with LMC to amend this Agreement in such a manner that obviates the need for the RMT Parent Board to effect, or cause RMT Parent
to effect, a Change in the RMT Parent Recommendation as a result of such Intervening Event; and (E) the RMT Parent Board determines in good faith, after having consulted with its outside legal counsel, that, in light of such Intervening Event,
a failure to make a Change in the RMT Parent Recommendation would be inconsistent with the RMT Parent Boards fiduciary duties to RMT Parent or its stockholders under Applicable Law; or
(ii) if at any time prior to the receipt of the RMT Parent Stockholder Approval and in response to the receipt of an offer or proposal
with respect to a Competing RMT Parent Transaction that did not arise or result from any breach of this
Section 7.03
, the RMT Parent Board determines in its good faith judgment (after consulting with a financial advisor of nationally
recognized reputation and outside legal counsel), that such offer or proposal constitutes a Superior Proposal and determines in its good faith judgment (after consulting with outside legal counsel) that the failure by the RMT Parent Board to make a
Change in the RMT Parent Recommendation with respect to such Superior Proposal would be inconsistent with its
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fiduciary duties to RMT Parent and its stockholders under Applicable Law, the RMT Parent Board may, with respect to such Superior Proposal, make a Change in the RMT Parent Recommendation;
provided
,
however
, that the RMT Parent Board shall not be entitled to exercise its right to make a Change in the RMT Parent Recommendation pursuant to this
Section 7.03(d)(ii)
unless:
(1) RMT Parent has provided written notice to LMC (a
Notice of Superior Proposal
) advising LMC that the RMT Parent
Board has received a Superior Proposal promptly after the RMT Parent Board determines it has received a Superior Proposal, stating that the RMT Parent Board intends to make a Change in the RMT Parent Recommendation describing the terms and
conditions of such Superior Proposal; and
(2) LMC does not, within five Business Days of receipt of the Notice of Superior Proposal
(the
Notice Period
), make an offer or proposal to revise the terms of this Agreement (any such offer, a
Revised Transaction Proposal
) in a manner that the RMT Parent Board determines in its good faith judgment,
after consulting with a financial advisor of nationally recognized reputation and outside legal counsel, to be at least as favorable to RMT Parents stockholders as such Superior Proposal;
provided
,
however
, that, during the
Notice Period, RMT Parent shall negotiate in good faith with LMC (to the extent LMC desires to negotiate) regarding any Revised Transaction Proposal;
provided
,
further
, that any amendment to the terms of such Superior Proposal during
the Notice Period shall require a new written notice of the terms of such amended Superior Proposal from RMT Parent and an additional three Business Day Notice Period that satisfies this
Section 7.03(d)(ii)(2)
, including with respect to
RMT Parents obligations to negotiate in good faith with LMC.
(e) Any disclosure that the RMT Parent Board may be compelled to make with
respect to the receipt of a proposal or offer with respect to a Competing RMT Parent Transaction or otherwise consistent with its fiduciary duties to RMT Parent and its stockholders under Applicable Law or Rule 14d-9 or with Rule 14e-2(a)
promulgated under the Exchange Act will not constitute a violation of this
Section 7.03
;
provided
,
however
, that neither the RMT Parent Board nor any committee thereof shall make a Change in the RMT Parent Recommendation in
connection with such disclosure (it being understood that any stop, look and listen communication by or on behalf of RMT Parent pursuant to Rule 14d-9(f) shall not be considered a Change in the RMT Parent Recommendation) unless permitted
by
Section 7.03(d)
. Any Change in the RMT Parent Recommendation shall not change the approval of the RMT Parent Board for purposes of causing any state takeover statute or other Applicable Law to be inapplicable to the Contemplated
Transactions.
(f) LMC agrees that it will not, nor will it permit any of its Subsidiaries to, and that it will instruct its Representatives not to,
directly or indirectly, (i) solicit, initiate or knowingly encourage (including by way of furnishing non-public information), or take any other action to knowingly facilitate, any inquiries or the making of any proposal or offer (including any
proposal or offer to LMCs stockholders), with respect to any Competing Spinco Transaction, (ii) enter into, maintain, continue or otherwise engage or participate in any discussions or negotiations with any Person or entity in furtherance
of inquiries or to obtain a proposal or offer with respect to a Competing Spinco Transaction, (iii) agree to, approve, endorse, recommend or consummate any Competing Spinco Transaction or (iv) enter into any Competing Spinco Transaction
Agreement. LMC acknowledges and agrees that it shall be responsible for the actions of its Subsidiaries and Representatives. LMC acknowledges and agrees that the taking of any of the actions contemplated by the foregoing clauses (i) through
(iv) by LMC or any of its Subsidiaries shall be deemed to be a breach by LMC of this
Section 7.03(f)
. LMC acknowledges and agrees that if any of its Representatives takes any actions that, if taken by LMC, would constitute a breach
of this
Section 7.03
, such actions shall be attributed to LMC and LMC shall be responsible. LMC shall, and shall cause its Subsidiaries to, and shall instruct its Representatives to, immediately cease and cause to be terminated all
existing discussions or negotiations with any Persons (other than RMT Parent and its Affiliates) conducted prior to the execution of this Agreement by LMC or any of its Representatives with respect to a Competing Spinco Transaction. LMC shall not,
and shall cause its Subsidiaries not to, and LMC shall instruct its Representatives not to, release any third party from, or waive any provision of, any confidentiality or, subject to applicable duties of its directors under Applicable Law,
standstill agreement to which it or one of its Affiliates is a party in connection with a Competing Spinco Transaction. LMC shall, and shall cause it Subsidiaries to, promptly request each Person (other than RMT Parent and its Affiliates) that has
heretofore executed a confidentiality agreement with LMC or any of its Subsidiaries in connection with such Persons consideration of a Competing Spinco Transaction (whether by merger, acquisition of stock or assets or otherwise), to return (or
if permitted by the applicable confidentiality agreement, destroy) all information required to be returned (or,
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if applicable, destroyed) by such Person under the terms of the applicable confidentiality agreement and, if requested by RMT Parent, to enforce such Persons obligation to do so. LMC shall
promptly (and in any event within 24 hours after LMC attains knowledge thereof) notify RMT Parent, orally and in writing, after the receipt by LMC or any of its Representatives of any proposal, inquiry, offer or request (or any amendment thereto)
with respect to a Competing Spinco Transaction, including any request for discussions or negotiations and any request for information relating to LMC or any of its Affiliates with respect to the Spinco Business, or for access to the business,
properties, assets, books or records of LMC or any of its Affiliates with respect to the Spinco Business. The receipt by LMC of a proposal in respect of a Competing Spinco Transaction shall not in any way or manner alter, hinder or delay LMC or
Spinco from satisfying its obligations under this Agreement.
Section 7.04
Access to Information
.
(a) From the date of this Agreement until the Closing, upon reasonable notice, LMC shall use its reasonable best efforts to (i) afford RMT Parent
and its authorized Representatives reasonable access to the offices, properties and books and records of the Spinco Business; and (ii) furnish to the authorized Representatives of RMT Parent such additional available information regarding the
Spinco Business (or copies thereof), as RMT Parent may from time to time reasonably request;
provided
, that (x) any such access or furnishing of information shall be conducted at RMT Parents expense, during normal business hours,
under the supervision of LMCs personnel and in such a manner as not to interfere significantly with the normal operations of the Spinco Business; (y) all requests for access pursuant to this
Section 7.04(a)
shall be made in
writing and shall be directed to and coordinated with a person or persons designated by LMC in writing; and (z) RMT Parent shall not, and shall cause its Representatives not to, contact any of the employees, customers, distributors or suppliers
of any LMC Entity in connection with, or for the purposes of, the Contemplated Transactions, whether in person or by telephone, mail, or other means of communication, without the specific prior written authorization of LMC. Notwithstanding anything
to the contrary in this Agreement, LMC shall not be required to provide any access or disclose any information to RMT Parent or its Representatives if such disclosure could reasonably be expected to (A) jeopardize, or result in a loss or waiver
of, any attorney-client or other legal privilege, (B) contravene any Applicable Law, fiduciary or other duty or any agreement or (C) result in the loss of protection of any proprietary information or trade secrets of any LMC Entity. When
accessing any of LMCs properties, RMT Parent shall, and shall instruct its Representatives to, comply with all of LMCs safety and security requirements for the applicable property. Notwithstanding anything to the contrary in this
Agreement, (I) in no event shall LMC be required to provide any information relating to any Excluded Assets or any Excluded Liabilities; and (II) neither RMT Parent nor any of its Representatives shall be allowed to sample or analyze any soil
or groundwater or other environmental media, or any building material, without the prior written consent of LMC, which consent may be withheld in the sole discretion of LMC.
(b) From the date of this Agreement until the Closing, upon reasonable notice, RMT Parent shall use its reasonable best efforts to (i) afford LMC
and its authorized Representatives reasonable access to the offices, properties and books and records of RMT Parent and its Subsidiaries; and (ii) furnish to the authorized Representatives of LMC such additional available information regarding
RMT Parent and its Subsidiaries (or copies thereof), as LMC may from time to time reasonably request;
provided
, that (x) any such access or furnishing of information shall be conducted at LMCs expense, during normal business hours,
under the supervision of the personnel of RMT Parent or its Subsidiaries and in such a manner as not to interfere significantly with the normal operations of the businesses of RMT Parent and its Subsidiaries; (y) all requests for access
pursuant to this
Section 7.04(b)
shall be made in writing and shall be directed to and coordinated with a person or persons designated by RMT Parent in writing; and (z) LMC shall not, and shall cause its Representatives not to,
contact any of the employees, customers, distributors or suppliers of any RMT Parent Entity in connection with the Contemplated Transactions, whether in person or by telephone, mail, or other means of communication, without the specific prior
written authorization of RMT Parent. Notwithstanding anything to the contrary in this Agreement, RMT Parent shall not be required to provide any access or disclose any information to LMC or its Representatives if such disclosure could reasonably be
expected to (A) jeopardize, or result in a loss or waiver of, any attorney-client or other legal privilege, (B) contravene any Applicable Law, fiduciary or other duty or any agreement or (C) result in the loss of protection of any
proprietary information or trade secrets of any RMT Parent Entity. When accessing any of the properties of RMT Parent or its Affiliates, LMC shall, and shall cause its Representatives to, comply with all of RMT Parents or its Affiliates
safety and security requirements for the applicable property. Notwithstanding anything to the contrary in this Agreement, neither LMC nor any of its Representatives shall be allowed to sample or analyze any soil or groundwater or other environmental
media, or any building material, without the prior written consent of RMT Parent, which consent may be withheld in the sole discretion of RMT Parent.
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Section 7.05
Directors and Officers Indemnification
.
(a) The bylaws of the Surviving Corporation shall contain provisions no less favorable with respect to indemnification than are set forth in the bylaws
of Spinco, which provisions shall not be amended, repealed or otherwise modified for a period of six years from the Merger Effective Time in any manner that could reasonably be expected to affect adversely the rights thereunder of individuals who,
at or prior to the Merger Effective Time, were directors, officers, employees or agents of Spinco, unless such modification shall be required by Applicable Law.
(b) In the event the Surviving Corporation or any of its successors or assigns (i) consolidates with or merges into any other Person and shall not
be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its assets to any Person, then, and in each such case, proper provision shall be made so that the successors and
assigns of the Surviving Corporation, as the case may be, or at RMT Parents option, RMT Parent, shall assume the obligations set forth in this
Section 7.05
.
Section 7.06
Regulatory and Other Authorizations; Notices and Consents
.
(a) Each Party shall, and shall cause its Affiliates to, use reasonable commercial efforts to (i) promptly obtain all authorizations, consents,
orders and approvals of all Governmental Authorities that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement and the other Transaction Documents, (ii) cooperate fully
with the other Parties in promptly seeking to obtain all such authorizations, consents, orders and approvals and (iii) provide such other information to any Governmental Authority as such Governmental Authority may reasonably request in
connection herewith. Each Party agrees to, and shall cause its respective Affiliates to, make promptly its respective filing, if necessary, pursuant to the HSR Act or any other Antitrust Laws under which filing is required or under which the Parties
reasonably mutually determine that filing is advisable with respect to the Contemplated Transactions and to supply as promptly as practicable to the appropriate Governmental Authorities any additional information and documentary material that may be
requested pursuant to the HSR Act or any other Antitrust Laws. The Parties shall determine the jurisdictions in which filings will be made under the Antitrust Laws within ten Business Days of the date of this Agreement. Each Party agrees to, and
shall cause its respective Affiliates to, make as promptly as practicable its respective filings and notifications, if any, under any other Applicable Law regarding Government Contracts, Government Bids, trade regulation, security clearances or any
other relevant matters and to supply as promptly as practicable to the appropriate Governmental Authorities any additional information and documentary material that may be requested pursuant to such other Applicable Laws. RMT Parent shall, and shall
cause its Affiliates to, pay all filing or notice fees in connection with the foregoing filings and notifications.
(b) Without limiting the
generality of the undertakings of the Parties pursuant to
Section 7.06(a)
, and notwithstanding anything in this Agreement to the contrary, RMT Parent shall, and shall cause each of its Affiliates to, take any and all steps reasonably
necessary to avoid or eliminate each and every impediment under the HSR Act or any other Antitrust Laws that may be asserted by any Governmental Authority or any other Person so as to enable the Parties to close the Contemplated Transactions as
promptly as practicable, and in any event prior to the Termination Date, including proposing, negotiating, committing to and effecting, by consent decree, hold separate orders or otherwise, the sale, divestiture or disposition of its assets,
properties or businesses or of the assets, properties or businesses to be acquired by it pursuant hereto, and the entrance into such other arrangements, as are necessary or advisable to avoid the entry of, and the commencement of litigation seeking
the entry of, or to effect the dissolution of, any injunction, temporary restraining order or other order in any Proceeding that otherwise would reasonably be expected to have the effect of materially delaying or preventing the consummation of the
Contemplated Transactions;
provided
that the effectiveness of such sale, divestiture or disposition or entry into such other arrangement may be made contingent on the consummation of the Merger;
provided
,
further
,
however
, that notwithstanding the foregoing, nothing contained in this Agreement shall be construed to require RMT Parent or Merger Sub to (x) institute any legal proceedings against any Governmental Authority or (y) undertake any
efforts or to take any action if the taking of such efforts or action is or would reasonably be expected to result, individually or in the aggregate, in a material and adverse effect on the assets, liabilities, business, results of operations or
condition (financial or otherwise) of (A) Spinco and the Transferred Subsidiaries, taken as a whole, or of (B) RMT Parent and its Subsidiaries, taken as a whole (each of such actions, a
Burdensome Condition
); and neither
LMC, nor Spinco, nor any of their Subsidiaries shall take any action that has the effect of, or agree with any Governmental Authority to, any Burdensome Condition without the prior written consent of RMT Parent. In addition, RMT Parent shall, and
shall
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cause its Affiliates to, use its reasonable best efforts to defend through litigation on the merits any Proceeding by any Person to avoid entry of, or to have vacated or terminated, any decree,
order or judgment (whether temporary, preliminary or permanent) that would prevent the Closing prior to the Termination Date. To assist RMT Parent in complying with its obligations under this
Section 7.06(b)
, LMC shall, and shall cause
its Affiliates to, enter into agreements or arrangements on terms and conditions reasonably acceptable to RMT Parent to be entered into by any of them prior to the Closing with respect to any matters contemplated by this
Section 7.06(b)
;
provided
,
however
, that (i) nothing in this
Section 7.06(b)
or in any of the Transaction Documents shall require LMC or any of its Affiliates to agree to any sale, divestiture, disposition or other arrangement with
respect to any businesses or assets other than the Spinco Business, (ii) the effectiveness of any sale, divestiture or disposition or entry into such other arrangements shall be contingent on the consummation of the Merger and (iii) RMT
Parent shall indemnify LMC and its Affiliates for their reasonable and documented out of pocket costs and expenses in providing such assistance.
(c) Each Party shall promptly notify the other Parties of any communication it or any of its Representatives receives from any Governmental Authority
relating to the ability to consummate the Contemplated Transactions and permit the other Parties to review in advance any proposed communication by such Party to any Governmental Authority. The Party providing communications for review under the
foregoing sentence shall consider, in good faith, the suggestions made by the other Parties. None of the Parties shall agree to participate in any meeting with any Governmental Authority in respect of any filings, investigation (including any
settlement of an investigation), litigation or other inquiry unless it consults with the other Parties in advance and, to the extent permitted by such Governmental Authority, gives the other Parties the opportunity to attend and participate in such
meeting. Each Party shall, and shall cause its Representatives to, coordinate and cooperate fully with each other in exchanging such information and providing such assistance as the other Parties may reasonably request in connection with the
foregoing and in seeking early termination of any applicable waiting periods, including under the HSR Act and any other Antitrust Law. Each Party shall, and shall cause its Representatives to, provide each other with copies of all correspondence,
filings or communications between them or any of their respective Representatives, on the one hand, and any Governmental Authority or members of its staff, on the other hand, with respect to this Agreement and the Contemplated Transactions;
provided
,
however
, that materials may be redacted (i) to remove references concerning the valuation of the Spinco Business; (ii) as necessary to comply with contractual arrangements or Applicable Law; and (iii) as
necessary to address reasonable attorney-client or other privilege or confidentiality concerns;
provided
,
further
, that a Party may designate information that it views to be commercially sensitive or competitively sensitive to be
viewed only by outside antitrust counsel for the other Parties, and such designation shall be honored by the Parties receiving that information. This
Section 7.06(c)
shall not apply with respect to the Internal Reorganization.
(d) Each Party agrees that it shall not, and shall cause its Affiliates not to, enter into any transaction, or any agreement to effect any transaction
(including any merger, acquisition or other business combination) that could reasonably be expected to make it more difficult, or to increase the time required, to (i) obtain the expiration or termination of the waiting period under the HSR Act
or any other Antitrust Law, or under any other Applicable Law, in respect of the Contemplated Transactions, (ii) avoid the entry of, the commencement of litigation seeking the entry of, or to effect the dissolution of, any injunction, temporary
restraining order or other order that could reasonably be expected to materially delay or prevent the consummation of the Contemplated Transactions or (iii) obtain all authorizations, consents, orders and approvals of Governmental Authorities
necessary or reasonably mutually determined as advisable for the consummation of the Contemplated Transactions.
Section 7.07
Release from
Financial Support Arrangements
.
LMC, Spinco, and RMT Parent shall (and RMT Parent shall cause its Affiliates to) (RMT Parent and its
Affiliates, collectively, the
RMT Parent Group
), cooperate and use reasonable best efforts to obtain, in the case of each Financial Support Arrangement set forth on
Section 7.07
of the LMC Disclosure Letter, either
(a) the unconditional release of each Retained LMC Entity from the Financial Support Arrangements identified in
Section 7.07
of the LMC Disclosure Letter from and after the Closing Date, or (b) substitute guarantees or other
credit support so that a member of the RMT Parent Group is substituted in place of the Retained LMC Entity that is party to such Financial Support Arrangements, such that LMC or such Retained LMC Entity may terminate such Financial Support
Arrangement upon notice, without further obligation to the LMC or such Retained LMC Entity (each of (a) or (b), a
Financial Support Arrangement Release
);
provided
,
however
, that any such release or substitution
must be effected pursuant to documentation reasonably satisfactory in form and substance to LMC and RMT Parent. From and after the Merger Effective Time, RMT Parent shall not permit any member of the RMT Parent Group to (i) renew or extend
A-46
the term of or (ii) increase its obligations under, or (iii) transfer to a third party, any loan, contract or other obligation for which a Retained LMC Entity is or would reasonably be
expected to be liable under any Financial Support Arrangement. In the event the parties have not, as of the Closing, obtained a Financial Support Arrangement Release with respect to any Financial Support Arrangement, RMT Parent shall, and shall
cause a member of the RMT Parent Group to, (x) if requested by LMC, perform such obligations on behalf of such Retained LMC Entity; or (y) otherwise take such action as reasonably requested by LMC so as to put LMC or the applicable
Retained LMC Entity in materially the same position as if RMT Parent, or such member of the RMT Parent Group, and not such Retained LMC Entity, had performed or was performing such obligations. All third party costs and expenses incurred in
connection with the release or substitution of such Financial Support Arrangements shall be borne by RMT Parent. From and after the Closing, RMT Parent shall indemnify LMC and its Subsidiaries fully in respect of any and all Damages incurred by such
Person to the extent arising from any Financial Support Arrangements from and after the Closing.
Section 7.08
Financing
.
(a) RMT Parent shall, and shall cause its Affiliates to, use reasonable best efforts to (i) cause the conditions and comply with the obligations
that are set forth in the RMT Commitment Letter applicable to, and within the control of or that require the cooperation of, RMT Parent to be fulfilled (or waived, if deemed advisable by RMT Parent) in a timely fashion in accordance with its terms,
(ii) maintain the RMT Commitment Letter in effect until the initial funding of the RMT Financing, (iii) negotiate definitive agreements with respect thereto, on the terms and conditions contained therein (including the market
flex provisions) or on such other terms that would not be prohibited by
clauses (i)
through
(iv)
of
Section 7.08(d)
(the
RMT Financing Agreements
), and (iv) if all conditions
precedent under the RMT Commitment Letter have been satisfied, on the Closing Date, RMT Parent shall cause the RMT Lenders to fund the RMT Financing and RMT Inc. to pay the RMT Parent Special Dividend if all conditions to Closing contained in
Sections 8.01
and
8.03
are satisfied or waived (by the applicable party that is the beneficiary of such condition). In the event any funds in the amounts set forth in the RMT Commitment Letter or the RMT Financing Agreements, or any
portion thereof, become unavailable on the terms and conditions contemplated in the RMT Commitment Letter or the RMT Financing Agreements, RMT Parent shall, and shall cause its Affiliates to use reasonable best efforts, subject to
Section 7.08(d)
, to obtain promptly any such portion from alternative sources, including on terms materially no less favorable, in the aggregate, to RMT Parent than those set forth in the RMT Commitment Letter (in each case as determined
in the reasonable discretion of RMT Parent), in an amount sufficient, when added to the portion of the RMT Financing that is available, to finance the RMT Parent Special Dividend (the
RMT Alternative Financing
) and provide
promptly to LMC a copy of any new financing commitment letter and any associated fee letters (the
Alternative RMT Commitment Letter
);
provided
that the terms of any such RMT Alternative Financing must be consistent with the
Tax-Free Status, as reasonably determined by LMC. In the event any RMT Alternative Financing is obtained, any reference in this Agreement to RMT Financing shall include RMT Alternative Financing, any reference to RMT
Commitment Letter shall include the Alternative RMT Commitment Letter, any reference to RMT Lenders shall include the financial institutions providing such RMT Alternative Financing, and any reference to RMT
Financing Agreements shall include any definitive agreements with respect to the Alternative RMT Commitment Letter, and all obligations of RMT Parent pursuant to this
Section 7.08
shall be applicable thereto to the same extent as
RMT Parents obligations with respect to the RMT Financing. For the avoidance of doubt, if the RMT Financing is available and all conditions to the Closing set forth in
Article VIII
have been satisfied or waived or will be satisfied or
waived at the Closing, RMT Parent shall take all actions within its control necessary to allow RMT Inc. to incur the indebtedness provided under the RMT Financing to consummate the RMT Parent Special Dividend.
(b) LMC shall, and shall cause its Affiliates to, use reasonable best efforts (i) cause the conditions and comply with the obligations that are set
forth in the Spinco Commitment Letter applicable to, and within the control of or that require the cooperation of, LMC to be fulfilled (or waived, if deemed advisable by LMC) in a timely fashion in accordance with its terms, (ii) maintain the
Spinco Commitment Letter in effect until the initial funding of the Spinco Financing, (iii) negotiate definitive agreements with respect thereto, on the terms and conditions contained therein (including the market flex provisions)
or on such other terms that would not be prohibited by
Section 7.08(e)
(the
Spinco Financing Agreements
and, together with the RMT Financing Agreements, the
Financing Agreements
), and (iv) if
all conditions precedent under the Spinco Commitment Letter have been satisfied, LMC shall, or shall cause its Affiliates to, cause the Spinco Lenders to fund the Spinco Financing prior to or substantially contemporaneously with the Distribution and
pay the Spinco Special Cash Payment if all conditions to Closing contained in Section 8.01 and Section 8.02 are, or, on the Closing Date can be reasonably be expected to be,
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satisfied or waived (by the applicable party that is the beneficiary of such condition). In the event any funds in the amounts set forth in the Spinco Commitment Letter or the Spinco Financing
Agreements, or any portion thereof, become unavailable on the terms and conditions contemplated in the Spinco Commitment Letter or the Spinco Financing Agreements, LMC shall, and shall cause its Affiliates to, in consultation with RMT Parent, use
reasonable best efforts to obtain promptly any such portion from alternative sources, on terms acceptable to RMT Parent, in an amount sufficient, when added to the portion of the Spinco Financing that is available, to finance the Spinco Special Cash
Payment (the
Spinco Alternative Financing
and, together with any RMT Alternative Financing, the
Alternative Financings
and each, an
Alternative Financing
) and provide promptly to RMT Parent a
copy of any new financing commitment letter and any associated fee letters (the
Alternative Spinco Commitment Letter
);
provided
that the terms of any such Spinco Alternative Financing must be consistent with the Tax-Free
Status, as reasonably determined by LMC. In the event Spinco Alternative Financing is obtained, any reference in this Agreement to Spinco Financing shall include Spinco Alternative Financing, any reference to Spinco
Commitment Letter shall include the Alternative Spinco Commitment Letter, any reference to Spinco Lenders shall include the financial institutions providing such Alternative Financing, and any reference to Spinco
Financing Agreements shall include any definitive agreements with respect to the Alternative Spinco Commitment Letter, and all obligations of LMC pursuant to this Section 7.08 shall be applicable thereto to the same extent as LMCs
obligations with respect to the Spinco Financing. For the avoidance of doubt, if the Spinco Financing is available and all conditions to the Closing set forth in Article VIII have been satisfied or waived or will be satisfied or waived at the
Closing, Spinco shall, and LMC shall cause Spinco to, take all actions within its control necessary to cause Spinco to incur the indebtedness provided under the Spinco Commitment Letter to make the Spinco Special Cash Payment.
(c) RMT Parent and LMC shall each give the other prompt written notice (v) of any material breach (or threatened material breach) or default (or
any event or circumstance that, with or without notice, lapse of time or both, could reasonably be expected to give rise to any material breach or default) by any party to the Commitment Letters or the Financing Agreements, (w) of the receipt
of any written notice of any actual or threatened withdrawal, repudiation or termination of either Financing by any of the Lenders, (x) of the receipt of any written notice of any material dispute or disagreement between or among any of the
parties to the Commitment Letters or the Financing Agreements, (y) of any amendment or modification of, or waiver under, the Commitment Letters or the Financing Agreements or (z) if for any reason either believes in good faith that it or
its Affiliates will not be able to timely obtain all or any portion of the RMT Financing or Spinco Financing, as applicable, on the terms and in the manner or from the sources contemplated by the RMT Commitment Letter or the Spinco Commitment
Letter, as applicable, or the RMT Financing Agreements or the Spinco Financing Agreements, as applicable. RMT Parent and LMC shall keep one another informed upon reasonable request and in reasonable detail of the status of their efforts to arrange
the RMT Financing and the Spinco Financing, as applicable.
(d) Notwithstanding anything to the contrary set forth herein, RMT Parent may amend,
modify, replace, waive or change any provision in the RMT Commitment Letter or any of the RMT Financing Agreements;
provided
that any such amendment, modification, replacement, waiver or change must be consistent with the Tax-Free Status, as
reasonably determined by LMC;
provided
,
further
that RMT Parent shall not permit or agree to any such amendment, modification, replacement, waiver or change to be made to the RMT Commitment Letter or any of the RMT Financing Agreements
without obtaining the prior written consent of LMC, that would (i) change, amend, expand or modify the conditions precedent set forth therein, or impose new or additional conditions, in each case in any manner that would reasonably be expected
to prevent or materially delay the consummation of the RMT Financing, (ii) reduce the aggregate cash amount of the RMT Financing such that the aggregate funds that would be available to RMT Parent upon the closing of the RMT Financing would not
be sufficient to fund the RMT Parent Special Dividend, (iii) decrease the aggregate cash amount of the RMT Financing as set forth in the RMT Commitment Letter such that such aggregate amount is less than the aggregate cash amount to be funded
upon the closing thereof as set forth in the RMT Commitment Letter as of the date hereof, or (iv) amend or modify any other term or provision in a manner that would reasonably be expected to prevent, materially delay or materially impair the
ability of RMT Parent and Merger Sub to consummate the transactions contemplated by this Agreement or adversely impact the ability of RMT Parent to enforce its rights against the other parties to the RMT Commitment Letter or any of the RMT Financing
Agreements. Notwithstanding anything herein, RMT Parent may modify, supplement or amend the RMT Commitment Letter or any of the RMT Financing Agreements, (x) to add lead arrangers, bookrunners, syndication agents or similar entities that have
not executed the RMT Commitment Letter as of the date hereof and (y) to implement or exercise any market flex provisions provided in, the RMT Commitment Letter as in effect as of the date hereof. In such event, the term RMT Commitment
Letter as used herein shall be deemed to include the new or
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amended commitment letters entered into in accordance with this
Section 7.08(d)
, and the term RMT Financing as used herein shall be deemed to include any substitute
financing obtained in accordance with this
Section 7.08(d)
;
provided
,
however
, that in the event any portion of the RMT Financing becomes unavailable on the terms and conditions contemplated in the RMT Commitment Letter,
the second sentence of
Section 7.08(a)
, and not this
Section 7.08(d)
, shall govern with respect to the terms of any replacement financing to be obtained after any portion of the RMT Financing becomes unavailable as described
therein.
(e) Neither Spinco nor LMC shall, nor shall they permit or cause their respective Affiliates to, amend, modify, supplement, replace, waive
or change any provision in the Spinco Commitment Letter or any of the Spinco Financing Agreements without the prior written consent of RMT Parent;
provided
that LMC or its Affiliates may modify, supplement or amend the Spinco Commitment
Letter or any of the Spinco Financing Agreements to implement any market flex exercised by the Spinco Lenders in accordance with the Spinco Commitment Letter as of the date hereof. If RMT Parent so consents or such market flex is exercised, the term
Spinco Commitment Letter as used herein shall be deemed to include the new commitment letters (or ancillary documents) entered into in accordance with this
Section 7.08(e)
, if applicable, or amendments to the existing Spinco
Commitment Letter and the term Spinco Financing as used herein shall be deemed to include any substitute financing obtained in accordance with this
Section 7.08(e)
, if applicable, or amendments to the existing Spinco
Commitment Letter;
provided
,
however
, that in the event any portion of the Spinco Financing becomes unavailable on the terms and conditions contemplated in the Spinco Commitment Letter, the second sentence of
Section 7.08(b)
, and not this
Section 7.08(e)
, shall govern with respect to the terms of any replacement financing to be obtained after any portion of the Spinco Financing becomes unavailable as described therein.
(f) Prior to the closing of the Financings, LMC shall provide or shall cause its Affiliates to provide, and shall use its reasonable best efforts to
cause its Representatives (and use reasonable best efforts to cause external auditors) to provide, all reasonable cooperation in connection with the arrangement of the Financings, as may be reasonably requested by RMT Parent, and that is customary
in connection with efforts to obtain financing of the type of the Financings, including, as applicable, (i) participating in meetings, drafting sessions, rating agency and roadshow presentations and due diligence sessions upon reasonable notice
and at such times and places as are mutually agreed between RMT Parent and LMC, (ii) furnishing RMT Parent and the Lenders with (A) such information regarding the Spinco Business as is customary in connection with the Financings and
(B) with respect to the Spinco Business, the following financial statements and other information: (x) financial statements for an acquired business, managements discussion and analysis of financial condition and results of
operations, business and other financial data of the type required by Regulation S-X and Regulation S-K under the Securities Act, and customarily included in offering memoranda, private placement memoranda, prospectuses and similar documents, to
consummate a Rule 144A offering of senior unsecured notes (with the exception of a consolidating footnote to the financial statements for guarantors and non-guarantors financial information, as such information may be expressed in the
body of the relevant disclosure document with disclosure customary for a Rule 144A offering), (y) financial information of the Spinco Business necessary for RMT Parent to prepare a pro forma consolidated balance sheet and related pro forma
consolidated statement of income as of and for the 12-month period ending on the last day of the most recently completed four-fiscal quarter period ended at least 45 days before the closing of the Financings and for such other periods as is required
by Article 11 of Regulation S-X under the Securities Act, prepared after giving effect to the transactions contemplated by this Agreement, the Separation Agreement and the Financing Agreements, as of such date and for such periods contemplated by
the Securities Act, which need not include adjustments for purchase accounting (including adjustments of the type contemplated by Financial Accounting Standards Board Accounting Standards Codification 805, Business Combinations (formerly SFAS 141R))
and (z) the financial information required by clause (b) of paragraph 9 of Exhibit C of the Commitment Letters (collectively, the
Required Financial Statements
) and such other customary financial information as
reasonably may be requested by RMT Parent to consummate the RMT Financing, (iii) assisting RMT Parent and the financing sources in the marketing and syndication of the Financings and in the preparation of, as applicable, (A) customary
offering documents (including a private placement memorandum, prospectus, offering memorandum or any similar document) for the Financings and (B) materials for rating agency presentations, road show materials, bank information memoranda, lender
and investor presentations, credit agreements and bank syndication materials and similar documents required in connection with the Financings, (iv) taking customary corporate actions that are necessary to authorize and cause to occur the
consummation of the Financings, (v) providing customary authorization and management representation letters representing that the information provided by LMC for inclusion in any confidential information memorandum or lender presentation does
not include material non-public information about LMC and its Subsidiaries, and designating
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the information provided by LMC for presentation to the Lenders as suitable to be made available to lenders who do not wish to receive material non-public information, (vi) requesting their
independent accountants to provide cooperation with the Financings, including requesting their participation in accounting due diligence sessions and agreeing that RMT Parent may use their audit reports relating to Spinco and using reasonable best
efforts to assist the Lenders in obtaining auditor comfort letters (including negative assurance) and legal opinions from counsel to LMC or Spinco, (vii) furnishing to RMT Parent and the Lenders such information as may be necessary so that the
Required Financial Statements are complete and correct in all material respects and do not or will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein, in light of
the circumstances under which such statements are made, not misleading, (viii) assisting with the preparation of any credit or loan agreements and other Financing Agreements, (ix) providing to the Lenders at least three Business Days prior
to the closing of the Financings, all documentation and other information about the Spinco Business required by applicable know your customer and anti-money laundering rules and regulations, including the USA PATRIOT Act to the extent
reasonably requested at least 10 Business Days prior to the anticipated closing of the Financing, and (x) satisfying the conditions precedent set forth in the Spinco Commitment Letter or any definitive documentation relating to each Financing
or any Alternative Financing to the extent the satisfaction of such conditions requires the cooperation of or is within the control of LMC or Spinco;
provided
, that the actions contemplated in the foregoing
clause (i)
through
clause (x)
do not (I) unreasonably interfere with the ongoing operations of the Spinco Business, (II) cause any representation or warranty or covenant contained in this Agreement to be breached, (III) require any LMC Entity to pay
any out of pocket fees or expenses prior to the Closing that are not required to be promptly reimbursed by RMT Parent as set forth in
Section 7.08(g)
, (IV) involve any binding commitment by any LMC Entity (other than, in the case of
Spinco, (x) the Spinco Commitment Letter and the Spinco Financing Agreements, and (y) the execution of customary underwriting or purchase agreements in connection with any bond financing to be entered into at or shortly before the
Closing), which commitment is not conditioned on the Closing and does not terminate without Liability to an LMC Entity upon the termination of this Agreement, or (V) require any LMC Entity or any of its Representatives (other than, with respect
to the Spinco Commitment Letter, Spinco) to incur any obligations in respect of the Financings until the closing thereof, which shall not occur prior to the Distribution Date.
(g) RMT Parent shall, and shall cause its Affiliates to, (i) promptly upon request by LMC, reimburse LMC for all reasonable out of pocket costs and
expenses (including attorneys fees) incurred by LMC and its Affiliates in connection with cooperation provided for in
Section 7.08(f)
(such reimbursement to be made promptly and in any event within three Business Days of delivery
of reasonably acceptable documentation evidencing such expenses);
provided
,
however
, that RMT Parent shall not be responsible for reimbursing any such costs and expenses if such costs and expenses would have been incurred by LMC
and its Affiliates in the performance of their respective obligations pursuant to other provisions of this Agreement (including
Section 7.01
and
Section 7.16
) and the Separation Agreement; and (ii) indemnify and hold
harmless LMC and its Affiliates and Representatives from and against any and all Damages suffered or incurred by them in connection with the arrangement of the Financings, and any information utilized in connection therewith (other than information
provided by LMC or its Affiliates), except in instances of gross negligence or willful misconduct on the part of LMC, its Affiliates or Representatives. All non-public or otherwise confidential information regarding the Spinco Business obtained by
RMT Parent or its Representatives pursuant to this
Section 7.08
shall be kept confidential in accordance with the terms of the Confidentiality Agreement. Notwithstanding any other provision set forth herein or in any other agreement
between RMT Parent and LMC (or their respective Affiliates), LMC agrees that RMT Parent and its Affiliates may share customary projections with respect to Spinco and its business with the Lenders identified in the Commitment Letters, and that RMT
Parent and its Affiliates and such Lenders may share such information with potential financing sources in connection with any marketing efforts in connection with the Financings;
provided
,
however
, that the recipients of such
information and any other information contemplated to be provided by LMC or any of its Affiliates pursuant to
Section 7.08(f)
, agree to customary confidentiality arrangements, including click through confidentiality
agreements and confidentially provisions contained in customary bank books and offering memoranda.
(h) LMC shall, and shall cause its Affiliates
to, (i) indemnify and hold harmless RMT Parent and its Affiliates and Representatives from and against any and all Damages suffered or incurred by them in connection with the arrangement of the Financings, and any information utilized in
connection therewith (other than information provided by RMT Parent or its Affiliates), except in instances of gross negligence or willful misconduct on the part of RMT Parent, its Affiliates or Representatives. All non-public or otherwise
confidential information regarding the business of RMT Parent obtained by LMC or its Representatives pursuant to this
Section 7.08
shall be kept confidential in
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accordance with the terms of the Confidentiality Agreement. Notwithstanding any other provision set forth herein or in any other agreement between RMT Parent and LMC (or their respective
Affiliates), RMT Parent agrees that LMC and its Affiliates may share customary projections with respect to RMT Parent and its business with the Lenders identified in the RMT Commitment Letter, and that LMC and its Affiliates and such Lenders may
share such information with potential financing sources in connection with any marketing efforts in connection with the Financings;
provided
,
however
, that the recipients of such information and any other information contemplated to be
provided by RMT Parent or any of its Affiliates pursuant to
Section 7.08(l)
, agree to customary confidentiality arrangements, including click through confidentiality agreements and confidentially provisions contained in
customary bank books and offering memoranda.
(i) RMT Parent shall reasonably cooperate with LMC in connection with the preparation of all documents
and the making of all filings required in connection with the Exchange Offer, including by taking all such other actions, to the extent applicable, as are required of LMC pursuant to
Section 7.08(f)
, which shall, together with
Section 7.08(g)
, apply
mutatis mutandis
with respect to the cooperation by RMT Parent in connection with the Exchange Offer by LMC.
(j) Notwithstanding anything herein to the contrary, if the Spinco Financing is available and all conditions to the Closing set forth in
Article
VIII
have been satisfied or waived or will be satisfied or waived at the closing of the Merger, Spinco shall, and LMC shall cause Spinco to, incur the indebtedness provided under the Spinco Commitment Letter in order to pay the Spinco Special
Cash Payment, including by executing and delivering to the Spinco Lenders the Spinco Financing Agreements and related certificates, instruments and documents contemplated thereby, which, in each case, shall be in form and substance satisfactory to
RMT Parent.
(k) LMC hereby consents to the use of Spincos and Spincos Subsidiaries logos in connection with the Financings or any
Alternative Financing;
provided
that such logos are used solely in a manner that is not intended or reasonably likely to harm or disparage Spinco or any of its Subsidiaries or the reputation or goodwill of Spinco or any of its Subsidiaries or
any of their respective intellectual property rights.
(l) Prior to the closing of the Financings, RMT Parent shall provide or shall cause its
Affiliates to provide, and shall use its reasonable best efforts to cause its Representatives (and use reasonable best efforts to cause external auditors) to provide, all reasonable cooperation in connection with the arrangement of the Spinco
Financing, as may be reasonably requested by LMC, and that is customary in connection with efforts to obtain financing of the type of the Spinco Financing;
provided
that the actions contemplated in the foregoing do not (I) unreasonably
interfere with the ongoing operations of the business of RMT Parent and its Subsidiaries, (II) cause any representation or warranty or covenant contained in this Agreement to be breached, (III) involve any binding commitment by RMT Parent (other
than the execution of customary underwriting or purchase agreements in connection with any bond financing to be entered into contemporaneously with the Closing), which commitment is not conditioned on the Closing and does not terminate without
Liability to RMT Parent upon the termination of this Agreement, or (IV) require RMT Parent or any of its Representatives (other than, with respect to the RMT Parent Commitment Letter, RMT Parent) to incur any obligations in respect of the
Spinco Financing until the closing thereof, which shall not occur prior to the Closing Date.
Section 7.09
Tax Matters
.
(a) From and after the date of this Agreement and until the Merger Effective Time, each Party shall use its reasonable best efforts to ensure the
Tax-Free Status of the External Transactions (including reasonably refraining from any action that such party knows, or is reasonably expected to know, is reasonably likely to prevent the Tax-Free Status of the External Transactions and executing
such amendments to this Agreement as may be reasonably required in order to obtain the Tax-Free Status of the External Transactions (it being understood that no party will be required to agree to any such amendment that it determines in good faith
is reasonably likely to materially adversely affect the value of the Spinco Transfer, Distribution, Parent Cash Distribution or the Merger to such party or its shareholders)), and, notwithstanding any other provision in this Agreement (including
Section 6.01(a)
and
Section 6.02(a)
), no party shall take or fail to take, or permit any of its Affiliates to take or fail to take, any action which results or could reasonably be expected to result in Tax treatment that is
inconsistent with the Tax-Free Status of the External Transactions.
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(b) RMT Parent and LMC shall cooperate, and shall cause their respective Affiliates to cooperate, fully at
such time and to the extent reasonably requested by the other party in order for (i) RMT Parent to obtain the RMT Parent Merger Tax Opinion; (ii) LMC to obtain the LMC Tax Opinions, and (iii) any Tax opinions required to be filed with
the SEC in connection with the filing of the Registration Statement.
(c) As a condition precedent to the rendering of the RMT Parent Merger Tax
Opinion and the LMC Tax Opinions, RMT Parent, LMC and Spinco, and others, if required, shall execute and deliver to LMC Tax Counsel and RMT Parent Tax Counsel the Tax Representation Letters as of (i) the date for filing any Tax opinion required
to be filed with the SEC in connection with the filing of the Registration Statement and (ii) the Closing Date;
provided
,
however
, that (x) the foregoing does not require that any Person make a representation that they do not
believe to be accurate and (y) each of LMC and RMT Parent, respectively, shall be entitled to a reasonable amount of time to provide the other Party with written comments to the Tax Representation Letters in support of the LMC Merger Tax
Opinion and the RMT Parent Merger Tax Opinion, respectively.
(d) As of the date hereof, neither LMC nor Spinco has taken or agreed to take any
action or knows of any fact, agreement, plan or other circumstance that would prevent, or would reasonably be expected to prevent, it from (i) delivering the Tax Representation Letters in accordance with the terms of
Section 7.09(c)
or (ii) obtaining the opinions contemplated by
Section 8.03(b)
.
(e) As of the date hereof, RMT Parent has not taken or agreed to
take any action and knows of no fact, agreement, plan or other circumstance that would prevent, or would reasonably be expected to prevent, RMT Parent from (i) delivering the Tax Representation Letters in accordance with the terms of
Section 7.09(c)
or (ii) obtaining the opinion contemplated by
Section 8.02(b)
.
(f) LMC (i) as of the date of this
Agreement, does not know and has no reason to believe, that any Spinco Common Stock to be exchanged for RMT Parent Common Stock may not be Qualified Spinco Common Stock; (ii) will use its reasonable best efforts to prevent any Spinco Common
Stock to be exchanged for RMT Parent Common Stock from not being Qualified Spinco Common Stock; and (iii) will promptly notify RMT Parent if, before the Merger Effective Time, it knows or has reason to believe that any Spinco Common Stock to be
exchanged for RMT Parent Common Stock may not be Qualified Spinco Common Stock.
(g) RMT Parent shall use commercially reasonable efforts to cause a
nationally recognized investment bank identified by RMT Parent to deliver to LMC Tax Counsel a copy of a letter dated as of the Closing Date, substantially in the form set forth in
Section 7.09(g)
of the RMT Parent Disclosure Letter.
(h) LMC shall use commercially reasonable efforts to cause a nationally recognized investment bank identified by LMC to deliver to RMT Parent Tax
Counsel a copy of a letter dated as of the Closing Date, substantially in the form set forth in
Section 7.09(h)
of the LMC Disclosure Letter.
(i) Except as otherwise expressly provided herein, this Agreement shall not govern Tax matters (including any administrative, procedural and related
matters thereto), which shall be exclusively governed by the Tax Matters Agreement and the Employee Matters Agreement.
Section 7.10
Separation Agreement
.
RMT Parent acknowledges the terms and conditions of the Separation Agreement and the covenants and agreements of the
Spinco Companies thereunder. To induce LMC to enter into this Agreement and consummate the Contemplated Transactions, RMT Parent covenants and agrees that, from and after Closing, RMT Parent shall take, and shall cause the Spinco Companies to take,
all such actions as may be necessary or appropriate to cause each of the Spinco Companies and each of their successors in interest to comply with each of the covenants and agreements to which the Spinco Companies are subject under the Separation
Agreement. To induce RMT Parent to enter into this Agreement and consummate the Contemplated Transactions, LMC covenants and agrees that, prior to the Merger Effective Time, LMC shall take, and shall cause Spinco to take, all such actions as may be
necessary to comply with each of the covenants and agreements to which LMC and Spinco are subject under the Separation Agreement.
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Section 7.11
Control of Other Partys Business
.
Nothing contained in this Agreement shall give LMC or Spinco, directly or indirectly, the right to control or direct any of the operations of RMT Parent
prior to the Closing. Nothing contained in this Agreement shall give RMT Parent or Merger Sub, directly or indirectly, the right to control or direct any of the operations of LMC or the Spinco Business prior to the Closing. Prior to the Closing,
each of LMC, Spinco, RMT Parent and Merger Sub shall exercise, consistent with the terms and conditions of this Agreement, complete control and supervision over its respective operations.
Section 7.12
Listing of Spinco Shares of RMT Parent Common Stock
.
RMT Parent shall use its reasonable best efforts to cause the shares of RMT Parent Common Stock to be issued in the Merger to be approved for listing on
the New York Stock Exchange, subject to official notice of issuance, and LMC shall reasonably cooperate with RMT Parent with respect to such listing.
Section 7.13
Section 16 Matters
.
Prior to the Merger Effective Time, the Parties shall take all steps as may be required to cause any dispositions of Spinco Common Stock or acquisitions
of RMT Parent Common Stock resulting from the Contemplated Transactions by each officer or director who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Spinco or RMT Parent, to be exempt
under Rule 16b-3 promulgated under the Exchange Act.
Section 7.14
Confidentiality
.
(a) The terms of the Confidentiality Agreement, dated as of November 5, 2015 (the
Confidentiality Agreement
), between LMC and
RMT Parent, are hereby incorporated by reference in this Agreement, shall continue in full force and effect until the Closing and shall survive the Closing and remain in full force and effect until their expiration in accordance with the terms of
the Confidentiality Agreement;
provided
,
however
, that, upon the Closing, the confidentiality obligations of RMT Parent contained in the Confidentiality Agreement shall terminate in respect of that portion of the Evaluation Material
(as defined in the Confidentiality Agreement) exclusively relating to the Spinco Business. If this Agreement is, for any reason, terminated prior to the Closing, the Confidentiality Agreement shall nonetheless continue in full force and effect in
accordance with its terms.
(b) Nothing provided to RMT Parent or LMC or their respective Representatives pursuant to
Section 7.04
shall
in any way amend or diminish the Parties obligations under the Confidentiality Agreement. Each of RMT Parent and LMC acknowledges and agrees that any Evaluation Material made available to such Party or its Representatives pursuant to
Section 7.04
or otherwise by the other Party or any of its Representatives shall be subject to the terms and conditions of the Confidentiality Agreement.
Section 7.15
Further Actions
.
(a)
Except as otherwise expressly provided in this Agreement, the Parties shall, and shall cause their respective Affiliates to, use their respective reasonable best efforts to take, or cause to be taken, all appropriate action, to do, or cause to be
done, and to assist and cooperate with the other Parties in doing, all things necessary, proper or advisable under Applicable Law (other than with respect to the matters covered in
Section 7.06
, which shall be governed by the provisions
of
Section 7.06
) to execute and deliver the Transaction Documents and such other documents as may be required to carry out the provisions of this Agreement and to consummate and make effective the Contemplated Transactions. Prior to the
Closing, (i) neither LMC nor Spinco shall terminate or assign the Separation Agreement, amend or otherwise modify any provision of the Separation Agreement or any Exhibit, Annex or Schedule thereto or waive compliance with any of the agreements
or conditions contained in the Separation Agreement, in each case without the prior written consent of RMT Parent; and (ii) any consent, approval, authorization or similar action to be taken by Spinco under the Separation Agreement shall be
subject to the prior written consent of RMT Parent. LMC shall keep RMT Parent reasonably informed of the status of the Internal Reorganization, including LMCs and Spincos progress in obtaining any necessary third-party consents or
approvals of Governmental Authorities, and shall consult with RMT Parent regarding the terms of any arrangements established pursuant to Section 2.01 or Section 2.02 of the Separation Agreement;
provided
that nothing in this
Section 7.15
shall alter any Persons rights or obligations set forth in the Tax Matters Agreement (including the provisions of Section 3(b) thereof).
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(b) Except as otherwise expressly provided in this Agreement, the Parties shall, and shall cause their
respective Affiliates to, use their respective reasonable best efforts to take, or cause to be taken, all appropriate action, to do, or cause to be done, and to assist and cooperate with the other Parties in doing, all things necessary, proper or
advisable regarding disclosures and communications in connection with the Contemplated Transactions to Governmental Authorities, including customers under Government Contracts and prospective customers under Government Bids.
(c) Subject to the applicable terms of the Separation Agreement, from time to time after the Closing, without additional consideration, each Party
shall, and shall cause its Affiliates to, execute and deliver such further instruments and take such other action as may be necessary or is reasonably requested by another Party to make effective the Contemplated Transactions.
Section 7.16
Financial Statements
.
(a)
As promptly as reasonably practicable, LMC shall provide RMT Parent with (i) the audited combined and consolidated financial statements of the Spinco Business (before giving effect to the Internal Reorganization and the Spinco Transfer),
including the combined and consolidated balance sheets of (x) the Spinco Business and (y) Spinco (before giving effect to the Internal Reorganization) as of December 31, 2014 and December 31, 2015, and the combined and
consolidated statements of earnings, cash flows and parent equity of (x) the Spinco Business and (y) Spinco (before giving effect to the Internal Reorganization) for the years ended December 31, 2013, December 31, 2014 and
December 31, 2015 together with a report on the financial statements from the independent accounts for the Spinco Business (collectively, the
Spinco Audited Financial Statements
) and (ii) the unaudited combined and
consolidated financial statements of (x) the Spinco Business and (y) Spinco (before giving effect to the Internal Reorganization and the Spinco Transfer) for applicable interim periods ending prior to the date of this Agreement required
for SEC filings, prepared from the books and records of LMC and its Subsidiaries and in accordance with GAAP consistently applied and the rules and regulations of the SEC, including the requirements of Regulation S-X, which present fairly in all
material respects the combined financial position and combined results of operations of (x) the Spinco Business and (y) Spinco (before giving effect to the Internal Reorganization and the Spinco Transfer) as of the dates and for the
periods shown therein (except as otherwise noted therein) (it being understood, however, that the Spinco Business has not been operating historically as a separate standalone entity or reporting segment and, therefore, the Spinco Audited
Financial Statements and the unaudited Interim Financial Statements of the Spinco Business will reflect certain adjustments necessary to be presented on a stand-alone basis in accordance with GAAP and SEC requirements). LMC will use reasonable best
efforts to procure, at its expense, the delivery of the consents of its independent accountants required to be filed with the Form S-4 Registration Statement or any future registration statement until such independent accountant consents are no
longer required.
(b) LMC shall use its reasonable best efforts to, as promptly as practicable, and no later than 50 calendar days after the end of
any fiscal quarter (or, in the case of the first fiscal quarter ended in 2016, 55 calendar days) and 60 calendar days after the end of the 2016 fiscal year, prepare and furnish to RMT Parent copies of financial statements of the Spinco Business as
of and for the periods ending on any fiscal quarterly and annual periods ending after the date of this Agreement and prior to the Closing Date, in each case together with the notes thereto, and prepared from the books and records of LMC and its
Subsidiaries and in accordance with GAAP with no exception or qualification thereto (it being understood, however, that the Spinco Business has not been operating historically as a separate standalone entity or reporting segment and,
therefore, the financial statements of the Spinco Business will reflect certain adjustments necessary to be presented on a stand-alone basis in accordance with GAAP and SEC requirements) applied on a consistent basis through the periods involved
(except as may otherwise be required under GAAP) and the rules and regulations of the SEC, including the requirements of Regulation S-X, and, in the case of the combined financial statements of the Spinco Business for any fiscal year, LMC shall use
its reasonable best efforts to ensure that such financial statements shall be audited and accompanied by a report of the independent accountants for the Spinco Business and for any quarterly period, LMC shall use its reasonable best efforts to
ensure that such financial statements shall be reviewed by the independent accountants for the Spinco Business. When delivered, such financial statements shall present fairly in all material respects the combined financial position and combined and
consolidated results of operations of the Spinco Business as of the dates and for the periods shown therein. LMC acknowledges that RMT Parents obligations under
Section 7.01
depend, in part, on LMCs compliance with this
Section 7.16
, and therefore RMT Parent shall be afforded a reasonable period to comply with such obligations based upon the timing of LMC providing the financial statements contemplated in this
Section 7.16
.
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(c) In connection with the filing of the RMT Parent Registration Statement and other SEC filings, LMC shall
use its reasonable efforts during the pre-Closing period and after the Closing to (i) cooperate with RMT Parent to prepare pro forma financial statements that comply with the rules and regulations of the SEC to the extent required for SEC
filings, including the requirements of Regulation S-X and (ii) provide and make reasonably available upon reasonable notice the senior management employees of LMC to discuss the materials prepared and delivered pursuant to this
Section 7.16
. RMT Parent shall, promptly upon request by the LMC, reimburse LMC for all documented and reasonable out-of-pocket costs incurred by LMC or its Subsidiaries for actions taken at the request of RMT Parent pursuant to this
Section 7.16(c)
following the Closing.
Section 7.17
Corrective Changes
.
Prior to the Closing Date, LMC shall cause the Spinco Companies to use reasonable efforts to effect any necessary corrective change of ownership filings
and records with all patent, trademark, and copyright offices and domain name registrars and other similar authorities (
Corrective Changes
) as may be necessary to correct any break or discrepancy in the chain of title for any
registered Transferred Intellectual Property (i.e., to properly reflect an LMC Entity as the record owner thereof). From and after the Closing, RMT Parent shall be responsible for recording, and upon RMT Parents reasonable request, LMC
shall cooperate with the Spinco Companies to record, the assignment of the Transferred Intellectual Property to the applicable Spinco Company (i.e., to properly reflect such Spinco Company as the record owner thereof) (the
Spinco Assignment
Recordations
) and to otherwise effect any Corrective Change not made by LMC or the Spinco Companies prior to the Closing.
Section 7.18
Spinco Authorized Shares
.
Prior to the Distribution, LMC and Spinco shall take all such actions necessary to amend and restate Spincos organizational documents, in form
reasonably acceptable to RMT Parent, such that the authorized number of Spinco shares shall exceed the number of Spinco shares contemplated by
Section 2.04(d)
of this Agreement and Section 3.03 of the Separation Agreement.
ARTICLE VIII
CONDITIONS TO THE MERGER
Section 8.01
Conditions to the Obligations of Each Party
.
The respective obligations of the Parties to consummate the Merger are subject to the satisfaction or written waiver (where permissible under Applicable
Law) at or prior to the Merger Effective Time of each of the following conditions:
(a)
Internal Reorganization and Distribution
. The Internal
Reorganization shall have been consummated in all material respects in accordance with the Separation Agreement and the Distribution shall have been consummated on the Closing Date.
(b)
Registration Statements
. Each Registration Statement, to the extent required, shall have been declared effective by the SEC under the
Securities Act and the Exchange Act, as applicable, and no stop order suspending the effectiveness of any Registration Statement shall have been issued by the SEC and no proceeding for that purpose shall be pending before the SEC.
(c)
Listing
. The shares of RMT Parent Common Stock to be issued in the Merger shall have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance.
(d)
Stockholder Approval
. The RMT Parent Stockholder Approval shall have been obtained.
(e)
Governmental Approvals
. Any waiting period (and any extension thereof) under the HSR Act shall have expired or shall have been
terminated and any consents, authorizations, orders, approvals, declarations and filings required under the Antitrust Laws of the jurisdictions in which filings are made pursuant to
Section 7.06
, as applicable.
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(f)
No Order
. There shall not be in effect in the United States any Applicable Law or any
Governmental Order issued by a Governmental Authority of competent jurisdiction that enjoins or makes illegal the consummation of the Merger, the Internal Reorganization or the Distribution.
Section 8.02
Conditions to the Obligations of RMT Parent and Merger Sub
.
The obligations of RMT Parent and Merger Sub to consummate the Merger are subject to the satisfaction or written waiver (where permissible under
Applicable Law) at or prior to the Merger Effective Time of each of the following additional conditions:
(a)
Representations, Warranties and
Covenants
. (i) The representations and warranties of LMC contained in this Agreement (A) set forth in
Section 4.01
,
Section 4.02
,
Section 4.03
,
Section 4.04(a)
through
Section 4.04(c)
,
Section 4.05
and
Section 4.20
shall be true and correct in all material respects as though such representations and warranties had been made on and as of the Closing Date, and (B) otherwise
set forth in
Article IV
(1) that are qualified by a Spinco Material Adverse Effect qualification shall be true and correct in all respects as so qualified as though such representations and warranties had been made on and as of
the Closing Date, and (2) that are not qualified by a Spinco Material Adverse Effect qualification shall be true and correct as though such representations and warranties had been made on and as of the Closing Date, except for such failures to
be true and correct as would not reasonably be expected to have, individually or in the aggregate, a Spinco Material Adverse Effect (except to the extent such representations and warranties are, by their terms, made as of a specific date, in which
case such representations and warranties shall be true and correct in the manner set forth in the foregoing
clauses (A)
or
(B)
, as applicable, as of such date), (ii) the covenants and agreements contained in this Agreement
and each of the other Transaction Documents executed contemporaneously with the execution of this Agreement (including the Separation Agreement) (the
Signing Transaction Documents
) to be complied with by LMC and Spinco on or prior
to the Closing shall have been complied with in all material respects and (iii) RMT Parent shall have received a certificate of LMC signed by a duly authorized representative thereof dated as of the Closing Date certifying the matters set forth
in
clauses (i)
and
(ii)
above.
(b)
Tax Opinion
. RMT Parent shall have received (i) the opinion of Skadden,
Arps, Slate, Meagher & Flom LLP (
RMT Parent Tax Counsel
), dated as of the Closing Date, in form and substance reasonably acceptable to RMT Parent, to the effect that, the Merger will be treated for U.S. federal income Tax
purposes as a reorganization within the meaning of Section 368(a) of the Code and that each of RMT Parent, Merger Sub and Spinco will be a party to the reorganization within the meaning of Section 368(b) of the Code
(
RMT Parent Merger Tax Opinion
), which opinion shall not have been withdrawn or modified in any material respect and (ii) a copy of the LMC Merger Tax Opinion. In rendering the foregoing opinion, counsel will be permitted to
rely upon and assume the accuracy of customary representations provided by (i) RMT Parent and Merger Sub and (ii) LMC.
(c)
Solvency
Opinion
. RMT Parents Board of Directors shall have obtained an opinion from a nationally recognized valuation firm, dated as of the Closing Date, in form and substance reasonably satisfactory to RMT Parent, that RMT Parent and its
Subsidiaries on a consolidated basis shall not be insolvent or otherwise unable to pay their respective obligations after giving effect to the RMT Parent Special Dividend and the Merger.
(d)
Transaction Documents
. To the extent contemplated by the Separation Agreement, LMC and those of its Subsidiaries that are parties to the
Transaction Documents (other than the Signing Transaction Documents) shall have executed and delivered such Transaction Documents.
Section 8.03
Conditions to the Obligations of LMC and Spinco
.
The obligations of LMC and Spinco to consummate the Merger are subject to the satisfaction or written waiver (where permissible under Applicable Law) at
or prior to the Merger Effective Time of each of the following additional conditions:
(a)
Representations, Warranties and Covenants
.
(i) The representations and warranties of RMT Parent and Merger Sub contained in this Agreement (A) set forth in
Section 5.01
,
Section 5.02
,
Section 5.03
,
Section 5.04(a)
and
Section 5.21
shall be true and correct in all material respects as though such representations and warranties had been made on and as of the Closing Date, and (B) otherwise set forth in
Article V
(1) that are qualified
by a RMT Parent Material Adverse Effect qualification shall be true and correct in all respects as so qualified as though such representations and warranties had been made on and as of the Closing Date, and (2) that are not qualified by a RMT
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Parent Material Adverse Effect qualification shall be true and correct as though such representations and warranties had been made on and as of the Closing Date, except for such failures to be
true and correct as would not reasonably be expected to have, individually or in the aggregate, an RMT Parent Material Adverse Effect (except to the extent such representations and warranties are, by their terms, made as of a specific date, in which
case such representations and warranties shall be true and correct in the manner set forth in the foregoing
clauses (A)
or
(B)
, as applicable, as of such date), (ii) the covenants and agreements contained in this Agreement
and each of the Signing Transaction Documents executed contemporaneously with the execution of this Agreement (including the Separation Agreement) to be complied with by RMT Parent and Merger Sub on or prior to the Closing shall have been complied
with in all material respects and (iii) LMC shall have received a certificate of RMT Parent signed by a duly authorized representative thereof dated as of the Closing Date certifying the matters set forth in
clauses (i)
and
(ii)
above.
(b)
Tax Opinions
.
(i) LMC shall have received:
(1) the opinion of Davis Polk & Wardwell LLP, special tax counsel to LMC (
LMC Tax Counsel
), dated as of the
Closing Date, in form and substance reasonably acceptable to LMC, to the effect that:
(A) the Merger will be treated for U.S.
federal income Tax purposes as a reorganization within the meaning of Section 368(a) of the Code and that each of RMT Parent, Merger Sub and Spinco will be a party to the reorganization within the meaning of Section 368(b) of
the Code (the
LMC Merger Tax Opinion
),
(B) (I) the Spinco Transfer and the Distribution, taken together, will
qualify as a reorganization within the meaning of Section 368(a)(1)(D) of the Code and that each of LMC and Spinco will be a party to the reorganization within the meaning of Section 368(b) of the Code, (II) the
Distribution, as such, will qualify as a distribution of Spinco Common Stock to LMCs stockholders pursuant to Section 355 of the Code, (III) the Merger will not cause Section 355(e) of the Code to apply to the Distribution, and (IV)
the Parent Cash Distribution (as defined in the Separation Agreement) will qualify as money distributed to Parent creditors or stockholders in connection with the reorganization for purposes of Section 361(b) of the Code (the
LMC
Separation Tax Opinion
, together with the LMC Merger Tax Opinion, the
LMC Tax Opinions
),
which opinions (each of the
LMC Merger Tax Opinion and the LMC Separation Tax Opinion) shall not have been withdrawn or modified in any material respect, and
(2) a copy of the RMT Parent Merger Tax Opinion.
(ii) In rendering the foregoing opinions, counsel will be permitted to rely upon and assume the accuracy of customary representations
provided by (A) RMT Parent and Merger Sub and (B) LMC.
(c)
Spinco Debt
. Spinco shall have incurred the Spinco Debt and shall have
received the proceeds thereof.
(d)
Spinco Special Cash Payment
. The Spinco Special Cash Payment shall have been received by LMC.
(e)
Solvency Opinion
. LMCs and Spincos Boards of Directors shall have obtained opinions from a nationally recognized valuation firm,
dated as of the Distribution Date, in form and substance reasonably satisfactory to LMCs Board of Directors, to the effect that neither LMC nor Spinco shall be insolvent, unable to pay their respective obligations or otherwise
unable to make a distribution under the Maryland General Corporation Law or the DGCL, as the case may be, after giving effect to the Spinco Special Cash Payment, the Distribution and the Merger.
Section 8.04
Frustration of Closing Conditions
.
No Party may rely on the failure of any condition set forth in this Article VIII to be satisfied if such failure was caused by the failure of such Party
to comply with its obligations set forth in this Agreement or the Separation Agreement.
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ARTICLE IX
TERMINATION
Section 9.01
Termination
.
This Agreement may be terminated and the transactions contemplated by this Agreement may be abandoned at any time prior to the
Merger Effective Time, as follows:
(a) by either RMT Parent or LMC, if the Closing shall not have occurred by 11:59 p.m. New York City time on
January 25, 2017 (the
Termination Date
);
provided
,
however
, that the right to terminate this Agreement under this
Section 9.01(a)
shall not be available to any Party whose action or failure to
fulfill any obligation under the Transaction Documents shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date or to any Party that is then in material breach of this Agreement or the
Separation Agreement;
(b) by either RMT Parent or LMC, in the event that any Governmental Authority of competent jurisdiction in the United States
or any of the jurisdictions set forth in
Section 8.01(f)
of the LMC Disclosure Letter shall have issued a Governmental Order that permanently enjoins the consummation of the Merger and such Governmental Order shall have become final and
non-appealable;
provided
,
however
, that the right to terminate this Agreement under this
Section 9.01(b)
shall not be available to any Party whose action or failure to fulfill any obligation under this Agreement has been
the cause of, or has resulted in, the issuance of such Governmental Order or other action or to any Party that is then in material breach of this Agreement or the Separation Agreement;
(c) by either RMT Parent or LMC, if at the RMT Parent Stockholders Meeting (including any adjournment, continuation or postponement thereof), the
RMT Parent Stockholder Approval shall not have been obtained;
provided
, that the right to terminate this Agreement under this
Section 9.01(c)
shall not be available to RMT Parent unless RMT Parent has fully complied with all of
its obligations under
Section 7.02
and
Section 7.03
;
(d) by LMC, if a breach of any covenant or agreement on the part of
RMT Parent set forth in this Agreement (including an obligation to consummate the Closing) shall have occurred that would, if occurring or continuing on the Closing Date, cause the conditions set forth in
Section 8.01
or
Section 8.03(a)
not to be satisfied, and such breach is not cured, or is incapable of being cured, upon the earlier of (i) 30 days following LMCs written notice to RMT Parent of such breach and LMCs intent to terminate
this Agreement, or (ii) with respect to a breach of an obligation to consummate the Closing, five (5) Business Days following LMCs written notice to RMT Parent of such breach and LMCs intent to terminate this Agreement, or
(iii) the Termination Date;
provided
,
further
, that the right to terminate this Agreement under this
Section 9.01(d)
shall not be available to LMC if LMC or Spinco is then in breach of this Agreement or the Separation
Agreement so as to cause any of the conditions set forth in
Section 8.01
or
Section 8.02
not to be satisfied;
(e) by LMC,
if (i) a Change in the RMT Parent Recommendation has occurred, (ii) RMT Parent shall have failed to include the RMT Parent Recommendation in the Proxy Statement, or (iii) RMT Parent shall have breached its obligations in
Section 7.02
or
Section 7.03
(except in the case of clause (iii) for de minimis breaches of such obligations that are promptly cured by RMT Parent);
provided
,
however
, that, if LMC has not terminated this
Agreement pursuant to this
Section 9.01(e)
prior to the time at which RMT Parent Stockholder Approval is obtained, LMC shall not have the right to terminate this Agreement under this
Section 9.01(e)
in respect of an action
taken by RMT Parent or any of its Subsidiaries or Representatives during the period commencing on the date of this Agreement and ending at the time at which RMT Parent Stockholder Approval is obtained.
(f) by RMT Parent, if a breach of any covenant or agreement on the part of LMC or Spinco set forth in this Agreement or the Separation Agreement
(including an obligation to consummate the Closing) shall have occurred that would, if occurring or continuing on the Closing Date, cause the conditions set forth in
Section 8.01
or
Section 8.02(a)
not to be satisfied, and
such breach is not cured, or is incapable of being cured, upon the earlier of (i) 30 days following RMT Parents written notice to LMC and Spinco of such breach and RMT Parents intent to terminate this Agreement, (ii) with
respect to a breach of an obligation to consummate the Closing, five Business Days following RMT Parents written notice to LMC and Spinco of such breach and RMT Parents intent to terminate this Agreement, or (iii) the Termination
Date;
provided
,
further
, that the right to terminate this Agreement under this
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Section 9.01(f)
shall not be available to RMT Parent if RMT Parent is then in breach of this Agreement so as to cause any of the conditions set forth in
Section 8.01
or
Section 8.03
not to be satisfied; or
(g) by the written consent of all of the Parties.
Section 9.02
Effect of Termination
.
In
the event of the valid termination of this Agreement pursuant to
Section 9.01
, written notice thereof shall be given to the other Parties, specifying in good faith the provision or provisions hereof pursuant to which such termination
shall have been made, and this Agreement shall forthwith become void, and there shall be no liability under this Agreement on the part of any Party or their respective Representatives;
provided
, that nothing in this
Section 9.02
or
Section 9.03
shall relieve any Party from liability for fraud committed prior to such termination or for any willful breach prior to such termination of any of its representations, warranties, covenants or agreements set forth in the
Transaction Documents; and
provided
,
further
, that notwithstanding the foregoing, the provisions of
Section 7.14
, this
Section 9.02
,
Section 9.03
and
Article X
shall survive any termination of
this Agreement and remain in full force and effect.
Section 9.03
Fees and Expenses
.
(a) The Parties agree that:
(i) if
LMC terminates this Agreement pursuant to
Section 9.01(e)
, then, no later than two Business Days after the date of LMCs notice of such termination, RMT Parent shall pay to LMC the Termination Fee in cash in immediately available
funds; and
(ii) if (A) (1) RMT Parent or LMC terminates this Agreement pursuant to
Section 9.01(a)
or
(2) LMC terminates this Agreement pursuant to
Section 9.01(d)
, (B) prior to the termination of this Agreement, a Competing RMT Parent Transaction shall have been publicly announced or shall have become publicly known, and
(C) on or prior to the date that is 15 months after the date of such termination, RMT Parent enters into a Competing RMT Parent Transaction Agreement or consummates a Competing RMT Parent Transaction (whether or not the applicable Competing RMT
Parent Transaction is the same as the original Competing RMT Parent Transaction publicly announced or publicly known), then, on the earlier of the date RMT Parent enters into a Competing RMT Parent Transaction Agreement or consummates any Competing
RMT Parent Transaction, RMT Parent shall pay to LMC the Termination Fee in cash in immediately available funds;
provided
that, solely for purposes of this
Section 9.03(a)(ii)
, the references to 20% in the definition of
Competing RMT Parent Transaction shall be deemed to refer to 50%.
(b) The Parties agree that if RMT Parent or LMC terminates this
Agreement pursuant to
Section 9.01(c)
, RMT Parent shall pay to LMC in cash in immediately available funds all of LMCs Expenses up to an aggregate amount of $37,500,000 no later than two Business Days after LMC submits a statement
and reasonable documentation therefor.
(c) Except as expressly set forth in this Agreement, including this
Section 9.03
and the
Separation Agreement, all Expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the Party incurring such Expenses, whether or not the Merger or any other Contemplated Transaction is
consummated, except that LMC and RMT Parent shall each pay one-half of all Expenses relating to printing, filing and mailing the Registration Statements and the Proxy Statement and all SEC and other regulatory filing fees incurred in connection with
the Registration Statement and the Proxy Statement.
(d) Each party agrees that, notwithstanding anything in this Agreement (other than
Section 9.03(f)
) to the contrary (including
Section 9.02
), in the event that any Termination Fee is paid in accordance with this
Section 9.03
, the payment of such Termination Fee shall be the sole and exclusive
remedy of such party, its Subsidiaries, shareholders, Affiliates, officers, directors, employees and Representatives against the other party or any of its Representatives or Affiliates or any Lender or Lender Related Party for, and in no event will
the party being paid any Termination Fee or any other such person seek to recover any other money damages or seek any other remedy based on a claim in law or equity with respect to: (1) any loss suffered, directly or indirectly, as a result of
the failure of the Merger to be consummated, (2) the termination of this Agreement, (3) any liabilities or obligations arising under this Agreement, or (4) any claims or actions arising out of or relating to any breach, termination or
failure of or under this Agreement, and upon payment of any Termination Fee in accordance with this
Section 9.03
, neither the Party
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paying such fee, nor any Representative or Affiliate of such Party shall have any further liability or obligation to the other Parties relating to or arising out of this Agreement or the
transactions contemplated hereby.
(e) The Parties acknowledge that the agreements contained in this
Section 9.03
are an integral part
of the transactions contemplated by this Agreement. In the event that RMT Parent shall fail to pay the Termination Fee, the amount of such payment shall be increased to include the costs and expenses incurred or accrued by or on behalf of LMC and
Spinco (including fees and expenses of counsel) in connection with the collection under and enforcement of this
Section 9.03
, together with interest on such unpaid Termination Fee, commencing on the date that the Termination Fee or such
Expenses became due, at a rate of interest equal to the Interest Rate. Payment of the fees and expenses described in this
Section 9.03
shall not be in lieu of any damages incurred in the event of breach of this Agreement.
(f) In the event of a termination of this Agreement, in addition to the payment of any Termination Fee, reimbursement of any Expenses and any other
payments contemplated by this Agreement, RMT Parent shall pay to LMC in cash in immediately available funds an amount equal to the Spinco Specified Financing Costs no later than two Business Days after LMC submits a statement and reasonable
documentation therefor.
ARTICLE X
GENERAL PROVISIONS
Section 10.01
Non-Survival of Representations, Warranties, Covenants and Agreements
.
(a) Except as provided in
Section 10.01(b)
, the
representations, warranties, covenants and agreements in this Agreement and in any instrument delivered pursuant hereto shall terminate at the Merger Effective Time or upon the termination of this Agreement pursuant to
Section 9.01
, as
the case may be, except as set forth in
Section 9.02
and except for those covenants and agreements contained in this Agreement that by their terms are to be performed in whole or in part after the Merger Effective Time (or termination of
this Agreement, as applicable), which shall survive until they are fully effectuated or performed.
(b) Solely for purposes of the remedies set
forth in Section 2.01(b) of the Transition Services AgreementParent to Spinco and Section 2.08 of the Intellectual Property Matters Agreement, the representations and warranties set forth in
Section 4.19(a)
shall survive
until the one year anniversary of the Closing.
Section 10.02
Notices
.
All notices, requests and other communications to any Party hereunder shall be in writing (including email, telecopy or similar writing) and shall be
given,
if to LMC and, on or prior to the Closing, to Spinco:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817
Attention: Senior Vice
President, General Counsel and Corporate
Secretary
Telecopy: (301) 897-6013
Email:
maryanne.lavan@lmco.com
with a copy (which shall not constitute notice) to:
Hogan Lovells US LLP
Harbor East
100 International Drive
Suite 2000
Baltimore, Maryland 21202
Attention: Glenn C.
Campbell
Telecopy: (410) 659-2701
Email:
glenn.campbell@hoganlovells.com
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if to RMT Parent, Merger Sub, and, following the Closing, Spinco:
Leidos Holdings, Inc.
11951 Freedom Drive
Reston, Virginia 20190
Attention: Vincent A.
Maffeo, General Counsel
Email:
vince.maffeo@leidos.com
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
920 N. King Street
Wilmington, Delaware 19801
Attention: Robert B.
Pincus, Esq.
Telecopy: (302) 434-3090
Email:
bob.pincus@skadden.com
or to such other address,
email, or telecopy number and with such other copies, as such Party may hereafter specify for that purpose by notice to the other Parties. Each such notice, request or other communication shall be effective (a) on the day delivered (or if that
day is not a Business Day, on the first following day that is a Business Day) when (i) delivered personally against receipt or (ii) sent by overnight courier, (b) on the day when transmittal confirmation is received if sent by
telecopy or when email is transmitted (so long as receipt is requested and received) (or if that day is not a Business Day, on the first following day that is a Business Day), and (c) if given by any other means, upon delivery or refusal of
delivery at the address specified in this
Section 10.02
(or such other address as a Party hereafter may specify by notice to the other Parties).
Section 10.03
Amendments; Waivers
.
(a)
Subject to the provisions of
Article IX
, any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by all of the Parties, or in the case of a
waiver, by the Party or Parties against whom the waiver is to be effective;
provided
that any amendment or waiver of
Section 9.03(d)
, this
Section 10.03(a)
,
Section 10.03(b)
,
Section 10.04
,
Section 10.10
,
Section 10.11
,
Section 10.16
,
Section 10.17
or
Section 10.18
or to any other provision of this Agreement to the extent an amendment or waiver of such provision would modify
the substance of any of the foregoing enumerated provisions, in each case that adversely affects any RMT Lender, Spinco Lender or any of their respective Lender Related Parties shall not be effective with respect to such affected Lender or Lender
Related Party unless such Lender or Lender Related Party consented to such amendment or waiver in writing.
(b) No failure or delay by any Party in
exercising any right, power or privilege under this Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
Except as otherwise provided herein, no action taken pursuant to this Agreement, including any investigation by or on behalf of any Party, shall be deemed to constitute a waiver by the Party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. Any term, covenant or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but only by a written notice signed by such Party
expressly waiving such term, covenant or condition;
provided
that any waiver of
Section 9.03(d)
,
Section 10.03(a)
, this
Section 10.03(b)
,
Section 10.04
,
Section 10.10
,
Section 10.11
,
Section 10.16
,
Section 10.17
or
Section 10.18
or to any other provision of this Agreement to the extent a waiver of such provision would modify the substance of any of the foregoing
enumerated provisions, in each case that adversely affects any RMT Lender, Spinco Lender or any of their respective Lender Related Parties shall not be effective with respect to such affected Lender or Lender Related Party unless such Lender or
Lender Related Party has consented to such waiver in writing. The waiver by any Party of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision
hereunder.
Section 10.04
Successors and Assigns
.
The provisions of this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns. No
Party may assign, delegate or otherwise transfer, directly or
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indirectly, in whole or in part, any of its rights or obligations under this Agreement without the prior written consent of LMC and RMT Parent;
provided
that RMT Parent or LMC may
collaterally assign its rights (but not its obligations) under this Agreement to any of the Lenders or any Lender Related Party. Notwithstanding the foregoing, no assignment, delegation or other transfer of rights under this Agreement shall relieve
the assignor of any liability or obligation hereunder. Any attempted assignment, delegation or transfer in violation of this
Section 10.04
shall be void.
Section 10.05
Construction
.
As used in
this Agreement, any reference to the masculine, feminine or neuter gender shall include all genders, the plural shall include the singular, and the singular shall include the plural. References in this Agreement to a Party or other Person include
their respective successors and assigns. The words include, includes and including when used in this Agreement shall be deemed to be followed by the phrase without limitation unless such phrase
otherwise appears. Unless the context otherwise requires, references in this Agreement to Articles, Sections, Exhibits, Schedules, Disclosure Letters and Attachments shall be deemed references to Articles and Sections of, and Exhibits, Schedules,
Disclosure Letters and Attachments to, this Agreement. Unless the context otherwise requires, the words hereof, hereby and herein and words of similar meaning when used in this Agreement refer to this Agreement in
its entirety and not to any particular Article, Section or provision hereof. Except when used together with the word either or otherwise for the purpose of identifying mutually exclusive alternatives, the term or has the
inclusive meaning represented by the phrase and/or. With regard to each and every term and condition of this Agreement, the Parties understand and agree that, if at any time the Parties desire or are required to interpret or construe any
such term or condition or any agreement or instrument subject thereto, no consideration shall be given to the issue of which Party actually prepared, drafted or requested any term or condition of this Agreement. All references in this Agreement to
dollars or $ shall mean United States dollars. Any period of time hereunder ending on a day that is not a Business Day shall be extended to the next Business Day. Where used with respect to information, the phrases
delivered or made available shall mean that the information referred to is publicly available on the SECs website through its Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system or has been physically or
electronically delivered to the relevant Parties or their respective Representatives, including, in the case of made available to RMT Parent, material that has been posted in a data room (virtual or otherwise) established by
or on behalf of LMC or Spinco; including further, in the case of made available to LMC or Spinco, material that has been posted in a data room (virtual or otherwise) established by or on behalf of RMT Parent or Merger Sub.
Section 10.06
Disclosure Letters
.
Notwithstanding anything to the contrary contained in the Disclosure Letters, in this Agreement or in the other Transaction Documents, the information
and disclosures contained in any Section of a Disclosure Letter shall be deemed to be disclosed and incorporated by reference in each other Section of such Disclosure Letter as though fully set forth in such other Section to the extent the relevance
of such information to such other Section is reasonably apparent on its face notwithstanding the omission of a reference or a cross-reference with respect thereto and notwithstanding any reference to a Section of such Disclosure Letter in this
Agreement. Certain items and matters are listed in the Disclosure Letters for informational purposes only and may not be required to be listed therein by the terms of this Agreement. In no event shall the listing of items or matters in a Disclosure
Letter be deemed or interpreted to broaden, or otherwise expand the scope of, the representations and warranties or covenants and agreements contained in this Agreement. No reference to, or disclosure of, any item or matter in any Section of this
Agreement or any Section of a Disclosure Letter shall be construed as an admission or indication that such item or matter is material or that such item or matter is required to be referred to or disclosed in this Agreement or in such Disclosure
Letter. Without limiting the foregoing, no reference to, or disclosure of, a possible breach or violation of any contract or agreement, Applicable Law or Governmental Order shall be construed as an admission or indication that a breach or violation
exists or has actually occurred.
Section 10.07
Public Announcements
.
None of the Parties shall make, or cause to be made, any press release or public announcement in respect of this Agreement, the other Transaction
Documents or the transactions contemplated hereby and thereby or otherwise communicate with any news media regarding this Agreement, the other Transaction Documents or the transactions
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contemplated hereby and thereby without the prior written consent of the other Parties, unless such press release or public announcement is required by Applicable Law or applicable stock exchange
regulation, in which case the Parties shall, to the extent practicable, consult with each other as to the timing and contents of any such press release, public announcement or communication;
provided
,
however
, that the prior written
consent of the other Parties shall not be required hereunder with respect to any press release, public announcement or communication that is substantially similar to a press release, public announcement or communication previously issued with the
prior written consent of the other Parties.
Section 10.08
Entire Agreement
.
This Agreement (including the Disclosure Letters), the other Transaction Documents and any other agreements contemplated hereby or thereby, constitute
the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the Parties with respect to the subject matter hereof.
Section 10.09
Counterparts; Effectiveness
.
This Agreement may be signed in any number of counterparts (including by facsimile or PDF), each of which shall be an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each Party hereto shall have received a counterpart hereof signed by the other Party hereto.
Section 10.10
Governing Law
.
This
Agreement shall be construed in accordance with and governed by federal law and by the laws of the State of Delaware (without regard to the choice of law provisions thereof); except that, notwithstanding the foregoing, all matters relating to
interpretation, construction, validity and enforcement (whether at law, in equity, in contract, in tort, by statute or otherwise) against any of the Lenders or Lender Related Parties in any way relating to the Financing, shall be exclusively
governed by, and construed in accordance with, the domestic Law of the State of New York without giving effect to any choice or conflict of law provision or rule whether of the State of New York or any other jurisdiction that would cause the
application of Law of any jurisdiction other than the State of New York.
Section 10.11
Dispute Resolution, Consent to Jurisdiction
.
(a) Any Proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the
Contemplated Transactions shall be brought in the Delaware Court of Chancery and any state appellate court therefrom within the State of Delaware (or, if the Delaware Court of Chancery declines to accept jurisdiction over a particular matter, any
state or federal court within the State of Delaware), and each of the Parties hereby consents to the exclusive jurisdiction of such court (and of the appropriate appellate courts) in any such Proceeding and waives any objection to venue laid
therein. Process in any such Proceeding may be served on any Party anywhere in the world, whether within or without the State of Delaware. Without limiting the foregoing, RMT Parent, LMC and Spinco agree that service of process upon such Party at
the address referred to in
Section 10.02
(or such other address as may be specified in accordance with
Section 10.02
shall be deemed effective service of process upon such Party). EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING (INCLUDING ANY COUNTERCLAIM) DIRECTLY OR INDIRECTLY ARISING OUT OF, RELATING TO OR IN CONNECTION WITH THIS AGREEMENT OR THE
CONTEMPLATED TRANSACTIONS, INCLUDING ANY LITIGATION AGAINST ANY LENDER OR LENDER RELATED PARTY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE SPINCO COMMITMENT LETTER OR THE PERFORMANCE THEREOF, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY, OR OTHERWISE. EACH PARTY HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY SUCH SUIT,
ACTION OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE CONTEMPLATED TRANSACTIONS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS SET FORTH IN THIS
SECTION 10.11
.
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(b) Notwithstanding anything in
Section 10.11(a)
to the contrary, and without limiting anything
set forth in
Section 10.18
, each of the parties hereto agrees that it will not bring or support any suit, action or other proceeding (whether at law, in equity, in contract, in tort or otherwise) against any Lender or Lender Related
Party in any way relating to this Agreement or any of the transactions contemplated by this Agreement, including any dispute arising out of or relating in any way to the Financing or, if applicable, any Alternative Financing, or the performance
thereof, in any forum other than any New York State court or federal court sitting in the County of New York and the Borough of Manhattan (and appellate courts thereof). The parties hereto further agree that all of the provisions of the preceding
clause (a)
relating to waiver of jury trial shall apply to any suit, action or other proceeding referenced in this
clause (b).
Section 10.12
Severability
.
Any
provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. The application of such invalid or unenforceable provision to Persons or circumstances other than those as to which it is held invalid or
unenforceable shall be valid and be enforced to the fullest extent permitted by Applicable Law. To the extent any provision of this Agreement is determined to be prohibited or unenforceable in any jurisdiction, or determined to be impermissible by
any Governmental Authority, RMT Parent, LMC and Spinco agree to use reasonable commercial efforts to substitute one or more valid, legal and enforceable provisions that, insofar as practicable, implement the purposes and intent of the prohibited,
unenforceable, or impermissible provision.
Section 10.13
Captions
.
The captions herein are included for convenience of reference only and shall be ignored in the construction or interpretation hereof.
Section 10.14
Specific Performance
.
Each Party acknowledges that money damages would be both incalculable and an insufficient remedy for any breach of this Agreement by such Party and that
any such breach would cause the other Parties irreparable harm. Accordingly, each Party also agrees that, in the event of any breach or threatened breach of the provisions of this Agreement by such Party, the other Parties shall be entitled to
equitable relief without the requirement of posting a bond or other security, including in the form of injunctions and orders for specific performance, in addition to all other remedies available to such other Parties at law or in equity. Without
limiting the generality of the foregoing, the Parties agree that each Party shall be entitled to enforce specifically the other Parties obligations to consummate the transactions contemplated by this Agreement (including the obligation to
consummate the Closing and the RMT Parent Share Issuance and the obligations with respect to the Financing), if the conditions set forth in
Article VIII
have been satisfied (other than those conditions that by their nature are to be satisfied
at the Closing) or waived (where permissible under Applicable Law). The Parties agree that they will not contest the appropriateness of specific performance as a remedy.
Section 10.15
Payments
.
(a) Except as
otherwise expressly provided in this Agreement or any other Transaction Document, all payments by a Party to another Party under this Agreement or any other Transaction Document shall be paid by wire transfer of immediately available funds to an
account in the United States designated by the recipient when due. Any amount remaining unpaid beyond its due date, including disputed amounts that are ultimately determined to be payable, shall bear interest at the Interest Rate. Notwithstanding
anything to the contrary contained herein or in any other Transaction Document, in no event shall the amount or rate of interest due and payable exceed the maximum amount or rate of interest allowed by Applicable Law.
(b) Any payment made to LMC from Spinco or to Spinco from LMC will be treated as provided under Section 13(b) of the Tax Matters Agreement.
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Section 10.16
No Third-Party Beneficiaries
.
This Agreement shall be binding upon and inure solely to the benefit of, and be enforceable by, only the Parties and their respective successors and
permitted assigns and nothing herein, express or implied, is intended to, or shall confer upon, any other Person any right, benefit or remedy of any nature whatsoever, including any rights of employment for any specified period, under or by reason
of this Agreement, other than (a)
Section 7.05
(which is intended to be for the benefit of the Persons covered thereby and may be enforced by such Persons), (b)
Section 10.17
(which is intended to be for the benefit
of the Persons covered thereby and may be enforced by such Persons) and (c) the Lenders and the Lender Related Parties shall be third-party beneficiaries of
Section 9.03(d)
,
Section 10.03(a)
,
Section 10.03(b)
,
Section 10.04
,
Section 10.10
,
Section 10.11
, this
Section 10.16
,
Section 10.17
and
Section 10.18
.
Section 10.17
Non-Parties
.
Notwithstanding anything to the contrary in this Agreement, it is hereby agreed and acknowledged that this Agreement may only be enforced against, and
any claims of action that may be based upon, arise out of, or relate to, this Agreement, or the negotiation, execution or performance of this Agreement, may only be made against the Parties, and no former, current or future Affiliates, officers,
directors, managers, employees, equityholders, lenders, financing sources, managers, members, partners, agents or Representatives of any Party, in each case, who is not a party to this Agreement, shall have any liability for any obligations of the
Parties or for any claim based on, in respect of, or by reason of, the transactions contemplated hereby (whether at law or in equity, in contract, tort or otherwise). For the avoidance of doubt, this
Section 10.17
shall not affect
(a) the rights of the Persons party to each Commitment Letter to enforce such Commitment Letter in accordance with its terms; or (b) the rights and obligations of the Parties set forth in
Section 7.08
or (c) the rights of
the Lenders and the Lender Related Parties under
Section 10.16
.
Section 10.18
Non-Recourse
.
Notwithstanding anything in this Agreement to the contrary (but subject to the last sentence of this Section 10.18), each LMC Entity hereby waives
any rights or claims against any Lender or Lender Related Party in connection with this Agreement or the other Transaction Documents (including any of the transactions contemplated hereby or thereby) and the Financings, whether at law or equity, in
contract, in tort or otherwise. Subject to the last sentence of this Section 10.18 in no event shall any LMC Entity, and each LMC Entity agrees not to, (A) seek to enforce this Agreement or the other Transaction Documents against, make any
claims for breach of this Agreement or the other Transaction Documents against, or seek to recover monetary damages (including, for the avoidance of doubt, any special, consequential, punitive, indirect, speculative or exemplary damages or damages
of a tortious nature) from, any Lender or Lender Related Party or (B) seek to enforce the commitment against, make any claims for breach of commitments in respect of any Financing or, if applicable, any Alternative Financing against, or seek to
recover monetary damages (including, for the avoidance of doubt, any special, consequential, punitive, indirect, speculative or exemplary damages or damages of a tortious nature) from, or otherwise sue, any Lender or Lender Related Party for any
reason, including in connection with commitments in respect of any Financing or, if applicable, any Alternative Financing or the obligations of the Lenders and the Lender Related Parties thereunder. Nothing in this
Section 10.18
shall in
any way limit or qualify (a) the obligations and liabilities of the parties to each Commitment Letter to each other or in connection therewith, including, without limitation, the right of Spinco to enforce the Spinco Commitment Letter in
accordance with its terms or (b) the rights, obligations and liabilities of the parties hereto to each other or in connection herewith.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed under seal by their
respective authorized representatives on the day and year first above written.
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LOCKHEED MARTIN CORPORATION
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By:
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/s/ Gregory L. Psihas
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(SEAL)
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Name:
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Gregory L. Psihas
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Title:
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Vice President, Corporate Development
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ABACUS INNOVATIONS CORPORATION
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By:
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/s/ Stephen M. Piper
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(SEAL)
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Name:
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Stephen M. Piper
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Title:
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President
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LEIDOS HOLDINGS, INC.
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By:
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/s/ Roger A. Krone
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(SEAL)
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Name:
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Roger A. Krone
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Title:
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Chief Executive Officer
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LION MERGER CO.
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By:
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/s/ Roger A. Krone
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(SEAL)
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Name:
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Roger A. Krone
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Title:
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President
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[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
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EXHIBIT A
DEFINITIONS
(a) The following terms have the
following meanings:
Acceptable Confidentiality Agreement
means an executed confidentiality agreement between RMT Parent and a
Person who has made a proposal satisfying the requirements of
Section 7.03(c)
on terms no less favorable to RMT Parent than those contained in the Confidentiality Agreement.
Affiliate
means, with respect to any specified Person, any other Person directly or indirectly controlling, controlled by, or under
common control with such specified Person. For purposes of determining whether a Person is an Affiliate, the term control shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of securities, contract or otherwise.
Affiliated Transferor
has the meaning
set forth in the Separation Agreement.
Antitrust Laws
means all United States federal and state, and any foreign, statutes,
rules, regulations, orders, decrees, administrative and judicial doctrines, and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening of
competition through merger or acquisition, including the HSR Act, the Sherman Antitrust Act of 1890, as amended, the Clayton Antitrust Act of 1914, as amended, and the Federal Trade Commission Act of 1914, as amended.
Applicable Law
means, with respect to any Person, any federal, state, county, municipal, local, multinational or foreign statute,
treaty, law, executive order, common law, ordinance, rule, regulation, administrative order, writ, injunction, judicial decision, decree, permit or other legally binding requirement of any Governmental Authority applicable to such Person or any of
its respective properties, assets, officers, directors, employees, consultants or agents (in connection with such officers, directors, employees, consultants or agents activities on behalf of such Person).
Assumed Liabilities
has the meaning set forth in the Separation Agreement.
Beneficial Owner
has the meaning given to such term under Rule 13d-3 of the Exchange Act.
Business Day
means a day, other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized
or required by law to close.
Clean-Up Spin-Off
has the meaning set forth in the Separation Agreement.
Closing Date
means the date on which the Closing occurs.
Code
means the Internal Revenue Code of 1986, as amended.
Competing RMT Parent Transaction
means any transaction or series of related transactions (other than the Merger) that constitutes, or
is reasonably likely to lead to, (a) any merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or other similar transaction involving RMT Parent or any of its Subsidiaries, the assets of which
constitute or represent more than 20% of the total revenue, operating income, EBITDA or fair market value of the assets of RMT Parent and its Subsidiaries, taken as a whole; (b) any sale, lease, license, exchange, transfer or other disposition
of, or joint venture involving, assets or businesses that constitute or represent more than 20% of the total revenue, operating income, EBITDA or fair market value of the assets of RMT Parent and its Subsidiaries, taken as a whole; (c) any
sale, exchange, transfer or other disposition to any Person of more than 20% of any class of equity securities, or securities convertible into or exchangeable for equity securities, of RMT Parent; (d) any tender offer or exchange offer that, if
consummated, would result in any Person becoming the Beneficial Owner of more than 20% of any class of equity securities of RMT Parent; (e) any other transaction the consummation of which would reasonably be likely to impede, interfere with,
prevent or materially delay the Merger; or (f) any combination of the foregoing.
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Competing RMT Parent Transaction Agreement
means a letter of intent, agreement in
principle, term sheet, merger agreement, acquisition agreement, option agreement or other contract, commitment or agreement relating to any Competing RMT Parent Transaction (other than an Acceptable Confidentiality Agreement).
Competing Spinco Transaction
means any transaction or series of related transactions (other than the Merger, the Internal
Reorganization and the Distribution or as otherwise contemplated by this Agreement and the Signing Transaction Documents and other than asset sales and transfers in the ordinary course of business not in violation of
Section 6.01
) that
constitutes, or is reasonably likely to lead to, a merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution, acquisition, sale, transfer or other disposition or similar transaction involving the Spinco
Business, or any other transaction the consummation of which would reasonably be likely to impede, interfere with, prevent or materially delay the Merger.
Competing Spinco Transaction Agreement
means a letter of intent, agreement in principle, term sheet, merger agreement, acquisition
agreement, option agreement or other contract, commitment or agreement relating to any Competing Spinco Transaction.
Contemplated
Transactions
means the transactions contemplated by the Transaction Documents.
Contracts
means all legally binding
contracts, agreements, arrangements, leases and subleases (including leases and subleases of real property), licenses, commitments, notes, bonds, mortgages, indentures, sales and purchase orders, other instruments and other undertakings of any kind,
whether written or oral.
Current Government Contracts
means those Government Contracts under which the period of performance has
not yet expired or terminated or for which final payment has not been received or which remain open to audit or close out.
Cut-Off
Time
has the meaning set forth in the Separation Agreement.
Damages
has the meaning set forth in the Separation
Agreement.
Data
has the meaning set forth in the Separation Agreement.
DGCL
means the General Corporation Law of the State of Delaware, as amended.
Disclosure Letters
means the RMT Parent Disclosure Letter and the LMC Disclosure Letter.
Distribution Date
has the meaning set forth in the Separation Agreement.
DSS
means the Defense Security Service of the United States Department of Defense.
Employee Matters Agreement
has the meaning set forth in the Separation Agreement.
Environmental Laws
means any and all past, present or future federal, state, county, municipal, local, multi-national and foreign
statutes, treatises, laws, common laws, ordinances, rules, regulations, orders, writs, injunctions, judicial decisions, decrees or other legally binding requirement of any Governmental Authority that relate to protection of the environment or that
impose liability for, or standards of conduct concerning, the manufacture, processing, generation, distribution, use, treatment, storage, disposal, discharge, release, emission, cleanup, transport or handling of Hazardous Substances, including the
Resource Conservation and Recovery Act of 1976, as amended, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1984, as amended, the Toxic Substances
Control Act, as amended, any other so-called Superfund or Superlien laws, but excluding the Occupational Safety and Health Act of 1970, as amended, and similar state laws.
Environmental Permit
means any Permit, identification number or registration that the Spinco Business is required to possess pursuant
to any applicable Environmental Law.
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Exchange Act
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, as the same shall be in effect from time to time.
Exchange Ratio
means, subject to adjustment
pursuant to
Section 2.04(c)
and
Section 3.01(f)
, 1.020202.
Excluded Assets
has the meaning set forth in
the Separation Agreement.
Excluded Liabilities
has the meaning set forth in the Separation Agreement.
Expenses
means all out-of-pocket fees and expenses (including all fees and expenses of counsel, accountants, investment banking firms
and other financial institutions, experts and consultants and commitment fees and any other financing fees and expenses) actually incurred or accrued by a Party or its Affiliates or on its or their behalf or for which it or they are liable in
connection with or related to the authorization, planning, structuring, preparation, drafting, negotiation, execution and performance of the Contemplated Transactions, the preparation, review and audit of any financial statements, the preparation of
the Spinco Business for sale and any due diligence, marketing or similar activities in connection therewith, the preparation, printing, filing and mailing of the Registration Statements (including any related prospectus or information statement),
the Proxy Statement, and the Schedule TO, the solicitation of stockholder approvals, the filing of any required notices under the HSR Act or any other Antitrust Laws, the filing of the Certificate of Merger in respect of the Merger, and all other
matters related to the Merger, the Internal Reorganization, the Distribution, the Spinco Debt and any other financing or Contemplated Transactions.
FCPA
means the Foreign Corrupt Practices Act of 1977, as amended.
Financial Support Arrangements
has the meaning set forth in the Separation Agreement.
Former Spinco Business Employee
has the meaning set forth in the Separation Agreement.
Funds
shall have the meaning set forth in the Employee Matters Agreement.
Israeli Affiliated Transferor
shall have the meaning set forth in the Employee Matters Agreement.
Israeli Employees
shall have the meaning set forth in the Employee Matters Agreement.
GAAP
means United States Generally Accepted Accounting Principles as in effect on the date of this Agreement.
Government Bid
means any offer, quotation, bid or proposal made by a Party or its Subsidiary prior to the Closing Date which, if
accepted, would result in a Government Contract.
Government Contract
means, with respect to any Person, any prime contract,
subcontract, facility contract, teaming agreement or arrangement, joint venture, basic ordering agreement, pricing agreement, letter contract, purchase order, delivery order, modification, change order, undefinitized contract action or other
contractual arrangement of any kind, between such Person and (i) the U.S. Government, (ii) any prime contractor of the U.S. Government or (iii) any subcontractor at any tier with respect to any contract of a type described in clauses
(i) or (ii) above. A task, purchase or delivery order under a Government Contract will not constitute a separate Government Contract, for purposes of this definition, but will be part of the Government Contract to which it relates.
Governmental Authority
means any multinational, foreign, domestic, federal, territorial, state or local governmental authority,
quasi-governmental authority, instrumentality, court, government or self-regulatory organization, commission, tribunal or organization or any regulatory, administrative or other agency, or any political or other subdivision, department or branch of
any of the foregoing.
Governmental Order
means any order, writ, judgment, injunction, decree, stipulation, determination or
award entered by or with any Governmental Authority.
A-69
Hazardous Substances
means (i) substances defined as hazardous
substances or hazardous waste pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or the Resource Conservation and Recovery Act of 1976, as amended, (ii) substances
defined as hazardous substances or hazardous waste in the regulations adopted pursuant to any of said laws, (iii) substances defined as toxic substances in the Toxic Substances Control Act, as amended, and
(iv) petroleum, petroleum derivatives, petroleum products, asbestos and asbestos-containing materials and any other substances or materials as regulated pursuant to Environmental Laws.
HSR Act
means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder.
Intellectual Property
has the meaning set forth in the Separation Agreement.
Intellectual Property Matters Agreement
has the meaning set forth in the Separation Agreement.
Interest Rate
means, on any given day, the rate per annum equal to the prime rate as published on such day in the Wall
Street Journal, Eastern Edition.
Internal Reorganization
has the meaning set forth in the Separation Agreement.
International Trade Laws and Regulations
means all Applicable Laws concerning the import, export, re-export, or international
transfer of products, services or technology, including United States Code, Title 13, Chapter 9 Collection and Publication of Foreign Commerce and Trade Statistics administered by the United States Census Bureau, the Tariff Act of 1930, as amended,
and other laws administered by the United States Customs and Border Protection, regulations issued or enforced by the United States Customs and Border Protection, the Export Administration Regulations, the International Emergency Economic Powers
Act, the Arms Export Control Act, the ITAR, any other export controls administered by an agency of the United States Government, as amended and continued in force by Executive Orders of the President regarding embargoes and restrictions on trade
with designated countries and Persons, the embargoes and restrictions administered by the United States Office of Foreign Assets Control, the FCPA, the anti-boycott regulations administered by the United States Department of Commerce, the
anti-boycott regulations administered by the United States Department of the Treasury, legislation and regulations of the United States and other countries implementing the North American Free Trade Agreement, antidumping and countervailing duty
laws and regulations, laws and regulations by other countries implementing the OECD Convention on Combating Bribery of Foreign Officials, restrictions by other countries on holding foreign currency and repatriating funds and other laws and
regulations adopted by the governments or agencies of other countries relating to the same subject matter as the United States statutes and regulations described above.
IP License
means any material license under which a Spinco Company (or, to the extent related to the Spinco Business, an LMC Entity)
is a licensee or a licensor or otherwise is granted, obtains or agrees to grant or provide rights to use any material Intellectual Property, or is restricted in any material respect in its right to use any material Intellectual Property, other than
(i) licenses for COTS software (as such term is defined in the Separation Agreement), or (ii) licenses granted to customers (including Governmental Authorities) in the ordinary course of business consistent with past practice.
IRS
means the United States Internal Revenue Service.
ITAR
means the International Traffic in Arms Regulations, 22 C.F.R. §§ 120-130, as amended.
JV Entities
means Kwajalein Range Services, LLC, Consolidated Nuclear Security LLC and Mission Support Alliance, LLC.
Lender Related Parties
means the Persons, including the Lenders, that have committed to provide or arrange any Financing or
Alternative Financing in connection with the transactions contemplated hereby, including the parties named in any joinder agreements, note purchase agreements, indentures or credit agreements entered into pursuant thereto or relating thereto, their
Affiliates, and their respective former, current and future directors, officers, managers, members, stockholders, partners, employees, agents, advisors, representatives, successors and permitted assigns of any of the foregoing.
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Liabilities
means all liabilities and obligations of any kind, character or description,
whether liquidated or unliquidated, known or unknown, fixed or contingent, accrued or unaccrued, absolute, determined, determinable or indeterminable, or otherwise.
Licensed Intellectual Property
has the meaning set forth in the Separation Agreement.
Lien
means, (i) with respect to any asset, any mortgage, lien, claim, pledge, charge, security interest or other encumbrance of
any kind in respect of such asset, and (ii) with respect to real property, any title defects, encumbrances, easements and restrictions, invalidities or irregularities.
LMC 2003 IPAP
means the LMC Corporation Amended and Restated 2003 Incentive Performance Award Plan, as amended to date.
LMC 2011 IPAP
means the LMC Corporation Amended and Restated 2011 Incentive Performance Award Plan, as amended to date.
LMC Disclosure Letter
means the confidential letter delivered by LMC to RMT Parent immediately prior to the execution of this
Agreement.
LMC Entity
means LMC or any of its Subsidiaries.
LMC IPAPs
means the LMC 2003 IPAP and the LMC 2011 IPAP.
LMC JV Interests
means the equity interests in the JV Entities owned, directly or indirectly, by LMC as of the date hereof.
LMC Performance Share Unit
means a performance share unit awarded under the LMC 2011 IPAP, which unit represents the right to receive
a share of LMC Common Stock upon the achievement of certain stated performance goals in respect of a relevant performance period under the terms and conditions set forth in the underlying award agreement in respect thereof.
LMC Restricted Stock Unit
means a restricted stock unit awarded under the LMC 2011 IPAP, which unit represents the right to receive a
share of LMC Common Stock under the terms and conditions set forth in the underlying award agreement in respect thereof.
LMC SEC
Documents
means all forms, reports, statements, schedules and other documents filed by LMC with, or furnished by LMC to, the SEC since January 1, 2013.
LMC Stock Option
means a stock option awarded under an LMC IPAP, which option represents the right to acquire a share of LMC Common
Stock upon payment of the exercise price under the terms and conditions set forth in the underlying award agreement in respect thereof.
LMC Stock Value
means the closing per-share price of LMC Common Stock, trading regular way with due bills, on the last full trading
session prior to the Merger Effective Time, as listed on the NYSE.
Marketing Period
means the first period of 15 consecutive
Business Days commencing after the date of this Agreement throughout which and on the first day and last day of which (i) RMT Parent shall have received the Required Financial Statements; and (ii) the conditions set forth in Sections 8.01
and Section 8.02 shall have been satisfied (except for any conditions that by their nature can only be satisfied on the Closing Date, but subject to the satisfaction of such conditions or waiver by the Party entitled to waive such conditions)
and nothing has occurred and no condition or state of facts exists that would cause any of the conditions set forth in Sections 8.01 and Section 8.02 to fail to be satisfied assuming the Closing were to be scheduled for any time during such 15
consecutive Business Day period; provided, that if the financial statements included in the Required Financial Statements that are available to RMT Parent on the first day of any such 15 consecutive Business Day period would not be sufficiently
current on any day during such 15 consecutive Business Day period to permit (x) a registration statement filed by Spinco using such financial statements to be declared effective by the SEC on the last day of the 15 consecutive Business Day
period and (y) LMC and/or Spincos independent auditors to issue a customary
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comfort letter (in accordance with its normal practices and procedures) on the last day of the 15 consecutive Business Day period (any documents complying with the requirements of clauses
(x) and (y), mutatis mutandis, Compliant Documents), then a new 15 consecutive Business Day period shall commence upon RMT Parent receiving updated Required Financial Statements that would be sufficiently current to permit the
actions described in clauses (x) and (y) above on the last day of such 15 consecutive Business Day period; provided further, that the Marketing Period shall be deemed not to have commenced if, (1) prior to the completion of such 15
consecutive Business Day period, LMC and/or Spincos independent auditors shall have withdrawn its audit opinion with respect to any of the financial statements contained in the Required Financial Statements in which case the Marketing Period
shall not be deemed to commence unless and until a new unqualified audit opinion is issued with respect the applicable Required Financial Statements by LMC and/or Spincos independent auditors, another big four accounting firm or
another independent public accounting firm reasonably acceptable to RMT Parent, (2) LMC or Spinco shall have publicly announced any intention to restate any material financial information included in the Required Financial Statements or that
any such restatement is under consideration or may be a possibility, in which case the Marketing Period shall be deemed not to commence unless and until such restatement has been completed and the LMC SEC Documents have been amended or LMC has
determined that no restatement shall be required under GAAP or (3) LMC or Spinco shall have been late in filing any material report with the SEC required under the Exchange Act, in which case the Marketing Period shall be deemed not to commence
at the earliest unless and until such delinquency is cured; provided further, that if such 15 consecutive Business Day period has not ended prior to August 20, 2016, such period shall not commence prior to September 6, 2016 or
(ii) ended prior to December 21, 2016, such period shall not commence prior to January 2, 2017; provided, further that such 15 Business Day period shall not be required to be consecutive to the extent it would include
November 21, 2016 through November 25, 2016 (which dates shall not count towards satisfying such 15 Business Day requirement) and in no event will such 15 consecutive Business Day period extend beyond the Termination Date. Notwithstanding
the foregoing, the Marketing Period shall end on any earlier date that is the date on which the proceeds of (A) the Spinco Financing is obtained and are sufficient to pay the Spinco Special Cash Payment and (B) the RMT Financing is
obtained and are sufficient to pay the RMT Parent Special Dividend. If LMC shall in good faith reasonably believe that it has provided the Required Financial Statements to RMT Parent and that the Required Financial Statements qualifies as a
Compliant Document, LMC may deliver to RMT Parent a written notice to that effect (stating the date on which it believes it completed such delivery), in which case LMC shall be deemed to have complied with the requirement to deliver Required
Financial Statements that qualifies as a Compliant Document (in which case, such 15 consecutive Business Day period shall be deemed to have commenced on the date such notice is received by RMT Parent unless RMT Parent in good faith reasonably
believes that LMC has not completed the delivery of Required Financial Statements that qualifies as a Compliant Document and, within three Business Days after the delivery of such notice by LMC, delivers a written notice to LMC to that effect
(stating with reasonable specificity which Required Financial Statements RMT Parent believes LMC has not delivered or does not qualify as a Compliant Document at that time).
NISPOM
means the National Industrial Security Program Operating Manual issued by the United States Department of Defense as it may be
amended or supplemented from time to time.
Non-U.S. RMT Parent Employee
means any RMT Parent Employee who is employed primarily
outside (or, in the case of any expatriate RMT Parent Employee, whose home country is outside) the United States immediately prior to the Closing.
Non-U.S. Spinco Business Employee
means any Spinco Business Employee who is employed primarily outside (or, in the case of any
expatriate Spinco Business Employee, whose home country is outside) the United States immediately prior to the Closing.
OCI
means an organizational conflict of interest, as defined in Federal Acquisition Regulation subpart 9.5, the provisions of the Weapons Systems Acquisition Reform Act of 2009 or any applicable provision of the Defense Federal Acquisition Regulation
Supplement.
Parent Cash Distribution
has the meaning set forth in the Separation Agreement.
Permits
means all federal, state, local or foreign permits, grants, easements, consents, approvals, authorizations, exemptions,
licenses, franchises, certificates or Governmental Orders of or issued by any Governmental Authority that are required for a Party to own its assets or conduct its business as it is being conducted on the date of this Agreement or as of the Closing
Date.
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Permitted Liens
means (a) statutory liens for current Taxes not yet due or
delinquent or the validity or amount of which is being contested in good faith by appropriate proceedings and for which adequate accruals or reserves have been established in accordance with GAAP on the applicable financial statements;
(b) (i) in the case of LMC and Spinco, Liens approved in writing by RMT Parent or any of its Representatives after the date hereof, and (ii) in the case of RMT Parent and Merger Sub, Liens approved in writing by LMC or any of its
Representatives after the date hereof; (c) mechanics, materialmens, carriers, workers, repairers and other similar Liens or security obligations incurred in the ordinary course of business and arising by operation
of law or the validity or amount of which is being contested in good faith by appropriate proceedings and for which accruals or reserves have been established in accordance with GAAP; (d) pledges, deposits or other Liens securing the
performance of bids, trade contracts, leases or statutory obligations (including workers compensation, unemployment insurance or other social security legislation); (e) Liens and other imperfections of title that do not materially detract
from the value or materially impair the use or occupancy of the property to which they relate in the conduct of the Spinco Business or the business of RMT Parent and its Subsidiaries, as the case may be, as currently conducted; (f) Liens
arising under conditional sales contracts and equipment leases with third parties and other Liens arising on assets and products sold in the ordinary course of business; (g) Liens on leases, subleases, easements, licenses, rights of use, rights
to access and rights of way arising therefrom or benefiting or created by any superior estate, right or interest; (h) any zoning, entitlement, conservation restriction and other land use and environmental regulations by Governmental
Authorities; (i) all covenants, conditions, restrictions, easements, charges, rights of way and other similar matters of record set forth in any state, local or municipal recording or like office; (j) Liens that would be disclosed by an
accurate survey or inspection of the real property, including minor encroachments, minor variations, if any, between Tax lot lines and property lines, and minor deviations, if any, of fences or shrubs from designated property lines; (k) Liens
that will be released at or prior to the Closing; (l) standard printed survey and title exceptions contained in the form of title insurance policy if issued by a nationally reputable title insurance company; (m) Liens identified in the
Spinco Financial Statements; and (n) Liens reserved or created pursuant to any Transaction Document or any of the Financing Agreements;
provided
, that in the case of each of the items in clauses (g) through (j) and
(l) above, none of the items described therein, individually or in the aggregate, would reasonably be expected to have a material adverse effect on the use or occupancy of the property to which they relate in the conduct of the Spinco Business
or the business of RMT Parent and its Subsidiaries, as the case may be, as currently conducted.
Person
means an individual, a
corporation, a general partnership, a limited partnership, a limited liability company, a limited liability partnership, a joint venture, an association, a trust or any other entity or organization, including a Governmental Authority or any
department or agency thereof.
Proceeding
means any proceeding (public or private), litigation, suit, arbitration, dispute,
demand, claim, charge, action, cause of action, subpoena, inquiry, governmental audit or investigation before any court, grand jury, Governmental Authority or any arbitration or mediation tribunal or authority.
Qualified Spinco Common Stock
means Spinco Common Stock that was not acquired directly or indirectly pursuant to the plan (or series
of related transactions) which includes the Distribution (within the meaning of Section 355(e) of the Code);
provided
, that for the avoidance of doubt, Spinco Common Stock actually acquired in the Distribution shall be Qualified Spinco
Common Stock unless acquired with respect to or in exchange for LMC Common Stock that was acquired as part of such a plan (or series of related transactions) which includes the Distribution (within the meaning of Section 355(e) of the Code).
Record Date
has the meaning set forth in the Separation Agreement.
Registered
means issued by, registered or filed with, renewed by or the subject of a pending application before any Governmental
Authority or Internet domain name registrar.
Representatives
means, with respect to a Person, each of its respective directors,
officers, attorneys, accountants, employees, advisors or agents.
Retained LMC Entity
means any LMC Entity that is neither a JV
Entity nor a Transferred Subsidiary.
RMT Parent Charter
means the Certificate of Incorporation of RMT Parent.
RMT Parent Common Stock
means the common stock, par value $0.0001 per share, of RMT Parent.
A-73
RMT Parent Disclosure Letter
means the confidential disclosure letter delivered by RMT
Parent to LMC immediately prior to the execution of this Agreement.
RMT Parent Employee
means any employee of RMT Parent or any
of its Subsidiaries.
RMT Parent Entity
means any of RMT Parent or any of its Subsidiaries.
RMT Parent Leased Real Property
means real property leased or subleased by RMT Parent or its Subsidiaries, as tenant.
RMT Parent Material Adverse Effect
means any event, circumstance, change in or effect on RMT Parent and its Subsidiaries that,
individually or in the aggregate, is or would reasonably be expected to be materially adverse to the business, results of operations or the financial condition of RMT Parent and its Subsidiaries, taken as a whole;
provided
,
however
,
that none of the following, either alone or in combination, shall be deemed to constitute a RMT Parent Material Adverse Effect, or be taken into account in determining whether there has been a RMT Parent Material Adverse
Effect: (a) events, circumstances, changes or effects that generally affect the industries or segments thereof in which RMT Parent operates, including legal and regulatory changes; (b) general business, economic or political
conditions (or changes therein); (c) events, circumstances, changes or effects affecting the financial, credit or securities markets in the United States or in any other country or region in the world, including changes in interest rates or
foreign exchange rates; (d) events, circumstances, changes or effects arising out of, or attributable to, the announcement of the execution of, or the consummation of the transactions contemplated by, this Agreement or any other Transaction
Document, the identity of LMC, including with respect to employees, customers, distributors, suppliers, financing sources, landlords, licensors, licensees or sub-licensees (
provided
, that this clause (d) shall not apply with respect to
the matters described in
Sections 5.04
and
5.05
); (e) events, circumstances, changes or effects arising out of, or attributable to, strikes, slowdowns, lockouts or work stoppages (pending or threatened); (f) events,
circumstances, changes or effects arising out of, or attributable to, acts of armed hostility, sabotage, terrorism or war (whether or not declared), including any escalation or worsening thereof; (g) events, circumstances, changes or effects
arising out of, or attributable to, earthquakes, hurricanes, tsunamis, tornadoes, floods or other natural disasters, weather-related conditions, explosions or fires, or any force majeure events in any country or region in the world; (h) events,
circumstances, changes or effects arising out of, or attributable to, changes (or proposed changes) or modifications in GAAP, other applicable accounting standards or Applicable Law or the interpretation or enforcement thereof; or (i) events,
circumstances, changes or effects arising out of, or attributable to, (1) the failure by RMT Parent to meet any internal or other estimates, expectations, forecasts, plans, projections or budgets for any period or (2) any change in RMT
Parents stock price or trading volume (it being understood in the case of each of clauses (1) and (2) that the underlying cause of, or factors contributing to, such failure or change may be taken into account in determining whether
an RMT Parent Material Adverse Effect has occurred); except, in the case of clauses (a), (b), (c), (e), (f), (g) or (h) to the extent that such event, circumstance, change or effect has a disproportionate effect on RMT Parent and its
Subsidiaries, taken as a whole, as compared with other participants in the industries in which RMT Parent and its Subsidiaries operate.
RMT Parent Owned Real Property
means the real property owned by RMT Parent or its Subsidiaries.
RMT Parent Performance Share Units
means all restricted share units payable in shares of RMT Parent Common Stock or whose value is
determined with reference to the value of shares of RMT Parent Common Stock, in each case, that are subject to any performance-based vesting criteria.
RMT Parent Preferred Stock
means preferred stock, par value $0.0001 per share, of RMT Parent.
RMT Parent Recommendation
means the recommendation of the RMT Parent Board that RMT Parent stockholders vote in favor of the RMT
Parent Share Issuance at the RMT Parent Stockholders Meeting.
RMT Parent RSUs
means all restricted share units payable in
shares of RMT Parent Common Stock or whose value is determined with reference to the value of shares of RMT Parent Common Stock, in each case, that are not subject to any performance-based vesting criteria.
RMT Parent SEC Documents
means all forms, reports, statements, schedules and other documents filed by RMT Parent with, or furnished
by RMT Parent to, the SEC since January 1, 2013.
A-74
RMT Parent Share Issuance
means the issuance of shares of RMT Parent Common Stock to the
stockholders of Spinco in connection with the Merger.
RMT Parent Stock Awards
means RMT Parent Stock Options, RMT Parent RSUs,
RMT Parent Performance Share Units, RMT Parent Stock Equivalents and any other equity or equity-based awards granted pursuant to the RMT Parent Stock Plans.
RMT Parent Stock Equivalents
means each outstanding right of any kind, contingent or accrued, to acquire or receive shares of RMT
Parent Common Stock or benefits measured by the value of shares of RMT Parent Common Stock, and each award of any kind consisting of shares of RMT Parent Common Stock that may be held, awarded, outstanding, payable or reserved for issuance under the
RMT Parent Stock Plans and any other RMT Parent Plans, other than RMT Parent Stock Options, RMT Parent RSUs and RMT Parent Performance Share Units.
RMT Parent Stock Options
means all stock options to acquire shares of RMT Parent Common Stock from RMT Parent.
RMT Parent Stock Plans
means the 2006 Equity Incentive Plan, the 2006 Employee Stock Purchase Plan and each RMT Parent Plan providing
for the grant of RMT Parent Stock Awards.
RMT Parent Stock Value
means the opening per-share price of RMT Parent Common Stock on
the first full trading session following the Merger Effective Time, as listed on the NYSE.
RMT Parent Stockholder Approval
means
the approval of the RMT Parent Share Issuance at the RMT Parent Stockholders Meeting by the affirmative vote of a majority of the voting power of the shares of RMT Parent Common Stock present in person or represented by proxy and voting on the
issue at the RMT Parent Stockholders Meeting.
RSU Conversion Ratio
means a number equal to the LMC Stock Value divided by
the RMT Parent Stock Value.
SEC
means the United States Securities and Exchange Commission.
Securities Act
means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, as the same shall
be in effect from time to time.
Separation
has the meaning set forth in the Separation Agreement.
Separation Agreement
means the Separation Agreement, dated as of the date hereof, by and between LMC and Spinco.
Spinco Business
has the meaning set forth in the Separation Agreement.
Spinco Business Employee
has the meaning set forth in the Separation Agreement.
Spinco Companies
has the meaning set forth in the Separation Agreement.
Spinco Debt
has the meaning set forth in the Separation Agreement.
Spinco Intellectual Property
means, together, the Transferred Intellectual Property and the Licensed Intellectual Property.
Spinco Material Adverse Effect
means any event, circumstance, change in or effect on the Spinco Business that, individually or in the
aggregate, is or would reasonably be expected to be materially adverse to the business, results of operations or the financial condition of the Spinco Business, taken as a whole;
provided
,
however
, that none of the following, either
alone or in combination, shall be deemed to constitute a Spinco Material Adverse Effect, or taken into account in determining whether there has been a Spinco Material Adverse Effect: (a) events, circumstances, changes or
effects that generally affect the industries or segments thereof in which the Spinco
A-75
Business operates, including legal and regulatory changes; (b) general business, economic or political conditions (or changes therein); (c) events, circumstances, changes or effects
affecting the financial, credit or securities markets in the United States or in any other country or region in the world, including changes in interest rates or foreign exchange rates; (d) events, circumstances, changes or effects arising out
of, or attributable to, the announcement of the execution of, or the consummation of the transactions contemplated by, this Agreement or any other Transaction Document (including the Internal Reorganization, the Distribution and the Merger), the
identity of RMT Parent, including with respect to employees, customers, distributors, suppliers, financing sources, landlords, licensors, licensees, sub-licensees or co-promotion partners (
provided
, that this clause (d) shall not apply
with respect to the matters described in
Sections 4.05
and
4.06
); (e) events, circumstances, changes or effects arising out of, or attributable to, strikes, slowdowns, lockouts or work stoppages (pending or threatened);
(f) events, circumstances, changes or effects arising out of, or attributable to, acts of armed hostility, sabotage, terrorism or war (whether or not declared), including any escalation or worsening thereof; (g) events, circumstances,
changes or effects arising out of, or attributable to, earthquakes, hurricanes, tsunamis, tornadoes, floods or other natural disasters, weather-related conditions, explosions or fires, or any force majeure events in any country or region in the
world; (h) events, circumstances, changes or effects arising out of, or attributable to, changes (or proposed changes) or modifications in GAAP, other applicable accounting standards or Applicable Law or the interpretation or enforcement
thereof; or (i) events, circumstances, changes or effects arising out of, or attributable to, (1) the failure by the Spinco Business to meet any internal or other estimates, expectations, forecasts, plans, projections or budgets for any
period or (2) any change in LMCs stock price or trading volume (it being understood in the case of each of clauses (1) and (2) that the underlying cause of, or factors contributing to, such failure or change may be taken into
account in determining whether a Spinco Material Adverse Effect has occurred); except, in the case of clauses (a), (b), (c), (e), (f), (g) or (h) to the extent that such event, circumstance, change or effect has a disproportionate effect
on the Spinco Business, taken as a whole, as compared with other participants in the industries in which the Spinco Business operates.
Spinco Leased Real Property
has the meaning set forth in the Separation Agreement.
Spinco Leases
has the meaning set forth in
Section 4.13(a)
.
Spinco Owned Real Property
has the meaning set forth in the Separation Agreement.
Spinco Special Cash Payment
has the meaning set forth in the Separation Agreement.
Spinco Specified Financing Costs
means all fees and expenses under or in connection with the Spinco Financing to the extent payable
under the terms of the Spinco Commitment Letter or any or any fee letter related thereto, including arranger fees, commitment fees, upfront fees (with any original issue discount and/or underwriting discount or fees being deemed to be upfront fees
for this purpose), interest expense for periods up to and including the Closing Date, and any amounts required to reimburse the financing sources providing the Spinco Financing, including costs of counsel to such financing sources, in each case only
to the extent paid by Spinco on or prior to the Closing Date (if any).
Spinco Subsidiary Acquisition Agreement
has the meaning
set forth in the Separation Agreement.
Spinco Transfer
has the meaning set forth in the Separation Agreement.
Subsidiary
means with respect to any Person, any other Person of which the specified Person, either directly or through or together
with any other of its Subsidiaries, owns more than 50% of the voting power in the election of directors or their equivalents, other than as affected by events of default.
Superior Proposal
means an unsolicited written bona fide offer or proposal made by a third party with respect to a Competing RMT
Parent Transaction on terms and conditions that the RMT Parent Board determines, in its good faith judgment, after consulting with a financial advisor of internationally recognized reputation and external legal counsel, and taking into account all
legal, financial and regulatory and other aspects of the proposal, including availability of financing, and any changes to the terms of this Agreement proposed by LMC in response to such offer or proposal, or otherwise, to be (a) more favorable
from a financial point of view, to the stockholders of RMT Parent than the Merger; and (b) reasonably expected to be consummated. For purposes of the definition of Superior Proposal, each reference to 20% in the
definition of Competing RMT Parent Transaction shall be replaced with 50%.
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Tax
or
Taxes
has the meaning set forth in the Tax Matters Agreement.
Tax-Free Status
has the meaning set forth in the Tax Matters Agreement.
Tax-Free Status of the External Transactions
means the Tax-Free Status, but only as applies to the Spinco Transfer, Distribution,
Parent Cash Distribution and Merger.
Tax Matters Agreement
has the meaning set forth in the Separation Agreement.
Tax Representation Letters
means Tax representation letters containing normal and customary representations and covenants,
substantially in compliance with IRS published advance ruling guidelines, and with customary assumptions, exceptions and modifications thereto, reasonably satisfactory in form and substance to LMC Tax Counsel and RMT Parent Tax Counsel in light of
the facts and the conclusions to be reached in the RMT Parent Merger Tax Opinion and the LMC Tax Opinions, executed by RMT Parent, Spinco and LMC, and other parties, if required, as reasonably agreed by the Parties.
Tax Returns
has the meaning set forth in the Tax Matters Agreement.
Teaming Agreement
means each teaming or similar agreement to which a Party or its Subsidiary is a party (i) with respect to
which the applicable term has not yet expired, (ii) which has not been terminated pursuant to its terms, or (iii) which has not been superseded by the award of the Contract for which the teaming agreement was entered into.
Termination Fee
means $150,000,000 (less, if applicable, any amounts paid by RMT Parent to LMC pursuant to Section 9.03(b)).
Transaction Documents
has the meaning set forth in the Separation Agreement.
Transfer Regulations
has the meaning set forth in the Employee Matters Agreement.
Transfer Taxes
has the meaning set forth in the Tax Matters Agreement.
Transferred Assets
has the meaning set forth in the Separation Agreement.
Transferred Facilities
has the meaning set forth in the Separation Agreement.
Transferred Intellectual Property
has the meaning set forth in the Separation Agreement.
Transferred Leased Real Property
has the meaning set forth in the Separation Agreement.
Transferred Subsidiaries
means Spinco and each of the Spinco Companies, excluding the JV Entities.
UK Spinco Business Employee
means any Spinco Business Employee assigned to the Spinco Business in the United Kingdom and employed by
Parent or an Affiliate immediately prior to the Distribution Date who is designated as such on the schedule of Spinco Business Employees as of the Closing delivered to RMT Parent pursuant to the Employee Matters Agreement.
Union Employee
means an employee who is represented by a union and whose terms and conditions of employment are subject to a
collective bargaining agreement and, in the case of LMC, who is primarily dedicated to the Spinco Business.
U.S. RMT Parent
Employee
means any RMT Parent Employee who is employed primarily in (or, in the case of any expatriate RMT Parent Employee, whose home country is) the United States immediately prior to the Closing.
U.S. Spinco Business Employee
means any Spinco Business Employee who is employed primarily in or, in the case of any expatriate
Spinco Business Employee, whose home country is, the United States immediately prior to the Closing.
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(b) To the knowledge, known by, known or aware of (and any
similar phrase) means (i) with respect to LMC, to the actual knowledge of the Chairman and Chief Executive Officer, the Executive Vice President and Chief Financial Officer, the Vice President and Controller and the Senior Vice President
Human Resources, (ii) with respect to the Spinco Business, to the actual knowledge of the Executive Vice President Information Systems & Global Solutions, the Vice President and General Manager Defense &
Intelligence Solutions, the Vice President Strategy & Business Development and Valley Forge, PA General Manager IS&GS, the Vice President Finance & Business Operations, and the Vice President Human
Resources, (iii) with respect to RMT Parent, to the actual knowledge of the Chief Executive Officer, the Chief Financial Officer, the Chief Accounting Officer and the Chief Human Resources Officer, and (iv) with respect to Merger Sub, to
the actual knowledge of the Secretary.
(c) Each of the following terms is defined in the Section set forth opposite such term:
|
|
|
Term
|
|
Section
|
Agreement
|
|
Preamble
|
Alternative Financing
|
|
Section 7.08(b)
|
Alternative RMT Commitment Letter
|
|
Section 7.08(a)
|
Alternative Spinco Commitment Letter
|
|
Section 7.08(b)
|
BoA
|
|
Section 4.07(f)
|
BTMU
|
|
Section 4.07(f)
|
Burdensome Condition
|
|
Section 7.06(b)
|
Certificate of Merger
|
|
Section 2.02
|
CGMI
|
|
Section 4.07(f)
|
Change in the RMT Parent Recommendation
|
|
Section 7.03(d)
|
Closing
|
|
Section 2.02
|
Commitment Letters
|
|
Section 5.06(d)
|
Confidentiality Agreement
|
|
Section 7.14(a)
|
Corrective Changes
|
|
Section 7.17
|
Distribution
|
|
Recitals
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ERISA
|
|
Section 4.14(a)
|
ERISA Affiliate
|
|
Section 4.14(d)
|
Exchange Agent
|
|
Section 3.01(a)
|
Exchange Fund
|
|
Section 3.01(a)
|
Exchange Offer
|
|
Recitals
|
Financial Support Arrangement Release
|
|
Section 7.07
|
Financings
|
|
Section 5.06(d)
|
Financing Agreements
|
|
Section 7.08(a)
|
GS
|
|
Section 4.07(f)
|
Intervening Event
|
|
Section 7.03(d)(i)
|
JPMCB
|
|
Section 4.07(f)
|
JPMS
|
|
Section 4.07(f)
|
Lenders
|
|
Section 5.06(d)
|
LMC
|
|
Preamble
|
LMC Board
|
|
Recitals
|
LMC Common Stock
|
|
Recitals
|
LMC Merger Tax Opinion
|
|
Section 8.03(b)(i)(1)
|
LMC Plans
|
|
Section 4.14(b)
|
LMC Separation Tax Opinion
|
|
Section 8.03(b)(i)(2)
|
LMC Tax Counsel
|
|
Section 8.03(b)
|
LMC Tax Opinions
|
|
Section 8.03(b)(i)(2)
|
LMC Union Contracts
|
|
Section 4.15
|
Merger
|
|
Recitals
|
Merger Consideration
|
|
Section 2.04(a)
|
Merger Effective Time
|
|
Section 2.02
|
Merger Sub
|
|
Preamble
|
Merger Sub Board
|
|
Recitals
|
MLPFS
|
|
Section 4.07(f)
|
Non-U.S. LMC Plan
|
|
Section 4.14(b)
|
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|
|
|
Non-U.S. RMT Parent Plans
|
|
Section 5.13(b)
|
Non-U.S. Spinco Plan
|
|
Section 4.14(b)
|
Notice of Superior Proposal
|
|
Section 7.03(d)(ii)(1)
|
Notice Period
|
|
Section 7.03(d)(ii)(2)
|
Owned Intellectual Property
|
|
Section 5.11(a)
|
Parties
|
|
Preamble
|
Party
|
|
Preamble
|
PII
|
|
Section 4.12(c)
|
Proxy Statement
|
|
Section 7.01(a)
|
Registration Statements
|
|
Section 7.01(a)
|
Required Financial Statement
|
|
Section 7.08(d)
|
Revised Transaction Proposal
|
|
Section 7.03(d)(ii)(2)
|
RMT Alternative Financing
|
|
Section 7.08(a)
|
RMT Commitment Letter
|
|
Section 5.06(d)
|
RMT Financing
|
|
Section 5.06(d)
|
RMT Financing Agreements
|
|
Section 7.08(a)
|
RMT Leases
|
|
Section 5.12(a)
|
RMT Lenders
|
|
Section 5.06(d)
|
RMT Parent
|
|
Preamble
|
RMT Parent Board
|
|
Recitals
|
RMT Parent Capitalization Breach
|
|
Section 2.04(c)
|
RMT Parent Capitalization Date
|
|
Section 5.03(a)
|
RMT Parent Group
|
|
Section 7.07
|
RMT Parent License
|
|
Section 5.11(d)
|
RMT Parent Material Contracts
|
|
Section 5.16(a)
|
RMT Parent Merger Tax Opinion
|
|
Section 8.02(b)
|
RMT Parent Plans
|
|
Section 5.13(b)
|
RMT Parent Registration Statement
|
|
Section 7.01(a)
|
RMT Parent Special Dividend
|
|
Section 2.09
|
RMT Parent Stockholders Meeting
|
|
Section 7.02
|
RMT Parent Tax Counsel
|
|
Section 8.02(b)
|
RMT Parent Union Contracts
|
|
Section 5.14
|
Schedule TO
|
|
Section 7.01(a)
|
Signing Transaction Documents
|
|
Section 8.02(a)
|
Spinco
|
|
Preamble
|
Spinco Alternative Financing
|
|
Section 7.08(b)
|
Spinco Assignment Recordations
|
|
Section 7.17
|
Spinco Audited Financial Statements
|
|
Section 7.16(a)
|
Spinco Board
|
|
Recitals
|
Spinco Commitment Letter
|
|
Section 4.07(f)
|
Spinco Common Stock
|
|
Recitals
|
Spinco Financial Statements
|
|
Section 4.07(a)
|
Spinco Financing
|
|
Section 4.07(f)
|
Spinco Financing Agreements
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Section 7.08(b)
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Spinco Leases
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Section 4.13(a)
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Spinco Lenders
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Section 4.07(f)
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Spinco Material Contracts
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Section 4.17(a)
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Spinco Registration Statement
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Section 7.01(a)
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Spinco Shares
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Section 2.04(a)
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Spinco Stockholder Consent
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Section 4.05(c)
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Surviving Corporation
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Section 2.01
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Termination Date
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Section 9.01(a)
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Threshold Percentage
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Section 2.04(c)
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Title IV Plan
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Section 4.14(d)
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U.S. LMC Plan
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Section 4.14(a)
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U.S. RMT Parent Plans
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Section 5.13(a)
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U.S. Spinco Plan
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Section 4.14(a)
|
A-79
Annex B-1
SEPARATION AGREEMENT
Dated as of January 26, 2016
By and
Between
LOCKHEED MARTIN CORPORATION
and
ABACUS INNOVATIONS CORPORATION
TABLE OF CONTENTS
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Page
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ARTICLE I DEFINITIONS
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B-2
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Section 1.01
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Definitions
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B-2
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ARTICLE II INTERNAL REORGANIZATION AND SEPARATION
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B-2
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Section 2.01
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Internal Reorganization
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B-2
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Section 2.02
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Conveyance of Assets; Assumption and Discharge of Liabilities
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B-2
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Section 2.03
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Assignment of Contracts and Rights by Parent Group
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B-3
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Section 2.04
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Assignment of Contracts and Rights by Spinco Group
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B-5
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Section 2.05
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Certain Transaction Documents
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B-6
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Section 2.06
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Limitation of Liability; Intercompany Accounts
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B-7
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Section 2.07
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Treatment of Shared Contracts
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B-7
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Section 2.08
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Cash and Working Capital Adjustment
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B-7
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Section 2.09
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Certain Representations
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B-9
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Section 2.10
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Right to Use Data
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B-9
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ARTICLE III CERTAIN COVENANTS, AGREEMENTS AND ACTIONS PRIOR TO THE DISTRIBUTION
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B-10
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Section 3.01
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Governmental Filings; Consents
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B-10
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Section 3.02
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Treatment of Cash
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B-10
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Section 3.03
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Issuance of Spinco Common Stock
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B-11
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Section 3.04
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Spinco Financing Arrangements
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B-11
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Section 3.05
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Spinco Disclosure Controls
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B-11
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ARTICLE IV THE DISTRIBUTION
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B-11
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Section 4.01
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Form of Distribution
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B-11
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Section 4.02
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Manner of Effecting Distribution
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B-12
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Section 4.03
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Actions Prior to the Distribution
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B-12
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Section 4.04
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Conditions Precedent to the Distribution
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B-13
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Section 4.05
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Additional Matters in Connection with the Distribution
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B-13
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ARTICLE V INFORMATION AND CONFIDENTIALITY
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B-14
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Section 5.01
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Retention of Information
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B-14
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Section 5.02
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Access to Information; Cooperation
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B-14
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Section 5.03
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Ownership of Information
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B-15
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Section 5.04
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Confidentiality
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B-15
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Section 5.05
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Privilege and Related Rights
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B-17
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Section 5.06
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Other Agreements
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B-18
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ARTICLE VI DISCLAIMER; NO REPRESENTATIONS OR WARRANTIES
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B-19
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Section 6.01
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Disclaimer; No Representations or Warranties
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B-19
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ARTICLE VII INDEMNIFICATION; LIMITATION OF LIABILITY
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B-19
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Section 7.01
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Remedies
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B-19
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Section 7.02
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Indemnification
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B-19
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Section 7.03
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Procedures
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B-20
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Section 7.04
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Limitations
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B-21
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Section 7.05
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Reimbursement of Damages
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B-22
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ARTICLE VIII FURTHER ASSURANCES AND ADDITIONAL COVENANTS
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B-22
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Section 8.01
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Further Assurances
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B-22
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Section 8.02
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Novation of Government Contracts
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B-22
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Section 8.03
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Certain Government Contract Matters
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B-24
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Section 8.04
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Non-Solicitation of Employees
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B-24
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Section 8.05
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Insurance; Financial Support Arrangements
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B-24
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Section 8.06
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Lockbox Accounts
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B-25
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Section 8.07
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Bulk Sales Laws
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B-26
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Section 8.08
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Casualty and Condemnation
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B-26
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B-i
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Page
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ARTICLE IX EMPLOYEE AND EMPLOYEE BENEFITS MATTERS
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B-26
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Section 9.01
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Employee and Employee Benefit Matters
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B-26
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ARTICLE X TAX MATTERS
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B-26
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Section 10.01
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Tax Matters
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B-26
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ARTICLE XI TRANSITION SERVICES
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B-26
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Section 11.01
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Transition Services AgreementParent to Spinco
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B-26
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Section 11.02
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Transition Services AgreementSpinco to Parent
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B-26
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Section 11.03
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Separation Planning and Day-One Readiness
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B-27
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ARTICLE XII SUPPLY AGREEMENTS
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B-27
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Section 12.01
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Supply AgreementParent to Spinco
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B-27
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Section 12.02
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Supply AgreementSpinco to Parent
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B-27
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ARTICLE XIII INTELLECTUAL PROPERTY MATTERS
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B-27
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Section 13.01
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Intellectual Property Matters
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B-27
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ARTICLE XIV REAL PROPERTY AND RELATED MATTERS
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B-28
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Section 14.01
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Transferred Owned Real Property
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B-28
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Section 14.02
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Transferred Leased Real Property
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B-28
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Section 14.03
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Leased Facilities
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B-28
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Section 14.04
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Subleased Facilities
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B-28
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Section 14.05
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Shared Facilities
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B-29
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ARTICLE XV TERMINATION
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B-29
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Section 15.01
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Termination
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B-29
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Section 15.02
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Effect of Termination
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B-29
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ARTICLE XVI MISCELLANEOUS
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B-29
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Section 16.01
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Notices
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B-29
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Section 16.02
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Amendments; Waivers
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B-30
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Section 16.03
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Expenses
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B-30
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Section 16.04
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Successors and Assigns
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B-30
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Section 16.05
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Construction
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B-31
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Section 16.06
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Entire Agreement
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B-31
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Section 16.07
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Counterparts; Effectiveness
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B-31
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Section 16.08
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Governing Law
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B-31
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Section 16.09
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Consent to Jurisdiction
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B-31
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Section 16.10
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Dispute Resolution
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B-31
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Section 16.11
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Severability
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B-33
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Section 16.12
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Captions
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B-33
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Section 16.13
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Specific Performance
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B-33
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Section 16.14
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Interest on Payments
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B-33
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EXHIBITS
Exhibit A
Definitions
B-ii
ATTACHMENTS
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Attachment I
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Internal Reorganization
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Attachment II
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Spinco Business
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Attachment III
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Accounting Principles
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Attachment IV
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Form of Bill of Sale, Assignment and Assumption AgreementParent to Spinco
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Attachment V
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Form of Bill of Sale, Assignment and Assumption AgreementSpinco to Parent
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Attachment VI
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Employee Matters Agreement
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Attachment VII
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Form of Intellectual Property Matters Agreement
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Attachment VIII
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Form of Shared Contracts AgreementShared Contracts (Parent Companies)
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Attachment IX
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Form of Shared Contracts AgreementShared Contracts (Spinco Companies)
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Attachment X
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Contract Close-Out Protocol
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Attachment XI
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Form of Subcontract Pending NovationParent to Spinco
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Attachment XII
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Form of Subcontract Pending NovationSpinco to Parent
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Attachment XIII
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Form of Supply AgreementParent to Spinco
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Attachment XIV
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Form of Supply AgreementSpinco to Parent
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Attachment XV
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Tax Matters Agreement
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Attachment XVI
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Form of Transition Services AgreementParent to Spinco
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Attachment XVII
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Form of Transition Services AgreementSpinco to Parent
|
Attachment XVIII
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Sublease Term Sheets
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Attachment XIX
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Lease Term Sheets
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Attachment XX
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Licensed Premises Term Sheets
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Attachment XXI
|
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Leaseback Term Sheets
|
Attachment XXII
|
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Form of Assignment and Assumption of Lease
|
SCHEDULES
|
|
|
Schedule 5.05(a)
|
|
Parent Counsel
|
Schedule 8.05(c)
|
|
Parent Financial Support Arrangements
|
Schedule A-1
|
|
Assumed Liabilities
|
Schedule A-2
|
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Transferred Contracts
|
Schedule A-3
|
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Certain Transferred Contracts
|
Schedule A-4
|
|
Excluded Assets
|
Schedule A-5
|
|
Excluded Contracts
|
Schedule A-6
|
|
Leaseback Facilities
|
Schedule A-7
|
|
Leased Facilities
|
Schedule A-8
|
|
Shared Facilities
|
Schedule A-9
|
|
Spinco Subsidiaries
|
Schedule A-10
|
|
Subleased Facilities
|
Schedule A-11
|
|
Spinco Joint Venture Entities
|
Schedule A-12
|
|
Transferred Assets
|
Schedule A-13
|
|
Transferred Leased Real Property
|
Schedule A-14
|
|
Transferred Owned Real Property
|
Schedule A-15
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Government Bids
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Schedule A-16
|
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Excluded Liabilities
|
Schedule A-17
|
|
Special Indemnity
|
B-iii
SEPARATION AGREEMENT
This Separation Agreement (together with the Exhibits, Attachments and Schedules hereto, this
Agreement
) is made as of the 26
th
day of January 2016, by and between Lockheed Martin Corporation, a Maryland corporation (
Parent
), and Abacus Innovations Corporation, a Delaware corporation and wholly owned
Subsidiary of Parent (
Spinco
). Each of Parent and Spinco is sometimes referred to individually as a
Party
and collectively they are sometimes referred to as the
Parties
.
W I T N E S S E T H:
WHEREAS, Parent, among other things, is engaged, directly and indirectly through certain of its Subsidiaries, in the Spinco Business;
WHEREAS, the Board of Directors of Parent has determined that it is in the best interests of Parent and its stockholders to separate the Spinco Business
from the remaining businesses of Parent and its Subsidiaries (the
Separation
), on the terms and conditions set forth in this Agreement and the other Transaction Documents;
WHEREAS, pursuant to the Agreement and Plan of Merger dated of even date herewith, (the
Merger Agreement
), among Parent, Spinco,
Leidos Holdings, Inc., a Delaware corporation (
Merger Partner
) and Lion Merger Co., a Delaware corporation and wholly owned subsidiary of Merger Partner (
Merger Partner Sub
), immediately following the
Distribution, Merger Partner Sub will merge with and into Spinco (the
Merger
) and, in connection with the Merger, Spinco Common Stock will be converted into shares of common stock of Merger Partner on the terms and conditions set
forth in the Merger Agreement;
WHEREAS, upon the terms and conditions set forth in this Agreement, Parent desires to reorganize the Spinco Business
so that it is conducted through Spinco and Subsidiaries of Spinco;
WHEREAS, in connection with the reorganization of the Spinco Business, Parent
desires to transfer, or to cause the Affiliated Transferors to transfer, to the Spinco Companies certain of the assets held, owned or used by Parent and the Affiliated Transferors to conduct the Spinco Business, and to assign certain liabilities
associated with the Spinco Business to the Spinco Companies, and the Spinco Companies desire to receive such assets and assume such liabilities;
WHEREAS, in connection with the reorganization of the Spinco Business, Spinco desires to transfer, or to cause the Spinco Subsidiaries to transfer, to
the Parent Companies certain of the assets held, owned or used by Spinco and the Spinco Subsidiaries to conduct the Parent Business, and to assign certain liabilities associated with the Parent Business to the Parent Companies, and Parent desires to
receive such assets and assume such liabilities;
WHEREAS, to implement the Separation, following the internal reorganization of the Spinco Business
as set forth in
Attachment I
(the
Internal Reorganization
) and upon the terms and conditions set forth in this Agreement, the Board of Directors of Parent has determined either to (a) distribute, without
consideration, all of the then outstanding shares of capital stock of Spinco to Parents stockholders by way of a
pro rata
dividend (the
One-Step Spin-Off
), or (b) consummate an offer to exchange shares of Spinco
Common Stock for currently outstanding shares of Parent Common Stock (the
Exchange Offer
) and, in the event that Parents stockholders subscribe for less than all of the Spinco Common Stock in the Exchange Offer, distribute,
without consideration and
pro rata
to holders of Parent Common Stock, any unsubscribed Spinco Common Stock on the Distribution Date immediately following the consummation of the Exchange Offer so that Parent may be treated for U.S. federal
income Tax purposes as having distributed all of the Spinco Common Stock to its stockholders (the
Clean-Up Spin-Off
);
WHEREAS,
the disposition by Parent of the Spinco Common Stock to Parent stockholders, whether by way of the One-Step Spin-Off or the Exchange Offer (followed by any Clean-Up Spin-Off, if necessary), is referred to as the
Distribution
;
WHEREAS, Parent and Spinco contemplate that, concurrently with or immediately prior to the Internal Reorganization and on the terms and conditions set
forth in this Agreement and the other Transaction Documents,
B-1
Spinco will enter into the definitive debt financing arrangements contemplated by the Spinco Commitment Letter and as further described in this Agreement and in the Merger Agreement (the
Spinco Financing Arrangements
);
WHEREAS, in connection with the Separation, Parent and Spinco each have determined that it is
appropriate for Spinco to pay the Spinco Special Cash Payment to Parent on the terms and conditions set forth in this Agreement and in the Merger Agreement;
WHEREAS, the Parties intend that, for U.S. federal income Tax purposes, the Internal Reorganization, the Spinco Transfer, the Parent Cash Distribution
and the Distribution will be treated as contemplated by the Tax Matters Agreement and, accordingly, that the (a) Spinco Transfer and the Distribution, taken together, qualify as a reorganization within the meaning of
Section 368(a)(1)(D) of the Code and that each of Parent and Spinco will be a party to the reorganization within the meaning of Section 368(b) of the Code, (b) the Distribution, as such, qualifies as a distribution of
Spinco Common Stock to Parents shareholders pursuant to Section 355 of the Code, and (c) the Parent Cash Distribution qualifies as money distributed to Parent creditors or shareholders in connection with the reorganization for
purposes of Section 361(b) of the Code;
WHEREAS, it is a condition to the Merger that, prior to the Merger Effective Time, the Internal
Reorganization, the Spinco Transfer, the Spinco Special Cash Payment and the Distribution will have been completed;
WHEREAS, the Parties are
entering into the Tax Matters Agreement and the Employee Matters Agreement contemporaneously with this Agreement; and
WHEREAS, the treatment of
outstanding Parent stock options, performance stock units, restricted stock units and other types of equity incentive awards in connection with the Merger will be as set forth in the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01
Definitions
. Capitalized terms used in this Agreement shall have the meanings specified in
Exhibit A
.
ARTICLE II
INTERNAL REORGANIZATION AND SEPARATION
Section 2.01
Internal Reorganization
. At or prior to the Distribution Effective Time, to the extent not already completed, each of Parent
and Spinco shall, and shall cause their Affiliates to, take such steps (which may include transfers of shares or other equity interests, formation of new entities and/or declarations of dividends) as may be necessary or desirable to effect the
Internal Reorganization.
Section 2.02
Conveyance of Assets; Assumption and Discharge of Liabilities
.
(a) Except as otherwise expressly provided herein or in any of the other Transaction Documents, and except to the extent previously effected pursuant to
the Internal Reorganization, upon the terms and subject to the conditions set forth in this Agreement, effective as of immediately prior to the Distribution Effective Time:
(i) Parent will assign, transfer, convey and deliver (
Transfer
), or will cause the Affiliated Transferors to Transfer,
to Spinco or to one or more Spinco Companies as Spinco may designate, and Spinco will accept from Parent (or the applicable Affiliated Transferor), or will cause any applicable Spinco Subsidiary to accept, all of Parents and the applicable
Affiliated Transferors respective right, title and interest in and to all
B-2
of the Transferred Assets, including the equity interests in the Spinco Subsidiaries (it being understood that any Transferred Assets that are already held by a Spinco Subsidiary as of the
Distribution Effective Time will continue to be held by such Spinco Subsidiary);
(ii) Parent will Transfer, or will cause the
Affiliated Transferors to Transfer, to Spinco or to one or more Spinco Companies as Spinco may designate, and Spinco will (or will cause the Spinco Subsidiaries as applicable to) assume, perform, timely pay and discharge when due, fulfill when due
and comply with all of the Assumed Liabilities in accordance with their respective terms (it being understood that any Assumed Liabilities that are already Liabilities of a Spinco Subsidiary as of the Distribution Effective Time will continue to be
Liabilities of such Spinco Subsidiary);
(iii) Spinco will, and Parent will cause Spinco to, Transfer, or cause the applicable Spinco
Subsidiaries to Transfer, to Parent or to such other Parent Companies as Parent may designate (provided such Parent Companies are adequately capitalized immediately following such Transfer), all of Spincos and the applicable Spinco
Subsidiaries respective right, title and interest in and to all of the Excluded Assets (it being understood that any Excluded Assets that are already held by a Parent Company as of the Distribution Effective Time will continue to be held by
such Parent Company); and
(iv) Spinco will, and Parent will cause Spinco to, Transfer, or will cause the applicable Spinco
Subsidiaries to Transfer, to Parent or to such other Parent Companies as Parent may designate (provided such Parent Companies are adequately capitalized immediately following such Transfer), and Parent will (or will cause the other Parent Companies
as applicable to) assume, perform, timely pay and discharge when due, fulfill when due and comply with all of the Excluded Liabilities in accordance with their respective terms (it being understood that any Excluded Liabilities that are already
Liabilities of a Parent Company as of the Distribution Effective Time will continue to be Liabilities of such Parent Company).
(b) In the event
that any Transfer of an Asset or assumption of a Liability required by any of the Transaction Documents is not effected at or before the Distribution Effective Time, the obligation to Transfer such Asset or assume such Liability shall continue after
the Distribution Effective Time and shall be accomplished as soon thereafter as practicable, subject to the terms and conditions set forth in the Transaction Documents.
(c) From and after the Distribution Effective Time, each Party shall promptly Transfer or cause the other members of its Group promptly to Transfer to
the other Party or the appropriate member of the other Partys Group, from time to time, any property received that is allocated to the other Party or a member of the other Partys Group pursuant to this Agreement or the other Transaction
Documents. Without limiting the foregoing and without limiting the provisions of
Section 8.06
, in the event any Party (or any of the other Parent Companies or other Spinco Companies, as applicable) shall, after the Distribution Effective
Time, receive funds upon the payment of accounts receivable or other amounts under Contracts or other Assets or Liabilities that are allocated to a member of the other Group pursuant to this Agreement or the other Transaction Documents, such Party
will Transfer, or cause to be Transferred, such funds to the applicable member of the other Group by wire transfer promptly after the receiving party becomes aware of having received such funds.
(d) Notwithstanding anything in this
Section 2.02
,
Section 2.03
or
Section 2.04
to the contrary, no Parent Company
or any of its Affiliates shall be required to undertake any action or arrangement contemplated by such section that would result in, or could reasonably be expected to result in, Tax treatment that is inconsistent with the Tax-Free Status.
Section 2.03
Assignment of Contracts and Rights by Parent Group
.
(a) Notwithstanding anything to the contrary in this Agreement, this Agreement shall not constitute an agreement to assign or otherwise sell,
convey, sublicense or Transfer any Contract constituting a Transferred Asset, or any claim, right or benefit arising thereunder or resulting therefrom, or to enter into any other agreement or arrangement with respect thereto, if an attempted
assignment, sale, conveyance, sublicense or Transfer thereof, or entering into any such agreement or arrangement, without the consent of a third party, would constitute a breach of, or other contravention under, any Contract to which any Parent
Company is a party, be ineffective with respect to any party thereto or in any way adversely affect the rights of any Parent Company or any Spinco Company thereunder. With respect to any such Contract (or any claim, right or benefit arising
thereunder or resulting
B-3
therefrom), from and after the date hereof, the Parties shall use reasonable best efforts (but without any payment of money or other transfer of value by any Party to any third party) to obtain
any required consent for the assignment, sale, conveyance, sublicense or Transfer of such Contract to Spinco, or written confirmation from such parties reasonably satisfactory in form and substance to Parent confirming that such consent is not
required. If a required consent is not obtained prior to the Distribution Effective Time with respect to any such Contract, then, if and to the extent permitted under, and subject to the terms of, such Contract, and subject to Applicable Law, Parent
and Spinco shall cooperate to enter into, as of the Distribution Effective Time, a mutually agreeable arrangement under which (i) Spinco would obtain, through a subcontracting, sublicensing or subleasing arrangement or otherwise, the claims,
rights and benefits of Parent Companies under such Contract in accordance with this Agreement, (ii) Spinco would assume all obligations of Parent Companies under such Contracts and agree to perform and discharge all obligations under such
Contracts, and (iii) Parent Companies would enforce at Spincos cost and at the reasonable request of and for the benefit of Spinco, any and all claims, rights and benefits of Parent Companies against any third party thereto arising from
any such Contract;
provided
that neither Party shall be required to make any payment of money or other transfer of value in connection with any such arrangement. In the event Spinco shall elect to make any payment of money or other transfer
of value, including any consent fee, transfer fee or similar arrangement, whether in connection with obtaining any consent under this
Section 2.03(a)
or entering into any arrangement contemplated by the preceding sentence (collectively,
a
Consent Fee
), Spinco shall be solely responsible for such Consent Fee. Notwithstanding the foregoing provisions of this
Section 2.03(a)
, in the case of commercial off-the-shelf (
COTS
) software that
is readily available, licensed pursuant to a standard non-negotiable shrink wrap or other license agreement and generally has a purchase price of $10,000 or less per copy, instance, seat or user, Spinco shall have the sole responsibility
for obtaining and shall use reasonable best efforts to obtain license rights to use such software at Spincos cost and expense, and Parent shall have no obligation to assign or transfer, or to seek consent for the assignment or transfer of, or
to grant any sublicense or other right in connection with, any such COTS software or any Contract related thereto;
provided
,
however
, that the foregoing shall not limit the terms of the Transition Services AgreementParent to
Spinco or
Section 11.03
of this Agreement; and
provided
,
further
, that upon reasonable request of Spinco, Parent shall provide reasonable assistance to Spinco in connection with obtaining such license rights.
(b) Parent Companies shall promptly pay to Spinco, when received, all monies received by Parent Companies under any Contract constituting a Transferred
Asset or any claim, right or benefit arising thereunder not transferred to Spinco at the Distribution Effective Time as a result of the provisions of this
Section 2.03
. Spinco shall promptly reimburse Parent Companies (or pay at the
request of Parent) any Assumed Liabilities not assumed by Spinco at the Distribution Effective Time as a result of the provisions of this
Section 2.03
, as well as all third party costs and expenses incurred or Damages suffered by Parent
Companies in enforcing any claims, rights and benefits under any Contracts in accordance with
Section 2.03(a)
.
(c) Without limiting the
provisions of this
Section 2.03
, this Agreement shall not constitute an agreement of any Parent Company to Transfer any confidential or proprietary data or information of any Person other than Parent and its Affiliates (
Third
Party Proprietary Information
) to any Spinco Company, and shall not constitute an authorization to use such Third Party Proprietary Information, to the extent such attempted conveyance, transfer or delivery, or such use, without the
consent of a third party, would constitute a breach of, or other contravention under, any confidentiality or similar agreement or other Contract to which any Parent Company is a party. With respect to any such Third Party Proprietary Information,
from and after the date hereof, Parent shall be responsible for obtaining, and shall use commercially reasonable efforts (but without any payment of money or other transfer of value by any Party to any third party) to obtain, any required consent
for the Transfer or use, as applicable, of such Third Party Proprietary Information to Spinco Companies at the Distribution Effective Time. Without limiting the foregoing, Spinco Companies shall, upon request of Parent or any third party, enter into
a proprietary information agreement or other confidentiality or similar agreement with any third party requiring Spinco Companies to treat and hold as confidential such Third Party Proprietary Information on terms and conditions that are no less
restrictive than the terms and conditions of any confidentiality or similar agreement between Parent Companies with respect to the Spinco Business and any such third parties. To the extent any such consent is not obtained in accordance with the
foregoing at or prior to the Distribution Effective Time, then the Spinco Companies shall be solely responsible for obtaining such consent at their sole cost and expense.
(d) Without limiting the provisions of this
Section 2.03
, to the extent Parent or a Subsidiary of Parent is restricted under Applicable Law
from effecting the Transfer hereunder to Spinco or the applicable Spinco Companies
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of any Data constituting a Transferred Asset, or the granting of the Right to Use any Data pursuant to
Section 2.10
, this Agreement shall not constitute an agreement to Transfer such
Data, or grant such Right to Use, to the extent such Transfer or grant would violate Applicable Law. With respect to any such Data, from and after the date hereof, the Parties shall reasonably cooperate with each other and use reasonable best
efforts to eliminate such restriction in compliance with Applicable Law (including, if applicable, to obtain any required authorization of any Governmental Authority), and the Parties shall keep each other reasonably apprised of the Parties
progress with respect thereto. If any such restriction cannot be so eliminated prior to the Distribution Effective Time with respect to any such Data, Parent and Spinco shall continue to so reasonably cooperate and use such reasonable best efforts
to effect such Transfer or grant of Right to Use as soon as practicable following the Distribution Effective Time.
Section 2.04
Assignment
of Contracts and Rights by Spinco Group
.
(a) Notwithstanding anything to the contrary in this Agreement, this Agreement shall not
constitute an agreement to assign or otherwise sell, convey, sublicense or Transfer any Contract constituting an Excluded Asset, or any claim, right or benefit arising thereunder or resulting therefrom, or to enter into any other agreement or
arrangement with respect thereto, if an attempted assignment, sale, conveyance, sublicense or Transfer thereof, or entering into any such agreement or arrangement, without the consent of a third party, would constitute a breach of, or other
contravention under, any Contract to which any Parent Company or Spinco Company is a party, be ineffective with respect to any party thereto or in any way adversely affect the rights of any Spinco Company or any Parent Company thereunder. With
respect to any such Contract (or any claim, right or benefit arising thereunder or resulting therefrom), from and after the date hereof, the Parties shall use reasonable best efforts (but without any payment of money or other transfer of value by
any Party to any third party) to obtain any required consent for the assignment, sale, conveyance, sublicense or Transfer of such Contract to a Parent Company, or written confirmation from such parties reasonably satisfactory in form and substance
to Parent confirming that such consent is not required. If a required consent is not obtained prior to the Distribution Effective Time with respect to any such Contract, then, if and to the extent permitted under, and subject to the terms of, such
Contract, and subject to Applicable Law, Parent and Spinco shall cooperate to enter into, as of the Distribution Effective Time, a mutually agreeable arrangement under which (i) Parent would obtain, through a subcontracting, sublicensing or
subleasing arrangement or otherwise, the claims, rights and benefits of Spinco Companies under such Contract in accordance with this Agreement, (ii) Parent would assume all obligations of Spinco Companies under such Contracts and agree to
perform and discharge all obligations under such Contracts, and (iii) Spinco Companies would enforce at Parents cost and at the reasonable request of and for the benefit of Parent, any and all claims, rights and benefits of Spinco
Companies against any third party thereto arising from any such Contract;
provided
that neither Party shall be required to make any payment of money or other transfer of value in connection with any such arrangement. In the event Parent shall
elect to pay any Consent Fee, Parent shall be solely responsible for such Consent Fee. Notwithstanding the foregoing provisions of this
Section 2.04(a)
, in the case of COTS software that is readily available, licensed pursuant to a
standard non-negotiable shrink wrap or other license agreement and generally has a purchase price of $10,000 or less per copy, instance, seat or user, Parent shall have the sole responsibility for obtaining and shall use reasonable best
efforts to obtain license rights to use such software at Parents cost and expense, and Spinco shall have no obligation to assign or transfer, or to seek consent for the assignment or transfer of, or to grant any sublicense or other right in
connection with, any such COTS software or any Contract related thereto;
provided
,
however, that
the foregoing shall not limit the terms of the Transition Services AgreementSpinco to Parent or
Section 11.03
of this
Agreement; and
provided
,
further
, that upon reasonable request of Parent, Spinco shall provide reasonable assistance to Parent in connection with obtaining such license rights.
(b) Spinco Companies shall promptly pay to Parent when received, all monies received by Spinco Companies under any Contract constituting an Excluded
Asset or any claim, right or benefit arising thereunder not transferred to Parent at the Distribution Effective Time as a result of the provisions of this
Section 2.04
. Parent shall promptly reimburse Spinco Companies (or pay at the
request of Spinco) any Excluded Liabilities not assumed by Parent at the Distribution Effective Time as a result of the provisions of this
Section 2.04
, as well as all third party costs and expenses incurred or Damages suffered by Spinco
Companies in enforcing any claims, rights and benefits under any Contracts in accordance with
Section 2.04(a)
.
(c) Without limiting the
provisions of this
Section 2.04
, (i) this Agreement shall not constitute an agreement of any Spinco Company to Transfer any Third Party Proprietary Information to any Parent Company, and shall not constitute an authorization to use
such Third Party Proprietary Information, to the extent such attempted conveyance,
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transfer or delivery, or such use, without the consent of a third party, would constitute a breach of, or other contravention under, any confidentiality or similar agreement or other Contract to
which any Spinco Company is a party. With respect to any such Third Party Proprietary Information, from and after the date hereof, Spinco shall be responsible for obtaining, and shall use commercially reasonable efforts (but without any payment of
money or other transfer of value by any Party to any third party) to obtain any required consent for the Transfer or use, as applicable, of such Third Party Proprietary Information to Parent Companies at the Distribution Effective Time. Without
limiting the foregoing, Parent Companies shall, upon request of Spinco or any third party, enter into a proprietary information agreement or other confidentiality or similar agreement with any third party requiring Parent Companies to treat and hold
as confidential such Third Party Proprietary Information on terms and conditions that are no less restrictive than the terms and conditions of any confidentiality or similar agreement between Spinco Companies with respect to the Parent Business and
any such third parties. To the extent any such consent is not obtained in accordance with the foregoing at or prior to the Distribution Effective Time, then the Parent Companies shall be solely responsible for obtaining such consent at their sole
cost and expense.
Section 2.05
Certain Transaction Documents
. In furtherance of the Separation, on the Distribution Date, Parent and
Spinco shall execute and deliver (or shall cause the applicable Affiliated Transferor or Spinco Subsidiary to execute and deliver):
(a) one or more
Assignment and Assumption AgreementsParent to Spinco;
(b) one or more Assignment and Assumption AgreementsSpinco to Parent;
(c) the Transition Services AgreementParent to Spinco;
(d) the Transition Services AgreementSpinco to Parent;
(e) the Supply AgreementParent to Spinco;
(f) the Supply AgreementSpinco to Parent;
(g) the Intellectual Property Matters Agreement;
(h) the Subcontract Pending NovationParent to Spinco;
(i) the Subcontract Pending NovationSpinco to Parent;
(j) the Shared Contracts AgreementShared Contracts (Parent Companies);
(k) the Shared Contracts AgreementShared Contracts (Spinco Companies);
(l) an Assignment and Assumption of Lease Agreement in respect of each lease agreement for the Transferred Leased Real Property;
(m) subleases to Spinco (or certain Spinco Companies) in respect of each of the Subleased Premises on the terms and conditions contemplated by the
Sublease Term Sheets;
(n) leases to Spinco (or certain Spinco Companies) in respect of each of the Leased Premises on the terms and conditions
contemplated by the Lease Term Sheets;
(o) licenses to Spinco (or certain Spinco Companies) in respect of the Licensed Premises on the terms and
conditions contemplated by the Licensed Premises Term Sheets;
(p) leases to Parent (or certain Parent Companies) in respect of certain Spinco Owned
Real Property on the terms and conditions contemplated by the Leaseback Term Sheets; and
(q) such other agreements, assignments, leases, subleases,
documents or instruments as the Parties agree are necessary or desirable to achieve the purposes set forth in the Transaction Documents.
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Section 2.06
Limitation of Liability; Intercompany Accounts
.
(a) Except as provided in this
Section 2.06
and in
Article VII
, neither Parent nor Spinco nor any member of their
respective Groups shall have any Liability to the other or any member of its Group based upon, arising out of or resulting from any agreement, arrangement, course of dealing or understanding existing on or prior to the Distribution Effective Time
(other than this Agreement or any Transaction Document), and each of Parent and Spinco hereby terminates, and shall cause all members in its respective Group to terminate, any and all then-existing agreements, arrangements, courses of dealing or
understandings between it or any members of its Group and the other Party, or any members of its Group, effective as of the Distribution Effective Time (other than (i) this Agreement or any Transaction Document or any agreement entered into in
connection with or in order to consummate the Contemplated Transactions and (ii) any Contracts to which any non-wholly owned Subsidiary of Parent or Spinco, as the case may be, is a party (it being understood that to the extent Assets and
Liabilities of the Parties and the members of their respective Groups under any such Contracts constitute Transferred Assets, Excluded Assets, Assumed Liabilities or Excluded Liabilities, as the case may be, they will be allocated pursuant to this
Agreement)), and any such Liability, whether or not in writing, that is not reflected in any Transaction Document or other agreement entered into in connection with the Contemplated Transactions or in order to consummate the Contemplated
Transactions, is hereby irrevocably cancelled, released and waived effective as of the Distribution Effective Time. No such terminated agreement, arrangement, course of dealing or understanding (including any provision thereof that purports to
survive termination) shall be of any further force or effect after the Distribution Effective Time.
(b) Each Intercompany Account outstanding prior
to the Distribution Effective Time shall be satisfied and/or settled by the relevant Parent Company and Spinco Company no later than the Distribution Effective Time by (i) forgiveness by the relevant obligor, (ii) one or a related series
of distributions of capital, (iii) non-cash intercompany transfer and settlement through Parents corporate procedures, or (iv) cash payment, in each case as determined by the Parties.
Section 2.07
Treatment of Shared Contracts
. The Parties agree as to matters relating to the Shared Contracts as set forth in the Shared
Contracts Agreement Shared Contracts (Parent Companies) and the Shared Contracts Agreement Shared Contracts (Spinco Companies). In the event of any inconsistency regarding matters relating to Shared Contracts between the Shared
Contracts Agreement Shared Contracts (Parent Companies) and the Shared Contracts Agreement Shared Contracts (Spinco Companies) and this Agreement, the Shared Contracts Agreement Shared Contracts (Parent Companies) and the Shared
Contracts Agreement Shared Contracts (Spinco Companies) shall govern to the extent of the inconsistency.
Section 2.08
Cash and
Working Capital Adjustment
.
(a) Promptly following the Distribution Date, but in no event later than 60 days after the Distribution Date,
Spinco shall, at its expense, prepare and submit to Parent a balance sheet of the Spinco Business as of 11:59 p.m. on the day prior to the Distribution Date (the
Proposed Statement
and such time, the
Cut-Off
Time
) prepared in accordance with the Accounting Principles and a statement setting forth, in reasonable detail using the format in the illustrative example attached to the Accounting Principles, Spincos calculation of (x) Cash
as of the Cut-Off Time (the
Proposed Closing Cash
) and (y) the Net Working Capital of the Spinco Business as of the Cut-Off Time (the
Proposed Final Net Working Capital Amount
). In the event Parent disputes
the correctness of the Proposed Closing Cash or the Proposed Final Net Working Capital Amount, Parent shall notify Spinco in writing of its objections within 60 days after receipt of Spincos Proposed Statement and Spincos calculation of
the Proposed Closing Cash and the Proposed Final Net Working Capital Amount, and shall set forth, in writing and in reasonable detail, the reasons for Parents objections;
provided
,
however
, that such 60-day period shall be tolled
for any period during which Spinco shall fail to make available to Parent all books, records, documents and work papers required to be made available to Parent under
Section 2.08(d)
. If Parent fails to deliver such notice of objections
within such time, Parent shall be deemed to have accepted Spincos calculation. To the extent Parent does not object within the time period contemplated by this
Section 2.08(a)
to a matter in the statement of the Proposed Closing
Cash or the Proposed Final Net Working Capital Amount prepared and submitted by Spinco, Parent shall be deemed to have accepted Spincos calculation and presentation in respect of the matter and the matter shall not be considered to be in
dispute. Parent and Spinco shall endeavor in good faith to resolve any disputed matters within 30 days after Spincos receipt of Parents notice of objections. If Parent and Spinco are unable to resolve the disputed matters, Parent and
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Spinco jointly shall, as soon as practicable and in any event within 25 days after the expiration of such 30-day period, engage RSM US LLP (or if RSM US LLP is unwilling or unable to serve, a
nationally known independent accounting firm, which firm shall not be the then regular auditors of Parent, Spinco or RMT Partner, that is jointly appointed by the parties within 15 days of the date that RSM US LLP confirms, in writing, that it is
unable or unwilling to act as the Unaffiliated Accounting Firm as provided herein) (the firm so engaged,
Unaffiliated Accounting Firm
), to resolve the matters in dispute (in a manner consistent with this
Section 2.08
).
Promptly after joint engagement of the Unaffiliated Accounting Firm, Parent and Spinco shall provide the Unaffiliated Accounting Firm with a copy of this Agreement, the Accounting Principles, Spincos Proposed Statement, Spincos statement
of the Proposed Closing Cash and the Proposed Final Net Working Capital Amount (as applicable) and Parents written notice of objections thereto. Each of Parent and Spinco shall deliver to the Unaffiliated Accounting Firm and to the other party
simultaneously a written submission of its final position with respect to each of the matters in dispute (which position may be different than the position set forth in or contemplated by Spincos statement of the Proposed Closing Cash and the
Proposed Final Net Working Capital Amount or Parents notice of objections, but may not be outside of the range of Spincos statement of the Proposed Closing Cash or the Proposed Final Net Working Capital Amount (as applicable) or
Parents notice of objections) within 15 days of the engagement of such Unaffiliated Accounting Firm. Each of Parent and Spinco shall thereafter be entitled to submit a rebuttal to the others submission, which rebuttals shall be delivered
to the Unaffiliated Accounting Firm and to the other Party simultaneously within 30 days of the delivery of the Parties initial submissions to the Unaffiliated Accounting Firm and to each other. The Unaffiliated Accounting Firm may request
additional information solely to the extent necessary to resolve the matter in dispute from either Party, but absent such a request neither Party may make (nor permit any of its Affiliates or Representatives to make) any additional submission to the
Unaffiliated Accounting Firm or otherwise communicate with the Unaffiliated Accounting Firm, and in no event shall either Party (i) communicate (or permit any of its Affiliates or Representatives to communicate) with the Unaffiliated Accounting
Firm without providing the other Party a reasonable opportunity to participate in such communication or (ii) make (or permit any of its Affiliates or Representatives to make) a written submission to the Unaffiliated Accounting Firm unless a
copy of such submission is simultaneously provided to the other Party. The Unaffiliated Accounting Firm shall have 30 days following submission of the Parties rebuttals to review the documents provided to it pursuant to this
Section 2.08(a)
and to deliver its written determination, acting as expert and not as arbitrator, with respect to each of the items in dispute submitted to it for resolution, as well as its determination of the balance sheet of the
Spinco Business as of the Cut-Off Time, the Net Working Capital of the Spinco Business as the Cut-Off Time and the Closing Cash (as applicable). The Unaffiliated Accounting Firm shall resolve the differences regarding Spincos Proposed
Statement, the Proposed Final Net Working Capital Amount and the Proposed Closing Cash based solely on the information provided to the Unaffiliated Accounting Firm by the Parties pursuant to the terms of this Agreement and not by independent review.
The Unaffiliated Accounting Firms authority shall be limited to resolving disputes with respect to whether the individual disputed items on Spincos Proposed Statement and Spincos statement of the Proposed Final Net Working Capital
Amount and the Proposed Closing Cash were prepared in accordance with the terms of
Section 2.08(b)
. In resolving each disputed item, the Unaffiliated Accounting Firm shall choose either the value assigned by Parent to such item or the
value assigned by Spinco to such item based on the Unaffiliated Accounting Firms assessment of which value is most consistent with the Accounting Principles, and may not assign a value for any item other than a value proposed by Parent or
Spinco in its respective initial submission to the Unaffiliated Accounting Firm. The determination of the Unaffiliated Accounting Firm in respect of the correctness of each matter remaining in dispute shall be final, conclusive and binding on Parent
and Spinco and not subject to appeal by either of the Parties, and judgment thereof may be entered or enforced in any court of competent jurisdiction. The balance sheet of the Spinco Business as of the Cut-Off Time, and the Net Working Capital of
the Spinco Business as of the Cut-Off Time, as finally determined pursuant to this
Section 2.08(a)
(whether by failure of Parent to deliver notice of objection, by agreement of Parent and Spinco or by determination of the Unaffiliated
Accounting Firm), are referred to herein as the
Final Statement
and the
Final Net Working Capital Amount
, respectively. The Closing Cash of the Spinco Business as of the Cut-Off Time, as finally determined
pursuant to this
Section 2.08(a)
(whether by failure of Parent to deliver notice of objection, by agreement of Parent and Spinco or by determination of the Unaffiliated Accounting Firm), is referred to herein as the
Final
Closing Cash
.
(b) The Proposed Statement and the Final Statement shall be prepared, and the Proposed Final Net Working Capital Amount and
the Final Net Working Capital Amount, and the Proposed Closing Cash and the Final Closing Cash, shall be determined, in accordance with the accounting principles, policies, practices and methods described on
Attachment III
(the
Accounting Principles
).
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(c) Not later than five Business Days after the determination of the Final Net Working Capital Amount and
the Final Closing Cash, a payment by wire transfer in respect thereof shall be made as follows:
(i) If the Final Net Working Capital
Amount is greater than $22,000,000, then (x) the amount of such excess,
plus
(y) the Final Closing Cash, shall be paid to Parent by Spinco;
(ii) If the Final Net Working Capital Amount is less than $12,000,000, then (x) the amount of such deficit
minus
(y) the
Final Closing Cash, shall be paid to Spinco by Parent (it being understood that if the Final Closing Cash is greater than the deficit amount in clause (x), then the difference between the Final Closing Cash
minus
the deficit amount in clause
(x) shall be paid to Parent by Spinco); and
(iii) If the Final Net Working Capital Amount is greater than or equal to
$12,000,000 but less than or equal to $22,000,000, then the Final Closing Cash shall be paid to Parent by Spinco.
Any payment pursuant to this
Section 2.08(c)
shall be treated as an adjustment to the Spinco Special Cash Payment for Tax purposes and shall be made in immediately available funds by wire transfer to a bank account designated in writing by the Party entitled to
receive the payment. Any funds received by Parent pursuant to this
Section 2.08(c)
shall be maintained in a Segregated Account in accordance with the terms and conditions set forth in
Section 3.04(b)
.
(d) Spinco shall make available to Parent and, if applicable, to the Unaffiliated Accounting Firm, all books, records, documents and work papers
(subject to, in the case of independent accountant work papers, Parent or the Unaffiliated Accounting Firm, as applicable, entering into a customary release agreement with respect thereto) (i) transferred by Parent Companies to Spinco in
connection with the Contemplated Transactions or otherwise in the possession of any Spinco Company as of the Closing, or (ii) created or prepared by or for Spinco in connection with the preparation of the Proposed Statement and the calculation
of the Proposed Final Net Working Capital Amount and the Proposed Closing Cash and the other matters contemplated by
Section 2.08(a)
. Without limiting the foregoing, it is acknowledged and agreed that certain Contracts constituting
Transferred Assets may require security clearances or special program accesses, or may contain confidentiality or non-disclosure provisions requiring the specific approval of customers or other Persons for disclosure of the terms thereof
(collectively, the
Undisclosable Contracts
). Spinco shall use reasonable best efforts to obtain all required security clearances, special program accesses or the approval of customers or other Persons as necessary to allow Parent
and, if applicable, the Unaffiliated Accounting Firm, to conduct a review of the Undisclosable Contracts to the extent necessary to review and evaluate Spincos statement of the Proposed Final Net Working Capital Amount and the Proposed Closing
Cash. Upon Parents receipt of necessary security clearances, special program accesses or approvals of customers or other Persons, as the case may be, Spinco shall permit Parent and its Representatives (including the Unaffiliated Accounting
Firm, if applicable) to conduct a review of such Undisclosable Contracts, subject to the terms and conditions of the clearances, accesses or approvals and the provisions of Applicable Law. If Spinco is unable to obtain all necessary security
clearances, special program accesses or approvals of customers or other Persons to allow disclosure of the Undisclosable Contracts to Parent and the Unaffiliated Accounting Firm, if applicable, then Spinco shall, upon request of Parent, provide a
certification of the Chief Financial Officer of Spinco as to the accuracy and completeness of the Proposed Statement and all revenue, costs, earnings, inventory, accounts receivable, accounts payable and other data with respect to such Undisclosable
Contracts taken into account in Spincos preparation of the Proposed Statement and Spincos calculation of the Proposed Final Net Working Capital Amount and the Proposed Closing Cash.
(e) The fees and expenses, if any, of the Unaffiliated Accounting Firm incurred in connection with this Agreement shall be paid one-half by Parent and
one-half by Spinco.
Section 2.09
Certain Resignations
. At or prior to the Distribution Date, Parent shall cause each director or
employee of the Parent and its Subsidiaries who will not be employed by Spinco or a Spinco Subsidiary after the Distribution Date to resign, effective no later than the Distribution Date, from all boards of directors or similar governing bodies of
Spinco or any Spinco Subsidiary, and from all positions as officers of Spinco or any Spinco Subsidiary in which they serve.
Section 2.10
Right to Use Data
.
(a) It is acknowledged and agreed that the Spinco Companies (on a perpetual and irrevocable basis) shall be permitted to
possess and retain non-exclusive copies of all Shared Parent Company Data, Shared Third Party
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Data and Parent Company Contract Data and shall have (and are hereby granted as of the time immediately prior to the Spinco Transfer) a Right to Use all such Data in connection with the operation
of the Spinco Business, in all cases in a manner consistent with the manner in which such Data has been used by the Spinco Business prior to the Distribution Date;
provided
that the Spinco Companies Right to Use the Parent Company
Contract Data shall be limited to the use of such Parent Company Contract Data in connection with the bidding, proposal or performance of the applicable Contracts of the Spinco Business with respect to which such Parent Company Contract Data was
provided.
(b) It is acknowledged and agreed that the Parent Companies (on a perpetual and irrevocable basis) shall be permitted to possess and
retain non-exclusive copies of all Shared Spinco Company Data and shall have (and are hereby granted as of the time immediately prior to the Spinco Transfer) a Right to Use all such Data in connection with the operation of the Parent Business, in
all cases in a manner consistent with the manner in which such Data has been used by the Parent Business prior to the Distribution Date.
ARTICLE
III
CERTAIN COVENANTS, AGREEMENTS AND ACTIONS PRIOR TO THE DISTRIBUTION
Section 3.01
Governmental Filings; Consents
.
(a) The Parties shall cooperate with each other in determining whether any action by or in respect of, or filing with, any Governmental Authority
is required in connection with the consummation of the Contemplated Transactions. Subject to the terms and conditions of this Agreement, including
Section 8.01
, and the terms and conditions of the Merger Agreement, including
Section 7.06(b) of the Merger Agreement, Parent and Spinco shall use reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary to consummate and make effective as promptly as
practicable the Contemplated Transactions, including using reasonable best efforts to obtain consents and approvals of all Governmental Authorities and other Persons necessary to consummate the Distribution and the other Contemplated Transactions.
Except as otherwise expressly contemplated by another provision of the Transaction Documents, each Party shall bear its respective costs and expenses incurred in connection with obtaining such consents and approvals.
(b) Without limiting the provisions of this
Section 3.01
, Spinco agrees to provide such assurances as to financial capability, resources and
creditworthiness as reasonably may be requested by any Governmental Authority, the consent or approval of which is sought or with whom a filing is made hereunder.
(c) As soon as practicable after the date of this Agreement, the Parties shall prepare and submit (i) to the Defense Security Service of the United
States Department of Defense (
DSS
) and, to the extent applicable, any other Governmental Authority, notification of the Contemplated Transactions pursuant to the NISPOM and any other applicable national or industrial security
regulations, and (ii) to any other Governmental Authority (including without limitation customers under Government Contracts and prospective customers under Government Bids) appropriate notifications and disclosures in connection with the
Contemplated Transactions.
(d) The Parties agree that the level of efforts to obtain any approvals related to any Antitrust Law shall be governed
by Section 7.06 of the Merger Agreement.
Section 3.02
Treatment of Cash
.
(a) From the date of this Agreement until the Cut-Off Time, the Spinco Companies shall make capital and other expenditures and operate their
respective businesses and operations, including cash management, accounts payable and receivables collection systems, in the ordinary course of business consistent with past practice and subject to Applicable Law (including any Applicable Law
regarding the payment of dividends or distributions) and any Contract applicable to any Parent Company or any Spinco Company or their respective businesses.
(b) From the date of this Agreement until the Cut-Off Time, Parent shall be entitled to use, retain or otherwise dispose of all cash generated by the
Spinco Business and the Transferred Assets, subject to Applicable Law and any Contract applicable to any Parent Company or any Spinco Company or their respective businesses.
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(c) After the Cut-Off Time, no Spinco Company shall pay or declare any cash dividend or distribution of
cash to any Parent Company, or otherwise make any cash payment to any Parent Company that would otherwise have the effect of reducing the Closing Cash after the Cut-Off Time prior to the Closing, except (i) the Spinco Special Cash Payment, or
(ii) if expressly provided for in this Agreement (other than
Section 2.06(b)
) or any other Transaction Document.
Section 3.03
Issuance of Spinco Common Stock
. On or before the Distribution Date, in connection with the transfer of the Transferred Assets to the Spinco Companies and the assumption of the Assumed Liabilities by the Spinco Companies as provided in this
Agreement, Spinco will issue and deliver to Parent a certificate representing a number of shares of Spinco Common Stock in an amount determined pursuant to Section 2.04(d) of the Merger Agreement.
Section 3.04
Spinco Financing Arrangements
.
(a) On or before the Distribution Date, subject to the terms and conditions of Section 7.08 of the Merger Agreement, Spinco shall enter into a
definitive agreement or agreements providing for indebtedness in an aggregate principal amount equal to the Spinco Borrowing Amount, which indebtedness shall consist of borrowings under a credit facility on the terms and conditions contemplated by
the Spinco Commitment Letter (collectively, the
Spinco Debt
).
(b) Between the date of this Agreement and the Distribution
Effective Time, subject to the terms and conditions of Section 7.08 of the Merger Agreement, Spinco shall incur the Spinco Debt and receive the proceeds thereof. Immediately thereafter and prior to the Distribution, Parent shall effect the
Spinco Transfer. As consideration for the Spinco Transfer, Spinco shall (i) issue and deliver to Parent a certificate representing shares of Spinco Common Stock to be issued in accordance with
Section 3.03
and (ii) pay to
Parent the Spinco Special Cash Payment in immediately available funds to one or more accounts designated in writing by Parent. Parent will maintain the funds received from the Spinco Special Cash Payment in a non-interest bearing segregated bank
account (a
Segregated Account
) and will take into account for Tax purposes all items of income, gain, deduction or loss associated with the funds while maintained in this segregated account. Within 18 months following the
Distribution, Parent will distribute the cash held in the Segregated Account to (x) Parents creditors in retirement of outstanding Parent indebtedness or (y) to Parents shareholders in repurchase of, or distribution with
respect to, its shares (together, the
Parent Cash Distribution
).
Section 3.05
Spinco Disclosure Controls
. Parent
shall use commercially reasonable efforts to enable Spinco to integrate Spincos existing system of internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) into that of Merger Partner,
including consideration of any appropriate changes in light of the scope of the Spinco Business and the business of Merger Partner and its Subsidiaries, and otherwise maintain compliance with the provisions of Section 404 of the Sarbanes-Oxley
Act of 2002.
ARTICLE IV
THE
DISTRIBUTION
Section 4.01
Form of Distribution
.
(a) Parent shall elect, in its sole discretion, to effect the Distribution in the form of either (i) the One-Step Spin-Off or (ii) the
Exchange Offer, including any Clean-Up Spin-Off.
(b) If Parent elects to effect the Distribution in the form of the One-Step Spin-Off, the Board of
Directors of Parent (or a committee of the Board of Directors of Parent acting pursuant to delegated authority), in accordance with Section 2-511 of the Maryland General Corporation Law, any applicable securities laws and the rules and
regulations of the New York Stock Exchange, shall set the Record Date and the Distribution Date and Parent shall establish appropriate procedures in connection with the Distribution. In connection with the One-Step Spin-Off, all shares of Spinco
Common Stock held by Parent on the Distribution Date will be distributed to Record Holders in the manner determined by Parent and in accordance with
Section 4.02
.
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(c) If Parent elects to effect the Distribution in the form of the Exchange Offer, subject to the terms and
conditions of the Merger Agreement, Parent shall determine the terms and conditions of the Exchange Offer, including the number of shares of Spinco Common Stock that will be offered for each validly tendered share of Parent Common Stock, the period
during which the Exchange Offer will remain open, the procedures for the tender and exchange of shares and all other terms and conditions of the Exchange Offer, which terms and conditions shall comply with all applicable securities laws and the
rules and regulations of the New York Stock Exchange. In the event Parents stockholders subscribe for less than all of the Spinco Common Stock in the Exchange Offer, Parent will consummate the Clean-Up Spin-Off on the Distribution Date
immediately following consummation of the Exchange Offer and the Record Date for the Clean-Up Spin-Off shall be set as of such date in the same manner as provided in
Section 4.01(b)
. The terms and conditions of any Clean-Up Spin-Off
shall be as determined by Parent (provided that any shares of Spinco Common Stock that are not subscribed for in the Exchange Offer must be distributed to Parents stockholders in the Clean-Up Spin-Off) and shall comply with the provisions of
Section 2-511 of the Maryland General Corporation Law, all applicable securities laws and the rules and regulations of the New York Stock Exchange.
Section 4.02
Manner of Effecting Distribution
.
(a) If the Distribution is effected by means of the One-Step Spin-Off, subject to the terms and conditions established pursuant to
Section 4.01(b)
, each Record Holder shall be entitled to receive for each share of Parent Common Stock held by such Record Holder a number of shares of Spinco Common Stock equal to the number of shares of Spinco Common Stock held by
Parent on the Distribution Date, multiplied by a fraction, the numerator of which is the number of shares of Parent Common Stock held by the Record Holder on the Record Date and the denominator of which is the total number of shares of Parent Common
Stock outstanding on the Record Date.
(b) If the Distribution is effected by means of the Exchange Offer, subject to the terms and conditions
established pursuant to
Section 4.01(c)
, each Parent stockholder may elect in the Exchange Offer to exchange a number of shares of Parent Common Stock held by such Parent stockholder for shares of Spinco Common Stock at such an exchange
ratio and subject to such other terms and conditions as may be determined by Parent and set forth in the Spinco Registration Statement. The terms and conditions of any Clean-Up Spin-Off shall be as determined by Parent, subject to the provisions of
Section 4.02(a)
,
mutatis mutandis
, and in compliance with all applicable securities laws and the rules and regulations of the New York Stock Exchange
.
(c) No Party, nor any of its Affiliates, will be liable to any Person in respect of any shares of Spinco Common Stock, or distributions in respect
thereof, that are delivered to a public official in accordance with the provisions of any applicable escheat, abandoned property or similar Applicable Law.
Section 4.03
Actions Prior to the Distribution
.
(a) Spinco shall cooperate with Parent to give effect to and accomplish the Distribution, including in connection with the preparation of all
documents and the making of all filings required under Applicable Law in connection with the Distribution. Parent shall be entitled to direct and control the efforts of the Parties in connection with the Distribution, including the selection of an
investment bank or banks to manage the Distribution, as well as any financial printer, solicitation agent, exchange agent and financial, legal, accounting and other advisors of Parent, and Spinco shall use reasonable best efforts to take, or to
cause to be taken, all actions and to do, or cause to be done, all other things reasonably necessary to facilitate the Distribution as reasonably directed by Parent. Without limiting the foregoing, Spinco shall and shall cause its employees,
advisors, agents, accountants, counsel and other representatives to, as directed by Parent, reasonably cooperate in and take the following actions: (i) preparing and filing a registration statement or statements for the registration under the
Securities Act or the Exchange Act, as applicable, on an appropriate registration form or forms designated by Parent (the
Spinco Registration Statement
); (ii) participating in meetings, drafting sessions, due diligence
sessions, management presentation sessions, road shows and similar meetings or sessions in connection with the Distribution, including in any marketing efforts requested by Parent, which participation shall be subject to, and may be
concurrent with, any such activities required in respect of the Exchange Offer; (iii) furnishing to any dealer manager or similar agent participating in the Distribution (A) comfort letters from independent public accountants
in customary form and covering such matters as are customary for an underwritten public offering (including with respect to events subsequent to the date of financial statements included in any offering document) and (B) opinions and negative
assurance letters of counsel in
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customary form and covering such matters as reasonably may be requested; and (iv) furnishing all historical and forward-looking financial and other relevant financial and other information
that is available to Spinco and is reasonably required in connection with the Distribution.
(b) Parent and Spinco shall prepare and mail, prior to
the Distribution Date and in accordance with Applicable Law, to the holders of Parent Common Stock, such information concerning Parent, Spinco and Merger Partner, their respective businesses, operations and management, the Distribution and such
other matters as Parent reasonably shall determine and as may be required by Applicable Law. Parent and Spinco shall prepare, and Spinco shall, to the extent required by Applicable Law, file with the SEC any such documentation and any requisite
no-action letter that Parent determines are necessary or desirable to effectuate the Distribution, and Parent and Spinco each shall use reasonable best efforts to obtain all necessary approvals from the SEC with respect to the foregoing as soon as
practicable.
(c) Parent and Spinco shall take all actions as may be necessary or desirable under any applicable securities, blue sky or
comparable laws of the United States, the states and territories thereof and any foreign jurisdiction in connection with the Distribution.
(d)
Parent and Spinco shall take all actions and steps reasonably necessary and appropriate to cause the conditions to the Distribution set forth in
Section 4.04
to be satisfied as soon as practicable and to effect the Distribution on the
Distribution Date in accordance with this Agreement.
Section 4.04
Conditions Precedent to the Distribution
. The obligation of Parent to
effect the Distribution shall be subject to the fulfillment or waiver (subject to
Section 16.02
) at or prior to the Distribution Date of each of the following conditions (
provided
,
however
, that unless the Merger Agreement
shall have been terminated in accordance with its terms, any such waiver shall be subject to the written consent of Merger Partner):
(a) Each
Transaction Document shall have been executed and delivered by each party thereto; and
(b) Each of the conditions to the obligation of the parties
to the Merger Agreement to consummate the Merger and effect the other transactions contemplated by the Merger Agreement shall have been satisfied or waived by the party entitled to the benefit thereto (other than those conditions that by their
nature are to be satisfied contemporaneously with or immediately following the Distribution), including the condition set forth in Section 8.01(a) of the Merger Agreement (but subject to the consummation of the Distribution).
The foregoing conditions are for the benefit of Parent and shall not give rise to or create any duty on the part of Parent or the Board of Directors of Parent to waive
or not waive any condition precedent under this Agreement or the Merger Agreement;
provided
,
however
, that the foregoing shall not limit Merger Partners rights under Section 7.15 of the Merger Agreement.
Section 4.05
Additional Matters in Connection with the Distribution
.
(a) Parent, Spinco and the transfer agent or exchange agent appointed in connection with the Distribution, as applicable, shall be entitled to
withhold and deduct from the consideration otherwise payable pursuant to this Agreement such amounts as are required to be withheld and deducted in connection with such payments under Applicable Law. Any withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the Persons otherwise entitled thereto.
(b) Upon consummation of the One-Step Spin-Off or the
Exchange Offer, Parent shall deliver to the Agent a global certificate representing the Spinco Common Stock being distributed in the One-Step Spin-Off or exchanged in the Exchange Offer, as the case may be, for the account of the Parent stockholders
that are entitled to such shares. Upon a Clean-Up Spin-Off, if any, Parent shall deliver to the Agent an additional global certificate for the account of the Parent stockholders that are entitled to receive shares of Parent Common Stock in such
Clean-Up Spin-Off. The Agent shall hold such certificate or certificates, as the case may be, for the account of Parent stockholders pending the Merger, as provided in the Merger Agreement. From immediately after the Distribution Effective Time and
to the Merger Effective Time, the shares of Spinco Common Stock shall not be transferable and the transfer agent for the Spinco Common Stock shall not transfer any shares of Spinco Common Stock. Parent shall give written notice of the
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Distribution Effective Time to the transfer agent or the exchange agent with written authorization to proceed as set forth in
Section 4.02
.
ARTICLE V
INFORMATION AND CONFIDENTIALITY
Section 5.01
Retention of Information
. Spinco and Parent shall preserve all books and records of and substantially related to the
Spinco Business for a period of six years commencing on the Distribution Date (or (i) until such time as all statutes of limitations to which such records relate have expired, (ii) in the case of books and records relating to any
Government Contract, until the date that is 12 months after the date on which Parent or Spinco, as the case may be, reaches final agreement with the U.S. Government in respect of any open issues applicable to such Government Contract, including the
resolution of the incurred costs applicable to such Government Contract and (iii) in the case of books and records as to which Applicable Law, another Transaction Document or a Spinco Subsidiary Acquisition Agreement requires a longer period,
for such longer period), and thereafter shall not destroy or dispose of such books and records without giving notice to the other Parties (and, in the case of a Spinco Subsidiary Acquisition Agreement, the respective sellers of the Spinco
Subsidiary) of such pending disposal and offering to Parent (or, in the case of a Spinco Subsidiary Acquisition Agreement, the respective sellers of the Spinco Subsidiary) such books and records.
Section 5.02
Access to Information; Cooperation
.
(a) Except as may be necessary to comply with any Applicable Laws (including the NISPOM or any Export Control Laws) and subject to (x) any
applicable privileges (including the attorney-client privilege), (y) this
Section 5.02
and (z) the terms and conditions of any confidentiality or similar agreements between Parent or any of its Subsidiaries and a third party,
including customers, vendors and subcontractors, from and after the Distribution Date, Parent shall, and shall cause the other Parent Companies to: (i) afford Spinco and its Representatives reasonable access upon reasonable prior notice during
normal business hours, to all employees, offices, properties, agreements, Government Contracts, Government Bids, records, books and affairs of Parent Companies, to the extent relating to the conduct of the Spinco Business prior to the Distribution
Effective Time, and provide copies of such information as Spinco may reasonably request for any proper purpose, including in connection with (A) any judicial, quasi-judicial, administrative, audit or arbitration proceeding, (B) the
preparation of any financial statements or reports and (C) the defense or pursuit of any claims, allegations or actions that relate to or may relate to any Transferred Assets, Assumed Liabilities or Indemnified Claims; and (ii) use
reasonable best efforts to cooperate in the defense or pursuit of any Transferred Asset or Assumed Liability or any claim or action that relates to occurrences involving the Spinco Business prior to the Distribution Date;
provided
that Spinco
shall reimburse Parent Companies for any reasonable out-of-pocket expenses (including fees and expenses of attorneys, accountants and other agents or representatives) incurred by Parent Companies in connection with any such defense, claim or action.
Spinco agrees to treat and hold as confidential all information provided or otherwise made available to it or any of its Representatives under this
Section 5.02
in accordance with the provisions of
Section 5.04(a)
.
(b) Except as may be necessary to comply with any Applicable Laws (including the NISPOM or any Export Control Laws) and subject to (x) any
applicable privileges (including the attorney-client privilege), (y) this
Section 5.02(b)
, and (z) the terms and conditions of any confidentiality or similar agreements between any Spinco Company and a third party, including
customers, vendors and subcontractors, from and after the Distribution Date, Spinco shall, and shall cause the other Spinco Companies to: (i) afford Parent and its Representatives reasonable access upon reasonable prior notice during normal
business hours, to all employees, offices, properties, agreements, Government Contracts, Government Bids, records, books and affairs of the Spinco Companies, to the extent relating to the Spinco Business prior to the Distribution Effective Time, and
provide copies of such information as Parent may reasonably request for any proper purpose, including in connection with (A) any judicial, quasi-judicial, administrative, audit or arbitration proceeding, (B) the preparation of any
financial statements or reports and (C) the defense or pursuit of any claims, allegations or actions that relate to or may relate to any Excluded Assets, Excluded Liabilities or Indemnified Claims; and (ii) use reasonable best efforts to
cooperate in the defense or pursuit of any Excluded Asset or Excluded Liability or any claim or action that relates to occurrences involving the Spinco Business or the Parent Business prior to the Distribution Date;
provided
that Parent shall
reimburse the Spinco Companies for any reasonable out-of-pocket expenses (including fees and expenses of attorneys, accountants and other agents or
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representatives) incurred by Spinco Companies in connection with any such defense, claim or action. Parent agrees to treat and hold as confidential all information provided or otherwise made
available to it or any of its Representatives under this
Section 5.02(b)
in accordance with the provisions of
Section 5.04
.
Section 5.03
Ownership of Information
. Any information owned by one Party or any of its Subsidiaries that is provided to a requesting Party
pursuant to this
Article V
,
Article VII
or the Tax Matters Agreement shall be deemed to remain the property of the providing Party. Unless specifically set forth or contemplated herein, nothing contained in this Agreement
shall be construed as granting or conferring license rights or any other rights in any such information.
Section 5.04
Confidentiality
.
(a) Spinco shall, and shall cause the other Spinco Companies to, (i) treat and hold as confidential all Parent Company Proprietary
Information in the possession or control of the Spinco Companies as of the Distribution Date, (ii) limit disclosure of all such Parent Company Proprietary Information within Spincos organization to officers, directors, employees,
contractors and representatives of Spinco Companies who in each case are obligated to maintain the confidentiality of all such Parent Company Proprietary Information and have a need to know such Parent Company Proprietary Information in order to
accomplish the purpose for which such Parent Company Proprietary Information was disclosed or provided to, or retained by, the Spinco Companies in accordance with this Agreement (and may disclose Parent Company Proprietary Information pursuant to
this clause (ii) only for so long as such purpose continues to be applicable to the Spinco Business), and (iii) refrain from disclosing any such Parent Company Proprietary Information to any other Person without the prior written consent
of Parent, in each case for a period commencing on the date of this Agreement and continuing for so long as such Parent Company Proprietary Information constitutes confidential or proprietary information of any Parent Company. Spinco shall, and
shall cause the other Spinco Companies to, use such Parent Company Proprietary Information only in connection with the purpose for which such Parent Company Proprietary Information was disclosed or provided to, or retained by the Spinco Business, in
accordance with this Agreement, and for no other reason (and only for so long as such purpose continues to be applicable to the Spinco Business). In the event any Spinco Companies are requested or required (by oral or written request for information
or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process or by Applicable Law) to disclose any such Parent Company Proprietary Information, Spinco shall notify Parent promptly of the request or
requirement so that Parent, at its expense, may seek an appropriate protective order or waive compliance with this
Section 5.04(a)
.
(b)
If, in the absence of a protective order or receipt of a waiver hereunder, any Spinco Companies are, on the advice of counsel, compelled to disclose such Parent Company Proprietary Information, such Spinco Companies may so disclose such Parent
Company Proprietary Information;
provided
that Spinco shall, and shall cause such other Spinco Companies, as applicable, to, use reasonable best efforts to obtain reliable assurance that confidential treatment will be afforded to such Parent
Company Proprietary Information. Notwithstanding the foregoing, the provisions of this
Section 5.04(b)
shall not prohibit the disclosure of Parent Company Proprietary Information by any Spinco Companies to the extent reasonably required
(i) to prepare or complete any required Tax Returns or financial statements, (ii) in connection with audits or other proceedings by or on behalf of a Governmental Authority, (iii) in connection with any insurance or benefits claims,
(iv) to comply with Applicable Law, (v) to provide services to any Parent Companies in accordance with the terms and conditions of any of the Transaction Documents,(vi) to perform any Contracts of the Spinco Business constituting
Transferred Assets, or (vii) in connection with asserting any rights or remedies or performing any obligations under any of the Transaction Documents. Within 30 days of any written request of Parent, except to the extent required to perform any
then-existing Contracts in the Spinco Business or any of the activities described in clauses (i) through (vii) of the preceding sentence and except to the extent constituting Data to which the Spinco Companies are granted a Right to Use
pursuant to
Section 2.10
, Spinco shall, and shall cause the other Spinco Companies to, promptly cease all use of such specified Parent Company Proprietary Information and use good faith, reasonable commercial efforts to return such
specified Parent Company Proprietary Information to Parent, or upon request of Parent, destroy such specified Parent Company Proprietary Information and verify in writing such destruction to Parent;
provided
that (A) such request shall
specify in reasonable detail each applicable item of Parent Company Proprietary Information and such reasonably identifying information as may be helpful to Spinco in locating the relevant Parent Company Proprietary Information (including for
example the relevant location within the IT System(s) and business division(s) in which the same was contained as of the Distribution Date or the relevant employees who had access to such Parent Company Proprietary Information as of the Distribution
Date), and (B) the Spinco Companies shall have no obligation to destroy any such Parent Company Proprietary
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Information that is stored in archival or backup systems (provided that the obligations of confidentiality set forth in this
Section 5.04
shall continue to apply thereto).
Notwithstanding the foregoing, the provisions of this
Section 5.04(b)
shall not apply to information that (x) is or becomes publicly available other than as a result of a disclosure by any Spinco Company, (y) is or becomes
available to a Spinco Company on a non-confidential basis from a source that, to Spincos or such Spinco Companys knowledge, is not prohibited from disclosing such information by a legal, contractual or fiduciary obligation, or
(z) following the Distribution, is independently developed by a Spinco Company (other than for the Parent Business).
(c) Parent shall, and
shall cause the other Parent Companies to, (i) treat and hold as confidential all Spinco Business Proprietary Information in the possession or control of the Parent Companies as of the Distribution Date, (ii) limit disclosure of all such
Spinco Business Proprietary Information within Parents organization to officers, directors, employees, contractors and representatives of Parent Companies who in each case are obligated to maintain the confidentiality of all such Parent
Company Proprietary Information and have a need to know such Spinco Business Proprietary Information in order to accomplish the purpose for which such Spinco Business Proprietary Information was retained by the Parent Companies in accordance with
this Agreement (and may disclose Spinco Business Proprietary Information pursuant to this clause (ii) only for so long as such purpose continues to be applicable to the Parent Companies), and (iii) refrain from disclosing any such Spinco
Business Proprietary Information to any other Person without the prior written consent of Parent, in each case for a period commencing on the date of this Agreement and continuing for so long as such Spinco Business Proprietary Information
constitutes confidential or proprietary information of any Spinco Company. Parent shall, and shall cause the other Parent Companies to, use such Spinco Business Proprietary Information only in connection with the purpose for which such Spinco
Business Proprietary Information was retained by the Parent Companies in accordance with this Agreement, and for no other reason (and only for so long as such purpose continues to be applicable to the Parent Companies). In the event any Parent
Companies are requested or required (by oral or written request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand or similar process or by Applicable Law) to disclose any such Spinco Business
Proprietary Information, Parent shall notify Spinco promptly of the request or requirement so that Spinco, at its expense, may seek an appropriate protective order or waive compliance with this
Section 5.04(c)
.
(d) If, in the absence of a protective order or receipt of a waiver hereunder, any Parent Companies are, on the advice of counsel, compelled to disclose
such Spinco Business Proprietary Information, such Parent Companies may so disclose such Spinco Business Proprietary Information;
provided
that Parent shall, and shall cause such other Parent Companies, as applicable, to, use reasonable best
efforts to obtain reliable assurance that confidential treatment will be afforded to such Spinco Business Proprietary Information. Notwithstanding the foregoing, the provisions of this
Section 5.04(d)
shall not prohibit the disclosure of
Spinco Business Proprietary Information by any Parent Companies to the extent reasonably required (i) to prepare or complete any required Tax Returns or financial statements, (ii) in connection with audits or other proceedings by or on
behalf of a Governmental Authority, (iii) in connection with any insurance or benefits claims, (iv) to comply with Applicable Law, (v) to provide services to any Spinco Companies in accordance with the terms and conditions of any of
the Transaction Documents, (vi) to perform any Contracts of the Parent Business constituting Excluded Assets, or (vii) in connection with asserting any rights or remedies or performing any obligations under any of the Transaction
Documents. Within 30 days of any written request of Spinco, except to the extent required to perform any then-existing Contracts in the Parent Business or any of the activities described in clauses (i) through (vii) of the preceding
sentence and except to the extent constituting Data to which the Parent Companies are granted a Right to Use pursuant to
Section 2.10
, Parent shall, and shall cause the other Parent Companies to, promptly cease all use of such specified
Spinco Business Proprietary Information and use good faith, reasonable commercial efforts to return such specified Spinco Business Proprietary Information to Spinco, or upon request of Spinco, destroy such specified Spinco Business Proprietary
Information and verify in writing such destruction to Spinco,
provided
that (A) such request shall specify in reasonable detail each applicable item of Spinco Business Proprietary Information and such reasonably identifying information
as may be helpful to Parent in locating the relevant Spinco Company Proprietary Information (including for example the relevant location within the IT System(s) and business division(s) in which the same was contained as of the Distribution Date or
the relevant employees who had access to such Spinco Company Proprietary Information as of the Distribution Date), and (B) the Parent Companies shall have no obligation to destroy any such Spinco Business Proprietary Information that is stored
in archival or backup systems (provided that the obligations of confidentiality set forth in this
Section 5.04
shall continue to apply thereto). Notwithstanding the foregoing, the provisions of this
Section 5.04(d)
shall not
apply to information that (x) is or becomes publicly available other than as a result of a disclosure by any
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Parent Company, or (y) is or becomes available to a Parent Company on a non-confidential basis from a source that, to Parents or such Parent Companys knowledge, is not prohibited
from disclosing such information by a legal, contractual or fiduciary obligation or (z) is or has been independently developed by a Parent Company (other than exclusively for the Spinco Business).
Section 5.05
Privilege and Related Rights
.
(a) The Parties recognize that legal and other professional services that have been and will be provided prior to the Distribution Effective Time
in respect of the Spinco Business have been and will be rendered for the collective benefit of each of the Parent Companies and the Spinco Companies, and that each of the Parent Companies and the Spinco Companies shall be deemed to be the client
with respect to such pre-Distribution services for the purposes of asserting any privileges, protections or doctrines that may be asserted under Applicable Law. With respect to such pre-Distribution services, the Parties agree as follows:
(i)
Parent Counsel
. Each of the parties identified on
Schedule 5.05(a)
(collectively, the
Parent Counsel
) has
acted as counsel for the Parent Companies, Spinco and their respective Subsidiaries and Affiliates in connection with this Agreement, the other Transaction Documents and the Contemplated Transactions (the
Transaction Engagement
)
and not as counsel for any other Person, including Merger Partner and its Affiliates.
(ii)
Transaction Engagement
. Only the Parent
Companies, Spinco and their respective Subsidiaries and Affiliates shall be considered clients of the Parent Counsel in the Transaction Engagement. Communications, including those constituting or pertaining to legal advice, between any one or more
of the Parent Companies, any of their respective Affiliates, Spinco or any of the Spinco Subsidiaries, on the one hand, and any of the Parent Counsel, on the other hand, shall be deemed to be subject to attorney-client privilege, work product
protection or other privileges or protections that belong solely to the Parent Companies and not Spinco or the Spinco Subsidiaries to the extent such communications (or the specific portion thereof) relate to the Transaction Engagement
(collectively, the
Transaction Engagement Communications
). Accordingly, Merger Partner and Merger Partner Sub shall not have access to the Transaction Engagement Communications, or to any Transaction Engagement Communications in
the files of the Parent Counsel, whether or not the Closing shall have occurred. Without limiting the generality of the foregoing, upon and after the Closing, (i) the Parent Companies shall be the sole holders of the attorney-client privilege,
work product protection or other privileges or protections with respect to the Transaction Engagement Communications, and none of the Spinco Companies, Merger Partner or Merger Partner Sub shall be a holder thereof, (ii) to the extent that any
Transaction Engagement Communications in the files of the Parent Counsel constitute property of a client, only the Parent Companies shall hold such property rights, and (iii) none of the Parent Counsel shall have any duty whatsoever to reveal
or disclose any such Transaction Engagement Communications to the Spinco Companies, Merger Partner or Merger Partner Sub by reason of any attorney-client relationship between any of the Parent Counsel and any of the Spinco Companies or otherwise,
unless otherwise directed by a court order or the order of any Governmental Authority.
(b) The Parties recognize that legal and other professional
services will be provided following the Distribution Effective Time which will be rendered solely for the benefit of the Parent Companies on the one hand, or Spinco and the other Spinco Companies on the other hand, as the case may be. With respect
to such post-Distribution services, the Parties agree as follows:
(i) Parent shall be entitled, in perpetuity, to control the assertion or waiver
of all privileges, doctrines or protections in connection with privileged or protected information (including communications by or to lawyers (including attorney client privileged communications), memos and other materials prepared by lawyers or
under the direction of a lawyer (including attorney work product) and communications and materials otherwise related to or made or prepared in connection with or in preparation for any legal proceeding) (
Privileged Information
)
that relates solely to the Parent Business, whether or not the Privileged Information is in the possession of or under the control of a Parent Company or a Spinco Company. Parent also shall be entitled, in perpetuity, to control the assertion or
waiver of all privileges, doctrines or protections in connection with Privileged Information that relates solely to the subject matter of any claims constituting Excluded Liabilities, now pending or which may be asserted in the future, in any
lawsuits or other proceedings initiated against a Parent Company, whether or not the Privileged Information is in the possession of or under the control of a Parent Company or a Spinco Company; and
(ii) Spinco shall be entitled, in perpetuity, to control the assertion or waiver of all privileges, doctrines or protections in connection with
Privileged Information which relates solely to the Spinco Business, whether or not the
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Privileged Information is in the possession of or under the control of a Parent Company or a Spinco Company. Spinco also shall be entitled, in perpetuity, to control the assertion or waiver of
all privileges, doctrines or protections in connection with Privileged Information that relates solely to the subject matter of any claims constituting Assumed Liabilities (except to the extent a Parent Company, despite the provisions of this
Agreement, may have liability in respect thereof to any third party, including a Governmental Authority), now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by a Spinco Company, whether or
not the Privileged Information is in the possession of or under the control of a Parent Company or a Spinco Company.
(c) The Parties agree that
they shall have a shared privilege or protection, with equal right to assert or waive, subject to the restrictions in this
Section 5.05
, with respect to all privileges, doctrines or protections not allocated pursuant to the terms of
Sections 5.05(a)
and
5.05(b)
. All privileges relating to any claims, proceedings, litigation, disputes or other matters that involve both a Parent Company and a Spinco Company in respect of which both Parties retain any
responsibility or Liability under this Agreement, or otherwise, shall be subject to a shared privilege among them.
(d) Subject to the provisions of
Section 5.05(e)
and
Section 5.05(f)
, no Party may waive any privilege, doctrine or protection that could be asserted under any Applicable Law and in which the other Party has a shared privilege, without the prior written
consent of the other Party, which consent shall not be unreasonably withheld, conditioned or delayed. Each Party shall use its reasonable best efforts to preserve any privilege or protection held by the other Party if that privilege or protection is
a shared privilege or protection or has been allocated to the other Party pursuant to
Section 5.05(b)
.
(e) In the event of any
litigation or dispute between or among the Parties, or any members of their respective Groups, either such Party may waive a privilege or protection in which the other Party or member of such Group has a shared privilege or protection, without
obtaining the consent of the other Party;
provided
,
however
, that such waiver of a shared privilege or protection shall be effective only as to the use of Privileged Information with respect to the litigation or dispute between the
relevant Parties and/or the applicable members of their respective Groups, and shall not operate as a waiver of the shared privilege with respect to third parties.
(f) If a dispute arises between the Parties or their respective Subsidiaries regarding whether a privilege or protection should be waived to protect or
advance the interest of either Party, each Party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of the other Party, and shall not unreasonably withhold, condition or delay consent to any request
for waiver by the other Party. Each Party specifically agrees that it will not withhold, condition or delay consent to waiver for any purpose other than to protect its own legitimate interests.
(g) Upon receipt by either Party or by any Subsidiary thereof of any subpoena, discovery or other request that arguably calls for the production or
disclosure of information subject to a shared privilege or protection, or as to which the other Party has the sole right hereunder to assert a privilege or protection, or if either Party obtains knowledge that any of its or any of its
Subsidiaries current or former directors, officers, agents or employees have received any subpoena, discovery or other request that arguably calls for the production or disclosure of such Privileged Information, such Party shall promptly
notify the other Party of the existence of the request and shall provide the other Party a reasonable opportunity to review the Privileged Information and to assert any rights it or they may have under this
Section 5.05
or otherwise to
prevent the production or disclosure of such Privileged Information.
(h) The transfer of all Privileged Information pursuant to this Agreement is
made in reliance on the agreement of Parent and Spinco as set forth in
Section 5.04
and this
Section 5.05
to maintain the confidentiality of Privileged Information and to assert and maintain all applicable privileges,
doctrines or protections. Nothing provided for herein or in any other Transaction Document shall be deemed a waiver of any privilege, doctrine or protection that has been or may be asserted under this Agreement or otherwise.
Section 5.06
Other Agreements
. Except as otherwise expressly provided in this
Article V
, the rights and obligations granted
under this
Article V
shall be subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of data and information set forth in any other Transaction Document.
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ARTICLE VI
DISCLAIMER; NO REPRESENTATIONS OR WARRANTIES
Section 6.01
Disclaimer; No Representations or Warranties
. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY OF THE OTHER
TRANSACTION DOCUMENTS, EACH PARTY ON BEHALF OF ITSELF AND EACH OF ITS AFFILIATES UNDERSTANDS AND AGREES THAT NEITHER PARTY NOR ANY OF ITS AFFILIATES IS MAKING ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, TO THE OTHER
PARTY OR ANY OF ITS AFFILIATES OR TO ANY OTHER PERSON IN RESPECT OF THE CONTEMPLATED TRANSACTIONS OR ANY INFORMATION THAT MAY HAVE BEEN EXCHANGED OR PROVIDED PURSUANT TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, AND THAT ALL TRANSFERRED
ASSETS ARE BEING ASSIGNED AND TRANSFERRED, AND ALL ASSUMED LIABILITIES ARE BEING ASSUMED, ON AN AS IS, WHERE IS BASIS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, (I) NEITHER PARENT NOR ANY OF ITS AFFILIATES HAS
MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATIONS OR WARRANTIES IN ANY PRESENTATION OR WRITTEN INFORMATION RELATING TO THE SPINCO BUSINESS GIVEN OR TO BE GIVEN IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS OR IN ANY FILING MADE OR TO BE
MADE BY OR ON BEHALF OF PARENT OR ANY OF ITS AFFILIATES WITH ANY GOVERNMENTAL AUTHORITY, AND NO STATEMENT MADE IN ANY SUCH PRESENTATION OR WRITTEN MATERIALS, MADE IN ANY SUCH FILING OR CONTAINED IN ANY SUCH OTHER INFORMATION SHALL BE DEEMED A
REPRESENTATION OR WARRANTY HEREUNDER OR OTHERWISE, AND (II) PARENT, ON ITS OWN BEHALF AND ON BEHALF OF THE OTHER PARENT COMPANIES, EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES, INCLUDING WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE AND WARRANTIES OF
MERCHANTABILITY. SPINCO ACKNOWLEDGES THAT PARENT HAS INFORMED IT THAT NO PERSON HAS BEEN AUTHORIZED BY PARENT OR ANY OF ITS AFFILIATES TO MAKE ANY REPRESENTATION OR WARRANTY IN RESPECT OF THE SPINCO BUSINESS OR IN CONNECTION WITH THE CONTEMPLATED
TRANSACTIONS, UNLESS IN WRITING AND CONTAINED IN THIS AGREEMENT OR IN ANY OF THE OTHER TRANSACTION DOCUMENTS TO WHICH THEY ARE A PARTY.
ARTICLE
VII
INDEMNIFICATION; LIMITATION OF LIABILITY
Section 7.01
Remedies
. It is understood and agreed that (a) after the Distribution, the sole and exclusive remedy with respect to any
breach of this Agreement shall be a claim for Damages (whether in contract, in tort or otherwise, and whether in law, in equity or both) made pursuant to, and subject to the limitations of, this
Article VII
;
provided
,
however
, that notwithstanding the foregoing, nothing in this
Article VII
shall limit the right of any Party (i) to pursue an action for or to seek remedies with respect to claims for fraud or (ii) to seek specific
performance or other equitable relief; and (b) before the Distribution, indemnification under this
Article VII
shall not apply.
Section 7.02
Indemnification
.
(a)
Effective as of the Distribution Date and subject to the limitations set forth in
Section 7.04
, Spinco hereby indemnifies Parent, its Affiliates, and their respective Representatives (together, in each case, with their respective
successors and permitted assigns, the
Parent Indemnified Parties
) against, and agrees to hold them harmless from, any and all Damages arising out of, resulting from or related to (i) any breach by Spinco or any Spinco Company
of, or failure by Spinco or any Spinco Company to perform, any covenants, agreements or obligations to be performed by Spinco or the Spinco Companies pursuant to this Agreement, (ii) except to the extent subject to indemnification by Parent
under this Agreement, any Assumed Liabilities (including any Spinco Companys failure to perform or in due course pay or discharge any Assumed Liability), (iii) any Financial Support Arrangement relating to, arising out of or supporting
the Spinco Business, (iv) any matters for which indemnification is provided by Spinco or any Spinco Company under any Transaction Document (other than this Agreement) (it being understood that the terms of such indemnification shall be governed
by and subject to the terms of the applicable Transaction Document to the extent such terms differ from the provisions of this
Article VII
), or (v) any Liabilities assumed by a Spinco Company with respect to Contracts pursuant to
Section 2.03
.
(b) Effective as of the Distribution Effective Time and subject to the limitations set forth in
Section 7.04
,
Parent hereby indemnifies Spinco, its Affiliates and their respective Representatives (together, in each case, with their
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respective successors and permitted assigns, the
Spinco Indemnified Parties
) against, and agrees to hold them harmless from, any and all Damages arising out of, resulting from
or related to (i) any breach by Parent or any Parent Company of, or failure by Parent or any Parent Company to perform, any covenants, agreements or obligations to be performed by Parent or the Parent Companies pursuant to this Agreement,
(ii) any Excluded Liabilities (including any Parent Companys failure to perform or in due course pay or discharge any Excluded Liability), (iii) any matters for which indemnification is provided by Parent or any Parent Company under
any Transaction Document (other than this Agreement) (it being understood that the terms of such indemnification shall be governed by and subject to the terms of the applicable Transaction Document to the extent such terms differ from the provisions
of this
Article VII
), (iv) any Assumed Liability, but only to the extent arising out of or resulting from any circumstance, condition or event existing or occurring (as the case may be) prior to the Distribution Date;
provided
that in the case of this clause (iv), Parent shall have no obligation to indemnify the Spinco Indemnified Parties with respect to any matter disclosed in the LMC Disclosure Letter, (v) any Liabilities assumed by a Parent Company
with respect to Contracts pursuant to
Section 2.04
or (vi) the special indemnity item listed in
Schedule A-17
.
Section 7.03
Procedures
.
(a) If any
Parent Indemnified Party shall seek indemnification pursuant to
Section 7.02(a)
, or if any Spinco Indemnified Party shall seek indemnification pursuant to
Section 7.02(b)
, the Person seeking indemnification (the
Indemnified Person
) shall give written notice to the Party from whom such indemnification is sought (the
Indemnifying Party
) promptly (and in any event within 10 days) after the Indemnified Person (or, if the
Indemnified Person is a corporation, any officer or director of the Indemnified Person) becomes aware of the facts giving rise to such claim for indemnification (an
Indemnified Claim
), which notice shall specify in reasonable
detail the factual basis of the Indemnified Claim, state the amount of Damages (or if not known, a good faith estimate of the amount of Damages) and the method of computation thereof, contain a reference to the provision of this Agreement in respect
of which such Indemnified Claim arises and demand indemnification therefor. The failure of an Indemnified Person to provide notice in accordance with this
Section 7.03(a)
, or any delay in providing such notice, shall not constitute a
waiver of that Persons claims to indemnification pursuant to
Section 7.02
, except to the extent that (i) any such failure or delay in giving notice causes the amounts paid or to be paid by the Indemnifying Party to be greater
than they otherwise would have been or otherwise results in prejudice to the Indemnifying Party or (ii) such notice is not delivered to the Indemnifying Party prior to the expiration of the applicable survival period set forth in
Section 7.01
. If the Indemnified Claim arises from the assertion of any claim, or the commencement of any Proceeding, brought by a Person that is not a Parent Company or a Spinco Company (a
Third Party Claim
), any such
notice to the Indemnifying Party shall be accompanied by a copy of any papers theretofore served on or delivered to the Indemnified Person in connection with such Third Party Claim.
(b) In the event of receipt of notice of a Third Party Claim from an Indemnified Person pursuant to
Section 7.03(a)
, the Indemnifying Party
will be entitled to assume the defense and control of such Third Party Claim subject to the provisions of this
Section 7.03(b)
. After written notice by the Indemnifying Party to the Indemnified Person of its election to assume the
defense and control of a Third Party Claim, the Indemnifying Party shall not be liable to such Indemnified Person for any legal fees or expenses subsequently incurred by such Indemnified Person in connection therewith. Notwithstanding anything in
this
Section 7.03
to the contrary, until such time as the Indemnifying Party assumes the defense and control of a Third Party Claim as provided in this
Section 7.03
, the Indemnified Person shall have the right to defend such
Third Party Claim, subject to the limitations set forth in this
Section 7.03
, in such manner as it may deem appropriate. Without regard to whether the Indemnifying Party or the Indemnified Person is defending and controlling any such
Third Party Claim, it shall select counsel, contractors, experts and consultants of recognized standing and competence, shall take reasonable steps necessary in the investigation, defense or settlement thereof, and shall diligently and promptly
pursue the resolution thereof. The Party conducting the defense thereof shall at all times act as if all Damages relating to the Third Party Claim were for its own account and shall act in good faith and with reasonable prudence to minimize Damages
therefrom. The Indemnified Person shall, and shall cause each of its Affiliates and Representatives to, cooperate fully with the Indemnifying Party in connection with any Third Party Claim.
(c) The Indemnifying Party shall be authorized to consent to a settlement of, or the entry of any judgment arising from, any Third Party Claims, and the
Indemnified Person shall consent to a settlement of, or the entry of any judgment arising from, such Third Party Claims, if (A) such settlement shall not encumber any of the assets of any Indemnified Person or contain any restriction or
condition that would apply to such Indemnified Person or to the
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conduct of that Persons business, (B) such settlement or entry of judgment does not contain or involve an admission or statement providing for or acknowledging any liability or
criminal wrongdoing on behalf of the Indemnified Person or any of its Affiliates, and (C) such settlement contains as a condition thereto, a complete release of the Indemnified Person. No settlement or entry of judgment in respect of any Third
Party Claim shall be consented to by any Indemnified Person without the express written consent of the Indemnifying Party.
(d) If an Indemnifying
Party makes any payment on an Indemnified Claim, the Indemnifying Party shall be subrogated, to the extent of such payment, to all rights and remedies of the Indemnified Person to any insurance benefits or other claims or benefits of the Indemnified
Person with respect to such claim.
(e) Without limiting the provisions of this
Section 7.03
, it is acknowledged and agreed that Parent
shall defend and control the Third Party Claims described in Item 5 of
Schedule A-16
(the
ASBCA Matter
). In furtherance of the foregoing, the Parties acknowledge and agree that the provisions of
Section 5.02(b)
shall apply to the ASBCA Matter. With respect to the Third Party Claim described In
Schedule A-17
(the
MSA Matter
), the Parties acknowledge and agree that the Spinco Indemnified Parties
shall keep Parent reasonably apprised of all developments with respect to such Third Party Claim and all Proceedings relating thereto, including the defense of claims in respect thereof by Mission Support Alliance, LLC, shall consult with Parent
regarding any material developments and decisions in the defense of the MSA Matter and shall consider in good faith the views of Parent in respect of the MSA Matter. Neither Spinco nor any Spinco Indemnified Party shall consent or agree to any
settlement or entry of judgment with respect to the MSA Matter (including through any approval of or consent to any action of the MSA joint venture) without the express written consent of Parent, such consent not to be unreasonably withheld,
conditioned or delayed.
Section 7.04
Limitations
. Notwithstanding anything to the contrary in this Agreement or in any of the
Transaction Documents:
(a) Each Party shall, and shall cause its Subsidiaries (and its and the Subsidiaries Representatives), to take all
reasonable steps to mitigate Damages subject to indemnification under this
Article VII
upon and after becoming aware of any event that reasonably could be expected to give rise to any such Damages, and indemnification shall not be
available under this
Article VII
to the extent any such Damages are attributable to a failure of any such Person to take reasonable steps to mitigate such Damages;
(b) No Parent Indemnified Party or Spinco Indemnified Party shall be entitled to payment or indemnification more than once with respect to the same
matter (including by being taken into account in the determination of the Final Net Working Capital Amount);
(c) No Party shall be entitled to set
off, or shall have any right of set off, in respect of any Damages under this
Article VII
against any payments to be made by such Party under this Agreement or any other Transaction Document; and
(d) Parents obligation to indemnify Spinco Indemnified Parties for Damages with respect to Assumed Liabilities pursuant to
Section 7.02(b)(iv)
is subject to the following additional limitations: (i) Parent shall only have liability to the Spinco Indemnified Parties under
Section 7.02(b)(iv)
with respect to an Assumed Liability to the
extent such Assumed Liability was the subject of a written notice given by a Spinco Indemnified Party pursuant to and in compliance with
Section 7.03(a)
on or prior to the first anniversary of the Distribution Date; (ii) Parent
shall have no liability under
Section 7.02(b)(iv)
with respect to any Assumed Liability to the extent of any amounts reserved or accrued on the Balance Sheet or taken into account in the determination of the Final Net Working Capital
Amount (it being understood that any such reserved or accrued amounts also shall not be counted for purposes of determining whether the Deductible contemplated in clause (iii) has been satisfied); (iii) Parent shall have no Liability under
Section 7.02(b)(iv)
with respect to any claim (including any Damages) until the aggregate amount of all Damages under
Section 7.02(b)(iv)
exceeds $100,000,000 (the
Deductible
), at which point the Spinco
Indemnified Parties shall be entitled to indemnification only for those Damages in excess of the Deductible; and (iv) in no event shall the obligation of Parent to indemnify Spinco Indemnified Parties pursuant to
Section 7.02(b)(iv)
exceed $400,000,000 in the aggregate.
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Section 7.05
Reimbursement of Damages
.
(a) Spinco shall use reasonable best efforts to obtain reimbursement of any and all Damages suffered by any Spinco Company that are subject to
indemnification by Parent hereunder as a reimbursable cost under Government Contracts to the extent such Damages are reimbursable in accordance with Applicable Law. To the extent a Spinco Company is reimbursed for any cost under a Government
Contract in respect of a matter where a Spinco Indemnified Party has been indemnified under this
Article VII
, the Spinco Company shall remit such reimbursement to Parent promptly thereafter.
(b) Parent shall use reasonable best efforts to obtain reimbursement of any and all Damages suffered by any Parent Company that are subject to
indemnification by Spinco hereunder as a reimbursable cost under Government Contracts to the extent such Damages are reimbursable in accordance with Applicable Law. To the extent a Parent Company is reimbursed for any cost under a Government
Contract in respect of a matter where a Parent Indemnified Party has been indemnified under this
Article VII
, the Parent Company shall remit such reimbursement to Spinco promptly thereafter.
ARTICLE VIII
FURTHER ASSURANCES AND
ADDITIONAL COVENANTS
Section 8.01
Further Assurances
. Subject to the terms and conditions of this Agreement, before and after the
Distribution each Party shall use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper, advisable or desirable under any Applicable Law, to consummate or implement the
Contemplated Transactions, including providing information reasonably requested by other Persons necessary for such Persons to evaluate whether to consent to the assignment of any Contracts or permits or related rights or obligations and seeking any
such consents;
provided
,
however
, that the foregoing shall not be deemed to require either Party to waive compliance by the other Party and its Affiliates of its respective covenants or obligations under this Agreement or to waive any
conditions precedent required to be satisfied by the other Party. Parent and Spinco shall execute and deliver, and shall cause Parent Companies and Spinco Companies, respectively, as appropriate or required and as the case may be, to execute and
deliver, such other documents, certificates, agreements and other writings and to take such other actions as may be necessary, proper, advisable or desirable to consummate or implement the Contemplated Transactions. In furtherance and not in
limitation of the foregoing, to the extent a Transaction Document provides for a Parent Company (other than Parent) or another Spinco Company (other than Spinco) to take or refrain from taking any action, Parent shall cause every other Parent
Company, and Spinco shall cause every other Spinco Company, to abide by the terms of the Transaction Document as if each such Party and Parent Company or Spinco Company, as the case may be, was a signatory to the Transaction Documents. Except as
otherwise expressly set forth in the Transaction Documents, nothing in this
Section 8.01
or in any other provision of this Agreement shall require any Parent Companies or Spinco Companies to make any payments in order to obtain any
consents or approvals necessary, proper, advisable or desirable in connection with the consummation of the Contemplated Transactions.
Section 8.02
Novation of Government Contracts
.
(a) Promptly following the Distribution Effective Time, Spinco (or another Spinco Company designated by Spinco) shall, in accordance with, and to the
extent required by the Federal Acquisition Regulation Part 42, Subpart 42.12, submit in writing to its Defense Contract Executive and each responsible contracting officer a request that the U.S. Government recognize Spinco (or the
applicable Spinco Company) as the successor in interest to all of the Government Contracts constituting Transferred Assets being assigned, transferred and conveyed to Spinco (or the applicable Spinco Company) in accordance with the Transaction
Documents. Parent shall promptly provide Spinco, its Defense Contract Executive and each responsible contracting officer all information and documentation necessary to obtain, to the extent required by the Federal Acquisition Regulation
Part 42, Subpart 42.12, the consent of the U.S. Government to recognize Spinco as the successor in interest to the Government Contracts being sold, assigned, transferred and conveyed to Spinco in accordance with the Transaction Documents.
Each of Spinco and Parent shall enter into novation agreements (the
Spinco Novation Agreements
) with respect to such Government Contracts substantially in the form contemplated by such regulations. Each of Spinco and Parent shall
use reasonable best efforts, and shall cooperate with the other, to obtain all consents, approvals and waivers required for the purpose of processing, entering into and completing the Spinco Novation Agreements with regard to such Government
Contracts, including responding promptly to any requests for relevant information by the U.S.
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Government with regard to such Spinco Novation Agreements,
provided
that such information is reasonably available to Parent. On the Distribution Date, Spinco (or applicable Spinco
Companies) and Parent (or applicable Parent Companies) shall enter into the Subcontract Pending NovationParent to Spinco, pursuant to which Spinco Companies shall assume and perform all obligations under such Government Contracts pending entry
into such Spinco Novation Agreements. The Parties acknowledge and agree that, in respect of Government Contracts, the Subcontract Pending NovationParent to Spinco constitutes the mutually agreeable arrangement contemplated by
Section 2.03(a)
.
(b) Promptly following the Distribution Effective Time, Parent (or another Parent Company designated by Parent) shall,
in accordance with, and to the extent required by the Federal Acquisition Regulation Part 42, Subpart 42.12, submit in writing to its Defense Contract Executive and each responsible contracting officer a request that the U.S. Government
recognize Parent (or the applicable Parent Company) as the successor in interest to all of the Government Contracts constituting Excluded Assets being assigned, transferred and conveyed to Parent (or the applicable Parent Company) in accordance with
the Transaction Documents. Spinco shall promptly provide Parent, its Defense Contract Executive and each responsible contracting officer all information and documentation necessary to obtain, to the extent required by the Federal Acquisition
Regulation Part 42, Subpart 42.12, the consent of the U.S. Government to recognize Parent as the successor in interest to the Government Contracts being assigned, transferred and conveyed to Parent in accordance with the Transaction
Documents. Each of Parent and Spinco shall enter into novation agreements (the
Parent Novation Agreements
) with respect to such Government Contracts substantially in the form contemplated by such regulations. Each of Parent and
Spinco shall use reasonable best efforts, and shall cooperate with the other, to obtain all consents, approvals and waivers required for the purpose of processing, entering into and completing the Parent Novation Agreements with regard to such
Government Contracts, including responding promptly to any requests for relevant information by the U.S. Government with regard to such Parent Novation Agreements,
provided
that such information is reasonably available to Spinco. On the
Distribution Date, Parent (or applicable Parent Companies) and Spinco (or applicable Spinco Companies) shall enter into the Subcontract Pending NovationSpinco to Parent, pursuant to which Parent Companies shall assume and perform all
obligations under such Government Contracts pending entry into such Parent Novation Agreements. The Parties acknowledge and agree that, in respect of Government Contracts, the Subcontract Pending NovationSpinco to Parent constitutes the
mutually agreeable arrangement contemplated by
Section 2.04(a)
.
(c) Following the Distribution Effective Time, in the event any member
of a Partys Group remains a party to any contract with any Governmental Authority (the
Contract Party
), which contract is to be novated to a member of the other Partys Group (the
Novation Party
)
following the Distribution Effective Time in accordance with this Agreement, the Contract Party shall take all reasonable measures necessary to maintain any security clearances required to be maintained pursuant to or in connection with such
agreement until such contract is novated to the applicable member of the Novation Partys Group in accordance herewith.
(d) The Parties
acknowledge that it may not be practicable to seek the novation pursuant to
Section 8.02(a)
or
Section 8.02(b)
in respect of Inactive Contracts. Accordingly, unless required by the applicable Governmental Authority, the
Parties agree not to seek novation of Inactive Contracts under
Section 8.02(a)
or
Section 8.02(b)
, notwithstanding the fact that Assets and Liabilities in respect of such Contracts relating to the Spinco Business are
Transferred Assets and Assumed Liabilities, respectively, and the fact that Assets and Liabilities in respect of such Contracts relating to a Parent Business that are in the name of a Spinco Company are Excluded Assets and Excluded Liabilities,
respectively.
(e) If and to the extent consent of a Governmental Authority that is not part of the U.S. Government is required, or a novation
comparable to the novations contemplated by
Section 8.02(a)
or
Section 8.02(b)
is required by a Governmental Authority that is not part of the U.S. Government, the Parties shall use reasonable best efforts to obtain such
consent or novation, including efforts comparable to those contemplated in
Section 8.02(a)
or
Section 8.02(b)
in respect of Government Contracts and those contemplated by
Section 2.03
or
Section 2.04
.
(f) The Parties shall cooperate concerning the filing, prosecution and intervention in bid protests arising from or in connection with Government
Bids. To the extent necessary or appropriate, Parent shall, and shall cause all Parent Companies, to take such bid protest actions on behalf of Spinco, subject to Parents exercise of reasonable discretion (after consulting with outside
counsel) that it has satisfied its obligations under Applicable Law prior to the filing, prosecution and intervention in such bid protests.
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Section 8.03
Certain Government Contract Matters
.
(a) From and after the Distribution Date, with respect to any Government Contracts assigned, transferred and conveyed to the Spinco Companies under
the Transaction Documents, Spinco shall allow any Governmental Authority to offset any Settlement Liability related to such Government Contracts against payments otherwise owed by such Governmental Authority after the Distribution, and/or promptly
reimburse Parent for Spincos
pro rata
portion of any Settlement Liabilities of Parent paid or to be paid to any Governmental Authority by Parent in respect of such Government Contracts, with such
pro rata
portion calculated in a
manner consistent with Parents business practices prior to the Distribution. For the avoidance of doubt, Spinco shall indemnify or otherwise compensate Parent for any and all future Liabilities associated with audit adjustments of allocations
related to or associated with the Assumed Liabilities and/or Transferred Assets.
(b) From and after the Distribution Date, with respect to any
Government Contracts assigned, transferred and conveyed to the Parent Companies under the Transaction Documents, Parent shall allow any Governmental Authority to offset any Settlement Liability related to such Government Contracts against payments
otherwise owed by such Governmental Authority after the Distribution, and/or promptly reimburse Spinco for Parents
pro rata
portion of any Settlement Liabilities of Spinco paid or to be paid to any Governmental Authority by Spinco in
respect of such Government Contracts, with such
pro rata
portion calculated in a manner consistent with Parents business practices between the date of this Agreement and the Distribution Effective Time. For the avoidance of doubt,
Parent shall indemnify or otherwise compensate Spinco for any and all future Liabilities associated with audit adjustments of allocations not related to or associated with the Assumed Liabilities or Transferred Assets.
(c) The Parties agree to take the actions contemplated by the Contract Close-Out Protocol set forth in
Attachment X
.
Section 8.04
Non-Solicitation of Employees
.
(a) For a period of 18 months after the Distribution Date, neither Spinco nor any of its Affiliates shall, without the prior written approval of
Parent, directly or indirectly solicit any non-administrative employee of any Parent Company to terminate his or her employment relationship with Parent or any of its Subsidiaries;
provided
,
however
, that the foregoing shall not apply
to any employee hired as a result of the use of an independent employment agency (so long as the agency was not directed to solicit a particular individual or a class of individuals that could only be satisfied by employees of a Parent Company) or
as a result of the use of advertisements and other general solicitation (such as an advertisement in newspapers, on Spinco websites or internet job sites, or on radio or television) not specifically directed to employees of a Parent Company.
(b) For a period of 18 months after the Distribution Date, neither Parent nor any of its Affiliates shall, without the prior written approval of Spinco,
directly or indirectly solicit any non-administrative employee of the Spinco Business as of the Distribution Date to terminate his or her employment relationship with Spinco or any of its Subsidiaries;
provided
,
however
, that the
foregoing shall not apply to any employee hired as a result of the use of an independent employment agency (so long as the agency was not directed to solicit a particular individual or a class of individuals that could only be satisfied by employees
of the Spinco Business) or as a result of the use of advertisements and other general solicitation (such as an advertisement in newspapers, on Parent websites or internet job sites, or on radio or television) not specifically directed to employees
of the Spinco Business.
Section 8.05
Insurance; Financial Support Arrangements
.
(a) Except as otherwise may be agreed in writing by the Parties, Parent shall not have any obligation to maintain any form of insurance covering
all or any part of the Transferred Assets, the Spinco Business or the employees thereof after the Merger Effective Time or to make any monetary payment in connection with any such policy.
(b) On and after the Distribution Date, Spinco shall reimburse Parent, within 30 days of receipt of an invoice, for any self-insurance, retention,
deductible or retrospective premium, including any allocated loss adjustment or similar expenses (all such Liabilities, collectively, the
Insurance Liabilities
) allocated to the Spinco Business by Parent on a basis consistent with
past practices resulting from or arising under any and all current or former insurance
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policies maintained by Parent Companies, including in connection with workers compensation arrangements, to the extent that such Insurance Liabilities relate to or arise out of the Spinco
Business, any Assumed Liabilities or any activities of the Spinco Companies. Spinco agrees that, to the extent any of the insurers under the insurance policies, in accordance with the terms of the insurance policies, requests or requires collateral,
deposits or other security to be provided with respect to claims made against such insurance policies relating to or arising out of the Spinco Business, any Assumed Liabilities or any activities of the Spinco Companies, Spinco shall provide the
collateral, deposits or other security or, upon request of Parent, will replace any collateral, deposits or other security provided by Parent or any of its Affiliates to the extent related to or arising out of the Spinco Business, any Assumed
Liabilities or any activities of the Spinco Companies.
(c) Spinco agrees that, not later than 60 days after the Distribution Date, and in a manner
reasonably satisfactory to Parent, Spinco shall in good faith seek to have Parent and its Subsidiaries released, effective as of the Distribution Date, from all obligations under the Parent Financial Support Arrangements set forth on
Schedule 8.05(c).
In furtherance of the foregoing, Spinco agrees (i) to provide substitute Financial Support Arrangements on terms and conditions reasonably satisfactory to the beneficiaries thereof as soon as practicable following
the Distribution Date and (ii) to provide financial information concerning the Spinco Companies and any guarantor as may be requested by those Persons for whose benefit the Parent Financial Support Arrangements were made.
(d) For any claim asserted against Spinco or any Spinco Company after the Distribution Effective Time arising out of an occurrence taking place prior to
the Distribution Effective Time (
Post-Closing Claims
), Spinco and each Spinco Subsidiary may access coverage under the occurrence-based insurance policies of Parent or its Subsidiaries (as applicable) issued or in place prior to
the Distribution Effective Time under which Spinco or any Spinco Subsidiary is insured (the
Pre-Closing Occurrence Based Policies
), to the extent such insurance coverage exists. After the Distribution Effective Time, the Spinco
Companies may seek coverage for any Post-Closing Claim under any applicable Pre-Closing Occurrence Based Policies, to the extent such insurance coverage exists, and Parent and its Subsidiaries (as applicable) shall cooperate with Spinco and the
Spinco Subsidiaries in connection with the tendering of such claims;
provided
,
however
, that: (i) Spinco or the Spinco Subsidiaries shall promptly notify Parent of all such Post-Closing Claims; and (ii) Spinco shall be
responsible for the satisfaction or payment of any applicable retention, deductible or retrospective premium with respect to any Post-Closing Claim and shall reimburse to Parent and its Subsidiaries all reasonable out of pocket costs and expenses
incurred in connection with such claims. In the event that a Post-Closing Claim relates to the same occurrence for which Parent or its Subsidiaries is seeking coverage under Pre-Closing Occurrence Based Policies, and the limits under an applicable
Pre-Closing Occurrence Based Policy are not sufficient to fund all covered claims of Spinco or any Spinco Subsidiary (as applicable) and Parent or its Subsidiaries (as applicable), amounts due under such a Pre-Closing Occurrence Based Policy shall
be paid to the respective entities in proportion to the amounts which otherwise would be due were the limits of liability infinite.
(e) Parent
shall maintain in effect for not less than six years after the Merger Effective Time, by prepaid run-off, tail coverage endorsement or otherwise (including, by continuing to provide coverage under Parent existing policies), the coverage
provided by directors and officers liability and fiduciary liability insurance under which Spinco and the Spinco Subsidiaries are insured as of immediately prior to the Merger Effective Time;
provided
,
however
, that Parent
may substitute prepaid policies of at least the same coverage containing terms and conditions that are no less advantageous to Spinco or any Spinco Subsidiary so long as such substitution does not result in gaps or lapses in coverage with respect to
matters occurring prior to the Merger Effective Time.
(f) If, at any time after the Distribution Date, (i) any amounts are drawn on or paid
under any Parent Financial Support Arrangement pursuant to which Parent or any of its Affiliates is obligated to reimburse the Person making such payment or (ii) Parent or any of its Affiliates pays any amounts under, or any fees, costs or
expenses relating to, any Parent Financial Support Arrangement, Spinco shall reimburse Parent such amounts promptly after receipt from Parent of notice thereof. If, at any time after the Distribution Date, (i) any amounts are drawn on or paid
under any Spinco Financial Support Arrangement pursuant to which Spinco or any of its Affiliates is obligated to reimburse the Person making such payment or (ii) Spinco or any of its Affiliates pays any amounts under, or any fees, costs or
expenses relating to, any Spinco Financial Support Arrangement, Parent shall reimburse Spinco such amounts promptly after receipt from Spinco of notice thereof.
Section 8.06
Lockbox Accounts
. On and after the Distribution Date, Parent shall take such actions as may be reasonable under the
circumstances to transfer to Spinco from time to time any payments in respect of accounts
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receivable constituting Transferred Assets received by Parent Companies in any lockbox or similar bank account of a Parent Company. On and after the Distribution Date, Spinco shall take such
actions as may be reasonable under the circumstances to transfer to Parent from time to time any payments in respect of accounts receivable constituting Excluded Assets received by Spinco Companies in any lockbox or similar bank account of a Spinco.
Section 8.07
Bulk Sales Laws
. Each Party, on behalf of itself and each of the other members of its Group, hereby waives compliance with
the requirements and provisions of all Applicable Laws in respect of bulk sales or bulk transfers in any jurisdiction that may be applicable to any of the Contemplated Transactions.
Section 8.08
Casualty and Condemnation
. If, between the date of this Agreement and the Distribution Effective Time, there shall occur any
physical damage to or destruction of, or theft or similar loss of, any Transferred Assets (a
Casualty Loss
) or any condemnation or taking by eminent domain by a Governmental Authority of any asset that would constitute Transferred
Assets if in existence at the Distribution Effective Time (a
Condemnation Event
), then (a) Parent shall use commercially reasonable efforts consistent with past practice to (i) replace or repair, as applicable, such
asset, and (ii) replace the asset that has been condemned or taken as necessary consistent with prudent operation of the Spinco Business or (b) if the Distribution is consummated notwithstanding such Casualty Loss or Condemnation Event,
and if such damaged, destroyed, stolen, lost or condemned or taken assets have not been repaired or replaced as of the Distribution Effective Time, then, promptly after any casualty insurance proceeds, business interruption insurance proceeds or
condemnation proceeds payable to Parent or any of its Subsidiaries with respect to such Casualty Loss or Condemnation Event that constitute Transferred Assets have been collected, Parent shall, or shall cause its Subsidiaries to, pay to Spinco any
such amounts constituting Transferred Assets.
ARTICLE IX
EMPLOYEE AND EMPLOYEE BENEFITS MATTERS
Section 9.01
Employee and Employee Benefit Matters
. The Parties agree as to employee and employee benefit matters as set forth in the
Employee Matters Agreement. In the event of any inconsistency regarding employee and employee benefit matters between the Employee Matters Agreement and this Agreement, the Employee Matters Agreement shall govern to the extent of the inconsistency.
ARTICLE X
TAX MATTERS
Section 10.01
Tax Matters
. Neither this Agreement nor any Ancillary Agreement shall govern Tax matters (including any administrative,
procedural and related matters thereto,
Tax Matters
), except as otherwise expressly provided herein or therein. Tax Matters shall be exclusively governed by the Tax Matters Agreement and the Employee Matters Agreement.
ARTICLE XI
TRANSITION SERVICES
Section 11.01
Transition Services AgreementParent to Spinco
. From and after the Distribution Effective Time, Parent agrees to provide
transition services to Spinco as set forth in the Transition Services AgreementParent to Spinco. In the event of any inconsistency regarding transition service matters between the Transition Services AgreementParent to Spinco and this
Agreement, the Transition Services AgreementParent to Spinco shall govern to the extent of the inconsistency.
Section 11.02
Transition Services AgreementSpinco to Parent
. From and after the Distribution Effective Time, Spinco agrees to provide transition services to Parent as set forth in the Transition Services AgreementSpinco to Parent. In the event
of any inconsistency regarding transition services matters between the Transition Services AgreementSpinco to Parent and this Agreement, the Transition Services AgreementSpinco to Parent shall govern to the extent of the inconsistency.
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Section 11.03
Separation Planning and Day-One Readiness
.
(a) The Parties shall cooperate in good faith to design a plan consistent with the Internal Reorganization (the
Separation/Migration
Plan
) or the separation of the Spinco Businesss computer systems, infrastructure, databases, software, facilities or networks or other information technology (collectively,
Systems
) from Parent and its
Affiliates Systems (
Systems Separation
), and extraction and movement of Data and other information constituting Transferred Assets (
Spinco Data
) from Parent and its Affiliates Systems to the Spinco
Companies Systems, and the extraction and movement of Data and other information constituting Excluded Assets (
Parent Data
) from the Spinco Companies Systems to Parent and its Affiliates Systems (collectively,
the
Data Migration
). Without limiting the foregoing, for the purpose of allowing and enabling the Spinco Companies to prepare to receive transfer of the Transferred Assets on the Distribution Date and operate the Spinco Business
on the Distribution Date (
Day-One Readiness
), and for the purpose of allowing and enabling Parent and Spinco to design plans for, and to prepare for, the Systems Separation, as soon as practicable after the date of this Agreement,
Parent shall prepare in good faith a comprehensive plan for Day-One Readiness, which shall provide a reasonable structure and design for the segregation of the Spinco Business within Parents Systems prior to the Distribution Effective Time to
the extent necessary to protect and limit access to sensitive or proprietary data, the purpose and reasonably expected effect of which is intended to ensure the uninterrupted continuation of the Spinco Business on and after the Distribution Date and
to enable the Spinco Companies to receive transfer of the Transferred Assets and operate the Spinco Business upon the Distribution (the
Day-One Plan
). Each Party shall use its reasonable best efforts to implement the tasks
contemplated to be taken by it in the Day-One Plan on the terms and conditions, and within the scheduled time periods, outlined in the Day-One Plan;
provided
that the Parties acknowledge that the time periods set forth in the Day-One Plan may
shift based on various factors that arise after the development of the Day-One Plan.
(b) To the extent that, as of the Distribution Date, any of
the actions, deliverables or plans contemplated under the Day-One Plan have not been accomplished, the Parties shall cooperate in good faith and use all reasonable efforts to design and implement one or more workaround solutions so as to ensure the
uninterrupted continuation of the Spinco Business on and after the Distribution Date.
ARTICLE XII
SUPPLY AGREEMENTS
Section 12.01
Supply AgreementParent to Spinco
. From and after the Distribution Effective Time, Parent agrees to provide to Spinco the products and services set forth in the Supply AgreementParent to Spinco. In the event of any inconsistency
between the Supply AgreementParent to Spinco and this Agreement, the Supply AgreementParent to Spinco shall govern to the extent of the inconsistency.
Section 12.02
Supply AgreementSpinco to Parent
. From and after the Distribution Effective Time, Spinco agrees to provide to Parent the
products and services set forth in the Supply AgreementSpinco to Parent. In the event of any inconsistency between the Supply AgreementSpinco to Parent and this Agreement, the Supply Agreement Spinco to Parent shall govern to the
extent of the inconsistency.
ARTICLE XIII
INTELLECTUAL PROPERTY MATTERS
Section 13.01
Intellectual Property Matters
.
(a) The Parties agree as to intellectual property matters as set forth in the Intellectual Property Matters Agreement. In the event of any inconsistency
regarding intellectual property matters between the Intellectual Property Matters Agreement and this Agreement, the Intellectual Property Matters Agreement shall govern to the extent of the inconsistency.
(b) The Parties acknowledge and agree that Parent shall have the right to designate the Spinco Company recipient of all intellectual property rights
conveyed and licensed under this Agreement and the Transaction Documents;
provided
that nothing in this
Section 13.01(b)
shall limit the ability of the Spinco Companies to use such intellectual property rights in accordance with
the terms and conditions of the applicable Transaction Documents.
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ARTICLE XIV
REAL PROPERTY AND RELATED MATTERS
Section 14.01
Transferred Owned Real Property
. Effective prior to the Distribution Effective Time, Parent shall transfer by quitclaim deed
the Transferred Owned Real Property to Spinco or another Spinco Company designated in writing by Spinco. The Parties shall cooperate with each other and use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary or desirable to effect the lease, effective immediately prior to the Distribution Effective Time, of certain portions of the Transferred Owned Real Property back to Parent, on the terms and conditions contemplated by the
applicable Leaseback Term Sheet with respect thereto.
Section 14.02
Transferred Leased Real Property
. Subject to the provisions of this
Section 14.02
, the Parties shall cooperate with each other and use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable to effect the assignment of the
leases for the Transferred Leased Real Property by Parent or the applicable Affiliated Transferor, as the case may be, to Spinco or Spinco Companies designated by Spinco and to enter into an Assignment and Assumption of Lease Agreement with respect
to each lease for the Transferred Leased Real Property. The Parties shall cooperate with each other and use reasonable best efforts to obtain any consents or approvals required in connection with the assignment of the leases for the Transferred
Leased Real Property from the Parent Companies to the Spinco Companies and, upon the election of Parent, to obtain from the applicable landlords or other third parties the full release of Parent Companies from all liabilities and obligations under
the leases in respect of such Transferred Leased Real Property. If any landlord of any Transferred Leased Real Property is unwilling to release Parent or its Affiliated Transferor from all liabilities and obligations under the lease relating to such
Transferred Leased Real Property, then (i) Spinco shall (A) indemnify the Parent Indemnified Parties against, and hold them harmless from, any and all Damages arising out of, resulting from or related to Spincos breach of or default
of the lease for such Transferred Leased Real Property, or other failure to perform and discharge Spincos liabilities and obligations under such lease, and (B) at the option of Parent, post a letter of credit, standby letter of credit,
guaranty or other Financial Support Arrangement reasonably acceptable to Parent in support of Spincos liabilities and obligations under such lease in an amount sufficient to reimburse Parent for any unpaid rent (including accelerated rent),
fees, penalties or other amounts that may be assessed against Parent in the event of Spincos breach of or default of such lease or other failure to perform and discharge Spincos liabilities and obligations under such lease, and
(ii) at the option of Parent, in lieu of assignment of the lease for such Transferred Leased Real Property, Parent or its applicable Affiliated Transferor and Spinco or another Spinco Company designated by Spinco shall execute and deliver a
sublease agreement for the sublease by Spinco or such Spinco Company of such Transferred Leased Real Property in a form and on such terms and conditions as shall be reasonably acceptable to Parent. In the event that any landlord of any Transferred
Leased Real Property is unwilling to release Parent or its Affiliated Transferor from all liabilities and obligations under the lease relating to such Transferred Leased Real Property, Spinco shall not be entitled to exercise any renewal term,
renewal option or otherwise extend any such lease under any provision thereof in any way beyond the term in effect immediately prior to the Distribution Effective Time and such lease shall terminate at the end of the lease term then in effect.
Notwithstanding the foregoing sentence, nothing shall prohibit Spinco from negotiating a new lease with such landlord for such Transferred Leased Real Property. Notwithstanding the foregoing, nothing in this
Section 14.02
shall require
any party to make any payments in order to obtain such consents, approvals or releases, except for reasonable and customary costs to cover actual expenses incurred by landlords to process any requests for assignment and except for payments expressly
contemplated by the leases of such Transferred Leased Real Property.
Section 14.03
Leased Facilities
. Subject to the provisions of this
Section 14.03
, the Parties shall cooperate with each other and use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable to effect the lease, effective
immediately prior to the Distribution Effective Time, of the Leased Premises to Spinco, or to Spinco Companies designated by Spinco, on the terms and conditions set forth on the applicable Lease Term Sheet with respect thereto.
Section 14.04
Subleased Facilities
. Subject to the provisions of this
Section 14.04
, the Parties shall cooperate with each other
and use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable to effect the sublease, effective immediately prior to the Distribution Effective Time, of the Subleased
Premises by Parent or the applicable Affiliated Transferor, as the case
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may be, to Spinco or other Spinco Companies designated by Spinco on the terms and conditions contemplated by the applicable Sublease Term Sheet with respect thereto. The Parties shall cooperate
with each other and use reasonable best efforts to obtain any consents or approvals required in connection with the partial sublease of the leases to the Subleased Facilities to Spinco Companies. Any sublease for Subleased Premises shall be
subordinate to the master lease for such subleased premises under which Parent or the applicable Affiliated Transferor is the tenant. Neither Parent nor any Affiliated Transferor shall have any obligation to renew, exercise any option to renew or
extend or otherwise extend the master lease in any way beyond the term in effect immediately prior to the Distribution Effective Time and in the event that the master lease terminates for any reason, the sublease for any such Subleased Premises
shall likewise terminate. In the event that Parent or the applicable Affiliated Transferor renews, exercises any option to renew or otherwise extends the master lease, the sublease for such Subleased Premises shall likewise be extended or renewed
unless otherwise mutually agreed upon by the parties thereto. Notwithstanding the foregoing, nothing in this
Section 14.04
shall require any party to make any payments in order to obtain such consents, approvals or releases, except for
reasonable and customary costs to cover actual expenses incurred by landlords to process any requests for assignment and except for payments expressly contemplated by the leases of such Subleased Facilities.
Section 14.05
Shared Facilities
. Subject to the provisions of this
Section 14.05
, the Parties shall cooperate with each other
and use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable to effect the license, effective immediately prior to the Distribution Effective Time, of the Licensed
Premises by Parent or the applicable Affiliated Transferor, as the case may be, to Spinco or other Spinco Companies designated by Spinco on the terms and conditions contemplated by the applicable Licensed Premises Term Sheet with respect thereto.
The Parties shall cooperate with each other and use reasonable best efforts to obtain any consents or approvals required in connection with the partial license under any leases to the Shared Facilities to Spinco Companies. Notwithstanding the
foregoing, nothing in this
Section 14.05
shall require any party to make any payments in order to obtain such consents, approvals or releases, except for reasonable and customary costs to cover actual expenses incurred by landlords to
process any requests for assignment and except for payments expressly contemplated by the leases of such Shared Facilities.
ARTICLE XV
TERMINATION
Section 15.01
Termination
. This Agreement shall terminate without further action at any time before the Closing upon termination of the Merger Agreement.
Section 15.02
Effect of Termination
. In the event of any termination of this Agreement pursuant to
Section 15.01
prior to the
Closing, and except as provided in the Merger Agreement, neither Party nor any of its Affiliates shall have any liability or further obligation to the other Party or any of its Affiliates under this Agreement or in respect of the transactions
contemplated hereby.
ARTICLE XVI
MISCELLANEOUS
Section 16.01
Notices
. All notices, requests and other communications to any Party hereunder shall be in writing (including telecopy or similar writing) and shall be given:
if to Parent:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Senior Vice President, General Counsel and Corporate Secretary
Telecopy: (301) 897-6013
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with a copy (which shall not constitute notice) to:
Hogan Lovells US LLP
Harbor East
100 International Drive
Suite 2000
Baltimore, Maryland 21202
Attention: Glenn C.
Campbell
Telecopy: (410) 659-2701
if to
Spinco:
Abacus Innovations Corporation
c/o
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: President
Telecopy: (301) 897-6013
with a copy (which
shall not constitute notice) to:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: Senior Vice President, General Counsel and Corporate Secretary
Telecopy: (301) 897-6013
or to such other address or telecopy
number and with such other copies, as such Party may hereafter specify for that purpose by notice to the other Party. Each such notice, request or other communication shall be effective (a) on the day delivered (or if that day is not a Business
Day, on the first following day that is a Business Day) when (i) delivered personally against receipt or (ii) sent by overnight courier, (b) on the day when transmittal confirmation is received if sent by telecopy (or if that day is
not a Business Day, on the first following day that is a Business Day), and (c) if given by any other means, upon delivery or refusal of delivery at the address specified in this
Section 16.01
.
Section 16.02
Amendments; Waivers
.
(a) This Agreement may be amended, and any provision of this Agreement may be waived if and only if such amendment or waiver, as the case may be,
is in writing and signed, in the case of an amendment, by the Parties or, in the case of a waiver, by the Party against whom the waiver is to be effective, in each case subject to the prior written consent of Merger Partner pursuant to
Section 7.15 of the Merger Agreement.
(b) No failure or delay by any Party in exercising any right, power or privilege under this Agreement
shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Except as otherwise provided herein, no action taken pursuant
to this Agreement, including any investigation by or on behalf of any Party, shall be deemed to constitute a waiver by the Party taking such action of compliance with any representations, warranties, covenants or agreements contained in this
Agreement. Any term, covenant or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but only by a written notice signed by such Party expressly waiving such term, covenant or condition. The
waiver by any Party of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder.
Section 16.03
Expenses
. Except as otherwise provided in this Agreement or any other Transaction Document, all costs and expenses incurred in
connection with the preparation and negotiation of this Agreement and the Contemplated Transactions (including costs and expenses attributable to the Transfer of the Assets as contemplated herein) shall be paid by the Party incurring such costs or
expenses.
Section 16.04
Successors and Assigns
. The provisions of this Agreement shall be binding upon and inure to the benefit of the
Parties and their respective successors and permitted assigns. No Party may assign, delegate or otherwise transfer, directly or indirectly, in whole or in part, any of its rights or obligations under this Agreement
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without the prior written consent of the other Party. Notwithstanding the foregoing, no assignment, delegation or other transfer of rights under this Agreement shall relieve the assignor of any
liability or obligation hereunder. Any attempted assignment, delegation or transfer in violation of this
Section 16.04
shall be void.
Section 16.05
Construction
. As used in this Agreement, any reference to the masculine, feminine or neuter gender shall include all genders,
the plural shall include the singular, and the singular shall include the plural. References in this Agreement to a Party or other Person include their respective successors and assigns. The words include, includes and
including when used in this Agreement shall be deemed to be followed by the phrase without limitation unless such phrase otherwise appears. Unless the context otherwise requires, references in this Agreement to Articles,
Sections, Exhibits, Schedules and Attachments shall be deemed references to Articles and Sections of, and Exhibits, Schedules and Attachments to this Agreement. Unless the context otherwise requires, the words hereof, hereby
and herein and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision hereof. Except when used together with the word either or
otherwise for the purpose of identifying mutually exclusive alternatives, the term or has the inclusive meaning represented by the phrase and/or. With regard to each and every term and condition of this Agreement, the Parties
understand and agree that, if at any time the Parties desire or are required to interpret or construe any such term or condition or any agreement or instrument subject thereto, no consideration shall be given to the issue of which Party actually
prepared, drafted or requested any term or condition of this Agreement. All references in this Agreement to dollars or $ shall mean United States dollars. Any period of time hereunder ending on a day that is not a Business
Day shall be extended to the next Business Day.
Section 16.06
Entire Agreement
. This Agreement, the other Transaction Documents and any
other agreements contemplated hereby or thereby, constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the
Parties with respect to the subject matter hereof. Except as expressly provided herein, neither this Agreement nor any provision hereof is intended to confer upon any Person other than the Parties (and their successors and permitted assigns) any
rights or remedies hereunder.
Section 16.07
Counterparts; Effectiveness
. This Agreement may be signed in any number of counterparts
(including by facsimile or PDF), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each Party hereto shall have received a
counterpart hereof signed by the other Party hereto.
Section 16.08
Governing Law
. This Agreement shall be construed in accordance with
and governed by federal law and by the laws of the State of Delaware (without regard to the choice of law provisions thereof).
Section 16.09
Consent to Jurisdiction
. Any Proceeding seeking to obtain a pre-arbitral injunction, pre-arbitral attachment or other order in aid of arbitration in connection with, this Agreement shall and may be brought in the Delaware Court of Chancery,
or, where such court does not have jurisdiction, any state or federal court within the State of Delaware (
Delaware Courts
), and each of the Parties hereby irrevocably and unconditionally consents to the exclusive jurisdiction of
the Delaware Courts (and of the appropriate appellate courts thereto) in any such Proceeding and irrevocably and unconditionally waives any objection to venue laid therein, any objection on the grounds of forum non conveniens, or any objection based
on or on account of its place of incorporation or domicile, which it may now or hereafter have to the bringing of any such Proceeding in any Delaware Court (and of the appropriate appellate courts thereto). Each party hereby irrevocably and
unconditionally consents and agrees that service or process in any such Proceeding may be served on any party anywhere in the world, whether within or without the State of Delaware, in any manner permitted by applicable law or, without limiting the
foregoing, in the manner provided for notices in
Section 16.01
.
Section 16.10
Dispute Resolution
.
(a) Any dispute, controversy or claim arising from, connected to or related, in any manner, to this Agreement, including any breach, termination,
expiration or invalidation of this Agreement, or in respect of any aspect of the Parties relationship arising from this Agreement, including their respective rights, duties and obligations to each other, whether fiduciary or otherwise, and
whether based on contract, tort, statute or otherwise (a
Dispute
) that is not, for any reason, resolved in writing amicably by the Parties within 30 days after the date of delivery of a
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request by a Party to the other Parties to the dispute for such amicable settlement, shall be resolved and decided by final and binding arbitration, pursuant to the Commercial Arbitration Rules
(
Rules
) as administered by the American Arbitration Association (the
AAA
) in force as at the date of this Agreement, except as modified herein. In the event of any conflict between the Rules and any provisions
of this Agreement, this Agreement shall govern.
(b) The legal seat of the arbitration shall be Wilmington, Delaware. Without prejudice to the legal
seat of arbitration, and for the convenience of the parties, the arbitral hearings and other proceedings shall be held in Washington, D.C., or at such other location upon which the parties to the arbitration may agree in writing.
(c) The arbitration shall be conducted in the English language.
(d) The arbitral tribunal (
Arbitral Tribunal
) shall consist of three arbitrators. The claimant(s) and respondent(s), respectively,
shall each appoint one arbitrator within 30 days of the date of delivery of the demand of arbitration, and the third arbitrator shall be appointed by the two Party-appointed arbitrators within 30 days of the date of appointment of the second
arbitrator. Any arbitrator not timely appointed as provided herein shall be appointed by the AAA. For the avoidance of doubt, each of the claimant and the respondent in the arbitration shall be permitted to consult with its respective appointed
arbitrator in connection with such arbitrators selection of the third arbitrator.
(e) The Arbitral Tribunal shall have the exclusive right to
determine the arbitrability of any Disputes.
(f) The parties shall share equally the arbitration administrative fees, the panel member fees and
costs, and any other costs associated with the arbitration. Each party shall bear its own costs and attorneys fees. The Arbitral Tribunal shall have no authority to award damages in excess of any limitations set forth in this Agreement.
(g) The Arbitral Tribunal shall be required to apply the substantive laws of the State of Delaware (without regard to the choice of law provisions
thereof that would compel the laws of another jurisdiction) in ruling upon any Dispute.
(h) The Parties agree that the dispute resolution
procedures specified in this
Section 16.10
shall be the sole and exclusive procedures for the resolution of Disputes, including all documents made a part thereof;
provided
,
however
, that any Party may seek a preliminary
injunction or other preliminary judicial relief in aid of arbitration before any court of competent jurisdiction if such action is necessary to avoid irreparable damage. Despite such action, the Parties shall continue to participate in good faith in
the procedures specified in this
Section 16.10
.
(i) Any decision or award of the Arbitral Tribunal shall be reasoned and in writing,
and shall be final and binding upon the parties to the arbitration proceeding. The Parties agree not to invoke or exercise any rights to appeal, review, vacate or impugn such decision or award by the Arbitral Tribunal, except as provided in the
Federal Arbitration Act (including Chapters 2 and 3 thereof) or the New York Convention, as applicable. The Parties also agree that judgment upon the arbitral decision or award may be entered and enforced in any court where the parties to the
arbitration proceeding or their assets may be found (to whose jurisdiction the parties consent for the purpose of entering and enforcing judgment on the arbitral decision and award) as well as any other court having jurisdiction thereof.
(j) If any prevailing party is required to retain counsel to enforce the arbitral decision or award in a court of competent jurisdiction, the Party
against whom the decision or award is made shall reimburse the prevailing party for all reasonable fees and expenses incurred and paid to said counsel for such service.
(k) The Parties agree and understand that, except as may be required by Applicable Law or any national or international stock exchange regulations
applicable to a Party, or is required to protect or pursue a legal right, every aspect concerning the process of arbitration shall be treated with the utmost confidentiality and that the arbitration procedure itself shall be confidential.
(l) The Parties agree that notifications of any proceedings, reports, communications, orders, arbitral decisions, arbitral awards, arbitral award
enforcement petitions, and any other document shall be sent as set forth in
Section 16.01
.
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(m) The parties consent that any pending or contemplated arbitration hereunder may be consolidated with any
prior arbitration arising under this Agreement or any other Transaction Document (other than the Merger Agreement or the Tax Matters Agreement) for the purposes of efficiency and to avoid the possibility of inconsistent awards. An application for
such consolidation may be made by any party to this Agreement or such other Transaction Documents to the tribunal for the prior arbitration. The tribunal to the prior arbitration shall, after providing all interested parties the opportunity to
comment on such application, order that any such pending or contemplated arbitration be consolidated into a prior arbitration if it determines that (i) the issues in the arbitrations involve common questions of law or fact, (ii) no party
to either arbitration shall be prejudiced, whether by delay or otherwise, by the consolidation, (iii) any party to the pending or contemplated arbitration which did not join an application for consolidation, or does not consent to such an
application, is sufficiently related to the parties in the prior arbitration that their interests were sufficiently represented in the appointment of the tribunal for the prior arbitral tribunal, and (iv) consolidation would be more efficient
that separate arbitral proceedings.
Section 16.11
Severability
. Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction. The application of such invalid or unenforceable provision to Persons or circumstances other than those as to which it is held invalid or unenforceable shall be valid and be enforced to the fullest extent permitted by
Applicable Law. To the extent any provision of this Agreement is determined to be prohibited or unenforceable in any jurisdiction or determined to be impermissible by any Governmental Authority, Parent and Spinco agree to use reasonable best efforts
to substitute one or more valid, legal and enforceable provisions that, insofar as practicable, implement the purposes and intent of the prohibited, unenforceable or impermissible provision.
Section 16.12
Captions
. The captions herein are included for convenience of reference only and shall be ignored in the construction or
interpretation hereof.
Section 16.13
Specific Performance
. Each Party acknowledges that, from and after the Distribution Date, money
damages would be both incalculable and an insufficient remedy for any breach of this Agreement by such Party and that any such breach would cause the other Party irreparable harm. Accordingly, each Party also agrees that, in the event of any breach
or threatened breach of the provisions of this Agreement by such Party, the other Party shall be entitled to equitable relief without the requirement of posting a bond or other security, including in the form of injunctions and orders for specific
performance, in addition to all other remedies available to such other Party at law or in equity.
Section 16.14
Interest on Payments
.
Except as otherwise expressly provided in this Agreement or any other Transaction Document, all payments by one Party to the other under this Agreement or any other Transaction Document shall be paid by company check or wire transfer of immediately
available funds to an account in the United States designated by the recipient, within 30 days after receipt of an invoice or other written request for payment setting forth the specific amount due and a description of the basis therefor in
reasonable detail. Any amount remaining unpaid beyond its due date, including disputed amounts that are ultimately determined to be payable, shall bear interest at the Interest Rate. Notwithstanding anything to the contrary contained herein or in
any other Transaction Document, in no event shall the amount or rate of interest due and payable exceed the maximum amount or rate of interest allowed by Applicable Law and, in the event any such excess payment is made or received, such excess sum
shall be credited as a payment of principal (or if no principal shall remain outstanding, shall be refunded).
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed under seal by their
respective authorized representatives on the day and year first above written.
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LOCKHEED MARTIN CORPORATION
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By:
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/s/ Gregory L. Psihas
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(SEAL)
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Name:
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Gregory L. Psihas
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Title:
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Vice President, Corporate Development
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ABACUS INNOVATIONS CORPORATION
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By:
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/s/ Stephen M. Piper
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(SEAL)
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Name:
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Stephen M. Piper
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Title:
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President
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[SIGNATURE PAGE TO SEPARATION AGREEMENT]
EXHIBIT A
DEFINITIONS
(a) The following terms have the
following meanings:
Affiliate
means, with respect to any Person, any other Person directly or indirectly controlling, controlled
by, or under common control with such specified Person. For purposes of determining whether a Person is an Affiliate, the term control shall mean the possession, directly or indirectly, of the power to direct or cause the direction of
the management and policies of a Person, whether through ownership of securities, contract or otherwise.
Affiliated Transferors
means any Affiliate of Parent (other than a Spinco Company) that either (i) owns, licenses or leases any of the assets that constitute Transferred Assets or (ii) is liable for any of the Assumed Liabilities.
Agent
means the Exchange Agent appointed pursuant to the Merger Agreement.
Allowable Cost Audit
means, with respect to any Contract, any DCAA, DCMA or other Governmental Authority audit or other negotiations
with contracting officers or other authorized representatives of any Governmental Authority.
Ancillary Agreement
means any
Transaction Document (other than this Agreement, the Merger Agreement, the Employee Matters Agreement or the Tax Matters Agreement).
Antitrust Law
has the meaning set forth in the Merger Agreement
Applicable Law
means, with respect to any Person, any federal, state, county, municipal, local, multinational or foreign statute,
treaty, law, executive order, common law, ordinance, rule, regulation, administrative order, writ, injunction, judicial decision, decree, permit or other legally binding requirement of any Governmental Authority applicable to such Person or any of
its respective properties, assets, officers, directors, employees, consultants or agents (in connection with such officers, directors, employees, consultants or agents activities on behalf of such Person).
Assets
means all assets, properties, rights, licenses, permits, Contracts, Real Property, Intellectual Property, causes of action and
business of every kind and description, wherever located, real, personal or mixed, tangible or intangible.
Assignment and Assumption
AgreementParent to Spinco
means any Bill of Sale, Assignment and Assumption Agreement or Intellectual Property Assignment Agreement to be entered into by Parent and the Affiliated Transferors and Spinco or another Spinco Company or
Spinco Companies designated in writing by Spinco in substantially the form contemplated by
Attachment IV
(or, with respect to the Intellectual Property Assignment Agreement, in a form to be mutually agreed by the Parties (subject to
Section 7.15 of the Merger Agreement)), as the same may be amended from time to time.
Assignment and Assumption AgreementSpinco
to Parent
means any Bill of Sale, Assignment and Assumption Agreement or Intellectual Property Assignment Agreement to be entered into by Spinco Companies and Parent or a Parent Company or Parent Companies designated in writing by Parent
in substantially the form contemplated by
Attachment V
(or, with respect to the Intellectual Property Assignment Agreement, in a form to be mutually agreed by the Parties (subject to Section 7.15 of the Merger Agreement)), as the
same may be amended from time to time.
Assignment and Assumption of Lease Agreement
means any Assignment and Assumption of Lease
to be entered into by Parent and the Affiliated Transferors and Spinco or another Spinco Company or Spinco Companies designated in writing by Spinco in connection with the assignment and transfer of the Transferred Leased Facilities in substantially
the form contemplated by
Attachment XXII
, as the same may be amended from time to time.
Assumed Liabilities
means
each of the following Liabilities, whether or not reflected or reserved against in the Balance Sheet or the Final Statement and whether presently in existence or arising after the date of this Agreement, but in each case excluding the Excluded
Liabilities:
(i) all trade and other accounts payable and notes payable of the Spinco Business and all Liabilities set forth on, or reflected or
referred to in, the Balance Sheet, the Final Statement or the notes to the Spinco Financial Statements,
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(ii) all Liabilities that (A) are disclosed in
Schedule A-1
or (B) are otherwise a
Liability that Spinco is expressly assuming pursuant to this Agreement or any other Transaction Document;
(iii) all Liabilities arising under or
related to (A) Contracts of the Spinco Business, including those Contracts set forth on
Schedule A-2
, whether or not such Contracts are Inactive Contracts, and whether arising prior to, on or after the Distribution Date and whether
or not novated to the Spinco Companies, including all Settlement Liabilities and Liabilities arising from or relating to the performance or non-performance of such Contracts and (B) Bids, including Government Bids, of the Spinco Business;
(iv) all Liabilities relating to those portions of the Contracts identified on
Schedule A-3
constituting Transferred Assets;
(v) all Liabilities in respect of Spinco Business Employees, Former Spinco Business Employees, and dependents and beneficiaries of such Spinco Business
Employees and Former Spinco Business Employees, including (A) Liabilities in respect of workers compensation in connection with incidents occurring prior to, on or after the Distribution Date, (B) Liabilities in respect of any
obligation of any Parent Company to indemnify, defend, or advance or reimburse expenses of, any Spinco Business Employee or Former Spinco Business Employee in connection with the Spinco Business, and (C) Liabilities under or relating to WARN or
any similar state or local law to the extent relating to or arising out of any actions taken prior to, on or after the Distribution Date, except in each case to the extent otherwise provided in the Employee Matters Agreement to be retained by
Parent;
(vi) all Liabilities in respect of Spinco Business Employees, Former Spinco Business Employees, and dependents and beneficiaries of such
Spinco Business Employees and Former Spinco Business Employees under Employee Plans and Benefit Arrangements, and all liabilities in respect of independent contractor agreements or arrangements in connection with the Spinco Business, except in each
case to the extent otherwise provided in the Employee Matters Agreement to be retained by Parent;
(vii) all Liabilities relating to errors or
omissions or allegations of errors or omissions or claims of design or other defects with respect to any product sold or service provided by the Spinco Business prior to, on or after the Distribution Date;
(viii) all Liabilities relating to warranty or similar obligations or services with respect to any product sold or service provided by the Spinco
Business prior to, on or after the Distribution Date;
(ix) all Liabilities relating to the Transferred Facilities, whether arising prior to, on or
after the Distribution Date;
(x) all Liabilities of Parent Companies and Spinco Companies under any Spinco Subsidiary Acquisition Agreement;
(xi) all Liabilities relating to workers compensation or the Occupational Safety and Health Act of 1970, as amended, and any regulations,
decisions or orders promulgated thereunder, together with any state or local law, regulation or ordinance pertaining to worker, employee or occupational safety or health in effect as the same may be amended, supplemented or superseded, whether
arising prior to, on or after the Distribution Date;
(xii) all Liabilities in respect of the Spinco Financing Arrangements, including the Spinco
Debt, and all other indebtedness for borrowed money incurred by the Spinco Companies after the Cut-Off Time and not incurred in violation of Section 6.01(a)(xv) of the Merger Agreement, and the Spinco Special Cash Payment;
(xiii) all Liabilities (A) relating to or arising out of (I) the ownership by Spinco Companies or any of their successors of the Transferred
Assets, or (II) ownership, lease, use or occupancy by the Spinco Companies of Real Property or facilities, including the ownership of the Spinco Owned Real Property, the lease of the Spinco Leased Real Property or the Leased Premises, the sublease
of the Subleased Premises or the license and use of the Licensed Premises, or (B) relating to or arising out of conditions at or affecting the Transferred Facilities or the operations of the Spinco Business that arise under or relate to
Environmental Laws, including (I) Remedial Actions, (II) personal injury, wrongful death, economic loss or property damage claims, (III) claims for natural resource damages, and (IV) claims with respect to any violations of Environmental Laws,
whether arising prior to, on or after the Distribution Date;
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(xiv) all Liabilities arising directly or indirectly from Proceedings relating to the Spinco Business or
any Transferred Assets, including in respect of any alleged tort, breach of Contract, violation or noncompliance with Applicable Law or any franchise, permit, license or similar authorization, whether arising prior to, on or after the Distribution
Date; and
(xv) and, except as otherwise expressly provided in any other Transaction Document or in this Agreement, all other Liabilities relating
to or arising out of the Transferred Assets or the operation, affairs, or conduct of the Spinco Business whether arising before, at, or after the date of this Agreement.
Balance Sheet
means the balance sheet of the Spinco Business dated as of December 31, 2015, included in the Spinco Financial
Statements.
Benefit Arrangements
means all fringe benefit plans, holiday or vacation pay, profit sharing, incentive
compensation, cafeteria plans, seniority and other policies, practices, agreements or statements of terms and conditions providing employee or executive compensation or benefits to Spinco Business Employees, Former Spinco Business Employees or any
of their respective dependents or beneficiaries, other than an Employee Plan.
Bid
means any quotation, bid or proposal made by a
Person, capable of acceptance, that if accepted or awarded would lead to a Contract legally binding upon such Person.
Books and
Records
means any books, records, files and papers, whether in written, oral, electronic or other tangible or intangible form, including books of account, invoices, engineering information, sales and promotional literature, manuals, sales
and purchase correspondence, lists of present and former suppliers, lists of present and former customers, personnel and employment records of present and former employees, documentation developed or used for accounting, marketing, engineering,
manufacturing or any other purpose.
Business Day
means a day, other than a Saturday, Sunday or other day on which commercial
banks in New York, New York are authorized or required by law to close.
Cash
means, as of any time of determination, the
consolidated cash and cash equivalents of Spinco and the Spinco Subsidiaries, including cash and cash equivalents used as collateral for Financial Support Arrangements and deposits with utilities, insurance companies and other Persons, and including
all petty cash and all deposits in transit and net of overdrafts and outstanding checks, determined in accordance with the Accounting Principles, and, for purposes of
Section 2.08
, the Excess Use Amount.
Closing
has the meaning set forth in the Merger Agreement.
Closing Cash
means Cash as of the Cut-Off Time.
Closing Date
has the meaning set forth in the Merger Agreement.
Code
means the Internal Revenue Code of 1986, as amended.
Contemplated Transactions
means the transactions contemplated by the Transaction Documents.
Contracts
means all legally binding contracts, agreements, arrangements, leases and subleases (including leases and subleases of real
property), licenses, commitments, notes, bonds, mortgages, indentures, sales and purchase orders, other instruments and other undertakings of any kind, whether written or oral, but excluding all Employee Plans and Benefit Arrangements.
Damages
means all assessments, losses, damages, costs, expenses, liabilities, judgments, awards, fines, sanctions, penalties, charges
and amounts paid in settlement, including reasonable costs, fees and expenses of attorneys, accountants and other agents or representatives of such Person (with such amounts to be determined (x) net of any refund or reimbursement of any portion
of such amounts actually received or realized, including reimbursement by way of insurance or third party indemnification and (y) net of any amounts reimbursable as allowable costs under Government Contracts in accordance with Applicable Law),
but specifically excluding (i) any
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costs incurred by or allocated to an Indemnified Person with respect to time spent by employees of the Indemnified Person or any of its Affiliates, (ii) any lost profits or opportunity
costs, or any special, punitive or consequential damages (except in any such case to the extent assessed in connection with a Third Party Claim or except to the extent such damages are the reasonable and foreseeable result of the matter in
question), (iii) the decrease in the value of any Transferred Asset to the extent that such valuation is based on any use of the Transferred Asset other than its use as of the Distribution Date, and (iv) any amount based on or taking into
account the use of any Transferred Asset other than its use as of the Distribution Date.
Data
means, whether in written, oral,
electronic or other tangible or intangible forms, stored in any medium, the following: financial and business information, including rates and pricing data and information, earnings reports and forecasts, macro-economic reports and forecasts,
marketing plans, business and strategic plans, general market evaluations and surveys, budgets, accounting, financing and credit-related information, quality assurance policies, procedures and specifications, customer information and lists, and
business and other processes, procedures and policies (including for example handbooks and manuals, control procedures, and process descriptions), including any blueprints, diagrams, flow charts, or other charts, user manuals, training manuals,
training materials, command media, and documentation, and other financial or business information;
provided
that for the avoidance of doubt, Data shall not include (x) proprietary technical data (but shall include procedures
and processes that relate to a technical matter, but that are not themselves proprietary technical data) or (y) Excluded Intellectual Property, Transferred Intellectual Property or Licensed Intellectual Property.
DCAA
means the Defense Contract Audit Agency.
DCMA
means the Defense Contract Management Agency.
Distribution Date
means the date on which the Distribution is consummated.
Distribution Effective Time
means the time established by Parent as the effective time of the Distribution, Washington, D.C. time, on
the Distribution Date.
Embodiments & Ancillary Materials
means, with respect to any Data, any and all tangible and
intangible materials embodying the same.
Employee Matters Agreement
means the employee matters agreement by and between Parent,
Spinco and Merger Partner attached hereto as
Attachment VI
, as the same may be amended from time to time.
Employee
Plan
means each employee benefit plan as defined in Section 3(3) of ERISA, maintained or contributed to by Parent or any of its Affiliates, whether in the United States or outside the United States, which provides benefits
to the Spinco Business Employees, Former Spinco Business Employees or their respective dependents or beneficiaries.
Environmental
Laws
means any and all past, present or future federal, state, county, municipal, local, multi-national and foreign statutes, treatises, laws, common laws, ordinances, rules, regulations, orders, writs, injunctions, judicial decisions,
decrees, or other legally binding requirement of any Governmental Authority that relate to protection of the environment or that impose liability for, or standards of conduct concerning, the manufacture, processing, generation, distribution, use,
treatment, storage, disposal, discharge, release, emission, cleanup, transport or handling of Hazardous Substances, including the Resource Conservation and Recovery Act of 1976, as amended, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1984, as amended, the Toxic Substances Control Act, as amended, any other so-called Superfund or Superlien laws, but excluding the
Occupational Safety and Health Act of 1970, as amended, and similar state laws.
ERISA
means the Employee Retirement Income
Security Act of 1974, as amended.
Excess Use Amount
means the amount, if any, by which the Spinco Specified Use Amount exceeds
the Spinco Financing Amount.
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Exchange Act
means the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder, as the same shall be in effect from time to time.
Excluded Assets
means each of the following
Assets:
(i) all cash and cash equivalents of Parent Companies, including cash and cash equivalents used as collateral for Parent Financial Support
Arrangements (but excluding any cash or cash equivalents constituting Final Closing Cash as provided for in
Section 2.08
) and deposits with utilities, insurance companies and other Persons;
(ii) all accounts receivable of the Spinco Business for which a Parent Company is the obligor;
(iii) all original books and records that Parent Companies shall be required to retain pursuant to any Applicable Law, or that contain information
relating to any business or activity of Parent or any of its Subsidiaries not forming a part of the Spinco Business, or any employee of a Parent or any of its Subsidiaries that is not a Spinco Business Employee;
(iv) all original employment-related books and records relating to Spinco Business Employees and all books and records relating to Employee Plans and
Benefit Arrangements;
(v) all Tax records relating to the Spinco Business that form part of the general ledger of any Parent Company, any work
papers of Parents auditors and any other Tax records (including accounting records) of any Parent Company;
(vi)(A) all assets of Parent or
any of its Subsidiaries not held or owned by or used exclusively in connection with the Spinco Business, except to the extent specifically identified in this
Exhibit A
as a Transferred Asset, (B) all rights, title and interests in,
to and under the Excluded Contracts, (C) all rights, title and interests in, to and under the Shared Contracts (Parent Companies), subject to the terms, conditions and limitations of the Shared Contracts Agreement Shared Contracts
(Parent Companies), (D) all rights, title and interests in, to and under the Assets identified on
Schedule A-4
, and (E) all Assets otherwise relating to or arising out of any business or operations other than the Spinco
Business;
(vii) all rights, title and interests of Parent or any of its Subsidiaries in Owned Real Property, other than (A) the Spinco Owned
Real Property, and (B) the rights of Spinco Companies in respect of the Leased Premises as contemplated by the Transaction Documents;
(viii)
all rights, title and interests in the Leased Real Property, except to the extent assigned or subleased to the Spinco Companies in accordance with this Agreement;
(ix) all rights and claims of Parent or any of its Subsidiaries (other than a Spinco Company) under any of the Transaction Documents and the agreements
and instruments delivered to Parent Companies by Spinco Companies, Merger Partner or Merger Partner Sub, or any of their respective Affiliates pursuant to any of the Transaction Documents;
(x) all notes receivable (including intercompany promissory notes) or similar claims or rights (whether or not billed or accrued and however documented)
of the Spinco Business from any Parent Companies relating to or arising out of the financing of the Spinco Business or the transfer of cash to or from the Spinco Business (but excluding, for the avoidance of doubt, any cash or cash equivalents
constituting Cash as provided for in
Section 2.08
);
(xi) except for the shares of capital stock of the Spinco Companies and the joint
venture entities as contemplated by clause (iii) of the definition of Transferred Assets, all capital stock or any other securities owned by Parent or any of its Subsidiaries;
(xii) all Parent Intellectual Property, including the Excluded Intellectual Property, and all rights to sue at law or in equity for any past, present or
future infringement, misappropriation, violation or other impairment thereof, including the right to receive all proceeds and damages therefrom, and all rights to obtain renewals, continuations, divisions or other extensions of legal protections
pertaining thereto;
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(xiii) all assets relating to Employee Plans and Benefit Arrangements, except to the extent (A) such
assets are held directly by any Spinco Subsidiary or by a trust associated with an Employee Plan or Benefit Arrangement sponsored by a Spinco Company and are exclusively applicable to employees of the Spinco Business or (B) the Employee Matters
Agreement provides for the transfer of such assets to a Spinco Company or to a trust associated with an Employee Plan or Benefit Arrangement sponsored by a Spinco Company;
(xiv) except to the extent provided in a Supply Agreement, all Intra-Lockheed Martin Work Transfer Agreements and all quotations, bids or proposals
submitted by Parent Companies or Spinco Companies in response to Requests for Intra- Lockheed Martin Quotations, and all rights and benefits in respect of other interdivision, intradivision (including purchase orders, task orders or similar
arrangements within Parents Information Systems & Global Solutions business segment, which as of January 1, 2016 includes the former Technical Services line of business of Parents Missiles & Fire Control business
segment) or Intra- Lockheed Martin agreements or arrangements such as memoranda of understanding and teaming agreements in respect of the Spinco Business;
(xv) Parents rights, title and interests in, to and under the Contracts listed on
Schedule A-3
;
provided
that as set forth in
the Assignment and Assumption Agreement, such Contracts shall be partially assigned and transferred to Spinco such that each of Parent and Spinco shall remain parties thereto and beneficiaries thereof;
(xvi) subject to the terms and conditions of
Section 2.04
, subject to the grant of the Right to Use certain Data pursuant to
Section 2.10
, and except to the extent identified in this
Exhibit A
as a Transferred Asset, all Excluded Parent Company Data;
(xvii) all Assets that are expressly contemplated by this Agreement and any other Transaction Document as Assets to be retained by any Parent Company;
and
(xviii) all assets related to Excluded Liabilities and, other than any Transferred Assets, any and all Assets of Parent and its Subsidiaries
that are used, held for use in, or related to, businesses of Parent other than the Spinco Business.
Excluded Contracts
means
(i) the Contracts identified on
Schedule A-5
and (ii) (A) the Shared Contracts (Parent Companies), subject to the terms, conditions and limitations of the Shared Contracts Agreement Shared Contracts (Parent
Companies) and (B) all rights and benefits under, subject to the terms, conditions and limitations of the Shared Contracts Agreement Shared Contracts (Spinco Companies).
Excluded Intellectual Property
means the Intellectual Property listed on Attachment II to the Intellectual Property Matters
Agreement.
Excluded Liabilities
means the following Liabilities:
(i) all Liabilities in respect of trade and other accounts payable and notes payable of the Spinco Business for which a Parent Company is the obligee;
(ii) except for obligations in respect of the Spinco Special Cash Payment, all Liabilities, whether presently in existence or arising after the
date of the Agreement, in respect of notes payable (including intercompany promissory notes) or similar obligations (whether or not billed or accrued and however documented) to Parent Companies relating to or arising out of the financing of the
Spinco Business or the transfer of cash to or from the Spinco Business;
(iii) except to the extent provided in a Supply Agreement, all Liabilities
in respect of any Intra- Lockheed Martin Work Transfer Agreements, quotations, bids or proposals submitted by Parent Companies or Spinco Companies in response to Requests for Intra- Lockheed Martin Quotations, other interdivision, intradivision
(including purchase orders, task orders or similar arrangements within Parents Information Systems & Global Solutions business segment, which as of January 1, 2016 includes the former Technical Services line of business of
Parents Missiles & Fire Control business segment) or Intra- Lockheed Martin agreements or arrangements, such as memoranda of understanding and teaming agreements in respect of the Spinco Business, in each case constituting Excluded
Assets;
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(iv) all Liabilities, whether presently in existence or arising after the date of the Agreement, relating
to fees, commissions or expenses owed to any broker, finder, investment banker, accountant, attorney or other intermediary or advisor employed by Parent Companies or the Spinco Companies in connection with the Contemplated Transactions (other than,
for the avoidance of doubt, any financing fees or expenses payable by a Spinco Company in connection with the Spinco Financing Arrangements);
(v)
all Liabilities of the Parent Companies in respect of indebtedness for borrowed money (it being understood that Liabilities in respect of the Spinco Financing Arrangements, including the Spinco Debt, and all other indebtedness for borrowed money
incurred by the Spinco Companies after the Cut-Off Time and not incurred in violation of
Section 6.01(a)(xv)
of the Merger Agreement, are not Excluded Liabilities (other than to the extent such Liabilities are Excluded Liabilities in
clause (iv) of this definition));
(vi) all Liabilities under the Excluded Contracts;
(vii) all Liabilities expressly retained or assumed by Parent Companies pursuant to the Tax Matters Agreement or the Employee Matters Agreement, and all
Liabilities contemplated by
Schedule A-16
; and
(viii) all Liabilities arising from the
activities contemplated by
Section 2.06(b)
.
Excluded Parent Company Data
means all Data of Parent Companies and the
Spinco Companies, other than Transferred Spinco Data.
Excluded Third Party Data
means all Data of any Person that is not a
Parent Company or a Spinco Company, other than Transferred Third Party Data.
Export Control Laws
means all Applicable Laws
concerning the export or reexport of products, services or technology to foreign countries or foreign persons, including the Export Administration Act of 1979, the Export Administration Regulations, any international sanctions programs promulgated
under the International Emergency Economic Powers Act, the Foreign Assets Control Regulation, the Arms Export Control Act, the ITAR, any other export controls administered by an agency of the U.S. Government, as amended and continued in force by
Executive Orders of the President regarding restrictions on trade with designated countries and Persons, restrictions administered by the United States Office of Foreign Assets Control, the antiboycott regulations administered by the United States
Department of Commerce, the Tax Reform Act of 1976 to the Internal Revenue Code, legislation and regulations of the United States and other countries implementing the North American Free Trade Agreement, European Union Controls on exports of
dual-use items and technology implemented pursuant to Council Regulation (EC) No 428/2009 and restrictions by other countries on holding foreign currency and repatriating funds, in each case as they may be amended from time to time.
Federal Acquisition Regulation
means Title 48, Chapter 1, of the United States Code of Federal Regulations.
Financial Support Arrangements
means any Liabilities of a Person in respect of any indebtedness, obligation or liability (including
assumed indebtedness, obligations or liabilities) of another Person (and, in the case of Parent, any other division or business of Parent, including the Spinco Business), including remaining Liabilities associated with indebtedness, obligations or
liabilities that are assigned, transferred or otherwise delegated to another Person, if any, letters of credit, standby letters of credit and surety bonds (including any related reimbursement or indemnity agreements), direct or indirect guarantees,
endorsements (except for collection or deposit in the ordinary course of business), notes co-made or discounted, recourse agreements, take-or-pay agreements, keep-well agreements, agreements to purchase or repurchase such indebtedness, obligation or
liability or any security therefor or to provide funds for the payment or discharge thereof, agreements to maintain solvency, assets, level of income or other financial condition, agreements to make payment other than for value received and any
other financial accommodations.
Former Spinco Business Employee
means any former employee who performed substantially all of his
or her services in connection with the Spinco Business.
GAAP
means United States Generally Accepted Accounting Principles as in
effect on the date of this Agreement.
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Government Bid
means a Bid issued by a contractor that, if accepted, would result in a
Government Contract.
Government Contract
means, with respect to any Person, any prime contract, subcontract, facility contract,
teaming agreement or arrangement, joint venture, basic ordering agreement, pricing agreement, letter contract, purchase order, delivery order, task order, modification, change order, undefinitized contract action or other contractual arrangement of
any kind, between such Person and (i) the U.S. Government, (ii) any prime contractor of the U.S. Government or (iii) any subcontractor at any tier with respect to any contract of a type described in clauses (i) or
(ii) above.
Governmental Authority
means any multinational, foreign, domestic, federal, territorial, state or local
governmental authority, quasi-governmental authority, instrumentality, court, government or self-regulatory organization, commission, tribunal or organization or any regulatory, administrative or other agency, or any political or other subdivision,
department or branch of any of the foregoing.
Group
means (i) with respect to Parent, the Parent Companies and
(ii) with respect to Spinco, the Spinco Companies.
Hazardous Substances
means (i) substances defined as
hazardous substances or hazardous waste pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or the Resource Conservation and Recovery Act of 1976, as amended,
(ii) substances defined as hazardous substances or hazardous waste in the regulations adopted pursuant to any of said laws, (iii) substances defined as toxic substances in the Toxic Substances Control
Act, as amended, and (iv) petroleum, petroleum derivatives, petroleum products, asbestos and asbestos-containing materials and any other substances or materials as regulated pursuant to Environmental Laws.
Inactive Contract
means any Contract for which performance has been completed or that has terminated, whether or not performance
under any such Contract has been completed or has terminated prior to the Distribution Date, including inactive Contracts and Contracts in the close-out process.
Intellectual Property
means all intellectual property and industrial property rights and rights in confidential information of every
kind and description throughout the world, including all foreign and domestic (i) Trademarks; (ii) inventions, discoveries and ideas, whether patentable or not, and all patents, invention, invention disclosures, and design registrations,
and applications therefor, including divisions, continuations, continuations-in-part and renewal applications, and including renewals, extensions and reissues; (iii) rights in confidential and proprietary information, trade secrets and
know-how, including processes, schematics, databases, formulae, drawings, prototypes, models, designs and customer lists, and rights in any other data; (iv) published and unpublished works of authorship, whether copyrightable or not (including
software), copyrights therein and thereto, and registrations and applications therefor, and all renewals, extensions, restorations and reversions thereof; (v) rights in IT Systems, algorithms, databases, technology supporting the foregoing, and
all documentation, including user manuals and training materials, related to any of the foregoing; and (vi) all rights in the foregoing and similar intangible assets.
Intellectual Property Matters Agreement
means the Intellectual Property Matters Agreement by and between Parent and Spinco in
substantially the form contemplated by
Attachment VII
, as the same may be amended from time to time.
Intercompany
Accounts
means any receivable, payable or loan between any member of Parents Group, on the one hand, and any member of Spincos Group, on the other hand, that exists prior to the Distribution Effective Time, except for
(i) the Spinco Special Cash Payment and (ii) any such receivable, payable or loan that arises pursuant to this Agreement or any other Transaction Document.
Interest Rate
means, on any given day, the rate per annum equal to the prime rate as published on such day in the Wall
Street Journal, Eastern Edition.
IT Systems
means computer systems (including, for clarity, computer programs, software,
databases, firmware, hardware and related documentation) and Internet websites.
ITAR
means the International Traffic in Arms
Regulations, 22 C.F.R. §§ 120-130, as amended.
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Lease Term Sheet
means, with respect to each of the Leased Premises, the summary of
terms and conditions to govern the lease of such Leased Premises by the applicable Parent Company to the applicable Spinco Company, as set forth in
Attachment XIX
;
Leaseback Facilities
means the facilities and parcels of Transferred Owned Real Property identified on
Schedule A-6
,
portions of which are contemplated to be leased to Parent (or to Parent Companies designated by Parent) under this Agreement and the Transaction Documents.
Leaseback Premises
means, with respect to each of the Leaseback Facilities, those portions of such Leaseback Facility that will be
leased to Parent (or to Parent Companies designated by Parent) under this Agreement and the Transaction Documents, as reflected on the Leaseback Term Sheet therefor.
Leaseback Term Sheet
means, with respect to each of the Leaseback Premises, the summary of terms and conditions to govern the lease
of such Leaseback Premises by the applicable Spinco Company to the applicable Parent Company, as set forth in
Attachment XXI
;
Leased Facilities
means the facilities and parcels of Owned Real Property identified on
Schedule A-7
, portions of which are contemplated to be leased to Spinco (or to Spinco Companies designated by Spinco) under this Agreement and the Transaction Documents.
Leased Premises
means, with respect to each of the Leased Facilities, those portions of such Leased Facility that will be leased to
Spinco (or to Spinco Companies designated by Spinco) as reflected on the Lease Term Sheet therefor.
Leased Real Property
means
Real Property leased by Parent or any Parent Company.
Liabilities
means all liabilities and obligations of any kind, character
or description, whether liquidated or unliquidated, known or unknown, fixed or contingent, accrued or unaccrued, absolute, determined, determinable or indeterminable, or otherwise.
Licensed Intellectual Property
means the Parent Intellectual Property licensed by Parent or its Affiliates to Spinco pursuant to the
Intellectual Property Matters Agreement, in each case excluding any of the Transferred Intellectual Property.
Licensed-Back Intellectual
Property
means the Transferred Intellectual Property licensed by Spinco to Parent under the Intellectual Property Matters Agreement.
Licensed Premises
means, with respect to each of the Shared Facilities, those portions of such Shared Facility that will be licensed
to Spinco (or to Spinco Companies designated by Spinco) under this Agreement and the Transaction Documents, as reflected on the Licensed Premises Term Sheet therefor.
Licensed Premises Term Sheets
means, with respect to each of the Licensed Premises, the summary of terms and conditions to govern the
license of such Licensed Premises by the applicable Parent Company to the applicable Spinco Company, as set forth in
Attachment XX
.
LMC Disclosure Letter
has the meaning set forth in the Merger Agreement.
Merger Effective Time
means the effective time of the Merger in accordance with the terms and conditions set forth in the Merger
Agreement.
Net Working Capital
means (i) all Transferred Assets of the Spinco Business constituting current
assets, minus (ii) all Assumed Liabilities of the Spinco Business constituting current liabilities, calculated in accordance with the Accounting Principles. For the avoidance of doubt, the assets of the Spinco Business taken into
account in the computation of Net Working Capital shall not include Cash.
NISPOM
means the National Industrial Security Program
Operating Manual (DoD 5220.22-M) issued in February 2006 and updated on March 28, 2013.
A-9
Owned Real Property
means Real Property owned by Parent or any Parent Company.
Parent Business
means the business conducted by Parent and its Affiliates, other than the Spinco Business.
Parent Common Stock
means the common stock, par value $1.00 per share, of Parent.
Parent Companies
means Parent and its Subsidiaries, other than the Spinco Companies.
Parent Company Contract Data
means all Data, other than any Transferred Spinco Data, provided or disclosed at any time prior to the
Distribution Effective Time by any Parent Company to the Spinco Business or to any personnel of the Spinco Business, or otherwise made available at any time prior to the Distribution Effective Time by any Parent Company to the Spinco Business in
connection with the bidding, proposal or performance of Contracts by the Spinco Business, including where a Parent Company is a subcontractor to the Spinco Business pursuant to Intra- Lockheed Martin Work Transfer Agreements or otherwise.
Parent Company Proprietary Information
means all confidential or proprietary information and relating to the business, operations or
affairs of Parent Companies, including (i) technical specifications, designs, drawings, technology, know-how, processes, trade secrets, inventions, proprietary data, formulae, research and development data, whether or not marked with a
restrictive legend of any Parent Company and (ii) any other data, information or documentation marked with a restrictive legend of any Parent Company, in each case provided or disclosed by any Parent Company to the Spinco Business or to any
personnel of the Spinco Business, or otherwise made available by any Parent Company to the Spinco Business for any purpose, including in connection with the performance of Contracts by the Spinco Business, including Parent Company Contract Data;
provided
that Parent Company Proprietary Information shall not include any Transferred Third Party Data, Transferred Spinco Data, Transferred Intellectual Property or Licensed Intellectual Property.
Parent Financial Support Arrangements
means Financial Support Arrangements maintained by a Parent Company for the benefit of the
Spinco Business.
Parent Intellectual Property
means, other than the Transferred Intellectual Property, all Intellectual Property
owned, licensed or otherwise used by Parent or any of its Subsidiaries, including all Licensed Intellectual Property.
Person
means an individual, a corporation, a general partnership, a limited partnership, a limited liability company, a limited liability partnership, a joint venture, an association, a trust or any other entity or organization, including a Governmental
Authority or any department or agency thereof.
Proceeding
means any proceeding (public or private), litigation, suit,
arbitration, dispute, demand, claim, action, cause of action, subpoena, inquiry or investigation before any court, grand jury, Governmental Authority or any arbitration or mediation tribunal or authority.
Real Property
means real property rights and interests of any kind or nature whatsoever.
Record Date
means the close of business on the date determined by the Board of Directors of Parent as the record date for determining
stockholders of Parent entitled to receive, as applicable, shares of Spinco Common Stock in the Distribution in the event of the One-Step Spin-Off, or entitled to participate in the Exchange Offer in the event of the Exchange Offer (and, in the case
of the Clean-Up Spin-Off, the Distribution Date).
Record Holders
means the record holders of Parent Common Stock as of the
Record Date.
Remedial Action
means the investigation, clean-up or remediation of contamination or environmental damage caused
by, related to or arising from the generation, use, handling, treatment, storage, transportation, disposal, discharge, release, or emission of Hazardous Substances, including investigations, response, removal and remedial actions under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, the Resource Conservation and Recovery Act of 1976, as amended, the Toxic Substances Control Act, and other Environmental Laws.
A-10
Representatives
means, with respect to a Person, each of its respective directors,
officers, attorneys, accountants, employees, advisors or agents.
Right to Use
means with respect to any Data, the right to use,
reproduce and modify and otherwise utilize such Data and all Embodiments & Ancillary Materials thereof.
SEC
means the
United States Securities and Exchange Commission.
Securities Act
means the Securities Act of 1933, as amended, and the rules and
regulations of the SEC thereunder, as the same shall be in effect from time to time.
Settlement Liability
means, with respect to
any Contract, any net liability computed as the total impact on the net amount to be paid upon final contract settlement, including direct and indirect costs, fees and profits for such Contract in respect of the final agreement of claims or rights
arising out of the settlement of an Allowable Cost Audit, including: (i) final indirect costs and rates for government contracts; (ii) Cost Accounting Standards (CAS) matters; (iii) defective pricing matters; or (iv) advance
agreements with the U.S. Government.
Shared Contracts
means Government Contracts that are awarded in the form of a contract
vehicle where one of more Governmental Authorities from time to time may issue requests for proposals or issue task orders to Parent or a Subsidiary of Parent, including a Spinco Company, where a member of the Parent Group and a member of the Spinco
Group, or the Spinco Business and the Parent Business, have submitted or anticipate submitting proposals to a Governmental Authority, which Shared Contracts may take any number of forms, including an indefinite delivery / indefinite quantity
contract, government-wide acquisition contract, blanket purchase agreement, General Services Administration schedule contract or similar contract vehicle.
Shared Contracts AgreementShared Contracts (Parent Companies)
means the Shared Contracts Agreement by and between Parent and
Spinco in substantially the form contemplated by
Attachment VIII
, as the same may be amended from time to time.
Shared
Contracts AgreementShared Contracts (Spinco Companies)
means the Shared Contracts Agreement by and between Parent and Spinco in substantially the form contemplated by
Attachment IX
, as the same may be amended from time to
time.
Shared Contracts (Parent Companies)
means those Shared Contracts identified on Exhibit A of the Shared Contracts
AgreementShared Contracts (Parent Companies) as Shared Contracts (Parent Companies).
Shared Contracts (Spinco Companies)
means those Shared Contracts identified on Exhibit A of the Shared Contracts Agreement Shared Contracts (Spinco Companies) as Shared Contracts (Spinco Companies).
Shared Facilities
means the facilities and parcels of Real Property identified on
Schedule A-8
, portions of which are
contemplated to be licensed to Spinco (or to Spinco Companies designated by Spinco) under this Agreement and the Transaction Documents.
Shared Parent Company Data
means any Excluded Parent Company Data to the extent provided or disclosed or otherwise made available by
any Parent Company to, and used non-exclusively (as between the Parent Business on the one hand and the Spinco Business on the other hand) by, the Spinco Business, prior to the Distribution Effective Time.
Shared Spinco Company Data
means any Transferred Spinco Data to the extent provided or disclosed or otherwise made available by any
Spinco Company to, and used non-exclusively (as between the Parent Business on the one hand and the Spinco Business on the other hand) by, the Parent Business, prior to the Distribution Effective Time.
Shared Third Party Data
means any Excluded Third Party Data to the extent provided or disclosed or otherwise made available by any
third party to, and used non-exclusively (as between the Parent Business on one hand and the Spinco Business, on the other hand) by, the Spinco Business, prior to the Distribution Effective Time.
A-11
Spinco Borrowing Amount
means $1,841,450,000.
Spinco Business
has the meaning set forth on
Attachment II
, it being understood that the Excluded Contracts shall not be
considered to be part of the Spinco Business.
Spinco Business Employee
means, collectively, (i) each employee who performs
substantially all of his or her services in connection with the Spinco Business as of the date of this Agreement, (ii) each individual hired after the date of this Agreement and before the Distribution Date who performs substantially all of his
or her services in connection with the Spinco Business and (iii) each shared services individual who, immediately before the Distribution Date, performs substantially all of his or her services in connection with the Spinco Business. Parent has
used reasonable efforts to provide to RMT Parent an accurate schedule setting forth the Spinco Business Employees as of the date of this Agreement, which schedule Parent shall use reasonable efforts to update as of the Closing.
Spinco Business Proprietary Information
means all confidential or proprietary information included in the Transferred Assets and
relating to the business, operations or affairs of the Spinco Business or any Spinco Company, including (i) technical specifications, designs, drawings, technology, know-how, processes, trade secrets, inventions, proprietary data, formulae,
research and development data, whether or not marked with a restrictive legend of the Spinco Business or any Spinco Company and (ii) any other data, information or documentation marked with a restrictive legend of the Spinco Business or any
Spinco Company, in each case retained by or otherwise in the possession or control of any Parent Company as of the Distribution Date, provided or disclosed by the Spinco Business or any Spinco Company to any Parent Company or to any personnel of any
Parent Company, or otherwise made available by the Spinco Business or any Spinco Company to any Parent Company for any purpose;
provided
, that Spinco Business Proprietary Information shall not include any Excluded Parent Company Data,
Excluded Third Party Data, or Licensed-Back Intellectual Property.
Spinco Commitment Letter
has the meaning set forth in the
Merger Agreement.
Spinco Common Stock
means the common stock, par value $.01 per share, of Spinco.
Spinco Companies
means, collectively, Spinco and the Spinco Subsidiaries.
Spinco Financial Statements
means the combined Spinco Financial Statements as defined in the Merger Agreement.
Spinco Financial Support Arrangements
means Financial Support Arrangements maintained by a Spinco Company for the benefit of the
Parent Business.
Spinco Financing Amount
means the aggregate gross proceeds (determined before giving effect to any fees,
original issue discount, underwriting discount, expenses or other amount, whether or not netted from the proceeds received by Spinco) of the Spinco Financing.
Spinco Leased Real Property
means, collectively, (i) any Real Property leased by any the Spinco Subsidiary from any third party
as of immediately prior to the Distribution Effective Time, and (ii) the Transferred Leased Real Property.
Spinco Owned Real
Property
means, collectively, (i) any Real Property owned by any Spinco Subsidiaries as of immediately prior to the Distribution Effective Time, and (ii) the Transferred Owned Real Property.
Spinco Special Cash Payment
means a cash payment from Spinco in the amount of $1,800,000,000, payable to Parent prior to the
Distribution Effective Time, subject to adjustment as provided in
Section 2.08(c)
of this Agreement and the last sentence of Section 2.04(c) of the Merger Agreement.
Spinco Specified Use Amount
means the aggregate amount of (i) the Spinco Special Cash Payment and (ii) the Spinco Specified
Financing Costs.
A-12
Spinco Specified Financing Costs
means all fees and expenses under or in connection with
the Spinco Financing to the extent payable under the terms of the Spinco Commitment Letter or any or any fee letter related thereto, including arranger fees, commitment fees, upfront fees (with any original issue discount and/or underwriting
discount or fees being deemed to be upfront fees for this purpose), interest expense for periods up to and including the Closing Date, and any amounts required to reimburse the financing sources providing the Spinco Financing, including costs of
counsel to such financing sources, in each case only to the extent paid by Spinco on or prior to the Closing Date (if any).
Spinco
Subsidiaries
means the entities listed on
Schedule A-9
.
Spinco Subsidiary Acquisition Agreement
means any share
purchase agreement, stock purchase agreement, share sale agreement, agreement and plan of merger or other similar agreement relating to the acquisition by a Parent or any of its Subsidiaries of a Spinco Subsidiary prior to the Distribution Date.
Spinco Transfer
means the contribution of the Transferred Assets pursuant to
Section 2.02
by Parent to Spinco in
consideration for the transfer of the Spinco Common Stock, the transfer to Parent of the Spinco Special Cash Payment and the assumption of the Assumed Liabilities pursuant to
Section 2.02
, in each case, in accordance with the
requirements of this Agreement.
Subcontract Pending NovationParent to Spinco
means the Subcontract Pending Novation by and
between Parent and Spinco in substantially the form contemplated by
Attachment XI
, as the same may be amended from time to time.
Subcontract Pending NovationSpinco to Parent
means the Subcontract Pending Novation by and between Parent and Spinco in
substantially the form contemplated by
Attachment XII
, as the same may be amended from time to time.
Sublease Term
Sheet
means, with respect to each of the Subleased Premises, the summary of terms and conditions to govern the sublease of such Subleased Premises by the applicable Parent Company to the applicable Spinco Company, as set forth in
Attachment XVIII
.
Subleased Facilities
means the facilities and parcels of Leased Real Property identified on
Schedule A-10
, portions of which are contemplated to be subleased to Spinco (or to Spinco Companies designated by Spinco) under this Agreement and the Transaction Documents.
Subleased Premises
means, with respect to each of the Subleased Facilities, those portions of such Subleased Facility that will be
subleased to Spinco (or to Spinco Companies designated by Spinco) under this Agreement and the Transaction Documents, as reflected on the Sublease Term Sheet therefor.
Subsidiary
means with respect to any Person, any other Person of which the specified Person, either directly or through or together
with any other of its Subsidiaries, owns more than 50% of the voting power in the election of directors or their equivalents, other than as affected by events of default.
Supply AgreementParent to Spinco
means the supply agreement by and between Parent and Spinco in substantially the form
contemplated by
Attachment XIII,
pursuant to which Parent will continue to provide goods and services to Spinco following the Distribution, as the same may be amended from time to time.
Supply AgreementSpinco to Parent
means the supply agreement by and between Parent and Spinco in substantially the form
contemplated by
Attachment XIV,
pursuant to which Spinco will continue to provide goods and services to Parent following the Distribution, as the same may be amended from time to time.
Supply Agreements
means the Supply AgreementParent to Spinco and the Supply AgreementSpinco to Parent.
Tax
or
Taxes
has the meaning set forth in the Tax Matters Agreement.
Tax-Free Status
has the meaning set forth in the Tax Matters Agreement.
A-13
Tax Matters Agreement
means the Tax sharing and indemnification agreement by and between
Parent, Spinco and Merger Partner attached hereto as
Attachment XV
, as the same may be amended from time to time.
Tax
Returns
has the meaning set forth in the Tax Matters Agreement.
Trademarks
means all trademarks, service marks,
corporate names, brand names, trade names, Internet domain names, logos, slogans, designs, trade dress and other similar identifiers of source or origin, whether registered or unregistered, together with the goodwill connected with the use of and
symbolized by any of the foregoing, including all extensions, modifications and renewals of the same.
Transaction Documents
means this Agreement, the Merger Agreement, the Employee Matters Agreement, the Tax Matters Agreement, the Transition Services AgreementParent to Spinco, the Transition Services AgreementSpinco to Parent, the Supply AgreementParent
to Spinco, the Supply AgreementSpinco to Parent, the Intellectual Property Matters Agreement, the Subcontract Pending NovationParent to Spinco, the Subcontract Pending NovationSpinco to Parent, the Shared Contracts
AgreementShared Contracts (Parent Companies), the Shared Contracts AgreementShared Contracts (Spinco Companies), any Assignment and Assumption AgreementParent to Spinco, any Assignment and Assumption AgreementSpinco to
Parent, the Assignment and Assumption of Lease Agreements, the subleases to a Spinco Company in respect of the Subleased Facilities contemplated by the Sublease Term Sheets, the leases to a Spinco Company in respect of the Leased Facilities
contemplated by the Lease Term Sheets, the licenses to a Spinco Company in respect of the Shared Facilities contemplated by the Licensed Premises Term Sheets, the lease back to a Parent Company in respect of certain Spinco Owned Real Property
contemplated by the Leaseback Term Sheets, any other documents relating to the transfer of Transferred Assets, Excluded Assets, Assumed Liabilities and/or Excluded Liabilities in contemplation of the Distribution, and any other written agreement
signed by Parent and Spinco that is expressly identified as a Transaction Document, and any exhibits or attachments to any of the foregoing, as the same may be amended from time to time.
Transferred Assets
means, other than the Excluded Assets, all of the Assets, as the same shall exist on the Distribution Date, owned,
leased, held, or licensed by Parent, any Affiliated Transferor or any Spinco Company, whether or not reflected in the books and records thereof, and used exclusively in the conduct of the Spinco Business as the same shall exist on the Distribution
Date, and including, except as otherwise specified in this Agreement, all direct or indirect right, title and interest of Parent, any Affiliated Transferor or any Spinco Company in, to and under:
(i) the rights and interests in the Spinco Owned Real Property;
(ii) the rights and interests in the Spinco Leased Real Property, subject to the terms and conditions of
Section 14.02
;
(iii) the shares of capital stock or other equity interests owned by Parent or any of its Subsidiaries, including any of the Spinco Companies, in the
Spinco Companies and in the joint venture entities listed on
Schedule A-11
;
(iv) other than Intellectual Property and rights and
interests therein (which shall constitute Transferred Assets only to the extent set forth in clause (xi) below), all personal property and interests therein, including machinery, equipment, furniture, office equipment, communications equipment,
vehicles, storage tanks, spare and replacement parts, fuel and other property (and interests in any of the foregoing) that (A) are used exclusively connection with the Spinco Business, or (B) listed on
Schedule A-12
;
(v)(A) the Contracts listed on
Schedule A-2
, (B) the Shared
Contracts (Spinco Companies), subject to the terms, conditions and limitations of the Shared Contracts Agreement Shared Contracts (Spinco Companies), (C) all rights and benefits under, subject to the terms, conditions and limitations of
the Shared Contracts Agreement Shared Contracts (Parent Companies), and (D) all Contracts (subject to clause (vi) below), including Government Contracts (including, subject to Applicable Law, the right to reference all past
performance and past experience as having been performed by the Spinco Business; for the avoidance of doubt, to the exclusion of any Parent Companys right to reference any such past performance or past experience (other than as performed by
the Parent Business) after Distribution Effective Time) and Inactive Contracts (other than Intellectual Property licenses, which
A-14
licenses shall constitute Transferred Assets only to the extent set forth in clause (xi) below, and leases of Leased Real Property, which leases shall constitute Transferred Assets only to
the extent set forth in clause (ii) above) that relate exclusively to the Spinco Business;
provided
that with respect to any Inactive Contract included in the foregoing, the Transferred Assets shall include all rights, benefits,
attributes (including all past performance and past experience on the same basis as other Government Contracts) and obligations in respect thereof, but may not include novation of the Contract itself, which is addressed in
Section 8.02
);
(vi) the Contracts listed on
Schedule A-3
;
provided
that as set forth in the Assignment and Assumption Agreement, such Contracts
shall be only partially assigned and transferred to Spinco such that each of Parent and Spinco shall remain parties thereto and beneficiaries thereof;
(vii) all Bids, including Government Bids, submitted by Parent or any of its Subsidiaries prior to the Distribution Date on behalf of the Spinco
Business;
(viii) all accounts receivable and notes receivable relating exclusively to the operation of the Spinco Business;
(ix) all expenses that have been prepaid by Parent or any of its Subsidiaries relating exclusively to the operation of the Spinco Business, including
lease and rental payments;
(x) all rights, claims, credits, causes of action or rights of set-off against Persons other than Parent Companies
relating exclusively to the Spinco Business or the Transferred Assets, including unliquidated rights under manufacturers and vendors warranties;
(xi) the Transferred Intellectual Property (including the Licensed-Back Intellectual Property), which for the avoidance of doubt shall include a Right
to Use all of the foregoing, subject to the terms, conditions and limitations of the Intellectual Property Matters Agreement, and all rights to sue at law or in equity for any past, present or future infringement, misappropriation, violation or
other impairment thereof, including the right to receive all proceeds and damages therefrom, and all rights to obtain renewals, continuations, divisions or other extensions of legal protections pertaining thereto;
(xii) all transferable franchises, licenses, permits or other authorizations issued by a Governmental Authority owned by, or granted to, or held or used
by, Parent or any of its Subsidiaries and exclusively related to the Spinco Business;
(xiii) subject to the terms and conditions of
Section 2.03
, the Transferred Third Party Data and any Books and Records to the extent comprising or containing the same which, for the avoidance of doubt, shall include a Right to Use all of the foregoing;
(xiv) subject to the grant of the Right to Use certain Data pursuant to
Section 2.10
, the Transferred Spinco Data and any Books and Records
to the extent comprising or containing the same which, for the avoidance of doubt, shall include a Right to Use all of the foregoing;
(xv)(A) all
corporate or limited liability company minute books and related stock records of the Spinco Companies, and all information and records related exclusively to the Spinco Companies used to demonstrate compliance with Applicable Law and any other
compliance records exclusively related to the Spinco Business and (B) all of the separate financial and property tax records of the members of the Spinco Companies that do not form part of the general ledger of Parent or any of its Affiliates
(other than the Spinco Companies);
(xvi) all insurance proceeds (except to the extent relating to Excluded Assets or Excluded Liabilities), net of
any retrospective premiums, deductibles, retention or similar amounts, arising out of or related to damage, destruction or loss of any Transferred Assets (or assets existing as of the date of this Agreement that would have been Transferred Assets
but for the occurrence of the event giving rise to the insurance proceeds) to the extent of any damage or destruction that remains unrepaired, or to the extent any property or asset remains unreplaced at the Distribution Date;
A-15
(xvii) those assets relating to Employee Plans and Benefit Arrangements expressly provided in the Employee
Matters Agreement to be transferred to Spinco or to a trust associated with an employee plan or benefit arrangement sponsored by Spinco; and
(xviii) subject to
Section 2.03
, except to the extent not transferable under the terms of any license related thereto, all software
programs, documentation and other related materials used or held for use exclusively in connection with the Spinco Business, including licenses from the licensor of the software, for (A) software embedded in any hardware or equipment that is a
Transferred Asset, and (B) operating system software and COTS software installed in any computer, workstation, personal digital assistant, cell phone or other communications device that is a Transferred Asset.
Transferred Facilities
means, collectively, the Spinco Owned Real Property, the Spinco Leased Real Property, the Subleased Premises
and the Licensed Premises.
Transferred Intellectual Property
means the Intellectual Property listed on Attachment I to the
Intellectual Property Matters Agreement.
Transferred Leased Real Property
means the Leased Real Property identified on
Schedule A-13
.
Transferred Owned Real Property
means the Owned Real Property identified on
Schedule A-14
.
Transferred Spinco Data
means all Data of Parent and its Subsidiaries (including the Spinco
Companies) used exclusively (as between the Parent Business on the one hand and the Spinco Business on the other hand) in the Spinco Business.
Transferred Third Party Data
means all Data of any third party other than a Parent Company or a Spinco Company that has been provided
or disclosed or otherwise made available exclusively (as between the Parent Business on the one hand and the Spinco Business on the other hand) to, or is maintained or used exclusively (as between the Parent Business on the one hand and the Spinco
Business on the other hand) by, the Spinco Business, including pursuant to Contracts of the Spinco Business (including Government Contracts).
Transition Services AgreementParent to Spinco
means the transition services agreement in the form attached as
Attachment XVI
pursuant to which Parent will provide certain services to Spinco on a transition basis following the Distribution.
Transition Services AgreementSpinco to Parent
means the transition services agreement in the form attached as
Attachment XVII
pursuant to which Spinco will provide certain services to Parent on a transition basis following the Distribution.
U.S. Government
means the federal government of the United States of America and any agencies, instrumentalities and departments
thereof.
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(b) Each of the following terms is defined in the Section set forth opposite such term:
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Term
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Section
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AAA
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16.09(a)
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Accounting Principles
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2.08(b)
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Agreement
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Preamble
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Arbitral Tribunal
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16.09(d)
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ASBCA Matter
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7.03(e)
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Casualty Loss
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8.08
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Clean-Up Spin-Off
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Recitals
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Condemnation Event
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8.08
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Consent Fee
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2.03(a)
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Contract Party
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8.02(c)
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COTS
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2.03(a)
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Cut-Off Time
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2.08(a)
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Data Migration
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11.03(a)
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Day-One Plan
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11.03(a)
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Day-One Readiness
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11.03(a)
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Deductible
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7.04(d)
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Delaware Courts
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16.09
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Dispute
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16.09(a)
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Distribution
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Recitals
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DSS
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3.01(c)
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Exchange Offer
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Recitals
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Final Closing Cash
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2.08(a)
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Final Net Working Capital Amount
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2.08(a)
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Final Statement
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2.08(a)
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Indemnified Claim
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7.03(a)
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Indemnified Person
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7.03(a)
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Indemnifying Party
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7.03(a)
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Insurance Liabilities
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8.05(b)
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Internal Reorganization
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Recitals
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Merger
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Recitals
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Merger Agreement
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Recitals
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Merger Partner
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Recitals
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Merger Partner Sub
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Recitals
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MSA Matter
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7.03(e)
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Novation Party
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8.02(c)
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One-Step Spin-Off
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Recitals
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Parent
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Preamble
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Parent Cash Distribution
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3.04(b)
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Parent Counsel
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5.05(a)
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Parent Data
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11.03(a)
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Parent Indemnified Parties
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7.02(a)
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Parent Novation Agreements
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8.02(b)
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Party or Parties
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Preamble
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Privileged Information
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5.05(b)
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Proposed Closing Cash
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2.08(a)
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Proposed Final Net Working Capital Amount
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2.08(a)
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Proposed Statement
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2.08(a)
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Rules
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16.09(a)
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Segregated Account
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3.04(b)
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Separation
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Recitals
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Separation/Migration Plan
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11.03(a)
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Spinco
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Preamble
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Spinco Data
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11.03(a)
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A-17
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Term
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Section
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Spinco Debt
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3.04(a)
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Spinco Financing Arrangements
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Recitals
|
|
Spinco Indemnified Parties
|
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7.02(b)
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|
Spinco Novation Agreements
|
|
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8.02(a)
|
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Spinco Registration Statement
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4.03(a)
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|
Systems
|
|
|
11.03(a)
|
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Systems Separation
|
|
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11.03(a)
|
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Tax Matters
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10.01
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Third Party Claim
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7.03(a)
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Third Party Proprietary Information
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2.03(c)
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Transaction Engagement
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5.05(a)
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Transaction Engagement Communications
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5.05(a)
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Unaffiliated Accounting Firm
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2.08(a)
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Undisclosable Contracts
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2.08(d)
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A-18
Annex C-1
[LETTERHEAD OF CITIGROUP GLOBAL MARKETS INC.]
January 25, 2016
The Board of Directors
Leidos Holdings, Inc.
11951 Freedom Drive
Reston, Virginia 20190
The Board of Directors:
You have requested our opinion as to the fairness, from a financial point of view, to Leidos Holdings, Inc. (Leidos) of the Exchange Ratio (defined below)
provided for pursuant to an Agreement and Plan of Merger (the Merger Agreement) proposed to be entered into among Lockheed Martin Corporation (Lockheed), Abacus Innovations Corporation, a wholly owned subsidiary of Lockheed
(Spinco), Leidos and Lion Merger Co., a direct wholly owned subsidiary of Leidos (Merger Sub), pursuant to which Leidos will acquire the government information technology infrastructure services business of Lockheed and its
subsidiaries (collectively, the Business). As more fully described in the Merger Agreement and as further described to us by representatives of Leidos, after giving effect to the Related Transactions (defined below), including the
transactions contemplated by Section 2.04(d) of the Merger Agreement, Merger Sub will be merged with and into Spinco (the Merger) and each outstanding share of the common stock, par value $0.001 per share, of Spinco (Spinco Common
Stock) will be converted into 1.020202
(the Exchange Ratio) shares of the common stock, par value $0.0001 per share, of Leidos (Leidos Common Stock), subject to adjustment (as to which we express no opinion) as
set forth in the Merger Agreement.
We understand that, pursuant to a Separation Agreement (the Separation Agreement and, together with the Merger
Agreement, the Agreements) proposed to be entered into between Lockheed and Spinco and the Merger Agreement, (i) prior to consummation of the Merger, Lockheed will effect an internal reorganization pursuant to which, among other things,
certain of the assets held, owned or used by Lockheed and its subsidiaries to conduct the Business will be transferred to, and certain liabilities associated with the Business will be assumed by, Spinco and its subsidiaries (such reorganization,
together with the other reorganization steps contemplated by the Separation Agreement, the Internal Reorganization), (ii) immediately prior to or concurrently with the Internal Reorganization, certain debt financings will be undertaken
(the Financings), (iii) in connection with the Internal Reorganization and after receipt of the proceeds from the Financings, Spinco will make a cash payment to Lockheed as specified in the Separation Agreement (the Spinco Special
Cash Payment), (iv) concurrently with or following the consummation of the Internal Reorganization and the Spinco Special Cash Payment and prior to consummation of the Merger, all of the outstanding shares of Spinco Common Stock will be
capitalized as contemplated by the Merger Agreement and distributed by Lockheed to holders of the common stock of Lockheed through a pro rata dividend, exchange offer or a combination thereof (the Spinco Capitalization and Distribution)
and (v) in connection with the Merger and the Related Transactions, Leidos will declare and pay a special cash dividend pro rata to holders of record of Leidos Common Stock as of a time prior to the closing date for the Merger as specified in the
Merger Agreement (such dividend, together with the Internal Reorganization, the Financings, the Spinco Special Cash Payment, the Spinco Capitalization and Distribution and the other transactions contemplated by the Agreements (other than the
Merger), the Related Transactions). We also have been advised that, in connection with the Merger and the Related Transactions, certain supply, novation, transition services, lease, license, tax, employee, intellectual property and other
related agreements and arrangements will be entered into among Lockheed, Spinco, Leidos and/or certain of their respective subsidiaries (such agreements, the Related Agreements). The terms and conditions of the Merger and the Related
Transactions are more fully set forth in the Agreements and the Related Agreements.
In arriving at our opinion, we reviewed drafts, each dated January 25, 2016, of
the Agreements and held discussions with certain senior officers, directors and other representatives of Leidos and certain senior officers and other representatives of Lockheed concerning the businesses, operations and prospects of Leidos and the
Business on a standalone basis. We reviewed certain publicly available and other business and financial information relating to Leidos and the Business, including third-party prepared quality of earnings reports relating to the Business, as
well as certain financial forecasts and other information and data relating to Leidos and the Business which were provided to or discussed with us by the respective managements of Leidos and Lockheed, including alternative financial
C-1
The Board of Directors
Leidos
Holdings, Inc.
January 25, 2016
Page
2
forecasts and other information and data
relating to the Business prepared or discussed with us by the management of Leidos that we have been directed to utilize in our analyses and certain information and data relating to the potential strategic implications and financial and operational
benefits (including the amount, timing and achievability thereof) anticipated by the management of Leidos to result from the Merger and the Related Transactions. We reviewed the financial terms of the Merger as set forth in the Merger Agreement
in relation to, among other things: current and historical market prices of Leidos Common Stock; the financial condition and historical and projected earnings and other operating data of Leidos and the Business; and the capitalization of Leidos and
Spinco. We analyzed certain financial, stock market and other publicly available information relating to the businesses of other companies whose operations we considered relevant in evaluating those of Leidos and the Business. We also
evaluated certain potential pro forma financial effects of the Merger and the Related Transactions relative to Leidos on a standalone basis utilizing the financial forecasts and other information and data relating to Leidos and the Business
described above. In addition to the foregoing, we conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as we deemed appropriate in arriving at our opinion. We have
not relied, for purposes of our opinion, on a comparison of the financial terms of the Merger to the financial terms of other transactions given, in our view, the lack of sufficient comparability of other transactions with the Merger. The
issuance of our opinion has been authorized by our fairness opinion committee.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with us and upon the assurances of the managements of Leidos and Lockheed that
they are not aware of any relevant information that has been omitted or that remains undisclosed to us. With respect to financial forecasts and other information and data that we have been directed to utilize in our analyses, including
estimates as to the potential strategic implications and financial and operational benefits anticipated by the management of Leidos to result from the Merger and the Related Transactions, we have been advised by the management of Leidos, and we have
assumed, with your consent, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of such management as to the future financial performance of Leidos and the Business, the potential strategic
implications and financial and operational benefits (including the amount, timing and achievability thereof) anticipated by the management of Leidos to result from, and other potential pro forma financial effects of, the Merger and the Related
Transactions and the other matters covered thereby. With respect to third-party prepared quality of earnings reports relating to the Business provided to or discussed with us, we have assumed, with your consent, that such reports have been
reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of the preparer thereof and are a reasonable basis on which to evaluate the matters covered thereby. We have assumed, with your consent,
that the financial results, including with respect to the potential strategic implications and financial and operational benefits anticipated to result from the Merger and the Related Transactions, reflected in such financial forecasts and other
information and data will be realized in the amounts and at the times projected. We have been advised that an audit of the financial statements relating to the Business and Spinco has not yet been completed and we have assumed, with your
consent, that, upon completion, such final audited financial statements will not reflect any information that would be meaningful in any material respect to our analyses or opinion. We have relied, at your direction, upon the assessments of the
managements of Leidos and Lockheed as to, among other things, (i) the Related Transactions, including with respect to the timing thereof and assets, liabilities and financial and other terms involved, (ii) the potential impact on Leidos and the
Business of market, competitive and other trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the industries in which Leidos and the Business operate, (iii) existing
and future relationships, agreements and arrangements with, and the ability to attract, retain and/or replace, key employees, contractors, customers and other commercial relationships of Leidos and the Business, and (iv) the ability to integrate the
operations of Leidos and the Business. We have assumed, with your consent, that there will be no developments with respect to any such matters or adjustments to the Exchange Ratio that would have an adverse effect on Leidos, Spinco (including
the Business), the Merger or the Related Transactions (including the contemplated benefits thereof) or that would otherwise be meaningful in any material respect to our analyses or opinion.
C-2
The Board of Directors
Leidos
Holdings, Inc.
January 25, 2016
Page 3
We have evaluated Spinco (including the Business) and the Merger for purposes of our analyses and
opinion after giving effect to the Related Transactions. We have not made or, except for certain third-party prepared quality of earnings reports relating to the Business, been provided with an independent evaluation or appraisal of the assets
or liabilities (contingent, off-balance sheet or otherwise) of Leidos, the Business or any entity or other business and we have not made any physical inspection of the properties or assets of Leidos, the Business or any entity or other
business. We have assumed, with your consent, that the Merger and the Related Transactions will be consummated in accordance with their respective terms and in compliance with all applicable laws, documents and other requirements, without
waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary governmental, regulatory or third party approvals, consents, releases, waivers and agreements for the Merger and the
Related Transactions, no delay, limitation, restriction or condition, including any divestiture requirements, amendments or modifications, will be imposed or occur that would have an adverse effect on Leidos, Spinco (including the Business), the
Merger or the Related Transactions (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to our analyses or opinion. We also have assumed, with your consent, that the Merger and the Related
Transactions will qualify, as applicable, for the intended tax treatment contemplated by the Agreements. Our opinion, as set forth herein, relates to the relative values of Leidos and the Business. We are not expressing any view or opinion
as to the actual value of Leidos Common Stock or any other securities when issued or distributed or the prices at which Leidos Common Stock or any other securities will trade or otherwise be transferable at any time, including following announcement
or consummation of the Merger and the Related Transactions. We have assumed, with your consent, that Spinco will retain or acquire all assets, properties and rights necessary for the operations of the Business, that appropriate reserves,
indemnification arrangements or other provisions have been made with respect to liabilities of or relating to Spinco (including the Business) that will be assumed in connection with the Merger and the Related Transactions, and that Spinco will not
directly or indirectly assume or incur any liabilities that are contemplated to be excluded as a result of the Merger, the Related Transactions or otherwise. Representatives of Leidos have advised us, and we further have assumed, that the final
terms of the Agreements will not vary materially from those set forth in the drafts reviewed by us. We are not expressing any opinion with respect to accounting, tax, regulatory, legal or similar matters and we have relied, with your consent,
upon the assessments of representatives of Leidos and Lockheed as to such matters.
Our opinion does not address any terms (other than the Exchange Ratio to the
extent expressly specified herein), aspects or implications of the Merger or the Related Transactions, including, without limitation, the form or structure of the Merger, the form or structure, or financial or other terms, of any Related
Transactions or any terms, aspects or implications of any Related Agreements or any indemnification or other agreement, arrangement or understanding to be entered into in connection with or contemplated by the Merger, the Related Transactions or
otherwise. We express no view as to, and our opinion does not address, the underlying business decision of Leidos to effect the Merger or any Related Transactions, the relative merits of the Merger or any Related Transactions as compared to any
alternative business strategies that might exist for Leidos or the effect of any other transaction in which Leidos might engage. We also express no view as to, and our opinion does not address, the fairness (financial or otherwise) of the
amount or nature or any other aspect of any compensation to any officers, directors or employees of any parties to the Merger or the Related Transactions, or any class of such persons, relative to the Exchange Ratio or otherwise. Our opinion is
necessarily based upon information available, and financial, stock market and other conditions and circumstances existing and disclosed, to us as of the date hereof. Although subsequent developments may affect our opinion, we have no obligation
to update, revise or reaffirm our opinion. As you are aware, the credit, financial and stock markets, and the industries in which Leidos and the Business operate, have experienced and continue to experience volatility and we express no opinion
or view as to any potential effects of such volatility on Leidos, Spinco (or their respective businesses), the Merger or the Related Transactions (including the contemplated benefits thereof).
Citigroup Global Markets Inc. has acted as financial advisor to Leidos in connection with the proposed Merger and the Related Transactions and will receive a fee for
such services, the principal portion of which is contingent upon consummation of the Merger. We also will receive a fee in connection with the delivery of this opinion. In addition, Leidos has agreed to reimburse our expenses and to
indemnify us against certain liabilities arising out of our
C-3
The Board of Directors
Leidos
Holdings, Inc.
January 25, 2016
Page
4
engagement. As you are aware, at
Leidos request, we and certain of our affiliates expect to participate in certain financings to be undertaken in connection with the Merger and the Related Transactions, for which services we and such affiliates will receive compensation,
including acting as lead bookrunner for, and as a lender under, such financings. As you also are aware, we and our affiliates in the past have provided, currently are providing and in the future may provide investment banking, commercial
banking and other similar financial services to Leidos and its affiliates unrelated to the proposed Merger and the Related Transactions, for which services we and our affiliates have received and expect to receive compensation, including, during the
past two years, having acted or acting as (i) lead arranger for a stock repurchase of Leidos and (ii) administrative agent for, and as a lender under, a credit facility of Leidos. As you further are aware, we and our affiliates in the past have
provided, currently are providing and in the future may provide investment banking, commercial banking and other similar financial services to Lockheed and its affiliates, for which services we and our affiliates have received and expect to receive
compensation, including, during the past two years, having acted or acting as (i) joint bookrunning manager for certain notes offerings of Lockheed and (ii) joint lead arranger, joint bookrunner or bookrunner and syndication or documentation agent
for, and as a lender under, certain credit facilities of Lockheed. In the ordinary course of business, we and our affiliates may actively trade or hold the securities of Leidos, Lockheed, Spinco and their respective affiliates for our own
account or for the account of our customers and, accordingly, may at any time hold a long or short position in such securities. In addition, we and our affiliates (including Citigroup Inc. and its affiliates) may maintain relationships with
Leidos, Lockheed, Spinco and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the information of the Board of
Directors of Leidos (in its capacity as such) in its evaluation of the proposed Merger, and our opinion is not intended to be and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act on any matters
relating to the proposed Merger, any Related Transaction or otherwise.
Based upon and subject to the foregoing, our experience as investment bankers, our work as
described above and other factors we deemed relevant, we are of the opinion that, as of the date hereof, the Exchange Ratio provided for pursuant to the Merger Agreement is fair, from a financial point of view, to Leidos.
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Very truly yours,
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/
S
/ C
ITIGROUP
G
LOBAL
M
ARKETS
I
NC
.
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CITIGROUP GLOBAL MARKETS INC.
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C-4
Annex D-1
EXECUTION VERSION
EMPLOYEE MATTERS AGREEMENT
This Employee Matters Agreement (together with the Exhibits hereto, this
Agreement
) is made as of the 26
th
day of January 2016, by and among Lockheed Martin Corporation, a Maryland corporation (
Parent
), Abacus Innovations Corporation, a Delaware corporation and wholly owned subsidiary
of Parent (
Spinco
) and Leidos Holdings, Inc., a Delaware corporation (
RMT Parent
). Each of Parent, Spinco and RMT Parent is sometimes referred to individually in this Agreement as a
Party
and
collectively they are sometimes referred to as the
Parties
.
W I T N E S S E T H:
WHEREAS, Parent and Spinco are parties to that certain Separation Agreement dated as of the date hereof (the
Separation Agreement
),
pursuant to which, among other things, Parent has agreed to transfer, or to cause the Affiliated Transferors to transfer, to Spinco certain of the assets held, owned or used by Parent and the Affiliated Transferors to conduct the Spinco Business,
and to assign certain liabilities associated with the Spinco Business to Spinco, and Spinco has agreed to receive such assets and assume such liabilities;
WHEREAS, the Separation Agreement provides for the separation of the Spinco Business from the remaining business of Parent and its Subsidiaries to
create two independent companies, on the terms and conditions set forth in the Separation Agreement and the other Transaction Documents;
WHEREAS,
Parent, Spinco, RMT Parent, and Lion Merger Co., a Delaware corporation and wholly owned Subsidiary of RMT Parent (
Merger Sub
and, together with Parent, Spinco and RMT Parent, the
Merger Agreement Parties
) are
parties to that certain Agreement and Plan of Merger dated as of January 26, 2016 (the
Merger Agreement
), pursuant to which, immediately following the Distribution, the Merger Agreement Parties will effect the merger of
Merger Sub with and into Spinco, with Spinco continuing as the surviving corporation upon the terms and subject to the conditions of the Merger Agreement; and
WHEREAS, the Parties desire to enter into this Agreement in connection with the Separation Agreement to govern the rights and obligations of the Parties
with respect to employment, compensation, employee benefits and related matters in connection with the Contemplated Transactions;
D-1
NOW, THEREFORE, in consideration of the foregoing and of the representations, warranties, covenants and
agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01
Definitions
. Capitalized terms used in this Agreement but not defined herein shall have the meanings given to them in the
Separation Agreement. Each of the following terms is defined in the Section set forth opposite such term:
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|
|
Term
|
|
Section
|
AAA
|
|
4.16(a)
|
Accrued Vacation
|
|
2.02(b)
|
Agreement
|
|
Preamble
|
Arbitral Tribunal
|
|
4.16(d)
|
Approval
|
|
3.03(d)
|
Benefits Services Termination Date
|
|
2.03(a)
|
Bonus Plans
|
|
2.02(g)
|
Broadly Comparable Scheme
|
|
3.02(g)
|
COBRA
|
|
2.02(e)
|
Dispute
|
|
4.16(a)
|
Employment Losses
|
|
3.02(g)
|
Funds
|
|
3.03(d)
|
Inactive Employee
|
|
2.01(a)
|
Israeli Employees
|
|
3.03(a)
|
Israeli Affiliated Transferor
|
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3.03(f)
|
KEEP
|
|
2.02(g)
|
LTIC
|
|
2.02(g)
|
Merger Agreement
|
|
Recitals
|
Merger Agreement Parties
|
|
Recitals
|
Merger Sub
|
|
Recitals
|
Old Fair Deal
|
|
3.02(g)
|
Outsourcing Agreements
|
|
3.02(g)
|
Parent
|
|
Preamble
|
Parent Indemnified Parties
|
|
4.01
|
Parent NQ Plan
|
|
2.04(a)
|
Parent Savings Plan
|
|
2.03(a)
|
Parties
|
|
Preamble
|
Party
|
|
Preamble
|
RMT Parent
|
|
Recitals
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Rules
|
|
4.16(a)
|
Separation Agreement
|
|
Recitals
|
Spinco
|
|
Preamble
|
Spinco Mirror Plans
|
|
2.05
|
Spinco NQ Plan
|
|
2.04(a)
|
Successor Savings Plan
|
|
2.03(a)
|
Transaction Retention Agreements
|
|
2.02(h)
|
Transfer Regulations
|
|
3.02(a)
|
Transition Period
|
|
2.02(a)
|
UK DB Plan
|
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3.02(g)
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UK Former Public Sector Employee
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3.02(g)
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U.S. Union Contract
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2.07(a)
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U.S. Union Employees
|
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2.07(a)
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D-2
ARTICLE II
GENERAL PRINCIPLES
Section 2.01
Transfer of Spinco Business Employees and Independent Contractors
.
(a)
Spinco Business Employees
. Effective as of immediately prior
to the Distribution Date, Parent shall transfer the employment of any Spinco Business Employee who is not then employed by a Spinco Company to a Spinco Company, provided that a Spinco Business Employee who has terminated employment prior to the
Distribution Date and who is not an Inactive Employee shall not be so transferred. The employment by the Parent Companies of each such Spinco Business Employee shall be transferred to the employment of the Spinco Companies such that the employment
of each such individual shall be considered continuous and uninterrupted employment under Applicable Law. Notwithstanding the foregoing, on the Distribution Date, the Spinco Business Employees shall cease active participation in the Employee Plans
and Benefit Arrangements that are not sponsored or maintained by a Spinco Company. The Spinco Companies hereby assume as Assumed Liabilities Parent Companies liabilities and obligations under Applicable Law and under any applicable plan,
policy, contract or arrangement to employ, reemploy, reinstate or reactivate each Inactive Employee. In addition, Spinco acknowledges that it is a successor in interest for purposes of all applicable employment and employee benefits
laws, including the Family and Medical Leave Act of 1993, as amended, and the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended, and that the terms of employment, reemployment, reinstatement or reactivation of any
Inactive Employee who is on approved leave under such laws immediately prior to the Distribution Date shall be governed by such laws. For purposes of this Agreement, an
Inactive Employee
shall mean each Spinco Business Employee
who (i) is not actively employed immediately prior to the Distribution Date due to an approved leave of absence, including an approved medical, non-medical or short-term disability, or long-term disability leave of absence or absence from
active employment due to occupational illness or injury covered by workers compensation or (ii) has any right immediately prior to the Distribution Date under Applicable Law, plan, policy, contractual arrangement or otherwise to
employment, reemployment, reinstatement or reactivation and who, in either case, was employed in connection with the Spinco Business prior to his or her commencement of leave, termination or suspension of employment or change of status to inactive
employment, as the case may be. Parent has used reasonable efforts to provide to RMT Parent an accurate schedule setting forth the Inactive Employees as of the date of this Agreement, which schedule Parent shall use reasonable efforts to update as
of the Closing.
(b)
Independent Contractors
. At the Distribution Effective Time, the Spinco Companies shall assume as Assumed Liabilities
the liabilities and obligations of the Parent Companies with respect to continuing to retain any individual who is retained as an independent contractor by any of the Parent Companies on the Distribution Date in connection with the Spinco Business,
and who is set forth on a schedule previously provided to RMT Parent, in accordance with the terms and conditions in effect for such individuals retention by any of the Parent Companies immediately before the Distribution Date. Parent has used
reasonable efforts to provide to RMT Parent an accurate schedule setting forth the individuals retained as independent contractors in connection with the Spinco Business as of the date of this Agreement, which schedule Parent shall use reasonable
efforts to update as of the Closing.
(c)
Employment Contracts; Termination of Employment
. From and after the Distribution Effective Time,
the Spinco Companies shall assume as Assumed Liabilities the liabilities and obligations of the Parent Companies under any employment agreements or similar agreements, including temporary staffing arrangements, consulting agreements and personal
services agreements, or Applicable Law relating to the terms and conditions of employment of each Spinco Business Employee and Former Spinco Business Employee. The Spinco Companies shall assume as Assumed Liabilities the liabilities and obligations
of the Parent Companies arising out of or pertaining to the termination of employment of, employing of or the failure or refusal to employ, reinstate, reactivate or reemploy any Spinco Business Employee or Former Spinco Business Employee (including
severance benefits) whether such liabilities or obligations are based on events occurring prior to, on or after the Distribution Date. Promptly following the termination of employment on or after the Distribution Date of any Spinco Business Employee
employed by a Spinco Company on the Distribution Date, but in no event later than 30 days following such termination of employment, Spinco shall advise Parent in writing of such termination of employment.
Section 2.02
Continuation of Salary, Bonus and Benefits; Health and Welfare Plans; Benefit Arrangements; Other
.
D-3
(a)
Salary, Bonus and Benefits
. For the period beginning on the Distribution Date and ending on
December 31st of the year in which the Distribution Date occurs (the
Transition Period
), the Spinco Companies shall (in addition to complying with any special rules in
Section 2.03
,
Section 2.04
and
Section 2.05
) continue to provide each Spinco Business Employee with (i) the same base salary or wage rate and short- and long-term incentive opportunities that were provided to the Spinco Business Employee by the Parent Companies
or the Spinco Companies immediately prior to the Distribution Date and (ii) participation in employee benefit plans and programs that are substantially comparable in the aggregate to those benefits provided under the employee benefit plans and
programs of the Parent Companies and the Spinco Companies (excluding defined benefit pension plans and post-retirement medical plans) as in effect for the Spinco Business Employee immediately prior to the Distribution Date, taking into account all
compensation paid and service completed before, on and after the Distribution Date in accordance with the terms of such plans and arrangements. Without limiting the generality of the foregoing, for the six month period beginning on the Distribution
Date, the Spinco Companies shall maintain in effect the severance and layoff plans applicable to the Spinco Business Employees immediately before the Distribution Date. For the period beginning on the Distribution Date and ending on the first
anniversary of the Distribution Date, in the case of any Spinco Business Employee who was granted a Restricted Stock Unit award agreement from Parent on January 28, 2016, the Spinco Companies shall treat any involuntary termination other than
for cause (as defined under the Parent Executive Severance Plan) or termination by the employee for good reason (as defined under the employees Restricted Stock Unit award agreement dated January 28, 2016) as an executive layoff event
under the Parent Executive Severance Plan. After the end of the Transition Period, Spinco Business Employees shall have the right to participate in employee benefits plans, programs and policies and all other compensation and employment related
plans, policies and arrangements that are substantially similar to the corresponding plans, programs, policies and other arrangements maintained by RMT Parent Entities (as defined in the Merger Agreement) for the benefit of their similarly situated
employees.
(b)
Vacation
. In furtherance and not in limitation of the provisions of this
Section 2.02
, the Spinco Companies
shall, as of the Distribution Effective Time, recognize and assume as Assumed Liabilities the liabilities and obligations for earned or accrued but unused vacation time in respect of each Spinco Business Employee (
Accrued
Vacation
), subject to the consent of the Spinco Business Employee to the transfer of his or her Accrued Vacation in the case of a Spinco Business Employee working in the State of California or where otherwise required by Applicable Law.
Liability for Accrued Vacation for those Spinco Business Employees who do not consent to the transfer of such Accrued Vacation will be an Excluded Liability. The Spinco Companies shall allow the Spinco Business Employees to utilize such Accrued
Vacation subject to any maximums for vacation carryovers as in effect as of the Distribution Effective Time under the Spinco Companies vacation policies. During the Transition Period, the Spinco Business Employees shall receive vacation
benefits under the terms of the vacation benefit policies of the Spinco Companies applicable to similarly situated employees of the Spinco Companies, in each case after giving credit for each Spinco Business Employees service with the Parent
Companies to the same extent such service would have been recognized by the Parent Companies.
(c)
Benefit Plan Liabilities
. Except as
expressly provided in this Agreement, the Parent Companies shall retain as an Excluded Liability all liabilities and obligations under any Employee Plan and Benefit Arrangement that is not, after the Distribution Effective Time, sponsored or
maintained by a Spinco Company. The Parent Companies shall (i) retain all liabilities and obligations arising under any group life, accident, medical, dental or disability plan or similar arrangement (whether or not insured) (other than
severance benefit plans) maintained by an entity other than a Spinco Company for the benefit of Spinco Business Employees, Former Spinco Business Employees and their respective dependents and other beneficiaries under each such plan or similar
arrangement to the extent that such liabilities or obligations relate to claims which have been incurred on or prior to the Distribution Date and (ii) not retain any liabilities or obligations with respect to Spinco Business Employees arising
under any workers compensation laws to the extent such liabilities or obligations relate to accidents or occupational diseases that occurred on or before the Distribution Date. The Spinco Companies hereby assume as Assumed Liabilities all of
the liabilities and obligations of the Parent Companies arising under each such group life, accident, medical, dental or disability plan or similar arrangement (whether or not insured) (including severance benefits plans), with respect to each
Spinco Business Employee and Former Spinco Business Employee (and any dependent or beneficiary of a Spinco Business Employee or Former Spinco Business Employee) to the extent that such liabilities and obligations relate to claims which have not been
incurred on or prior to the Distribution Date. The Spinco Companies also assume as Assumed Liabilities all liabilities and obligations of the Parent Companies, with respect to each Spinco Business Employee and Former Spinco Business Employee,
arising under any workers compensation laws relating to accidents or
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occupational diseases that occurred on, before or after the Distribution Date. Notwithstanding the foregoing, the Spinco Companies hereby assume as Assumed Liabilities all liabilities and
obligations, whenever incurred, under any employee benefit or compensation plan, program, policy or arrangement that is sponsored or maintained by a Spinco Company. For the avoidance of doubt, in connection with the Contemplated Transactions, the
Parent Companies shall not transfer to the Spinco Companies any Assets or Liabilities in respect of any Employee Plan that is a defined benefit pension plan or post-retirement medical plan, and all such Assets and Liabilities shall remain Assets and
Liabilities of the Parent Companies.
(d)
No Exclusions; Credit for Deductibles; Service Credit
. The group health plan, disability plan and
other plans established or made available by the Spinco Companies for the benefit of Spinco Business Employees and their dependents and other beneficiaries in accordance with this
Section 2.02
shall not contain any exclusion or
limitation with respect to any preexisting condition for a Spinco Business Employee or his or her dependents or other beneficiaries except to the extent such condition was taken into account under comparable plans of the Parent Companies and shall
credit all such individuals with any deductibles and out-of-pocket maximums incurred or paid by or on behalf of such individuals for the calendar year which includes the Distribution Date. Each Spinco Business Employee shall receive full credit
under each plan, program, policy or other arrangement for his or her service as an employee of the Parent Companies on the same basis that he or she would have received such credit if such service had been completed as an employee of the Spinco
Companies for purposes of satisfying any service requirement to receive compensation or to participate in any such plan, program, policy or other arrangement and any service requirement to receive the benefit provided under each such plan, program,
policy or other arrangement.
(e)
COBRA
. The Spinco Companies hereby assume as Assumed Liabilities all of the liabilities and obligations of
the Parent Companies under such plans under Part 6 of Title I of ERISA and Section 4980B of the Code (
COBRA
) in effect on the Distribution Date with respect to Spinco Business Employees and, in the case of COBRA obligations
incurred under a plan that is sponsored or maintained by a Spinco Company, Former Spinco Business Employees, and their respective qualified beneficiaries.
(f)
Cafeteria Plan
. If the Distribution Date is any date other than December 31, 2016, Spinco and Parent shall cooperate such that
(i) all credits under any Parent Company cafeteria plan attributable to contributions made by a Spinco Business Employee on or prior to the Distribution Date to purchase any benefits, including flexible medical spending account benefits and
dependent care spending account benefits, shall be available to purchase the same or comparable benefits after the Distribution Date under the corresponding cafeteria plan established by a Spinco Company pursuant to
Section 2.02(a)
and
(ii) (A) any contributions made by a Spinco Business Employee under a Spinco Company cafeteria plan after the Distribution Date shall be paid to Parent as reimbursement for any unsatisfied debits under the corresponding Parent Company
cafeteria plan attributable to benefits paid under such Parent Company cafeteria plan on behalf of such Spinco Business Employee on or prior to the Distribution Date and (B) Parent shall cause to be transferred to Spinco an amount in cash equal
to the excess as of the Distribution Date, if any, of all contributions to the Parent Company cafeteria plan made with respect to the year in which the Distribution Date occurs by or on behalf of any Spinco Business Employee over the amount
previously distributed to such Spinco Business Employee for such year.
(g)
Incentive Compensation
. The Parent Companies shall retain as an
Excluded Liability any obligations to make payments to any Spinco Business Employee in respect of a cash-based long-term incentive performance award granted by Parent under the Parent Amended and Restated 2011 Incentive Performance Award Plan, the
Parent Long-Term Incentive Cash Plan (
LTIC
) and the Parent Key Employee Engagement Plan (
KEEP
) prior to 2016, which payments shall be made by Parent at the time such payments are otherwise due under the terms of
the applicable Benefit Arrangement. At the Distribution Effective Time, the Spinco Companies shall assume as Assumed Liabilities the liabilities and obligations of the Parent Companies under all cash-based long-term incentive performance awards
granted by Parent to Spinco Business Employees in 2016 under the LTIC and the KEEP, and any payments in respect of such awards shall be made by the Spinco Companies at the time such payments are otherwise due under the terms of the applicable
Benefit Arrangement. Unless the Parent Companies have paid the Spinco Business Employees their annual incentive bonus for the year in which the Distribution Date occurs under the Lockheed Martin Corporation 2006 Management Incentive Compensation
Plan (Performance-Based), the Lockheed Martin Corporation Attorney Incentive Plan, the Lockheed Martin Corporation Cyber Compensation Plan, the Lockheed Martin Corporation Employee Incentive Plan, the Lockheed Martin Corporation Variable Incentive
Plan, the Lockheed Martin Corporation LMUK Variable Pay Plan or any other annual cash incentive or sales incentive
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compensation arrangement covering Spinco Business Employees (the
Bonus Plans
), Spinco agrees to maintain the Bonus Plans as in effect immediately prior to the Distribution Date
at least until the end of the calendar year in which the Distribution Date occurs, and Spinco shall pay to each such Spinco Business Employee an incentive bonus under the applicable Bonus Plan for the calendar year in which the Distribution Date
occurs in the amount determined by Parent in accordance with the terms of such Bonus Plan and in accordance with past practice promptly following receipt by Spinco of written notice from Parent advising Spinco of the amount of each such bonus.
(h) Parent has entered into retention agreements with certain Spinco Business Employees (the
Transaction Retention Agreements
) as an
inducement to these Spinco Business Employees to continue to work for the Parent Companies through the Closing Date (as defined in the Merger Agreement). The Parent Companies shall retain as an Excluded Liability Parents liabilities and
obligations to these Spinco Business Employees under such Transaction Retention Agreements and any associated taxes or social security contributions.
Section 2.03
Savings Plans
.
(a) As
soon as practicable after the Distribution Date, Spinco or an RMT Parent Entity shall establish one or, at Spincos or the RMT Parent Entitys option, more than one individual account plan for the benefit of the Spinco Business Employees
or otherwise make immediate participation in one or more existing Spinco or RMT Parent Entity plans available to the Spinco Business Employees (the
Successor Savings Plan
or, if there is more than one plan, each a
Successor Savings Plan
). Such Successor Savings Plan, or each such Successor Savings Plan, shall be designed and administered to satisfy the qualification requirements under Section 401(a) of the Code and to provide, as
applicable, for elective deferrals (as such deferrals are described in Section 402(g)(3)(A) of the Code) by participants under Section 401(k) of the Code and for matching contributions (as described in Section 401(m)(4)(A)(ii) of the
Code) by Spinco or the RMT Parent Entity with respect to such elective deferrals or for profit-sharing contributions (as described in Treasury Regulation Section 1.401(a)(2)(ii)) by Spinco or the RMT Parent Entity. Spinco or the RMT Parent
Entity, as the case may be, shall provide to Parent evidence reasonably satisfactory to Parent that the Successor Savings Plan, or each such Successor Savings Plan, satisfies in form such qualification requirements before Parent authorizes any
direct rollovers or asset transfers to a Successor Savings Plan from Parents Lockheed Martin Corporation Salaried Savings Plan, Lockheed Martin Corporation Performance Savings Plan for Bargaining Employees, Lockheed Martin Capital Accumulation
Plan and Lockheed Martin Corporation Operations Support Savings Plan (each a
Parent Savings Plan
). During the period commencing on the Distribution Date and ending on the date on which the payroll services to be provided by Parent
to Spinco under the Transition Services Agreement Parent to Spinco terminate (the
Benefits Services Termination Date
), subject to
Section 2.05
herein, the terms of the Successor Savings Plan, or each such
Successor Savings Plan that pertain to Spinco Business Employees who participated in a Parent Savings Plan prior to the Distribution Date, shall provide for elective deferrals by participants, matching contributions or profit-sharing contributions
by Spinco at rates which are the same as the rates in effect under each Parent Savings Plan immediately before the Distribution Date with respect to the Spinco Business Employees who participated in each such plan.
(b) Parent shall cause the account balance of each Spinco Business Employee under each Parent Savings Plan to be fully vested as of the Distribution
Date.
(c) The terms of the Successor Savings Plan, or each such Successor Savings Plan, shall provide that the Spinco Business Employees shall have
the right to make direct rollovers to such plan of their accounts in each Parent Savings Plan, including a direct rollover of any investments in Lockheed Martin Corporation stock and RMT Parent stock, provided, however, no Successor Savings Plan
shall be obligated to permit further investments in Lockheed Martin Corporation stock after the Distribution Date and the fiduciaries of each Successor Savings Plan shall be free, in their discretion, to liquidate or reinvest any Lockheed Martin
Corporation stock that is rolled over or transferred to a Successor Savings Plan at such time or times as they deem prudent. Each Successor Savings Plan shall also provide that the Spinco Business Employees shall have the right to make direct
rollovers to such plan of any notes evidencing loans made to such Spinco Business Employees, as provided in paragraph (d) of this
Section 2.03
. However, if Parent reasonably determines that a direct rollover from a Parent Savings
Plan to a Successor Savings Plan is impermissible under Section 401(k) of the Code, Spinco or the RMT Parent Entity, as the case may be, shall cause the Successor Savings Plan, or each such Successor Savings Plan, to accept a transfer of assets
and liabilities with respect to the Spinco Business Employees from the corresponding Parent Savings Plan at such time and in such form as agreed upon by Parent and Spinco or an RMT Parent Entity, as the case may be. If any Spinco
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Business Employee has a loan that remains outstanding under a Parent Savings Plan after the Distribution Date, Parent shall provide coupon books to permit such Spinco Business Employee to
continue to repay such loan until the earlier of the date such loan is paid in full and the date such loan is rolled over to a Successor Savings Plan as provided in paragraph (d) of this
Section 2.03
.
(d) Parent, Spinco and the RMT Parent Entity shall cooperate in good faith to establish procedures pursuant to which Spinco Business Employees with
outstanding loan balances under a Parent Savings Plan may elect to directly roll over the notes evidencing such loans to a Successor Savings Plan within a specified window period as mutually agreed. Spinco or the RMT Parent Entity, as the case may
be, and Parent shall cause the respective administrators of the applicable Successor Savings Plan and each Parent Savings Plan to cooperate and coordinate with each other to develop and distribute appropriate election forms for Spinco Business
Employees to use to voluntarily elect the direct rollover of loan notes during the window period and to notify Spinco Business Employees of such loan rollover window period within a reasonable period of time prior to the commencement of the window
period.
Section 2.04
Nonqualified Plans
.
(a) Spinco shall establish as of the Distribution Date three nonqualified plans or, at Spincos option, three separate nonqualified plan structures
in one, or more than one, nonqualified plan in accordance with this
Section 2.04
, and each such plan or structure shall be referred to individually in this
Section 2.04
as a
Spinco NQ Plan
and all such
plans or structures shall be referred to collectively in this
Section 2.04
as the
Spinco NQ Plans
.
(i) The first
Spinco NQ Plan shall be the same in all material respects as Parents Lockheed Martin Corporation Supplemental Savings Plan as in effect immediately before the Distribution Date.
(ii) The second Spinco NQ Plan shall be the same in all material respects as Parents Lockheed Martin Corporation Nonqualified Capital
Accumulation Plan as in effect immediately before the Distribution Date.
(iii) The third Spinco NQ Plan shall be the same in all material respects
as Parents Lockheed Martin Corporation Deferred Management Incentive Compensation Plan as in effect immediately before the Distribution Date.
Each Parent
nonqualified plan described in this
Section 2.04(a)
shall be referred to individually in this
Section 2.04
as a
Parent NQ Plan
and all such plans shall be referred to collectively in this
Section 2.04
as the
Parent NQ Plans
.
(b) Each Spinco NQ Plan shall be established for the benefit of each Spinco
Business Employee who participates in the corresponding Parent NQ Plan immediately before the Distribution Date and each other person who, immediately before the Distribution Date, is a beneficiary of a Spinco Business Employee and has an account
balance (which remains payable in whole or in part) under such Parent NQ Plan. Each Spinco NQ Plan and any successor to such Spinco NQ Plan shall provide at least through the Benefits Services Termination Date for a formula for contributions that is
the same as the formula for contributions in the corresponding Parent NQ Plan as of the Distribution Date. No Spinco NQ Plan shall allow for future investments in the Lockheed Martin Corporation stock fund.
(c) All account balances and any other liabilities accrued on or prior to the Distribution Date under any Parent NQ Plan shall be retained by Parent as
Excluded Liabilities.
Section 2.05
Mirror Benefit Plans
. As soon as practicable after the Distribution Date, Spinco shall establish a
mirror benefit plan for each Employee Plan and Benefit Arrangement listed on
Exhibit A
(the
Spinco Mirror Plans
). Each Spinco Mirror Plan shall be established for the benefit of each Spinco Business Employee who
participates in the corresponding Employee Plan or Benefit Arrangement, as applicable, immediately before the Distribution Date and each other person who, immediately before the Distribution Date, is a beneficiary of a Spinco Business Employee and
has an accrued benefit or account balance (which remains payable in whole or in part) under such Employee Plan or Benefit Arrangement. Prior to the Benefits Services Termination Date, each Spinco Mirror Plan shall be the same in all material
respects as the corresponding Employee Plan or Benefit Arrangement, as applicable, as in effect immediately before the Distribution Date; provided that the Parties shall cooperate in good faith with each other to
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make reasonable changes on a mutually agreeable schedule to the Spinco Mirror Plans from time to time, provided that the RMT Parent Entities reimburse Parent for any direct or indirect costs
associated with making such changes. Spinco shall maintain such Spinco Mirror Plans through the Benefits Services Termination Date or such earlier date that Spinco Business Employees are transitioned onto plans, programs, policies and other
arrangements maintained by RMT Parent Entities, subject in all events to
Section 2.02(a)
herein.
Section 2.06
Termination and
Plant Closing Notices; WARN
.
(a) Within 10 days following the Closing Date (as defined in the Merger Agreement), Parent shall provide Spinco
with a list setting forth the number of employees assigned to the Spinco Business terminated from each site of employment of Parent during the
90-day
period ending on the Closing Date, if any, for reasons
qualifying the termination as employment losses under the WARN Act and the date of each such termination with respect to each termination; provided, that this sentence shall not apply with respect to any site of employment at which
sufficient employees have not been employed at any time in such
90-day
period for terminations of employment at such site to be subject to the WARN Act.
(b) Spinco shall provide any notices to the Spinco Business Employees that may be required under any Applicable Law, including WARN or any similar state
or local law, with respect to events that occur from and after the Distribution Effective Time. Spinco shall not take any action after the Distribution Effective Time that would cause any termination of employment of any employees by the Parent
Companies that occurs on or before the Distribution Effective Time to constitute a plant closing or mass layoff under WARN or any similar state or local law, or to create any liability to the Parent Companies for any
employment terminations under Applicable Law.
Section 2.07
U.S. Labor Matters
.
(a) Certain Spinco Business Employees located in the U.S. are represented by a union (the
U.S. Union Employees
) and are covered by
the collective bargaining agreement between Lockheed Martin Information Systems and Global Solutions AFSS and the International Association of Machinists and Aerospace Workers, AFL-CIO and its affected District and Local Lodges (the
U.S. Union Contract
).
(b) The Parties acknowledge and agree that Spinco, effective as of and from the Distribution Effective
Time, will offer to adopt and assume the U.S. Union Contract and will recognize the union that is a party to the U.S. Union Contract with respect to the Spinco Business Employees, subject to any modifications to the U.S. Union Contract that are
necessitated by the transaction contemplated by the Separation Agreement. Provided that Spinco adopts and assumes the U.S. Union Contract, Spinco shall employ, effective as of and from the Distribution Effective Time, the U.S. Union Employees on the
terms and conditions of the U.S. Union Contract. No later than 10 Business Days prior to the Distribution Date (unless otherwise required by Applicable Law or the U.S. Union Contract), Spinco shall advise the U.S. Union Employees
representatives in writing that Spinco will adopt and assume the U.S. Union Contract and recognize the union that is a party to the U.S. Union Contract. Except to the extent otherwise required by Applicable Law or otherwise permitted by the U.S.
Union Contract, Spinco shall not, and shall cause any successor to the Spinco Business not to, reduce the hourly wage rates or annual incentive compensation opportunities or benefits of any U.S. Union Employee during the Transition Period. For the
avoidance of doubt, in the event that there is any conflict between this Agreement and the U.S. Union Contract, the U.S. Union Contract shall govern.
(c) To the extent that Spinco does not comply with
Section 2.07(b)
and, as a result, any Parent Indemnified Party incurs any severance,
termination or similar cost in respect of any U.S. Union Employee (pursuant to a severance plan of Parent, or otherwise) in connection with the transactions contemplated by this Agreement or any of the other Transaction Documents (either alone or in
combination with any subsequent event) on or following the Distribution Effective Time, Spinco shall indemnify such Parent Indemnified Party for any and all such amounts.
(d) Spinco shall comply with any notification, consent and consultation obligations arising following the Distribution Effective Time that Spinco may
have in connection with the U.S. Union Contract in relation to the matters contemplated by this Agreement.
(e) On or before the Distribution Date,
Parent shall (i) take all action necessary to, effective as of the Distribution Date, transfer and assign the U.S. Union Contract to Spinco, including, but not limited to, engaging in any
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effects bargaining to the extent requested by the union, (ii) keep Spinco reasonably informed of the status of any negotiations and modifications with respect to the U.S. Union Contract and
(iii) refrain from undertaking any actions that would result in a breach of the U.S. Union Contract.
ARTICLE III
NON-U.S. EMPLOYEES
Section 3.01
General
. Except as expressly set forth in this Article III and subject to applicable law, Spinco Business Employees who are resident outside of the U.S. or otherwise are subject to non-U.S. law and their related benefits and obligations shall
be treated in the same manner as the Spinco Business Employees who are resident in the U.S. All actions taken with respect to non-U.S. Spinco Business Employees in connection with the Distribution will be accomplished in accordance with Applicable
Law and custom in each of the applicable jurisdictions.
Section 3.02
United Kingdom Employee Matters
.
(a) The Parties acknowledge and agree that, pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006 as amended (the
Transfer Regulations
), the contracts of employment between Parent and the UK Spinco Business Employees (as defined in the Merger Agreement) (except in so far as those contracts relate to any occupational pension scheme, as that
term is used in Regulation 10 of the Transfer Regulations) will have effect after the Distribution Date as if originally made between Spinco and such Spinco Business Employees. The UK Spinco Business Employees are the only Spinco Business Employees
whose contracts of employment will transfer pursuant to the Transfer Regulations or equivalent applicable Law.
(b) Spinco confirms that it has
complied, and will comply, with its obligations under Regulation 13 of the Transfer Regulations, save to the extent that Spinco was unable to do so as a result of the failure of Parent to comply with its duties under Regulation 13 of the Transfer
Regulations, and shall indemnify Parent against all Employment Losses incurred by Parent as a result of any such failure.
(c) Parent confirms that
it has complied, and will comply, with its obligations under Regulations 11 and 13 of the Transfer Regulations or equivalent applicable Law in respect of Spinco Business Employees and their employment representatives during the period prior to the
Distribution Date, other than where Parent was unable to do so as a result of the failure of Spinco to comply with its duties under Regulation 13 of the Transfer Regulations, and shall indemnify Spinco against all Employment Losses incurred by
Spinco as a result of any such failure.
(d) Without prejudice to
Section 4.01
, Spinco shall indemnify Parent against all Employment
Losses incurred in connection with or as a result of:
(i) any proposal by Spinco to change the terms and conditions of employment or working
conditions of the UK Spinco Business Employees on or after their transfer to Spinco on the Distribution Date, or to change the terms and conditions of employment or working conditions of any person who would have been a UK Spinco Business Employee
but for their resignation (or decision to treat their employment as terminated under regulation 4(9) of the Transfer Regulations) before the Distribution Date as a result of or for a reason connected to such proposed changes (except in so far as
such proposal relates to the cessation of participation in the UK DB Plans and replacement pension benefits consistent with Regulation 10 of the Transfer Regulations, Pensions Act 2004 and the Transfer of Employment (Pension Protection) Regulations
2005); and
(ii) any statement communicated to or action undertaken by Spinco to, or in respect of, any UK Spinco Business Employee before the
Distribution Date which has not been agreed in advance with Parent in writing.
(e) If any person who is not a UK Spinco Business Employee claims or
it is determined that his contract of employment has been transferred from Parent to Spinco or claims that his employment would have so transferred had he not resigned:
(i) Spinco will within seven days of it becoming aware of that fact, give notice in writing to Parent;
(ii) Parent may offer (or may procure that a third party may offer) employment to such person, or take such other steps as it considers appropriate to
resolve the matter, within 21 days of the notification by Spinco;
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(iii) if such offer is accepted, Spinco shall immediately release the person from his employment;
(iv) if after that period has elapsed, no such offer of employment has been made or such offer has been made but not accepted, Spinco may within seven
days give notice to terminate the employment of such person;
(v) then subject to Spinco complying with the provisions of this
Section 3.02(e)
, or in such other way as may be agreed between the Parties, and subject to
Section 3.02(e)(vi)
, Parent will indemnify Spinco against all Employment Losses arising out of such termination or in respect of any
period of employment of such person (a) by Spinco or (b) prior to the Distribution Date, provided that Spinco takes all reasonable steps to minimize any such Employment Losses arising or incurred after the Distribution Date. If such
persons employment with Spinco is not terminated within the time scales set out in this subsection, such person will be treated as a Spinco Business Employee; and
(vi) the indemnity in the
Section 3.02(e)(v)
shall be limited in that it:
(1) shall only apply to notifications received by Parent under
Section 3.02(e)(i)
within three months of the Distribution
Date or, in relation to any person who provides services to Spinco or its Affiliates pursuant to the Transition Services Agreement Parent to Spinco, within three months of the termination of such services; and
(2) shall not apply to any claim for discrimination by Spinco, including discrimination based on sex, race, disability, age, gender
reassignment, marriage or civil partnership, pregnancy and maternity or sexual orientation, religion or belief or claims for equal pay, or compensation for less favorable treatment of part time workers or fixed term employees in relation to any
alleged act or omission of Spinco or to any claim in which it is found by a competent tribunal or court that the termination of employment was unfair because Spinco neglected to follow a fair dismissal procedure.
(f) Spinco or its Affiliates undertakes that in each case to the extent required to comply with Parent and its Affiliates obligations under the
Outsourcing Agreements:
(i) it will allow each UK Former Public Sector Employee who participates in a UK DB Plan at the Distribution Date to join
and, for so long as they remain employed by Spinco or its Affiliates, accrue benefits under a Broadly Comparable Scheme, and will also
(ii) allow
such person to transfer to the Broadly Comparable Scheme rights accrued under the Lockheed Martin UK Citrus Pension Plan at any point within 12 months of the Distribution Date on the terms set out in Old Fair Deal; and
(iii) should the employment of such UK Former Public Sector Employees be subsequently transferred from Spinco or its Affiliates to another undertaking
pursuant to an agreement to which Spinco or one of its Affiliates is a party, ensure that such other undertaking will provide the same protection to such UK Former Public Sector Employees as provided under this clause.
(g) For the purposes of this
Section 3.02
: (i)
Employment Losses
means any payments, benefits, damages, losses,
proceedings, costs, actions, claims, awards, fines, penalties, demands, injury, liabilities (including liabilities to tax and national insurance), expenses (including legal and other professional fees and expenses) and other financial consequences,
and Employment Loss shall be construed accordingly; (ii)
UK DB Plan
means any defined benefit pension plan sponsored, maintained or contributed to by Parent or its Affiliates for the benefit of UK Spinco Business
Employees; (iii)
UK Former Public Sector Employee
means a UK Spinco Business Employee who was previously a UK public sector employee and who transferred to the employment of the Parent under either of the Outsourcing
Agreements; (iv)
Outsourcing Agreements
means (A) the contract entitled Ministry of Justice Future IT Sourcing contract dated 1 September 2013, and made between The Secretary of State for Justice
and Lockheed Martin UK Ltd; and (B) the contract entitled Cabinet Office Framework Agreement to provide G-Cloud Services to Highways Agency dated 24 March 2014 and made between The Minister for the Cabinet Office and
Lockheed Martin Business Technology Solutions Limited; (v)
Broadly Comparable Scheme
means either (i) an occupational pension scheme which provides defined benefits which are broadly comparable for the
purposes of Old Fair Deal to the benefits the UK Former Public Sector Employees were entitled to under their applicable public sector pension
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scheme; or (ii) a public sector pension scheme providing like benefits; and (vi)
Old Fair Deal
means the UK documents entitled Staff Transfers from Central
Government: A Fair Deal for Staff Pensions published by Her Majestys Treasury in June 1999 and A Fair Deal staff pensions: procurement of Bulk Transfer Agreements and Related Issues published by Her Majestys Treasury in
June 2004.
Section 3.03
Israel Employee Matters
.
(a)
Transfer of Israeli Spinco Business Employees
. Effective as of the Distribution Date, the employment of any Spinco Business Employees
employed in Israel by a wholly owned subsidiary of Parent (the
Israeli Employees
) will be transferred to Spinco or another Spinco Company designated by Spinco, subject to obtaining their written consent prior to the Distribution
Date as detailed below. The employment of each of the Israeli Employees by Spinco shall be considered continuous and uninterrupted employment under Applicable Law. The Spinco Companies will assume all and any employment related liabilities and
obligations under Applicable Law and in accordance with
Section 2.02(c)
hereof. In the event that any of the Israeli Employees shall cease to be employed by Spinco at any time after the Distribution Date, Spinco shall be solely
responsible for any severance or other payments due to such Israeli Employee as a result of such termination based on their entire period of employment (i.e., including their employment period with Parents Israeli Affiliated Transferor prior
to the Distribution Date).
(b)
Continuation of Salary and Benefits
. As of the Distribution Date, Spinco shall continue to provide the
Israeli Employees with the same salary and all other employment benefits and rights that were provided to them by the Parents Israeli Affiliated Transferor immediately prior to the Distribution Effective Time according to Applicable Law and
any employment agreement.
(c)
Rollover of Accrued Rights
. Following the Distribution Date, the Israeli Employees shall continue to be
entitled from Spinco to all their accrued rights and entitlements with Parents Israeli Affiliated Transferor, including all the accrued vacation days, accrued convalescence days and accrued sick leave days and all Israeli Employees shall
receive credit for prior service with the Parents Israeli Affiliated Transferor, and Spinco shall be responsible for all such payments and benefits following the Distribution Date.
(d)
Pension Schemes
. The Parents Israeli Affiliated Transferor shall obtain prior to the Distribution Date the Israel Tax Authoritys
approval with respect to the transfer of the Israeli Employees pension arrangements (including any severance pay funds from the Parents Israeli Affiliated Transferors contributions within such pension arrangement, hereinafter, the
Funds
and the
Approval
respectively) to Spinco or another Spinco Company designated by Spinco as of the Distribution Date, all in accordance with the requirements of the Applicable Law and the Israel Tax
Authority Circular # 6/2011.
(e)
Transfer Notice
. The Parents Israeli Affiliated Transferor and Spinco shall provide the Israeli
Employees with a written notice, in a form mutually agreed upon, notifying them of their transfer to Spinco by way of continuous employment, as detailed in this Section, and each of the Israeli Employees will be required to confirm the receipt of
such notice and to consent in writing to the transfer to Spinco as of the Distribution Date.
(f) For purposes of this
Section 3.03
,
Israeli Affiliated Transferor
means an Affiliated Transferor in Israel.
ARTICLE IV
MISCELLANEOUS
Section 4.01
Indemnification by Spinco
. Effective as of the Distribution Date, Spinco hereby indemnifies Parent and its Affiliates and their respective Representatives (together, in each case with their respective successors, the
Parent
Indemnified Parties
) against, and agrees to hold them harmless from, any and all Damages arising out of, resulting from or related in any way to (a) any termination of employment of, employing of or the failure or refusal to employ,
reinstate, reactivate or reemploy, any Spinco Business Employee on or after the Distribution Date, (b) in relation to any Spinco Business Employee, any modification of the pay, benefits, or other terms and conditions of employment of employment
of such Spinco Business Employee on or after the Distribution Date (except in so far as such proposal relates to the cessation of participation in the UK DB Plans and replacement pension benefits consistent with Regulation 10 of the Transfer
Regulations, Pensions Act 2004 and the Transfer of Employment (Pension Protection) Regulations 2005), and (c) any breach of any covenants or agreements of Spinco contained in this Agreement or with respect to the Assumed Liabilities related to
this Agreement.
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Section 4.02
Indemnification by Parent
. Effective as of the Distribution Date, Parent hereby
indemnifies Spinco and its Affiliates and their respective Representatives (together, in each case with their respective successors) against, and agrees to hold them harmless from, any and all Damages arising out of, resulting from or related in any
way to, any breach of any covenants or agreements of Parent contained in this Agreement or with respect to the Excluded Liabilities related to this Agreement.
Section 4.03
Cooperation
. The Parties agree to cooperate in good faith with each other, any employee representatives and any Governmental
Authority to effectuate the terms and conditions provided for in this Agreement.
Section 4.04
Notices.
All notices, requests and other
communications to any Party hereunder shall be in writing (including telecopy or similar writing) and shall be given,
if to Parent:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817
Attention: Senior Vice
President, General Counsel and Corporate Secretary
Telecopy: (301) 897-6013
with a copy (which shall not constitute notice) to:
Hogan Lovells US LLP
Harbor East
100 International Drive
Suite 2000
Baltimore, Maryland 21202
Attention: Glenn C.
Campbell
Telecopy: (410) 659-2701
if to
Spinco:
Abacus Innovations Corporation
c/o
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817
Attention: President
Telecopy: (301) 897-6013
if to RMT Parent:
Leidos Holdings, Inc.
11951 Freedom Drive
Reston, Virginia 20190
Attention: Vincent A.
Maffeo, General Counsel
Telecopy: (571) 526-7955
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
920 N. King Street
Wilmington, DE 19801
Attention: Robert B.
Pincus, Esq.
Telecopy: (302) 434-3090
or to such
other address or telecopy number and with such other copies, as such Party may hereafter specify for that purpose by notice to the other Party. Each such notice, request or other communication shall be effective (a) on the
D-12
day delivered (or if that day is not a Business Day, on the first following day that is a Business Day) when (i) delivered personally against receipt or (ii) sent by overnight courier,
(b) on the day when transmittal confirmation is received if sent by telecopy (or if that day is not a Business Day, on the first following day that is a Business Day), and (c) if given by any other means, upon delivery or refusal of
delivery at the address specified in this
Section 4.04
.
Section 4.05
Tax Matters
. For the avoidance of doubt, the
allocation of any Tax liability (including the satisfaction of any withholding Tax obligation) and any income Tax deductions, in each case, relating to (a) the issuance, exercise, vesting or settlement of any Compensatory Equity Interest (as
defined in the Tax Matters Agreement), (b) the exercise, vesting or settlement of any 2016 Awards (as defined in the Tax Matters Agreement), or (c) the obligations and liabilities described in
Section 2.02(g)
after the
Distribution Date shall be governed by the Tax Matters Agreement.
Section 4.06
Amendments; Waivers
.
(a) Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an
amendment, by each Party, or in the case of a waiver, by the Party against whom the waiver is to be effective.
(b) No failure or delay by either
Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or
privilege. Except as otherwise provided herein, no action taken pursuant to this Agreement, including any investigation by or on behalf of any Party, shall be deemed to constitute a waiver by the Party taking such action of compliance with any
representations, warranties, covenants or agreements contained in this Agreement. Any term, covenant or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit thereof, but only by a written notice signed
by such Party expressly waiving such term or condition. The waiver by any Party of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder.
Section 4.07
Successors and Assigns
. The provisions of this Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors and permitted assigns;
provided
that Spinco may not assign, delegate or otherwise transfer, directly or indirectly, in whole or in part, any of its rights or obligations under this Agreement without the prior
written consent of Parent. Any attempted assignment, delegation or transfer in violation of this
Section 4.07
shall be null and void.
Section 4.08
Construction
. As used in this Agreement, any reference to the masculine, feminine or neuter gender shall include all genders,
the plural shall include the singular, and the singular shall include the plural. References in this Agreement to a Party or other Person include their respective successors and assigns. The words include, includes and
including when used in this Agreement shall be deemed to be followed by the phrase without limitation unless such phrase otherwise appears. Unless the context otherwise requires, references in this Agreement to Articles,
Sections and Exhibits shall be deemed references to Articles and Sections of, and Exhibits to this Agreement. Unless the context otherwise requires, the words hereof, hereby and herein and words of similar meaning
when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision hereof. Except when used together with the word either or otherwise for the purpose of identifying mutually
exclusive alternatives, the term or has the inclusive meaning represented by the phrase and/or. With regard to each and every term and condition of this Agreement, the Parties understand and agree that the same have or has
been mutually negotiated, prepared and drafted, and that if at any time the Parties desire or are required to interpret or construe any such term or condition or any agreement or instrument subject thereto, no consideration shall be given to the
issue of which Party actually prepared, drafted or requested any term or condition of this Agreement. All references in this Agreement to dollars or $ shall mean United States dollars. Any period of time hereunder ending on a
day that is not a Business Day shall be extended to the next Business Day.
Section 4.09
Entire Agreement
.
(a) This Agreement, the other Transaction Documents and any other agreements contemplated hereby or thereby constitute the entire agreement between the
Parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the Parties with respect to the subject matter hereof.
D-13
(b) THE PARTIES ACKNOWLEDGE AND AGREE THAT NO REPRESENTATION, WARRANTY, PROMISE, INDUCEMENT, UNDERSTANDING,
COVENANT OR AGREEMENT HAS BEEN MADE OR RELIED UPON BY ANY PARTY OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT AND IN THE OTHER TRANSACTION DOCUMENTS. WITHOUT LIMITING THE GENERALITY OF THE DISCLAIMER SET FORTH IN THE PRECEDING SENTENCE,
NEITHER PARENT NOR ANY OF ITS AFFILIATES HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATIONS OR WARRANTIES IN ANY PRESENTATION OR WRITTEN INFORMATION RELATING TO THE SPINCO BUSINESS GIVEN OR TO BE GIVEN IN CONNECTION WITH THE CONTEMPLATED
TRANSACTIONS OR IN ANY FILING MADE OR TO BE MADE BY OR ON BEHALF OF PARENT OR ANY OF ITS AFFILIATES WITH ANY GOVERNMENTAL AUTHORITY, AND NO STATEMENT MADE IN ANY SUCH PRESENTATION OR WRITTEN MATERIALS, MADE IN ANY SUCH FILING OR CONTAINED IN ANY
SUCH OTHER INFORMATION SHALL BE DEEMED A REPRESENTATION OR WARRANTY HEREUNDER OR OTHERWISE. SPINCO ACKNOWLEDGES THAT PARENT HAS INFORMED IT THAT NO PERSON HAS BEEN AUTHORIZED BY PARENT OR ANY OF ITS AFFILIATES TO MAKE ANY REPRESENTATION OR WARRANTY
IN RESPECT OF THE SPINCO BUSINESS OR IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, UNLESS IN WRITING AND CONTAINED IN THIS AGREEMENT OR IN ANY OF THE OTHER TRANSACTION DOCUMENTS TO WHICH THEY ARE A PARTY.
Section 4.10
Governing Law
. This Agreement shall be construed in accordance with and governed by the law of the State of Delaware (without
regard to the choice of law provisions thereof).
Section 4.11
Counterparts; Effectiveness
. This Agreement may be signed in any number
of counterparts (including by facsimile or PDF), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each Party shall have
received a counterpart hereof signed by the other Party.
Section 4.12
Severability
. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction. The application of such invalid or unenforceable provision to Persons or circumstances other than those as to which it is held invalid or unenforceable shall be valid and be enforced to the fullest extent
permitted by Applicable Law. To the extent any provision of this Agreement is determined to be prohibited or unenforceable in any jurisdiction, Parent and Spinco agree to use commercially reasonable efforts to substitute one or more valid, legal and
enforceable provisions that, insofar as practicable, implement the purposes and intent of the prohibited or unenforceable provision.
Section 4.13
Captions
. The captions herein are included for convenience of reference only and shall be ignored in the construction or
interpretation hereof.
Section 4.14
No Third Party Beneficiaries
. No provision of this Agreement or any other provision in the
Transaction Documents shall create any third party beneficiary or other rights in any employee or former employee (including any beneficiary or dependent thereof) of Parent or of any of its Affiliates in respect of continued employment (or
resumption of employment) with Parent, RMT Parent, Spinco, or any of their Affiliates, and no provision of this Agreement shall create any such rights in any such individuals in respect of any benefits that may be provided, directly or indirectly,
under any Employee Plan or Benefit Arrangement, or any plan or arrangement which has been or may be established by Spinco, RMT Parent or any of their Affiliates. Subject to Applicable Law, unless otherwise provided in this Agreement, no provision of
this Agreement shall constitute a limitation on rights to amend, modify or terminate, either before or after Distribution Effective Time, any such Employee Plan or Benefit Arrangement of Parent or any of its Affiliates or any plan or arrangement
which has been or may be established by Spinco, RMT Parent or any of their Affiliates, including the Spinco Mirror Plans.
Section 4.15
Disclaimer of Agency
. Nothing in this Agreement shall be deemed in any way or for any purpose to constitute either Party an agent of the other Party in the conduct of such Partys business or to create a partnership or joint venture
between the Parties.
Section 4.16
Dispute Resolution
.
D-14
(a) Any dispute, controversy or claim arising from, connected to or related, in any manner, to this
Agreement, including any breach, termination, expiration or invalidation of this Agreement, or in respect of any aspect of the Parties relationship arising from this Agreement, including their respective rights, duties and obligations to each
other, whether fiduciary or otherwise, and whether based on contract, tort, statute or otherwise, (a
Dispute
) that is not, for any reason, resolved in writing amicably by the Parties within 30 days after the date of delivery of a
request by a Party to the other Parties to the dispute for such amicable settlement, shall be resolved and decided by final and binding arbitration, pursuant to the Commercial Arbitration Rules (
Rules
) as administered by the
American Arbitration Association (the
AAA
) in force as at the date of this Agreement, except as modified herein. In the event of any conflict between the Rules and any provisions of this Agreement, this Agreement shall govern.
(b) The legal seat of the arbitration shall be Wilmington, Delaware. Without prejudice to the legal seat of arbitration, and for the convenience of
the parties, the arbitral hearings and other proceedings shall be held in Washington, D.C., or at such other location upon which the parties to the arbitration may agree in writing.
(c) The arbitration shall be conducted in the English language.
(d) The arbitral tribunal (
Arbitral Tribunal
) shall consist of three arbitrators. The claimant(s) and respondent(s), respectively,
shall each appoint one arbitrator within 30 days of the date of delivery of the demand of arbitration, and the third arbitrator shall be appointed by the two Party-appointed arbitrators within 30 days of the date of appointment of the second
arbitrator. Any arbitrator not timely appointed as provided herein shall be appointed by the AAA. For the avoidance of doubt, each of the claimant and the respondent in the arbitration shall be permitted to consult with its respective appointed
arbitrator in connection with such arbitrators selection of the third arbitrator.
(e) The Arbitral Tribunal shall have the exclusive right to
determine the arbitrability of any Disputes.
(f) The parties shall share equally the arbitration administrative fees, the panel member fees and
costs, and any other costs associated with the arbitration. Each party shall bear its own costs and attorneys fees. The Arbitral Tribunal shall have no authority to award damages in excess of any limitations set forth in this Agreement.
(g) The Arbitral Tribunal shall be required to apply the substantive laws of the State of Delaware (without regard to the choice of law provisions
thereof that would compel the laws of another jurisdiction) in ruling upon any Dispute.
(h) The Parties agree that the dispute resolution
procedures specified in this
Section 4.16
shall be the sole and exclusive procedures for the resolution of Disputes, including all documents made a part thereof;
provided
,
however
, that any Party may seek a preliminary
injunction or other preliminary judicial relief in aid of arbitration before any court of competent jurisdiction if such action is necessary to avoid irreparable damage. Despite such action, the Parties shall continue to participate in good faith in
the procedures specified in this
Section 4.16
.
(i) Any decision or award of the Arbitral Tribunal shall be reasoned and in writing, and
shall be final and binding upon the parties to the arbitration proceeding. The Parties agree not to invoke or exercise any rights to appeal, review, vacate or impugn such decision or award by the Arbitral Tribunal, except as provided in the Federal
Arbitration Act (including Chapters 2 and 3 thereof) or the New York Convention, as applicable. The Parties also agree that judgment upon the arbitral decision or award may be entered and enforced against the parties to the arbitration proceeding or
their assets wherever they may be found (to whose jurisdiction the parties consent for the purpose of entering and enforcing judgment on the arbitral decision and award) as well as any other court having jurisdiction thereof.
(j) If any prevailing party is required to retain counsel to enforce the arbitral decision or award in a court of competent jurisdiction, the Party
against whom the decision or award is made shall reimburse the prevailing party for all reasonable fees and expenses incurred and paid to said counsel for such service.
(k) The Parties agree and understand that, except as may be required by Applicable Law or any national or international stock exchange regulations
applicable to a Party, or is required to protect or pursue a legal right, every aspect concerning the process of arbitration shall be treated with the utmost confidentiality and that the arbitration procedure itself shall be confidential.
D-15
(l) The Parties agree that notifications of any proceedings, reports, communications, orders, arbitral
decisions, arbitral awards, arbitral award enforcement petitions, and any other document shall be sent as set forth in
Section 4.04
.
(m) The parties consent that any pending or contemplated arbitration hereunder may be consolidated with any prior arbitration arising under this
Agreement or any other Transaction Document (other than the Merger Agreement or the Tax Matters Agreement) for the purposes of efficiency and to avoid the possibility of inconsistent awards. An application for such consolidation may be made by any
party to this Agreement or such other Transaction Documents to the tribunal for the prior arbitration. The tribunal to the prior arbitration shall, after providing all interested parties the opportunity to comment on such application, order that any
such pending or contemplated arbitration be consolidated into a prior arbitration if it determines that (i) the issues in the arbitrations involve common questions of law or fact, (ii) no party to either arbitration shall be prejudiced,
whether by delay or otherwise, by the consolidation, (iii) any party to the pending or contemplated arbitration which did not join an application for consolidation, or does not consent to such an application, is sufficiently related to the
parties in the prior arbitration that their interests were sufficiently represented in the appointment of the tribunal for the prior arbitral tribunal, and (iv) consolidation would be more efficient that separate arbitral proceedings.
[SIGNATURE PAGE FOLLOWS]
D-16
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their respective
authorized representatives on the day and year first above written.
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LOCKHEED MARTIN CORPORATION
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By:
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/s/ Gregory L. Psihas
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Name:
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Gregory L. Psihas
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Title:
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Vice President, Corporate Development
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ABACUS INNOVATIONS CORPORATION
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By:
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/s/ Stephen M. Piper
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Name:
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Stephen M. Piper
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Title:
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President
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LEIDOS HOLDINGS, INC.
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By:
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/s/ Roger A. Krone
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Name:
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Roger A. Krone
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Title:
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Chief Executive Officer
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Annex E-1
EXECUTION VERSION
TAX MATTERS AGREEMENT
between
Lockheed Martin Corporation
,
on behalf of itself
and the members
of the Lockheed Martin Group,
and
Abacus Innovations Corporation
on behalf of
itself
and the members
of the Spinco Group
and
Leidos Holdings, Inc.
on behalf of itself
and the members
of the Leidos Group
Dated as of January 26, 2016
Table of Contents
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Page
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SECTION 1
.
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Definitions.
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E-1
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SECTION 2
.
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Sole Tax Sharing Agreement.
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E-7
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SECTION 3
.
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Certain Pre-Closing Matters.
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E-8
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SECTION 4
.
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Allocation of Taxes.
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E-8
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SECTION 5
.
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Preparation and Filing of Tax Returns.
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E-9
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SECTION 6
.
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Apportionment of Earnings and Profits and Tax Attributes.
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E-11
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SECTION 7
.
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Utilization of Tax Attributes.
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E-12
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SECTION 8
.
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Deductions and Reporting for Certain Awards.
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E-12
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SECTION 9
.
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Tax Benefits.
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E-13
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SECTION 10
.
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Certain Representations and Covenants.
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E-13
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SECTION 11
.
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Protective Section 336(e) Elections.
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E-16
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SECTION 12
.
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Indemnities.
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E-16
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SECTION 13
.
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Payments.
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E-17
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SECTION 14
.
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Communication and Cooperation.
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E-18
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SECTION 15
.
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Audits and Contest.
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E-19
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SECTION 16
.
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Notices.
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E-20
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SECTION 17
.
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Costs and Expenses.
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E-21
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SECTION 18
.
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Effectiveness; Termination and Survival.
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E-21
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SECTION 19
.
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Specific Performance.
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E-21
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SECTION 20
.
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Captions.
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E-21
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SECTION 21
.
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Entire Agreement; Amendments and Waivers.
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E-21
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SECTION 22
.
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Governing Law and Interpretation.
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E-22
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SECTION 23
.
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Dispute Resolution.
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E-22
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SECTION 24
.
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Counterparts.
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E-22
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SECTION 25
.
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Successors and Assigns; Third Party Beneficiaries.
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E-23
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SECTION 26
.
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Authorization, Etc.
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E-23
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SECTION 27
.
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Change in Tax Law.
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E-23
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SECTION 28
.
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Principles.
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E-23
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TAX MATTERS AGREEMENT
This TAX MATTERS AGREEMENT (the
Agreement
) is entered into as of January 26, 2016 between Lockheed Martin Corporation
(
LMC
), a Maryland corporation, on behalf of itself and the members of the Lockheed Martin Group, Abacus Innovations Corporation (
Spinco
), a Delaware corporation, on behalf of itself and the members of the Spinco
Group, and Leidos Holdings, Inc. (
RMT Parent
), a Delaware corporation, on behalf of itself and the members of the Leidos Group.
WITNESSETH:
WHEREAS, pursuant to the Tax laws of
various jurisdictions, certain members of the Spinco Group presently file certain Tax Returns on an affiliated, consolidated, combined, unitary, fiscal unity or other group basis (including as permitted by Section 1501 of the Internal Revenue
Code of 1986, as amended (the
Code
)) with certain members of the Lockheed Martin Group;
WHEREAS, LMC and Spinco have entered
into a Separation Agreement, dated as of the date hereof (the
Separation Agreement
) and a Merger Agreement, dated as of the date hereof (the
Merger Agreement
) pursuant to which the Internal Reorganization, the
Spinco Transfer, the Distribution and the Merger and other related transactions will be consummated;
WHEREAS, the Internal Reorganization, the
Spinco Transfer, the LMC Cash Distribution, the Distribution and the Merger are intended to qualify for the Tax-Free Status;
WHEREAS, LMC, RMT
Parent and Spinco desire to set forth their agreement on the rights and obligations of LMC, Spinco, RMT Parent and the members of the Lockheed Martin Group, the Spinco Group, and Leidos Group respectively, with respect to (A) the administration
and allocation of federal, state, local and foreign Taxes incurred in Taxable periods beginning prior to the Distribution Date, as defined below, (B) Taxes resulting from the Distribution and transactions effected in connection with the
Distribution and (C) various other Tax matters;
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth,
the parties agree as follows:
SECTION 1
. Definitions.
(a) As used in this Agreement:
2016
Awards
shall mean any and all (i) restricted stock units granted by LMC on or after January 1, 2016, which restricted stock units shall be converted into RMT Parent restricted stock units in accordance with the Merger Agreement,
(ii) cash-based long-term incentive performance awards granted by LMC on or after January 1, 2016 under LMCs Long-Term Incentive Cash Plan and (iii) cash-based long-term incentive performance awards granted by LMC on or after
January 1, 2016 under LMCs Key Employee Engagement Plan.
Active Trade or Business
shall have the meaning ascribed to
the Spinco Business in the Separation Agreement.
Affiliate
shall mean, with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with such specified Person. For purposes of determining whether a Person is an Affiliate, the term control shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person, whether through ownership of securities, contract or otherwise. It is expressly agreed that, from and after the Distribution Date, no member of the Lockheed Martin Group shall
be deemed to be an Affiliate of any member of the Spinco Group, and no member of the Spinco Group shall be deemed to be an Affiliate of any member of the Lockheed Martin Group.
Agreement
shall have the meaning ascribed thereto in the preamble.
Alternative Spinco Commitment Letter
shall have the meaning ascribed to it in the Merger Agreement.
E-1
Applicable Law
(or
Applicable Tax Law
, as the case may be) shall
mean, with respect to any Person, any federal, state, county, municipal, local, multinational or foreign statute, treaty, law, common law, ordinance, rule, regulation, order, writ, injunction, judicial decision, decree, permit or other legally
binding requirement of any Governmental Authority applicable to such Person or any of its respective properties, assets, officers, directors, employees, consultants or agents (in connection with such officers, directors, employees,
consultants or agents activities on behalf of such Person).
Business
shall mean the LMC Business or the Spinco
Business, as the case may be.
Business Day
shall mean a day, other than a Saturday, Sunday or other day on which commercial
banks in New York, New York are authorized or required by law to close.
CAP
shall mean the IRS Compliance Assurance Process.
Closing
shall have the meaning ascribed to it in the Separation Agreement.
Closing of the Books Method
shall mean the apportionment of items between portions of a Taxable period based on a closing of the
books and records on the close of the Distribution Date (in the event that the Distribution Date is not the last day of the Taxable period, as if the Distribution Date were the last day of the Taxable period), subject to adjustment for items accrued
on the Distribution Date that are properly allocable to the Taxable period following the Distribution, as determined by LMC in its reasonable discretion, after consultation with RMT Parent;
provided
that any items not susceptible to such
apportionment shall be apportioned on the basis of elapsed days during the relevant portion of the Taxable period.
Code
shall
have the meaning ascribed thereto in the recitals.
Combined Group
shall mean any group that filed or was required to file (or
will file or be required to file) a Tax Return on an affiliated, consolidated, combined, unitary, fiscal unity or other group basis (including as permitted by Section 1501 of the Code) that includes at least one member of the Lockheed Martin
Group and at least one member of the Spinco Group.
Combined Tax Return
shall mean a Tax Return filed in respect of federal,
state, local or foreign income Taxes for a Combined Group, or any other affiliated, consolidated, combined, unitary, fiscal unity or other group basis (including as permitted by Section 1501 of the Code) Tax Return of a Combined Group.
Company
shall mean LMC, Spinco or RMT Parent (or the appropriate member of each of their respective Groups), as appropriate.
Compensatory Equity Interests
shall mean any options, stock appreciation rights, restricted stock, stock units or other rights with
respect to LMC stock that are granted on or prior to the Distribution Date by any member of the Lockheed Martin Group in connection with employee, independent contractor or director compensation or other employee benefits (including, for the
avoidance of doubt, options, stock appreciation rights, restricted stock, restricted stock units, performance share units or other rights issued in respect of any of the foregoing by reason of the Distribution or any subsequent transaction).
Disqualifying Action
shall mean a LMC Disqualifying Action or Spinco Disqualifying Action.
Distribution
shall mean the distribution by LMC to its stockholders of all of the common stock of Spinco that is held by LMC pursuant
to the Separation Agreement.
Distribution Date
shall mean the date on which the Distribution occurs.
Distribution Effective Time
shall have the meaning ascribed to it in the Separation Agreement.
Distribution Taxes
shall mean any Taxes incurred solely as a result of the failure of the Tax-Free Status of the Internal
Reorganization, the Spinco Transfer, the LMC Cash Distribution or the Distribution.
E-2
Equity Interests
shall mean any stock or other securities treated as equity for Tax
purposes, options, warrants, rights, convertible debt, or any other instrument or security that affords any Person the right, whether conditional or otherwise, to acquire stock or to be paid an amount determined by reference to the value of stock.
Escheat Payment
shall mean any payment required to be made to a Governmental Authority pursuant to an abandoned property,
escheat or similar law.
Federal Acquisition Regulation
shall mean Title 48, Chapter 1, of the United States Code of Federal
Regulations.
Final Determination
shall mean (i) with respect to federal income Taxes, (A) a determination
as defined in Section 1313(a) of the Code (including, for the avoidance of doubt, an executed IRS Form 906), (B) the execution of an IRS Form 870-AD (or any successor form thereto), as a final resolution of Tax liability for any Taxable
period, except that a Form 870-AD (or successor form thereto) that reserves the right of the taxpayer to file a claim for refund or the right of the IRS to assert a further deficiency shall not constitute a Final Determination with respect to the
item or items so reserved, or (C) the execution of a CAP Issue Resolution Agreement (or any similar or successor agreement); (ii) with respect to Taxes other than federal income Taxes, any final determination of liability in respect of a
Tax that, under Applicable Tax Law, is not subject to further appeal, review or modification through proceedings or otherwise; (iii) with respect to any Tax, any final disposition by reason of the expiration of the applicable statute of
limitations (giving effect to any extension, waiver, or mitigation thereof); or (iv) with respect to any Tax, the payment of such Tax by any member of the Lockheed Martin Group, any member of the Spinco Group or any member of the Leidos Group,
whichever is responsible for payment of such Tax under Applicable Tax Law, with respect to any item disallowed or adjusted by a Taxing Authority;
provided
, in the case of this clause (iv), that the provisions of Section 15 hereof have been
complied with, or, if such section is inapplicable, that the Company responsible under this Agreement for such Tax is notified by the Company paying such Tax that it has determined that no action should be taken to recoup such disallowed item, and
the other Company agrees with such determination.
Final Net Working Capital Amount
shall have the meaning ascribed to it in the
Separation Agreement.
Financing Agreement
shall have the meaning ascribed to it in the Merger Agreement.
Government Contract
shall have the meaning ascribed to it in the Separation Agreement.
Governmental Authority
shall mean any multinational, foreign, domestic, federal, territorial, state or local governmental authority,
quasi-governmental authority, instrumentality, court, government or self-regulatory organization, commission, tribunal or organization or any regulatory, administrative or other agency, or any political or other subdivision, department or branch of
any of the foregoing.
Group
shall mean the Spinco Group, the Lockheed Martin Group or the Leidos Group, as appropriate.
Indemnified Party
shall mean the party which is entitled to seek indemnification from another party pursuant to the provisions of
Section 12.
Indemnifying Party
shall mean the party from which another party is entitled to seek indemnification pursuant
to the provisions of Section 12.
Internal Reorganization
shall mean the reorganization of certain businesses, assets and
liabilities of the Lockheed Martin Group and the Spinco Group to be completed before the Distribution Effective Time, as described in the Separation Agreement.
IRS
shall mean the United States Internal Revenue Service.
Leidos Group
shall mean RMT Parent and each of its direct and indirect Subsidiaries immediately prior to the Merger and, after the
Merger, the entities comprising the Spinco Group, including any predecessors or successors thereto (other than those entities comprising the Lockheed Martin Group). For the avoidance of doubt, any reference herein to the members of the
Leidos Group shall include RMT Parent.
E-3
LMC
shall have the meaning ascribed thereto in the preamble.
LMC Business
shall mean the business conducted by LMC and its Affiliates, other than the Spinco Business.
LMC Cash Distribution
shall have the meaning ascribed to Parent Cash Distribution in the Separation Agreement.
LMC Disqualifying Action
shall mean (a) any action (or the failure to take any action) within its control by any member of the
Lockheed Martin Group (including entering into any agreement, understanding or arrangement or any negotiations with respect to any transaction or series of transactions) that, (b) any event (or series of events) involving the capital stock of
LMC or any assets of any member of the Lockheed Martin Group that, or (c) any breach by any member of the Lockheed Martin Group of any representation, warranty or covenant made by them in this Agreement that, in each case
would affect the Tax-Free Status;
provided
, however, the term LMC Disqualifying Action shall not include any action described in any Transaction Document, the Spinco Commitment Letter, the Financing Agreements
or the Alternative Spinco Commitment Letter, or that is undertaken pursuant to the Internal Reorganization, the Spinco Transfer, the LMC Cash Distribution, or the Distribution or the Merger.
LMC Separate Tax Return
shall mean any Tax Return that is required to be filed by, or with respect to, a member of the Lockheed
Martin Group that is not a Combined Tax Return.
Lockheed Martin Group
shall mean LMC and each of its direct and indirect
Subsidiaries immediately after the Distribution, including any predecessors or successors thereto (other than those entities comprising the Spinco Group or the Leidos Group). For the avoidance of doubt, any reference herein to the
members of the Lockheed Martin Group shall include LMC.
Merger
shall have the meaning ascribed thereto in the Merger
Agreement.
Merger Agreement
shall have the meaning ascribed thereto in the recitals.
Merger Effective Time
shall have the meaning ascribed thereto in the Merger Agreement.
Merger Sub
shall have the meaning ascribed to it in the Merger Agreement.
Minority-Owned Subsidiaries
shall mean Kwajalein Range Services, LLC, Consolidated Nuclear Security, LLC and Mission Support
Alliance, LLC.
Person
shall have the meaning ascribed to it in Section 7701(a)(1) of the Code.
Post-Distribution Period
shall mean any Taxable period (or portion thereof) beginning after the Distribution Date.
Pre-Distribution Period
shall mean any Taxable period (or portion thereof) ending on or before the Distribution Date.
RMT Parent
shall have the meaning ascribed thereto in the preamble.
RMT Parent Capital Stock
shall mean any shares of common stock (including RMT Parent Common Stock), preferred stock, restricted
stock, restricted stock units (including RMT Parent RSUs), stock appreciation rights (including RMT Parent Stock Options), stock-based performance units (including RMT Parent Performance Share Units), phantom units, capital stock equivalents or
similar synthetic instruments or other capital stock or nominal interests in RMT Parent, including any stock, other securities or interests that could be treated as equity for purposes of Section 355 of the Code, or that would be treated as an
option under Treasury regulations section 1.355-7(e).
RMT Parent Common Stock
shall have the meaning ascribed to it in the
Merger Agreement.
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RMT Parent Compensatory Equity Interests
shall mean any options, stock appreciation
rights, restricted stock, stock units or other rights with respect to RMT Parent Stock that are granted on or prior to the Merger Effective Time by any member of the Leidos Group in connection with employee, independent contractor or director
compensation or other employee benefits (including, for the avoidance of doubt, options, stock appreciation rights, restricted stock, restricted stock units, performance share units or other rights issued in respect of any of the foregoing by reason
of the Merger or any subsequent transaction).
RMT Parent Performance Share Units
shall have the meaning ascribed to it in the
Merger Agreement.
RMT Parent RSUs
shall have the meaning ascribed to it in the Merger Agreement.
RMT Parent Stock Options
shall have the meaning ascribed to it in the Merger Agreement.
Separation Agreement
shall have the meaning ascribed thereto in the recitals.
Specified Spinco Pre-Closing Tax Matters
shall mean any (i) adjustment pursuant to Section 481 of the Code as a result of a
change in accounting method, (ii) a closing agreement as described in Section 7121 of the Code executed on or prior to the Distribution, (iii) an installment sale or open transaction disposition made on or prior to the Distribution,
(iv) a prepaid amount received on or prior to the Distribution, or (v) election under Section 108(i) of the Code, or (vi) corresponding or similar item under any provision of state, local or foreign Tax Law.
Specified Tax Matters
shall mean the matters listed on Schedule A.
Spinco
shall have the meaning ascribed thereto in the preamble.
Spinco Business
shall have the meaning ascribed to it in the Separation Agreement.
Spinco Commitment Letter
shall have the meaning ascribed to it in the Merger Agreement.
Spinco Disqualifying Action
shall mean (a) any action (or the failure to take any action) within its control by any member of
the Spinco Group (including entering into any agreement, understanding or arrangement or any negotiations with respect to any transaction or series of transactions) that, (b) any event (or series of events) involving the capital stock of Spinco
or any assets of any member of the Spinco Group that, or (c) any breach by any member of the Spinco Group of any representation, warranty or covenant made by them in this Agreement that, in each case
would affect the Tax-Free Status;
provided
, however, the term Spinco Disqualifying Action shall not include any action described in any Transaction Document, the Spinco Commitment Letter, the Financing
Agreements or the Alternative Spinco Commitment Letter, or that is undertaken pursuant to the Internal Reorganization, the Spinco Transfer, the LMC Cash Distribution, the Distribution or the Merger;
provided further
, that from and after
the Merger Effective Time, the definition of Spinco Disqualifying Action shall be read as applying to RMT Parent in addition to Spinco, substituting RMT Parent in each place that Spinco appears for this purpose.
Spinco Group
shall mean Spinco, each of its direct and indirect Subsidiaries and the Minority-Owned Subsidiaries immediately
after the Distribution, including any predecessors or successors thereto (other than those entities comprising the Lockheed Martin Group). For the avoidance of doubt, any reference herein to the members of the Spinco Group shall include
Spinco.
Spinco SAG
shall mean a group made up of one or more chains of includible corporations connected through stock ownership
if Spinco owns directly stock meeting the Stock Ownership Requirement in at least one other includible corporation, and stock meeting the Stock Ownership Requirement in each of the includible corporations (except Spinco) is owned directly by one or
more of the other includible corporations.
Spinco Separate Tax Return
shall mean any Tax Return that is required to be filed by,
or with respect to, any member of the Spinco Group that is not a Combined Tax Return.
Spinco Special Cash Payment
shall have the
meaning ascribed to it in the Separation Agreement.
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Spinco Transfer
shall mean the contribution of the Transferred Assets, as defined in the
Separation Agreement, by LMC to Spinco in consideration for the transfer of the common stock of Spinco, the transfer to LMC of the Spinco Special Cash Payment, as defined in the Separation Agreement, and the assumption of the Assumed Liabilities, as
defined in the Separation Agreement, in each case, in accordance with the Separation Agreement.
Stock Ownership Requirement
shall mean, with respect to a corporation, stock owned representing at least 80% of the total voting power and at least 80% of the total value of the stock of such corporation.
Subsidiary
shall mean, with respect to any Person, any other Person of which the specified Person, either directly or through or
together with any other of its Subsidiaries, owns more than 50% of the voting power in the election of directors or their equivalents, other than as affected by events of default.
Tax
(and the correlative meaning,
Taxes,
Taxing
and
Taxable
) shall mean
(i) any tax, including any net income, gross income, gross receipts, recapture, alternative or add-on minimum, sales, use, business and occupation, business, professional and occupational license, value-added, trade, goods and services, ad
valorem, franchise, profits, license, business royalty, withholding, payroll, employment, capital, excise, transfer, recording, severance, stamp, occupation, premium, property, asset, real estate acquisition, environmental, custom duty, impost,
obligation, assessment, levy, tariff or other tax, governmental fee or other like assessment or charge of any kind whatsoever (including, but not limited to, any Escheat Payment), together with any interest and any penalty, addition to tax or
additional amount imposed by a Taxing Authority; or (ii) any liability of any member of the Lockheed Martin Group, the Spinco Group or the Leidos Group for the payment of any amounts described in clause (i) as a result of any express or
implied obligation to indemnify any other Person.
Tax Attribute
shall mean a net operating loss, net capital loss, unused
foreign tax credit, excess charitable contribution, unused general business credit, alternative minimum tax credit, or any other Tax Item that could reduce a Tax liability.
Tax Benefit
shall mean any refund of Taxes (or credit or offset in lieu thereof).
Tax Counsel
shall mean Davis Polk & Wardwell LLP and Skadden, Arps, Slate, Meagher & Flom LLP.
Tax-Free Status
shall mean the qualification of (i) the Spinco Transfer and the Distribution, taken together, as a
reorganization described in Section 368(a)(1)(D) of the Code and of each of LMC and Spinco as a party to the reorganization within the meaning of Section 368(b) of the Code, (ii) the Distribution, as such, as a
distribution of Spinco common stock to LMCs stockholders pursuant to Section 355 of the Code, (iii) the Merger not causing Section 355(e) of the Code to apply to the Distribution, (iv) the LMC Cash Distribution as money
distributed to LMC creditors or stockholders in connection with the reorganization for purposes of Section 361(b) of the Code, (v) the Merger as a reorganization within the meaning of Section 368(a) of the Code and of each
of RMT Parent, Merger Sub and Spinco as a party to the reorganization within the meaning of Section 368(b) of the Code, and (vi) the transactions described on Schedule B as being free from Tax to the extent set forth therein.
Such term does not include, in the case of the Lockheed Martin Group or the Spinco Group, any intercompany items or excess loss accounts taken into account pursuant to the Treasury Regulations promulgated under Section 1502 of the Code.
Tax Item
shall mean any item of income, gain, loss, deduction, credit, recapture of credit or any other item that increases or
decreases Taxes paid or payable.
Tax Proceeding
shall mean any Tax audit, dispute, examination, contest, litigation,
arbitration, action, suits, claim, cause of action, review, inquiry, assessment, hearing, complaint, demand, investigation or proceeding (whether administrative, judicial or contractual).
Tax-Related Losses
shall mean, with respect to any Taxes imposed pursuant to any settlement, determination, judgment or otherwise:
(i) all accounting, legal and other professional fees, and court costs incurred in connection with such Taxes, as well as any other out-of-pocket costs incurred in connection with such Taxes and (ii) all damages, costs, and expenses
associated with stockholder litigation or controversies and any amount paid by any member of the Lockheed Martin Group, any member of the Spinco Group or any member of the Leidos Group in respect of the liability of stockholders, whether paid to
stockholders or to the IRS or any other Taxing Authority, in
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each case, resulting from the failure of the Tax-Free Status of the Internal Reorganization, the Spinco Transfer, the LMC Cash Distribution or the Distribution.
Tax Representation Letters
shall have the meaning ascribed thereto in the Merger Agreement.
Tax Return
shall mean any Tax return, statement, report, form, election, bill, certificate, claim or surrender (including estimated
Tax returns and reports, extension requests and forms, and information returns and reports), or statement or other document or written information filed or required to be filed with any Taxing Authority, including any amendment thereof (solely for
purposes of Section 4), appendix, schedule or attachment thereto.
Taxing Authority
shall mean any Governmental Authority
(domestic or foreign), including, without limitation, any state, municipality, political subdivision or governmental agency, responsible for the imposition, assessment, administration, collection, enforcement or determination of any Tax.
Transaction Documents
shall have the meaning ascribed to it in the Separation Agreement.
Transfer Taxes
shall mean all U.S. federal, state, local or foreign sales, use, privilege, transfer, documentary, stamp, duties, real
estate transfer, controlling interest transfer, recording and similar Taxes and fees (including any penalties, interest or additions thereto) imposed upon any member of the Lockheed Martin Group, any member of the Spinco Group or any member of the
Leidos Group in connection with the Internal Reorganization, the Spinco Transfer or the Distribution.
(b) Each of the following terms is defined in
the Section set forth opposite such term:
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|
|
Term
|
|
Section
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Acceleration Tax Benefit
|
|
Section 8(d)
|
Agreed Tax Representation Letter
|
|
Section 3(c)
|
CAP Proceeding
|
|
Section 15(b)
|
Due Date
|
|
Section 13(a)
|
Final Allocation
|
|
Section 6(b)
|
Final Internal Reorganization Plan
|
|
Section 3(b)
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Internal Reorganization Plan
|
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Section 3(b)
|
Internal Tax-Free Transactions
|
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Schedule B
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LMC Tax Proceeding
|
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Section 15(b)
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Past Practices
|
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Section 5(f)(i)
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Proposed Allocation
|
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Section 6(b)
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Section 336(e) Election
|
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Section 11
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Spinco 951(a) Taxes
|
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Section 4(b)(i)
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Similar Matter
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Section 14(d)
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Tax Arbiter
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Section 23
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Tax Benefit Recipient
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Section 9(c)
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USG
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Section 14(d)(iii)
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(c) All capitalized terms used but not defined herein shall have the same meanings as in the Separation Agreement. Any
term used in this Agreement which is not defined in this Agreement or the Separation Agreement shall, to the extent the context requires, have the meaning assigned to it in the Code or the applicable Treasury Regulations thereunder (as interpreted
in administrative pronouncements and judicial decisions) or in comparable provisions of Applicable Tax Law.
SECTION 2
. Sole Tax
Sharing Agreement.
Any and all existing Tax sharing agreements or arrangements, written or unwritten, between any member of the Lockheed Martin Group, on the one hand, and any member of the Spinco Group, on the other hand, if not previously
terminated, shall be terminated as of the Distribution Date without any further action by the parties thereto. Following the Distribution, no member of the Spinco Group or the Lockheed Martin Group shall have any further rights or liabilities
thereunder, and, except for Section 3.05 of the Transition Services AgreementParent to Spinco, Section 3.05 of the Transition Services AgreementSpinco to Parent, Section 24(e) of the Standard Terms and Conditions (as
defined in the Shared Contracts Agreement Shared Contracts (Spinco Companies), the Shared Contracts Agreement Shared Contracts (Parent Companies), the Supply Agreement (Parent to Spinco) and the Supply Agreement (Spinco to Parent)) and
Section 3.02 of the
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Employee Matters Agreement, this Agreement shall be the sole Tax sharing agreement between the members of the Spinco Group or the Leidos Group, on the one hand, and the members of the Lockheed
Martin Group, on the other hand.
SECTION 3
. Certain Pre-Closing Matters.
(a) From the date hereof until the Distribution Effective Time, RMT Parent shall cooperate in good faith with any reasonable request by LMC, at
LMCs sole cost and expense, to obtain a private letter ruling, closing agreement or similar determination with respect to the U.S. federal income tax consequences of the Internal Reorganization.
(b) From the date hereof until the delivery of the Final Internal Reorganization Plan, LMC shall keep RMT Parent reasonably apprised, no less often than
every two (2) weeks, as to the manner by which it expects to implement the Internal Reorganization (the
Internal Reorganization Plan
) and LMCs proposed Tax treatment thereof, and shall consider (in its sole discretion)
any comments provided by RMT Parent in connection therewith, it being understood that (i) subject to the following sentence, LMC shall have the right to amend, modify or supplement the Internal Reorganization Plan at any time and from time to
time prior to the Distribution Effective Time and (ii) LMC shall have the sole and absolute discretion as to all, and shall have no obligations to RMT Parent with respect to any, aspects of the ultimate implementation of Internal
Reorganization. No later than fifteen (15) Business Days prior to the Distribution Effective Time, LMC shall provide RMT Parent with its final Internal Reorganization Plan (the
Final Internal Reorganization Plan
),
including LMCs proposed Tax treatment thereof, and the transactions set forth in the Final Internal Reorganization Plan shall constitute the Internal Reorganization for purposes of the Transaction Documents.
(c) No later than fifteen (15) Business Days prior to (i) the filing of the LMC Separation Tax Opinion (as defined in the Merger Agreement)
with the SEC in connection with the filing of the Registration Statements (as defined in the Merger Agreement) and (ii) the Distribution Effective Time, LMC shall deliver to RMT Parent a copy of the Tax Representation Letters in support of the
LMC Separation Tax Opinion and shall consider in good faith any reasonable comments provided by RMT Parent with respect to representations and covenants of the Spinco Group therein applicable after the Merger (any Tax Representation Letter
reflecting all such reasonably requested RMT Parent comments, if any, an
Agreed Tax Representation Letter
).
SECTION 4
. Allocation of Taxes.
(a)
General Allocation Principles
. Except as provided in Section 4(c), all Taxes shall be allocated as follows:
(i)
Allocation of Taxes for Combined Tax Returns
. LMC shall be allocated all Taxes reported, or required to be reported, on any
Combined Tax Return that any member of the Lockheed Martin Group files or is required to file under the Code or other Applicable Tax Law;
provided, however,
that to the extent any such Combined Tax Return includes any Tax Item attributable to
any member of the Spinco Group or the Spinco Business for any Post-Distribution Period, Spinco shall be allocated all Taxes attributable to such Tax Items, computed in a manner reasonably agreed by LMC and RMT Parent.
(ii)
Allocation of Taxes for Separate Tax Returns.
(A) LMC shall be allocated all Taxes reported, or required to be reported, on (x) a LMC Separate Tax Return, (y) a Spinco
Separate Tax Return with respect to a Pre-Distribution Period or (z) a Spinco Separate Tax Return or a Tax Return of a member of the Leidos Group to the extent attributable to, resulting from, or arising in connection with a Specified Spinco
Pre-Closing Tax Matter.
(B) Spinco shall be allocated all Taxes reported, or required to be reported, on a Spinco Separate Tax
Return with respect to a Post-Distribution Period, other than Taxes attributable to, resulting from, or arising in connection with a Specified Spinco Pre-Closing Tax Matter.
(iii)
Taxes Not Reported on Tax Returns
.
(A) LMC shall be allocated any Tax attributable to any member of the Lockheed Martin Group or the LMC Business that is not required to be
reported on a Tax Return.
(B) Any Tax attributable to any member of the Spinco Group or the Spinco Business that is not required to
be reported on a Tax Return shall be allocated to (x) LMC, if with respect to a Pre-Distribution Period, and (y) Spinco, if with respect to a Post-Distribution Period.
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(b)
Allocation Conventions
(i) All Taxes allocated pursuant to Section 4(a) shall be allocated in accordance with the Closing of the Books Method;
provided
,
however
, that if Applicable Tax Law does not permit a Spinco Group member to close its Taxable year on the Distribution Date, the Tax attributable to the operations of the members of the Spinco Group for any Pre-Distribution
Period shall be the Tax computed using the Closing of the Books Method;
provided further
, that any and all Taxes reported, or required to be reported, on a Spinco Separate Tax Return, or a Tax Return of a member of the Leidos Group to the
extent attributable to a member of the Spinco Group, under Section 951(a) of the Code (
Spinco 951(a) Taxes
) that, in either case, are attributable to items for a Pre-Distribution Period (determined as though the Taxable year
of each controlled foreign corporation (within the meaning of Section 957 of the Code) giving rise to items ended on the Distribution Date) shall be allocated to LMC, and that any Spinco 951(a) Taxes that, in either case, are attributable to
items for a Post-Distribution Period (determined as though the Taxable year of each controlled foreign corporation (within the meaning of Section 957 of the Code) giving rise to items ended on the Distribution Date) shall be allocated to
Spinco;
(ii) Any Tax Item of Spinco, RMT Parent, or any member of their respective Groups arising from a transaction engaged in
outside the ordinary course of business on the Distribution Date after the Distribution Effective Time shall be properly allocable to Spinco and any such transaction by or with respect to Spinco, RMT Parent, or any member of their respective Groups
occurring after the Distribution Effective Time (including the Merger) shall be treated for all Tax purposes (to the extent permitted by Applicable Tax Law) as occurring at the beginning of the day following the Distribution Date in accordance with
the principles of Treasury Regulations Section 1.1502-76(b);
provided
that the foregoing shall not include any action that is undertaken pursuant to the Internal Reorganization, the Spinco Transfer, the LMC Cash Distribution or the
Distribution.
(c)
Special Allocation Rules
.
Notwithstanding any other provision in this Section 4, the following Taxes shall be
allocated as follows:
(i)
Transfer Taxes
. Transfer Taxes (other than those attributable to the Internal Reorganization and
the Spinco Transfer) shall be allocated 50% to LMC and 50% to Spinco. Any Transfer Taxes attributable to the Internal Reorganization or the Spinco Transfer shall be allocated solely to LMC.
(ii)
Taxes Relating to Compensatory Equity Interests
. Any Tax liability (including, for the avoidance of doubt, the satisfaction
of any withholding Tax obligation) relating to the issuance, exercise, vesting or settlement of any Compensatory Equity Interest shall be allocated in a manner consistent with Section 8.
(iii)
Distribution Taxes and Tax-Related Losses.
(A) Any liability for Distribution Taxes and Tax-Related Losses resulting from a Spinco Disqualifying Action shall be allocated in a
manner consistent with Section 12(a)(ii).
(B) Any liability for Distribution Taxes and Tax-Related Losses not described in
Section 4(c)(iii)(A) shall be allocated in a manner consistent with Section 12(b)(ii).
(iv)
Taxes Allowable and
Recoverable Pursuant to the Federal Acquisition Regulation.
Except with respect to any Specified Tax Matter, Spinco shall be allocated any Taxes that are both allowable and recoverable (using commercially reasonable efforts) by any member of the
Spinco Group from a Governmental Authority pursuant to the applicable provisions of the Federal Acquisition Regulation and the terms and conditions of any Government Contract of Spinco.
(v)
Certain Other Taxes.
LMC shall be allocated any Tax liability of a member of the Spinco Group that is a Specified Tax Matter
attributable to operations in a Pre-Distribution Period, it being understood that, notwithstanding any other provision in this Agreement, Spinco shall pay to LMC any amount actually recovered from a Governmental Authority (net of Taxes with respect
to thereto) pursuant to the terms and conditions of any Government Contract with respect to such Tax liability.
SECTION 5
.
Preparation and Filing of Tax Returns.
(a)
Lockheed Martin Group Combined Tax Returns.
(i) LMC shall prepare and file, or cause to be prepared and filed, Combined Tax Returns for which a member of the Lockheed Martin Group
is required or, subject to Section 5(f)(iv), permitted, to file a Combined
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Tax Return. Each member of any such Combined Group shall execute and file such consents, elections and other documents as may be required, appropriate or otherwise requested by LMC in connection
with the filing of such Combined Tax Returns.
(ii) The parties and their respective Affiliates shall elect to close the Taxable year
of each Spinco Group member on the Distribution Date, to the extent permitted by Applicable Tax Law.
(b)
Spinco Separate Tax Returns.
(i)
Tax Returns to be Prepared by LMC
. LMC shall prepare (or cause to be prepared) and, to the extent permitted by Applicable Law,
file (or cause to be filed) all Spinco Separate Tax Returns that relate solely to any Pre-Distribution Period for which LMC is, under Applicable Law, solely liable for any Taxes;
provided, however
, that with respect to any such Tax Return
that is prepared by LMC but required to be filed by a member of the Leidos Group under Applicable Law, LMC shall provide such Tax Returns to RMT Parent prior to the due date for filing such Tax Returns (taking into account any applicable extension
periods) with the amount of any Taxes shown as due thereon, and RMT Parent shall execute and file (or cause to be executed and filed) the Tax Returns.
(ii)
Tax Returns to be Prepared by RMT Parent
. RMT Parent shall prepare and file (or cause to be prepared and filed) all Spinco
Separate Tax Returns that are not described in Section 5(b)(i).
(c)
Provision of Information; Timing.
Spinco and RMT Parent shall
maintain all necessary information for LMC (or any of its Affiliates) to file any Tax Return that LMC is required or permitted to file under this Section 5, and shall provide LMC with all such necessary information in accordance with the
Lockheed Martin Groups past practice. LMC shall maintain all necessary information for RMT Parent (or any of its Affiliates) to file any Tax Return that RMT Parent is required or permitted to file under this Section 5, and shall provide
RMT Parent with all such necessary information in accordance with the Spinco Groups past practice.
(d)
Review of Spinco Separate Tax
Returns
. The party that is required to prepare a Spinco Separate Tax Return (other than a Spinco Separate Tax Return that relates solely to a Post-Distribution Period) that is required to be filed after the Distribution Date shall submit a draft
of such Tax Return to the non-preparing party at least forty-five (45) days prior to the due date for the filing of such Tax Return (taking into account any applicable extensions). The non-preparing party shall have the right to review such Tax
Return, and to submit to the preparing party any reasonable changes to such Tax Return no later than twenty-five (25) days prior to the due date for the filing of such Tax Return. The parties agree to consult and to attempt to resolve in good
faith any issues arising as a result of the review of any such Tax Return.
(e)
Review of Combined Tax Returns with Spinco Separate Tax
Liability
. LMC shall submit to RMT Parent a draft of the portions of any Combined Tax Returns (including pro formas) that relate solely to any member of the Spinco Group and that reflect a Tax liability allocated to Spinco pursuant to
Section 4(a)(i) at least forty-five (45) days prior to the due date for the filing of such Tax Return (taking into account any applicable extensions). RMT Parent shall have the right to review such portions, and to submit to LMC any
reasonable changes to such portions no later than twenty-five (25) days prior to the due date for the filing of such Tax Return. LMC agrees to consider in good faith any such changes submitted by RMT Parent.
(f)
Special Rules Relating to the Preparation of Tax Returns
.
(i)
General Rule
. Except as provided in this Section 5(f)(i), LMC shall prepare (or caused to be prepared) any Tax Return for
which it is responsible under this Section 5 in accordance with past practices, permissible accounting methods, elections or conventions (
Past Practices
) used by the members of the Lockheed Martin Group and the members of the
Spinco Group prior to the Distribution Date with respect to such Tax Return, and to the extent any items, methods or positions are not covered by Past Practices, in accordance with reasonable Tax accounting practices selected by LMC. With respect to
any Tax Return that RMT Parent has the obligation and right to prepare, or cause to be prepared, under this Section 5, such Tax Return shall be prepared in accordance with Past Practices used by the members of the Lockheed Martin Group and the
members of the Spinco Group prior to the Distribution Date with respect to such Tax Return, and to the extent any items, methods or positions are not covered by Past Practices, in accordance with reasonable Tax accounting practices selected by RMT
Parent.
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(ii)
Consistency with Tax-Free Status.
(A) The parties shall report the Internal Reorganization in the manner determined by LMC;
provided
that LMC communicates its
treatment of the Internal Reorganization to RMT Parent no fewer than thirty (30) days prior to the due date (taking into account any applicable extensions) for filing an applicable Tax Return that reflects the Internal Reorganization and such
treatment is supported by substantial authority (within the meaning of Section 6662 of the Code) as determined by RMT Parent in its reasonable discretion, in each case, unless, and then only to the extent, an alternative position is required
pursuant to a Final Determination.
(B) The parties shall report the Spinco Transfer, the LMC Cash Distribution, the Distribution and
the Merger for all Tax purposes in a manner consistent with the Agreed Tax Representation Letters unless, and then only to the extent, an alternative position is required pursuant to a Final Determination.
(iii)
Spinco Separate Tax Returns
. With respect to any Spinco Separate Tax Return for which RMT Parent is responsible pursuant to
this Agreement, RMT Parent and the other members of the Leidos Group shall include such Tax Items in such Spinco Separate Tax Return in a manner that is consistent with the inclusion of such Tax Items in any related Tax Return for which LMC is
responsible to the extent such Tax Items are allocated in accordance with this Agreement.
(iv)
Election to File Combined Tax
Returns
. LMC shall have the sole discretion of filing any Combined Tax Return if the filing of such Tax Return is elective under Applicable Tax Law, except where such an election would be binding on RMT Parent for a Taxable period beginning on
or after the Distribution.
(v)
Preparation of Transfer Tax Returns
. The Company required under Applicable Tax Law to file any
Tax Returns in respect of Transfer Taxes shall prepare and file (or cause to be prepared and filed) such Tax Returns. If required by Applicable Tax Law, LMC, Spinco and RMT Parent shall, and shall cause their respective Affiliates to, cooperate in
preparing and filing, and join in the execution of, any such Tax Returns.
(g)
Payment of Taxes.
LMC shall pay (or cause to be paid) to the
proper Taxing Authority (or to RMT Parent with respect to any Spinco Separate Tax Return prepared by LMC but required to be filed by a member of the Leidos Group under Applicable Tax Law) the Tax shown as due on any Tax Return for which a member of
the Lockheed Martin Group is responsible under this Section 5, and RMT Parent shall pay (or cause to be paid) to the proper Taxing Authority the Tax shown as due on any Tax Return for which a member of the Leidos Group is responsible under this
Section 5. If any member of the Lockheed Martin Group is required to make a payment to a Taxing Authority for Taxes allocated to Spinco under Section 4, RMT Parent shall pay the amount of such Taxes to LMC in accordance with Section 12 and Section
13. If any member of the Leidos Group is required to make a payment to a Taxing Authority for Taxes allocated to LMC under Section 4, LMC shall pay the amount of such Taxes to RMT Parent in accordance with Section 12 and Section 13.
SECTION 6
. Apportionment of Earnings and Profits and Tax Attributes.
(a) Tax Attributes arising in a Pre-Distribution Period will be allocated to (and the benefits and burdens of such Tax Attributes will inure to) the
members of the Lockheed Martin Group and the members of the Spinco Group in accordance with the Code, Treasury Regulations, and any other Applicable Tax Law, and, in the absence of controlling legal authority or unless otherwise provided under this
Agreement, Tax Attributes shall be allocated to the legal entity that created such Tax Attributes.
(b) On or before the first anniversary of the
Distribution Date, LMC shall deliver to RMT Parent its determination in writing of the portion, if any, of any earnings and profits, Tax Attributes, overall foreign loss or other affiliated, consolidated, combined, unitary, fiscal unity or other
group basis Tax Attribute which is allocated or apportioned to the members of the Spinco Group under Applicable Tax Law and this Agreement (
Proposed Allocation
). RMT Parent shall have sixty (60) days to review the Proposed
Allocation and provide LMC any comments with respect thereto. If RMT Parent either provides no comments or provides comments to which LMC agrees in writing, such resulting determination will become final (
Final Allocation
). If RMT
Parent provides comments to the Proposed Allocation and LMC does not agree, the Final Allocation will be determined in accordance with Section 23. All members of the Lockheed Martin Group and Leidos Group shall prepare all Tax Returns in
accordance the Final Allocation. In the event of an adjustment to the earnings and profits, any Tax Attributes, overall foreign loss or other
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affiliated, consolidated, combined, unitary, fiscal unity or other group basis attribute, LMC shall promptly notify RMT Parent in writing of such adjustment. For the avoidance of doubt, LMC shall
not be liable to any member of the Leidos Group for any failure of any determination under this Section 6(b) to be accurate under Applicable Tax Law;
provided
such determination was made in good faith.
(c) Except as otherwise provided herein, to the extent that the amount of any Tax Attribute is later reduced or increased by a Taxing Authority or as a
result of a Tax Proceeding, such reduction or increase shall be allocated to the Company to which such Tax Attribute was allocated pursuant to this Section 6, as agreed by the parties.
SECTION 7
. Utilization of Tax Attributes.
(a)
Amended Returns.
Any amended Tax Return or claim for a refund with respect to any member of the Spinco Group may be made only by the party
responsible for preparing the original Tax Return with respect to such member of the Spinco Group pursuant to Section 5. Such party shall not file or cause to be filed any such amended Tax Return or claim for a refund without the prior written
consent of the other party, which consent shall not be unreasonably withheld, conditioned or delayed, if such filing, assuming it is accepted, could reasonably be expected to change the Tax liability of such other party (or any Affiliate of such
other party) for any Taxable period.
(b)
Carryback of Tax Attributes.
(i) To the extent permitted by Applicable Tax Law, RMT Parent shall cause the Spinco Group to elect to forego carrybacks of any Tax
Attributes of the Spinco Group to a Pre-Distribution Period.
(ii) If RMT Parent is unable to forego carrybacks of any Tax Attributes
of the Spinco Group to a Pre-Distribution Period, the Lockheed Martin Group shall, at the request of RMT Parent and at RMT Parents sole expense, file any amended Tax Returns reflecting such carryback (unless such filing, assuming it is
accepted, could reasonably be expected to change the Tax liability of LMC or any of its Affiliates for any Taxable period). If the Lockheed Martin Group (or any member thereof) receives (or realizes) a refund as a result of such a carryback, LMC
shall remit the amount of such refund to RMT Parent in accordance with Section 9(c).
(c)
Carryforwards to Separate Tax Returns.
If a
portion or all of any Tax Attribute is allocated to a member of a Combined Group pursuant to Section 6, and is carried forward to a Spinco Separate Tax Return, any Tax Benefits arising from such carryforward shall be retained by the Leidos Group. If
a portion or all of any Tax Attribute is allocated to a member of a Combined Group pursuant to Section 6, and is carried forward to a LMC Separate Tax Return, any Tax Benefits arising from such carryforward shall be retained by the Lockheed Martin
Group.
SECTION 8
.
Deductions and Reporting for Certain Awards
.
(a)
Deductions
.
Solely the member of the Group for which the relevant individual is currently employed or, if such individual is not
currently employed by a member of the Group, was most recently employed at the time of the issuance, vesting, exercise, disqualifying disposition, payment, settlement or other relevant Taxable event, as appropriate, in respect of the Compensatory
Equity Interests shall be entitled to claim, in a Post-Distribution Period, any income Tax deduction on its Tax Return in respect of such equity awards and other incentive compensation on its respective Tax Return associated with such event.
(b) If, notwithstanding clause (a), the Spinco Group or the Leidos Group actually utilizes any deductions for a Taxable period ending after the
Distribution Date with respect to (i) the issuance, exercise, vesting or settlement after the Distribution Date of any Compensatory Equity Interests (other than the 2016 Awards), (ii) any liability which is (A) included as a liability
in the calculation of the Final Net Working Capital Amount (excluding, for the avoidance of doubt, reserves), or (B) with respect to compensation, required to be paid or satisfied by, or is otherwise allocated to, any member of the Lockheed
Martin Group in accordance with any Transaction Document, RMT Parent shall remit an amount equal to the overall net reduction in actual cash Taxes paid (determined on a with and without basis) by the Spinco Group or the Leidos Group, as
applicable, resulting from the event giving rise to such deduction (and any income in respect of such event, subject to Section 13(b)) in the year of such event. If a Taxing Authority subsequently reduces or disallows the use by the Spinco
Group or the Leidos Group, as applicable, of such a deduction, LMC shall return an amount equal to the overall net increase in Tax liability of the Spinco Group or the Leidos Group, as applicable, owing to the Taxing Authority to the remitting
party.
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(c)
Withholding and Reporting
. For any Taxable period (or portion thereof), except as LMC may at any
time determine in its reasonable discretion, LMC shall satisfy, or shall cause to be satisfied, all applicable withholding and reporting responsibilities (including all income, payroll, or other Tax reporting related to income to any current or
former employees) with respect to the issuance, exercise, vesting or settlement of such Compensatory Equity Interests that settle with or with respect to stock of LMC. Notwithstanding the foregoing, for any Taxable period (or portion thereof), RMT
Parent shall satisfy, or shall cause to be satisfied, all applicable withholding and reporting responsibilities (including all income, payroll, or other Tax reporting related to income to any current or former employees) with respect to the
exercise, vesting or settlement of the 2016 Awards. LMC, Spinco and RMT Parent acknowledge and agree that the parties shall cooperate with each other and with third-party providers to effectuate withholding and remittance of Taxes, as well as
required Tax reporting, in a timely manner.
SECTION 9
.
Tax Benefits
.
(a)
LMC Tax Benefits
. LMC shall be entitled to any Tax Benefits (including, in the case of any refund received, any interest thereon actually
received) received by any member of the Lockheed Martin Group or any member of the Leidos Group, other than any Tax Benefits (or any amounts in respect of Tax Benefits) to which Spinco or RMT Parent is entitled pursuant to Section 9(b). Neither
Spinco nor RMT Parent shall be entitled to any Tax Benefits received by any member of the Lockheed Martin Group or the Leidos Group, except as set forth in Section 9(b).
(b)
Spinco and RMT Parent Tax Benefits.
Spinco or RMT Parent, as the case may be, shall be entitled to any Tax Benefits (including, in the case
of any refund received, any interest thereon actually received) received by any member of the Lockheed Martin Group or any member of the Leidos Group after the Distribution Date with respect to any Tax allocated to a member of the Spinco Group under
this Agreement (including, for the avoidance of doubt, any amounts allocated to Spinco pursuant to Section 4(c)(iii)). RMT Parent shall also be entitled to any Tax Benefits taken into account as an asset in the calculation of the Final Net
Working Capital Amount.
(c) A Company receiving (or realizing) a Tax Benefit to which another Company is entitled hereunder (a
Tax Benefit
Recipient
) shall pay over the amount of such Tax Benefit (including interest received from the relevant Taxing Authority, but net of any Taxes imposed with respect to such Tax Benefit and any other reasonable costs) within thirty
(30) days of receipt thereof (or from the due date for payment of any Tax reduced thereby);
provided, however
, that the other Company, upon the request of such Tax Benefit Recipient, shall repay the amount paid to the other Company (plus
any penalties, interest or other charges imposed by the relevant Taxing Authority) in the event that, as a result of a subsequent Final Determination, a Tax Benefit that gave rise to such payment is subsequently disallowed.
(d) To the extent the transfer of Spinco business activities prior to the Closing accelerates income or otherwise results in the recognition of gain to
a LMC foreign subsidiary under any program, contract, or other item that otherwise would have been earned in the future by Spinco and its Affiliates, and such acceleration of income or gain is subjected to foreign Tax and that foreign Tax liability
creates Tax basis or other offset in the programs, contracts or other items transferred that results in an overall net reduction of the actual foreign cash Tax paid by Spinco and its Affiliates after the Closing on income when it is earned in the
future with respect to such program (determined on a with and without basis), contract or other item (the
Acceleration Tax Benefit
), RMT Parent shall for any year in which there is an Acceleration Tax Benefit, pay LMC
an amount equal to the Acceleration Tax Benefit at the time of the filing of any Tax Return that reflects the Acceleration Tax Benefit;
provided
that any obligation to pay any Acceleration Tax Benefit shall (i) cease thirty-six
(36) months after the Closing and (ii) not exceed $3 million;
provided further
that, for the avoidance of doubt, no other provision in this Agreement shall be construed to require any member of the Spinco Group or the Leidos Group
to make a payment to LMC in respect of the recovery of basis by amortization or depreciation.
SECTION 10
. Certain Representations
and Covenants.
(a)
Representations.
(i) Each of Spinco and RMT Parent and each other member of their respective Groups represents that as of the date hereof, and covenants
that as of the Distribution Date, except as described in the Transaction Documents, the Spinco Commitment Letter, the Financing Agreements or the Alternative Spinco Commitment Letter, there is no plan or intention:
(A) to liquidate Spinco or to merge or consolidate any member of the Spinco Group with any other Person subsequent to the Distribution,
in each case, except as provided for under the Merger Agreement;
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(B) to sell or otherwise dispose of any material asset of any member of the Spinco Group to
a Person other than a member of the Spinco SAG subsequent to the Distribution, except (w) dispositions in the ordinary course of business, (x) any cash paid to acquire assets in arms length transactions, (y) transactions that
are disregarded for U.S. federal Tax purposes, and (z) mandatory or optional repayment or prepayment of indebtedness;
(C) to
take or fail to take any action in a manner that is inconsistent with the written information and representations furnished by Spinco or RMT Parent to Tax Counsel in connection with the Agreed Tax Representation Letters;
(D) to repurchase stock of RMT Parent other than in a manner that satisfies the requirements of Section 4.05(1)(b) of IRS Revenue
Procedure 96-30 (as in effect prior to the amendment of such Revenue Procedure by IRS Revenue Procedure 2003-48) and consistent with any representations made to Tax Counsel in connection with the Agreed Tax Representation Letters;
(E) to take or fail to take any action in a manner that management of Spinco or RMT Parent knows is reasonably likely to contravene any
agreement with a Taxing Authority to which any member of the Spinco Group is a party that is entered into prior to (x) the date hereof or (y) to the extent provided to RMT Parent for review and comment and reflecting all such reasonably
requested comments, the Distribution Date; or
(F) to enter into any negotiations, agreements, or arrangements with respect to
transactions or events (including stock issuances, pursuant to the exercise of options or otherwise, option grants, the adoption of, or authorization of shares under, a stock option plan, capital contributions, or acquisitions, but not including the
Distribution) that could reasonably be expected to cause the Distribution to be treated as part of a plan (within the meaning of Section 355(e) of the Code) pursuant to which one or more Persons acquire directly or indirectly Spinco stock
representing a 50% or greater interest within the meaning of Section 355(d)(4) of the Code.
(ii) Each member of the Leidos
Group represents that:
(A) as of the date hereof, the only outstanding RMT Parent Capital Stock is (w) the RMT Parent Common
Stock described in Section 5.03(a)(i) of the Merger Agreement, (x) the RMT Parent Stock Options described in Section 5.03(a)(ii)(A) of the Merger Agreement, (y) the RMT Parent RSUs described in Section 5.03(a)(ii)(B) of the
Merger Agreement, and (z) the RMT Parent Performance Share Units described in Section 5.03(a)(ii)(C) of the Merger Agreement, in each case, in number equal to the number of shares of RMT Parent Common Stock set forth in the relevant
Section of the Merger Agreement;
(B) from the date hereof to the Merger Effective Time, (x) no more than 2,760,000 shares of
RMT Parent Common Stock will be issued in respect of the settlement of the RMT Parent RSUs and RMT Parent Performance Share Units and the exercise of the RMT Parent Stock Options, and (y) no other RMT Parent Capital Stock will be issued, other
than RMT Parent Compensatory Equity Interests described in paragraph (C) of this Section 10(a)(ii); and
(C) all RMT Parent
Capital Stock issued pursuant to the RMT Parent Compensatory Equity Interests will satisfy Safe Harbor VIII (relating to acquisitions in connection with a persons performance of services) of Treasury Regulations Section 1.355-7(d).
(b)
Covenants
(i) None of
LMC, Spinco, or RMT Parent shall, nor shall LMC, Spinco or RMT Parent permit any member of their respective Groups to, take or fail to take, as applicable, any action that constitutes a Disqualifying Action described in the definitions of LMC
Disqualifying Action and Spinco Disqualifying Action, as applicable.
(ii) Each of Spinco and RMT Parent will not, and will not
permit any other member of their respective Groups to, take or fail to take any action in a manner that is inconsistent with the information and representations furnished by Spinco or RMT Parent to Tax Counsel in connection with the Agreed Tax
Representation Letters;
(iii) Each of Spinco, RMT Parent and each other member of their respective Groups covenants to LMC that,
without the prior written consent of LMC, during the two-year period following the Distribution Date, except as described in the Transaction Documents, the Spinco Commitment Letter, the Financing Agreements or the Alternative Spinco Commitment
Letter:
(A) Spinco will (w) maintain its status as a company engaged in the Active Trade or Business for purposes of
Section 355(b)(2) of the Code, (x) not engage in any transaction that would result in it ceasing
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to be a company engaged in the Active Trade or Business for purposes of Section 355(b)(2) of the Code, (y) cause each other member of the Spinco Group whose Active Trade or Business is
relied upon for purposes of qualifying the Distribution for the Tax-Free Status to maintain its status as a company engaged in such Active Trade or Business for purposes of Section 355(b)(2) of the Code and any such other Applicable Tax Law,
and (z) not engage in any transaction or permit any other member of the Spinco Group to engage in any transaction that would result in a member of the Spinco Group described in clause (z) hereof ceasing to be a company engaged in the
relevant Active Trade or Business for purposes of Section 355(b)(2) of the Code or such other Applicable Tax Law, taking into account Section 355(b)(3) of the Code for purposes of each of clauses (w) through (z) hereof;
(B) neither Spinco nor RMT Parent will repurchase stock of RMT Parent in a manner contrary to the requirements of Section 4.05(1)(b)
of IRS Revenue Procedure 96-30 (as in effect prior to the amendment of such Revenue Procedure by IRS Revenue Procedure 2003-48) or inconsistent with any representations made by Spinco to Tax Counsel in connection with the Agreed Tax Representation
Letters;
(C) neither RMT Parent nor Spinco will, or will agree to, merge, consolidate or amalgamate with any other Person (except as
provided for under the Merger Agreement), unless, in the case of a merger or consolidation, RMT Parent or Spinco is the survivor of the merger, consolidation or amalgamation;
(D) no member of the Leidos Group will, or will agree to, sell or otherwise issue to any Person except as provided for under the Merger
Agreement, any Equity Interests of RMT Parent or of any member of the Spinco Group;
provided
,
however
, that Spinco and RMT Parent may issue such Equity Interests to the extent such issuances satisfy Safe Harbor VIII (relating to
acquisitions in connection with a persons performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury Regulations Section 1.355-7(d);
(E) no member of the Leidos Group will, or will permit any of their respective Affiliates to, enter or agree to enter into any
transaction or series of transactions, whether such transaction is supported by RMT Parent management or stockholders, is a hostile acquisition, or otherwise, as a result of which one or more persons would directly or indirectly acquire, within the
meaning of Section 355(e), a number of shares of RMT Parent and/or Spinco capital stock that would, when combined with any other direct or indirect acquisitions of Spinco capital stock pertinent for purposes of Section 355(e) of the Code
(including the Merger), reasonably be expected to result in Distribution Taxes;
provided
, that, notwithstanding the foregoing, Spinco and/or RMT Parent shall be permitted to (x) adopt, or issue stock pursuant to, a stockholder rights
plan or (y) issue securities that satisfy Safe Harbor VIII (relating to acquisitions in connection with a persons performance of services) or Safe Harbor IX (relating to acquisitions by a retirement plan of an employer) of Treasury
Regulation Section 1.355-7(d);
provided further
, that any clarification of, or change in, the statute or regulations promulgated under Section 355(e) of the Code shall be incorporated in the restrictions in this clause
(viii) and the interpretation thereof; and
(F) no member of the Leidos Group will amend its certificate of incorporation (or
other organizational documents), or take any other action, whether through a stockholder vote or otherwise, affecting the voting rights of the Equity Interests of Spinco or RMT Parent (including, without limitation, through the conversion of one
class of Equity Interests of Spinco or RMT Parent into another class of Equity Interests of Spinco or RMT Parent).
(iv) Each of
Spinco and RMT Parent will not, and will not permit their respective Groups to, for the one-year period following the Distribution Date, undertake any transaction that is not in the ordinary course of business and that would result in any member of
the Lockheed Martin Group reporting incremental income under Section 951 of the Code.
(v) Except as described in the
Transaction Documents, the Spinco Commitment Letter, the Financing Agreements or the Alternative Spinco Commitment Letter, LMC will not, and will not permit any member of its Group to, from date hereof until the Distribution Date, undertake any
transaction that is not in the ordinary course of business and that would result in any member of the Spinco Group or Leidos Group reporting incremental income under Section 951 of the Code.
(c)
Spinco Covenants Exceptions
. Notwithstanding the provisions of Section 10(b), Spinco, RMT Parent and the other members of their respective
Groups may:
(i) pay cash to acquire assets in arms length transactions, engage in transactions that are disregarded for U.S.
federal Tax purposes, and make mandatory or optional repayments or prepayments of indebtedness;
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(ii) dispose of assets (other than those described in Section 10(c)(i)) that could
otherwise be subject to Section 10(b)(i),(ii) or (iii) if the aggregate fair value of all such assets does not exceed $500 million; or
(iii) in the case of any other action that would reasonably be expected to be inconsistent with the covenants contained in
Section 10(b), if either: (A) Spinco or RMT Parent notifies LMC of its proposal to take such action and RMT Parent and LMC obtain a ruling from the IRS to the effect that such actions will not affect the Tax-Free Status,
provided
that RMT Parent agrees in writing to bear any expenses associated with obtaining such a ruling and,
provided further
, that the Leidos Group shall not be relieved of any liability under Section 12(a) of this Agreement by reason of seeking
or having obtained such a ruling; or (B) Spinco or RMT Parent notifies LMC of its proposal to take such action and obtains an unqualified opinion of counsel (x) from a Tax advisor recognized as an expert in federal income Tax matters and
reasonably acceptable to LMC, (y) on which LMC may rely and (z) to the effect that such action will not affect the Tax-Free Status (assuming that the Internal Reorganization, the Spinco Transfer, the LMC Cash Distribution, the Distribution
and the Merger otherwise qualify for the Tax-Free Status),
provided further
, that the Leidos Group shall not be relieved of any liability under Section 12(a) of this Agreement by reason of having obtained such an opinion.
SECTION 11
.
Protective Section 336(e) Elections
. Pursuant to Treasury Regulations Sections 1.336-2(h)(1)(i) and 1.336-2(j), LMC,
RMT Parent and Spinco agree that LMC shall make a timely protective election under Section 336(e) of the Code and the Treasury Regulations issued thereunder for each member of the Spinco Group that is a domestic corporation for U.S. federal
income Tax purposes with respect to the Distribution (a
Section 336(e) Election
). It is intended that a Section 336(e) Election will have no effect unless the Distribution is a qualified stock disposition, as
defined in Treasury Regulations Section 1.336(e)-1(b)(6), by reason of the application of Treasury Regulations Section 1.336-1(b)(5)(i)(B) or Treasury Regulations Section 1.336-1(b)(5)(ii).
SECTION 12
. Indemnities.
(a)
RMT Parent Indemnity to LMC
. RMT Parent and each other member of the Leidos Group shall jointly and severally indemnify LMC and the other members of the Lockheed Martin Group against, and hold them harmless, without duplication, from:
(i) any Tax liability allocated to Spinco pursuant to Section 4;
(ii) any Distribution Taxes and Tax-Related Losses attributable to a Spinco Disqualifying Action (including, for the avoidance of doubt,
any Taxes and Tax-Related Losses resulting from any action for which the conditions set forth in Section 10(c)(iii) are satisfied);
(iii) all liabilities, costs, expenses (including, without limitation, reasonable expenses of investigation and attorneys fees and
expenses), losses, damages, assessments, settlements or judgments arising out of or incident to the imposition, assessment or assertion of any Tax liability or damage described in (i) or (ii), including those incurred in the contest in good faith in
appropriate proceedings relating to the imposition, assessment or assertion of any such Tax, liability or damage.
(b)
LMC Indemnity to RMT
Parent
. Except in the case of any liabilities described in Section 12(a), LMC and each other member of the Lockheed Martin Group will jointly and severally indemnify RMT Parent and the other members of the Leidos Group against, and hold them
harmless, without duplication, from:
(i) any Tax liability allocated to LMC pursuant to Section 4;
(ii) any Distribution Taxes and Tax-Related Losses (A) attributable to a LMC Disqualifying Action and, (B) for the avoidance of
doubt, other than those described in Section 12(a)(ii);
(iii) any Taxes imposed on any member of the Spinco Group or Leidos
Group under Treasury Regulations Section 1.1502-6 (or similar or analogous provision of state, local or foreign law) as a result of any such member being or having been a member of a Combined Group;
(iv) any Taxes for any Pre-Distribution Period resulting from, attributable to or arising in connection with the Internal Reorganization,
unless attributable to a Spinco Disqualifying Action;
(v) Taxes resulting from
any (i) gain recognized under Treasury Regulations Section 1.1502-19(b) in connection with an excess loss account with respect to the stock of Spinco or any member of the Spinco Group
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at the time of the Distribution, (ii) net deferred gains taken into account under Treasury Regulations Section 1.1502-13(d) associated with deferred intercompany transactions between a
Spinco Group member and a Lockheed Martin Group member, and (iii) gains described in clause (i) or (ii) that are imposed under similar state, local or foreign law; and
(vi) all liabilities, costs, expenses (including, without limitation, reasonable expenses of investigation and attorneys fees and
expenses), losses, damages, assessments, settlements or judgments arising out of or incident to the imposition, assessment or assertion of any Tax liability or damage described in (i) through (v), including those incurred in the contest in good
faith in appropriate proceedings relating to the imposition, assessment or assertion of any such Tax, liability or damage.
provided
,
however,
that LMC shall have no obligation to indemnify any member of the Leidos Group against, or hold it harmless from, any liabilities for Taxes to the extent taken into account in the calculation of the Final Net Working Capital Amount.
(c)
Discharge of Indemnity
. RMT Parent, LMC and the members of their respective Groups shall discharge their obligations under
Section 12(a) or Section 12(b) hereof, respectively, by paying the relevant amount in accordance with Section 13, within 30 Business Days of demand therefor. Any such demand shall include a statement showing the amount due under
Section 12(a) or Section 12(b), as the case may be. Notwithstanding the foregoing, if any member of the Leidos Group or any member of the Lockheed Martin Group disputes in good faith the fact or the amount of its obligation under Section 12(a)
or Section 12(b), then no payment of the amount in dispute shall be required until any such good faith dispute is resolved in accordance with Section 23 hereof;
provided
,
however
, that any amount not paid within 30 Business Days
of demand therefor shall bear interest as provided in Section 13.
(d)
Tax Benefits
. If an indemnification obligation of any Indemnifying
Party under this Section 12 arises in respect of an adjustment that makes allowable to an Indemnified Party any offsetting deduction or other item that would reduce taxes which would not, but for such adjustment, be allowable, then any such
indemnification obligation shall be an amount equal to (i) the amount otherwise due but for this Section 12(d), minus (ii) the reduction in actual cash Taxes payable by the Indemnified Party in the year such indemnification obligation
arises, determined on a with and without basis.
SECTION 13
.
Payments.
(a)
Timing
. All payments to be made under this Agreement (excluding, for the avoidance of doubt, any payments to a Taxing Authority described
herein) shall be made in immediately available funds. Except as otherwise provided, all such payments will be due thirty (30) Business Days after the receipt of notice of such payment or, where no notice is required, thirty (30) Business
Days after the fixing of liability or the resolution of a dispute (the
Due Date
). Payments shall be deemed made when received. Any payment that is not made on or before the Due Date shall bear interest at the rate equal to the
prime rate as published on such Due Date in the Wall Street Journal, Eastern Edition, for the period from and including the date immediately following the Due Date through and including the date of payment. With respect to any payment
required to be made under this Agreement, LMC has the right to designate, by written notice to RMT Parent, which member of the Lockheed Martin Group will make or receive such payment.
(b)
Treatment of Payments
. To the extent permitted by Applicable Tax Law, any payment made by LMC or any member of the Lockheed Martin Group to
RMT Parent or any member of the Leidos Group, or by RMT Parent or any member of the Leidos Group to LMC or any member of the Lockheed Martin Group, pursuant to this Agreement, the Separation Agreement, the Merger Agreement or any other Transaction
Document that relates to Taxable periods (or portions thereof) ending on or before the Distribution Date shall be treated by the parties hereto for all Tax purposes as a distribution by Spinco to LMC, or capital contribution from LMC to Spinco, as
the case may be;
provided, however
that any payment made pursuant to Section 2.02(c), Section 2.03(b), Section 2.04(b) or Section 8.03 of the Separation Agreement shall instead be treated as if the party required to make a
payment of received amounts received such amounts as agent for the other party;
provided further
that any payment made pursuant to Section 3.01, Section 3.02, Section 3.03 or Section 3.04 of the Transition Services
AgreementParent to Spinco, or Section 3.01, Section 3.02, Section 3.03 or Section 3.04 of the Transition Services AgreementSpinco to Parent, shall instead be treated as a payment for services. In the event that a
Taxing Authority asserts that a partys
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treatment of a payment described in this Section 13(b) should be other than as required herein, such party shall use its reasonable best efforts to contest such assertion in a manner
consistent with Section 15 of this Agreement.
(c)
No Duplicative Payment.
It is intended that the provisions of this Agreement shall not
result in a duplicative payment of any amount required to be paid under the Separation Agreement, the Merger Agreement or any other Transaction Document, and this Agreement shall be construed accordingly.
SECTION 14
. Communication and Cooperation.
(a)
Consult and Cooperate.
Spinco, LMC and RMT Parent shall consult and cooperate (and shall cause each other member of their respective Groups
to consult and cooperate) fully at such time and to the extent reasonably requested by the other party in connection with all matters subject to this Agreement. Such cooperation shall include, without limitation:
(i) the retention, and provision on reasonable request, of any and all information including all books, records, documentation or other
information pertaining to Tax matters relating to the Spinco Group (or, in the case of any Tax Return of the Lockheed Martin Group, the portion of such return that relates to Taxes for which the Spinco Group or the Leidos Group may be liable
pursuant to this Agreement), any necessary explanations of information, and access to personnel, until one year after the expiration of the applicable statute of limitation (giving effect to any extension, waiver, or mitigation thereof);
(ii) the execution of any document that may be necessary (including to give effect to Section 15) or helpful in connection with any
required Tax Return or in connection with any audit, proceeding, suit or action; and
(iii) the use of the parties commercially
reasonable efforts to obtain any documentation from a Governmental Authority or a third party that may be necessary or helpful in connection with the foregoing.
(b)
Provide Information.
Except as set forth in Section 15, LMC, Spinco and RMT Parent shall keep each other reasonably informed with
respect to any material development relating to the matters subject to this Agreement.
(c)
Tax Attribute Matters.
LMC, Spinco and RMT Parent
shall promptly advise each other with respect to any proposed Tax adjustments that are the subject of an audit or investigation, or are the subject of any proceeding or litigation, and that may affect any Tax liability or any Tax Attribute
(including, but not limited to, basis in an asset or the amount of earnings and profits) of any member of the Leidos Group or any member of the Lockheed Martin Group, respectively.
(d)
Specified Tax Matters
. Notwithstanding and without limitation of any other provision in this Section 14, Spinco and RMT Parent
shall consult and cooperate (and shall cause each other member of their respective Groups to consult and cooperate) fully at such time and to the extent requested by LMC in connection with all Specified Tax Matters. Such cooperation shall
include, without limitation:
(i) to the extent requested by LMC, at LMCs sole cost and expense, the use of reasonable best
efforts to obtain from the relevant Governmental Authority any applicable exemption from or other Tax Benefit with respect to Taxes arising from a Specified Tax Matter;
(ii) the retention, and provision on request, of any and all information including all books, records, documentation or other information
pertaining to Specified Tax Matters, any necessary explanations of information, and access to personnel, until one year after the expiration of the applicable statute of limitation (giving effect to any extension, waiver, or mitigation thereof); and
(iii) at LMCs sole cost and expense, the use of the parties reasonable best efforts to obtain any support or
documentation from a Governmental Authority or a third party, any necessary involvement and participation from a Governmental Authority, and any other cooperation from a third party, that may be necessary or helpful in connection with the foregoing,
including filing requests for equitable adjustment, instituting and prosecuting lawsuits against the United States Government (the
USG
) to compel it to preclude the assessment and collection of Taxes with respect to Specified Tax
Matters, and/or instituting and prosecuting lawsuits against the USG to compel it to reimburse any Taxes assessed with respect to Specified Tax Matters;
provided
,
however
, that in such event, a party shall only be obligated to seek
available administrative and judicial remedies through the level of the appropriate Board of Contract Appeals or the Court of Federal Claims; and
provided
,
further
, that a party shall not be required to appeal any decision of the
appropriate Board of Contract Appeals or the Court of Federal Claims unless the parties shall otherwise agree.
E-18
For the avoidance of doubt, (A) in the event that Spinco or RMT Parent are then engaged in interactions with a
Governmental Authority with respect to matters the subject of which is similar to those in dispute in connection with Specified Tax Matters (a
Similar Matter
), Spinco and RMT Parent shall devote such resources and otherwise use
efforts with respect to Specified Tax Matters that are at least comparable to the level of efforts employed by Spinco or RMT Parent, as the case may be, with respect to such Similar Matters, including, for the avoidance of doubt, obtaining
cooperation from a third party that may be necessary or helpful in connection with the foregoing, including instituting and prosecuting lawsuits against the USG with respect to a Specified Tax Matter, (B) the obligations set forth in this
Section 14(d) shall apply without regard to whether LMC elects to control a Tax Proceeding with respect to a Specified Tax Matter, and (C) RMT Parent may, upon providing written notice to LMC of its agreement to bear any Tax liability in
connection with such a Specified Tax Matter, assume absolute discretion with respect to any decisions to be made, or the nature of any action to be taken, with respect to any such Specified Tax Matter.
(e)
Confidentiality and Privileged Information
. Any information or documents provided under this Agreement shall be kept confidential by the
party receiving the information or documents, except as may otherwise be necessary in connection with the filing of required Tax Returns or in connection with any audit, proceeding, suit or action. Notwithstanding any other provision of this
Agreement or any other agreement, (i) no member of the Lockheed Martin Group or Leidos Group, respectively, shall be required to provide any member of the Leidos Group or Lockheed Martin Group, respectively, or any other Person access to or
copies of any information or procedures other than information or procedures that relate solely to Spinco, the business or assets of any member of the Spinco Group or matters for which RMT Parent or Lockheed Martin Group, respectively, has an
obligation to indemnify under this Agreement, and (ii) in no event shall any member of the Lockheed Martin Group or the Leidos Group, respectively, be required to provide any member of the Leidos Group or Lockheed Martin Group, respectively, or
any other Person access to or copies of any information if such action could reasonably be expected to result in the waiver of any privilege. Notwithstanding the foregoing, in the event that LMC or RMT Parent, respectively, determines that the
provision of any information to any member of the Leidos Group or Lockheed Martin Group, respectively, could be commercially detrimental or violate any law or agreement to which LMC or RMT Parent, respectively, is bound, LMC or RMT Parent,
respectively, shall not be required to comply with the foregoing terms of this Section 14(e) except to the extent that it is able, using commercially reasonable efforts, to do so while avoiding such harm or consequence.
SECTION 15
. Audits and Contest.
(a)
Notice
. Each of LMC, Spinco and RMT Parent shall promptly notify the other parties in writing upon the receipt from a relevant Taxing
Authority of any notice of a Tax Proceeding that may give rise to an indemnification obligation under this Agreement;
provided
that a partys right to indemnification under this Agreement shall not be limited in any way by a failure to
so notify, except to the extent that the Indemnifying Party is prejudiced by such failure.
(b)
LMC Control
. Notwithstanding anything in this
Agreement to the contrary but subject to Section 15(c), LMC shall have the right to control any Tax Proceeding with respect to any Tax matters of (i) a Combined Group or any member of a Combined Group (as such), (ii) any member of the
Lockheed Martin Group and (iii) any member of the Spinco Group relating solely to a Pre-Distribution Period (an
LMC Tax Proceeding
). LMC shall have absolute discretion with respect to any decisions to be made, or the nature
of any action to be taken, with respect to any LMC Tax Proceeding;
provided
,
however
, that to the extent that any LMC Tax Proceeding is reasonably likely to give rise to an indemnity obligation of Spinco or RMT Parent under Section 12
hereof or materially increase the Taxes allocated to any member of the Leidos Group pursuant to Section 4, (i) LMC shall keep RMT Parent informed of all material developments and events relating to any such LMC Tax Proceeding, (ii) at
its own cost and expense, RMT Parent shall have the right to participate in (but not to control) the defense of any such LMC Tax Proceeding,
provided
that RMT Parent shall not have the right to participate in any such LMC Tax Proceeding
occurring under CAP (a
CAP Proceeding
), and (iii), LMC shall not settle or compromise any such contest without RMT Parents written consent, which consent may not be unreasonably withheld, conditioned or delayed.
(c)
Distribution Taxes
. If any LMC Tax Proceeding relating to Distribution Taxes is reasonably likely to give rise to an indemnity obligation of
Spinco or RMT Parent under Section 12 hereof, RMT Parent and LMC shall exercise joint control over the disposition of such LMC Tax Proceeding;
provided
that notwithstanding the foregoing, LMC shall have the right to control any CAP
Proceeding, in which case (i) LMC shall keep RMT Parent informed of all material developments, (ii) RMT Parent, at its own expense, shall have the right to review, provide comments upon and
E-19
consult with LMC regarding any written or oral presentation to a Taxing Authority relating to such CAP Proceeding within a reasonable period of time prior to such presentation and (iii) LMC
shall not settle or compromise any such contest without RMT Parents written consent, which consent may not be unreasonably withheld, conditioned or delayed. LMC shall otherwise have the right to elect to control any LMC Tax Proceeding relating
to Distribution Taxes;
provided
that LMC shall keep RMT Parent informed of all material developments.
(d)
RMT Parent Participation;
Specified Tax Matters
. LMC shall have the right to elect to control, at LMCs sole cost and expense, any Tax Proceeding relating to any Specified Tax Matter;
provided
, that LMC shall keep RMT Parent fully informed of all
material developments relating to such matter;
provided further
that RMT Parent may, upon providing written notice to LMC of its agreement to bear any Tax liability in connection with such a Specified Tax Matter, revoke LMCs right to
control, and RMT Parent may assume absolute discretion with respect to any decisions to be made, or the nature of any action to be taken, with respect to any such Specified Tax Matter.
(e)
RMT Parent Control
. RMT Parent shall have the right to control any Tax Proceeding with respect to Spinco or any member of the Spinco Group
relating to one or more members of the Spinco Group and to any Post-Distribution Period;
provided
,
however
, that to the extent any such matter may give rise to a claim for indemnity by Spinco or RMT Parent against LMC under
Section 12(b) of this Agreement, (i) RMT Parent shall keep LMC informed of all material developments and events relating to such matters, (ii) at its own cost and expense, LMC shall have the right to participate in (but not to
control) the defense of any such tax claim,
provided
that LMC shall not have the right to participate in any such Tax Proceeding that is a CAP Proceeding, except that LMC, at its own expense, shall have the right to review, provide comments
upon and consult with RMT Parent regarding any written or oral presentation to a Taxing Authority relating to a CAP Proceeding with respect to Distribution Taxes within a reasonable period of time prior to such presentation and (iii) RMT Parent
shall not settle or compromise any such tax claim without the prior written consent of LMC (which shall not be unreasonably withheld, conditioned or delayed).
SECTION 16
. Notices.
All notices, requests and other communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be given,
if to LMC or the Lockheed Martin Group, to:
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: David
Heywood, Vice President, Taxes & General Tax Counsel
Telecopy: (301) 571-2949
with a copy (which shall not constitute notice) to:
Davis Polk & Wardwell LLP
450 Lexington
Avenue
New York, New York 10017
Attention: Neil
Barr
Telecopy: (212) 450-5581
if to Spinco
or the Spinco Group, to:
Abacus Innovations Corporation
c/o Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, Maryland 20817
Attention: President
Telecopy: (301) 897-6013
with a copy
(which shall not constitute notice) to:
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
Attention: Neil Barr
Telecopy: (212) 450-5581
E-20
if to RMT Parent or the Leidos Group, to:
Leidos Holdings, Inc.
11951 Freedom Drive
Reston, Virginia 20190
Attention: Vincent A. Maffeo,
General Counsel
Telecopy: (571) 527-7955
with a copy (which shall not constitute notice) to:
Skadden, Arps, Slate, Meagher & Flom LLP
One Rodney Square
920 N. King Street
Wilmington, Delaware 19801
Attention: Robert B.
Pincus, Esq.
Telecopy: (302) 434-3090
or to such other
address or telecopy number and with such other copies, as such party may hereafter specify for that purpose by notice to the other party. Each such notice, request or other communication shall be effective (a) on the day delivered (or if that
day is not a Business Day, on the first following day that is a Business Day) when (i) delivered personally against receipt or (ii) sent by overnight courier, (b) on the day when transmittal confirmation is received if sent by
telecopy (or if that day is not a Business Day, on the first following day that is a Business Day), and (c) if given by any other means, upon delivery or refusal of delivery at the address specified in this Section 16.
SECTION 17
. Costs and Expenses.
Except as expressly set forth in this Agreement, each party shall bear its own costs and expenses
incurred pursuant to this Agreement. For purposes of this Agreement, costs and expenses shall include, but not be limited to, reasonable attorneys fees, accountants fees and other related professional fees and disbursements. For the
avoidance of doubt, unless otherwise specifically provided in the Transaction Documents, and to the extent not taken into account in the calculation of the Final Net Working Capital Amount, all liabilities, costs and expenses incurred in connection
with this Agreement by or on behalf of Spinco or any member of the Spinco Group in any Pre-Distribution Period shall be the responsibility of LMC and shall be assumed in full by LMC.
SECTION 18
. Effectiveness; Termination and Survival.
Except as expressly set forth in this Agreement, as between LMC and Spinco, this
Agreement shall become effective upon the consummation of the Distribution, and as between LMC, Spinco and RMT Parent, this Agreement shall become effective upon the consummation of the Merger. All rights and obligations arising hereunder shall
survive until they are fully effectuated or performed;
provided
that, notwithstanding anything in this Agreement to the contrary, this Agreement shall remain in effect and its provisions shall survive for one year after the full period of all
applicable statutes of limitation (giving effect to any extension, waiver or mitigation thereof) and, with respect to any claim hereunder initiated prior to the end of such period, until such claim has been satisfied or otherwise resolved. This
agreement shall terminate without any further action at any time before the Closing upon termination of the Merger Agreement.
SECTION 19
. Specific Performance.
Each party hereto acknowledges that the remedies at law of the other party for a breach or
threatened breach of this Agreement would be inadequate and, in recognition of this fact, any party to this Agreement, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to obtain equitable
relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available.
SECTION 20
. Captions.
The captions herein are included for convenience of reference only and shall be ignored in the construction or
interpretation hereof.
SECTION 21
. Entire Agreement; Amendments and Waivers.
(a)
Entire Agreement.
(i)
This Agreement, the other Transaction Documents and any other agreements contemplated hereby or thereby constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior agreements, understandings
and negotiations, both written and oral, between the parties with respect to the subject matter hereof.
E-21
(ii) THE PARTIES ACKNOWLEDGE AND AGREE THAT NO REPRESENTATION, WARRANTY, PROMISE,
INDUCEMENT, UNDERSTANDING, COVENANT OR AGREEMENT HAS BEEN MADE OR RELIED UPON BY ANY PARTY OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT AND IN THE OTHER TRANSACTION DOCUMENTS. WITHOUT LIMITING THE GENERALITY OF THE DISCLAIMER SET FORTH IN
THE PRECEDING SENTENCE, NEITHER LMC NOR ANY OF ITS AFFILIATES HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATIONS OR WARRANTIES IN ANY PRESENTATION OR WRITTEN INFORMATION RELATING TO THE SPINCO BUSINESS GIVEN OR TO BE GIVEN IN CONNECTION
WITH THE CONTEMPLATED TRANSACTIONS OR IN ANY FILING MADE OR TO BE MADE BY OR ON BEHALF OF LMC OR ANY OF ITS AFFILIATES WITH ANY GOVERNMENTAL AUTHORITY, AND NO STATEMENT MADE IN ANY SUCH PRESENTATION OR WRITTEN MATERIALS, MADE IN ANY SUCH FILING OR
CONTAINED IN ANY SUCH OTHER INFORMATION SHALL BE DEEMED A REPRESENTATION OR WARRANTY HEREUNDER OR OTHERWISE. SPINCO ACKNOWLEDGES THAT LMC HAS INFORMED IT THAT NO PERSON HAS BEEN AUTHORIZED BY LMC OR ANY OF ITS AFFILIATES TO MAKE ANY REPRESENTATION
OR WARRANTY IN RESPECT OF THE SPINCO BUSINESS OR IN CONNECTION WITH THE CONTEMPLATED TRANSACTIONS, UNLESS IN WRITING AND CONTAINED IN THIS AGREEMENT OR IN ANY OF THE OTHER TRANSACTION DOCUMENTS TO WHICH THEY ARE A PARTY.
(b)
Amendments and Waivers.
(i) This Agreement may be amended, and any provision of this Agreement may be waived if and only if such amendment or waiver, as the case
may be, is in writing and signed, in the case of an amendment, by the parties or, in the case of a waiver, by the party against whom the waiver is to be effective.
(ii) No failure or delay by either party in exercising any right, power or privilege under this Agreement shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. Except as otherwise provided herein, no action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement. Any term,
covenant or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but only by a written notice signed by such party expressly waiving such term, covenant or condition. The waiver by any party of
a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder.
SECTION 22
. Governing Law and Interpretation.
This Agreement shall be construed in accordance with and governed by the law of the
State of Delaware (without regard to the choice of law provisions thereof).
SECTION 23
. Dispute Resolution.
In the event of any
dispute relating to this Agreement, including but not limited to whether a Tax liability is a liability of the Lockheed Martin Group, the Spinco Group or the Leidos Group, the parties shall work together in good faith to resolve such dispute within
thirty (30) days. In the event that such dispute is not resolved, upon written notice by a party after such thirty (30)-day period, the matter shall be referred to a U.S. Tax counsel or other Tax advisor of recognized national standing (the
Tax Arbiter
) that will be jointly chosen by the LMC and RMT Parent;
provided, however
, that, if the LMC and the RMT Parent do not agree on the selection of the Tax Arbiter after five (5) days of good faith negotiation,
the Tax Arbiter shall consist of a panel of three U.S. Tax counsel or other Tax advisor of recognized national standing with one member chosen by the LMC, one member chosen by the RMT Parent, and a third member chosen by mutual agreement of the
other members within the following ten (10)-day period. Each decision of a panel Tax Arbiter shall be made by majority vote of the members. The Tax Arbiter may, in its discretion, obtain the services of any third party necessary to assist it in
resolving the dispute. The Tax Arbiter shall furnish written notice to the parties to the dispute of its resolution of the dispute as soon as practicable, but in any event no later than ninety (90) days after acceptance of the matter for
resolution. Any such resolution by the Tax Arbiter shall be binding on the parties, and the parties shall take, or cause to be taken, any action necessary to implement such resolution. All fees and expenses of the Tax Arbiter shall be shared equally
by the parties to the dispute. If the parties are unable to find a Tax Arbiter willing to adjudicate the dispute in question and whom the parties, acting in good faith find acceptable, then the dispute shall be resolved in the manner set forth in
Section 10.11 of the Merger Agreement.
SECTION 24
. Counterparts.
This Agreement may be signed in any number of counterparts
(including by facsimile or PDF), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
E-22
SECTION 25
.
Successors and Assigns; Third Party Beneficiaries.
Except as provided below,
this Agreement shall be binding upon and shall inure only to the benefit of the parties hereto and their respective successors and assigns, by merger, acquisition of assets or otherwise (including but not limited to any successor of a party hereto
succeeding to the Tax Attributes of such party under Applicable Tax Law). This Agreement is not intended to benefit any Person other than the parties hereto and such successors and assigns, and no such other Person shall be a third party beneficiary
hereof. Upon the Closing, this Agreement shall be binding on RMT Parent and RMT Parent shall be subject to the obligations and restrictions imposed on Spinco hereunder, including, without limitation, the indemnification obligations of Spinco under
Section 12.
SECTION 26
. Authorization, Etc.
Each of the parties hereto hereby represents and warrants that it has the power
and authority to execute, deliver and perform this Agreement, that this Agreement has been duly authorized by all necessary corporate action on the part of such party, that this Agreement constitutes a legal, valid and binding obligation of each
such party, and that the execution, delivery and performance of this Agreement by such party does not contravene or conflict with any provision or law or of its charter or bylaws or any agreement, instrument or order binding on such party.
SECTION 27
.
Change in Tax Law.
Any reference to a provision of the Code, Treasury regulations or any other Applicable Tax Law shall
include a reference to any applicable successor provision of the Code, Treasury regulations or other Applicable Tax Law.
SECTION 28
.
Principles.
This Agreement is intended to calculate and allocate certain Tax liabilities of the members of the Spinco Group and the members of the Lockheed Martin Group to Spinco, LMC and RMT Parent (and their respective Groups), and any
situation or circumstance concerning such calculation and allocation that is not specifically contemplated by this Agreement shall be dealt with in a manner consistent with the underlying principles of calculation and allocation in this Agreement.
[SIGNATURE PAGE FOLLOWS]
E-23
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the day and year first
written above.
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Lockheed Martin Corporation on its own behalf and on behalf of the members of the Lockheed Martin Group.
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By:
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/s/ Gregory L. Psihas
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Name:
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Gregory L. Psihas
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Title:
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Vice President, Corporate Development
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Spinco on its own behalf and on behalf of the members of the Spinco Group.
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By:
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/s/ Stephen M. Piper
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Name:
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Stephen M. Piper
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Title:
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President
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Leidos Holdings, Inc. on its own behalf and on behalf of the members of the Leidos Group.
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By:
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/s/ Roger A. Krone
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Name:
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Roger A. Krone
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Title:
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Chief Executive Officer
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[SIGNATURE PAGE TO TAX MATTERS AGREEMENT]
AMENDMENT
Dated as of June 27, 2016
to
AGREEMENT AND PLAN OF MERGER
Dated as of January 26, 2016
By
and Among
LOCKHEED MARTIN CORPORATION,
ABACUS INNOVATIONS CORPORATION,
LEIDOS
HOLDINGS, INC.
and
LION MERGER
CO.
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This Amendment
(this
Amendment
) to Agreement and Plan of Merger (the
Merger Agreement
), by and among Lockheed Martin Corporation, a Maryland corporation (
LMC
), Abacus Innovations Corporation, a Delaware
corporation and wholly owned subsidiary of LMC (
Spinco
), Leidos Holdings, Inc., a Delaware corporation (
RMT Parent
), and Lion Merger Co., a Delaware corporation and wholly owned subsidiary of RMT Parent
(
Merger Sub
), is made as of the 27th day of June 2016. Each of LMC, Spinco, RMT Parent and Merger Sub is sometimes referred to individually as a
Party
and collectively they are sometimes referred to as the
Parties
.
W
I
T
N
E
S
S
E
T
H
:
WHEREAS, the Parties entered into the Merger Agreement as of January 26, 2016, and contemporaneously therewith LMC and Spinco entered into a Separation
Agreement (the
Separation Agreement
);
WHEREAS, at the Merger Effective Time, Merger Sub will be merged with and into Spinco,
with Spinco continuing as the surviving corporation, all upon the terms and conditions of the Merger Agreement; and
WHEREAS, in accordance with the
terms and conditions of the Merger Agreement, the Parties desire to amend the Merger Agreement in the manner set forth in this Amendment, and contemporaneously with this Amendment LMC and Spinco are amending the Separation Agreement with the consent
of RMT Parent;
NOW, THEREFORE, in consideration of the foregoing, the amendment of the Separation Agreement and the representations, warranties,
covenants and agreements contained in the Merger Agreement and this Amendment, and other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, and intending to be legally bound hereby, the Parties agree as
follows:
Section 1.
Definitions
. Capitalized terms used in this Amendment but not defined herein shall have the meanings given to them
in the Merger Agreement.
Section 2.
Amendment to Section 2.09
. Section 2.09 of the Merger Agreement is hereby amended and restated in
its entirety to read as follows:
Prior to the Merger (regardless of whether the actual payment date for any RMT Parent Special Dividend is
before, on or after the Merger Effective Time), RMT Parent, subject to Applicable Law, shall declare a special dividend to the holders of its then-outstanding common shares as of a record date prior to the Closing Date (provided that, in the event
the Distribution is in the form of an Exchange Offer, (i) RMT Parent will advise LMC at least seven days prior to the anticipated commencement of the Exchange Offer of the anticipated record date and ex-dividend date on the NYSE for the RMT Parent
Common Stock in respect of the special dividend and (ii) the ex-dividend date in the regular way market on the NYSE for the RMT Parent Common Stock in respect of the special dividend shall not be during the averaging period used to determine the
final exchange ratio in the Exchange Offer), in an amount per share equal to $13.64.
Section 3.
Corporate Authorization; No
Conflict
. Each Party represents and warrants that it has the necessary corporate power and authority to enter into this Amendment and to carry out its obligations hereunder. The execution and delivery by each Party of this Amendment,
and the consummation of the transactions contemplated by this Amendment, have been duly authorized by all requisite corporate action on the part of each Party, except in the case of Spinco and Merger Sub for the approval of LMC and RMT Parent,
respectively, in their capacities as sole stockholder of such Parties. The execution, delivery and performance by each Party of this Amendment do not (i) contravene or conflict with its articles or certificate of incorporation or its bylaws or
(ii) contravene, conflict with, result in any breach of, constitute a default (or an event which, with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of
termination, acceleration or cancellation of any material contract to which any such Party is a signatory or otherwise is bound, except in any such case as would not reasonably be expected (A) in the case of LMC or Spinco, to (I) materially and
adversely affect the ability of LMC or Spinco to carry out its obligations under and to consummate the Contemplated Transactions or (II) otherwise have a Spinco Material Adverse Effect, or (B) in the case of RMT Parent or Merger Sub, to (I)
materially and adversely affect the ability of RMT Parent or Merger Sub to carry out its obligations under and to consummate the Contemplated Transactions or (II) otherwise have an RMT Parent Material Adverse Effect.
F-1
Section 4.
Related Amendments
. If and to the extent any other amendments to the Merger
Agreement or the Separation Agreement are necessary to give effect to the changes contemplated by this Amendment, the Parties agree to make such further amendments.
Section 5.
Limited Amendment
. Except as specifically provided in this Amendment, the Merger Agreement shall remain in full force and effect
without any other amendments or modifications.
Section 6.
Tax Matters
. For the avoidance of doubt, (i) the execution of this Amendment and
the consummation of the transactions contemplated hereby shall not be considered (A) an action or failure to take an action by any LMC Entity for purposes of clauses (x) and (y) of Section 2.04(c) of the Merger Agreement or (B) a LMC Disqualifying
Action (as defined in the Tax Matters Agreement), and (ii) for purposes of Section 10(a) or Section 10(b) of the Tax Matters Agreement, any adjustment to the number of shares of RMT Parent Capital Stock (as defined in the Tax Matters Agreement)
related, directly or indirectly, to the payment of the RMT Parent Special Dividend shall not be considered described in the Transaction Documents or provided for under the Merger Agreement.
Section 7.
Counterparts; Effectiveness
. This Amendment may be signed in any number of counterparts (including by facsimile or PDF), with the
same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective when each Party shall have received a counterpart hereof signed by the other Parties hereto and RMT Parent shall have
received a copy of the Separation Agreement signed by LMC and Spinco.
Section 8.
Governing Law
. This Amendment shall be construed in
accordance with and governed by federal law and the laws of the State of Delaware (without regard to the choice of law provisions thereof).
[SIGNATURE PAGE FOLLOWS]
F-2
IN WITNESS WHEREOF, the Parties caused this Amendment to be duly executed by their respective authorized
representatives on the day and year first above written.
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LOCKHEED MARTIN CORPORATION
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By:
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/s/ Stephen M. Piper
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(SEAL)
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Name: Stephen M. Piper
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Title: Vice President and Associate
General Counsel
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ABACUS INNOVATIONS CORPORATION
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By:
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/s/ F. Barry Hennegan
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(SEAL)
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Name: F. Barry Hennegan
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Title: Vice President and Secretary
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LEIDOS HOLDINGS, INC.
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By:
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/s/ Roger A. Krone
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(SEAL)
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Name: Roger A. Krone
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Title: Chief Executive Officer
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LION MERGER CO.
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By:
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/s/ Roger A. Krone
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(SEAL)
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Name: Roger A. Krone
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Title: President
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[SIGNATURE PAGE TO AMENDMENT TO AGREEMENT AND PLAN OF MERGER]
AMENDMENT
Dated as of June 27, 2016
to
SEPARATION AGREEMENT
Dated as of January 26, 2016
By and Among
LOCKHEED MARTIN CORPORATION
and
ABACUS INNOVATIONS CORPORATION
AMENDMENT TO
SEPARATION AGREEMENT
This Amendment (this
Amendment
) to Separation Agreement (the
Separation Agreement
), by and among Lockheed Martin Corporation, a Maryland corporation (
Parent
), and Abacus Innovations Corporation, a Delaware
corporation and wholly owned subsidiary of Parent (
Spinco
), is made as of the 27th day of June 2016. Each of LMC and Spinco is sometimes referred to individually as a
Party
and collectively they are sometimes
referred to as the
Parties
.
W
I
T
N
E
S
S
E
T
H
:
WHEREAS, the Parties entered into the Separation Agreement as of January 26, 2016, and contemporaneously therewith the Parties, Leidos
Holdings, Inc., a Delaware corporation (
Merger Partner
), and Lion Merger Co., a Delaware corporation and wholly owned subsidiary of Merger Partner (
Merger Partner Sub
), entered into an Agreement and Plan of
Merger (the
Merger Agreement
);
WHEREAS, in accordance with the terms and conditions of the Merger Agreement, immediately
following the Distribution, Merger Partner Sub will merge with and into Spinco such that Spinco will become a wholly owned subsidiary of Merger Partner;
WHEREAS, in accordance with the terms and conditions of the Separation Agreement, the Parties desire to amend the Separation Agreement in the manner set
forth in this Amendment, and contemporaneously with this Amendment the Parties, Merger Partner and Merger Partner Sub are amending the Merger Agreement; and
WHEREAS, in accordance with Section 16.02(a) of the Separation Agreement and Section 7.15(a) of the Merger Agreement, Merger Partner has executed this
Amendment to evidence its consent to this Amendment;
NOW, THEREFORE, in consideration of the foregoing, the amendment of the Merger Agreement and
the representations, warranties, covenants and agreements contained in the Separation Agreement and this Amendment, and other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, and intending to be legally
bound hereby, the Parties agree as follows:
Section 1.
Definitions
. Capitalized terms used in this Amendment but not defined herein
shall have the meanings given to them in the Separation Agreement.
Section 2.
Amendment to Section 2.08(c)
. Clauses (i) through (iii)
of Section 2.08(c) of the Separation Agreement are deleted and replaced with the following clauses (i) through (iv) of Section 2.08(c):
(i) If the Final Net Working Capital Amount is greater than $29,000,000, then (x) the amount of such excess,
plus
(y) the Final
Closing Cash, shall be paid to Parent by Spinco;
(ii) If the Final Net Working Capital Amount is greater than $22,000,000 but not
more than $29,000,000, then (x) the difference between (A) $7,000,000
minus
(B) the amount of such excess
minus
(y) the Final Closing Cash, shall be paid to Spinco by Parent (it being understood that if the Final Closing Cash is
greater than the amount in clause (x), then in lieu of a payment to Spinco by Parent, the difference between the Final Closing Cash
minus
the amount in clause (x) shall be paid to Parent by Spinco);
(iii) If the Final Net Working Capital Amount is at least $12,000,000 but not more than $22,000,000, then (x) $7,000,000
minus
(y)
the Final Closing Cash shall be paid to Spinco by Parent (it being understood that if the Final Closing Cash is greater than the amount in clause (x), then in lieu of a payment to Spinco by Parent, the difference between the Final Closing Cash
minus
the amount in clause (x) shall be paid to Parent by Spinco); and
(iv) If the Final Net Working Capital Amount is less
than $12,000,000, then (x) the difference between $19,000,000 and the Final Net Working Capital
minus
(y) the Final Closing Cash, shall be paid to Spinco by Parent (it being understood that if the Final Closing Cash is greater than the amount
in clause (x), then the difference between the Final Closing Cash
minus
the amount in clause (x) shall be paid to Parent by Spinco).
G-1
For the avoidance of doubt, the final paragraph of Section 2.08(c) shall remain in full force and effect without any
amendment or modification.
Section 3.
Amendment to Schedule A-2
. Schedule A-2 to the Separation Agreement is amended by deleting the
contracts listed on Schedule 1 to this Amendment, which contracts shall not be Transferred Assets.
Section 4.
Amendment to Schedule
A-17
. Schedule A-17 to the Separation Agreement is amended and restated in its entirety to read as set forth on Schedule 2 to this Amendment.
Section 5.
Related Amendments
. If and to the extent any other amendments to the Separation Agreement or the Merger Agreement are necessary
to give effect to the changes contemplated by this Amendment, the Parties agree to make such further amendments.
Section 6.
Limited
Amendment
. Except as specifically provided in this Amendment, the Separation Agreement shall remain in full force and effect without any other amendments or modifications.
Section 7.
Tax Matters
. For the avoidance of doubt, (i) the execution of this Amendment and the consummation of the transactions
contemplated hereby shall not be considered (A) an action or failure to take an action by any LMC Entity (as defined in the Merger Agreement) for purposes of clauses (x) and (y) of Section 2.04(c) of the Merger Agreement or (B) a LMC Disqualifying
Action (as defined in the Tax Matters Agreement), and (ii) for purposes of Section 10(a) or Section 10(b) of the Tax Matters Agreement, any adjustment to the number of shares of RMT Parent Capital Stock (as defined in the Tax Matters Agreement)
related, directly or indirectly, to the payment of the RMT Parent Special Dividend (as defined in the Merger Agreement) shall not be considered described in the Transaction Documents or provided for under the Merger
Agreement.
Section 8.
Counterparts; Effectiveness
. This Amendment may be signed in any number of counterparts (including by
facsimile or PDF), with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective when each Party shall have received a counterpart hereof signed by the other Parties hereto and
Parent shall have received a copy of the Merger Agreement signed by the Parties, Merger Partner and Merger Partner Sub.
Section 9.
Governing
Law
. This Amendment shall be construed in accordance with and governed by federal law and the laws of the State of Delaware (without regard to the choice of law provisions thereof).
[SIGNATURE PAGE FOLLOWS]
G-2
IN WITNESS WHEREOF, the Parties caused this Amendment to be duly executed by their respective authorized
representatives on the day and year first above written.
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LOCKHEED MARTIN CORPORATION
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By:
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/s/ Stephen M. Piper
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(SEAL)
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Name:
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Stephen M. Piper
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Title:
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Vice President and Associate General Counsel
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ABACUS INNOVATIONS CORPORATION
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By:
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/s/ F. Barry Hennegan
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(SEAL)
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Name:
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F. Barry Hennegan
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Title:
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Vice President and Secretary
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Merger Partner hereby executes this Amendment below to confirm its consent to this Amendment in
accordance with the terms and conditions of the Separation Agreement and the Merger Agreement.
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LEIDOS HOLDINGS, INC.
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By:
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/s/ Roger A. Krone
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(SEAL)
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Name:
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Roger A. Krone
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Title:
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Chief Executive Officer
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[SIGNATURE PAGE TO AMENDMENT TO SEPARATION AGREEMENT]
FIRST AMENDMENT TO EMPLOYEE MATTERS AGREEMENT
This First Amendment (this
Amendment
) to the Employee Matters Agreement, dated as of the 26
th
day of January 2016 (the
Employee Matters Agreement
), Lockheed Martin Corporation, a Maryland corporation (
Parent
), Abacus Innovations Corporation, a Delaware
corporation and wholly owned subsidiary of Parent (
Spinco
) and Leidos Holdings, Inc., a Delaware corporation (
RMT Parent
), is made as of the 27 day of June 2016. Each of Parent, Spinco, and RMT Parent is
sometimes referred to individually as a
Party
and collectively they are sometimes referred to as the
Parties
.
RECITALS
WHEREAS,
in connection with
the Agreement and Plan of Merger dated as of January 26, 2016 (the
Merger Agreement
), entered into by and Parent, Spinco, RMT Parent, and Lion Merger Co., a Delaware corporation and wholly owned Subsidiary of RMT Parent, the
Parties contemporaneously entered into the Employee Matters Agreement; and
WHEREAS
,
the Parties desire to amend certain rights and
obligations of the Parties under the Employee Matters Agreement.
NOW, THEREFORE
,
in consideration of the foregoing and the mutual
covenants and agreements hereof, and intending to be legally bound hereby, the Parties agree as follows:
AGREEMENT TO AMEND
Section 1.
Definitions
. Capitalized terms used in this Amendment but not defined herein shall have the meanings given to them in the
Employee Matters Agreement.
Section 2.
Amendment to Section 2.03(c) of the Employee Matters Agreement
. Section 2.03(c) of the
Employee Matters Agreement is hereby amended and restated in its entirety as follows:
(c) The terms of the Successor Savings Plan, or each
such Successor Savings Plan, shall provide that the Spinco Business Employees shall have the right to make direct rollovers to such plan of their accounts in each Parent Savings Plan, other than a direct in-kind rollover of any investments in
Lockheed Martin Corporation stock and RMT Parent stock. No Successor Savings Plan shall be obligated to permit investments in Lockheed Martin Corporation stock after the Distribution Date. Each Successor Savings Plan shall also provide that the
Spinco Business Employees shall have the right to make direct rollovers to such plan of any notes evidencing loans made to such Spinco Business Employees, as provided in paragraph (d) of this
Section 2.03
. However, if Parent
reasonably determines that a direct rollover from a Parent Savings Plan to a Successor Savings Plan is impermissible under Section 401(k) of the Code, Spinco or the RMT Parent Entity, as the case may be, shall cause the Successor Savings Plan,
or each such Successor Savings Plan, to accept a transfer of assets and liabilities with respect to the Spinco Business Employees from the corresponding Parent Savings Plan at such time and in such form as agreed upon by Parent and Spinco or an RMT
Parent Entity, as the case may be. If any Spinco Business Employee has a loan that remains outstanding under a Parent Savings Plan after the Distribution Date, Parent shall provide coupon books to permit such Spinco Business Employee to continue to
repay such loan until the earlier of the date such loan is paid in full and the date such loan is rolled over to a Successor Savings Plan as provided in paragraph (d) of this
Section 2.03
.
Section 3.
Corporate Authorization; No Conflict
. Each Party represents and warrants that it has the necessary corporate power and authority
to enter into this Amendment and to carry out its obligations hereunder. The execution and delivery by each Party of this Amendment, and the consummation of the transactions contemplated by this Amendment, have been duly authorized by all requisite
corporate action on the part of each Party, except in the case of Spinco for the approval of Parent in its capacity as sole stockholder of Spinco. The execution, delivery and performance by each Party of this Amendment do not (i) contravene or
conflict with its articles or certificate of incorporation or its bylaws or (ii) contravene, conflict with, result in any breach of, constitute a default (or an event
H-1
which, with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, acceleration or cancellation of
any material contract to which any such Party is a signatory or otherwise is bound, except in any such case as would not reasonably be expected (A) in the case of Parent or Spinco, to (I) materially and adversely affect the ability of
Parent or Spinco to carry out its obligations under and to consummate the Contemplated Transactions (as defined in the Merger Agreement) or (II) otherwise have a Spinco Material Adverse Effect (as defined in the Merger Agreement), or
(B) in the case of RMT Parent, to (I) materially and adversely affect the ability of RMT Parent to carry out its obligations under and to consummate the Contemplated Transactions (as defined in the Merger Agreement) or (II) otherwise have
an RMT Parent Material Adverse Effect (as defined in the Merger Agreement).
Section 4.
Related Amendments
. If and to the extent any
other amendments to the Employee Matters Agreement, the Merger Agreement or the Separation Agreement are necessary to give effect to the changes contemplated by this Amendment, the Parties agree to make such further amendments.
Section 5.
Limited Amendment
. Except as specifically provided in this Amendment, the Employee Matters Agreement shall remain in full force
and effect without any other amendments or modifications.
Section 6.
Counterparts; Effectiveness
. This Amendment may be signed in any
number of counterparts (including by facsimile or PDF), with the same effect as if the signatures thereto and hereto were upon the same instrument. This Amendment shall become effective when each Party shall have received a counterpart hereof signed
by the other Parties hereto.
Section 7.
Governing Law
. This Amendment shall be construed in accordance with and governed by the law of
the State of Delaware (without regard to the choice of law provisions thereof).
[
Signature page follows
]
H-2
IN WITNESS WHEREOF, the Parties have caused this Amendment to be duly executed by their respective
authorized representatives on the day and year first above written.
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LOCKHEED MARTIN CORPORATION
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By:
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/s/ Stephen M. Piper
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Name:
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Stephen M. Piper
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Title:
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Vice President and Associate General Counsel
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ABACUS INNOVATIONS CORPORATION
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By:
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/s/ F. Barry Hennegan
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Name:
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F. Barry Hennegan
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Title:
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Vice President and Secretary
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LEIDOS HOLDINGS, INC.
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By:
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/s/ Roger A. Krone
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Name:
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Roger A. Krone
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Title:
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Chief Executive Officer
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[SIGNATURE PAGE TO FIRST AMENDMENT TO EMPLOYEE MATTERS AGREEMENT]
* ADMISSION TICKET *
Please bring this top half of your proxy card, along with a government issued photo I.D.
in order to gain admission to the meeting.
You can view the Leidos Transition Report on Form 10-K and the proxy materials for the annual meeting on the Internet at www.proxyvote.com
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Proxy and Voting Instruction Card for
the Annual Meeting of Stockholders August 8, 2016
This Proxy and Voting Instruction Card is Solicited on Behalf of the
Board of Directors
The undersigned hereby
appoints Vincent A. Maffeo and Raymond L. Veldman, and each of them, with full power of substitution, as proxies to represent the undersigned and to vote all of the shares of common stock the undersigned is entitled to vote at the Annual Meeting of
Stockholders of Leidos Holdings, Inc. (the Company) to be held at the Companys office, 11951 Freedom Drive, Reston, Virginia, on Monday, August 8, 2016, at 9:00 a.m. (local time), and at any adjournment, postponement or
continuation thereof (the 2016 Annual Meeting of Stockholders), as indicated on the reverse side.
For stockholders who are participants in the Leidos, Inc. Retirement Plan (the Leidos Retirement Plan), the undersigned also
hereby instructs the Trustee, Vanguard Fiduciary Trust Company, and any successor, to vote all of the shares of common stock held for the undersigneds account in the Leidos Retirement Plan at the 2016 Annual Meeting of Stockholders, as
indicated on the reverse side.
The shares of common stock to
which this proxy and voting instruction card relates will be voted as directed.
If this proxy and voting instruction card is properly signed and returned but no instructions are indicated with respect to a particular item, (A) the shares
represented by this proxy and voting instruction card which the undersigned is entitled to vote will be voted (i) FOR Proposal 1, (ii) FOR each of the nominees standing for election as a director, (iii) FOR Proposal 3, (iv) FOR Proposal 4, (v) FOR
Proposal 5, (vi) FOR Proposal 6 and (vii) in the discretion of the proxy holders, on any other matters properly coming before the meeting and any adjournment, postponement or continuation thereof and (B) the shares represented by this proxy and
voting instruction card held for the undersigneds account in the Leidos Retirement Plan will be voted in the same proportion as the shares held in the Leidos Retirement Plan for which voting instructions have been received are voted.
This
proxy and voting instruction card, if properly executed and delivered in a timely manner, will revoke all prior proxies and voting instruction cards executed and delivered by the undersigned.
For shares not held in the Leidos Retirement Plan, the deadline for
submitting a proxy using the Internet or the telephone is 11:59 p.m. Eastern time on August 7, 2016. For shares held in the Leidos Retirement Plan, the deadline for submitting voting instructions using any of the allowed methods is 11:59 p.m.
Eastern time on August 3, 2016.
Please complete, sign, date
and return the Proxy and Voting Instruction Card promptly using the enclosed envelope.
(Continued and to be signed on reverse side.)
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ATTN: STOCK PROGRAMS
11955 Freedom Drive
M/S: FS2-15-1
Reston, VA 20190
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BY INTERNET -
www.proxyvote.com
Use the Internet to transmit your proxy and/or voting instructions and for electronic delivery of information. Have your proxy and voting instruction card in
hand when you access the web site and follow the instructions to obtain your records and to create an electronic proxy and voting instruction form. Please see the reverse side of this card for information regarding specific voting deadlines.
ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred by Leidos in mailing proxy materials, you
can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted,
indicate that you agree to receive or access stockholder communications electronically in future years.
BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your proxy and/or voting instructions. Have your proxy and voting instruction card in hand when you call and then
follow the instructions. Please see the reverse side of this card for information regarding specific voting deadlines.
BY MAIL
Mark, sign and date your proxy and voting instruction card and return it in the postage-paid envelope we have provided or return it to Leidos, c/o Broadridge,
51 Mercedes Way, Edgewood, NY 11717.
VOTE CONFIRMATION
You may confirm that your instructions were received and included in the final tabulation
to be issued at the Annual Meeting on August 8, 2016 via the ProxyVote Confirmation link at
www.proxyvote.co
m
by using the information that is printed in the box marked by the arrow
g
XXXX XXXX XXXX. Vote Confirmation is available 24 hours after your vote is received beginning July 24, 2016, with the final vote tabulation remaining available through October 8,
2016.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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M36118-P12789
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KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
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THIS PROXY AND VOTING INSTRUCTION CARD IS VALID ONLY WHEN SIGNED AND DATED.
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VOTE ON PROPOSAL 1 - The Board of Directors recommends a vote FOR proposal 1.
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For
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Against
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Abstain
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1.
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Proposal to issue shares of Leidos common stock to Lockheed Martin stockholders under the Merger Agreement.
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¨
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¨
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¨
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VOTE ON DIRECTORS - The Board of Directors recommends a vote FOR each of the nominees listed below.
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2.
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Nominees:
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For
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Against
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Abstain
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For
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Against
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Abstain
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1a.
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David G. Fubini
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¨
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¨
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¨
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1e.
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Gary S. May
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¨
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¨
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¨
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1b.
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Miriam E. John
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¨
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¨
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¨
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1f.
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Lawrence C. Nussdorf
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¨
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¨
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¨
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1c.
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John P. Jumper
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¨
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¨
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¨
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1g.
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Robert S. Shapard
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¨
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¨
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¨
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1d.
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Harry M.J. Kraemer, Jr.
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¨
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¨
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¨
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1h.
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Noel B. Williams
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¨
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¨
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¨
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1e.
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Roger A. Krone
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¨
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¨
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¨
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VOTE ON PROPOSAL 3 - The Board of Directors recommends a vote FOR proposal 3.
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For
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Against
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Abstain
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3.
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Approve, by an advisory vote, executive compensation.
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¨
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¨
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¨
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VOTE ON PROPOSAL 4 - The Board of Directors recommends a vote FOR proposal 4.
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For
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Against
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Abstain
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4.
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Approve, by an advisory vote, Transaction-related executive compensation.
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¨
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¨
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¨
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VOTE ON PROPOSAL 5 - The Board of Directors recommends a vote FOR proposal 5.
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For
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Against
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Abstain
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5.
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The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 30, 2016.
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¨
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¨
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¨
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VOTE ON PROPOSAL 6 - The Board of Directors recommends a vote FOR proposal 6.
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For
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Against
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Abstain
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6.
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Proposal to adjourn the annual meeting, if necessary or appropriate, to solicit additional proxies.
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¨
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¨
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¨
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Please complete, date, sign and mail promptly in the enclosed envelope
which requires no postage.
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Please sign EXACTLY as name or names appear(s) hereon. When signing as attorney, executor, trustee, administrator or guardian, please give your full title. If a trust requires the
signature of more than one trustee, all required trustees must sign.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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