Exhibit 10.2

 

 

 

TAX MATTERS AGREEMENT

by and between

SAIC, INC.

and

SAIC GEMINI, INC.

dated as of

September 25, 2013

 

 

 

--------------------------------------------------------------------------------

TAX MATTERS AGREEMENT

This TAX MATTERS AGREEMENT is dated as of September 25, 2013, by and among SAIC,
Inc., a Delaware corporation (“Leidos”), that will be known as Leidos Holdings,
Inc. following the External Distribution, SAIC Gemini, Inc., a Delaware
corporation (“New SAIC” and, together with Leidos, the “Parties”, and each
individually, a “Party”), that will be known as Science Applications
International Corporation following the External Distribution and, solely for
the purposes of Section 4.5(b), SAIC International Holdings, Inc., a Delaware
corporation (“NewCo”).

WHEREAS, as of the date hereof, Leidos is the common parent of an affiliated
group of domestic corporations within the meaning of Section 1504(a) of the Code
(the “Affiliated Group”), and the members of the Affiliated Group have
heretofore joined in filing consolidated federal Income Tax Returns;

WHEREAS, Leidos, acting through its direct and indirect Subsidiaries, currently
conducts the Leidos Business and the New SAIC Business;

WHEREAS, the Board of Directors of Leidos (the “Board”) has determined that it
is appropriate, desirable and in the best interests of Leidos and its
stockholders to separate Leidos into two separate, publicly traded companies,
one for each of (i) the Leidos Business, which shall be owned and conducted,
directly or indirectly, by Leidos and (ii) the New SAIC Business, which shall be
owned and conducted, directly or indirectly, by New SAIC;

WHEREAS, in order to effect such separation, the Board has determined that it is
appropriate, desirable and in the best interests of Leidos and its stockholders
to undertake the Internal Reorganization and, following the completion of the
Internal Reorganization, for Leidos to distribute pro rata to the Record Holders
in accordance with the Distribution Ratio, all of the issued and outstanding
shares New SAIC Common Stock (the “External Distribution”);

WHEREAS, it is the intention of the Parties that the External Distribution
qualify as a tax-free distribution under Section 355 of the Code;

WHEREAS, it is the intention that the contributions of New SAIC Assets to, and
the assumption of New SAIC Liabilities by, New SAIC prior to the Internal
Distribution, together with the Internal Distribution, qualify as a
reorganization within the meaning of Section 368(a)(1)(D) and 355 of the Code;

WHEREAS, as a result of the Distributions, the Parties desire to enter into this
Tax Matters Agreement to provide for certain Tax matters, including the
assignment of responsibility for the preparation and filing of Tax Returns, the
payment of and indemnification for Taxes (including Taxes with respect to the
Distributions and related transactions as contemplated in the Distribution
Agreement and the other Ancillary Agreements), entitlement to refunds of Taxes,
and the prosecution and defense of any Tax controversies; and

NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the Parties hereby agree as follows:

 

1

--------------------------------------------------------------------------------

ARTICLE I. DEFINITIONS

SECTION 1.1. General. Capitalized terms used in this Agreement and not defined
herein shall have the meanings that such terms have in the Distribution
Agreement. As used in this Agreement, the following terms shall have the
following meanings:

“Active Business” means the active business relied on by Leidos, Applications or
New SAIC, as the case may be, to satisfy the active trade or business
requirement of Section 355(b) for purposes of the Ruling.

“Affiliate” is defined in the Distribution Agreement.

“Affiliated Group” is defined in the preamble hereof.

“Agreement” means this Tax Matters Agreement.

“Applications” means Science Applications International Corporation, a Delaware
corporation and wholly owned Subsidiary of Leidos, that will be known as Leidos,
Inc. following the External Distribution.

“Breaching Party” is defined in Section 4.3.

“Business Day” or “Business Days” means any day that is not a Saturday, a Sunday
or any other day on which banks are required or authorized by law to be closed
in New York City or Virginia.

“Closing of the Books Method” means the apportionment of items between portions
of a taxable period based on a closing of the books and records on the
Distribution Date (as if the Distribution Date was the end of the taxable
period).

“Code” means the United States Internal Revenue Code of 1986, as amended.

“Consolidated Return” means any Income Tax Return filed pursuant to Section 1502
of the Code, or any comparable combined, consolidated, or unitary group Income
Tax Return filed under state or local Tax law with respect to which Leidos or
any Leidos Subsidiary is the parent entity.

“Distribution” or “Distributions” means the External Distribution and the
Internal Distribution, individually or collectively.

“Distribution Agreement” means the Distribution Agreement, dated as of
September 25, 2013, between Leidos and New SAIC.

“Distribution Date” means the Business Day on which the External Distribution is
effected.

“Effective Time” is defined in the Distribution Agreement.

“Final Determination” means the final resolution of liability for any Tax for
any taxable period, including any related interest or penalties, by or as a
result of: (i) a final and unappealable decision, judgment, decree or other
order by any court of competent jurisdiction; (ii) a closing agreement or
accepted offer in compromise under Section 7121 or 7122 of the Code, or
comparable agreement under the laws of other jurisdictions which resolves the
entire Tax liability for any taxable period; (iii) any allowance of a refund or
credit in respect of an overpayment of Tax, but only after the expiration of all
periods during which such refund may be recovered by the jurisdiction imposing
the Tax; or (iv) any other final disposition.

 

2

--------------------------------------------------------------------------------

“Force Majeure” is defined in the Distribution Agreement.

“Included Party” is defined in Section 3.3(b).

“Income Tax” means any income, franchise or similar Taxes imposed on (or
measured by) net income or net profits.

“Income Tax Returns” means all Tax Returns relating to Income Taxes.

“Indemnified Liability” means any liability subject to indemnification pursuant
to Section 4.3.

“IRS” means the United States Internal Revenue Service.

“Internal Distribution” is defined in the Distribution Agreement.

“Leidos” is defined in the preamble hereof.

“Leidos Business” is defined in the Distribution Agreement.

“Leidos Subsidiary” means any Subsidiary of Leidos other than New SAIC or any
New SAIC Subsidiary.

“LIBOR” is defined in the Distribution Agreement.

“Losses” has the meaning ascribed to the term “Indemnifiable Losses” in the
Distribution Agreement.

“New SAIC” is defined in the preamble hereof.

“New SAIC Business” is defined in the Distribution Agreement.

“New SAIC Subsidiary” means (i) any Subsidiary of New SAIC after the
Distribution Date and (ii) any Subsidiary of New SAIC before the Distribution
Date the successor of which is described in (i) above.

“Non-Breaching Party” is defined in Section 4.3.

“Opinion” means the opinion delivered by Simpson Thacher & Bartlett LLP pursuant
to Section 4.4(c) of the Distribution Agreement.

“Party” is defined in the preamble hereof.

“Payment Period” is defined in Section 2.4(d).

“Preparing Party” is defined in Section 3.3(b).

“Proceeding” means any audit, examination or other proceeding brought by a
Taxing Authority with respect to Taxes.

 

3

--------------------------------------------------------------------------------

“Prohibited Acts” is defined in Section 4.2.

“Pro-Rated Method” means the apportionment of items between portions of a
taxable period based on the number of days in such taxable period on or before
the Distribution Date in comparison to the number of days in such taxable period
after the Distribution Date (i.e., without regard to when any items are realized
within such taxable period).

“Requesting Party” is defined in Section 4.2.

“Restricted Period” means the two-year period commencing on the Distribution
Date.

“Ruling” means the private letter ruling issued by the IRS to Leidos dated
July 2, 2013, any supplemental rulings related thereto and any requests or
supplemental materials submitted by Leidos in connection with the private letter
ruling.

“Sharing Percentage” means (i) seventy percent (70%) in the case of Leidos and
(ii) thirty percent (30%) in the case of New SAIC.

“Subsidiary” is defined in the Distribution Agreement.

“Stub Taxable Period” is defined in Section 3.3(a).

“Tax” or “Taxes” means (i) all taxes, charges, fees, imposts, levies or other
assessments imposed by a Taxing Authority, including all net income, gross
receipts, capital, sales, use, gains, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation,
property and estimated taxes, custom duties, fees, assessments and charges of
any kind whatsoever and (ii) liability for the payment of any amount of the type
described in clause (i) above arising as a result of being (or having been) a
member of any group or being (or having been) included or required to be
included in any Tax Return related thereto. Whenever the term “Tax” or “Taxes”
is used it shall include penalties, fines, additions to tax and interest
thereon.

“Taxing Authority” means any governmental authority (whether United States or
non-United States, and including, any state, municipality, political subdivision
or governmental agency) responsible for the imposition of any Tax.

“Tax Package” is defined in Section 3.3(b).

“Tax Returns” means all reports or returns (including information returns and
amended returns) required to be filed or that may be filed for any period with
any Taxing Authority in connection with any Tax or Taxes (whether domestic or
foreign).

SECTION 1.2. References; Interpretation. References in this Agreement to any
gender include references to all genders, and references to the singular include
references to the plural and vice versa. The words “include,” “includes” and
“including” when used in this Agreement shall be deemed to be followed by the
phrase “without limitation.” Unless the context otherwise requires, references
in this Agreement to Articles, Sections, Exhibits and Schedules shall be deemed
references to Articles and Sections of, and Exhibits and Schedules to, such
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 of this Agreement.

 

4

--------------------------------------------------------------------------------

ARTICLE II. ALLOCATION OF TAX LIABILITIES

SECTION 2.1. Payment of Taxes.

(a) Taxes Upon Filing and Adjusted Income Taxes. The Party responsible for the
filing of a Tax Return pursuant to Sections 3.1 and 3.2 shall pay to the
relevant Taxing Authority all Taxes due or payable in connection with such Tax
Return (including any amounts relating to adjustments to such Tax Return) and
shall be entitled to any refunds (including, for the avoidance of doubt, any
similar credit or offset against Taxes) in connection therewith. Notwithstanding
the foregoing, with respect to any Tax Return (other than a Consolidated Return)
of New SAIC or any New SAIC Subsidiary for any taxable period that ends on or
before the Distribution Date, Leidos shall be liable for, and shall be entitled
to any refunds of, Taxes (including any amounts relating to adjustments to such
Tax Return) relating to such taxable period. Notwithstanding the foregoing, with
respect to any Tax Return (other than a Consolidated Return) of New SAIC or any
New SAIC Subsidiary for any taxable period that begins before and includes but
does not end on the Distribution Date, Leidos shall be liable for, and shall be
entitled to any refunds of, Taxes (including any amounts relating to adjustments
to such Tax Return) relating to the portion of the taxable period ending on the
Distribution Date and New SAIC shall be liable for, and shall be entitled to any
refunds of, Taxes relating to the portion of the taxable period beginning after
the Distribution Date. For the purposes of the above sentence, (i) Taxes imposed
on a periodic basis (such as real or personal property Taxes) shall be
apportioned between the two portions of such taxable period in accordance with
the Pro-Rated Method and (ii) Taxes not described in clause (i) above (such as
franchise Taxes, Taxes that are based upon or related to income or receipts,
based upon occupancy or imposed in connection with any sale or other transfer or
assignment of property) shall be apportioned between the two portions of such
taxable period in accordance with the Closing of the Books Method.

(b) Separation Taxes. Notwithstanding anything in this Section 2.1 to the
contrary, and except as provided in Article IV, Leidos and New SAIC shall be
liable (in accordance with their respective Sharing Percentages) for, and shall
be entitled (in accordance with their respective Sharing Percentages) to any
refunds of, any Taxes for a taxable period that begins before the Distribution
Date imposed or incurred in connection with the Distributions or the Internal
Reorganization, including (i) Taxes imposed as a result of any Distribution
failing to qualify under Section 355 of the Code, (ii) Taxes imposed as a result
of the stock of New SAIC distributed in any Distribution failing to be treated
as qualified property pursuant to Section 355(d) or 355(e) of the Code,
(iii) Taxes imposed as a result of Leidos or Applications otherwise recognizing
any gain in connection with any Distribution (including, for the avoidance of
doubt, the related internal transactions and the distribution of cash to Leidos
from New SAIC following the Internal Distribution described in the Ruling),
(iv) Taxes imposed as a result of the recapture of any previously claimed Tax
items in connection with the Distributions, (v) Taxes imposed as a result of any
deferred intercompany item or excess loss account (or any similar item under
state, local or foreign Tax law) being taken into account in connection with the
Distributions pursuant to Section 1502 of the Code and the regulations
promulgated thereunder (or any similar provision of state, local or foreign Tax
law) and (vi) any stamp, duty, transfer, sales and use or similar Taxes incurred
in connection with the Distributions or the Internal Reorganization; provided,
however, that Leidos shall be liable for, and shall be entitled to any refunds
of, the first $100,000 of such Taxes.

SECTION 2.2. Indemnity.

(a) Subject to Article IV, Leidos shall indemnify New SAIC and its Affiliates
from all liability for Taxes for which Leidos is responsible pursuant to
Section 2.1 and any related Losses.

 

5

--------------------------------------------------------------------------------

(b) Subject to Article IV, New SAIC shall indemnify Leidos and its Affiliates
from all liability for Taxes for which New SAIC is responsible pursuant to
Section 2.1 and any related Losses.

(c) Unless otherwise agreed in writing, the indemnifying Party shall pay to the
indemnified Party the amount required to be paid pursuant to Section 2.2(a) or
(b) above within fifteen (15) days of being notified of the amount due by the
indemnified Party. The notice by the indemnified Party requesting such payment
shall be accompanied by the calculations and other information used to determine
the indemnifying Party’s obligations hereunder. Such payment shall be paid by
the indemnifying Party to the indemnified Party by wire transfer of immediately
available funds to an account designated by the indemnified Party by written
notice to the indemnifying Party prior to the due date of such payment.

SECTION 2.3. Contests.

(a) Subject to Article IV, the right to control the conduct of any Proceeding
shall belong to the Party responsible, pursuant to Sections 3.1 and 3.2, for the
filing of the Tax Return to which such Proceeding relates. If the Party not
controlling a Proceeding could have an indemnification obligation for an
adjustment to Tax pursuant to such Proceeding, such Party shall be entitled to
participate in (but not control) such Proceeding at its own cost and expense;
provided, however, that the Party controlling the Proceeding shall not settle
such Proceeding in a manner that would result in an indemnity payment from the
other Party under this Agreement without the consent of the other Party (such
consent not to be unreasonably withheld, conditioned or delayed); provided,
further, that the Party controlling such Proceeding may settle such Proceeding
without the consent of the other Party so long as such Party waives its
indemnification rights hereunder in respect of such Proceeding.

(b) After the Distribution Date, each Party shall promptly notify the other
Party in writing upon receipt of written notice of the commencement of any
Proceeding or of any demand or claim upon it, which, if determined adversely,
would be grounds for indemnification from such other Party pursuant to
Section 2.2; provided that failure to provide notice pursuant to this sentence
shall not relieve any Party of its obligations pursuant to this Agreement except
to the extent such Party is actually prejudiced as a result thereof. Each Party
shall, on a timely basis, keep the other Party informed of all developments in
the Proceeding and provide such other Party with copies of all pleadings,
briefs, orders, and other correspondence pertaining thereto.

SECTION 2.4. Treatment of Payments; After Tax Basis.

(a) Unless otherwise required by a Final Determination, this Agreement or
otherwise agreed to between the Parties, any payment made pursuant to this
Agreement (other than any payment of interest pursuant to Section 2.4(d)) by:
(i) New SAIC to Leidos shall be treated for all Tax purposes as a distribution
by New SAIC to Leidos with respect to the stock of New SAIC occurring after New
SAIC is directly owned by Leidos and immediately before the External
Distribution; or (ii) Leidos to New SAIC shall be treated for all Tax purposes
as a tax-free contribution by Leidos to New SAIC with respect to its stock
occurring after New SAIC is directly owned by Leidos and immediately before the
External Distribution; and in each case, no Party shall take any position
inconsistent with such treatment. In the event that a Taxing Authority asserts
that a Party’s treatment of a payment pursuant to this Agreement should be other
than as required pursuant to this Agreement (ignoring any potential inconsistent
or adverse Final Determination), such Party shall use its commercially
reasonable efforts to contest such challenge.

 

6

--------------------------------------------------------------------------------

(b) If the receipt or accrual of any payment pursuant to this Agreement (other
than payments of interest pursuant to Section 2.4(d)) results in taxable income
to the indemnified Party or any of its Affiliates, such payment shall be
increased so that, after the payment of any Taxes with respect to the payment,
the indemnified Party and its Affiliates shall have realized the same net amount
they would have realized had the payment not resulted in taxable income.

(c) To the extent that any liability for Taxes or Losses that is subject to
indemnification under this Agreement gives rise to a deduction, credit or other
Tax benefit to the indemnified Party or any of its Affiliates, the amount of any
payment made under this Agreement shall be decreased by taking into account any
actual reduction in Taxes (determined on a with and without basis) of the
indemnified Party or any of its Affiliates resulting from such Tax benefit. If
(i) such actual reduction in Taxes of the indemnified Party or its Affiliate
occurs in a taxable period following the period in which the indemnification
payment is made or (ii) any adjustment to the liability for Taxes for which one
Party or any Affiliates is responsible hereunder gives rise to a deduction,
credit or other Tax benefit to the other Party or any of its Affiliates, the
indemnified Party (or, in the case of (ii), the other Party) shall on an annual
basis pay the indemnifying Party (or, in the case of (ii), the responsible
Party) the amount of the actual reduction in Taxes (determined on a with and
without basis); provided, however, that no such payment shall be required if the
actual reduction in Taxes for the relevant year and any unpaid reduction in
Taxes for all prior years is less than $50,000.

(d) Payments made pursuant to this Agreement that are not made within the period
prescribed in this Agreement or, if no period is prescribed, within thirty
(30) days after demand for payment is made (the “Payment Period”) shall bear
interest for the period from and including the date immediately following the
last date of the Payment Period through and including the date of payment at a
rate of simple interest per annum equal to LIBOR. Such interest will be payable
at the same time as the payment to which it relates and shall be calculated on
the basis of a year of 365 days and the actual number of days for which due.

ARTICLE III. PREPARATION AND FILING OF TAX RETURNS

SECTION 3.1. Leidos’s Responsibility for the Preparation and Filing of Tax
Returns.

(a) Leidos shall prepare or cause to be prepared (i) all Consolidated Returns,
(ii) all other Tax Returns that it or any Leidos Subsidiary is legally obligated
to file after the Distribution Date according to the laws of the relevant taxing
jurisdiction and (iii) all Tax Returns required to be filed before the
Distribution Date. Leidos shall file or cause to be filed all such Tax Returns
with the appropriate Taxing Authority.

(b) To the extent that New SAIC or any New SAIC Subsidiary is included in any
Consolidated Return for a taxable period that includes the Distribution Date,
Leidos shall include in such Consolidated Return the results of New SAIC and the
New SAIC Subsidiaries on the basis of the Closing of the Books Method consistent
with Treas. Reg. Section 1.1502-76(b)(2)(i).

SECTION 3.2. New SAIC’s Responsibility for the Preparation and Filing of Tax
Returns. New SAIC shall prepare or cause to be prepared all Tax Returns that it
or any New SAIC Subsidiary is legally obligated to file after the Distribution
Date according to the laws of the relevant taxing jurisdiction; provided,
however, that Leidos shall have the right to review and comment with respect to
items on such Tax Returns if and to the extent such items directly relate to
Taxes for which Leidos would be liable under Section 2.1, such comment not to be
unreasonably rejected. New SAIC shall file or cause to be filed all such Tax
Returns with the appropriate Taxing Authority.

 

7

--------------------------------------------------------------------------------

SECTION 3.3. Manner of Preparation.

(a) To the extent permitted by law, any taxable period of New SAIC or any New
SAIC Subsidiary for any state or local Income Tax purposes that would otherwise
include but not end on the Distribution Date shall be bifurcated into two
separate taxable periods, one ending on the Distribution Date and the other
beginning on the day following the Distribution Date (each a “Stub Taxable
Period”), and a separate Income Tax Return for each Stub Taxable Period shall be
prepared and filed by the Party responsible for such preparation and filing
pursuant to Sections 3.1 and 3.2.

(b) To the extent any Tax Return required to be prepared by Leidos pursuant to
Section 3.1 contains items relating to the New SAIC Business or any Tax Return
required to by prepared by New SAIC pursuant to Section 3.2 contains items
relating to the Leidos Business, the Party not responsible for preparing such
Tax Return (the “Included Party”) shall, at its own cost and expense, prepare
and deliver to the Party responsible for preparing such Tax Return (the
“Preparing Party”) a true and correct accounting of all relevant Tax items (in a
form reasonably requested by the Preparing Party) relating to the Included Party
(or any of its Subsidiaries) for the taxable period covered by such Tax Return
(a “Tax Package”) within thirty (30) days following the written request of the
Preparing Party. In the event an Included Party does not fulfill its obligations
pursuant to this Section 3.3(b), the Preparing Party shall be entitled to
prepare or cause to be prepared the information required to be included in the
Tax Package for purposes of preparing any such Tax Return, and the Included
Party shall reimburse the Preparing Party for any out-of-pocket expenses
incurred in the preparation of such information.

(c) All Tax Returns for taxable periods (or portions thereof) beginning before
the Distribution Date that are required to be filed after the Distribution Date
that could give rise to an indemnity obligation pursuant to Section 2.2 shall be
prepared in a manner consistent with past practices (e.g., accounting methods
and accelerating deductions through bonus depreciation or otherwise) and the
preparing Party shall, at the other Party’s request, share any such Tax Return
with such other Party after the filing thereof.

(d) All Income Tax Returns filed on or after the Distribution Date shall be
prepared in a manner that is consistent with the Ruling and the Opinion, or any
other rulings obtained from other Taxing Authorities in connection with the
Distributions (in the absence of a Final Determination to the contrary) and
shall be filed on a timely basis (including pursuant to extensions) by the Party
responsible for such filing pursuant to Sections 3.1 and 3.2. In the absence of
a Final Determination to the contrary or a change in law, all Income Tax Returns
of New SAIC and its Subsidiaries for taxable periods beginning before the
Distribution Date shall be prepared consistent with the Tax Returns of the
Affiliated Group.

(e) Except to the extent required by law, New SAIC and any New SAIC Subsidiary
shall not amend any Income Tax Return relating to a taxable period (or portion
thereof) ending on or before to the Distribution Date without the written
consent of Leidos (which consent may be withheld in its sole discretion).

SECTION 3.4. Costs and Expenses of Preparation. Subject to Section 3.3(b),
(i) any out-of-pocket costs and expenses associated with preparing any U.S.
federal, state or local Tax Returns with respect to taxable periods that begin
before and include, but do not end on, the Distribution Date filed under
Sections 3.1 or 3.2 shall be shared by the Parties in accordance with their
respective Sharing Percentages and (ii) with respect to any Tax Return not
described in (i) above, the Party responsible for

 

8

--------------------------------------------------------------------------------

preparing any Tax Return under Sections 3.1 or 3.2 shall be responsible for the
costs and expenses associated with preparing such Tax Returns. The Party
responsible for reimbursing the other Party incurring such out-of-pocket costs
and expenses pursuant to this Section 3.4 shall reimburse such other Party
promptly upon being provided with evidence of the incurrence of such
out-of-pocket costs and expenses.

SECTION 3.5. Carrybacks. To the extent permitted by law, New SAIC and any New
SAIC Subsidiaries shall elect to forego a carryback of any net operating losses,
capital losses or credits for any taxable period ending after the Distribution
Date to a taxable period, or portion thereof, ending on or before the
Distribution Date. Notwithstanding anything herein to the contrary, New SAIC and
any New SAIC Subsidiaries shall not have any right to receive the benefit of any
carryback of Tax attributes created in a taxable period beginning after the
Distribution Date into a Consolidated Return.

SECTION 3.5. Retention of Records; Access.

(a) Leidos and New SAIC shall, and shall cause each of their Subsidiaries to,
retain adequate records, documents, accounting data and other information
(including computer data) necessary for the preparation and filing of all Tax
Returns required to be filed by Leidos or New SAIC hereunder and for any
Proceeding relating to such Tax Returns or to any Taxes payable by Leidos or New
SAIC hereunder.

(b) Leidos and New SAIC shall, and shall cause each of their Subsidiaries to,
provide reasonable access to (i) all records, documents, accounting data and
other information (including computer data) necessary for the preparation and
filing of all Tax Returns required to be filed by Leidos or New SAIC and for any
Proceeding relating to such Tax Returns or to any Taxes payable by Leidos or New
SAIC and (ii) its personnel and premises, for the purpose of the preparation,
review or audit of such Tax Returns, or in connection with any Proceeding, as
reasonably requested by either Leidos or New SAIC.

(c) The obligations set forth above in Sections 3.5(a) and 3.5(b) shall continue
until the longer of (i) the time of a Final Determination or (ii) expiration of
all applicable statutes of limitations, to which the records and information
relate. For purposes of the preceding sentence, each Party shall assume that no
applicable statute of limitations has expired unless such Party has received
notification or otherwise has actual knowledge that such statute of limitations
has expired.

SECTION 3.6. Confidentiality; Ownership of Information; Privileged Information.
The provisions of Article VIII of the Distribution Agreement relating to
confidentiality of information, ownership of information, privileged information
and related matters shall apply with equal force to any records and information
prepared and/or shared by and among the Parties in carrying out the intent of
this Agreement.

ARTICLE IV. DISTRIBUTIONS AND RELATED TAX MATTERS

Notwithstanding anything herein to the contrary, the provisions of this Article
IV shall govern all matters among the parties hereto related to an Indemnified
Liability.

SECTION 4.1. Compliance with the Ruling and the Opinion. Leidos and New SAIC
hereby confirm and agree to comply with (and cause their respective Subsidiaries
to comply with) any and all covenants, agreements and representations in the
Ruling and the Opinion applicable to Leidos and New SAIC, respectively.

 

9

--------------------------------------------------------------------------------

SECTION 4.2. Opinion Requirement for Major Transactions Undertaken by Leidos or
New SAIC During the Restricted Period. Other than pursuant to the transactions
contemplated by the Distribution Agreement, Leidos and New SAIC each agree that
during the Restricted Period neither Party shall (and Leidos shall not cause or
permit Applications to) (i) merge or consolidate with or into any other entity,
(ii) liquidate or partially liquidate (within the meaning of such terms as
defined in Section 346 and Section 302, respectively, of the Code), (iii) sell
or transfer all or substantially all of its assets (within the meaning of Rev.
Proc. 77-37, 1977-2 C.B. 568) in a single transaction or series of related
transactions, or sell or transfer any portion of its assets that would violate
the “continuity of business enterprise” requirement of Treas. Reg.
Section 1.368-1(d), (iv) redeem or otherwise repurchase any of its capital stock
other than pursuant to open market stock repurchase programs meeting the
requirements of section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696,
(v) cease the active conduct of its trade or business within the meaning of
Section 355(b) of the Code or the active conduct of its Active Business,
(vi) enter into any negotiations, agreements or arrangements with respect to
transactions or events (including any transactions described in Sections
4.2(i)-(iv) (and, for this purpose, including any redemptions made pursuant to
open market stock repurchase programs), stock issuances (pursuant to the
exercise of options or otherwise), option grants, capital contributions or
acquisitions, entering into any partnership or joint venture arrangements, or a
series of such transactions or events, but excluding any Distribution) that may
cause any Distribution to be treated as part of a plan pursuant to which one or
more persons acquire directly or indirectly stock of Leidos, Applications or New
SAIC representing a “35-percent or greater interest” (i.e., stock possessing at
least 35 percent of the total combined voting power of all classes of stock
entitled to vote or at least 35 percent of the total value of shares of all
classes of stock, as such terms are used in Section 355(d)(4) of the Code), or
(vii) take any other action (or series of actions), or permit any Subsidiary to
take any such action (or series of actions), where the taking of such action (or
series of actions) could reasonably be expected to cause any Distribution to
fail to qualify under Section 355 of the Code or cause the stock of New SAIC
distributed in any Distribution to fail to be treated as qualified property
pursuant to Section 355(e) of the Code (the acts listed in
(i)-(vii) collectively, the “Prohibited Acts”). Notwithstanding the foregoing,
Leidos (and Applications, if applicable) or New SAIC (the “Requesting Party”)
may take any of the Prohibited Acts, subject to Section 4.3, if (x) the
Requesting Party first obtains (at its expense) an opinion in form and substance
reasonably acceptable to the other Party of a nationally recognized law firm or
a “big four” accounting firm reasonably acceptable to the other Party, which
opinion may be based on usual and customary factual representations (reasonably
acceptable to the other Party) or (y) at the Requesting Party’s request, Leidos
(at the expense of the Requesting Party) obtains a supplemental ruling from the
IRS, that such Prohibited Act or Prohibited Acts, and any transaction related
thereto, will not (a) affect any of the conclusions set forth in the Ruling,
including (i) the qualification of the External Distribution under Section 355
of the Code, (ii) the qualification of the Internal Distribution and certain
internal transactions preceding the Internal Distribution under Sections 355 and
368 of the Code, (iii) the nonrecognition of gain in connection with the cash
distribution to Leidos from New SAIC following the Internal Distribution and
(iv) the nonrecognition of gain to Leidos in the External Distribution and
Applications in the Internal Distribution, or (b) cause the stock of New SAIC
distributed in any Distribution to fail to be treated as qualified property
pursuant to Sections 355(d) or 355(e) of the Code. A Party (and Applications, if
applicable) may also take any of the Prohibited Acts, subject to Section 4.3,
with the consent of the other Party in its sole and absolute discretion. During
the Restricted Period, a Party shall provide all information reasonably
requested by the other Party relating to any transaction involving an
acquisition (directly or indirectly) of the stock of Leidos, Applications or New
SAIC within the meaning of Section 355(e) of the Code.

SECTION 4.3. Indemnification for Distribution Taxes. If, after the External
Distribution, a Party or any of its Affiliates takes any action or enters into
any agreement to take any action, including

 

10

--------------------------------------------------------------------------------

any of the Prohibited Acts as defined in Section 4.2 of this Agreement, or if
there is a breach by any Party of Section 4.1 hereof, or if there is any direct
or indirect acquisition of a Party’s stock (or, in the case of Leidos,
Applications’ stock), and as a result (i) any Distribution shall fail to qualify
under Section 355 of the Code, (ii) the stock of New SAIC distributed in any
Distribution shall fail to be treated as qualified property pursuant to
Section 355(d) or 355(e) of the Code or (iii) Leidos or Applications otherwise
recognizes any gain in connection with any Distribution (including, for the
avoidance of doubt, the related internal transactions and the cash distribution
to Leidos from New SAIC following the Internal Distribution described in the
Ruling), then such Party (the “Breaching Party”) shall indemnify and hold
harmless the other Party (the “Non-Breaching Party”) and any of its Affiliates
against any and all Taxes (and any related Losses) imposed upon or incurred by
the Non-Breaching Party or any of its Affiliates (and any Taxes of Leidos
shareholders to the extent the Non-Breaching Party or any of its Affiliates is
liable with respect to such Taxes, whether to a Taxing Authority, to a
shareholder or to any other person) as a result, unless such Taxes would, in any
event, have been imposed upon or incurred by the Non-Breaching Party or any or
its Affiliates without regard to such actions, breaches or events, as determined
at such time. The Non-Breaching Party and any of its Affiliates shall be
indemnified and held harmless under this Section 4.3 without regard to whether
an opinion or supplemental ruling pertaining to the action pursuant to
Section 4.2 was obtained, and without regard to whether the Non-Breaching Party
gave its consent to such action pursuant to Section 4.2 or otherwise.

SECTION 4.4. Procedural Matters.

(a) Notice. If either New SAIC or Leidos receives any written notice of
deficiency, claim or adjustment or any other written communication from a Taxing
Authority that may result in an Indemnified Liability, the Party receiving such
notice or communication shall promptly give written notice thereof to the other
Party, provided that any delay in such notification shall not relieve the
indemnifying Party of any liability to the other Party hereunder except to the
extent the indemnifying Party is materially and adversely prejudiced by such
delay. Leidos undertakes and agrees that from and after such time as Leidos
obtains knowledge that any representative of a Taxing Authority has begun to
investigate or inquire into any Distribution (whether or not such investigation
or inquiry is a formal or informal investigation or inquiry), Leidos shall
(i) notify New SAIC thereof, provided that any delay by Leidos in so notifying
New SAIC shall not relieve New SAIC of any liability to Leidos hereunder except
to the extent New SAIC is materially and adversely prejudiced by such delay,
(ii) consult with New SAIC from time to time as to the conduct of such
investigation or inquiry, (iii) provide New SAIC with copies of all
correspondence between Leidos or its representatives and such Taxing Authority
or any representative thereof pertaining to such investigation or inquiry, and
(iv) cooperate with New SAIC to permit a representative (reasonably satisfactory
to Leidos) of New SAIC to be present at, and participate in (but not control),
all meetings with such Taxing Authority or any representative thereof pertaining
to such investigation or inquiry, provided, that any costs relating to New
SAIC’s representation at such meetings shall be borne by New SAIC.

(b) Tax Proceedings Controlled by Leidos. With respect to any Proceeding that
may result in an Indemnified Liability with respect which New SAIC would be
entitled to indemnification from Leidos, Leidos shall be entitled to direct and
control the defense or settlement of such Proceeding at its own expense.

(c) Tax Proceedings Controlled by New SAIC. With respect to any Proceeding that
may result in an Indemnified Liability with respect to which Leidos would be
entitled to indemnification from New SAIC, New SAIC shall be entitled to direct
and control the defense or settlement of such Proceeding at its own expense;
provided that such New SAIC shall not settle such Proceeding without the prior
written

 

11

--------------------------------------------------------------------------------

consent of Leidos (not to be unreasonably withheld, conditioned or delayed). New
SAIC undertakes and agrees to (i) consult with Leidos from time to time as to
the conduct of any such Proceeding over which it exercises direction and
control, (iii) provide Leidos with copies of all correspondence between New SAIC
or its representatives and such Taxing Authority or any representative thereof
pertaining to such Proceeding, and (iv) cooperate with Leidos to permit a
representative (reasonably satisfactory to New SAIC) of Leidos to be present at,
and participate in (but not control), all meetings with such Taxing Authority or
any representative thereof pertaining to such Proceeding, provided, that any
costs relating to Leidos’s representation at such meetings shall be borne by
Leidos.

(d) Time and Manner of Payment. Unless otherwise agreed in writing, Leidos or
New SAIC, as the case may be, shall pay to the other Party the amount with
respect to an Indemnified Liability determined pursuant to a Final Determination
(less any amount paid directly by the indemnifying Party to the Taxing
Authority) at least two Business Days prior to the date payment of the
Indemnified Liability is required to be made to the Taxing Authority. Such
payment shall be paid by wire transfer of immediately available funds to an
account designated by the indemnified Party by written notice to the
indemnifying Party prior to the due date of such payment.

(e) Refund of Amounts. Should a Party or any of its Affiliates receive a refund
in respect of an Indemnified Liability or other Taxes for which the other Party
was responsible under this Article 4 or otherwise under this Agreement, or
should any such amounts that would otherwise be refundable to such Party or any
of its Affiliates be applied or credited by the Taxing Authority to obligations
of such Party or any of its Affiliates unrelated to an Indemnified Liability,
then such Party shall, promptly following receipt (or notification of credit),
remit such refund or an amount equal to such credit (including any statutory
interest that is included in such refund or credited amount) to the other Party.

(h) Cooperation. Subject to the provisions of Section 3.6, Leidos and New SAIC
shall reasonably cooperate with one another in a timely manner in any Proceeding
involving any matter that may result in an Indemnified Liability. Leidos and New
SAIC agree that such cooperation shall include, without limitation, making
available to the other Party, during normal business hours, all books, records
and information, officers and employees (without substantial interruption of
employment) necessary or useful in connection with any such judicial or
administrative Proceeding. The Party requesting or otherwise entitled to any
books, records, information, officers or employees pursuant to this
Section 4.4(h) shall bear all reasonable out-of-pocket costs and expenses
(except reimbursement of salaries, employee benefits and general overhead)
incurred in connection with providing such books, records, information, officers
or employees.

(i) Supplemental Rulings. Leidos shall provide New SAIC a copy of and an
opportunity to comment upon any supplemental ruling sought from the IRS with
respect to the Ruling and no supplemental ruling request shall be made without
New SAIC’s consent if such supplemental ruling would materially expand New
SAIC’s indemnification obligations under Section 4.3.

SECTION 4.5. Protective Section 336(e) Elections.

(a) For New SAIC. Leidos and New SAIC shall make a protective election under
Section 336(e) (and any similar election under state or local law) with respect
to the External Distribution in accordance with Treas. Reg.
Section 1.336(e)-2(h) and (j) (and any applicable provisions under state and
local law) and shall cooperate in the timely completion and/or filings of such
elections and any related filings or procedures. This Section 4.5(a) is intended
to constitute a binding, written agreement to make an election under
Section 336(e) with respect to the External Distribution. In connection with
such election, Leidos shall make an election under Treas. Reg.
Section 1.1502-13(f)(5)(ii) with respect to the External Distribution.

 

12

--------------------------------------------------------------------------------

(b) For NewCo. In connection with the elections set forth in Section 4.5(a), New
SAIC and NewCo shall make a protective election under Section 336(e) (and any
similar election under state or local law) with respect to NewCo in accordance
with Treas. Reg. Section 1.336(e)-2(h) and (j) (and any applicable provisions
under state and local law), and Leidos, New SAIC and NewCo shall cooperate in
the timely completion and/or filings of such elections and any related filings
or procedures. This Section 4.5(a) is intended to constitute a binding, written
agreement to make an election under Section 336(e) with respect to NewCo.

ARTICLE V. MISCELLANEOUS

SECTION 5.1. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be made and delivered in conformity
with Section 11.6 of the Distribution Agreement.

SECTION 5.2. Amendment and Waiver. This Agreement may be terminated, modified or
amended at any time prior to the Effective Time by and in the sole discretion of
Leidos without the approval of New SAIC or the stockholders of Leidos. In the
event of such termination, no Party shall have any liability of any kind to the
other Party or any other Person. After the Effective Time, this Agreement may
not be terminated, modified or amended except by an agreement in writing signed
by Leidos, New SAIC and NewCo. No failure to exercise and no delay in
exercising, on the part of any Party, any right, remedy, power or privilege
hereunder shall operate as a waiver hereof or thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege.

SECTION 5.3. Entire Agreement. This Agreement shall constitute the entire
agreement between the Parties (which, for purposes of this Article V, shall
include NewCo) with respect to the subject matter hereof and shall supersede all
previous negotiations, commitments, course of dealings and writings with respect
to such subject matter.

SECTION 5.4. Assignment; Successors and Assigns. This Agreement shall not be
assignable, in whole or in part, directly or indirectly, by any Party hereto
without the prior written consent of the other Party (not to be unreasonably
withheld or delayed), and any attempt to assign any rights or obligations
arising under this Agreement without such consent shall be void. Notwithstanding
the foregoing, this Agreement shall be assignable in whole in connection with a
merger or consolidation or the sale of all or substantially all the assets of a
party hereto so long as the resulting, surviving or transferee entity assumes
all the obligations of the relevant party hereto by operation of law or pursuant
to an agreement in form and substance reasonably satisfactory to the other
parties to this Agreement. No assignment permitted by this Section 5.4 shall
release the assigning Party from liability for the full performance of its
obligations under this Agreement. The provisions of this Agreement and the
obligations and rights hereunder shall be binding upon, inure to the benefit of
and be enforceable by (and against) the Parties and their respective successors
and permitted transferees and assigns

SECTION 5.5. Severability. In the event any one or more of the provisions
contained in this Agreement should be held invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired

 

13

--------------------------------------------------------------------------------

thereby. The Parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

SECTION 5.6. Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the Laws of the State of Delaware without
reference to any choice-of-law or conflicts of law principles that would result
in the application of the laws of a different jurisdiction. Subject to the
provisions of Article IX of the Distribution Agreement, each of the Parties
irrevocably submits to the exclusive jurisdiction of (a) the Fairfax County
Circuit Court and any appeals courts thereof or (b) the United States District
Court for the Eastern District of Virginia and any appeals courts thereof (the
courts referred to in clauses (a) and (b), the “Virginia Courts”), for the
purposes of any suit, action or other proceeding to compel arbitration or for
provisional relief in aid of arbitration in accordance with Article IX of the
Distribution Agreement or to prevent irreparable harm, and to the non-exclusive
jurisdiction of the Virginia Courts for the enforcement of any award issued
thereunder. Each of the Parties further agrees that service of any process,
summons, notice or document by U.S. registered mail to such Party’s respective
address set forth in Section 11.6 of the Distribution Agreement shall be
effective service of process for any action, suit or proceeding in the Virginia
Courts with respect to any matters to which it has submitted to jurisdiction in
this Section 5.6. Each of the Parties irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement or the transactions contemplated hereby in the Virginia
Courts, and hereby further irrevocably and unconditionally waives and agrees not
to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.

SECTION 5.7. Waiver of Jury Trial. EACH OF THE PARTIES HEREBY WAIVES TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE,
AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 5.7.

SECTION 5.8. Counterparts. This Agreement may be executed in more than one
counterpart, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the Parties and delivered to each of the Parties.

SECTION 5.9. Third Party Beneficiaries. This Agreement is solely for the benefit
of the Parties and should not be deemed to confer upon third parties any remedy,
claim, liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.

SECTION 5.10. Force Majeure. No Party (or any Person acting on its behalf) shall
have any liability or responsibility for failure to fulfill any obligation
(other than a payment obligation) under this Agreement, so long as and to the
extent to which the fulfillment of such obligation is prevented,

 

14

--------------------------------------------------------------------------------

frustrated, hindered or delayed as a consequence of circumstances of Force
Majeure. A Party claiming the benefit of this provision shall, as soon as
reasonably practicable after the occurrence of any such event: (a) notify the
other applicable Parties of the nature and extent of any such Force Majeure
condition and (b) use due diligence to remove any such causes and resume
performance under this Agreement as soon as feasible.

SECTION 5.11. Double Recovery. Nothing in this Agreement is intended to confer
to or impose upon any Party a duplicative right, entitlement, obligation or
recovery with respect to any matter arising out of the same facts and
circumstances.

SECTION 5.12. Title and Headings. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.

SECTION 5.13. Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. This Agreement shall be construed
without regard to any presumption or rule requiring construction or
interpretation against the party drafting or causing any instrument to be
drafted.

[Remainder of page intentionally left blank]

 

15

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Parties and, solely with respect to Section 4.5(b),
NewCo, have caused this Agreement to be duly executed as of the day and year
first above written.

 

SAIC, INC. By:  

/s/ John P. Jumper

  Name:   John P. Jumper   Title:   Chief Executive Officer SAIC GEMINI, INC.
By:  

/s/ Anthony J. Moraco

  Name:   Anthony J. Moraco   Title:   Chief Executive Officer SAIC
INTERNATIONAL HOLDINGS, INC. By:  

/s/ Paul H. Greiner

  Name:   Paul H. Greiner   Title:   Secretary

 

16