Sallie Mae 2014 Annual Report Download - page 27

excluded in the Separation and Distribution Agreement. Some significant examples of the types of indemnification obligations
Navient has include:
• Pursuant to a tax sharing agreement, Navient has agreed to indemnify us for $283 million in deferred taxes that the
Company will be legally responsible for but that relate to gains recognized by the Company’s predecessor on debt
repurchases made prior to the Spin-Off. The remaining amount of this indemnification receivable at December 31,
2014 is $240 million.
• Navient has responsibility to assume new or ongoing litigation matters relating to the conduct of most pre-Spin-Off
SLM businesses operated or conducted prior to the Spin-Off.
• Under the terms of the Separation and Distribution Agreement, Navient is responsible for funding all liabilities under
the recently agreed upon regulatory orders with the FDIC and the Department of Justice, other than fines directly
levied against the Bank in connection with these matters. Under the Department of Justice order, Navient is solely
responsible for reimbursing SCRA benefits and related compensation on behalf of both its subsidiary, Navient
Solutions, Inc., and the Bank.
The Separation and Distribution Agreement provides specific processes and procedures pursuant to which we may submit
claims for indemnification to Navient and, to date, Navient has acknowledged and accepted all claims. Nonetheless, if for any
reason Navient is unable or unwilling to pay claims made against it, our costs, operating expenses and financial condition could
be materially and adversely affected over time.
We may not achieve some or all of the expected benefits of the Spin-Off, and the Spin-Off may adversely affect our business.
We may not be able to achieve the full strategic and financial benefits expected to result from the Spin-Off, or such
benefits may be delayed or not occur at all. The Spin-Off is expected to provide the following benefits, among others: (i) a
distinct investment identity allowing investors to evaluate the merits, performance, and future prospects of the Company
separately from Navient; (ii) separation of responsibility for most pre-Spin-Off activities of Old SLM from the Company (iii)
cash flows significantly in excess of preferred stock dividend and debt service obligations; (iv) more efficient allocation of
capital for the Company and Navient; (v) reducing the likelihood the Company is designated a systemically important financial
institution; and (vi) a separate equity structure that allows direct access by the Company to the capital markets and the use of
our equity for acquisitions and equity compensation. If we fail to achieve some or all of the benefits expected to result from the
Spin-Off, or if such benefits are delayed, the business, financial condition and results of our operations could be adversely
affected and the value of our stock could be impacted.
Sallie Mae and Navient will each be subject to restrictions under a tax sharing agreement between them, and a violation of
the tax sharing agreement may result in tax liability to Sallie Mae and to its stockholders.
In connection with the Spin-Off, we entered into a tax sharing agreement with Navient to preserve the tax-free treatment
of the separation and distribution of Navient. Under this tax sharing agreement, both we and Navient will be restricted from
engaging in certain transactions that could prevent the Spin-Off from being tax-free to us and our stockholders at the time of the
Spin-Off for U.S. federal income tax purposes. Compliance with the tax sharing agreement and the restrictions therein may
limit our near-term ability to pursue certain strategic transactions or engage in activities that might be beneficial from a business
perspective, including M&A transactions. This may result in missed opportunities or the pursuit of business strategies that may
not be as beneficial for us and which may negatively affect our anticipated profitability. If Navient fails to comply with the
restrictions in the tax sharing agreement and as a result the Spin-Off was determined to be taxable for U.S. federal income tax
purposes, we and our stockholders at the time of the Spin-Off that are subject to U.S. federal income tax could incur significant
U.S. federal income tax liabilities. Although the tax sharing agreement provides that Navient is required to indemnify us for
taxes incurred that may arise were Navient to fail to comply with its obligations under the tax sharing agreement, there is no
assurance that Navient will have the funds to satisfy that liability. Also, Navient will not be required to indemnify our
stockholders for any tax liabilities they may incur for its violation of the tax sharing agreement.
Risks Related to Our Securities
Our common and preferred stock prices may fluctuate significantly.
The market price of shares of our common stock may fluctuate significantly due to a number of factors, some of which
may be beyond our control, including:
• Actual or anticipated fluctuations in our operating results;
• Our smaller market capitalization as compared to pre-Spin-Off SLM;
• Changes in earnings estimated by securities analysts or our ability to meet those estimates;
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