Sallie Mae 2015 Annual Report Download - page 77

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Arrangements with Navient Corporation
In connection with the Spin-Off, the Company entered into a separation and distribution agreement with Navient. In
connection therewith, the Company also entered into various other ancillary agreements with Navient to effect the Spin-Off and
provide a framework for its relationship with Navient thereafter, such as a transition services agreement, a tax sharing
agreement, an employee matters agreement, a loan servicing and administration agreement, a joint marketing agreement, a key
services agreement, a data sharing agreement and a master sublease agreement. The majority of these agreements are
transitional in nature with most having terms of two years or less from the date of the Spin-Off.
We continue to have exposure to risks related to Navient’s creditworthiness. If we are unable to obtain indemnification
payments from Navient, our results of operations and financial condition could be materially and adversely affected.
Pursuant to the terms of the Spin-Off and applicable law, Navient assumed responsibility for all liabilities (whether
accrued, contingent or otherwise and whether known or unknown) arising out of or resulting from the conduct of pre-Spin-Off
SLM and its subsidiaries’ businesses prior to the Spin-Off, other than certain specifically identified liabilities relating to the
conduct of our consumer banking business. Nonetheless, given the prior usage of the Sallie Mae and SLM names by entities
now owned by Navient, we and our subsidiaries may from time to time be improperly named as defendants in legal proceedings
where the allegations at issue are the legal responsibility of Navient. Most of these legal proceedings involve matters that arose
in whole or in part in the ordinary course of business of pre-Spin-Off SLM. Likewise, as the period of time since the Spin-Off
increases, so does the likelihood any allegations that may be made may be in part for our own actions in a post-Spin-Off time
period and in part for Navient’s conduct in a pre-Spin-Off time period. We will not be providing information on these
proceedings unless there are material issues of fact or disagreement with Navient as to the bases of the proceedings or
responsibility therefor that we believe could have a material, adverse impact on our business, assets, financial condition,
liquidity or outlook if not resolved in our favor.
We briefly summarize below some of the most significant agreements and relationships we continue to have with
Navient. For additional information regarding the Separation and Distribution Agreement and the other ancillary agreements,
see our Current Report on Form 8-K filed on May 2, 2014.
Separation and Distribution Agreement
The Separation and Distribution Agreement addresses, among other things, the following ongoing activities:
• the obligation of each party to indemnify the other against liabilities retained or assumed by that party pursuant to the
Separation and Distribution Agreement and in connection with claims of third-parties;
• the allocation among the parties of rights and obligations under insurance policies;
• the agreement of the Company and Navient (i) not to engage in certain competitive business activities for a period of
five years, (ii) as to the effect of the non-competition provisions on post-spin merger and acquisition activities of the
parties and (iii) regarding “first look” opportunities; and
• the creation of a governance structure, including a separation oversight committee of representatives from the
Company and Navient, by which matters related to the separation and other transactions contemplated by the
Separation and Distribution Agreement will be monitored and managed.
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 substantially all claims that we
have submitted. Nonetheless, if for any reason Navient is unable or unwilling to pay claims made against it, our costs,
operating expenses, cash flows and financial condition could be materially and adversely affected over time.